BARLOW INVESTMENTS LTD (in liquidation) v. CLIFTONS LTD

HCA 2462/2018

[2019] HKCFI 2768

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2462 OF 2018

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DECISION

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1.  This is a simple and straightforward application by Barlow Investments Limited (in liquidation), the Plaintiff, for:

(1)  Final judgment to be entered against Cliftons Limited, the Defendant, for the sum of HK$7,373,694.74 being the outstanding monthly fee and mesne profit, management fees, air-conditioning charges and rates;

(2)  The counterclaims of the Defendant be struck out under Order 18, rule 19 of the Rules of the High Court, Cap 4A; and

(3)  Alternatively, the counterclaim in respect of the allegedly unpaid loans owed by the Plaintiff to the Defendant in the sum of HK$2,787,474 be stayed on the ground that the Plaintiff is currently under liquidation.

2.  As the Defendant has withdrawn its counterclaims save for its counterclaim in respect of the overpayment of the monthly rent, management fees and air-conditioning charges, there is no need for this Court to deal with the stay application.

3.  The Defendant’s remaining counterclaim is the flip side of the Plaintiff’s claim in the present application.  Although, the legal tests are different, on the facts of the present case, if the Plaintiff satisfies this Court that summary judgment should be granted in its favour, I am of the view that it will be difficult for the Defendant to argue that its counterclaim should proceed to trial.  Mr Payne for the Defendant fairly agrees to this proposition.  The reverse is also true.  If the Defendant persuades this Court that there are bona fide defences to the Plaintiff’s claim, then there is no basis to strike out the Defendant’s remaining counterclaim.

Material facts

4.  The Plaintiff is 100% owned by the Defendant but is now in liquidation. There is no dispute that the Plaintiff’s business was to lease premises to the Defendant for rent, fee, charges and rates.  It has no other business and/or sources of income.

5.  By three tenancy agreements, the Plaintiff leased the premises, 33^rd Floor of 9 Queen’s Road Central, Hong Kong (the “Property”) and sublet the same to the Defendant.

6.  The Defendant’s primary business was the provision of meeting, conference and business event space.

7.  By a tenancy agreement between the Plaintiff and Profit Wise investment Limited (“Profit Wise”) dated 15 May 2006 (the “2006 Tenancy Agreement”), Profit Wise as the then landlord leased the Property to the Plaintiff as tenant for a term of three years commencing from 8 April 2006 to 7 April 2009, at the monthly rent of HK$509,453 and the monthly management fee and air-conditioning charges of HK$47,000; and quarterly rates at HK$63,300 (subject to Government’s final assessment and future revisions).

8.  By an agreement between the Plaintiff and the Defendant dated 28 April 2006 (the “1^st Agreement”), the Plaintiff sublet the Property to the Defendant on the same key terms as the 2006 Tenancy Agreement, namely, for a term of three years commencing from 8 April 2006 to 7 April 2009, at the monthly rent of HK$509,453 and the monthly management fee and air-conditioning charges of HK$47,000; and quarterly rates at HK$63,300 (subject to Government’s final assessment and future revisions).

9.  The 1^st Agreement also specifically provides that both the monthly rent and the monthly management fee and air-conditioning charges “are subject to revision at the discretion of the landlord and agreed in principal by both parties.”  The parties referred thereto are the Plaintiff and the Defendant.

10.  By another agreement between the Plaintiff and the Defendant (the “2^nd Agreement”), the Plaintiff leased to the Defendant “furniture, fittings and equipment” held at the Property, at the amount agreed said to be “furniture, fittings and fit-out 2.777% per month (33.33%) per year).”

11.  By a tenancy agreement between the Plaintiff and Profit Wise dated 27 July 2009 (the “2009 Tenancy Agreement”), Profit Wise extended the lease of the Property with the Plaintiff for another three years from 8 April 2009 to 7 April 2012, at the revised monthly rent of HK$757,295, and the monthly management fee and air-conditioning charges at HK$51,000 (subject to future revision); and quarterly rates at HK$98,850 (subject to Government’s final assessment and future revision).

12.  By a further agreement between the Plaintiff and the Defendant dated 1 July 2008 (the “3^rd Agreement”), the Plaintiff and the Defendant agreed to extend the 1^st and 2^nd Agreements for six years commencing from 1 July 2008 to 30 June 2014, with an option to renew for a further six years.  The 3^rd Agreement provides, inter alia, that:

“ 1)  This agreement is an extension of previous agreements a) ‘Services Agreement’ valid 8^th April 2006 – 7^th April 2009 and the b) ‘Rental Agreement’ dated 30^th June 2008 (herein attached).

2)  The agreement is for a period of six years commencing 1^st July 2008 and terminating 30^th June 2014 with an option to renew for a further six years.

…

5)  The costs for the provision of the Designated Area will vary from time to time as agreed between both parties.

6)  The costs for the provision of the Facilities will vary from time to time as agreed between both parties.”

(emphasis added)

13.  On 28 February 2011, Profit Wise assigned the Property to Chi Chung Company Limited (“Chi Chung”).

14.  By a tenancy agreement between the Plaintiff and Chi Chung dated 15 August 2011, Chi Chung leased the Property to the Plaintiff for two years from 1 September 2011 to 31 August 2013, at the revised monthly rent of HK$1,101,520; and the monthly management fee and air‑conditioning charges at HK$54,500 (subject to further revision); and quarterly rates at HK$112,200 (subject to Government’s final assessment and future revision).

Analysis

15.  The Plaintiff’s pleaded case is that the Defendant had by conduct, agreed to vary the monthly rent, monthly fee, air-conditioning charges and quarterly rates payable to the Plaintiff (the “Rent, Fees and Rates”) under 1^st and 3^rd Agreements, by virtue of the fact that, following the 2011 Tenancy Agreement, the Defendant had been paying a monthly sum to the Plaintiff which matched the Rent, Fees and Rates payable by the Plaintiff to Chi Chung.

16.  There is no dispute that the Property was solely occupied and used by the Defendant.

17.  In breach of the 1^st and 3^rd Agreements, since January 2013 until it delivered vacant possession in July 2013, the Defendant defaulted in payments of the Rent, Fees and Rates, amounting to the sum of HK$7,373,697.74 (the “Outstanding Rent, Fees and Rates”).

18.  Having considered the parties’ submissions, I am of the view that the Plaintiff’s case is very clear. There are no bona fide disputes to the claim for the Outstanding Rent, Fees and Rates.

19.  First, under both the 1^st Agreement and the 3^rd Agreement, both the Plaintiff and the Defendant could agree to vary the level of the Rent, Fees and Rates payable by the Defendant to the Plaintiff.  There is no dispute that, as a matter of fact, at all material times, the Defendant made payments which matched the Plaintiff’s obligations under its various tenancy agreements.

20.  It could only mean that the Plaintiff and the Defendant must have agreed to vary the level of Rent, Fees and Rates payable by the Defendant to the Plaintiff.  Otherwise, there would not be any basis for the Defendant to make such payments to the Plaintiff.  Under the 1^st Agreement, the level of Rent, Fees and Rates are subject to agreement by the Plaintiff and the Defendant.  The Parties must have agreed to vary the level of Rent, Fees and Rates thereunder. 

21.  Further, under the 3^rd Agreement, the level of Rent, Fees and Rates could be varied from time to time by the Plaintiff and the Defendant.  

22.  There is no allegation that the payments made by the Defendant to the Plaintiff were by way of gift or were mistaken payments.  The only and irresistible conclusion is that both the Plaintiff and the Defendant had agreed to vary the level of the Rent, Fees and Rates according to the level as set out in the 2011 Tenancy Agreement.

23.  Secondly, the Defendant itself had also acknowledged that the matching payments were made by the Defendant in accordance with the Plaintiff’s monthly payment obligations to the landlord of the Property: 

(1)  In the Affirmation of David Nigel Francis dated 21 March 2017, it is stated that (at §31):

“ The Liquidators have been provided with the various Service Agreements as well as the bank statements of the Company from July 2012 to May 2014. Therefore, they have been well aware that for many months, indeed several years, irrespective of what was stated in the Service Agreements, Cliftons continued to pay sums to the Company that matched the rental the Company was due to pay to the head landlord. By way of example, Profit Wise increased the rental for the property from HKD509,453 to HKD757,295 per month on 27 July 2009 (and then Chi Chung increased the rental to over HKD1,000,000 per month pursuant to the 2011 Tenancy Agreement. However, from the date of the first Service Agreement all the way through to at least November 2012, Cliftons continued to match the rental demanded by the head landlord regardless of the fact that the Service Agreement in place at the time only required (on the face of the document) a rental of HKD509,453. The attempt of the Liquidators to link the failure of the Company to the absence of a formal written service agreement therefore seems on the face of the facts to again verge on the disingenuous.” (emphasis added)

(2)  In a letter dated 17 March 2017 from the Defendant’ then solicitors, Messrs Francis & Co to the liquidators’ solicitors Messrs ONC Lawyers at §29 of Schedule A, it is stated that:

“ It was always our clients intention to develop and grow the business operations in Hong Kong and to earn future profits. At the time that the Company entered into the 2011 Tenancy Agreement, Cliftons had envisaged a certain level of income that would have enabled it to continue to support the Company in meeting its obligations under the 2011 Tenancy Agreement and for Cliftons to continue to operate from the Property.”

(emphasis added)

(3)  In a letter dated 18 November 2015 from Messrs Francis & Co to Messrs ONC Lawyers, made in reply to enquiries from Messrs ONC Lawyers’ letter dated 2 November 2015:

(a)  The Defendant acknowledged that the amount of other income of HK$13,451,770 in the Plaintiff’s management accounts for the period ending 30 June 2013 refers to “service fee revenue in accordance with the [1^st Agreement] and [2^nd Agreement] …”.

(b)  The Defendant also acknowledged that payments made to the Plaintiff after which the Plaintiff made transfer to Chi Chung from the period of July 2012 to December 2012 were “for provision of services as per the relevant [Agreement].”

24.  I agree that the Defendant obviously had knowledge, by reason of the fact that the Defendant was in the management of the Plaintiff, that the Plaintiff was obligated to pay its landlord.  The Defendant’s conduct in making payment which matched the Plaintiff’s obligations under the 2009 and 2011 Tenancy Agreements together with the fact that the Defendant continued to occupy the Property for the conduct of its business lead to the irresistible inference that the Defendant had agreed with the Plaintiff to vary the level of the Rent, Fees and Rates in accordance with the terms as set out in the 2011 Tenancy Agreement.

25.  Thirdly, the Plaintiff has no independent sources of income. Unless the Defendant were to match the payment obligations of the Plaintiff vis-à-vis its landlord, there was no way in which the Plaintiff could have paid off its Rent, Fees and Rates to its landlord.  And there was also no way in which the Defendant could have remained in occupation of the Property and enjoyed the use of the same.

26.  The Defendant’s first defence is that the 3^rd Agreement is merely an agreement to agree and is unenforceable for lack of certainty. I have no difficulties in rejecting such defence.  It will be odd that the Plaintiff and the Defendant entered into the 3^rd Agreement intended the same to be unenforceable.

27.  As a matter of legal analysis, the 3^rd Agreement is not an agreement to agree.  By Clause 1, the 3^rd Agreement expressly incorporated and extended the 1^st and the 2^nd Agreements.  Under the 1^st Agreement, the parties could agree to any level of Rent, Fees and Rates and as a matter of fact they did.  There is nothing uncertain about it.

28.  Further, by Clause 5, the amount payable for the Property is subject to variation by agreement of the parties.  As I set out above, it is obvious to this Court that the Plaintiff and the Defendant had agreed to vary the level of the Rent, Fees and Rates in accordance with the terms of the 2011 Tenancy Agreement otherwise the Defendant would not have paid the same to the Plaintiff.  (See Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd(2004) 7 HKCFAR 79 at §§36 – 40, per Ribeiro PJ.)

29.  Secondly, the Defendant submitted that in construing the terms of the 3^rd Agreement, the Court should take into account the surrounding circumstances against which the contract was concluded and the objects it was intended to achieve in ascertaining the intention of the parties.  (See Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279 at 296D–F, per Lord Hoffmann NPJ.)  It is also necessary to enquire into the commercial purpose of the agreements in cases involving ambiguity in contracts.  (See Rainy Sky SA & others v Kookmin Bank [2011] UKSC 50 at §16 per Lord Clarke.)

30.  However, as I am of the view that the terms of the 1^st and the 3^rd Agreements are clear, the subjective intention of Mr Cameron is irrelevant and indeed inadmissible for the purpose of construction of the 1^st and the 3^rd Agreements.

31.  Mr Payne for the Defendant relied on the proposition that where the conduct in question satisfied the “objective test”, the law would generally exclude as irrelevant evidence of a party’s actual intentions apart from one subjective qualification: the “objective test” did not apply in favour of a party who actually knew the other party in fact had no intention to contract with him.  (See Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (supra) at §41, per Ribeiro PJ). However, I am of the view that the said legal proposition is inapplicable here because the fact is that there is an actual agreement to vary the level of Rent, Fees and Rates payable by the Defendant to the Plaintiff.  Here, both contracting parties knew that there was a binding contract and they performed according to it.

32.  Thirdly, Mr Payne for the Defendant submitted that there is still an outstanding claim of about HK$9.5 million claim in relation to furniture and fittings and that has to go to trial.  Hence, it is right that the present claim should also go to trial as they arose out of the same factual matrix.  The issue of construction also involves all of the agreements. However, the Plaintiff is not relying on the 2^nd Agreement for the purpose of this application.  There may be legitimate reasons for the Plaintiff not to pursue summary judgment under the 2^nd Agreement.  Mr Yu SC submitted that there is no unequivocal conduct in relation to the 2^nd Agreement.  The simple point is that there is no bona fide dispute in relation to the claim in this application.  It does not matter whether other claims in the same action should go to trial or not.

33.  Fourthly, Mr Payne for the Defendant submitted that as the payments in fact originated from the Australian Cliftons, if the Plaintiff is correct, then the correct contracting party should be the Australian entities rather than the Defendant.  I have no difficulties in rejecting this submission. The clear fact is that only the Defendant is the contracting party.  It is up to the Defendant to source funds from its parent companies or even from banks, but that would not make its parent companies parties to the contract. Similarly, the fact that executives from the parent companies participated in the negotiation of a lease is neither here nor there.  It is very normal for executives of parent companies to be involved in commercial negotiations and for a specific subsidiary to be designated as the contracting party.  It does not make the parent company a party to the relevant contract.

34.  Finally, Mr Payne for the Defendant submitted that on the Plaintiff’s case, the Defendant can only be liable to the extent that the Plaintiff is liable to Chi Chung under the 2011 Tenancy Agreement.  The judgment debt obtained by Chi Chung against the Plaintiff on 12 July 2013 is less than HK$4 million.  In particular, the Plaintiff has failed to take into account credit that was given to the Plaintiff for the HK$3,580,260 deposit held by Chi Chung under the 2011 Tenancy Agreement in calculating the amount due to Chi Chung.

35.  I am sympathetic with this submission.  However, the Court has to decide cases according to the pleadings and evidence before it.  There is no pleaded case of a set off.  There is no averment that the deposit was paid by the Defendant and the Plaintiff at all material times held the same on resulting trust for the Defendant.  As such, it is difficult to see how the Defendant can claim credit for the same.

36.  Having said that, there is nothing to prevent the Defendant from filing an independent claim or a proof of debt of the sum of HK$3,580,260 if indeed there are documentary evidence to prove that the said sum entirely came from the Defendant.  

Counterclaim

37.  As I said above and the Defendant also agrees, the Plaintiff’s claim for the Outstanding Rent, Fees and Rates and the remaining counterclaim are essentially two sides of the same coin.  This Court is well aware of the relevant legal principles regarding strike out applications.  (See Chuang Yue Chien Eugene v Ho Yau Kwong Kevin [2002] 4 HKC 245 at §14 per Ma J (as he then was)).

38.  I am of the view that it is plain and obvious that the remaining counterclaim for overpayment should be struck out.  There are no sustainable legal grounds advanced to support the claim for overpayment. It is not suggested that the said overpayments were made by way of mistake or by way of gift.  Rather it is clear that the payments were made pursuant to the varied level of Rent, Fees and Rates as agreed by the Plaintiff and the Defendant.

39.  I also note that the Defendant is unable to explain why it claims against the period of overpayment from 1 September 2011 to 31 December 2012 but not prior to 1 September 2011.

40.  In any event, I agree that the alleged overpayment of rent incurred from 2007 to 2012 also fall outside the limitation period of six years pursuant to section 4 of the Limitation Ordinance, Cap 347 and is therefore time-barred.

Disposition

41.  For all the reasons stated above, I make the following orders:

(1)  Final judgment to be entered against the Defendant for the sum of HK$7,373,694.74 being the outstanding monthly fee and mesne profit, management fees, air-conditioning charges and rates;

(2)  Interest at the rate of HSBC’s prime rate plus 1% from 4 July 2013 to be paid by the Defendant to the Plaintiff until today’s date; and

(3)  The Counterclaims of the Defendant be struck out under Order 18, rule 19 of the Rules of the High Court, Cap 4A.

42.  As far as costs is concerned, although this Court is greatly assisted by Mr Yu SC, I do not consider that this case merits the representation of a senior counsel of Mr Yu SC’s standing.  Accordingly, I make an order that that the Defendant is to pay the costs of and occasioned by this application to the Plaintiff, on a party to party basis, to be taxed, if not agreed with a certificate for one counsel.

43.  Finally, it remains for me to thank Mr Yu SC and Ms Yu for the Plaintiff and Mr Payne for the Defendant for their helpful assistance.