YUE TUNG CHING KEE CO LTD v. DRAGON FORD HOLDINGS LTD

HCA 749/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 749 OF 2006

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D E C I S I O N

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Application

1. This is an application for summary judgment and/or judgment on admission by the Plaintiff against the Defendant.

Background

2. The Plaintiff was and is the registered owner of the whole of the building erected at No. 601 Nathan Road, Kowloon known as the Chong Hing Square (“the Building”).  The Defendant has occupied the Basement, 2 Floor (“the Premises”) at the Building for the business of a sauna house since around 2000.  By a tenancy agreement (“the Tenancy Agreement”) dated 26 November 2003, the Plaintiff further let to the Defendant the Premises for another 3 years from 1 June 2003 to 31 May 2006 at the monthly rent of $200,000 exclusive of rates, management and other charges.  During the tenancy, the Plaintiff agreed to make a rental deduction of $180,000 for two months, namely, May and August both of 2005.

3. Besides, by a Licence (“the Licence”) dated 12 March 2004, the Plaintiff agreed to allow the Defendant to use certain portion(s) of the Parapet Wall on the Upper Roof of the Premises (“the Parapet Wall”) for the same term at a fee of $1,000 per month.

4. On 4 April 2006, the Plaintiff commenced the present proceedings against the Defendant for:

(a) the sum of $1,779,000, being –

“The Premises

(a)	Rent for the period from 1st July 2005 to 31st August 2005		HK$200,000.00
(b)	Rent at the concessionary rate for the period from 1st August 2005 to 31st August 2005		HK$20,000.00
(c)	Rent for the period from 1st September 2005 to 31st March 2006		HK$1,400,000.00
(d)	Management and Air-Conditioning Charges for the period from 1st March 2006 to 31st March 2006		HK$60,000.00
(e)	Rates for the period from 1st July 2005 to 31 March 2006		HK$90,000.00			HK$1,770,000
	Portion(s) of the parapet wall of the Upper Roof
	Licence fee for the period from 1st July 2005 to 31st March 2006		HK$9,000.00			HK$9,000.00
			Total:			HK$1,779,000.00
			(Amended Statement of claim dated 10 July 2006 herein)

(b) vacant possession of the Premises and the Parapet Wall;

(c) all other rent, licence fee, mense profits, rates, management and air-conditioning charges;

(d) interests and costs.

5. The Defendant filed its Defence and Counterclaim on 30 May 2006.

6. On 27 July 2006, the Plaintiff took out the present application under O.14r.1 and O.27r.3 of the Rules of the High Court (“RHC”).  The Defendant contested it and the substantive argument of the matter was heard before me on 9 January 2007.  Mr. Tony C. Y. Li of Counsel acted for the Plaintiff and Mr. K.S. Chan of Counsel represented the Defendant.  Having heard from both Counsel, I reserved my decision to be handed down.  I now do so.

Ruling

7. Upon considering of all evidence authorities and submissions from the parties, I have come to the conclusion that summary judgment is to be entered for the Plaintiff.  My reasons appear in below.

Law

8. The legal principles in relation to application for summary judgment are clear by now.  For our purpose, it suffices to summarize that the underlying policy of summary procedure is to prevent the defendant delaying the plaintiff from obtaining judgment in a case whereby the defendant clearly has no defence.  Two questions are to be dealt with.  First, factually, is what the defendant says believable in light of undisputed or indisputable circumstances?  In this respect, the Court is entitled to take into account of the commercial reality as well as of the contemporaneous documents.  However, mini-trial on affidavit evidence shall not be embarked.  Bare assertion is insufficient and the defendant must condescend upon particulars.  Second, legally, if what the defendant says is believable, does it amount to an arguable defence in law?  After all, the burden lies on the defendant to show triable issue or some other reason to be a trial.

9. Besides, for application of summary judgment involving the  question of non-payment of rent by the tenant, Mr Li has set out the followings of which I agree:

“11. Under common law, the covenant to pay rent has all along been regarded as independent of the other covenants or obligations under a lease.  A tenant’s obligation to pay rent is not dependent upon the compliance by the landlord of its obligations under the lease.

Edge v. Bolieau (1885) 16 QBD 17

Taylor v. Webb [1937] 2 KB 283

12. In case the subject tenancy agreement does not permit any set-off on the rent and the defendant’s counterclaim is for unliquidated damages, legal set-off does not come into play at all to assist the defendant (only when the defendant’s counterclaim is capable of belief condescended upon particulars and not frivolous).

Charmway Development Ltd. v. Long China Engineering Ltd. [2001]3 HKC 515 at 520B-C

13. In Charmway Development, the plaintiff tenant’s claim for damages for the defendant landlord’s breach of special conditions in the tenancy agreement and covenant for quiet enjoyment vis-à-vis the defendant landlord’s counterclaim for the plaintiff tenant’s breach of covenant to pay rent were held by Chu J to be insufficiently connected such that the doctrine of equitable set-off did not apply (at 520C-F).

Ridge Ltd. v. Golden Castle Ltd. [2005]3HKC592 at 595E-H

Esso Petroleum Co. Ltd. v. Milton [1997] 1WLR 938

(skeleton submission of Mr. Li)”

The Defence

10. On the other hand, Mr Chan, relying on the skeleton submission of the former Counsel for the Defendant, Mr Stephen Fong, submitted to this Court that:

“ 8. The affirmations of the parties however have the following disputes:-

(i) Whether or not the use of the advertisement board was the condition of the tenancy agreement?

(ii) Whether or not the Plaintiff has breached the said condition?

(iii) Whether or not there was an agreement in relation to the reconstruction of the signboard?

(iv) Whether or not there was an agreement to waive the rent during the period of the delay in construction?

(v) Whether or not the Plaintiff has breached the tenancy agreement by failing to give the Defendant the option to renew?

(vi) Whether or not the quiet enjoyment has been breached?

           9. ………

21. I submit that the Defendant has set up a bona fide counterclaim against the Plaintiff for the breach of the quiet enjoyment and the promise to erect the advertisement board and to waive the rent during the period of the delay in construction.  The Defendant should thereby entitle to claim for the loss and damages suffered as a result and unconditional leave should be granted to the Plaintiff in respect of all the monetary claims of the Plaintiff against our client.”

(skeleton submission of Mr. Fong)”

Reasons

11. The Defendant has failed this Court in raising any triable issue or some other reason for a trial because:

(a) As a matter of fact, the Defence is unbelievable in light of the contemporaneous documents as well as in commercial sense.

(i) The rent deduction for the months of May and August both of 2005 is well documented. The Defendant confirmed and accepted the following statements contained in a letter of 20 April 2005 issued by the Plaintiff’s agent:

“In consideration of your present business situation and your assistance to accommodate our renovation work, we are prepared to grant you totally two separate rental concessions of HK$180,000.00 each in May and August 2005 respectively (i.e. you are only required to pay a concessionary rent in the sum of HK$20,000.00 in May and August 2005 respectively) PROVIDED THAT you shall continue to perform and observe all terms and conditions of the Tenancy Agreement made between the parties dated 26 November 2003 during and throughout the term of captioned tenancy.  Save and except the terms and conditions as varied herein, all other terms and conditions of the existing Tenancy Agreement in all respects shall remain in full force and effect during the residual term of captioned tenancy.”

(ii) The Defendant’s alleged agreement to reconstruct the advertisement boards and the waiver of rent for the delay of construction are however not documented in any respect.

(iii)       The Defendant made no reply to the letters of demand issued by the Landlord’s solicitors dated 28 November 2005 and 22 March 2006.

(iv) Shortly after the commencement of the present proceedings, the Defendant paid a total sum of $160,000 to the Plaintiff and further wrote to the Plaintiff as follows:

“敝公司和貴公司合作巳經多年，一直都很準時交租，從沒有試過遲交租，大家合作非常愉快，這些事實貴公司都是有記錄的。但基於兩方面特殊原因，一方面首先敝公司銀行戶口被凍結，使敝公司現金周轉久佳，而另一方面貴公司因進行大厦外墻工程的延誤至2005年12月份而非承諾的2005年8月份完工。另外貴公司會回復敝公司的外牆大招牌的承諾一直不能對現 。雖然敝公司一直不斷要求貴公司能盡快裝之外牆招牌 ，因沒有外牆招牌，我們的生意大受影響，所以敝公司的久租問題，我們雙方都抱着實事求是的態度，問題一定是可以解決的。

以下是我們提出的一些建議，懇請廖生考慮：

1) 我們極有誠意繼續和貴公司合作，所有欠款假於在不久的將來一定伐清。

2) 新租約期間的租金大家可以商談可以適量的加些租金，但不能太多，因畢竟此物業處於地庫二層。

3) 貴公司理應實踐對敝公司的承諾盡快恢復敝公司的大廈招牌的原貌。

(v) There is undisputed evidence before this Court that the authorities has frozen the account of the Defendant since June 2005 because it is facing criminal proceedings relating to immoral operation in the Premises.

(vi) Despite the complaints against the Plaintiff, including the loss of business, the Defendant has not paid any rent (apart from the said sum of $160,000), rates, etc. since about July 2005.  However, the Defendant has continued to enjoy the Premises and the Parapet Wall for its business.

(vii) The Defendant raises a Counterclaim but no particulars or quantification has been provided.

(b) Probably, the fatal point for the Defendant is that, as suggested by Mr Li, the issues raised by the Defendant, even if established, cannot operate as an arguable defence in law to refuse to pay rent to the Planitiff.

(i) Both the subject Tenancy Agreement and the Licence  contain no term to the effect that the tenant’s obligation to pay rent depends on the performance of any the landlord’s obligation under the same.

(ii) The following clauses can be founded:-

“(1) Rent shall be payable in advance without any deduction or set-off whatsoever (emphasis added) on the 1^st day of each and every calendar month.”

 (Part IV of the Tenancy Agreement)

“Licence Fee : DOLLARS ONE THOUSAND (HK$1,000.00) only Hong Kong Currency per calendar month to be paid in advance without any deduction whatsoever (emphasis added) on the 1^st day of each and every calendar month.”

  (Part IV of the Licence Agreement)

(iii) Hence, the Defendant had to pay rent even though the Plaintiff was in breach of its convenants under the Tenancy Agreement and the Licence.

(iv) Further, even assuming that the Defendant had agreed to waive rent until the completion of the renovation of the Building, the Defendant did not pay the Plaintiff rent after December 2005 when the work had been completed.

(c) In relation to the Counterclaim raised by the Defendant, legal set-off is clearly not available for an unliquidated counterclaim.  Further, I am also of the opinion that equitable set-off is also not applicable because there is insufficient connection between the claim and counterclaim so that it would be manifestly unjust to enforce one without regard to the other:

(i) The alleged breaches have no bearing on the state and condition of the Premises and the Parapet Wall.

(ii) The Defendant has continued to operate its business despite the “breaches”.

(iii) The Counterclaim is neither particularized nor quantified.

Judgment on admission

12. As I have allowed summary judgment for the Plaintiff and that both Counsel have not spent time in arguing judgment on admission, it is not necessary for me to deal with the matter. I made no order in relation to the same.

Conclusion

13. In the circumstances, I order that final judgment be entered for the Plaintiff against the Defendant under O.14r.1 RHC:

1.     Subject to paragraph 3 below, the Defendant do deliver up to the Plaintiff vacant possession of the following properties:

(a)    Basement 2 Floor (the “Premises”); and

(b)    Portion(s) of the parapet wall of the Upper Roof both of Chong Hing Square (the “Building”), No. 601 Nathan Road, Kowloon, Hong Kong.

2.     The Defendant do pay to the Plaintiff:

(a) the sum of HK$1,779,000.00;

(b) interest on HK$1,680,000.00 at the rate of 1% per calendar month from the respective due dates of each outstanding periodic payment of rent and Management and Air-conditioning Charges in respect of the Premises to the date of full payment;

(c) interest on HK$9,000.00 at the rate of 2% per calendar month from the respective due dates of each outstanding periodic payment of licence fee in respect of the portion(s) of the parapet wall of the Upper Roof of the Building to the date of full payment;

(d) rents and/or mesne profits at the rate of HK$200,000.00 per calendar month from 1^st April 2006 until vacant possession of the Premises is delivered up to the Plaintiff;

(e) Management and Air-Conditioning Charges at the rate of HK$60,000.00 per calander month from 1^st April 2006 until vacant possession of the Premises is delivered up to the Plaintiff;

(f) rates at the rate of HK$10,000.00 per month from 1^st April 2006 until vacant possession of the Premises is delivered up to the Plaintiff;

(g) licence fees and/or mesne profits at the rate of HK$1,000.00 per calendar month from 1^st April 2006 until vacant possession of the Portion(s) of the parapet wall of the Upper Roof is delivered up to the Plaintiff;

3. If the Defendant should pay to the Court all arrears of rent mesne profits and other payments as aforesaid up to the date of payment and a sum of $100,000 on account of the costs of this action within 7 days from the date of this Order, the Defendant be relieved from the forfeiture incurred herein and do hold the Premises together with the Portion(s) of the parapet wall of the Upper Roof according to the Tenancy Agreement and the Licence without any new tenancy or licence.”

Costs

14. I have not heard from both parties on the question of costs.  However, it appears that there is no reason to depart from the general rule that costs follow the event.  Counsel’s assistance is also useful to me.  I therefore make an order nisi that costs of the application, including all costs reserved on previous occasions and Certificate of Counsel for the hearing on 9 January 2007, be to the Plaintiff and borne by the Defendant on full indemnity basis, to be taxed if not agreed.