CANTAKE LTD v. ELITE BOXING AND FITNESS LTD

DCCJ 3973/2022

[2023] HKDC 1862

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3973 OF 2022

________________________

________________________

————————

DECISION

————————

1.  The dispute arose out of the early termination of the tenancy agreement of the commercial premises on 13/F (including the roof) of Fung Woo Centre, 279 Des Voeux Road Central, Central (“the Premises”). The plaintiff was the landlord (“the Landlord”), and the defendant was the tenant (“the Tenant”). The Landlord commenced these proceedings to recover rent in arrears and the damage suffered as a result of the early termination of the tenancy agreement.

2.  By a summons dated 7 March 2023, the Landlord applies for summary judgment for, amongst other things, the rent in arrears and further damages to be assessed, and the Tenant’s counterclaim be struck out on the ground that it is scandalous, frivolous or vexatious and/or otherwise an abuse of the process of the court. The application came to be heard by Master R Ho on 18 July 2023. The learned master granted the application, and final judgment was entered in favour of the Landlord for the sum of HK$541,019.35 with interest, and the Tenant’s counterclaim was struck out. Further, the costs of the action were awarded to the Landlord, which was summarily assessed at HK$60,000.

3.  By a notice of appeal dated 2 August 2023, the Tenant appealed against the master’s decision. By a further summons taken out on 14 August 2023, the Tenant applies for a stay of execution of Master Ho’s order dated 18 July 2023. The Tenant’s appeal and summons for a stay of execution are before this court. At the end of the hearing, I dismissed the Tenant’s application for a stay; reasons for my decision are now set out in Part G of this decision.

A.  HOUSEKEEPING MATTERS

Exclusion of further affidavits filed without leave of the court

4.  For the hearing before Master Ho on 18 July 2023, the Landlord filed an affirmation of Tsui Tack Kong dated 7 March 2023 in support, and the Tenant filed the Affidavit of Chen Wai Yui Anne (“Ms Chen”) dated 18 April 2023 in opposition. In reply, the Landlord filed the Affirmation of Chong Pui Wah (“Ms Chong”) on 19 May 2023. Those were the affirmations/‌affidavits before and considered by Master Ho.

5.  Subsequent to the issue of the Notice of Appeal, without leave of the court, the Tenant filed and served two further affidavits (dated 2 August 2023 and 14 August 2023 respectively) in support of its appeal. At the hearing, Counsel for the Landlord took objection to the said additional affidavits on the basis that either (a) the new matters contained therein could have been adduced in the Tenant’s affidavit in opposition dated 18 April 2023, which the Tenant failed to do without explanation or justification, or (b) the new matters contained therein are irrelevant.

6.  Faced with the Landlord’s objection, Ms Chen, who is the director of the Tenant company representing the Tenant at the hearing, confirmed to the court that she would not rely on the said further affidavits for the appeal. I therefore disallowed any reliance on the said affidavits and proceeded with the hearing on the basis of the original affirmations/‌affidavits placed before Master Ho on 18 July 2023.

Notice of Appeal was issued out of time

7.  The order of Master Ho was made on 18 July 2023. Pursuant to Order 58, rule 1(3) of the Rules of District Court (“RDC”), the notice (of appeal) must be issued within 14 days after the judgment, order or decision appealed against was given or made, ie in this instance on or before 1 August 2023. The Tenant’s notice of appeal was therefore issued one day out of time.

8.  Upon the application of the Tenant, with no objection from the Landlord, leave was granted to the Tenant for the issue of its notice out of time.

B.  BACKGROUND AND RELEVANT FACTS

9.  The Premises comprise both the 13^th floor and the roof of Fung Woo Centre at 279 Des Voeux Road, Central.

10.  On or about 14 March 2021, the Tenant’s representatives, including Ms Chen, visited the Premises and expressed interest in renting the Premises to set up a fitness centre or sports facility therein. Negotiation between Ms Chen (acting on behalf of the Tenant) and the Landlord’s agent, Ms Chong, on the detailed terms of the intended tenancy agreement then ensued from 14 March 2021 to 19 March 2021. As observed, the negotiation of the terms was conducted largely through WhatsApp messaging.

11.  The following facts and exchanges regarding the terms of the intended tenancy agreement between the parties during the said period are significant and important for the construction of the tenancy agreement.

(1)  After the Tenant expressed interest in renting the Premises, the Landlord forwarded a copy of a draft tenancy agreement to Ms Chen for her comments.

(2)  On or about 16 March 2021, by way of comment, Ms Chen suggested adding a term for suspension of rent during the closure of operation caused by the pandemic in the following terms: “Clause 20 f. 如因任何非租客責任的外來因素(包括疫情需要停業)以致租客需要停止營業，該段時間不需要交租(英文版本見附件)”

(3)  On 17 March 2021, in response to such specific request, Ms Chong relayed to Ms Chen the Landlord’s rejection of the inclusion of such terms in the tenancy agreement as follows: “這點業主真係不會接受，我已經問過了” (“First Rejection”)

(4)  A few hours later on the same day (ie on 17 March 2021), Ms Chen proposed the following alternative terms (of similar effect) for the Landlord’s consideration: “e. 如因任何非租客責任的外來因素(包括疫情需要停業)以致租客無法正常營業，業主及租客將合情合理商議減免租金。如這持續超過一個月，租客有權給予一個月通知提前終止此租約。” This was also rejected by the Landlord at 6:12 pm: “e 這個業主不接受” (“Second Rejection”)

(5)  At 7:44 pm of the same day, Ms Chen proposed to the Landlord the following terms in English: “If the Premises or the building or any part thereof shall at any time during the tenancy be destroyed or damaged or become unfit for occupation or operation not due to any default of the Tenant but owing to fire earthquake subsidence of the ground or Acts of God or government and ,…, then the rent hereby reserved or a fair proportion thereof according to the nature and extent of the damage sustained or order made shall after the expiration of the then current month be suspended until the Premises or Building shall again be rendered fit for occupation or operation…” (emphasis added)

(6)  On 18 March 2021 at 1:05 pm, Ms Chong specifically relayed to Ms Chen the Landlord response to the proposed English terms, in which the Landlord crossed out the reference to “or government” contained therein: “If the Premises or the building or any part thereof shell at any time during the tenancy be destroyed or damaged or become unfit for occupation or operation not due to any default of the Tenant but owing to fire earthquake subsidence of the ground or Acts of God or government and ,…, or if at any time during the continuance of this Tenancy the Premises or the Building shall be condemned as a dangerous structure or a demolition order or closing order shall become operative in respect of the Premises or the Building then the rent hereby reserved or a fair proportion thereof according to the nature and extent of the damage sustained or order made shall after the expiration of the then current month be suspended until the Premises or Building shall again be rendered fit for occupation or operation…” (“Third Rejection”)

12.  Following the said exchange, the formal tenancy agreement was executed between the parties on 19 March 2021 (“the Tenancy Agreement”). The Tenancy Agreement contains, amongst others, the following terms:

(1)  The Tenant shall not use or permit to be used the Premises or any part thereof for any purpose other than for Commercial purpose only (Clause 1);

(2)  The Premises was let for a fixed term of 2 years from 8 April 2021 to 7 April 2023 (both days inclusive);

(3)  The monthly rent of HK$52,800 (inclusive of Government Rates, Government Rent and Management Fee) is payable in advance on the 1^st day of each month during the term of the tenancy (Clause 2);

(4)  If the Tenant shall fail to pay the rent within 7 days from the due date, the Landlord shall have the right to institute appropriate action to recover the rent and all costs, expenses and other outgoings, etc (Clause 2);

(5)  If the rent payable by the Tenant shall be unpaid for 15 days after the same shall become payable, it shall be lawful for the Landlord at any time thereafter to re‑enter the Premises whereupon the Tenancy Agreement shall absolutely determine (Clause 12);

(6)  The Security Deposit required is HK$158,400, which is made for the due observance and performance of the terms and conditions contained in the Tenancy Agreement and on the Tenant’s part to be observed and performed. The Landlord shall refund the Security Deposit to the Tenant without interest within 14 days from the date of delivery of vacant possession of the Premises to the Landlord or settlement of any outstanding payment owed by the Tenant to the Landlord, whichever is the later (Clause 12); and finally,

(7)  Clause 20 – Suspension of Rent in case of Fire etc:

“If the Premises or the Building or any part thereof shall at any time during the tenancy be destroyed or damaged or become unfit for occupation or operation not due to any default of the Tenant but owing to the fire earthquake subsistence of the ground or Acts of God and ,…, or if at any time during the continuance of this Tenancy the Premises or the Building shall be condemned as a dangerous structure or a demolition order or closing order shall become operative in respect of the Premises or the Building then the rent hereby reserved or a fair proportion thereof according to the nature and extent of the damage sustained or order made shall after the expiration of the then current month be suspended until the Premises or Building shall again be rendered fit for occupation or operation…”

It is noted that Clause 20 of the Tenancy Agreement contains the same terms agreed by the Landlord on 18 March 2021 (ie without the reference to “government”).

13.  Notably, the parties entered into the Tenancy Agreement amid the Covid‑19 pandemic.

14.  The Tenant started to default on payment of rent in January 2022. Incidentally, due to the surge of Covid‑19 cases, the Hong Kong Government ordered the fitness centres and sports premises in Hong Kong to close from 7 January 2022 and 20 April 2022 (“Lockdown”).

15.  From January 2022 to August 2022, despite the Tenant’s failure to pay rent, the Landlord continued to issue monthly debit notes for rent payment to the Tenant on a regular basis. However, no payment was made by the Tenant until 9 June 2022, when the Tenant issued a cheque of HK$52,800, which is equivalent to one month of rent.

16.  The Landlord applied the said payment in settlement of the outstanding rent for the month of January 2022. The Tenant, however, asserted that as they were entitled to rent-free during Lockdown, the said payment was actually made for settlement of the rent in May 2022. The Landlord disagreed, saying that it had never agreed to the suspension or reduction of rent during Lockdown.

17.  The Tenant made no further payment for the months of July and August 2022.

18.  By a letter dated 15 July 2022, the Landlord reiterated that it did not agree to the Tenant’s request for a rent reduction or suspension and requested the Tenant to settle the outstanding rents owed for February to July 2022, which stood at a total sum of HK$316,000.

19.  By a letter in response dated 25 July 2022, the Tenant referred to Clause 20 of the Tenancy Agreement and asserted that rent-free during Lockdown was “legal, reasonable and acceptable”. In it, the Tenant further stated,

“As we informed you prior to signing the Agreement, our previous landlord was reasonable, was willing to support youths and social enterprise, and gave us rent-free during Covid closures. We discussed and it was mutually agreed that Clause 20 was to be added to the Tenancy Agreement. It was also understood between the parties of the Tenancy Agreement that this clause could be invoked in the case that the COVID situation in Hong Kong would worsen and lead to a closure of the Premises.

We requested several times that you act reasonably, and gave us rent-free during closure period. HK Government also encouraged landlords … to support social enterprises. … We were under the impression all along (since the signing of the Tenancy Agreement) that you as the Landlord could and would give us a rent-free period during the closure period pursuant to Clause 20 of the Tenancy Agreement.”

20.  In the same letter, the Tenant requested a ‘mutual termination’ of the Tenancy Agreement and gave notice to surrender the Premises to the Landlord on or before 10 August 2022.[1]

“… we have no choice but hereby give notice to you requesting for a mutual termination of the Tenancy Agreement and that we are to surrender the Premises to you on or before 10 August 2022.”

21.  On 2 August 2022, the Landlord’s solicitors requested the Tenant to settle the outstanding rent of HK$316,800 within 7 days, failing which legal proceedings would be instituted to forfeit the Tenancy Agreement and to recover possession of the Premises without further notice.

22.  On 9 August 2022, ie the day before the Tenant’s proposed deadline for surrendering the Premises, the Tenant’s solicitors replied, referring to Clause 20 of the Tenancy Agreement and suggesting a further agreement between the parties that Clause 20 could be invoked in the event of Lockdown. It also asserted, amongst other things, that Landlord’s demand for rent during the Lockdown constituted a repudiatory breach of the Tenancy Agreement on its part; and if the Landlord commenced proceedings against the Tenant, its client would counterclaim for damages, loss, costs and expenses arising from the Landlord’s wrongful termination of the Tenancy Agreement.

23.  However, by way of a without prejudice letter also dated 9 August 2022[2], the Tenant’s solicitors proposed settling with the Landlord. The proposed terms of settlement are set out in paragraph 63 below.

24.  On 10 August 2022, the property agents of Conehead & Sumpy, Ms Chong and Ms Geraldine Liu, collected the keys to the Premises from the Tenant’s representatives. The Premises was thus surrendered by the Tenant to the Landlord.

25.  On 11 August 2022, the Landlord placed the Premises on the market for rent by engaging two property agencies, namely Conehead & Sumpy and Midland Commercial Limited. The Landlord also put advertisements for the Premises for rent on “28Hse” website. Several enquiries from interested parties were received.

26.  Eventually, the Premises was rented to Morii Bar on 6 February 2023 for the period from 8 March 2023 to 7 March 2026 at a monthly rent of HK$50,000, ie HK$2,800 per month less than the rent payable by the Tenant under the Tenancy Agreement.

27.  The above facts are largely undisputed.

C.  THE PARTIES’ CASE

The Landlord’s claim

28.  It is the Landlord’s case that the Tenant was in repudiatory breach of the Tenancy Agreement by failing to pay rent since 1 February 2022 and surrendering the Premises on 10 August 2022 before the expiry of the term of the tenancy. By retaking possession of the Premises on 10 August 2022, the Landlord accepted the Tenant’s repudiation, thereby terminating the Tenancy Agreement.

29.  The Landlord therefore claims the following loss and damage:

(1)	Rent in arrears for the period from 1 February 2022 to 10 August 2022 at HK$52,800/month	HK$333,832.25[3]
(2)	Damages for loss of rental income from 11 August 2022 to 7 April 2023, comprising: (a)  Complete loss of rental income for the period from 11 August 2022 to 7 March 2023 (at HK$52,800/month), in the sum of HK$362,787.10[4]; and (b)  Reduction in rental income for the period from 8 March 2023 to 7 April 2023 (at HK$2,800 per month) in a total sum of HK$2,800	HK$365,587.1
(3)	Credit for the Security Deposit forfeited	-HK$158,400
	Net loss and damage suffered	HK$541,019.35

The Tenant’s pleaded defence and counterclaim

30.  The Tenant has been acting in person, both at the pleading stage and at the hearing before Master Ho. What can be discerned from the Tenant’s Defence and Counterclaim dated 28 November 2022 (“DCC”) and Affidavit of Ms Chen dated 8 April 2023 (filed in opposition to the Landlord’s application) are the following three lines of defence:

(1)  As a matter of construction, the restriction in the operation of the Tenant’s business imposed by the Government during Lockdown falls within the meaning of ‘Acts of God’ under Clause 20, whereby the Tenant’s obligation to pay rent under the Tenancy Agreement was suspended (“the Construction Defence”)[5].

(2)  During the negotiation of the Tenancy Agreement, the parties agreed that Clause 20 of the Tenancy Agreement could be invoked in the event that the Tenant’s business operation was suspended as a result of the implementation of COVID‑19 lockdown measures in Hong Kong (“Collateral Agreement Defence”)[6].

(3)  The Landlord, by its action or that of its agent, misrepresented to the Tenant that by surrendering the Premises to the Landlord on 10 August 2022 and allowing forfeiture of the Security Deposit, the matter would be ‘put to rest’, which the Tenant understood it to mean no more claim would be raised against the Tenant in respect of the rent in arrears and by reason of the early termination of the Tenancy Agreement. In reliance on the said representation, the Tenant surrendered the Premises on 10 August 2022. In the circumstances, the Landlord is estopped from making the present claims (“Settlement/‌Misrepresentation Defence”)[7].

31.  Further, by way of counterclaim, the Tenant seeks to recover from the Landlord its loss and damage suffered. However, it is to be noted that the alleged loss suffered in terms of improvement and renovation costs, loss of business and social opportunities are not particularised by the Tenant.

D.    LEGAL PRINCIPLES ON APPEAL AND SUMMARY JUDGMENT

32.  An appeal against a master’s decision before a judge is by way of rehearing. The judge considers the matter afresh. Where the master has given a written decision, this court may but is not obliged to adopt his reasoning in the present consideration.

33.  Concerning summary judgment application, the principles are trite. While it is the burden of the plaintiff to prove its claim, the defendant has the burden of condescending upon particulars and raising issues of a credible defence that should go to trial or alternatively any other reason that the case ought to go to trial: see O 14, r 3 & r 4, Rules of District Court (“RDC”); Hong Kong Civil Procedure 2023 (Vol 1) (“HKCP”) at §§14/4/8-14/4/12 & 14/4/21.

E.  THE TENANT’S DEFENCES ARE INCREDIBLE AND/OR UNARGUABLE

E1.  The Construction Defence

34.  The modern approach to the construction of contract was summarized by Lord Hoffmann in the House of Lords decision in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 HL at 912-913 (which was cited with approval by the Court of Final Appeal in Ying Ho Co Ltd and others v The Secretary for Justice [2004] 7 HKCFAR 333) as follows:

“My Lords, …, I think I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed. … The principles may be summarised as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.

(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201:

“if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.””

See also the general principles of interpretation in Chitty on Contract, 34^th ed Vol 1 paras 15-053 – 15-056.

35.  In its defence, the Tenant asserts that as a matter of construction of the operative part of Clause 20 of the Tenancy Agreement, namely “… if the Property or the Building or any part thereof shall at any time during the tenancy … become unfit for … operation not due to any default of the Tenant by owing to … Acts of God … then the rent hereby reserved or a fair proportion thereof … shall after the expiration of the then current month be suspended until the Premises or Building shall again be rendered fit for occupation or operation.”, the Tenant was not required to pay rent during the Lockdown.

36.  Thus, the issue between the parties and the questions for the court are: (a) whether the Premises has become unfit for operation during the Lockdown and (b) whether, on proper construction, the Government’s order for suspension of the operation of fitness centre during the Lockdown falls within the meaning of ‘Acts of God’ of Clause 20 of the Tenancy Agreement. To succeed in its appeal, the Tenant has to satisfy the court that both issues or questions are triable.

37.  On the former issue, the undisputed evidence of the Landlord is that during the Lockdown, the Tenant actually offered to the public “Yoga-Panda” or “ThaiPanda” (教練外賣服務), ie private one-on-one, one-on-two and one-on-three classes on the roof level of the Premises. Furthermore, live stream classes involving, for example, the Tenant’s Muay Thai coach performing movement demonstration at the Premises and broadcasting the same to its customers were provided. It is therefore plain that, although the way in which the Tenant operated its business at the Premises may have changed during Lockdown, the Premises has not become unfit for occupation or operation for the purpose of Clause 20.

38.  Regarding the latter issue, it is to be noted that during the negotiation that took place shortly before the parties entered into the Tenancy Agreement on 19 March 2021, the Tenant had made 3 attempts to introduce into the future agreement a special term that would allow the Tenant to suspend rent payment if the government suspends the operation of its fitness centre due to Covid‑19 pandemic (‘the Rent-free Protection’). However, such attempts were expressly and repeatedly rejected by the Landlord.

39.  In its third attempt, the Tenant sought to include in the future Clause 20 a cause due to either the ‘Acts of God’ or the ‘government’. However, in reply, by way of markup on the draft Clause 20 proposed, the Landlord specifically crossed out the Tenant’s reference to ‘government’ as a valid cause. Notably, the final version of Clause 20 that was subsequently incorporated into the Tenancy Agreement represents the residual terms of the draft marked up by the Landlord. The aforesaid form part of the relevant factual matrix in which Clause 20 ought to be construed.

40.  Since the terms ‘Acts of God’ and ‘government’ were at the material time referred to or used by the parties as mutually exclusive causes, for the purpose of construction, the objective meaning of the remaining term of ‘Acts of God’ as used in Clause 20 of the Tenancy Agreement in my view (and I thus hold) would only refer to events beyond control other than those caused by the government. Hence, the alleged suspension of operation during Lockdown would not possibly be covered by Clause 20.

41.  I therefore hold that the Construction Defence is unarguable and/or unsustainable.

E2.  Collateral Agreement Defence

42.  In the Tenant’s Defence and Counterclaim, the Tenant seems to rely on the exchange between the parties during the negotiation of the terms of the Tenancy Agreement (including the Tenant’s three attempts to introduce the Rent-free Protection) in support of its Collateral Agreement Defence.

43.  In this defence, the Tenant asserts that because of the said exchange during negotiation, it has made clear to the Landlord of its concern about the hardship it might face if the government suspended the operation of the fitness centre, the parties have thereby somehow agreed that if this happened, Clause 20 of the Tenancy Agreement would be invoked to entitle the Tenant to rent-free.

44.  It is unclear to the court as to the Tenant’s basis for making such an assertion. It is to be noted that the negotiation for the Tenancy Agreement took place over only two days before agreement was reached. According to the evidence, the negotiation mainly involved the three attempts made by the Tenant to introduce the Rent-free Protection, which were met with repeated rejections by the Landlord. It is plain that the parties have at the time turned their mind to the specific risk of the fitness centre being suspended by the government, and the Landlord has made clear to the Tenant repeatedly that it refused to bear such risk.

45.  For the purpose of these proceedings, the Landlord in its evidence denies having agreed with the Tenant that Clause 20 could be invoked in the event of Lockdown. Contrary to the Tenant’s contention, the specific exchange regarding Rent-free Protection between the parties right before the execution of the Tenancy Agreement only serves to show that the Landlord did not agree to provide the Rent-free Protection.

46.  Furthermore, according to the record of the contemporary WhatsApp messages[8], through which the negotiation between the parties was conducted, the Tenant no longer insisted on the inclusion of Rent-free Protection after the Third Rejection. And it proceeded to arrange for payment and execution of the formal Tenancy Agreement.

(1)  At 1:05 pm on 18 March 2021, the Landlord crossed out the reference to ‘government’ from the draft Clause 20 proposed by the Tenant (ie the Third Rejection).

(2)  The Tenant made no further comment after receipt of the Third Rejection.

(3)  Between 4:26 pm and 4:48 pm on the same day, the parties went on to discuss about the requirement of the fire-rated door and the preparation of formal tenancy agreement.

(4)  By 4:49 pm, copies of the formal tenancy agreement and the Payment Breakdown List were made available.

(5)  By 5:51 pm, a cheque dated 19 March 2021 had been drawn by the Tenant in favour of the Landlord.

(6)  At 6:14 pm, Ms Chen of the Tenant requested Ms Chong to return the documents and the cheque if the Landlord did not sign by 19 March 2021.

(7)  On 19 March 2021 at 11:43 am, Ms Chong informed the Tenant that the Landlord had signed the Tenancy Agreement.

47.  Unless there is credible evidence (which there is none) that between 6:14 pm of 18 March 2021 and 11:43 am of 19 March 2021, the Landlord all of a sudden made a 180-degree change in stance, it is unbelievable that the Landlord would have somehow agreed to allow rent-free in the event of Lockdown, whether by invoking Clause 20 as the Tenant now asserts or otherwise.

48.  Besides, the subsequent conduct of both parties, particularly that of the Tenant, was inconsistent with the existence of the alleged collateral agreement.

(1)  The Hong Kong government implemented the Lockdown on 7 January 2022.

(2)  On 20 January 2022, instead of asserting its right to rent-free as per the alleged collateral agreement or under Clause 20 of the Tenancy Agreement, Ms Chen requested Ms Chong to check with the Landlord to see if they would kindly agree to offer the Tenant any “rental waiver” during the period of Lockdown. On the following day, Ms Chong replied (by way of WhatsApp) that “幫你問咗，租約冇因停業有免租條款。”

(3)  On 8 March 2022, Ms Chen asked again if the Landlord could reduce or suspend the rent as the government had ordered the Tenant to ‘close’: “Geraldine 政府關咗我哋；麻煩你同業主講請佢減免租金，支持政府共渡難關”. Ms Geraldine Liu replied that the Landlord was aware of the Tenant’s default in rent, and there was no room for negotiation unless the Tenant settled the outstanding rent for January and February 2022.

(4)  Ms Liu went on to say: “我衷心建議先找1-3月租金，先有空間同業主傾減租”. Ms Chen then replied: “我哋都被停1-3個月；唔好再逼我哋”.

(5)  The Lockdown ended on 20 April 2022; if the Tenant genuinely believed that there was a Collateral Agreement regarding the period of Lockdown, it ought to have resumed paying rent immediately after the ban was lifted or at the very least in May 2022. The Tenant failed to do so.

(6)  On 4 May 2022, Ms Chong asked Ms Chen to follow up on the outstanding rent for the period from January 2022 to May 2022, totalling HK$264,000. Instead of asserting the Tenant’s rights under Clause 20 or under the alleged Collateral Agreement, Ms Chen merely referred to her earlier message to Ms Liu, which in turn mentioned an article about Swire Properties offering full rental waiver to tenants that were required to be closed until 20 April 2022. In the end, Ms Chen requested the contact details of the Landlord so that she could negotiate with the Landlord directly – “請提供業主聯絡，我哋社企想同業主直接協商寬免租金，謝謝”.

49.  I agree with the master’s observation that if there had been agreement between the parties that rent would be suspended during Lockdown, when the Tenant made the rent relief request in 2022 and was told that the Landlord had never agreed to such rent relief, it would be inconceivable that Tenant did not contradict or challenge this critical assertion.

50.  In light of the above, this court comes to the view that the Collateral Agreement Defence is wholly unbelievable.

E3.  Settlement/Misrepresentation Defence

51.  In paragraph 13 of the DCC, the Tenant pleads:

“The Plaintiff [Landlord] by the actions of itself and/or its agent, Ms Chong, misrepresented to the Defendant [Tenant] that by surrendering the Premises to the Plaintiff [Landlord] on 10 August 2022 and allowing forfeiture of the Security Deposit, the matter would be put to rest. Accordingly, the Defendant [Tenant] at the request of the Plaintiff [Landlord] and/or its agent, Ms Chong, returned the keys of the Premises to the Plaintiff on August 2022. Save as aforesaid, paragraph 6 of the Statement of Claim is accepted.

Particular

(i) The Plaintiff and/or its agent, Ms Chong, alleged and/or represented to Mr Eden Wong and/or Mr Alan He of the Defendant in or around July 2022 that in order to resolve the matter, the Defendant should move out of the Premises if it could not afford the rental.

(ii) The Defendant relied on the representation of the Plaintiff and/or its agent, Ms Chong, in good faith took immediate steps to move out as soon as possible, and showed to the Plaintiff how the calculation of Outstanding Rent was made, that the Security Deposit was more than cover the Outstanding Rent, and that the Plaintiff could forfeit the Security Deposit.

(iii) The Plaintiff and/or its agent, Ms Chong, did not object to the above, and requested the Defendant to return the keys of the Premises, and Ms Chong worked out with Mr He of the Defendant on 10 August 2022 to take over the Premises.” (emphasis added)

52.  The Tenant further avers (in paragraph 15 of DCC) that the Landlord should be estopped from re‑opening the matter after the Premises was surrendered and the Security Deposit was forfeited.

53.  The above is the formulation of the Tenant’s Settlement/‌Misrepresentation Defence. To begin with, it is observed that the pleaded particulars of the alleged representation do not actually support the Tenant’s contention that the Tenant was led to believe that upon moving out of the Premises on 10 August 2022, the matter would be ‘put to rest’ to the effect that the Tenant would no longer be liable to the Landlord under the Tenancy Agreement.

54.  Ms Chong denies in her evidence that she has ever made such representation.[9] Even assuming that Ms Chong did make the alleged representation, in my view, it cannot reasonably be construed as meaning that the Landlord would waive its rights to the rent in arrears and damages for the Tenant’s breach of the Tenancy Agreement.

55.  As in July 2022, the Tenant had been in default of rent for six months; it would only be natural for any landlord or its estate agent in such a situation to advise or suggest to the tenant to surrender the property if the tenant is unable to pay rent so that the landlord can start looking for a replacement tenant so as to reduce not only its loss but also the defaulting tenant’s liability.

56.  Further, apart from the problem discussed above, it is also unclear what the Tenant says the Landlord ought to have objected to at the time, failing which the Landlord was deemed to have accepted the settlement proposal or waived its rights under the Tenancy Agreement.

57.  If the Tenant refers to the Landlord’s failure to object to the return of the keys to the Premises on 10 August 2022 and/or the forfeiture of the Security Deposit as its omission that gave rise to the alleged settlement between the parties, this is wholly unsustainable.

58.  It is trite that, save in exceptional circumstances, silence or inaction cannot constitute acceptance of an offer, see Chitty on Contract Vol 1 34^th ed paras 4-087 – 4-089.

59.  As of 10 August 2022, the Tenant had been in rent arrears for 7 months (from February 2022 to August 2022). Even if the Tenant was entitled to rent-free during Lockdown, it was still in arrears of rent for 3½ months, and pursuant to clause 12 of the Tenancy Agreement, the Landlord would have been entitled to recover possession of the Premises. At the time, it was not necessary for the Landlord to do so because back on 25 July 2022[10], the Tenant had offered to surrender the Premises on or before 10 August 2022.

60.  Regarding the Security Deposit, it is not up to the Tenant to apply it to settle the outstanding rents during the currency of the lease. Under clause 12 of the Tenancy Agreement, it was provided to the Landlord as security for the due observance and performance of the terms and conditions in the Tenancy Agreement on the Tenant’s part, and the Landlord is entitled to keep the Security Deposit until 14 days after the date of delivery of vacant possession of the Premises by the Tenant or settlement of outstanding rents owed by the Tenant.

61.  However, because of the arrears in rent and the Tenant’s pre‑mature termination of the Tenancy Agreement, the Landlord was at the time entitled to forfeit the Security Deposit in settlement of the outstanding rent and in satisfaction of the loss sustained.

62.  In the circumstances, on 10 August 2022, the Landlord has no reason not to accept the return of the keys to the Premises or to forfeit the Security Deposit, let alone have an obligation to reject such an offer from the Tenant. It was only right for the Landlord to do so to mitigate its loss. Hence, the so-called lack of objection on the part of the Landlord cannot reasonably be relied upon by the Tenant to give rise to the alleged estoppel.

63.  Lastly, it is noted that, while on 25 July 2022 the Tenant offered to surrender the Premises unconditionally on or before 10 August 2022, it has waited until much later when the Tenant’s solicitors (Messrs Winston & Strawn) set out a settlement proposal in a without-prejudice letter to the Landlord’s solicitors (Messrs Au, Thong & Tsang Solicitors) dated 9 August 2022 (“the Settlement Proposal”):

“… our client proposes to settle the current dispute as follows:

(1) the rent from 7 January 2022 to 21 April 2022 be suspended and waived in accordance with clause 20 of the Tenancy Agreement and our respective client’s agreement during the negotiation of the Tenancy Agreement.

(2) To forfeiture of the Security Deposit of HK$158,400 paid by our clients pursuant to Clause 12 of the Tenancy Agreement, and upon such forfeiture of the Outstanding Rent and all payment obligations by our client under the Tenancy Agreement shall be deemed to be paid and settled in full; and

(3) Upon the occurrence of (1) and (2) above, the Tenancy Agreement be terminated with effect from 10 August 2022, and neither party shall have any claim (including any antecedent breach) against the other.

…

Further, as a social enterprise, our client does not own or possess any material assets and therefore it is not worthwhile and sensible for your client to incur costs to commence legal action against our client.

In the premises, our client believes it is in the mutual benefit of the parties to settle the current dispute on the terms of the abovementioned proposal, and is looking forward to your clients’ favourable reply.” (emphasis added)

64.  The said without-prejudice letter was disclosed by the Tenant[11]. Apparently, Ms Chong mistook the 9 August 2022 letter mentioned by Ms Chen in paragraph 19B of her affidavit to be the open letter also dated 9 August 2022[12] from the Tenant to the Landlord; she therefore made no mention of the without prejudice letter in her affirmation in reply. At this juncture, it is worth noting that in this open letter of 9 August 2022, the Tenant did not assert any settlement reached between the parties or its reliance on any representation made by the Landlord (whether by Ms Chong in July 2022 or otherwise).

65.  Regarding the Settlement Proposal, it is unclear whether the Landlord’s solicitors received the said without-prejudice letter before the handing over of the keys on 10 August 2022? And if so, when and whether such letter came to the notice of the Landlord before its agent retook possession of the Premises on 10 August 2022?

66.  What is, however, clear from the documentary evidence is that the Settlement Offer of the Tenant was only made to the Landlord on 9 August 2022 at the earliest, and the Tenant was expecting or required a positive reply from the Landlord for its acceptance. As the Tenant now finds it necessary to rely on the Landlord’s silence or inaction as its acceptance of the settlement, it is evident that no reply to the Settlement Proposal was made by the Landlord as required.

67.  It is therefore plain that no settlement agreement was ever reached, nor was there reliance on the alleged misrepresentation as currently contended by the Tenant.

68.  That said, one should also note that not only did the Settlement Proposal fail to offer the Landlord anything more than what it was entitled to under the Tenancy Agreement, namely retaking possession of the Premises and forfeiting the Security Deposit, it requires the Landlord to make a further concession by providing rent-free during Lockdown which (as I hold) was not part of the Tenancy Agreement. Thus, it is doubtful whether there was, in the eyes of the law, any valid consideration provided in the proposal.

69.  For the reasons set out above, the Settlement/‌Misrepresentation Defence is also incredible and unarguable.

70.  Following the above adjudication, the Landlord should be entitled to summary judgment on its claims.

F.  STRIKING OUT OF COUNTERCLAIM

71.  Concerning the Landlord’s application for striking out, pursuant to O 18, r 19 of RDC, the principles are also trite. It is only in plain and obvious case that an order to strike out will be made on any of the grounds under the rule: see HKCP at §18/19/4.

72.  For the purpose of striking out pursuant to O 18, r 19(1)(b) of RDC, a proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed: see HKCP at §18/19/7.

73.  Regarding the Tenant’s counterclaim, this court is unable to identify from the Tenant’s DCC the proper legal basis for the counterclaim. In the counterclaim, the Tenant repeats its defence and asserts that it has suffered loss and damage arising from the Landlord’s wrongful termination of the Tenancy Agreement.

74.  As it is determined that none of the defences raised by the Tenant is arguable and/or credible, the pleaded basis in the Tenant’s defence falls away, and the counterclaim is bound to fail.

75.  For the sake of argument, even if I was wrong in my determination of the defences above, at best, the Tenant is only entitled to rent-free during Lockdown (ie from 7 January 2022 to 20 April 2022), and the Tenancy Agreement was terminated by mutual agreement of the parties as per the Settlement Proposal. If the Tenancy Agreement is mutually terminated, rather than wrongfully terminated by the Landlord, there is no legal basis for the counterclaim.

76.  Besides, the undisputed facts are: (a) for more than eight months from 1 January 2022 to 10 August 2022, Tenant only paid an equivalent of one month’s rent on 9 June 2022; hence as on 10 August 2022, the Tenant was at least 3½ months in arrears of rent, (b) on 25 July 2022, the Tenant offered to surrender the Premises to the Landlord on 10 August 2022, and (c) on 10 August 2022, the Tenant did hand over the key to the Premises and the Landlord took possession accordingly. On such facts, it is my view that there cannot be any wrongful termination on the part of the Landlord to support the Tenant’s counterclaim.

77.  In the premises, the pleaded counterclaim cannot possibly succeed. The Tenant’s counterclaim thus ought to be struck out.

G.    STAY OF EXECUTION

Legal Principles

78.  The legal principles on granting a stay have been summarized by Chow J (as he then was) in Astro Nusantara International BV v PT Ayuna Prima Mitra (No 2) [2016] 1 HKLRD 591, §15, citing the judgment of Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 as follows:

(1)  The applicant is required to demonstrate a good reason for a stay of execution, and the minimum is the existence of an arguable appeal;

(2)  If the court is not convinced that there are arguable grounds of appeal, no stay will be granted, however exceptional the circumstances may otherwise be justifying a stay of execution;

(3)  On the other hand, the existence of a strong appeal will usually, by itself, enable a stay to be granted;

(4)  In most cases, where the court is faced with simply the existence of an arguable appeal, it becomes necessary for the applicant to provide additional reasons as to why a stay is justified;

(5)  Commonly, this is done by demonstrating that without a stay, the appeal would be rendered nugatory, for example, because of an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal against a money judgment, or because the failure to grant a stay would have a serious deleterious effect on the applicant; the court would require good evidence to support this contention, such as the production of accounts or other documents to justify the assertion. A bare assertion is unlikely to meet with much sympathy where more substantial evidence is available; and

(6)  In considering an application for a stay pending appeal, it would be impractical and even undesirable for the court to go deeply into the merits or strengths of the appeal, although the court must still form a preliminary view of these aspects.

79.  In the present case, no evidence was adduced by the Tenant to demonstrate that if a stay is not granted, the appeal would be rendered nugatory either because the judgment sum paid to the Landlord (upon execution of the summary judgment) could not be recovered or the execution of the judgment will have a severe deleterious effect on the Tenant. The Tenant’s application for a stay was therefore dismissed at the end of the hearing.

80.  Now that the three defences raised by the Tenant are found to be unarguable and/or incredible, and the Tenant’s appeal is thus to be dismissed, there is simply no justification for a stay of execution of the Order of Master Ho dated 18 July 2023.

H.    CONCLUSION AND ORDER

81.  I therefore order that:

(1)  the Tenant’s appeal dated 2 August 2023 be dismissed; and

(2)  the Tenant’s summons (for stay) dated 14 August 2023 be dismissed.

82.  Following the above event, I further make an order nisi that the costs of both the Tenant’s appeal dated 2 August 2023 and the Tenant’s summons dated 14 August 2023 be to the Landlord to be taxed, if not agreed, with certificate for counsel. Unless any party applies to vary within 14 days, this order nisi shall become absolute without further order of the court.