LAU KWAI LIN v. OCEAN CONSULTANTS LTD

HCA1127/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1127 OF 2008

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D E C I S I O N

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1.  This is an application for summary judgment pursuant to Order 14 and/or interim payment pursuant to Order 29, rules 11 and 12.  

2.  The plaintiff is the owner of a building (referred to as “Lot 92”) near Sai Kung N.T.  She is also the owner of some adjacent plots (referred to as “the adjacent plots”). 

3.  The defendant is a company set up for the purposes of entering into a tenancy with the plaintiff.  According to the pleaded defence the person in charge of the defendant’s operations and its agent was Roger Lee.  

4.  The tenancy agreement between the plaintiff and the defendant, which is at the heart of this dispute, provides for a term of three years commencing on 1 March 2006 (with an optional two years thereafter) at a monthly rent of $20,000.  

5.  In late 2005 and early 2006 Roger Lee (through an intermediate friend of both partners, one Vincent Lo) was in friendly discussions and negotiations with members of the plaintiff’s family, in particular her son, Colin Chan.  The defendant’s evidence also suggests that there were several conversations with the plaintiff’s daughters, Elsie Chan and Winnie Chan and with the plaintiff herself.  

6.  According to Roger Lee his business plan was to create a waterside restaurant and other amenities including a swimming pool, residential rooms, spa rooms and a pier.  

7.  In a nutshell, the dispute which has arisen is because the tenancy agreement refers only to Lot 92.  According to the written agreement only Lot 92 was leased.  Lot 92 at the time was a dilapidated building which was to be the restaurant or part of it.  However, since early 2006 Roger Lee has developed and renovated the adjoining lots as well, as part of his overall business venture.  For example a swimming pool was constructed, residential rooms were built and spa rooms commenced.  All this, he claims, was with the full knowledge and even encouragement of the plaintiff’s family. 

8.  Matters came to a head in late 2007 when, according to Roger Lee, the plaintiff took advantage of the fact that no tenancy agreement existed in relation to the adjoining lots and proposed that the rent for the entire plot should be $80,000 a month thenceforth. 

9.  The defendant continued to pay rent of $20,000 a month up to May 2008 but not thereafter as it became apparent that he was not going to be able to get a restaurant licence in any event.  The limited nature of his tenancy being part of the problem.  He later left the site, the business never formally opened (although the buildings were ready for use) and he has not returned. 

10.  At this stage it should be recorded that at the beginning of the hearing the defendant undertook not to return to the premises for any purpose and to vacate the lis pendens which he had registered over the property, forthwith. 

11.  All that remained therefore was the plaintiff’s claim for arrears of rent and mesne profits plus damages for trespass of the adjoining lots. 

12.  Mr Alan Kwong, counsel for the plaintiff, submits that there is no bona fide defence to this claim.  Mr Kenneth Lam, counsel for the defendant, on the other hand argues that his two limbs of defence are both arguable.  Firstly, he complains of misrepresentations by the members of the plaintiff’s family and secondly, he submits that the value of the unjust enrichment to the plaintiff (he claims to have spent over $11 million on building works) far exceeds the arrears of rent and mesne profits.  The unpaid rent up to the end of the three-year term would be approximately $180,000. 

The plaintiff’s case

13.  There can be no argument that there are arrears of rent and that the written tenancy only relates to Lot 92.  There is no argument either that the defendant did indeed occupy and renovate the adjacent lots.  Mr Kwong then submits that the defendant has failed to show that the defence is bona fides and arguable.  Mr Kwong submits it is a sham and “moonshine”. 

14.  The defendant’s claim on misrepresentation, in short, is, inter alia, that :

(i)  Colin Chan orally agreed to let the entire plot but said that the lease should only refer to Lot 92 “to keep it simple”;

(ii)  Colin Chan agreed to pay $2 million should the plaintiff wrongfully terminate the lease early;

(iii)  originally, Colin Chan held himself out as the landlord which he was not;

(iv)  Elsie Chan promised to extend the lease for a total of 10 years in return for all the investment Roger Lee was putting into the properties on all the sites;

(v)  both Winnie Chan and Elsie Chan orally approved the building plans put forward by Roger Lee.  

15.  Mr Kwong submits that all this is incredible.  There is no documentary evidence in support.  There is no evidence that the daughters were agents for the plaintiff.  The only document, a “letter of authorization” only names Colin Chin as an agent of the plaintiff.  It is ludicrous to suggest that $2 million was agreed as compensation for early termination of a lease for three years at $20,000 a month. 

16.  Significantly absent, he also submits, is any evidence from Vincent Lo, the middleman, who would have first hand knowledge of the evidence relied on by Roger Lee. 

17.  Mr Kwong submits that the defence of unjust enrichment is equally flawed.  His case is that all the renovations were done without the plaintiff’s full knowledge or consent.  Whatever was done was a commercial decision by the defendant alone.  The claim that $11 million was spent is highly dubious.  The only evidence in support being a list of nine items of work with no further particulars, in Chinese without a translation, from a company called “Ran Contracting Ltd” which is undated but was attached to a letter dated May 2008.  The company, it transpires, is very probably Roger Lee’s company. 

The defence

18.  Firstly, I reject a point advanced by Mr Kwong that the defence of “unjust enrichment” has not been pleaded.  It is sufficient, in my judgment, that the pleaded defence specifically refers to the pleadings in a parallel action (commenced by the defendant) which particularizes the claim for unjust enrichment.  In due course, their claims should be consolidated, unless the matter settles beforehand. 

19.  Whilst Mr Lam concedes that adequate documentary evidence in support of expenditure of $11 million is lacking he invites the court to look at the photographs of the site “before and after”.  In 2005/6 it was overgrown and derelict.  It had been untouched for many years.  In 2006/7 the main building was converted into a waterfront restaurant with rooms above.  A swimming pool was built.  Spa rooms were under way.  Whatever the actual amount spent, he submits, the works were extensive.  There had been formal opening parties. 

20.  He then asks the rhetorical question—why spend all this money on land and property over which one has no legal interest?  That fact alone, he submits, supports the argument that all the representations relied on are more than mere “moonshine” and are, in fact, credible. 

21.  The defendant’s chronology, prepared for the purpose of this summons, lists many occasions when the parties met on site.  Mr Lam contends it is plainly believable that those meetings occurred and that there is truth in the defendant’s contention that at no time was any complaint made, any disapproval uttered or any suggestion made that works were being carried out on unleased land.  He submits that the plaintiff and her family had numerous opportunities to reject the benefit being conferred on them by the improvements. 

Decision

22.  It is not difficult to see where the strengths of the plaintiff’s case lie.  The terms of the written tenancy are clear.  There is no documentary evidence supporting the daughters’ alleged authority.  The absence of evidence from Vincent Lo is more harmful to the defendant than it is to the plaintiff.  The defendant may encounter difficulty in proving that (a) there has been any real enrichment and (b) that it was an unjust enrichment. 

23.  However, whilst the defendant may be facing evidential difficulties at this stage, it is not a case, in my judgment, where he should be deprived of his day in court. 

24.  The alleged misrepresentations, whilst strange when looked at in isolation, may take on a different complexion when considered in context and having heard the witnesses themselves.  In short, I am persuaded that there are issues to be tried.  

25.  I now must consider whether to give leave to defend on conditions or not.  The only condition worthy of consideration is a possible payment into court of the arrears of rent and possibly also damages for trespass.  On the one hand certain aspects of the defence, as it appears in writing, could be said to be shadowy.  On the other hand, if there is any substance to the defence the quantum of the counterclaim will plainly be more than a token sum.  Weighing these factors I have come to the conclusion that, on balance, leave to defend should be unconditional.  

26.  I so order with a nisi order that the costs of this application be in the cause.