FONFAIR CO LTD v. FULL CREATION DEVELOPMENT LTD

HCA 1915/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1915 OF 2008

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AND                                                                                     

HCA 835/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 835 OF 2009

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(Actions consolidated by Order of The Honourable Mr Justice Reyes dated 27 May 2009)

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J U D G M E N T

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INTRODUCTION

1.  By an agreement dated 20 September 2007 (the Lease), Fonfair let Premises in Yau Tong to Full Creation.  Fonfair alleges that Full Creation sub-let the Premises to On Kee or On Kee’s nominee.  Fonfair now sues Full Creation and On Kee for vacant possession of the Premises.  Fonfair also claims mesne profits from Full Creation and On Kee. 

2.  In the 2008 action, Fonfair says that the Lease was determinable upon the exercise of an Option granted by Fonfair to Mega Yield for a lease of the Premises.  It is Fonfair’s case that, Mega Yield having exercised the Option and Full Creation having been notified of that fact, Full Creation wrongly refused to leave the Premises.  Instead, Full Creation insisted (and maintains) that the Lease subsists.

3.  In the 2009 action, Fonfair says that (if its contentions in the 2008 action are wrong) Full Creation nevertheless breached the Lease by using the Premises contrary to a restriction in the head Government Lease; by becoming insolvent; by failing to pay rent in timely fashion; and by sub-letting the premises to On Kee. Fonfair contends that on one or more of the foregoing grounds it could treat the Lease as at an end and to re-enter the Premises.

4.  On 29 May 2009 Fonfair, finding the Premises apparently abandoned, re-took possession.  Full Creation argues that this re-entry constituted trespass and asks for specific performance of the Lease.  On Kee admits to being Full Creation's business partner.  But On Kee denies having sub-let the Premises from Full Creation.  On Kee says that it only ever entered the Premises as a visitor with Full Creation's permission.

II.      BACKGROUND

5.  The Government Lease restricts the Premises from being used “for any purpose other than shipbuilding and/or as a sawmill and timberyard”.  The Government Lease contains a standard clause entitling Government to re-enter the Premises if the restriction on user is breached.

6.  Fonfair has held the Premises from Government since the 1950s.

7.  In 2005 Fonfair applied on behalf of Vision Resources (then tenant of the Premises) for a temporary waiver of the user restriction. Accordingly, in October 2005, subject to the payment of a fee, Government granted a 1 year waiver (the Old Waiver).  This permitted the Premises to be used for the “storage of building materials and/or scrap metals and ancillary office (if any)”.  The Old Waiver was renewed annually until December 2008 by payment of a quarterly fee.

8.  Vision Resources wished to modify the Old Waiver to enable use of the Premises for the storage of waste paper, clothes and used plastic.  But, although discussed, no such extended waiver has ever been granted by Government.

9.  Vision Resources’ tenancy was supposed to end on 19 October 2008. But by agreement among Fonfair, Vision Resources and Full Creation, Vision Resources surrendered its tenancy early on 20 September 2007 and Full Creation took over as tenant under the Lease.

10.  The Lease contained the following terms:-

(1)     Clause 2.7.  A covenant by Full Creation not to sub-let the whole or part of the Premises without Fonfair’s written permission.  In the event of an unauthorised sub-letting, Fonfair could give notice that the Lease was terminated with the result that Full Creation “shall forthwith vacate from the said Premises”.

(2)     Clause 2.8.  A covenant by Full Creation not to breach any restriction in the Government Lease.  In the event of breach, Full Creation was to indemnify Fonfair against loss or damage in consequence.

(3)     Clause 2.11.  A covenant by Full Creation to use the Premises only for “such purposes as allowed and permitted in the relevant Government Lease”.  But this was always “subject to such consent or waiver issued by the Government if any”.  Any fees payable in respect of a waiver granted by Government were to be borne by Full Creation.

(4)     Clause 3.1.  A covenant by Fonfair for Full Creation to have quiet enjoyment of the Premises provided that Full Creation paid the rent and performed the other terms and conditions of the Lease.

(5)     Clause 4.1.  A provision entitling Fonfair to re-enter the Premises if rent is unpaid for 14 days; if Full Creation neglects to perform the terms and conditions of the Lease; if Full Creation goes into liquidation; if Full Creation “shall otherwise become insolvent”; or if Full Creation “shall suffer any execution to be levied on the ... Premises or otherwise on [Full Creation’s] goods.

(6)     Clause 4.2.  A provision entitling Fonfair to exercise its power of re-entry by giving written notice.  Such notice “shall be a full and sufficient exercise of such power without actual physical entry on the part of [Fonfair] notwithstanding any rule of law or equity to the contrary”.

(7)     Clause 4.4.  A provision stating that, acceptance by Fonfair of rent, “shall not be deemed to operate as a waiver ... of any rights against [Full Creation] in respect of a breach ... of any of [its] obligations”.

11.  The Lease was to expire in 4 years on 19 September 2011.  But this was subject to Special Conditions in Schedule 3 of the Lease.

12.  The Special Conditions included the following:-

“(1)   Special Condition (SC) 1:-

“[Full Creation] is fully aware of and acknowledges the following and fully accepts all the risks, implications and consequences associated therewith or arising therefrom that may impact on [its] intended use of the Premises and [its] general interests in this Tenancy Agreement and in particular that this Tenancy shall only take effect subject to the conditions set out hereunder:-

(a)     That the users of the said Premises as contained in the Government Leases are restricted to shipbuilding and/or as a sawmill and timber-yard.

(b)     That by a letter dated 19 April 2006, Government has granted waiver and permitted the said Premises to be used for storage of building materials and/or scrap metal with ancillary office (‘the Waiver’) which is also [Full Creation’s] intended use of the said Premises (‘the Intended Use’).  [Full Creation] further acknowledges that [it] has been provided a copy of the Waiver and is fully aware of the implications thereof.

....

(e)     That by another agreement (hereinafter referred to as ‘the Further Agreement’) already entered into between [Fonfair] and another prospective tenant (‘the Prospective Tenant’) information in respect of which [Fonfair] is obliged to keep confidential, [Fonfair] has agreed to grant another tenancy to the Prospective Tenant commencing from the date immediately after the expiry of the term under [Victory Resources’ Agreement] such that subject to requirements provided therein, including the requirement of obtaining the Government’s permit, consent or waiver by 30 September 2008 so as to allow the said Premises to be used for the user intended by the Prospective Tenant, the Prospective Tenant may at his option elect to enter into a tenancy agreement with [Fonfair] and take over the occupation of the Premises upon the expiry of the [Victory Resources’ Agreement].  In the event that the Prospective Tenant elects to exercise the said option right, [Fonfair] shall have the right, as provided herein, to terminate this Tenancy Agreement by giving notice in writing to that effect to [Full Creation] and [Full Creation] shall yield to [Fonfair] vacant possession of the Premises no later than 19 September 2008.

....”

(2)     SC 4:-

“It shall be the responsibility of [Full Creation] throughout the term of this tenancy to maintain and renew or procure the maintaining and renewal of the Waiver for the purpose of carrying on the Intended Use in the said Premises.”

(3)     SC 5:-

“(a)    [Full Creation] shall be solely responsible for and shall pay forthwith all ... fees or charges of whatsoever nature imposed by the Government for the maintenance or renewal of the Waiver upon demand by [Fonfair] or the Government.

(b)     [Full Creation] understands that the Waiver may be valid for such period as the Government may in her absolute discretion determine which may be shorter that the term of this tenancy subject to renewal and/or payment of fees from time to time....

....”

(4)     SC 6:-

“[Fonfair] at the request of [Full Creation] shall provide assistance to [Full Creation] to maintain or renew the Waiver as reasonably required by [Full Creation] Provided that [Full Creation] shall bear all costs and expenses reasonably incurred by [Fonfair] in providing such assistance and Provided That in no circumstances shall [Fonfair] be liable to [Full Creation] for the Government’s refusal to continue or renew the Waiver for whatsoever reason including but not limited to any reason in connection with the matter referred to in the said Government’s letter dated 7 September 2007 received by the Landlord.

(5)     SC 8:-

“In the event that [Full Creation] fails to renew the Waiver, or the Government for any reason whatsoever cancels, terminates, rescinds or refuses to renew the Waiver during the term of this tenancy, or [Full Creation] commits a breach of any of the terms and conditions imposed by the Government which has the effect of invalidating the Waiver, [Full Creation] shall without prejudice to any other rights and remedies of [Fonfair] herein:-

(a)     cease all operations or activities in the said Premises which constitute a breach of the user restrictions in the Government Leases forthwith upon demand by [Fonfair] in writing; and

(b)     indemnify [Fonfair] against any loss or damage which may be suffered by [Fonfair] as a result of such breach including but not limited to any penalties and/or fees imposed by the Government.”

(6)     SC 11:-

“Notwithstanding anything contained in this Agreement and without prejudice to the other rights and remedies of [Fonfair] provided elsewhere in this Agreement, upon [Fonfair’s] written notice to [Full Creation] of the Prospective Tenant’s compliance with the requirements under the Further Agreement and the signing of a new tenancy with the Prospective Tenant in accordance with the terms thereof, the term of this tenancy shall cease and determine on 19 September 2008 without any compensation to [Full Creation] and [Full Creation] must deliver up vacant possession of the said Premises to [Fonfair] on or before 19 September 2008.  In the event of [Full Creation’s] failure to do so, [Full Creation] shall be fully liable to indemnify [Fonfair] against any claim by the Prospective Tenant for any breach under the Further Agreement or the new tenancy created pursuant thereto as a result of [Full Creation’s] failure.”

13.  The “Waiver” mentioned in Schedule 3 was what I have here called the Old Waiver.  As far as other references in Schedule 3 are concerned, the Option was the “Further Agreement” and Mega Yield was the unidentified “Prospective Tenant”.

14.  The Option is in the form of an agreement dated 24 January 2007 between Fonfair and Mega Yield.  By the document, Mega Yield agreed to take a tenancy of the Premises subject to the terms in the Option.

15.  Among those terms were the following:-

(1)     Fonfair would consent to Mega Yield applying to the Town Planning Board for a permit to operate a concrete batching plant in the Premises.

(2)     Fonfair would consent to an application for a waiver of the user restriction in the Government Lease, to enable Mega Yield to operate a concrete batching plant in the Premises.

(3)     Mega Yield would enter into a 2-year tenancy agreement (the MY Lease) in terms annexed to the Option no later than 12 months after the date of the Option or within such extension (up to 30 September 2008) as Fonfair might grant upon Mega Yield’s request.

(4)     The envisaged 2-year tenancy would commence from 20 October 2008, the date when Fonfair was obliged to deliver vacant possession of the Premises to Mega Yield.  

(5)     If Mega Yield failed to execute the MY Lease within the time allowed, the Option would become null and void and all parties would be discharged from their liabilities.

(6)     Rent under the MY Lease would be at $170,000 per month “plus a royalty fee in the amount of the greater of $50,000 or the sum calculated at $5.00 per cubic meter times the number of cubic meters of concrete produced at the Premises during the relevant month”. 

(7)     The MY Lease also provided that the Premises would only be used as permitted by the Government Lease or by any waivers issued by the Government.

16.  On 16 January 2008 Mega Yield asked for an extension of the term within which the Option was to be exercised.  Fonfair agreed to extend the deadline for exercise to 30 September 2008.

17.  In the meantime, at Mega Yield’s request, Fonfair applied through RHL (surveyors) for a relaxation of the Government Lease, so as to permit use of the Premises for a concrete batching plant.

18.  On 18 June 1998 Government informed RHL that, in relation to the concrete batching plant permission, the:-

“basic term offer letter will be issued shortly after clearance of the comments raised by the Drainage Services Department and positive action taken regarding the Structure mentioned ... by your client”.

19.  On 8 August 2008 RHL advised Fonfair and Mega Yield by letter that it had received confirmation from the District Lands Office in Kowloon East that the concrete batching plant application “has been approved in principle”.  RHL’s letter stated that:-

“subject to the demolition ... of the unauthorized jetty and associated platform located at the seafront of the subject lots, the necessary paperwork would be prepared and submitted to the responsible District Lands Office for his review and formal approval”.

20.  On 9 September 2008 RHL informed Fonfair and Mega Yield of RHL’s understanding reached with the Government.  This understanding was that:-

“the proposed Short Term Waiver [for a concrete batching plant] bearing the in principle approval of [the District Lands Office/Kowloon East] has been submitted to the responsible District Lands Officer for his final review and formal approval”.

21.  On 6 September 2008 Mega Yield informed Fonfair that it would be executing the MY Lease pursuant to the Option.  This was actually done on 12 September 2008.

22.  By letter dated 12 September 2008 Fonfair’s solicitors notified Full Creation that Mega Yield had exercised the Option and the Lease was accordingly terminated.  The letter requested that Full Creation vacate the Premises by 19 September 2008.

23.  By letter dated 29 September 2008, no response having been received from Full Creation, Fonfair insisted that vacant possession be given by 16 October 2008. 

24.  By letter dated 29 October 2008 the District Lands Officer confirmed that Government was prepared to recommend a temporary waiver of lease conditions subject to certain terms.  The New Waiver was to enable the Premises to be used for concrete production.  The New Waiver would run for 2 years from 1 January 2009 and be renewable quarterly afterwards.

25.  Full Creation not having moved out of the Premises, the Writ in the 2008 action was issued on 4 October 2008.

26.  On 31 October 2008 Fonfair’s solicitors wrote to Full Creation complaining about contraventions of the restriction in the Government Lease.  The solicitors pointed out that the Premises were being used for trading, receiving, handling, processing and storage of waste paper and plastic material.  This was contrary to the negative covenant in the Government Lease as modified by the Old Waiver.

27.  By letter dated 11 November 2008 Fonfair said that, insofar as the Lease had not already been terminated, Fonfair was exercising its power of re-entry and ending the Lease.  The reason for this was Full Creation’s failure to stop the wrongful user of the Premises for the storage and handling of waste paper and plastic materials.

28.  On 15 November 2008 Mr Leung Yuet Keung, a director of Fonfair, visited the Premises.  He found that Full Creation had apparently ceased to do business there.  Full Creation, however, denies this.  It says that it had merely cleared the Premises in order to enable repairs to be done to its surface.

29.  Fonfair accepted the Government’s New Waiver on 27 November 2008.  On the same day Mega Yield paid a sum to the Government in consideration for the grant of the New Waiver.

30.  But, in light of Full Creation’s continued presence in the Premises and its avowed intention to continue using the same for storage and handling of waste paper and plastic material, in December 2008 Fonfair (through RHL) asked the Government for an extension of the validity of the Old Waiver and a postponement of the start of the New Waiver.  Government refused.  As far as Government was concerned, the Old Waiver came to an end on 31 December 2008 and the New waiver came into effect on 1 January 2009.  Fonfair informed Full Creation of this on 13 January 2009.

31.  By letter dated 18 March 2009 Fonfair’s solicitors complained that Full Creation was using the Premises for storage of waste paper, building materials, and scrap metal.  This (the letter said) was contrary to cl.2.8 of the Lease.  The solicitors also alleged that Full Creation had sub-let the Premises to a third party in violation of cl.2.7 and had entered into a composition with its creditors contrary to cl.4.1.  Fonfair required Full Creation to remedy these breaches, without prejudice to the contention that in any event the Lease had already been terminated.

32.  By letter dated 24 March 2009, Fonfair’s solicitors referred to the breaches alleged on 18 March 2009.  Stating that such breaches had not been remedied despite a reasonable time having passed in which to do so, the solicitors gave notice that Fonfair was exercising its power of re-entry on account of the breaches.

33.  On 31 March 2009 Mega Yield commenced an action against Fonfair for breach of the MY Lease.  Mega Yield’s case is that Fonfair repudiated the MY Lease by failing to deliver vacant possession of the Premises by an agreed extension date of 20 December 2008.  Mega Yield pleads that it has accepted Fonfair’s repudiation and seeks damages as a result.  Such damages include profits to be assessed; a total deposit of $740,000; $2,137,920 paid for the New Waiver; $614,720 paid for planning permission; and miscellaneous sums totalling more than $1,250,000.

34.  On 15 April 2009 Fonfair issued the Writ in the 2009 action.

35.  By a document dated 6 May 2009 (the On Kee Agreement), Fonfair and On Kee agreed to settle Fonfair’s claims against On Kee.  Mr Lo Yiu Chuen signed the On Kee Agreement on On Kee’s behalf and Mr Leung signed on behalf of Fonfair.  The On Kee Agreement recites that Full Creation “in effect sub-let the Premises to a third party (under the control of On Kee) who is now in possession of the Premises”.  On Kee agreed to deliver vacant possession of the Premises to Fonfair within 7 days.  The On Kee Agreement further provided for Fonfair to lease the Premises to On Kee in the event of Mega Yield not taking up the same.  On the other hand, if Mega Yield took up the Premises, Fonfair agreed to pay On Kee $700,000 in return for assistance in defending any claim brought by Full Creation against Fonfair.

36.  On Kee, however, failed to deliver vacant possession of the premises. Fonfair says that this was because Full Creation’s creditors were picketing at the entrance to the Premises in protest against Full Creation’s failure to pay them.

37.  On 29 May 2009, discovering an open side entrance to the Premises, Mr Leung entered the Premises.  No one appeared to be around.  He then secured the Premises for Fonfair which remains in possession until today.

38.  By letter dated 27 May 2009 Fonfair’s solicitors complained (without prejudice to Fonfair’s contention that the Lease was at an end) that Full Creation had failed to pay rent of $200,000.

III.     DISCUSSION

A.      The consequences of Mega Yield’s exercise of the Option

39.  The duration of the Lease was expressly subject to the exercise by Mega Yield of its Option.  On 6 September 2008 Mega Yield elected to exercise the Option.  It entered into the MY Lease for a tenancy in relation to the Premises on 12 September 2008.  Fonfair gave Full Creation written notice to that effect on the same date.  That notice terminated the Lease pursuant to SCs 1(e) and 11 of the same document.  At the latest, the Lease came to an end on 19 September 2008.

40.  It is difficult to see how Full Creation has any arguable defence against the foregoing analysis.  How then does Full Creation attempt to justify its stubborn refusal to vacate the Premises?

41.  According to Full Creation, Fonfair’s right to terminate the Lease arises if and only if 2 conditions are satisfied.  First, the Government must permit use of the Premises as a concrete batching plant.  Second, Mega Yield must enter into a tenancy agreement in the terms set out in the Option.  Further, a valid notice of termination from Fonfair for the purpose of SC 1(e) would (Full Creation says) need to certify Mega Yield’s compliance with the Option and its entry into a tenancy agreement.

42.  In his closing submissions, Mr George Chu (appearing for Full Creation and On Kee) stresses that the New Waiver only took effect on 1 January 2009. This is despite the fact (Mr Chu says) that SC 1(e) expressly requires the obtaining of “a permit, consent or waiver by 30 September 2008”.

43.  I see no justification for such a restrictive reading of SC 1(e). 

44.  First, I do not read SC 1(e) as stating that Mega Yield may only exercise the Option if Government grants permission to use the Premises for a concrete batching plant. 

45.  All that SC 1(e) says is that the Option stipulates terms or requirements (including terms or requirements in relation to the obtaining of permission for a Government waiver).  SC 1(e) does not tie Mega Yield’s election to execute the MY Lease to the obtaining of any waiver.  SC 1(e) merely summarises the Option’s terms in a succinct fashion.

46.  Nor does SC 1(e) require that Fonfair’s notice need say anything more than that Mega Yield has opted to enter into the MY Lease.

47.  Second, in any case, Government’s approval for the New Waiver was obtained in principle by 6 September 2008 (if not earlier).  This information was communicated by Mr Kevin Siu of RHL (who had been negotiating on Fonfair’s behalf with Government) to Mr Leung.  In light of that approval in principle (later formally confirmed by Government in writing on 29 October 2008), I do not think that Full Creation can seriously contend that its alleged first condition had not been met. 

48.  One approaches this matter from the standpoint of commonsense. It would be surprising if Government could, without more, suddenly go back on its approval (consent) in principle.

49.  As for the other of Full Creation’s alleged conditions, the fact is that Mega Yield did enter into the MY Lease with Fonfair on 12 September 2008. 

50.  I note that, insofar as Fonfair relies on SC 11, I believe that it is entitled to do so.  I do not accept Mr Chu’s strained reading of SCs 1(e) and 11 to the effect that the Lease would only be defeated by a tenancy agreement in exactly the same terms as the draft MY Lease annexed to the Option.  The MY Lease which Mega Yield signed on 12 September 2009 differed slightly from the draft MY Lease annexed to the Option.  Two clauses had been added to the executed MY Lease to cater for Full Creation’s wrongful continued occupation of the Premises.  Contrary to what Mr Chu suggests, I do not see how these 2 clauses mean that Mega Yield did not “comply” with the terms of the Option.

51.  It follows that there is no defence to the 2008 Action.  As at 19 September 2008 Fonfair was entitled to re-enter and take possession of the Premises.

B.      Fonfair’s alternative grounds for taking possession of the Premises

52.  In light of my conclusion in Section III.A, it is unnecessary to deal with Fonfair’s other grounds for re-entering the Premises.  However, for completeness, I propose briefly to set out my views on those grounds.

B.1    Wrongful user

53.  Photographs taken by Mr Leung show that, prior to 15 November 2008, in breach of the Government Lease as modified by the Old Waiver, Full Creation was using the premises for storing or handling waste paper and plastic materials. This was presumably with a view to recycling the same.  The waste paper and plastic materials were cleared from the Premises on about 15 November 2008.  According to Mr Lin Wei Zhong (Full Creation’s director) this was only done because Full Creation wished to re-surface the Premises.

54.  On 13 and 17 March 2009 Mr Leung again visited the Premises.  He noticed that they were being used for the purpose of storing waste paper, building materials and scrap metals.  Mr Leung took photographs of what he saw.  By this time, the Old Waiver had ceased to be valid, the Government having refused to extend the same in light of the grant of the New Waiver.  Accordingly, the Premises were plainly being used in a way which was contrary to the Government Lease as modified by the New Waiver.

55.  On 29 April 2009 Mr Leung again visited the Premises.  He once more saw piles of scrap metal, waste paper and plastic materials.  He again took photographs.  These photographs constitute further evidence that the premises were being used contrary to the Government Lease as modified by the New Waiver.

56.   Shown Mr Leung’s photos in the course of cross-examination, Mr Lin claimed to have no recollection of the scrap metal, bundles of waste paper and bundles of plastic materials shown there.  He was given every opportunity to explain away the photos.  But he could not do so.  In those premises, I consider the photographs to be strong evidence that at least between mid-March and late April 2009 the Premises were being used by Full Creation in a manner that violated the Government Lease.

57.  In my view, between 18 March 2009 (when Fonfair’s solicitors gave Full Creation the opportunity to rectify the wrongful user) and 24 March 2009 (when Fonfair’s solicitors gave notice of Fonfair’s exercise of a right of re-entry), a total of 6 days, Full Creation had more than enough time to stop its wrongful user of the Premises in contravention of the Government Lease.  Full Creation did not stop.  On the contrary, even by the time of the Writ in the 2009 action (mid-April 2009), piles of waste paper, scrap metal and building materials remained on the Premises. 

58.  Therefore, if I am wrong in my conclusion in relation to Mega Yield’s exercise of the Option, the Lease would have been determined on the ground of wrongful user (contrary to cl.2.8) as a result of Fonfair’s solicitors letter dated 24 March 2009.

59.  Mr Chu argues that, from the time when the Lease was executed, Fonfair must have known that Full Creation was using the Premises for recycling waste paper and plastic materials.  In other words, Fonfair would have known that Full Creation was conducting its business on the Premises in a manner contrary to the Government Lease (even as modified by the Old Waiver). 

60.  Mr Chu suggests that, on the evidence, Full Creation told Fonfair that it intended to use the Premises for a recycling business and that Fonfair did not object.  By accepting rent from Full Creation despite such knowledge, Fonfair (Mr Chu submits) tolerated the wrongful user and waived any breach of the Lease arising from the same.  In those circumstances, Fonfair (Mr Chu says) is estopped from complaining about the alleged wrongful user.

61.  In any event, it was most unlikely (Mr Chu submits) that Government would exercise its right of re-entry on the sole basis that Full Creation was operating a recycling business in the Premises.

62.  Finally, Mr Chu criticises Fonfair for not assisting Full Creation to apply for a renewal of the Old Waiver.  This is contrary (Mr Chu says) to cl.6 of the Lease.  Had the Old Waiver been renewed or extended, Full Creation would not have been in breach of the Government Lease (as modified) after 1 January 2009.

63.  I do not accept Mr Chu’s arguments.

64.  First, cl.4.4 of the Lease expressly provides that acceptance of rent is not to be treated as tantamount to Fonfair waiving any breach of the terms of the Lease.

65.  Second, I do not accept Mr Lin’s evidence that he told Mr Leung or anyone else at Fonfair about Full Creation’s intended use of the Premises for the purposes of a recycling business.  Mr Lin was not an impressive witness.  During cross-examination, he would habitually seek to deflect clear questions put to him by himself asking questions.  Pressed for an answer, he would typically respond that he could not remember.

66.  But let me assume that Mr Lin did say something to that effect.  I do not see how the making of any such statement by itself estops Fonfair from complaining about wrongful user by Full Creation.

67.  The Lease places the burden of obtaining the requisite Government permissions or waivers on Full Creation.  It may ask for Fonfair’s help.  But it is for Full Creation to initiate any discussion with Fonfair about obtaining permission.  On the evidence, Full Creation never asked Fonfair to apply for an extended waiver to enable it to store or process waste paper and plastic materials on the Premises.

68.  By all means Full Creation could carry out a recycling business on the Premises.  But that is provided it obtains the necessary Government permits.  If it wanted Fonfair’s help to obtain the same, then it had to approach Fonfair and specifically request Fonfair’s assistance.  It would not have been enough merely to tell Fonfair how it intended to use the Premises and then to assume that everything would take care of itself.  This is regardless of whether or not Fonfair made any particular objection at the time of Full Creation’s alleged statement.

69.  I find no evidence of any representation by Fonfair or any reliance on some representation by Full Creation.  There is no basis for Mr Chu’s estoppel argument.

70.  Third, the burden is on Full Creation to persuade the Court that wrongful user would not prompt the Government to re-enter.  No evidence in support of such contention was adduced.  I am not prepared on the material before me to regard the breach as so insignificant that in all likelihood Government would ignore the same.  On the contrary, it seems to me that Fonfair had a reasonable (as opposed to fanciful) basis for apprehending that Full Creation’s wrongful user could lead to Government re-entering the Premises.

71.  Fourth, there is no breach of cl.6. 

72.  The Old Waiver lapsed because (as SC 1(e) foreshadowed) Fonfair was bound to assist Mega Yield to apply for the New Waiver and the New Waiver was granted.  The Lease (as I have mentioned) terminated on 19 September in consequence of Mega Yield’s exercise of the Option. In those circumstances, I do not see how Fonfair was obligated to assist Full Creation to extend the Old Waiver beyond 31 December 2008. 

73.  Even if the Old Waiver had been extended, it would not have allowed Full Creation to store or handle waste paper and plastic materials in the Premises (as Full Creation was doing between mid-March and late April 2009).

B.2    Insolvency

74.  Fonfair has adduced evidence to the effect that Full Creation has failed to pay certain claims made against it.  Further, a creditor has made a statutory demand and recently filed a winding up petition against Full Creation.  The petition remains to be adjudicated upon by the Companies Court.

75.  Fonfair asks me to infer from all this that Full Creation is insolvent, in the sense of being unable to pay its debts as and when they fall due.

76.  But, on the totality of the evidence before me, I am not persuaded that Full Creation is insolvent. 

77.  Full Creation may or may not have good reason for paying the particular debts alleged by Fonfair.  It may (like many businesses) have refused to pay debts on time in a bid to eke out credit or earn interest from monies in the bank.  Businesses often refrain from paying debts for a variety of motives, good or bad.  Mere non-payment of alleged debts is an insufficient basis for me to infer here that Full Creation cannot actually meet its financial commitments.

B.3    Failure to pay rent

78.  Full Creation accepts that it has not paid rent since 19 May 2009.  This was due (Full Creation says) to Fonfair’s disturbance of Full Creation’s quiet enjoyment of the Premises.  Full Creation claims to be entitled to withhold rent by way of abatement against breaches by Fonfair of its obligations as landlord.  As instances of disturbance, Full Creation cites Mr Leung’s various “visits” referred to above (when Mr Leung took photographs) and Fonfair’s taking over the Premises on 29 May 2009.

79.  This is now an academic question.  Given my conclusion on Mega Yield’s exercise of the Option, rent ceased to be due from 20 September 2009. Instead, Full Creation became liable for mesne profits (damages) in respect of its continued wrongful occupation of the Premises. 

80.  It follows that there has been no breach by Fonfair of Full Creation’s right to quiet enjoyment under the Lease.  There has been no trespass by Fonfair at anytime.  Indeed, by cl.3.1, the right to quiet enjoyment is conditional on Full Creation’s observation of the terms of the Lease.

B.4    Unauthorised sub-letting

81.  I am not satisfied on the evidence that there has been a sub-letting by Full Creation to On Kee.

82.  Mr Leung said at trial that he inferred a sub-letting from the fact that On Kee seemed to be present and in control of the Premises.  But this is too nebulous and subjective a basis for me to infer that there has actually been a sub-letting to On Kee.

83.  Mr Harry Liu (appearing for Fonfair) relies on an On-Site Cooperation Agreement dated 23 February 2009 between Full Creation and Victory Coming.  This (Mr Liu suggests) shows that Full Creation permitted Victory Coming to occupy part of the Premises for a monthly “cooperation fee” of $150,000.  The “cooperation fee” was (Mr Liu argues) a euphemism for rent.  Mr Liu stresses that Victory Coming appears to be a company controlled by On Kee.

84.  Even if Mr Liu’s submissions in respect of Victory Coming are true, I do not think that I can pierce the corporate veil.  I do not think that the law allows me in this situation to attribute any trespass by Victory Coming on On Kee as shareholder. 

85.  Nor do I believe that it would be fair to make a finding in relation to Victory Coming as trespasser when it has not been joined as a party to these proceedings.  Fonfair’s pleading does not even specifically claim that there has been a sub-letting to Victory Coming (as opposed to On Kee).

86.  For the present purposes, it suffices to state that, given (as I have found) that the Lease has come to an end, any person (whether Victory Coming, On Kee or anyone else) claiming title under Full Creation will no longer have a right to remain on the Premises without Fonfair’s permission.

87.  I do not place any weight on the recitals in On Kee’s Agreement.  Taken at face value, On Kee there “admits” to a sub-letting to it by Full Creation.  But in the agreement Fonfair also promises On Kee a substantial sum of money ($700,000) for assisting Fonfair in court proceedings involving Full Creation.  In that case, I cannot say to what extent the “admission” in the On Kee Agreement is truly an admission made knowing all relevant facts or merely an attempt to further Fonfair’s case against Full Creation.

B.5    Summary

88.  It follows from the foregoing that Fonfair was entitled to regain possession of the Premises from 20 September 2008.

89.  In entering the Premises on 29 May 2009, Fonfair was merely carrying out what it was entitled to do.  Insofar as Full Creation or anyone else on the Premises was uncooperative or obstructive in relation to Fonfair’s attempt to re-enter, Fonfair was entitled to use non-violent measures of self-help.

90.  I should dismiss Fonfair’s claim against On Kee for insufficient evidence.  I also dismiss On Kee’s counterclaim which accuses Fonfair of trespass (while denying any interest in the land).  That counterclaim is untenable.

91.  I should also dismiss Full Creation’s counterclaim for specific performance.  In any event, Full Creation is not entitled to damages against Fonfair for trespass.

C.      Damages

92.  That leaves the question of Fonfair’s entitlement to mesne profits for Full Creation’s continued occupation of the Premises beyond 19 September 2008.

93.  Mr Liu claims damages under 3 heads.

94.  First, there are mesne profits for Full Creation’s unlawful occupation of the Premises between 20 September 2008 and 28 May 2009.  That comes to about 8¼ months. 

95.  Had Full Creation vacated the Premise as it ought to have done on 19 September 2008, Mega Yield would have likely moved in and paid a rent to Fonfair of $170,000 per month.  Therefore, Fonfair has lost $1,402,500 ($170,000 x 8¼).

96.  Mr Liu points out that the MY Lease contained a provision for the payment of at least $50,000 royalty per month.  Mr Liu asks for damages in relation to the lost royalty.

97.  But I do not think that the loss of royalty would have been reasonably foreseeable by Full Creation at the time of entering into the Lease as a likely consequence of breach.  Lost royalty strikes me as too remote a head of damage.

98.  Mr Liu also asks for disgorgement of the $150,000 monthly cooperation fee which Victory Coming paid to Full Creation.  Mr Liu suggests that Full Creation was unjustly enriched by such payment which depended on the continued unlawful occupation of the Premises by Full Creation.

99.  But this head of damage has nowhere been specifically pleaded.  As a result, unsurprisingly, the precise nature of the fee was not explored at trial.  Therefore, I do not think that it would be fair to award the fee to Fonfair on this ground alone. 

100.  I note that, in any event, I am sceptical of the merits of Mr Liu’s submission that there has been an unjust enrichment at Fonfair’s expense by reason of the payment by Victory Coming of a cooperation fee to Full Creation.

101.  Second, Mr Liu seeks additional damages equivalent to lost rent between 29 May 2009 and today (21 July 2009) and then thereafter for a period of 3 months. 

102.  The lost rent to today is because it was not possible in practical terms to let out the Premises until the Court’s resolution of Full Creation’s claim for specific performance of the Lease.  The further 3 months is to reflect the obvious fact that it will take time for Fonfair to find a new tenant for the Premises in mitigation of loss. 

103.  These components of additional damage are entirely reasonable and foreseeable.  Therefore, $807,500 ($170,000 x 4.75) should be added to the mesne profits already calculated to make $2,210,000 ($807,500 + $1,402,500).

104.  Against the last amount, Full Creation is entitled to set off the monies which it paid to Fonfair as purported “rent” between 20 September 2008 and 19 May 2009.  At $200,000 per month, this comes to $1,600,000.  Full Creation is further entitled to set-off 2 months’ rental deposit ($400,000) held by Fonfair.  In total, the set-off amounts to $2,000,000.

105.  Taking account of the set-off, one is left with a balance of $210,000 ($2,210,000 - $2,000,000) in Fonfair’s favour.

106.  Third, Mr Liu asks that Fonfair be indemnified against any sums found to be due from Fonfair to Mega Yield in the latter’s action against Fonfair. 

107.  Following the approach endorsed by the Court of Appeal in Wong Ho Wai Ying (trading as Eagle Industrial Co.) v. Yeung Shui Cheung (trading as Cheung Lee Trading Co.), Civ App No.128 of 1986, 24 February 1987, the outcome of Mega Yield’s action being currently unknown, the question of an indemnity should be adjourned sine die with liberty to Fonfair to apply later for further directions.  Mr Chu accepts this approach as a practical way of dealing with the question of indemnity.

IV.     CONCLUSION

108.  There will be the following orders and reliefs:-

(1) A Declaration that Fonfair was entitled to vacant possession of the Premises from 20 September 2008.

(2) An Order that Full Creation pay a balance of $210,000 to Fonfair, interest to run on such amount at the judgment rate from today until payment.

(3) The question of Fonfair’s entitlement to be indemnified by Full Creation in relation to Mega Yield’s claims is adjourned sine die.

(4) Full Creation’s counterclaim against Fonfair is dismissed.

(5) Fonfair’s claim against On Kee is dismissed.

(6) On Kee’s counterclaim against Fonfair is dismissed.

(7) There will be liberty to apply generally, including for directions on the question of indemnity.

109.  I shall now hear counsel on costs and any other consequential orders.