KING ROYAL LTD v. LAM KWAN YUK

CACV 140/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 140 OF 2005

(ON APPEAL FROM DCCJ No. 4617 OF 2002)

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REASONS  FOR  JUDGMENT

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Hon Ma CJHC:

1.  I agree with the Reasons for Judgment articulated by Barma J.

Hon Barma J:

2.  This was an appeal against an order of His Honour Judge Wong in the District Court made on 10 January 2005, by which he:-

(1) gave leave to the Plaintiff to abandon all its claims against the Defendant;

(2) gave the Plaintiff the costs of the main action in these proceedings incurred up to 23 June 2004, the date 14 days after the last notice of payment in by the Defendant in these proceedings;

(3) ordered the Plaintiff to pay the Defendant the costs of the Plaintiff’s application for leave to abandon its claims; and

(4) dismissed, with costs to the Plaintiff, an application by the Defendant seeking an order that the Plaintiff should not be entitled to tax its costs of the action pursuant to Order 62 rule 10(2) of the Rules of the District Court.

3.  The appeal before us took place over two days.  At the first hearing, on 23 November 2005, the Plaintiff appeared by its director, Mr Lee Tai Yan.  As we were of the view that the appeal was likely to turn on legal arguments rather than factual issues, we adjourned the appeal on the application of the Plaintiff in order to afford it an opportunity to instruct solicitors and counsel to represent it.  At the adjourned hearing on 26 January 2006, the Plaintiff was represented by Mr Jeremy Chan.  The Defendant was represented at both hearings by Mr Wallace Cheung.  At the conclusion of the hearing on 26 January 2006, we allowed the appeal and:-

(1) set aside the Order of His Honour Judge Wong dated 10 January 2005;

(2) made orders in terms of paragraphs 1 and 2 of the Defendant’s summons dated 1 September 2004;

(3) dismissed the Plaintiff’s summons dated 28 September 2004;

(4) ordered that the Plaintiff pay to the Defendant her costs of this appeal, costs of the application for leave to appeal and stay of execution before His Honour Judge Wong on 25 February 2005 with certificate for counsel, costs of all the applications before His Honour Judge Wong on 10 January 2005 with certificate for counsel, and costs reserved by Acting Registrar K.W. Wong on 28 September 2004, to be taxed [on the party and party basis] if not agreed; and

(5) ordered that the sum of HK$120,000 paid into court by the Defendant on 4 March 2005 be released to the Defendant.

We also indicated that we would hand down the reasons for our decision in due course.  This we now do.

4.  The proceedings concern a lease of premises at the Ground Floor, Cockloft and 1^st Floor of 200 Sha Tau Kok Road, New Territories, Hong Kong (“the Premises”), which had been leased by the Plaintiff from Kam Ming Enterprise Company Limited and Wai Lau Tin Ying (“the Landlords”) for an eight year term from 1 March 2000.  It appears that the Plaintiff operated a home for the elderly from the Premises.  In mid-June 2001, the Plaintiff entered into an agreement with the Defendant to transfer the business of the home to the Defendant.  According to the Plaintiff, it was also agreed under this agreement that the Plaintiff should sublet the premises to the Defendant at the same rent as the Plaintiff was required to pay to the Landlords, namely HK$20,000 per month until 29 February 2004, and HK$25,000 per month thereafter.  The Plaintiff says that the Defendant paid such rent only until 31 January 2002, after which she failed to make further payments of rent.

5.  As a result, the Plaintiff commenced these proceedings against the Defendant.  By its Amended Statement of Claim, the Plaintiff claims vacant possession of the Premises, arrears of rent (in the amount of HK$220,000 for the period up to 31 December 2002) and interest thereon, mesne profits at the rate of HK$20,000 per month from 1 January 2003 until delivery of vacant possession and an indemnity against any losses or damage which the Plaintiff might suffer as a result of the non-payment of rent or mesne profits.  The Plaintiff says that it has continued to pay rent to the Landlords under its lease.

6.  The Defendant’s case is that the agreement provided not for a sublease of the Premises to the Defendant, but an assignment to her of remaining term of the Plaintiff’s lease of the Premises.  She says that she is therefore under no obligation to pay any rent to the Plaintiff (who is, on her case, not her landlord), but is entitled to make payments of rent direct to the Landlords.  She says that the payments which she did make until the end of January 2002 were paid to the Plaintiff in her capacity as assignee, in the belief that the Plaintiff would pay them on to the Landlords on her behalf.  She also says that she has on more than one occasion offered to pay rent directly to the Landlords (who are, she says, willing to accept rent from her), but this offer has been declined by the Plaintiff.  She has counterclaimed for declarations that the lease with the Landlords was assigned to her and that the Plaintiff is not entitled to demand rent from her.

7.  It will be seen from the foregoing summary that the Defendant’s defence to the claim and her counterclaim are inextricably intertwined, and will stand or fall together.

8.  On 20 March 2003, Master K.W. Wong ordered the Defendant to make an interim payment of HK$280,000 (to cover the period from 1 February 2002 to 28 February 2003) and continuing payments at the rate of HK$20,000 per month thereafter pending the resolution of the proceedings.  The Defendant has complied with that order, although from March 2004 onwards, it has made monthly payments of HK$25,000.  On each occasion that a payment was made, it was accompanied by a letter from the Defendant’s solicitors making it clear that the payment was made without admission of liability, and without prejudice to the Defendant’s rights and interests.  In some of the letters, it was expressly stated that the payments were made only to comply with the 20 March 2003 order for interim payments.

9.  On 6 June 2003, the Defendant gave notice of payment into court of HK$280,000.  The notice described the payment in as follows:-

“The said sum of HK$280,000 is in satisfaction of the following causes of action in respect of which the Plaintiff claims, namely the arrears of rent and/or mesne profit from 1^st February 2002 to 30^th April 2003 ...”

The notice went on to state that the sum paid into court did not take the Defendant’s counterclaim into account.

10.  Just over a year later, on 9 June 2004, the Defendant gave notice of an increased payment into court, having paid in a further HK$16,240, describing the further payment in these terms:-

“The said further sum of HK$16,240.00 is in satisfaction of the cause of action of [sic] interest on arrears of rent in respect of which the Plaintiff claims ...”

The notice went on to state that the total sum paid in did not take the Defendant’s counterclaim into account.

11.  On 15 June 2004, the Plaintiff accepted the increased payment in, and gave the following notice of acceptance:-

“Take notice that the Plaintiff accepts the sum of HK$296,240.00 paid in by the Defendant ... in satisfaction of the following causes of action in respect of which the Plaintiff claims against the Defendant, namely arrears of rent in respect of the period from 1^st February 2002 up until 30^th April 2003 including interest thereon.”

12.  Thereafter, the Plaintiff sought to tax its costs of its action against the Defendant.  On 27 August 2004, it served notice of an appointment to tax with a call over hearing fixed for 28 September 2004.

13.  This prompted the Defendant to issue her summons dated 1 September 2004, seeking orders that the Plaintiff should not be entitled to tax its costs of the action pursuant to Order 62 rule 10(2) of the Rules of the District Court, and that the Plaintiff’s application for taxation of its costs of the action be dismissed.  In response, the Plaintiff issued its summons dated 28 September 2004, by which it sought leave to abandon its claims against the Defendant for vacant possession and loss and damage arising from the Defendant’s failure to pay rent or mesne profits (but not, apparently, its actual claim for mesne profits), and sought its costs of the action against the Defendant.  These were the applications that came before the judge below on 10 January 2005.

14.  At that hearing, the Plaintiff stated that it was prepared to abandon all its causes of action against the Defendant, saying that having received the interim payments up to date, it was content to proceed no further with its action, and to sue for future payments of rent if the Defendant should once again withhold payment of rent.  As noted in paragraph 3 above, the judge below acceded to the Plaintiff’s application, and dismissed that of the Defendant.  The judge’s reasoning appears from paragraphs 6 and 7 of his Reasons for Decision handed down on 25 January 2005:-

“6. By virtue of the payment into Court in satisfaction of the Plaintiff’s claim for arrears of rent and/or mesne profits and an additional payment into Court in satisfaction of the Plaintiff’s claim for interest [on] arrears of rent, the Defendant has acknowledged the Plaintiff as the landlord and is estopped from denying the Plaintiff’s title as landlord of the Defendant.  The Plaintiff is therefore entitled to rental be it by way of interim payment or for payment of rent.  Should the Plaintiff abandon mesne profits then should the Defendant fail to pay pursuant to the order for interim payment then a cause of action for non payment of rent accrued.

7. Counsel for the Defendant asked this Court to impose a condition should the application to abandon the action by the Plaintiff is granted.  I am not in a position to impose a condition in respect of a cause of action which has not accrued.  To satisfy the condition that the Plaintiff abandoned the other causes of action the Plaintiff now abandoned also the claim for mesne profits.  That is to say the Plaintiff now has abandoned all causes of action.  The counterclaim by the Defendant is another action which the Plaintiff is entitled to defend.”

15.  The reference in the latter paragraph to the imposition of conditions was a reference to a submission made by Mr Cheung to the judge below that the Plaintiff should only be allowed to abandon its claims against the Defendant on terms that it repay the monthly interim payments made and be prevented from pursuing the Defendant for future monthly payments.

16.  Mr Chan rightly did not seek to uphold the judge’s order on the basis of the judge’s reasoning.  The judge’s reasoning was clearly erroneous, proceeding as it did on the mistaken basis that the payments in could somehow be regarded as an admission of liability on the Defendant’s part.  It clearly could not be so regarded - so much is clear from, for example, paragraph 22/1/1 of Hong Kong Civil Procedure 2006.  Similarly, the judge’s supposition that the Defendant would continue to be obliged to make payments under the interim payment order after the Plaintiff had abandoned its claims against her was not well founded.  Interim payments are made on an interim basis, pending resolution of the action in which they are made.  On the abandonment of the Plaintiff’s claims against the Defendant, the action by the Plaintiff against the Defendant would come to an end, and the order for interim payments would lapse.  There would then be nothing to oblige the Defendant to continue making such payments to the Plaintiff.  It would also seem to follow that the interim payments already made should be repaid, as the action would have come to an end without a finding of liability on the part of the Defendant and there would thus be no basis on which the Plaintiff could claim to be entitled to retain them.

17.  Before us, Mr Chan made it clear that the Plaintiff only wished to dispose of its claims in respect of the period up to 30 April 2003, the period covered by the payment in.  He said that the Plaintiff was not giving up its claim to be the Defendant’s immediate landlord, and that if the Plaintiff were required to repay the interim payments which it had received, it would commence fresh proceedings to recover the same amounts as arrears of rent.  He also reiterated that the Plaintiff would pursue the Defendant for non-payment of rent in the event that she did not continue to make payments of HK$25,000 per month to the Plaintiff.

18.  He submitted, however, that the Plaintiff was nevertheless entitled to the order which it had obtained from the judge below, and that it was entitled to tax its costs of its action against the Defendant, leaving the Defendant to proceed with its counterclaim on the basis either of Order 62 rule 10(2) of the Rules of the District Court, or on the basis of the court’s inherent jurisdiction.

19.  Neither Order 62 rule 10(2) nor the inherent jurisdiction provides a sound basis for an order permitting the Plaintiff to tax its costs of the action.

20.  Order 62 rule 10(2) is in the following terms:-

“Where a plaintiff by notice in writing in accordance with Order 22, rule 3(1) accepts money paid into court in satisfaction of the cause of action or of all the causes of action in respect of which he claims, or accepts money paid in satisfaction of one or more specified causes of action and gives notice that he abandons the others, he shall be entitled to the costs of the action up to the time of giving notice of acceptance.”

21.  In the present case, it is clear from the Plaintiff’s notice of acceptance of payment in that the Plaintiff did not, when accepting the payment in, abandon all its other causes of action against the Defendant.  The notice of acceptance refers only to the cause of action for arrears of rent and interest thereon, and makes no mention of abandoning the remaining claims for vacant possession, mesne profits, and damages for failure to pay rent and/or mesne profits.  The notice of acceptance was not competent to bring Order 62 rule 10(2) into play.  Even when the Plaintiff issued its summons of 28 September 2004, it sought leave to abandon only its claims for vacant possession and damages for failure to pay rent and/or mesne profits, apparently leaving the claim for mesne profits alive.  It is therefore clear that Order 62 rule 10(2) was not engaged in this case, so as to give rise to a right on the part of the Plaintiff to recover its costs of the action from the Defendant immediately.

22.  Nor is it apparent why the Plaintiff should be allowed to recover its costs of the action from the Defendant at this stage under the inherent jurisdiction of the court.  There has been no adjudication of the merits of the Plaintiff’s claim.  Given that the Defendant’s counterclaim raises the same issues, such an adjudication will only take place after the counterclaim is heard and disposed of.  In these circumstances, it does not seem just that the Defendant should be required to pay the Plaintiff’s costs of the action up to the date of acceptance of the payment in, when the Defendant has made no admission as to its liability to the Plaintiff, and indeed continues to deny such liability by proceeding (as it has done) to prosecute its counterclaim.  There is therefore no basis on which the court could properly exercise its inherent jurisdiction to make the costs order sought by the Plaintiff.

23.  Moreover, if the Plaintiff were truly to have abandoned all of its causes of action against the Defendant, the consequences might well be that the Defendant would have an unanswerable counterclaim, and that any attempt by the Plaintiff to make fresh claims for future rent (or arrears arising upon the repayment of the interim payments it had received) would be (to put it no higher) at risk of being struck out as an abuse of process, an action dealing with the same subject matter having previously been commenced and abandoned.

24.  Mr Chan also submitted that it would be unjust or unsatisfactory if a plaintiff with a claim for continuing payments were faced with a payment in covering a limited period, and could not accept it and abandon the rest of the claim so as to obtain its costs of the action without running the risk of being shut out from re-litigating the matter in respect of payments for the period after that covered by the payment in.  However, there is no injustice in such a situation.  Such a plaintiff can always accept the payment in so far as it goes and carry on with his claim (be it for a declaration of liability or otherwise) in respect of future payments.  If he does so, there is no reason why he should be entitled to his costs of the entire action to date, since the action will still have to be tried and determined in order to establish his entitlement to the balance of the relief claimed, since no admission as to such entitlement would arise from the making of the payment in.  If such a plaintiff wishes to have his costs of the action without having to litigate it,  there would not seem to be any injustice in requiring him to run the risk of being unable to litigate the same question in future, when he could have had it decided in the abandoned proceedings had he wished to do so.

25.  There is therefore no basis on which the order giving the Plaintiff its costs of the main action in these proceedings can be upheld.

26.  Further, in the light of Mr Chan’s clarification of the Plaintiff’s position, it does not seem that the Plaintiff is in fact seeking to abandon all of its causes of action against the Defendant, and there is therefore no basis on which the order below giving such leave can or should be upheld.

27.  I would just add that, faced with the difficulties identified above, Mr Chan sought to suggest as an alternative that the Plaintiff should be given leave to amend its claim in these proceedings so as to restrict its claim to a claim for arrears of rent up to 30 April 2003, thus rendering the payment in one in respect of the whole of the Plaintiff’s claims in the action.  However, Mr Chan did not pursue this approach on being informed that any such application, if granted, might well be granted only on the basis of the imposition of terms preventing the bringing of any fresh action.

28.  For these reasons, we allowed the Defendant’s appeal, and made the orders set out at paragraph 3 above.