NG YU OI AND ANOTHER v. ALPHA LINK INVESTMENT LTD

HCA 376/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 376 OF 2005

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D E C I S I O N

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Application

1. This is an application for interim payment by the Plaintiffs against the Defendant.

Background

2. Mr. Choi Lun Chong, deceased (“the Deceased”) was the registered owner of the premises known as Ground Floor, No. 11 Tai Yuen Street, Wanchai, Hong Kong (“the Property”).  In about June 1997, the Deceased started to let the Property to the Defendant.  The tenancy was renewed for every two years.

3. By a tenancy agreement dated 30 July 2003 (“the Tenancy Agreement”), the Property was further let to the Defendant for 2 years from 1 June 2003 to 31 May 2005 at a monthly rent of $55,500.00 (inclusive of rates) payable in advance on the first day of every month.

4. On 15 November 2004, a letter of demand was issued against the Defendant for payment of outstanding rent for 3 months from 1 September 2004 to 30 November 2004, totaling $166,500.00.  Subsequently, on 30 November 2005, the Defendant paid a sum of $55,500.00.  Since then, there has been no further payment.

5. The Deceased died on 4 January 2005 at Ruttonjee & Tang Shiu Kin Hospitals.  He left a will dated 13 December 2004 appointing his wife Madam Ng Yu Oi and his son Mr. Choi Kam Kim (collectively “the Plaintiffs”) as his executors and trustees.

6. On 2 March 2005, the Plaintiffs commenced the present proceedings against the Defendant for vacant possession of the Property, outstanding rent in the sum of $166,500.00 for 3 months from 1 December 2004 to 28 February 2005, mesne profits at the rate of $55,500.00 per month from 1 March 2005 until delivery of vacant possession of the Property, interests and costs.  On 15 March 2005, the Defendant lodged an acknowledgment of service with this Court indicating that it would contest the proceedings.

7. On 1 April 2005, the Defendant was allowed by this Court for a further 14 days to file its Defence.  Before it could do so, on 4 April 2005, the Plaintiffs took out the present application for interim payment (“the 1st interim payment application”).  The call-over of it was heard on 22 April 2005 by a Master who adjourned it for argument with usual directions as to filing and serving of affidavit evidence.

8. The Defendant filed and served its Defence on 28 April 2005 in compliance with an unless order made by the Court on 19 April 2005.

9. On the other hand, on 12 May 2005, pursuant to Order 20 rule 3 RHC, the Plaintiffs amended their Statement of Claim to increase the claim for outstanding rent to $388,500.00, i.e. to claim outstanding rents for 7 months from August 2004 to February 2005.  On the same date, the Plaintiffs further issued a 2nd application for interim payment in respect of the Defendant’s occupation of the Property for June and July 2005 in the sum of $111,000.00 during the pendency of the action herein.  On this 2nd application, the Defendant conceded to it and subsequently paid the Plaintiffs accordingly.

10. On 28 July 2005, the parties appeared before me for the 1st interim payment application, Mr. Paul Wong of solicitor, acted for the Plaintiffs while Mr. K.C. Wong of Counsel represented the Defendant.

Preliminary matters

11. 3 preliminary matters were dealt with, namely:

(a)	With no objection from the parties, leave was granted by me for the parties to rely on the Affirmation of Or Pui Han filed on 29 June 2005, the 3rd Affirmation of Choi Kam Kim filed on 16 July 2005 and 2nd Affirmation of Or Pui Han, notwithstanding that they were filed and served without leave from this Court.
(b)	Mr. C.K. Wong raised 2 “technical” issues opposing the Plaintiffs’ interim payment application, viz, (i) as a matter of law, the Plaintiffs have no locus standi, and (ii) as a matter of procedure, the Plaintiffs failed to take out proper procedure to amend their summons and, in any event, the Defendant needed time to locate evidence.
(c)	At the hearing on 28 July 2005, I allowed the matter to be continued on a de bene esse basis.  Upon further thoughts, I do not consider that these technical matters would assist the case of the Defendant.
(d)	The Plaintiffs are named executors of the Deceased’s Will.  It is trite law that an executor derives his title and authority from the will of his testator and not from the grant of probate.  The Plaintiffs can therefore commence the proceedings herein before he has proved the Will.
	“Executor’s title
	4.01      An executor derives his title and authority from the will of his testator and not from any grant of probate.  The property of the deceased, including my right of action, vests in him on his testator’s death, and he can institute an action, as executor, before he proves the will.  He cannot obtain a judgment before probate, not because his title depends on probate, but because production of the probate is the only way that he is allowed to prove his title.”
	(Tristram and Coote’s Probate Practice, 28th Edition, page 115)
(e)	I agree with Mr. C.K. Wong that the Plaintiffs have not taken out formal summons to amend their application.  Nonetheless, the facts remain that notice of the “Draft Amended Summons” was given to the Defendant on 2 June 2005, and the parties did file and serve 4 affirmations afterwards, I see no prejudice suffered by the Defendant at all.  I therefore hereby formally grant leave for the Plaintiffs to amend its original summons dated 4 April 2005 as per its Draft Amended Summons and service of it be dispensed with, and that there be no order as to costs for all matters relating to this amendment.

Ruling

12. For our purpose, I divide the Plaintiffs’ application into 3 categories of outstanding rent/mesne profits for:

(a)	4 months from August 2004 to November 2004 in the total sum of $222,000.00;
(b)	6 months from December 2004 to May 2005 in the total sum of $333,000.00; and
(c)	occupation of the Property commencing from August 2005 in the monthly sum of $55,500.00 during the pendency of the action herein.

13. Having considered the evidence authorities and submissions from the parties, I will be allowing the Plaintiffs’ application regarding 12(b) and 12(c) but not 12(a).  My reasons appear as follows.

14. 12(c) is not contested.  The application is premised on Order 29 rule 12(b) of the Rules of the High Court (“RHC”).  Indeed, the Defendant has already conceded to the Plaintiffs’ 2nd interim payment application by making payment for the months of June and July 2005.

15. Regarding 12(a) and 12(b), the relevant governing rule is Order 29 rule 12(c) RHC:

“If, on the hearing of an application under rule 10, the Court is satisfied—
(a)	……
(b)	……
(c)	that, if the action proceeded to trial, the plaintiff would obtain judgment against the defendant for a substantial sum of money apart from any damages or costs.
the Court may, if it thinks fit, and without prejudice to any contentions of the parties as to the nature or character of the sum to be paid by the defendant, order the defendant to make an interim payment of such amount as it thinks just, after taking into account any set-off, cross-claim or counterclaim on which the defendant may be entitled to rely.”

Paragraph 29/12/4 on pages 531-532 HKCP 2004 provides further assistance:

“(c)  Recovery of substantial sum apart from damages or costs—The ground is that if the action proceeded to trial, the plaintiff would obtain judgment against the defendant for a substantial sum of money apart from any damages or costs (see r.12(c)).  This provision envisages an intermediary situation between the court awarding a final judgment on an application for summary judgment under O.14, and a final judgment awarded at the time of the action.  The court is empowered to have regard to all the circumstances of the case, including the pleadings, any documents disclosed or exhibited and any other relevant material and any admissions made by the defendant, and to determine on such material whether it is satisfied that the plaintiff will at the trial obtain judgment for a substantial sum of money.  This could arise in a claim for a quantum merit, where the defence is that the claim is excessive or for work done and materials supplied where the defence is that some of the work was defective or was not done, and situations of a like character.  In such a case, the court may feel satisfied that notwithstanding the defences raised by the defendant, the plaintiff will a trial obtain a judgment for a substantial sum.  If so satisfied, the court has power under this provision to make an award by way of an interim payment on account of what such sum is likely to be.

Rules 11 and 12 of the Order should be read together to permit the court to make an order for interim payment where it is satisfied that, if the action proceeded to trial, the plaintiff would obtain judgment either for substantial damages under r.11(1)(c) or for a substantial sum of money apart from damages within r.12, even though thought not to be certain which (Shearson Lehman Brothers Inc. v. Maclaine Watson & Co. Ltd [1987] 1 W.L.R. 480; [1987] 2 All E.R. 181, CA).

An application for an interim payment under O.29, r.12(c) should be considered by the court in two stages.  The court must first be satisfied that, if the action proceeds to trial, the plaintiff will obtain judgment for a substantial sum, and, if so, the court should then consider whether, in its discretion, it should order an interim payment.  At the first stage the plaintiff must satisfy the court on the balance of probabilities, but to a high standard, that he will obtain judgment for a substantial sum; the likelihood of a set-off or any other defence succeeding must be considered by the court.  At the second stage the rules also require the court to take into account any set-off claimed by the defendant, and also any counterclaim arising out of some other transaction and not available as a defence (Shanning International Ltd v. George Wimpey International Ltd [1988] 3 All E.R. 475, CA).”

16. Applying the above principles to our case, if the matter will proceed to trial,

(a)	Will Plaintiffs obtain judgment on a substantial sum on 12(a) and 12(b)?
(b)	If so, should I exercise my discretion to order an interim payment?

17. For 12(a), I do not consider that the Plaintiffs have discharged their burden before me.  Mr. Paul Wong kindly conceded that it was difficult for this Court to resolve such factual dispute upon the evidence so far presented to me.  The case of the Defendant is that it has paid all rent up to November 2004.  There is an oral agreement between the parties that the tenancy from December 2004 to May 2005 is “rent-free”.  However, on the other hand, the case of Plaintiffs appears to be changing constantly.  On 15 November 2004, when the demand letter was issued, it was 3 months from September 2004 to November 2004.  After payment of 1 month’s rent, it became 3 months from December 2004 to February 2005 when the present action was commenced on 2 March 2005.  It had been the Plaintiffs’ case even at 2 April 2005 when one of the Plaintiffs confirmed it by affirmation.  Then, on 12 May 2005, by their Amended Statement of Claim, the Plaintiffs said that it was 7 months from August 2004 to February 2005.

18. Besides, although both parties have filed quite some affirmations and exhibits purporting to support its own case or destroy that of the other, I can only come to a state of uncertainty.  To verify if the Defendant has or has not paid the rent from August 2004 to November 2004 should be a simple factual issue by counting the payment record against the due dates.  It might be tedious, but should be within reach of the parties and their solicitors.  For the time being, I simply cannot come to a conclusion on balance of probabilities that a “substantial sum” under 12(a) could be obtained by the Plaintiff if the action is proceeded to trial.

19. On the other hand, as to 12(b), though it remains a question of factual dispute to be determined at trial, upon the evidence presented by the parties, I am not optimistic about the Defendant’s case.  I say so because:

(a)	The Defendant does not raise any set-off, cross-claim or counterclaim.
(b)	The case of the Defendant on this point is simply the alleged oral agreement between the Deceased and Mr. Cheung Wan Hang (“Mr. Cheung”) of the Defendant.
(c)	Such defence is unlikely to be successful.
(d)	The Tenancy Agreement contains no rent-free period or at all.
(e)	Mr. Cheung attempted to explain in the followings:
	“15.	There had been no problem arising from all previous tenancy agreements of the said Premises which were all prepared by MLT.  I relied on Mr. Choi’s representation and believed that the Written Agreement contained all the terms of our oral agreement.  Further, as the existing tenancy of the said Premises had already commenced, I believed that Mr. Choi had to obtain the mortgagee bank’s consent to the existing tenancy soonest possible.  As such, I simply signed on the Written Agreement without reading the contents thereof or seeking any legal advice on the same.
	16.	I submit to this Honourable Court that I had read the Written Agreement and was not aware that the oral agreement of the 6 months’ rent-free period was not set out in the Written Agreement until I sought legal advice from Messrs. Rita Law & Co. in March 2005 after the proceedings herein had been issued by the Plaintiffs.”
	(Affirmation of Mr. Cheung dated 18 April 2005)
(f)	In my view, such defence is difficult, if not impossible, to be believed.  Six months’ rent-free period is a “material variation” of the term in the tenancy.  It amounts to the sum of $333,000.00.  The Defendant did not even bother to take a look at such term.  In my experience, rent-free period usually begins at the commencement of the tenancy so that the tenant can enjoy it from the outset.  In our case, the Defendant said that it wanted “relief” for “SARS”.  So be it.  However, what is the point of “adjourning” the rent-free period to the end of the tenancy, after one a half years.  Common sense tells me that the Defendant should be asking for “immediate relief”.  Further, it also creates much skepticism over the Defendant when such oral agreement was only alleged after the death of the Deceased, but not earlier.  Finally, as a matter of fact, the Property was at the material times owned by the Deceased free of mortgage.  So, the assertion by the Defendant against the Deceased that he needed to obtain mortgagee’s consent can hardly be sustained.
(g)	Turning to discretion of this Court, I see no reason why it should not be exercised in favour of the Plaintiffs.  The Property is not mortgaged.  There is no evidence before me that the Plaintiff cannot return the monies to the Defendant in the event that the Court would accept the case of the Defendant in the end.  However, regarding the Defendant, it has only an authorized capital of $10,000.00.  Though contested, there is evidence before me that some cheques issued by the Defendant have been dishonoured.  Hence, interim payment of 12(b) should be ordered.

Time and Manner of Payment

20. Both Counsel have not spent time on the issue of time and manner for payment.  Nonetheless, I see no reason why payment should not be made to the Plaintiffs.   $333,000.00 is not a small sum, and I will grant a period of 21 days for the Defendant to arrange such payment to the Plaintiffs.

Order

21. In the circumstances, I order that the Defendant shall pay the Plaintiffs by way of interim payment:

(a)	the sum of $333,000.00 in relation to the claim for arrears of rent from 1 December 2004 to 31 May 2005, such payment shall be made within 21 days from today, and
(b)	on account of the continued use and occupation of the Property by the Defendant the sum of $55,500.00 per month on the 1st day of each calendar month commencing from August 2005 (except that the payment for the month of August 2005 shall be made within 7 days from today) during the pendency of the proceedings herein.

Costs

22. I do not have the benefit of hearing argument of costs from Counsel.  12(c) is not contested.  The Plaintiffs won 12(b) while the Defendant succeeded in defending for 12(a).  I see fit for an order nisi that each party shall bear its own costs in relation to the Amended Summons, such order will become absolute within 14 days from today.