HONG KONG SHENG KUNG HUI FOUNDATION v. THE HONG KONG CENTRAL HOSPITAL LTD

HCA 1183/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1183 OF 2011

__________________

BETWEEN

__________________

_______________

J U D G M E N T

_______________

1.  This is an application under Order 14 for summary interlocutory judgment in respect of premises of which the Plaintiff is the landlord and the Defendant is the tenant. Possession of the premises is sought by the Plaintiff (whom I shall call “the Church”) from the Defendant (whom I shall call “the Hospital”).

2.  For many years now the Hospital has occupied Staunton House, the premises in question, at 1B, Lower Albert Road, Central, Hong Kong since at least 1977 when the first tenancy agreement was signed.  That was for a term of seven (7) years.  At the expiration of that term all the subsequent agreements were of two (2) years duration.  The rent, unsurprisingly increased throughout that period.

3.  It is a matter of agreement, one of the few in this case, that the rent, certainly for some years now, has been significantly below what is commonly referred to as market rent.

4.  It is clear to me, from the evidence before me both in the form of affidavits/affirmations and other documents, that the Church has behaved in a benevolent way towards its tenant, the Hospital.  This again is not surprising given their respective places in a civilised society.  Concern for the spiritual well-being of society has in all civilized times, gone hand-in-hand with that for its physical well-being, whatever the race or creed.

5.  The Church has demonstrably reflected this mutual concern in allowing the Hospital significant reductions in the rent payable under the agreements, especially of late, and postponements of payment when the Hospital has experienced financial difficulties.  The Hospital itself, being a non-profit making institution, has no doubt encouraged the Church, in its benevolent attitude to the commercial side of the relationship, to be relatively informal in its relationship with it.  Mr C Y Li, Senior Counsel for the Hospital, has sought to craft out of this relationship a non-commercial arrangement, evidenced by the advantageous rent provisions, which should be regarded as overriding the normal approach to a written landlord and tenant agreement.  I cannot accept his approach or argument.  However amicable the relations between the two parties, however long those relations have endured, it is nonetheless a commercial relationship and it would make a nonsense of the clear agreements reached at arms length to regard it otherwise.  Indeed it would be singularly inequitable to attempt to do so when one party - in this case the Church - has been so accommodating and so far from being exploitative in its business dealings, a rare commodity in Hong Kong.  And so I had no difficulty in turning away Mr Li’s tentative argument on this basis.

6.  One other feature is of some significance in this context and that is the Church’s indication from time to time, that the Hospital had no commercial rival for the premises.  This is entirely consistent with the Church’s general commercial attitude to its letting of Staunton House, and represents, of course a considerable advantage to the Hospital.  Although the tenancies were only of two years duration with inevitable increases in rent - inevitable in the sense that inflation, a higher cost of living and other expenses are facts of life even in the Church - the Hospital could feel safe from threat from any commercial concern which could offer more rent by way of a “Dutch auction” or any other means.

7.  This then is background of some significance to what happened in 2010. But firstly it is necessary to consider the last two year agreement between the parties which was signed and dated the 29 June 2009.  Clause 2(k), a standard provision and one which had been present in preceding agreements provided that :

“The Lessee undertakes:

Quietly to yield up the demised premises together with the Lessor’s fixtures at the determination of the demise in good and substantial repair.”

8.  A new clause appeared at “6”

“It is further agreed between the parties ...that after the expiration of the first nine months of the tenancy..., either party shall have an option for early termination of the tenancy hereby created and be released from the obligation of the terms of this Agreement upon giving not less than three (3) months prior written notice ...no such notice shall be served by either party before the expiration of a period of nine months from the commencement of the tenancy hereby created.”

9.  There is no ambiguity in that provision and it is not itself the subject of any argument or dispute.  It had been set out in a letter dated 20 March 2009 from Mrs Elizabeth Kwan on behalf of the Church, which Dr Stephen K C Lee had signed indicating his agreement to the offer.

10.  It is of some interest to note how the Hospital Board Meeting of the 24 February 2009 minuted the preliminaries to this Agreement.  Under the heading of a) Tenancy with Sheng Kung Hui is recorded the following brief statement:

“The Medical Superintendent and Dr Lo had a meeting with Mrs Kwan of the Bishop Office and the Hospital was offered a one year fixed plus one year extension tenant agreement. There will be a 10% reduction in rental due to the recent financial tsunami.”

11.  The last sentence concerning rental speaks for itself in the context of what I have said earlier about the Church’s benevolent approach to its commercial enterprise.  As far as the tenancy was concerned it turned out to be somewhat different in form though not in substance.  Instead of the “one year fixed plus one year extension” there was a break clause operable after nine months with three months notice. That would still give one year certain but not the firm expectation of a further twelve months.  The remainder of the record of the meeting is wholly silent on this topic.  To any observer there was a cloud on the horizon.  I will be looking at this record a little later in view of other implications.

The Redevelopment Programme

12.  The Church needed to recover the premises as part of a cultural heritage conservation policy announced in the Chief Executive’s 2009/10 Policy Address. It had agreed to participate in the programme which involved the preservation of four historic buildings.  Part of its involvement necessitated the opening up of the Sheng Kung Hui compound to allow increased access for the general public.  Premises other than those of historic and cultural value would be demolished and rebuilt to accommodate some community services.  It also necessitated recovering possession of other leased premises in Lower Albert Road and Upper Albert Road. 

13.  Prior to the public announcement of this Policy there had been discussions between representatives of the Church and the Hospital at which the latter had been made aware of the redevelopment programme.  This was before the last tenancy agreement of 29 June 2009.  It appears from the Affidavit of Peter Douglas Ho Ming Koon that with the approaching expiration of the 2007 tenancy agreement the Hospital was seeking a longer lease and at that stage the Hospital indicated that it was looking for a tenancy that would give it 10 to 15 years security of tenure.  The Church made it clear that it could not do so and gave some information about the need for the resumption of possession to fulfill the redevelopment programme.  The form of the tenancy agreement of June 2009 lends significant support for this in the provision of the break clause after nine months tenure.

14.  The Hospital’s representatives can have been under no illusion; sooner or later, and within the time scale of that tenancy, the Hospital would have to relocate or close.  Indeed from the discussions in 2009/10 between the representatives, those for the Hospital spoke of closing down the Hospital and making some financial provision for staff.  The Hospital requested a rent reduction by letter of 5 January 2010.  That letter contains a number of comments or assertions that makes it as abundantly clear that the Hospital’s tenure of the premises was only short-term:

“In 2008 we discussed with Dr Manson Fok for a possible large scale hospital development project. However such development project revealed the news of a curtailed tenancy.”

“Since then various rumours of termination of hospital tenancy affected the Hospital’s business.”

“After the policy address further rumours that the Hospital would be terminated were spreading…we cannot commit on any time frame on employment.”

“The Hospital was running into a loss during the financial tsunami at late 2008…Though the economy improved in 2009. The rumours of winding up further gave the Hospital another big blow.”

“From the media’s viewpoint our liquidation will not be separated from the Church’s redevelopment project” (One almost detects a threat in that sentence in the context of a letter seeking financial relief which the Church in fact gave. It was to be repeated in the next letter.)

“Our long-term goal is to relocate the Hospital.”

“We understand that the Church would be developing another Hospital as part of the redeveloping plan. The Hospital management team fully support such plan…”

15.  On the 25 March 2010 the Hospital sent another letter seeking further financial relief specifically asking for a reduction in the existing rent by two thirds up to June 2011, adding:

“Before that time, the actual relocation process would have been commenced.”

“…Since news of the redevelopment plan of the Church was revealed to us, various rumours of termination of hospital tenancy affected the Hospital’s business.”

“After the CE’s policy address last year, further rumours that the Hospital would be terminated were spreading…”

16.  It is clear from that correspondence that the Hospital knew of the implications of the Policy Address, that the Church had, as a consequence, a redevelopment plan that had serious consequences for the Hospital’s tenure of the premises, and as a result the Hospital had to make alternative arrangements i.e. relocation, which it had already put in hand.

17.  What is also paramountly clear is that there is no mention whatsoever of the alleged promise of continued security of tenure for 10 - 15 years made in 2005, nor even of any suggestion that the Church had broken a promise of some form of protected tenure.

18.  Both letters sought forbearance on the part of the Church in respect of rent to which the Church acceded.  The letters set out in uninhibited form, a review of the financial problems of the Hospital and its associated difficulties.  It pleaded its cause in detail.  Had there been any such oral promise or guarantee it is inconceivable that it would not have found its way into at least one of those letters.

The First Proceedings [HCA734 of 2011]

19.  On the 19 March 2010 Messrs P C Woo & Co, the first solicitors instructed by the Church, wrote to the Hospital serving Notice to Quit under clause 6 of the Tenancy Agreement exercising the landlord’s right set out in the “break” clause, requiring vacant possession on the 30 June 2010.

20.  For some reason no further step was taken in respect of that Notice and the Hospital was able to persuade the Church yet again to grant indulgence in respect of the rent.  That indulgence was acknowledged by the Hospital in their letter of 15 June 2010.  Again it contains important sentences :

“Thank you for your kindness on offering the rental reduction…This is certainly vital in sustaining the Hospital until the time of relocation…”

21.  It went on to seek an extension of time for payment of arrears of rent. The letter ended with:

“The Hospital management feels that while we need to make our best efforts to liaise with the Government Hospital Authority and other parties on the relocation of the Hospital, it is equally important to keep the Hospital viable at this moment or else everyone would be at a loss should the Hospital has already disappeared before the relocation.”

22.  Once again the Church felt constrained to give the Hospital special consideration in view of its financial problems and to allow it some leeway in view of its repeated intention to relocate.  Thus no action was taken on the Notice to Quit and the Hospital was able to hold over - but not on the strength of a specific promise.

23.  By early October 2010 the Church understandably felt that it needed to crystallise the situation.  On the 5 October its property management agent, Harriman, wrote to the Hospital referring to the plan to develop the building (Staunton House) imminently and giving Notice to Quit, delivering up vacant possession by 14 June 2011.  It is not clear why, having exercised the option under clause 6, but not then enforced it, the second Notice gave a further 8 months on the face of it, then extended it by a further two weeks until 30 June 2011, after a request by the Hospital, but it is consistent with the Church’s tolerant attitude.

24.  A firmer grip on the matter was demonstrated by Deacons who took over as the Church’s solicitors, and treating the Hospital’s holding over, after the 30 June 2010 as a monthly tenancy, duly gave Final Notice to Quit on the 18 January 2011 requiring vacant possession on the 28 February 2011 - ie one month’s notice.  The Hospital did not comply with that and as a further act of indulgence, the Hospital’s occupation of the premises was extended until the 18 April 2011 by Deacons’ letter of 10 March 2011.  It is difficult to see how any argument could reasonably be advanced that the Church had not leant over backwards to accommodate - literally - the Hospital in its difficulties.  It brought forth yet another imploring letter dated 23 March 2011 from the Hospital largely repetitive in nature, directly to the Church.  It was answered by Deacons on the premise “enough is enough”.  The Hospital was told that it had to vacate the premises by the 10 April or provide a constructive proposal as to its relocation exercise.  None was forthcoming and proceedings were commenced by the issue of a Writ with a Statement of Claim on the 27 April 2011.

25.  The Statement of Claim recited the various Notices and extensions and variations to the Hospital’s rental obligations under the last Tenancy Agreement.  It claimed possession pursuant to the Notice to Quit by Deacons of the 10 March 2011 which was itself an extension of the Notice of the 18 January 2011. The Hospital thus became a trespasser, as I so find, from the 10 April 2011. A Defence was served dated 7 June 2011.  It sought to take issue with the Church (The Plaintiff) essentially on the Notices to Quit.  It is not necessary for me to make any findings in respect of the issues raised in that first action although I see no merit in any of the Defendant’s arguments.

26.  The Notice to Quit sent by P C Woo & Co on the 19 March 2010 was in order.  The Defendant raised no argument on the basis of it being invalid.  The fact that it was not proceeded with and that the Hospital was allowed to hold over on a monthly basis does not invalidate the Notice (which was in accordance with clause 6 of the Tenancy Agreement).

The Second Proceedings [HCA 1183 of 2011]

27.  It appears that in order to avoid any convoluted dispute over the various notices and extensions, it was decided to start fresh proceedings and let the earlier ones ‘hangfire’.  On the 14 June 2011 a fresh Writ and Statement of Claim were issued and served.  This time the Plaintiff based its claim quite simply upon the effluxion of time of the last Tenancy Agreement which, although dated the 29 June 2009, was for the two year term running from 15 June 2009 until the 14 June 2011.  Clause 2(k) of the Agreement required the Hospital to “yield up the demised premises …at the determination of the demise in good and substantial repair”.  The determination of the demise was on the 14 June 2011.  The Hospital was informed of this before the commencement of proceedings by letter dated the 10 June 2011.

28.  Any argument as to whether the date of determination was the 14 June 2011 or the 29 June 2011 was eliminated by a letter of 29 June 2011 whereby the Defendant was to give vacant possession on or before 1 July 2011.  The Defendant failed to comply with the Notice despite having manoeuvred yet a further extension.  In my view it would be utterly unconscionable to allow the Defendant further to manipulate the situation to its advantage. The last tenancy had clearly determined by effluxion of time on the 14 June 2011 at the latest, ignoring for the moment the effect of the Notice to Quit exercising the break clause.  The Defendant had been given clear notice that, one way or another, its days at Staunton House were numbered and then exhausted.  The fact that it managed to squeeze two more weeks out of the Plaintiff, is of no relevance to the Plaintiff’s entitlement.  The Defendant was from 1 July 2011, at the very latest, unarguably a trespasser.

29.  The Defence filed and served in answer to the Statement of Claim is a somewhat inconsequential narrative of purported agreements, understandings, acquiescence, cooperative stances, and economic difficulties, all designed it would seem to obfuscate and certainly obscure the essential commercial nature of the relationship between the parties.  At the core of this regurgitation of the contents of the pleading letters put forward on earlier occasions when the Hospital was seeking indulgence from its landlord, is the emergence for the very first time of an oral promise purportedly made in 2005.  It is worthy of note that no such allegation appeared in the pleaded Defence to the original Writ and Statement of Claim.  I now pass on to deal with this allegation which forms the basis of the alleged Promissory or Proprietary Estoppel.

Estoppel and the 2005 Oral promise

30.  I have already referred to the absence of this so-called promise in any of the documents in which one would have expected it to be raised or recorded.

31.  In paragraph 3(3) of the Defence it is alleged that :

“Both the representatives of the Plaintiff [The Reverend Peter Kwong Kong Kit and the Reverend Dr Paul Kwong] confirm[ed][April 2005] that the Plaintiff had no plan of resumption of the demised premises in the coming 10 to 15 years since the year 2005; therefore a longer term tenancy as demanded was not necessary.”

32.  There is of course an inconsistency of logic in that averment, but perhaps I should ignore that.

33.  Both the former Archbishop and the present incumbent deny making any such promise.  It is without doubt an extremely important matter assuming that it meant, however loosely expressed, a promise that the Hospital could remain in possession of the premises for at least 10 years and possibly as much as 15 years.

34.  On 26 April 2005 the Executive Committee of the Hospital met and there are minutes of that meeting.  It referred to the Tenancy Agreement as I set out earlier in this judgment.  It was to be renewed for a further two years and the formal execution of that agreement took place almost one month after the Committee Meeting.  Of some importance was the minute recording that the Bishop’s Office had confirmed that the Hospital “has priority over others in utilizing the premises.”  Of course that was important but it was no more than was already implicit in the special rental terms the Hospital enjoyed.  But it was far less important than any promise or understanding to the effect that the Hospital could count on enjoying 10 to 15 years security of tenure.  And so if there was a genuine belief that they had been told something to that effect upon which they believed they could rely, and plan, it is utterly inexplicable that it did not find its way into these minutes.

35.  Moving on four years we come to the Executive Committee Meeting of the 24 February 2009.  This time the topic of the tenancy from the Church features as the first item of business.  The minute records:

“…the Hospital was offered a one year fixed plus one year extension tenant agreement.”

36.  The significance of the change could not have been lost on the Hospital Executive Committee.  The actual agreement, signed a few months later on the 29 June 2009, contained as examined earlier, a break-clause enabling either party to terminate the tenancy after it had run for nine months by giving three months notice.  In effect then it provided for one year certain, but could endure for a further one year.  It must have been apparent to those running the hospital that they were now at risk.  But once again there is nothing in the minutes which even remotely suggests that it had been given some form of long-term assurance.  To my mind that exclusion is as conclusive as the absence of any such assurance - or even hope - in the minutes of the February 2005 Committee Meeting.

37.  It has been argued that such was the informal relationship between the parties that the representatives of the Hospital were prepared to accept the word of “men of God” as they termed the hierarchy of the Church, and did not see the need to reduce it into writing for the record or for confirmation.  That does not stand up to scrutiny.  There were letters from the Hospital in which it set out, at length, its case for special treatment in respect of its financial difficulties.  It had recognised the problems consequent upon the redevelopment programme.  Whilst I am prepared to accept that some years ago the Hospital’s representatives felt they needed a 10 to 15 years period for development and improvement and ventilated that to some extent in the most general of terms, I am entirely satisfied that neither of the Church’s representatives made any such oral promise.  I am sure that they were sympathetic towards the Hospital’s problems and this is fully evidenced by the concessions made on the rental front.  Nevertheless the tenancy continued in the form of two-year Agreements. It does not make sense in my judgment against that background, and, however understanding the Church was, that its representatives could or would have made a promise of the nature alleged.  I accept the Plaintiff’s case that they did not and that is supported by every other bit of evidence.  The Hospital behaved and acted solely in accordance with a realistic understanding of the difficulties they faced and “pulled out all the stops” to put off the inevitable day.  There is nothing credible to support its contention.  Any development it undertook had an optimistic basis but it carried a risk.  It was limited in form.  It may be that in 2005 no one envisaged the policy announced in 2009, and its implications.  I am satisfied that there was no promise giving rise to any form of estoppel and so the Defendant has failed to lay the foundation for such a defence.

38.  I should nonetheless look at the situation hypothetically.   Supposing the Church had said something in 2005 to the effect that it had “no plans to resume possession of the premises for 10 to 15 years”, should that be taken as giving rise to any arguments on estoppel?  It is vague and imprecise.  At best for the Defendant it could taken as a general statement reflecting the circumstances at that time.  It is impossible to regard that expression as giving rise to a promise upon which anyone could sensibly act.  There had been no longer than two-year tenancy agreements for a long time before 2005 and they continued after 2005 until 2009.  I do not need to repeat how the Hospital recorded the position in its minutes in 2005 and 2009.

39.  There are a number of authorities which, in essence, make it clear that details of the crucial terms on which an expected tenancy is to be based are required; that adequate identification of the terms and conditions of a proposed grant, are required to make a sub-lease efficacious.

40.  In Orgee v Orgee [1997] EWCA Civ. 2650 (5 November 1997) the Court of Appeal accepted the argument of counsel for the landlord that “it is incumbent on [The claimant seeking to establish a proprietary estoppel]…to show that such expectation or belief [that he would be granted a full agricultural tenancy]…was of sufficiently concrete character to enable a court to give effect to it when fixing the rent and the rent review regime, and making provision for dilapidations, for the repairing covenant, and for other crucial terms.”

41.  The above decision was cited by the Court of Appeal in Willis v Hoare (1999) 77 P&CR D42.  Again I do not need to review the facts.  Auld L J “felt that at the heart of the problem was the difficulty as to the terms on which any offer of a new sub-lease fell to be judged.”  In that case, as in the case before me, there was no unconscionable behaviour on the part of the landlord or sub-lessee but even if there had been “no-one could know on what terms the plaintiff might otherwise have offered a sub-lease and whether such terms would have been acceptable to the defendant”.

42.  Chadwick L J had spelt out:

“I am unable to recognize an equitable estoppel based on a representation which is so uncertain…To fetter the respondent’s legal right by reference to some obligation which cannot be spelt out seems to me to be thoroughly inequitable.”

43.  I have adopted the hypothesis simply for the purpose of testing it against a commonsense assessment as well as legal authority.  To elevate that vague hypothetical indication or promise to the level required to form the basis of an argument for estoppel, in any shape or form, would be “thoroughly inequitable”.

44.  I do not need to consider the Defendant’s contention in paragraph 3(4) that the Church represented that the Defendant had priority over other organizations in utilizing the premises.  I have in effect already dealt with this matter.  In the past it had been shown to be a fact of life, evidenced in particular by the wholly favourable rent arrangements which continued after 2005.  It is stretching credulity even to try and construe that as being tantamount to a guarantee. The agreements in question were of no more than two years duration.  There might, at any biennial stage, be an economic sea-change which would force the Church to seek greater income in order to meet its charitable and other priorities.

Payments made by the Defendant after the commencement of proceedings

45.  Although initially the Defendant sought to argue that cheques sent to the Plaintiff’s solicitors had been accepted as rent and therefore the tenancy had continued, Mr C Y Li for the Defendant wisely moved away from this contention. The cheques had never been presented.  Deacons wrote to the Defendant’s solicitors pointing this out and asking them to agree to the money being accepted (in effect as mesne profits) without prejudice to the issue between the parties.  Unwisely the Defendant’s solicitors declined and insisted that the cheques had been sent as rent payments and therefore were held by the solicitors as rent.  Thus the money remained in the Defendant’s bank account to its advantage.  There is no merit in this contention.  None of the money has been accepted as rent.

Conclusion

46.  I am mindful of course that summary judgment is only available in a case where there is no arguable Defence.  This is such a case and it is not necessary for me to rehearse the authorities which enshrine this clear concept. They are all well-known.  The Defence has no substance in law or fact.  It is almost capable of categorization as a sham.  But Mr C Y Li, SC has taken up the challenge on behalf of the Defendant and travelled uphill and down dale - mainly uphill - in his quest on its behalf but even he cannot bolster the untenable. There has in my view, been substantial delaying of the Plaintiff’s entitlement, worthy perhaps of the Roman General Quintus Fabius Maximus, though at least he had merit on his side.  There will be judgment for the Plaintiff for possession of the premises forthwith with costs, leaving the matter of mesne profits to be dealt with later.

47.  Before I conclude I feel it necessary to touch upon two other consequential matters.  The first concerns the affidavit of Dr Donald Li Kwong Tung who is on the Board of Directors of the Hospital.  It was sworn in support of the Church’s case.  I understand that he may also be involved in some capacity with the Church.  There has been some attempt to vilify him - that seems the appropriate word, because his evidence supports aspects of the Church’s case and thereby contradicts much of the Hospital’s factual assertions.  He has been accused of disloyalty and of breaching confidence.  It does appear that he may be in error about discussions concerning the litigation.  Nonetheless it would be a sad comment on any system or institution if it felt simple membership of it meant that an individual exercising his conscience and rights were to be inhibited from stating what he believed to be the truth, especially if he felt his silence could lead to or at least aid injustice.  The Defendant’s solicitors have made a direct threat against him.  I am sure that he will be well advised.  The attitude against him is misconceived.  My decision in this case was not dependant on his evidence. The hollowness of the Defence case is self-evident.

48.  The other matter I should touch upon has raised greater concern.  I have noticed in the context of Hong Kong society how easy it has been to castigate individuals and institutions particularly when some powerful personality or institution has failed to get its way.  It is known as pillorying, without the pillory.  There is some notion which has had a degree of publicity and can be detected in some media reporting and public statements, that the Church has in this dispute been greedy, or unfair or self-interested.  I cannot readily call to mind any other institution in Hong Kong which has shown such tolerance, patience and forbearance in similar circumstances as the Church has done in its dealings with the Hospital leading upto these for the Church unavoidable proceedings, and even for a period beyond their initiation.