MAXON INVESTMENT LTD AND ANOTHER v. SINO LEADER (ASIA) LTD

HCA2332/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2332 OF 2003

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J U D G M E N T

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1. This is the defendant's appeal against the Master's order made on 31 March 2004 upon the plaintiffs' application for interim payment under Order 29 rule 12(b) of Rules of the High Court.

2. The Master had ordered the defendant to pay to the plaintiffs' solicitors within 21 days from the date of the order, a sum of $400,000 by way of interim payment, and on account of its liability in respect of the use and occupation of the suit premises, together with costs.

Background

3. The suit premises cover a restaurant on the roof and 337 car parking spaces on the 3rd Floor of City One Plaza, Shatin, New Territories ("the Premises"). The defendant was granted a two years licence to use and occupy the Premises at the payment of a monthly fee of $160,000 commencing 15 November 2002. The licence agreement was made between the 1st plaintiff and the defendant in March 2003. By an assignment dated 30 July 2003, the 1st plaintiff assigned the Premises to the 2nd plaintiff.

4. By a letter dated 26 March 2003, the Shatin District Lands Office informed the 1st plaintiff that the use of the Premises by the defendant as parking spaces for display of private motor vehicles and related activities was in breach of Special Condition 19(a) and (b) of New Grant No.11064, which governs the Premises.

5. By a letter dated 20 June 2003, the 1st plaintiff gave notice of termination of the licence granted to the defendant with immediate effect.

6. On 4 June 2003, the plaintiffs commenced these proceedings. By a summons filed on 25 June 2003, the plaintiffs applied for interim payment under Order 29 rule 12(b) of Rules of the High Court.

Order 29 rule 12(b) RHC

7. It is common ground between counsel that there are two pre-conditions to be satisfied under an Order 29 rule 12(b) application :

(1) The plaintiff's action includes a claim for possession of land; and

(2) If the action proceeded to trial, the defendant would be held liable to pay to the plaintiff a sum of money in respect of the defendant's use and occupation of the land during the pendency of the action, even if a final judgment or order were given or made in favour of the defendant :

Winsworld Properties Limited v. Chance Full International Development Limited and Anor (unreported), HCA 4161/2003.

Use and occupation

8. The present appeal raises only one issue, namely, whether the second pre-condition has been satisfied. On behalf of the defendant, it is argued that the plaintiffs have failed to establish that the defendant has been using or occupying the premises.

9. Use and occupation is a matter of fact and exist where there is a sufficient measure of control, such as to prevent strangers from interfering with the land in question : Newcastle City Council v. Royal Newcastle Hospital [1959] AC 248 at 355 per Lord Denning.

10. In the present case, what the court has to decide is whether the activities, if any, of the defendant on the Premises amount to use or occupation. The plaintiffs rely heavily on a letter dated 16 July 2003 from the defendant's solicitor to the plaintiffs' solicitor. This letter shows a number of things. Firstly, it shows that the defendant had locked up the gate to the Premises. The defendant said this was to safeguard its assets on the Premises. Secondly, it shows that the defendant's staff was working on the Premises. Thirdly, it shows that the defendant was asserting possession of the Premises as well as asserting complete control and management over the Premises. Fourthly, the letter also shows an intention on the part of the defendant to continue using the Premises.

11. There is additionally, the evidence from the plaintiffs by way of affirmation to the effect that the defendant had indeed locked up the Premises since 5 July 2003.

12. Relying on these matters, the plaintiffs say that there is a sufficient degree of control as amounting to use and occupation of the Premises. I agree.

13. The defendant says that its possession of the Premises has not been exclusive. In particular, it is said that the 2nd plaintiff has control over the access to the car park. In my view, whether there is or is not exclusive possession or use is not a relevant consideration for the purpose of Order 29 rule 12(b). It is not a requirement under the rule that to be liable for interim payment, the use or occupation has to be exclusive.

14. The defendant also relies heavily on the fact that the plaintiffs had invalidated the pass cards for gaining access to the main gate. The invalidation only shows that motor vehicles could not have entry or access via the main gate. It does not necessarily mean that the defendant did not have the use of the Premises or could not have used the Premises.

15. Use, as counsel accepts, is a matter of fact and it can take any form. The case of Newcastle City Council v. Royal Newcastle Hospital illustrates that leaving a piece of land unused in what is said to be virgin state can also amount to use and occupation. What is more important is to have regard to the intention underlying Order 29 rule 12. Essentially, interim payment is to ensure that a plaintiff would not be deprived of money that he would be entitled to recover from the defendant. On this basis, it becomes irrelevant whether the nature of payment is in the form of a licence fee, rent or mense profits. Equally, it is irrelevant whether there is exclusive use or occupation and how the land is used and occupied. In my view, it would be defeating the purpose of the interim payment rule if a defendant can escape liability for interim payment by holding onto the land on the one hand, and on the other hand, not carrying out any substantial activities on the land.

16. It is also argued that the licence agreement was for parking purposes, so that if parking activities cannot take place, then it would really be defeating the purpose of the licence agreement, and for that reason, the defendant has not been using and occupying the Premises.

17. It is true that the defendant has obtained a licence of the Premises initially for the purpose of commercial parking and activities relating to display of motor vehicles such that parking would be an important element in its use of the Premises. But there are two other important and relevant considerations. In the first place, the letter from the defendant's solicitor dated 18 July 2003 shows that the Premises can be and in fact, had been used by the defendant for purposes other than parking vehicles, notwithstanding that this may well be a primary intention of the defendant in obtaining a licence over the Premises.

18. A second relevant matter is that it remains a fact that the defendant has not delivered up possession to the plaintiffs. Probably, as Mr Ismail suggests, that is because the counterclaim has included a decree for specific performance, so that the defendant may be looking to the eventuality that if it were to succeed on the counterclaim, it could continue to use the land. That may well be a reason why it has not delivered up possession to the plaintiffs.

19. In this regard, I am not looking, as it were, to the future intention or future use of the Premises. Simply, I am looking at a present fact, namely, the Premises has not been returned to the plaintiffs. The argument that the Premises could not be used for parking and the initial purposes for which the licence agreement was made could not be fulfilled does not go to assist the defendant in resisting the application for interim payment.

20. For the matters that I have indicated, I am convinced that the Order 29 rule 12(b) application is properly made and an order for interim payment is justified.

The amount of the interim payment

21. On the amount of the interim payment, I take the view that if a defendant is liable to make interim payment, then there is no reason to limit the period within which he should be liable, unless he has ceased using or occupying the land. Likewise, there is no reason to reduce the amount of interim payment simply because the Premises cannot be used for purposes desired by the defendant, namely, for parking vehicles for display. This is because the principle underlying an Order 29 rule 12 application is that the plaintiff should not be deprived of money which he would be entitled to recover from the defendant on account of the land.

The counterclaim

22. I accept that in considering an application for interim payment, the court should have regard to any set-off or counterclaim put up by the defendant. In so doing, however, the court is entitled to assess the nature and apparent strength of the set-off or counterclaim : Smallman Construction Ltd v. Redpath Dorman Long Ltd 25 Con LR 103 at 118, see also Winsworld Properties Limited v. Chance Full International Development Ltd, supra.

23. In this case, two matters are relevant when considering the defendant's counterclaim. The first is that having regard to the express terms of the licence agreement between the 1st plaintiff and the defendant, evidently the defendant has to overcome substantial difficulties and hurdles in establishing the counterclaim. Secondly, the basis for the loss and damages counterclaimed is not apparent. I am not persuaded that the amount of interim payment should be limited or reduced by the defendant's Counterclaim.

Conclusion

24. For the reasons mentioned above, the appeal is dismissed.

25. Mr Ismail has asked that the amount of interim payment ordered by the Master be increased to that sought in the plaintiffs' summons. Since an appeal from a master to a judge in chambers operates as a hearing de novo, a judge on hearing an appeal may properly order a defendant to pay more by way of interim payment even though no formal notice of cross-appeal has been given : Hong Kong Civil Procedure 2004 vol. 1 paras. 58/1/2, 58/1/5.

26. As indicated above, I consider there is no reason to reduce the amount of interim payment to be paid by the defendant. Accordingly, I order that the interim payment should be paid in the following way :

(1) A sum of $320,000 to the 1st plaintiff on account of licence fee and/or mense profits for the period from 1 June to 31 July 2003;

(2) A monthly sum of $160,000 for a period of 12 months to the 2nd plaintiff on account of mense profits for the period from 1 August 2003 up to 31 July 2004; and

(3) A monthly sum of $160,000 to the 2nd plaintiff to be paid on or before the first day of each month until possession of the Premises has been delivered up or until further order of the court.

27. The defendant has asked for 28 days to effect the interim payment under (1) and (2) above. Considering that the amount involved is not insubstantial, and that there is a summary judgment hearing scheduled for 20 July 2004, I consider that it would be appropriate to allow the defendant 28 days to make the interim payment ordered under (1) and (2) of the preceding paragraph. Further, I am not convinced that it is necessary to make an unless order.

Costs

28. Costs should follow event. The plaintiffs ask for costs on indemnity basis primarily for the reason that the appeal is devoid of merits. I agree that this is not a strong appeal, but it is a party's right to appeal. In the present case, it has not been shown that the right has been abused or used excessively or unreasonably. I am not prepared to award costs on an indemnity basis. The costs of the appeal are to be paid by the defendant to the plaintiffs to be taxed if not agreed.