LAM SEE YAN v. SZE CHING LOK AND OTHERS

DCCJ3792/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3792 OF 2016

--------------------

--------------------

---------------------

DECISION

----------------------

1.  This is the plaintiff’s application by way of summonses under Order 19, rule 7 and Order 29, rule 12 of the Rules of the District Court ("the RDC").

2.  The issues that the court has been asked to decide are:-

(a) whether the plaintiff is entitled to possession of the premises in dispute on the ground that no defence has been filed and served by the 1^st and 2^nd defendants under Order 19, rule 7 of the RDC (“the Order 19, rule 7 summons”); and

(b) whether the plaintiff is entitled to interim payments for the arrears of rent of the premises under Order 29, rule 12 of the RDC (“the Order 29, rule 12 summons”). 

BACKGROUND

3.  The plaintiff is the executor of the late Madam Lam Hsu Tseng Chun (“the Deceased”) who was the registered owner of a building situated at No 523 Nathan Road, Kowloon, Hong Kong ("the Building").

4.  By a provisional tenancy agreement dated 3 May 2016 ("PTA"), the plaintiff as the landlord agreed to let Flat B on the 10th Floor of the Building (“the Premises”) to the 1^st and 2^nd defendants as tenant.  The Premises was a two-bedroom unit with a sitting room/dining room, a kitchen and a bathroom.  The PTA was for a period of 3 years commencing on 16 May 2016 and expiring on 15 May 2019.  The monthly rental was fixed at HK$20,800, inclusive of government rent, rates and management fee, payable on the 16^th day of each month. The tenant has the right of renewal for a further term of 2 years at a rent increase of 15%.

5.  Under Clause 4 of the PTA, the 1^st and 2^nd defendants shall pay the plaintiff a deposit of HK$41,600 (“the Deposit”). 

6.  Under Clause 9(1), the parties shall sign a formal tenancy agreement (“the FTA”) on or before 5 May 2016.

7.  Under Clause 11(1), in the event of a breach of the terms of the PTA, the plaintiff shall be entitled to forfeit the Deposit and re-let or use the Premises for other purpose.

8.  The plaintiff contends it was an implied condition of the PTA that:-

(a) the 1^st and 2^nd defendants shall not use or convert the Premises or any part thereof for any illegal or unlawful purposes;

(b) the plaintiff shall be entitled to forfeit the 1^st and 2^nd defendants’ tenancy and re-enter the Premises or any breach of condition of the PTA, whether express or implied; and

(c) the 1^st and 2^nd defendants shall not damage or carried out alternations of the Premises or alter the character of the Premises without the plaintiff’s consent.

9.  Pursuant to the PTA, the 1^st and 2^nd defendants paid a rental deposit of HK$41,600 and the first month rent at HK$20,800 in advance to the plaintiff.  On 3 May 2016, the plaintiff delivered and the 1^st defendant, acting on behalf of himself and the 2^nd defendant, took possession of the Premises.

10.  By an email to the 1^st defendant on 13 May 2016, Messrs Wong, Hui & Co, solicitors of the plaintiff (“the plaintiff’s solicitors”) sent a draft FTA for the defendants’ approval.

11.  It is alleged by the plaintiff that, since in or about mid-May 2016, the 1^st and 2^nd defendants have, wrongfully and in breach of the implied condition of the PTA, demolished some partition walls inside the Premises without the plaintiff’s consent.

12.  Further, by a letter dated 31 May 2016, the plaintiff’s solicitors reminded the 1^st and 2^nd defendants to comply with the obligation to sign the FTA by formulating proper amendment proposals for the plaintiff’s considerations within 7 days from the letter.

13.  By an email to the plaintiff’s solicitors on 3 June 2016, the 1^st and 2^nd defendants denied the obligation to sign a FTA.

14.  By a letter dated 16 June 2016 from the plaintiff’s solicitors to the 1^st and 2^nd defendants, the plaintiff had allegedly accepted the 1^st and 2^nd defendants’ repudiation of the PTA, demanded that 1^st and 2^nd defendants to handover vacant possession of the Premises to the plaintiff within 7 days from that letter.  They also requested the defendants to pay mesne profits or damages for the use and occupation of the Premises and damages done to the Premises.

15.  The plaintiff further alleged that the 1^st and 2^nd defendants were in breach of the implied conditions of the PTA in that they had, in addition to the wrongful demolition work, wrongfully built and/or installed partitions in the Premises, thereby converting the character as a single resident into about 10 cubicles or letting to multiple tenancy/occupied in contravention of the provisions of the Buildings Ordinance, Cap 123.

16.  According to the affirmation of Chan Ka Hay, an associate solicitor with the plaintiff’s solicitors, the 1^st defendant is the sole director and shareholder of the 2^nd defendant.  The 2^nd defendant is a limited company with a paid up share capital of HK$10,006 only.

The present proceedings

17.  The writ of summons, together with the statement of claim, in this action was issued on 1 August 2016.  They were served on the defendants on the same day.  By 2 separate acknowledgment of service filed with the registry on 9 August 2016, the 1^st and 2^nd defendants gave notice of intention to defend the matter.

18.  According to the plaintiff’s calculations, the defendants were supposed to file their defence and counterclaim on or before 19 September 2016, a matter which is not being disputed by the defendants.  No application had been made by the defendants for extension of time to file such documents. There was also no explanation as to why there was a delay in filing those documents.  On 8 October 2016, which was a Saturday, the defendants filed the respective the defence and counterclaim of the 1^st and 2^nd defendant at the registry without leave of the court.  They also purportedly tried to serve the same documents on the plaintiff’s solicitors by faxing the same to solicitors’ office on 8 October 2016.  However, the defence and counterclaim were not seen by the plaintiff’s solicitors until after the office resumed its business on Tuesday, 11 October 2016 (Monday, 10 October 2016 being a public holiday).

19.  The 2 defence and counterclaim are almost identical except in the 1^st defendant’s defence & counterclaim, he denies that he is a tenant of the Premises and only claims costs by way of counterclaim.

20.  On 26 September 2016, the plaintiff issued the Order 19 rule 7 summons seeking for judgment in default against the 1^st and 2^nd defendants.

21.  On 12 October 2016, the plaintiff issued the Order 29 rule 12 summons seeking for interim payment (in the event that the plaintiff is not able to obtain default judgment against the defendants).

22.  On 13 October 2016, the plaintiff’s solicitors filed the affirmation of Wong Pui Hon, alias David P H Wong, the senior partner of the firm, in anticipation of the fact that if the court allows the filing and service of defendants’ defence and counterclaim out of time, the plaintiff would also rely on a letter received from the Buildings Department written in Chinese dated 19 September 2016, confirming that there were unauthorized building works (“UBW”) at the Premises.

23.  On 14 October 2016, the hearing of the plaintiff’s summonses took place before me.

DISCUSSION

24.  Since the defendants have not filed the defence and counterclaim within the prescribed period after filing the acknowledgment of service (even though having had expressed an intention to defend the matter), the plaintiff in my judgment was perfectly entitled to issue the Order 19 rule 7 summons applying to court to enter judgment, after the expiry of the period for filing the defence.

25.  It was not until a few days before the hearing itself that the defendants have filed the respective defence and counterclaim but without leave of the court.  There was no affidavit or affirmation filed to explain why there was such a delay in filing the defence and counterclaim. Further, no summons has been taken out by the defendants to do so.

26.  Under Order 10 and Order 65 of the RDC, service cannot be effected by fax in the absence of any specific order for substituted service to such effect.  Thus, the purported service of the defence and counterclaim by the defendants on the plaintiff by fax on 11 October 2016 is not valid as a matter of law.   

27.  At the hearing itself, the 1^st defendant, who represented himself and the 2^nd defendant, tried to offer some explanations to explain the delay. In my judgment, they were no more than some lame excuses.  They were not accepted by the court.

28.  Having said the above, I am mindful of what has been stated in §19/7/4 on p 481 of the Hong Kong Civil Procedure 2017 in such situations:-

“Defence served after default – A defence served after expiration of the prescribed time but before judgment has been given cannot be disregarded, and will generally prevent the plaintiff from entering judgment, even though it is not served until after the plaintiff has served his summons or notice of motion for judgment under this rule, but the defendant may be ordered to pay the costs occasioned by his delay (Gill v Woodfin (1884) 25 Ch D 707, CA; Gibbings v Strong (1884) 26 Ch D 66, CA; cf, Graves v Terry (1882) 9 Q B D 170). In such a case, the court will have regard to the contents of the defence served out of time, and deal with the case in such a manner that justice can be done (Gibbings v Strong; Montagu v Land Corporation, etc (1884) 56 L T 730). This is the position even when a draft defence consisting of bare denials of the plaintiff’ case is handed to the court, without leave and out of time, upon the hearing of a plaintiff’s motion for judgment and a defendant’s cross summons for time to file its defence (see California Insurance Co Ltd v Choung Suk Wah (unrep, HCA 172/2002, [2002] H K E C 1184). The court may give judgment, but suspend it for a period, directing notice to be given to the defendant’s solicitor (Butterworth v Smallwood [1924] W N 82).”

29.  Hence, the court must be slow to enter judgment if a defence has been served even it is served without leave and even after the expiration of the prescribed time but before judgment has been given.  Further, the court must take into account of the contents of the defence and deal with the matter as justice would demand.

30.  In deciding this matter, I have also taken into the consideration the following passage of Cheung JA in the case of Chimbusco Pan Nation Petro-Chemical Co Ltd v The Owners and/or Demise Charterers of the Ship or Vessel ‘Decurion’ (unrep, CACV 198/2011 & CACV 214/2011 (31 January 2012; Hon Yeung VP, Cheung and Yuen JJA) where the Court of Appeal has emphasised that a court must considered “all the circumstances of the case” and not to confine the decision to the application of a universally applicable rule of thumb in such situations:-

“(1) It is clear that the applicable principle in deciding whether time should be extended is to look at all relevant matters and consider the overall justice of the case. A rigid mechanistic approach is not appropriate: see Nantong Angang Garments Co Ltd v Hellmann International Forwarders Ltd, CACV 64/2005. There are two conflicting principles at play. First, a party being required to observe the procedural rules, the default of which may result in judgment being entered against it. Second, a party should not be deprived of an adjudication on the merit due to a procedural default unless there is prejudice to the other party which cannot be compensated by costs. These two principles are not absolute. A rigid application of the first principle may lead to dismissal of actions without consideration of whether the defendant has been prejudiced by the default But, the Court has treated the existence of such prejudice to be crucial and often decisive. Likewise a rigid application of the second principle without exception may enable a wealthy litigant to flout the rules. The resolution to these two conflicting principles is to consider all the circumstances of the case and not confine the decision to the application of a universally applicable rule of thumb: see Costellow v Somerset Country Council [1993] 1 WLR 256, per Sir Thomas Bingham M R at 263.”

31.  Given the above principles, even though I did not find any of the defendants’ explanations for the delay in filing the defence and counterclaim creditable, having taken all the circumstances and the overall justice in the case into account, I cannot simply ignore the defence and counterclaim which were filed after the Order 19, rule 7 summons had been issued but before judgment was entered.

32.  Besides, at the hearing itself, the 1^st defendant, who was not represented, produced a receipt which was purportedly signed by the agent of the plaintiff one Madam Chan Lai Yue, who had received a sum of HK$41,600 in cash, which represented 2 months of rental of the Premises,  from the defendants.  Although it is not clear from whom the signature appeared on the receipt had come from, the person who allegedly paid the amount was clearly stated to the 1^st defendant himself and it was payment in relation to the Premises.  The date of receipt was dated 17 July 2016 which was within the term of the PTA itself.  A photograph of Madam Chan which was allegedly taken at the time when the Madam Chan had received the 2 months rental on behalf of the plaintiff (paid in cash) was also produced to the court at the hearing.

33.  Mr David Wong, who represented the plaintiff, in his reply to the 1^st defendant’s submission, stated to the court that he could recognize the lady in the photograph as Madam Chan, who is the person authorized to handle the affairs on behalf of the plaintiff while the latter is residing overseas.

34.  Given the aforementioned circumstances, in my judgment, there is at least an arguable defence to say that the 1^st and 2^nd defendants might have paid a sum of HK$41,600 to Madam Chan in her capacity as the agent of the plaintiff, with represented 2 months of rental of the Premises.  However, I note here that this is a matter which the plaintiff may dispute after the plaintiff’s solicitors have the opportunity to take instructions from their client.

The defendants’ purported defence & counterclaim

35.  The defendants’ purported defence and counterclaim mainly consisted of denials and non admissions.  Most of the matters raised in my view contain no real substance and therefore unlikely would be able to withstand an application for summary judgment.  Be that as it may, I think at least following issues raised by the defendants in the defence and counterclaim may contain some arguable points:-

(a) that the building itself can be used for commercial as well as residential purposes and therefore the conversion of use may not be contravening any terms of PTA;

(b) in the remarks column under the PTA, it has been specifically stated that the Premises “may be allowed for commercial use” （“可以商業用途”）;

(c) the lease was signed in the name of not only the 1^st defendant but the 2^nd defendant, a limited company which name suggested that it is into some kind of research or studies;

(d) the plaintiff, through her agent Madam Chan, might have allowed that the tenant to carry out renovation work for commercial purposes, which might have included “demolishing some partition walls” as alleged by the defendants.

36.  The plaintiff produced a letter in Chinese from the Buildings Department warning the owner/occupier of the Premises to reinstate the following items of unauthorised works which had been carried out in the Premises that were in contravention of the Buildings Ordinance:-

(1) the erection of the partition walls which caused insufficient space for fire escape; and

(2) the internal doors within the Premises were opening from the inside towards the corridor, hence obstructing the fire escape.

37.  However, as claimed by the defendants, these are works which could be rectified by the defendants and that, if rectified, may or may not amount to a breach of the PTA.

38.  Giving the above, I cannot say at this stage that the defendants’ defence is completely hopeless or without any reasonable grounds.  Further, based on the above citied authorities, I cannot simply ignore the contents of the defence even though they are served out of time and without leave.  Taken the whole circumstances into account and in the interest of justice, I consider that the court should afford to the defendants at least an opportunity to file their defence and counterclaim, subject to certain conditions which I would discuss under the Order 29 rule 12 summons below.

39.  In the circumstances, I would set aside the plaintiff’s Order 19 rule 7 summons and allow the defendants to file its defence and counterclaim within 14 days from today.  I would also give leave to the plaintiff to file its reply and defence to the counterclaim within 14 days thereafter.

40.  As to the costs of the summons, it is clear that the defendants chose to do nothing at all after filing their acknowledgment of service.  It was not until after the plaintiff had issued the Order 19 rule 7 summons on 26 September 2016 and a few days before the hearing itself that the defendants had bothered to act.  Under those circumstances, I do not see why the defendants should not pay the plaintiff’s costs on an indemnity basis as both the application and the hearing could be easily avoided had the defendants observed the time to file the defence and counterclaim.  I therefore will make an order that the 1^st and 2^nd defendants do pay the plaintiff’s costs of the Order 19 rule 7 summons on an indemnity basis.  Based on the statement of costs lodged by the plaintiff’s solicitors after the hearing and in view of the fact that the defendants had failed to respond to the same, despite having been directed to do so, I have summarily assessed the costs of this summons at HK$35,000. 

The Order 29 rule 12 summons

41.  For the application for interim payment under Order 29 rule 12, at the end of the hearing, I had made an order in terms reached by consent between the parties. 

42.  In making the consent order, the parties have taken into consideration the fact that the plaintiff, through her agent Madam Chan, might had received the sum of HK$41,600 as rental for 2 months plus another HK$1,700 being cost of the air-conditioners.

43.  Hence, subject to the 1^st and 2^nd defendants to file an affirmation to verify that Madam Chan had received HK$41,600 in cash from the 1^st and 2^nd defendants under the aforesaid circumstances on 17 July 2016, the following terms have been agreed by the parties:-

“(1) without prejudice to the plaintiff’s right to claim $43,300 as part of the means of rent and/or mesne profits for the period from 16 June 2016 to 15 August 2016, the 2^nd defendant do within 14 days from the date of order to be made herein pay the plaintiff a sum of HK$39,900 by way interim payments on/mesne profits on account of the 2^nd defendant’s use and occupation of the suit premises at Flat B on the Tenth Floor of No 523 Nathan Road, Kowloon, Hong Kong for the period from 16 August 2016 to 15 October 2016. Such interim payments/mesne profits to be paid by the 2^nd defendant by cheque to the plaintiff’s solicitors directly to be received on behalf of the plaintiff;

(2) the 2^nd defendant do further pay to the plaintiff HK$20,800 on the 16 day of each month from 16 October 2016 until final judgment by way of interim payments/mesne profits on accounts of the 2^nd defendant’s use and occupation of the suit premises by cheque to the plaintiff’s solicitors directly to be received on behalf of the plaintiff;

(3) the time for the service of this summons be abridged; and

(4) costs of this application be in the cause.”

Event occurred after the hearing

44.  On 28 October 2016, the plaintiff’s solicitors wrote to the court and reported the following events which took place after the hearing:-

(1) that despite the court order to ask the defendant to verify the alleged rental payment of HK$41,600 to the plaintiff represented Madam Chan by way of affidavit/affirmation evidence within 14 days, the defendants had failed to do so;

(2) that the cheque of HK$20,800 ordered to be paid by the defendants in purported payment of the interim payment on account of mesne profits/arrears of rent which fell due on 16 October 2016 for the period from 16 October 2016 to 15 November 2016 had been dishonoured upon presentation and was returned from the defendants’ paying bank.

45.  Further, on 1 November 2016, the plaintiff’s solicitors further wrote to the court and reported that the 2^nd defendant had failed to pay the sum of $39,900 to the plaintiff in compliance with the interim payment order. 

46.  As such, there were clear breaches of the terms of the Order I made at the end of the hearing on 14 October 2016 which was based on the agreement reached by the parties. 

47.  In my judgment, those breaches will clearly entitled the plaintiff to take out either distraint proceedings or an application for summary judgment.  However, it is a decision for the plaintiff to make upon taking legal advice from his lawyers.  It is not appropriate for this court to comment on these matters at this stage save to note them.  However, they will not alter my decision to grant leave to the defendants to file the defence and counterclaim as mentioned above.

CONCLUSION

48.  In conclusion, for the Order 19 rule 7 summons, I shall give leave to the 1^st and 2^nd defendants to file the defence and counterclaim dated 8 October 2016 out of time with an order of costs against them as stated above.

49.  For the Order 29 rule 12 summons, I had already given my decision at the end of the hearing and it is now up to the plaintiff to take whatever necessary actions he deems fit to enforce the order.