STAR WIN ENTERPRISES LTD v. THE ONE PROPERTY LTD (formerly known as CHINESE ESTATES (THE ONE) LTD)

DCCJ 4810/2020

[2021] HKDC 922

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4810 OF 2020

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BETWEEN

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DECISION

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THE APPLICATION

1.  By summons filed on 19 November 2020, the plaintiff applied pursuant to Order 14 and Order 14A of the Rules of the District Court for the following orders:

(1) Determination of three questions of law and/or construction;

(2) Further or alternatively, in the event any of the three questions of law and/or construction is answered in the affirmative, final judgment (in whole or in part) be entered for the plaintiff against the defendant.

THE BACKGROUND

2.  By a written agreement dated 18 April 2011, the plaintiff as lessee and the defendant as lessor entered into a lease agreement (“the Lease Agreement”) by which the defendant agreed to let and the plaintiff agreed to take up a lease of the premises known as Cinema (Portion of the Level 6, Level 7, Level 8, Level 9, Level 10 and Level 11) (also referred to as L6, L7, L8, L9, L10 and L11) of The ONE, 100 Nathan Road, Kowloon, Hong Kong) (“the Premises”) for a term of 13 years from 8 April 2010 to 7 April 2023.

3.  It is stipulated under the Lease Agreement that the Premises can only be used as a six-plex cinema complex.

4.  Pursuant to the Lease Agreement, the plaintiff is liable to pay the defendant, apart from Rates: (a) Basic Rent; (b) Turnover Rent; (c) Turnover Rent on Screen Advertising; (d) Turnover Rent on Confectionary, Food and Beverages; (e) Service Charges; and (f) Promotion Levy, on monthly basis.

5.  Clause 8 of the Lease Agreement provides that:

“If the Premises or any part thereof are rendered unusable unfit for occupation or inaccessible by closure order or building order issued by the Government, fire lightning explosion storm tempest floor earthquake bursting or overflowing of water tanks apparatus and pipes impact aircraft and articles dropped therefrom riot civil commotion labour disturbances and malicious damage and such other events beyond the control of the Lessor and as may be determined by the Lessor the Rent and Service Charges or a part thereof proportionate to the extent to which the Premises shall have been so rendered unusable or inaccessible shall abate and cease to be payable from the month following the happening of the events mentioned hereinabove until the Premises shall have been again rendered fit for use and accessible PROVIDED that there shall be no cessation of Rent and Service Charges if any insurance policy affected by the Lessor shall have been rendered void or voidable in whole or in part by the act or default of the Lessee or any person deriving title under the Lessee or any of the servants agents invitees or licensees of the Lessee.”

6.  Owing to the outbreak of the Covid-19 epidemic, the Hong Kong Government, by virtue of directions issued under the Prevention and Control of Disease (Requirements and Directions) (Business and Premises) Regulations (Cap.599F, Laws of Hong Kong) (“the Directions”), directed that certain premises (including cinemas) shall be closed or opened subject to conditions (as the case may be) as follows:

29 March 2020 – 7 May 2020	Total closure
8 May 2020 – 30 June 2020	Only 50% capacity allowed[1]

7.  By various Rental Concession Notices issued by the defendant to the plaintiff, the defendant offered the plaintiff (as one of the selected tenants) 30% deduction of the monthly Basic Rent for the months of February, March and April 2020 and 20% reduction of the monthly Basic Rent for several other months including June 2020 (“the Rental Concession Arrangement”), all subject to the condition that all outstanding arrears shall be settled on or before the last calendar day of the respective month, failing which the plaintiff would be considered giving up the entitlement to the Rental Concession Arrangement.

8.  As the aforesaid condition was not met by the plaintiff, the defendant instituted a distraint action (“the Distraint Action”) against the plaintiff and obtained a Warrant of Distress dated 13 July 2020.  The Distraint Action was not contested by the plaintiff, which subsequently made payments to the defendant towards all outstanding arrears accordingly.

9.  In this action, the plaintiff alleges that:

(1) Pursuant to Clause 8 of the Lease Agreement, it should not be liable to pay 100% of the Rent[2] and Service Charges during the period between 29 March 2020 and 7 May 2020 when the Premises were ordered to be closed entirely by the Government, and 50% of the aforesaid items covering the period from 8 May 2020 to 30 June 2020 when the Government ordered that only 50% of the total capacity of audience was allowed admission into the Premises;

(2) The Lease Agreement contains an implied term (“the Implied Term”) as follows:

“If, pursuant to law and/or order or direction of the Hong Kong Government, the plaintiff is rendered unable to use the Premises or any part thereof or any seat therein (and/or the Premises or any part thereof or any seat therein are rendered unusable, unfit for occupation or inaccessible) to a complete or partial extent for film showing, as cinema or such other purposes specified in the Fifth Schedule of the Lease Agreement (“Purposes”) for any period, the plaintiff shall cease to be liable or be suspended from its liability to pay Rent, Service Charges, Rates and Promotion Levy for such period, or a part thereof proportionate to the extent which the plaintiff is so rendered unable to use the Premises or any part thereof or any seat therein for the Purposes (and/or the extent the Premises or any part thereof or any seat therein are rendered unusable, unfit for occupation or inaccessible for the Purposes)”;

(3) Pursuant to the Implied Term, it should not be liable to pay 100% of the Rent, Service Charges, Rates and Promotion Levy during the period between 29 March 2020 and 7 May 2020, and 50% of the aforesaid items covering the period from 8 May 2020 to 30 June 2020;

(4) By reasons of the above, it had overpaid the defendant the sum of $2,563,468, and the sum was paid under compulsion and/or mistaken belief that it would be entitled to recover any overpayment which it was not liable for under the Lease Agreement;

(5) The defendant was unjustly enriched at the expense of the plaintiff as to the sum of $2,563,468, and therefore the defendant is liable to repay the same to the plaintiff by way of restitution;

(6) Alternatively, the Lease Agreement is partially frustrated during the periods when the Premises were rendered unusable, unfit for occupation and/or inaccessible to a complete or partial extent and ordered to be wholly or partially closed by the Government, and as a result, the plaintiff should be excused or suspended from performance of its obligations to pay Rent, Service Charges, Rates and/or Promotion Levy during the said periods.

10.  The plaintiff therefore claims for the said sum of $2,563,468, interest thereon, and a declaration that “pursuant to Clause 8 of the Lease Agreement and/or the Implied Term […] and/or the law of partial frustration, the plaintiff is not required to pay the whole or part of the rent, service charges, rates and promotion levy under the Lease Agreement during the periods when the Premises were ordered to be totally and partially closed by Government Orders”[3].

THE THREE QUESTIONS OF LAW AND/OR CONSTRUCTION

11.  The three questions of law and/or construction which the plaintiff invited the court to determine are as follows:-

(1) Whether, on the true and proper construction of Clause 8 of the Lease Agreement, Rent and Service Charges otherwise payable under the Lease Agreement or part thereof have been abated and/or ceased to be payable (in whole or in part) in respect of periods where the Premises is ordered to be closed (totally or partially) and/or the use of which be restricted by Direction(s) in relation to Scheduled Premises issued by the Secretary for Food and Health of the Hong Kong Special Administrative Region (“the Relevant Period”) as follows:

(i) Between 29 March 2020 and 7 May 2020 – 100% Rent and Service Charges abated and/or ceased to be payable; and

(ii) Between 8 May 2020 and 30 June 2020 – 50% Rent and Service Charges abated and/or ceased to be payable.

(“the Clause 8 Question”)

(2) Whether there is an implied term of the Lease Agreement as set out above. (“the Implied Term Question”)

(3) Whether the Lease Agreement is partially frustrated during the Relevant Period with the result that the plaintiff should be excused from performance of its obligations to pay any Rent, Service Charges, Rates and Promotion Levy thereunder (in whole or in part) during the Relevant Period. (“the Partial Frustration Question”)

APPLICABLE LEGAL PRINCIPLES

12.  The principles governing Order 14 and Order 14A applications are undisputed.

13.  In Shell Hong Kong Limited v Yeung Wai Man Kiu Yip Company Limited [2003] 3 HKLRD 62, Chan PJ examined the nature of the Order 14A procedure as follows:

“20. The Order 14A procedure was first introduced in England in 1991 and in Hong Kong in 1992. The underlying policy of this Order is, as the Supreme Court Practice 1993 described, ‘to accelerate the final judicial disposal of an action at the interlocutory stage and thereby save the expense and delay which would otherwise arise not only if the action were to proceed to a full trial but also if the parties would be required to undertake the necessary pre-trial steps to prepare for such trial.’ Vol. 1 para. 14A/1-2/1, p. 175.

21. For the purpose of this appeal, I need only refer to the main provision in Order 14A rule 1(1) which provides:

‘(1) The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any cause or matter at any stage of the proceedings where it appears to the Court that –

(a) such question is suitable for determination without a full trial of the action; and

(b) such determination will finally determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein.’

22. This rule may be invoked for a determination of a question of law or construction of any document by the court, provided that the two conditions in (a) and (b) above are fulfilled. The parties must either have consented to adopt such a procedure or have had the opportunity to be heard. Order 14A rule 1(3).

23. In cases which involve the determination only of a question of law or the construction of a document or where the whole case largely depends on the resolution of a question of law or the construction of a document, the Order 14A procedure is often adopted to put an early end to the entire case. However, it can be seen that under the condition in (b), this procedure can be invoked for the purpose of finally determining not only the entire cause or matter but also ‘any claim or issue’ in the cause or matter. It is not necessary for the making of an application under Order 14A that the determination of a question of law or construction of any document would finally determine the whole action. Such a requirement would be wrong as a matter of ‘interpretation of the order and as an exercise of discretion’. See Leggatt LJ in Korso Finance Establishment Anstalt v. Wedge & others, unreported, February 15, 1994, CA Transcript, at p.7 (in which it was held that an issue of construction was still suitable for determination under Order 14A even though a determination of this issue would not finally determine the entire action between the parties). It is sufficient if an issue in the case can be disposed of using such procedure. However, it is not contemplated that the parties would submit a trivial matter for determination under Order 14A. This would not only be contrary to the spirit and purpose of this procedure, but may also lead to possible abuse, resulting in unnecessary expense and delay and wastage of judicial time. No judge would accede to that sort of request or application in the proper exercise of his discretion.

24. It must also be noted that it is inappropriate to use this procedure if the issues of facts are interwoven with the legal issues to be determined. For obvious reasons, the question of law or construction of document cannot be dealt with on assumed or hypothetical facts. And if it is necessary for the court to hear evidence to resolve a factual dispute in order to come to a determination on the question of law or construction of document, it would not normally be suitable to invoke Order 14A.

25. Hence, even if the conditions are satisfied, the court still has a discretion under rule 1 to decide whether to entertain an application under this Order.  He has to decide on the suitability of adopting the procedure in the case in hand before adjudicating on the merits […].”

14.  In Rockwin Enterprises Limited v Shui Yee Limited & Others [2003] 3 HKC 174, Recorder Ma SC (as his Lordship then was) explained that a three-step approach should be adopted in an Order 14A application:

“18. Once seized of an application under Order 14A, the court’s approach is essentially a three-step approach:

(1) Is the relevant question one of law or of the construction of a document?

(2) If so, is that question one that should be determined under the Order 14A procedure?

(3) If the answer to (2) is ‘yes’, what is the determination of that question and what orders should the court make as a consequence of determining that question?

19. Usually, step (1) will cause little difficulty for the court to ascertain.

20. Step (2) requires the court to be satisfied of the following:

(a) That the question of law or construction is one that is suitable for determination without a trial. In other words, the court has all the necessary facts and matters before it in order to determine the question of law or construction.

(b) That if so suitable and should it be determined by the court, that it will finally determine (subject to a possible appeal) the entire cause or matter or any issue or claim therein.

(c) Even if the above two conditions are fulfilled, that the court in its discretion is satisfied that the question is one that ought to be determined under Order 14A.

21. It is clear that the court has a residual discretion whether or not to embark on a determination of a question under Order 14A even where the first two requirements (set out in paragraphs 20(a) and (b) above) are fulfilled. This is clear from the word ‘may’ in Order 14A, rule 1(1) and from the authorities.

22. […]

23. […] in my view, it does not follow that even if the determination of a question of law or construction would finally determine a claim or issue in the proceedings, the court should automatically be required to embark on the determination of a question under Order 14A. There is, as I have already remarked, a residual discretion vested in the court.

24. Quite how that residual discretion is to be exercised in any given case depends of course on the circumstances. In Korso Finance Establishment Anstalt v. John Wedge (unreported, 15 February 1994), two factors were relevant to the Court of Appeal’s decision to allow the appeal thereby enabling the question there to be determined under Order 14A:

(a) The question of construction was a dominant feature of the case, going to what was described as an important issue, namely, the primary liability of the defendants in that case. As I have remarked, the letter of agreement to be construed was said to be at the ‘heart’ of the case.

(b) If the question of construction was dealt with, this might or would enable the parties to avoid the expense of trial and assist them in the efficient disposal of the action.

25. These are no doubt relevant (and in some cases decisive) considerations that a judge can legitimately take into account but there may be other considerations. Other considerations include the following:

(a) The court can take an overall view of the matter to see the context in which the question arises. If the court is of the view that there would not be a great saving of time or costs in determining the question (or indeed if it feels quite the opposite), this would be a factor against adopting the Order 14A procedure. For example, if the question involves an issue that is not determinative of the action or is but one of many issues or which may at the end of the day be an academic one, a court may well not embark on a determination under Order 14A. In such situations, it may be that a determination by the court leading possibly to appeals at two further levels, will result in more delay and expense to the parties than if the whole matter was decided at one go at trial.

(b) On the other hand, an issue may recur so much on a continuing basis that to determine it may not only be convenient but extremely desirable. For example, where the determination of an issue would result in the discovery process not being as extensive or expensive as might otherwise be the case, it may well be appropriate to use the Order 14A procedure.

26. It is of course not possible to set out all the circumstances which may be relevant in any given case to the exercise of the court’s discretion. Much will depend on the perception and instinct of the Judge seized of the matter.

27. Of course, the residual discretion becomes exercisable really only where the two requirements (referred to in paragraphs 20(a) and (b) above) have been fulfilled. Here, it is important to emphasise that the question of law or construction is one that is suitable for determination without a trial. In other words, the court must have all the necessary facts and matters before it in order to determine the question of law or construction. Where the court is not seized of all relevant facts, it would be an extremely rare case (if ever) in which the procedure under Order 14A would be adopted. In Cable & Wireless HKT International Limited v. New World Telephone Limited (Stone J, unreported, 5 April 2000, HCCL 229/1999), the main concern of the court was that the factual basis for the determination of the question he was invited to determine, was uncertain. On appeal, the Judge’s views were upheld by the Court of Appeal. I note that this approach is entirely consistent with those passages contained in Hong Kong Civil Procedure 2001 at paragraph 14A/2/4.

28. Finally, on the assumption that Steps (1) and (2) have been overcome, Step (3) involves the court actually determining the relevant question and making consequential orders flowing from its determination.”

15.  To J had further explained in China Ping An Insurance (Hong Kong) Company Limited v Tsang Fung Yin Josephine & Another [2012] 2 HKLRD 674 that:

“18. The question of law or construction of document to be determined by the court under this Order should be stated or formulated in clear, careful and precise terms, so that there should be no difficulty or obscurity, still less any ambiguity, about what question has to be determined: Allen v Gulf Oil Refining Ltd [1980] QB 156.

19. The court’s discretion under Order 14A is very wide. The procedure can be invoked not only in respect of questions which finally determine the entire cause or matter, but also questions which finally determine any claim or issue, but the process does not contemplate that trivial matters would be submitted for determination: Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd & Another (2003) 6 HKCFAR 222. The court also has residual discretion not to embark on a determination of a question under this procedure even if the two requirements set out above are satisfied, if the court is not seized of all relevant facts: Rockwin Enterprises Ltd v Shui Yee Ltd & Others [2003] 3 HKC 174. The court is always uneasy in having to decide questions of legal principle without knowing the full facts: E (A Minor) v Dorset CC [1995] 2 AC 633. In deciding whether to make a determination, the court has to take an overall view of the matter to discern the context in which the question arises and whether the determination goes to the core of the plaintiff’s case or the defendant’s defence or is merely one of a variety of issues for decision. If the determination will not finally or substantially determine the entire cause or matter, the court should exercise its residual discretion not to make a determination. This is because such a determination is often made in the absence of knowledge of the full facts of the case. If the court is not seized of all relevant facts and there are outstanding issues which have to proceed to trial, the court should not place itself in a precarious position in the event that the basis on which it made its determination earlier may turn out to be inconsistent with the facts subsequently found. In any event, it should not by making such determination bind its hands in its future fact finding.

20. In considering an Order 14A application, the court has to determine: (1) if the question raised is a disputed point of fact or law relied on by way of claim or defence; (2) if such question is suitable for determination without a full trial of the action; and (3) if such determination will finally determine the entire cause or matter or any claim or issue therein. The decision whether to make a determination will have to be made on the basis of the parties’ pleadings and so much of the facts which are not in dispute. Upon making a determination, the court may dismiss the cause or matter or make such order or judgment as it thinks fit.” (emphasis added)

16.  On Order 14 applications, Mr Li SC and Mr Lai for the defendant have referred this court to the case of The Centre (76) Limited v Victory Serviced Office (HK) Limited [2020] HKCFI 2881 in which Deputy High Court Judge To cited the well settled principles as follows:

(1) summary judgment should only be given in clear and obvious cases in which there are no serious material factual disputes and if there is a legal issue, then no more than a crisp legal question as well decided summarily as otherwise;

(2) the plaintiff has to show that his case comes within Order 14 by affidavit verifying the facts on which the claim or the part of the claim to which the application relates is based and stating that in the deponent’s belief there is no defence to that claim or part of it or no defence except as to the amount of any damages claimed;

(3) once that hurdle is passed, the burden, as it were, is shifted to the defendant to satisfy the court why judgment should not be given against him; and

(4) the defendant may show cause against the plaintiff’s application by raising technical objections or on the merits, eg that he has a good defence to the claim, that a difficult point of law is involved, or a dispute as to the facts which ought to be tried, or a real dispute as to the amount due which requires taking of an account to determine, or any other circumstances showing reasonable grounds of a bona fide defence.

DISCUSSIONS

Order 14A application

17.  As far as the Order 14A application is concerned, I will follow the three-step approach laid down by Recorder Ma SC in Rockwin Enterprises Limited v Shui Yee Limited & Others (supra) and consider the 3 questions proposed by the plaintiff in turn below accordingly.

The Clause 8 Question

18.  To recap, the Clause 8 Question reads:

“Whether, on the true and proper construction of Clause 8 of the Lease Agreement, Rent and Service Charges otherwise payable under the Lease Agreement or part thereof have been abated and/or ceased to be payable (in whole or in part) in respect of periods where the Premises is ordered to be closed (totally or partially) and/or the use of which be restricted by Direction(s) in relation to Scheduled Premises issued by the Secretary for Food and Health of the Hong Kong Special Administrative Region as follows:

(i) Between 29 March 2020 and 7 May 2020 – 100% Rent and Service Charges abated and/or ceased to be payable; and

(ii) Between 8 May 2020 and 30 June 2020 – 50% Rent and Service Charges abated and/or ceased to be payable.

19.  I do not think there can be any dispute that this question is indeed a question of the construction of a document.  Step 1 is therefore satisfied.

20.  What causes much more difficulty is step 2, under which I have to consider whether the Clause 8 Question is suitable for determination without a trial.  I have to be satisfied that the court has all necessary facts and matters before it for the purpose of such determination.

21.  As to what facts and matters have to be considered for the purpose of the construction of a document, I first of all seek guidance from Kwan VP’s Judgment in Achieve Goal Holdings Limited v Zhong Xin Ore-Material Holding Company Limited [2020] HKCA 51 in which her Ladyship referred to the following general principles in paragraph 16 thereof:

“(1) The construction of a contract is an attempt to discover what a reasonable person would have understood the parties to have meant. This is done by identifying the meaning of the relevant words, (a) in light of the natural and ordinary meaning of those words, the overall purpose of the contract, any other provisions of the contract, the facts known or assumed by the parties at the time the contract was made, and common sense, but (b) ignoring subjective evidence of any party’s intentions. (Marley v Rawlings [2015] AC 129 at §19, per Lord Neuberger of Abbotsbury, PSC)

(2) The background knowledge which would reasonably have been available to both parties in the situation in which they were at the time of the contract includes anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912H to 913A, per Lord Hoffmann; Arnold v Britton [2015] AC 1619 at §21, per Lord Neuberger of Abbotsbury, PSC)

(3) Reliance placed on commercial sense and surrounding circumstances should not be invoked to undervalue the importance of the language of the provision which is to be construed. Except in a very unusual case, the parties have control over the language they use in a contract and must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision. A court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. (Arnold v Britton at §§17 and 20, per Lord Neuberger of Abbotsbury, PSC)

(4) Interpretation is a unitary exercise. Where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But in striking a balance between the indications given by the language and the implications of the competing constructions, the court must consider the quality of drafting of the clause (the poorer the quality of the drafting, the less willing the court should be to be driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention), and it must be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest. (Wood v Capita Insurance Services Ltd [2017] AC 1173 at §11, per Lord Hodge JSC; Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299 at §16, per Mance LJ)

(5) Where the disputed provision is open to two possible interpretations, the unitary exercise involves an iterative process, by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated. Once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each. (Wood v Capita Insurance Services Ltd at §12, per Lord Hodge JSC; In re Sigma Finance Corpn [2010] 1 All ER 571 at §12, per Lord Mance JSC)

(6) In construing a contract, all parts of it must be given effect where possible, and no part of it should be treated as inoperative or surplus. Whilst the presumption against surplusage is unlikely to be useful in interpreting a standard form contract, it is a relevant consideration in a bespoke contract drafted by the parties to meet the exigencies of a particular and significant commercial arrangement. (Secretary of State for Defence v Turner Estate Solutions Ltd [2015] EWHC 1150 (TCC) at §62, per Coulson J)” (emphasis added)

22.  Lam VP also had the following to say on the construction of a term of an agreement in New Castle Investments Limited v WFC Holding Limited [2020] HKCA 755:

“37. Construction of the terms of an agreement should be approached by reference to its context and purpose. All the terms of the agreement should be read together and construed with the overall context in mind. It is a unitary exercise involving an iterative process. See Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351; Achieve Goal Holdings v Zhong Xin Ore-Material Holding [2020] HKCA 51; Sino Channel Holdings v Vast Faith Investment [2020] HKCA 311.

38. Further, the court could and should have regard to implications of each competing construction, at least by way of cross-check. Business common sense should be engaged in the iterative process: see Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 per Lord Clarke at [20] to [30]. In particular, His Lordship said at [21]:

‘The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has 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, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. if there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.’

39. Lord Clarke also cited with approval the judgment of Mance LJ (as he then was) in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299. For the present purposes, we only need to refer to [16] of that judgment:

‘… In my opinion, a court when construing any document should always have an eye to the consequences of a particular construction, even if they often only serve as a check on an obvious meaning or a restraint upon adoption of a conceivable but unbusinesslike meaning…’

40. It is perhaps worth emphasizing that attaching too much weight to the natural meaning of words could lead experienced lawyers and judges to adopt a wrong construction of the document. Thus, in In re Sigma Finance Corporation [2009] UKSC 2, the majority of the Supreme Court overturned the construction adopted in the courts below. Lord Mance (with whom Lord Hope, Lord Scott and Lord Collins agreed) had this to say at [12]:

‘12. In my opinion, the conclusion reached below attaches too much weight to what the courts perceived as the natural meaning of the words of the third sentence of clause 7.6, and too little weight to the context in which that sentence appears and to the scheme of the Security Trust Deed as a whole. Lord Neuberger was right to observe that the resolution of an issue of interpretation in a case like the present is an iterative process, involving “checking each of the rival meanings against other provisions of the document and investigating its commercial consequences” …Like him, I also think that caution is appropriate about the weight capable of being placed on the consideration that this was a long and carefully drafted document, containing sentences or phrases which it can, with hindsight, be seen could have been made clearer, had the meaning now sought to be attached to them been specifically in mind … Of much greater importance in my view, in the ascertainment of the meaning that the Deed would convey to a reasonable person with the relevant background knowledge, is an understanding of its overall scheme and a reading of its individual sentences and phrases which places them in the context of that overall scheme …’

41. Ma CJ’s salutary reminder in Fully Profit v Secretary for Justice, supra at [15] is also apposite:

‘ … It is in my view not particularly helpful in most cases to refer to the ‘ordinary and natural meaning’ of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words. The surer guide to interpretation is context…’ ”

23.  It can be seen that when interpreting a contract, the court has to take into account the facts known or assumed by the parties at the time the contract was made, in other words, this court should consider the factual matrix surrounding the making of the Lease Agreement.  However, as pointed out by the defendant, there is hardly any evidence before the court on such factual matrix. 

24.  The plaintiff argued in paragraph 22(c) of its written submissions that:

“Notably, at p.3, §9 of D’s Skeleton, it is D’s own submissions that the necessary background facts are ‘not in dispute and/or being largely documented’ (emphasis added). It lies ill in D’s mouth to now complain (without specificity) that certain factual matters are not before the court.”

25.  With greatest respect, Mr Suen SC and Ms Ng have apparently twisted the meaning of Mr Li SC and Mr Lai.  They, under the section “Background Facts” in their written submissions, only stated that:

“The necessary background facts which are not in dispute and/being largely documented are outlined below”.

26.  Clause 8 is a very important clause in the Lease Agreement because, as demonstrated by the claim made herein, it concerns the allocation of risk between the parties.  In my view, a decision on the interpretation of such a clause must be made very carefully but not lightly.  It must be more prudent and advisable for the court to make a ruling after it has heard all the evidence.

27.  In such circumstances, I do not consider it appropriate to decide the Clause 8 Question at this stage.

The Implied Term Question

28.  The next question which the plaintiff asks this court to determine right now is whether there is an implied term of the Lease Agreement in the following terms:

“If, pursuant to law and/or order or direction of the Hong Kong Government, the plaintiff is rendered unable to use the Premises or any part thereof or any seat therein (and/or the Premises or any part thereof or any seat therein are rendered unusable, unfit for occupation or inaccessible) to a complete or partial extent for film showing, as cinema or such other purposes specified in the Fifth Schedule of the Lease Agreement for any period, the plaintiff shall cease to be liable or be suspended from its liability to pay Rent, Service Charges, Rates and Promotion Levy for such period, or a part thereof proportionate to the extent which the plaintiff is so rendered unable to use the Premises or any part thereof or any seat therein for the Purposes (and/or the extent the Premises or any part thereof or any seat therein are rendered unusable, unfit for occupation or inaccessible for the Purposes)”

29.  Step 1 under the three-step approach referred to above is satisfied because this question is about the construction of the Lease Agreement.  The issue is whether this question is suitable for determination without a trial.

30.  In the Court of Appeal decision in Ng Chun Kong v First Star Development Ltd [2007] 3 HKLRD 281, in which the question raised under an Order 14A application therein was whether there was an implied term, Le Pichon JA held that:

“27. It is well settled that the court must construe a written agreement in the light of the circumstances surrounding its making. What this means was explained by Lord Wilberforce in his speech in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995H-996A:

‘No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as ‘the surrounding circumstances’ but this phrase is imprecise; it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.’

His conclusion (at 997C) was this:

‘…what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were.’

28. There is no conceptual limit to what can be regarded as background. 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 and which he would have regarded as relevant save that previous negotiations of the parties and their declarations of subjective intent are excluded. See Investors Compensation Scheme v West Bromwich Building Society [1998] 1WLR 896 at 912H-913A and BCCI v Ali [2002] 251 at para. 39. Evidence of background that is admissible is limited to objective facts.” (emphasis added)

31.  Stone J agreed with Le Pichon JA and added, among other things, that:

“Accordingly, the issue of the true contractual ambit is not something which, without more, safely can be gleaned merely on the face of the existing papers; as Le Pichon JA has emphasized, the court must construe an agreement in light of the circumstances prevailing when it was made, and whether the retainer could be so impliedly limited or ‘conditioned’ in these circumstances is a matter best left to the trial judge to evaluate in light of all the evidence as ultimately is placed before him.” (emphasis added)

32.  In Chitty on Contracts (33^rd edition, 2018), the learned author stated in paragraph 14-003 that:

“[…] While the process of interpretation precedes implication and thus may be described as ‘the precursor of implication’, the two processes, while ‘logically distinct’ have nevertheless been held to be ‘closely related’ in that:

‘…both involve taking into account the words used in the contract, the surrounding circumstances known or available to the parties at the time of the contract, commercial common sense and the reasonable reader or reasonable parties.’ ” (emphasis added)

33.  Since the court should take into account the surrounding circumstances known or available to the parties at the time of the making of the Lease Agreement and the background of the contract, the reason for refusal to determine the Clause 8 Question explained above is applicable here.

34.  The Implied Term Question is therefore not suitable to be determined without a trial.

The Partial Frustration Question

35.  The last question which the plaintiff suggested this court to determine herein is as follows:

“Whether the Lease Agreement is partially frustrated during the Relevant Period with the result that the plaintiff should be excused from performance of its obligations to pay any Rent, Service Charges, Rates and Promotion Levy thereunder (in whole or in part) during the Relevant Period.”

36.  In the written submissions of Mr Suen SC and Ms Ng, it was explained on behalf of the plaintiff that:

“The references to ‘partial frustration’ in the Re-Amended Statement of Claim and affirmation evidence are but a shorthand for the principle laid down in the line of authorities whereby a contractual obligation which has been rendered impossible or illegal due to a supervening event may be suspended and/or the non-performance of which by a contracting party may be excused.”[4]

37.  In their reply submissions, it was further explained that:

“It is reiterated that P is relying on is (sic) the principle that where a contractual obligation has been rendered impossible or illegal due to a supervening event, such contractual obligation may be suspended and/or the non-performance of which may be excused.”[5]

38.  By reference to the 2 paragraphs of written submissions quoted above, it appears that the plaintiff is not relying on the principle of “frustration” anymore.  If I am right, I do not think the Partial Frustration Question is a question which is clear enough for the court to consider.  As explained above, the question of law or construction of document which the court is asked to determine under the Order 14A procedure should be formulated in clear, careful and precise terms, so that there should be no obscurity about what question has to be determined.  I am afraid the proposed question fails this test.

39.  May be it was because of the plaintiff’s explanation in its written submissions (about the real meaning of “partial frustration”) that Mr Li SC and Mr Lai, in their written submissions, complained that the plaintiff had, without leave, changed the Partial Frustration Question. There is much force in this submission.  This also reinforces my view that the question herein was not drafted clear enough.

40.  Insofar as it is indeed the plaintiff’s intention to rephrase the question, I accept the defendant’s that the revised formulation of the question is still unclear, because it is difficult to understand what “contractual obligation” under the Lease Agreement has been rendered impossible or illegal by reason of the supervening event.  As pointed out by the defendant, the plaintiff’s obligation to pay rent pursuant to the Lease Agreement has obviously not made impossible or illegal as such by virtue of the Directions.

41.  For the above reasons, I hold the view that the Partial Frustration Question is not a suitable question to be determined under the Order 14A procedure. 

Residual discretion

42.  Even if I am wrong in that the three questions are in fact suitable for determination without a trial, I still have to decide whether I should exercise the court’s residual discretion to decide on those questions.

43.  In the circumstances of the present case, I am of the view that I should not exercise such discretion.  This is because even if I decide any of the three questions in favour of the plaintiff, a trial of this action is still unavoidable (I will elaborate on this further below).  That being so, not only would there be limited savings on costs if those three questions are decided right away herein, the determination of those questions may lead to appeals, which would add to the legal costs and time for the resolution of the whole action.  This is a matter which Recorder Ma SC referred to in paragraph 25(a) of his Judgment in Rockwin Enterprises Limited (supra), where he said that “it may be that a determination by the court leading possibly to appeals at two further levels, will result in more delay and expense to the parties than if the whole matter was decided at one go at trial”.

44.  I will now elaborate on why I take the view that the determination of the 3 questions would not be determinative of the whole action and a trial is unavoidable.

45.  First of all, I am of the view that the defendant has raised an arguable defence on its case that the plaintiff could have and should have raised the points as encapsulated by the three questions in the Distraint Action and as a result, following the well-known Henderson v Henderson principle, the plaintiff is estopped from raising these points herein. 

46.  In Johnson v Gore Wood & Co [2002] 2 AC 1, Lord Bingham explained that:

“The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all […] It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.”[6]. (emphasis added)

47.  Hence, the issue before the court is: whether, having taken into account all the facts of the case, the court holds the view that the plaintiff had misused or abused the process of the court.

48.  Mr Suen and Ms Ng have made various arguments as to why it is said that there is clearly no abuse of process.  Without disrespect to counsel, I do not propose to deal with those arguments one by one.  Suffice for me to say that this is clearly a matter which should be decided by the trial judge after he has had the chance to hear all evidence.  To me, whether there is an abuse of process of the court must be a triable issue.

49.  Secondly, the plaintiff’s claim for the return of $2,563,468 is based on the cause of action of unjust enrichment.  As recognised by the plaintiff, one of the elements which it has to prove is that the enrichment was unjust.  As to this, Mr Suen and Ms Ng submitted that:

“As to third requirement, it is clear that P was acting under compulsion, and in particular, the threatened and/or actual seizure or distress of P’s goods and properties pursuant to the Distraint Action: Maskell v Horner [1915] 3 KB 106 at 118.”

50.  Although it was pleaded in the Amended Statement of Claim that the plaintiff had paid the defendant the said sum of money “under compulsion and/or the mistaken belief that the plaintiff would be entitled to recover any overpayment which the plaintiff was not liable for under the Lease Agreement”[7], it appears from the quoted paragraph above that the plaintiff is not relying on “mistake” being an unjust factor anymore.  Indeed, the plaintiff did not, in its reply submissions, mention a single word on “mistake” despite the defendant’s argument on the plaintiff’s alleged mistake.

51.  On the question whether the plaintiff had made the payment to the defendant under compulsion, as the plaintiff pointed out, the ultimate question is whether the plaintiff’s payments were made voluntarily[8].  In my view, this is a triable issue which can only be resolved at the trial.

52.  The defendant has made many other points in support of its arguments that it has an arguable defence.  Without disrespect to counsel, I shall not deal with those arguments, as my analysis above should be adequate in the disposal of the Summons.  No matter whether the defendant has only 2 or more than 2 lines of arguable defence, the result herein would be the same.

Conclusion on Order 14A application

53.  For the above reasons, I dismiss the plaintiff’s application made under Order 14A.

Order 14 application

54.  By reason of my decision in respect of the plaintiff’s Order 14A application, its Order 14 application is a non-starter.

ORDER

55.  By reasons of the aforesaid, the Summons is hereby dismissed.

COSTS

56.  I make a costs order nisi that the plaintiff shall bear the costs of the Summons, with certificate for two counsel.  The above order nisi shall become absolute in the absence of application to vary within 14 days hereof.

57.  The defendant’s costs of the Summons shall be summarily assessed.  Unless any application for variation of the aforesaid costs order nisi is made within time, the defendant shall lodge and serve its statement of costs within 7 days after the expiry of the said 14-day period.  The plaintiff shall lodge and serve its statement of objection within 7 days thereafter.  Summary assessment of the costs of the Summons will be conducted on paper (no matter whether any statement of objection is lodged by the plaintiff within time) thereafter.  The costs assessed shall be payable by the plaintiff within 14 days after assessment.