BONNIE BLAIR LTD v. WITMORE LTD AND ANOTHER

DCCJ 1871/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1871 OF 2011

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Decision on Costs

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Introduction

1.  These proceedings arise out of the plaintiff’s lease of 1^st and 2^nd Floors, Siu Fu Factory Building, 201 Wai Yip Street, Kowloon, Hong Kong.  The 1^st and 2^nd defendants (collectively referred to as “the defendants”) are the registered owners/landlords of the 1^st and 2^nd floors (collectively referred to as “the Premises”) respectively.

2.  In these proceedings, the plaintiff seeks inter alia a declaration that its oral agreement to renew the tenancies of the Premises with the defendants (“Oral Agreement to Renew”) is valid and subsisting.  The plaintiff also seeks specific performance of the Oral Agreement to Renew.  By its defence and counterclaim filed on 9 June 2011, the defendants deny the existence of the Oral Agreement to Renew and counterclaim inter alia an injunction order compelling the plaintiff to vacate the Premises so that the defendants are able to carry out the requisite rectification works to comply with the building orders issued by the Building Authority against the Premises in January 2009 (“Building Orders”).  I shall explain in more detail below the Oral Agreement to Renew and the Building Orders.

3.  On 14 December 2011, the defendants issued a summons for inter alia an interlocutory injunction alternatively, for summary judgment for a final injunction order on the following terms:-

“1. An Injunction Order that:

(a) The Plaintiff do forthwith allow the 1^st and 2^nd Defendants and their appointed contractor and workmen to enter into the 1/F and 2/F Siu Fu Factory Building, 201 Wai Yip Street, Kowloon (“the 1/F and 2/F Premises”) and all parts thereof for conducting Rectification Works in compliance with the Building Order No.CMS/TC/005553/08K (“1/F Building Order”) and Building Order No.CMS/TC/005552/08/K (“2/F Building Order”) until completion of all Rectification Works without any obstruction or hindrance by the Plaintiff or anybody on its behalf,

(b) The Plaintiff be restrained, whether by itself or anybody whosoever on its behalf, in any manner howsoever from harassing, obstructing or delaying the Rectification Works, and

(c) Further or in alternative to (a) and (b) above, the Plaintiff do forthwith quit and vacate or otherwise deliver up vacant possession of the 1/F and 2/F Premises to the Defendants so that Rectification Works can be commenced, conducted and completed in accordance with the 1/F Building Order and 2/F Building Order respectively, and

(d) Further and/or consequential directions.

2. Further, or in the alternative, that final or interlocutory judgment be entered for the 1^st and 2^nd Defendants against the Plaintiff in terms as 1(a), (b) and (c) above, with the costs of this Action in respect of, pertaining or incidental to the Injunction Order herein be the Defendants’ to be taxed forthwith if not agreed.

3. Final or interlocutory judgment be entered for the 1^st and 2^nd Defendants against the Plaintiff and/or for an Order that the Plaintiff and each of its directors, managers and officers be personally liable and do fully indemnify the Defendants and each of the Defendants’ directors, managers and officers from and against any penalty, damages, legal costs or expenses as may be imposed, charged or incurred in respect of any prosecution, defence or conviction of any offence under the Building Ordinance relating to or in connection with the 1/F Building Order and 2/F Building Order.

4.  Final or interlocutory judgment for damages to be assessed be entered for the 1^st and 2^nd Defendants against the Plaintiff…”

4.  During the substantive hearing of the defendants’ summons on 25 April 2012 (“the Hearing”), Mr Victor Cheung, counsel for the defendants told this court that the defendants’ primary application was for an interlocutory injunction and that their summary judgment application was merely secondary and peripheral.  Mr Cheung also told this court that the defendants would not be pursuing paragraphs 3 and 4 of their summons as referred to in paragraph 3 above.  According to Mr Cheung, the defendants are anxious to and are only concerned with being able to immediately carry out rectification works to the Premises in compliance with the Building Orders (“Rectification Works”).

5.  Throughout the Hearing, Mr Cheung pursued vigorously the defendants’ interlocutory injunction application (which in my judgment and for the reasons set out below was doomed to fail).  Matters took a twist of fate when towards the end of the Hearing, Mr Andy Hung, counsel for the plaintiff submitted that the plaintiff was prepared to give an undertaking to the court to deliver vacant possession of the Premises on or before 26 August 2012 to obviate any concern from the defendants that the plaintiff would not vacate the Premises after the expiration of the renewed tenancies of the Premises under the alleged Oral Agreement to Renew.  After standing down the matter for Mr Cheung to reconsider his position, Mr Cheung told this court that the defendants would withdraw their summons on the basis of the plaintiff’s above undertaking.  In my view, this was the appropriate course to take given that the plaintiff would be vacating the Premises in due course, it would seem to serve no meaningful purpose to continue to pursue the injunction orders.  Accordingly, during the Hearing, I ordered that:-

“Upon the plaintiff’s undertaking to vacate the Premises by 26 August 2012, leave be given to the defendants to withdraw their Summons of 14 December 2011.”

6.  I reserved the question of costs and gave directions for the parties to deliver written submissions on the same.

7.  The plaintiff delivered its written submissions on costs on 7 May 2012 seeking costs of the defendants’ applications for interlocutory injunction and summary judgment to be paid forthwith.  The defendants delivered their written submissions in response on 25 May 2012 seeking on the other side of the spectrum, costs of their applications to be taxed on an indemnity basis.

8.  In short, the plaintiff contends that as the defendants had withdrawn their applications for interlocutory injunction and summary judgment, the event is in the plaintiff’s favour.  Further, even if the defendants did not withdraw those applications, they were doomed to fail.  On the other hand, the defendants submit that as the plaintiff gave an undertaking to the court as referred to in paragraph 5 above, the plaintiff must be taken to have conceded that the defendants would be successful in their applications and that the outcome of the Hearing was that the purpose of the summons (which was to seek possession of the Premises to carry out the Rectification Works) had been substantially achieved.  Thus, and so the defendants submit, the event was in the defendants’ favour.

9.  Having reflected on the parties’ submissions, and for the reasons set out below, I come to the view that the plaintiff should be paid forthwith its costs of the defendants’ summons.

Chronology of relevant events

10.  By a tenancy agreement dated 2 October 2007, the 1^st defendant leased to the plaintiff the 1^st floor of the Premises for a term of 3 years from 27 August 2007 to 26 August 2010.  By another tenancy agreement dated 2 October 2007, the 2^nd defendant leased to the plaintiff the 2^nd floor of the Premises for a term of 2 years and 11 months from 27 September 2007 to 26 August 2010.  I shall refer to the 2 tenancies collectively as “the Tenancies”.

11.  According to the plaintiff’s opposing affirmation of Luk Ping Ho filed on 31 January 2012 (“Luk’s Affirmation”), the plaintiff is an authorised wholesale distributor of Adidas, a renowned brand for sports shoes and apparels, and is in the business of wholesaling sports shoes and apparels of Adidas and Reebok and other brands.  The plaintiff used the 1^st floor of the Premises as a warehouse for its stock and the 2^nd floor of the Premises as its offices, showroom and also warehouse.

12.  On or about 5 January 2009, the plaintiff received the two Building Orders (nos CMS/TC/005553/08/K & CMS/TC/005552/08/K) issued under section 24(1) of the Buildings Ordinance (Cap 123) to the defendants but sent to the Premises.  In short, under those Building Orders, the Building Authority ordered the defendants to demolish/reinstate various unauthorised alteration/removal works to the Premises.  Pursuant to the Building Orders, the defendants were required to commence the requisite demolition/reinstatement works ie the Rectification Works within 30 days and to complete such works within 60 days to the satisfaction of the Building Authority.

13.  According to the plaintiff, it was not aware of the unauthorised alteration/removal works prior to entering into the Tenancies.

14.  By 2 letters dated 21 January 2009, the plaintiff notified the defendants of the Building Orders and requested information on how the Rectification Works would be carried out and the timing of the same. Obviously, the plaintiff would be concerned with this as the Rectification Works are likely to affect the plaintiff’s daily operations at the Premises. Despite receiving the Building Orders which provided strict time limits for the Rectification Works to be carried out, there appeared to have been inactivity on the part of the defendants for some four months until 11 May 2009 when the defendants wrote to the plaintiff giving them short notice of commencement of the Rectification Works on 15 May 2009 and proposed a meeting on the day before, 14 May 2009 to discuss the details of the Rectification Works.  The defendants have not offered any explanation as to why it took them four months before being able to start the Rectification Works.  In fact, it is questionable as to whether the defendants were indeed ready to commence those Works by 15 May 2009 as in the defendants’ supporting affirmation of Kwok Ching Yee filed on 14 December 2011, the defendants exhibited its contract with the contractor which would be carrying out the Rectification Works, Golden Rise (HK) Construction Ltd (“Contractor”).  That contract was dated 15 June 2009. Further, the defendants only gave Notice of Appointment of Authorised Person to the Building Authority for the Rectification Works on 22 June 2009.

15.  According to Luk’s Affirmation, during the 14 May meeting, apart from providing the plaintiff with the time, place and schedule of the Rectification Works, the defendants were not able to provide firm details of how those Works could be carried out without interruption and disturbance to the plaintiff’s operations at the Premises.  Further, it came to the plaintiff’s attention during the meeting that after the Rectification Works, the net area of the Premises would be reduced.  According to the plaintiff, the defendants were not able to provide a satisfactory solution to the problem during the meeting.  In addition, the defendants could not confirm who would be responsible for the costs of reinstating the damaged existing decoration to the Premises.  At the meeting, the plaintiff made its position clear that it would not allow the Rectification Works to commence unless the defendants provided the plaintiff with the outstanding details as to how the Rectification Works could be carried out without interruption and disturbance to the plaintiff’s operations.

16.  Since then, apart from removing part of the external wall at the front and rear on each floor of the Premises by the Contractor in mid-July 2009, there had been a further 3 months of inactivity on the part of the defendants.

17.  By 2 letters dated 6 October 2009 to the plaintiff, the defendants made various proposals for the carrying out of the Rectification Works – that the defendants would bear the costs of the Rectification Works, be responsible for reinstating any decoration in the Premises which had to be demolished to carry out the Rectification Works and that the defendants would provide a rebatement of rent as compensation for the inconvenience caused to the plaintiff as a result of the Rectification Works.  In those letters, the defendants demanded the plaintiff to confirm its acceptance of the above proposal within 14 days failing which, the defendants would apply to the Court to compel the plaintiff to allow the Rectification Works to be carried out.  It is pertinent to note that this ultimatum was given more than 2 years before the defendants issued the present summons.  The plaintiff did not give the requested confirmation but requested a further meeting with the defendants and its Contractor which was held on 22 October 2009.  The parties continued to be at odds after that meeting.

18.  One would have thought that given the outcome of the 22 October meeting and the defendants’ ultimatum in their 6 October letters, and if the Rectification Works were perceived by the defendants to be as urgent as Mr Cheung had put it, the defendants would have immediately after the 22 October meeting applied for an injunction against the plaintiff.  The defendants did not do so.

19.  There continued to be periods of inactivity on the part of the defendants and even when there was activity on the defendants’ part, the defendants were only engaging in further correspondence and/or discussions with the plaintiff.  By October 2009 (which was almost one year after the Building Orders were issued), it should have been obvious to the defendants that they were encountering significant resistance from the plaintiff (rightly or wrongly) to carry out the Rectification Works and that if they did consider the matter to be urgent, their only course was to apply for an injunction immediately.

20.  By a letter dated 29 October 2009 to the defendants, the plaintiff continued to complain on the lack of information provided by the defendants and its Contractor on the Rectification Works.  Further, the plaintiff suggested that it was only prepared to settle the outstanding rent for the Premises after the issue of the Rectification Works had been resolved between the parties.  By their letters dated 18 November 2009, the defendants demanded payment of the outstanding rent and repeated their proposal for the Rectification Works referred to in their 6^th October letters mentioned in paragraph 17 above.  In the 18 November letters, the defendants also mentioned that they would be applying for an extension of time to comply with the Building Orders. This appears to have been prompted by the Building Authority’s notices of prosecution dated 12 November 2009 for the defendants’ failure to comply with the Building Orders.

21.  From the documents before me, it appears that sometime in late 2009, the defendants had commenced proceedings to recover the outstanding rent (District Court Distraint Case nos 6092/2009 and 6093/2009).  It is curious that the defendants saw fit to commence proceedings to recover the outstanding rent but considered it unnecessary to seek an injunction to compel the plaintiff’s co-operation to carry out the Rectification Works despite the suggested urgency.  In my view, by the time the Building Authority issued the notices of prosecution in November 2009, this should have set alarm bells ringing for the defendants to apply for an injunction immediately.  The defendants did not do so and continued to allow matters to drag on for another 2 years before taking out the injunction application.

22.  By its letter dated 18 December 2009, the plaintiff continued to complain of the lack of details on the Rectification Works.  On 5 January 2010, the Building Authority wrote to the defendants rejecting their applications for an extension of time to comply with the Building Orders and reminded the defendants of the possibility of prosecution should they fail to comply with the Building Orders.

23.  Despite the Building Authority’s number of warnings referred to above, subsequent to the Building Authority’s 5 January letters, there was a further substantial period of inactivity for some 7 months until 9 July 2010 when the plaintiff wrote to the defendants requesting renewal of the Tenancies.  During the Hearing, I raised this with Mr Cheung.  Mr Cheung said that although this appears on paper to have been the position, the fact was that there were on-going discussions between the parties during the 7 months.  I do not accept this.  This is not supported by the affidavit evidence before me in particular, in Luk’s Affirmation, the plaintiff confirmed that after the plaintiff’s above 18 December letter, the defendants made no further reply nor took further action on the Rectification Works.  The defendants have not adduced any evidence to refute this.

24.  Between August 2010 and May 2011 when the plaintiff commenced these proceedings, there continued to be toing and froing between the plaintiff and the defendants on the Rectification Works.

25.  In November 2010, the Contractor carried out the Rectification Works until early/mid December 2010 when the plaintiff demanded the Contractor to stop as various of the plaintiff’s conditions for carrying out the Rectification Works were allegedly not met.  For the purpose of this Decision, I need not go into the details other than to say that the defendants dispute this and claim that the plaintiff had wrongfully prevented the Rectification Works from continuing.  It is pertinent to note that by this time, the Tenancies had already expired for some 4 months, on 26 August 2010.

26.  The plaintiff alleges that in August/September 2010, the parties had entered into the Oral Agreement to Renew in which it was agreed that the Tenancies would be renewed for a fixed term of 2 years plus a further extension of 2 years with a break clause to the plaintiff during the last 6 months of the Tenancies.  According to the plaintiff, it was also agreed that the new rent would be HK$34,500 for each floor per month excluding management fees, Government rent and rates and subject to a maximum of 10% increase in rent for the 2^nd term.  The defendants deny the Oral Agreement to Renew and claim that the discussions between the parties on the renewal of the Tenancies were merely to explore the possibility of renewing the Tenancies with no intention to create a legal relationship.  The defendants’ alternative case is that even if there were the Oral Agreement to Renew, it was conditional upon completion of the Rectification Works.

27.  After the plaintiff’s refusal to allow the Contractor to continue with its Rectification Works in December 2010, there continued to be discussions between the plaintiff and the defendants over the conditions for continuing with those Works.  Suffice to say that the parties remained in deadlock.

28.  By 2 letters from the defendants’ former solicitors to the plaintiff dated 18 March 2011 referring to the Tenancies having expired on 26 August 2010 (in other words, more than 6 months after the expiration of the Tenancies), the defendants demanded the plaintiff to deliver up vacant possession of the Premises by 26 April 2011.  By the plaintiff’s solicitors’ letters to the defendants’ former solicitors dated 8 April 2011, the plaintiff refused to deliver vacant possession of the Premises and asserted the Oral Agreement to Renew.  The defendants continued to play the plaintiff’s game and corresponded further with the plaintiff.  On 11 May 2011, the defendants’ former solicitors replied denying the Oral Agreement to Renew.  In that reply, the defendants demanded vacant possession of the Premises by 18 May 2011 failing which, the defendants would commence legal proceedings.  As matters unfolded, on 18 May 2011, it was the plaintiff which commenced proceedings (ie these proceedings) against the defendants to assert the Oral Agreement to Renew.  As the parties were already in litigation, the defendants could have immediately applied for an injunction (although rather late in the day).  However, they continued not to do so and simply proceeded in the ordinary course and filed a defence and counterclaim on 9 June 2011.  Even after filing the defence and counterclaim, the defendants still did not immediately apply for an injunction.  It is of significance that in the counterclaim, the defendants already sought inter alia the reliefs that they now seek in the summons.  The defendants continued to indulge in further correspondence with the plaintiff over the continuation of the Rectification Works.  Needless to say that that further correspondence did not advance matters.

29.  Between August and 7 December 2011, the parties attempted mediation. This was unsuccessful.  It was only after the termination of the mediation on 7 December 2011, did the defendants issue the present summons on 14 December 2011.  By that time, almost 3 years had elapsed since the Building Orders were issued.

Defendants’ interlocutory injunction application

30.  In his submissions, Mr Hung relied heavily on the Court of Appeal’s decision in King Fung Vacuum Ltd & Others v Toto Toys Ltd and Others [2006] 2 HKLRD 785 in support of the plaintiff’s case that the injunction application must fail for delay.  In King Fung, Rogers VP said that:-

“There has traditionally been a strong requirement when interlocutory injunctions have been sought, that the plaintiff must show that it has acted promptly and without delay. Promptly in the circumstances of interlocutory injunctions has been commonly understood to be a period of six weeks or so of unexplained delay and three months with an explanation given for the delay in making application for an injunction. Since the American Cyanamid decision the importance of irreparable damage in an application for an interlocutory injunction is paramount. If there is no irreparable damage demonstrated then the need for an interlocutory injunction has not been shown. This is important because of the approach that the courts take to interlocutory injunctions. They are not the trial of the action and the court is concerned with whether irreparable damage will occur before a trial can take place. It stands to reason that if a party is prepared to allow matters to proceed and takes no action with respect to matters which have been extant for lengthy periods, it lies ill in their mouth to say that there is likely to be irreparable damage and that is the case here.” (emphasis added)

31.  As I have found in paragraph 29 above, the defendants have delayed almost 3 years before taking out the injunction application.  On any view, this is more than excessive.  Mr Cheung submits to the effect that the defendants cannot be criticised as during the 3 years, the defendants have been actively negotiating with the plaintiff to avoid litigation.  I disagree.  As I have found from the chronology in paragraphs 10 to 29 above, there had been many substantial periods of inactivity on the part of the defendants.  Further, by the very latest January 2010 (this does not already take into account the defendants’ inactivity between January and May 2009 as referred to in paragraph 14 above), it would have been obvious to the defendants that the plaintiff’s co-operation for the Rectification Works was not forthcoming and that they should apply for an injunction immediately.  This would have been particularly so given the repeated warnings and notices of prosecution that the Building Authority had issued to the defendants in November 2009 and January 2010 as referred to in paragraphs 20 and 22 above. In fact, in October 2009, the defendants had already given the plaintiff an ultimatum to co-operate (see paragraph 17 above).

32.  In my judgment, the defendants have only themselves to blame for the excessive delay in taking out the injunction application.  The defendants have been content with and had indulged themselves in writing correspondence and having discussions with the plaintiff for the resolution of the Rectification Works which were plainly getting no where.  It simply lies ill in the defendants’ mouths to now say (after a lapse of almost 3 years before taking out the application) that there is urgency in seeking the injunction and that they will suffer irreparable damage if the injunction were not granted.  One cannot establish urgency and thus irreparable damage on this basis.

33.  On this point alone and following King Fung, I would have dismissed the defendants’ injunction application had they continued to pursue the same.  This is an application which the defendants should not have launched in the first place in view of the extensive delay.

34.  The traditional costs order for interlocutory injunctions has been that the successful party in the application would have his costs in the cause. This is not an inflexible rule.  If there are special circumstances, or where the unsuccessful party has acted improperly or is some way to be penalised, a different order may be made (see King Fung).

35.  In Kickers International SA v Paul Kettle Agencies Limited and Another [1990] FSR 436, where the court made a final costs order in favour of the defendant in respect of an abandoned interlocutory injunction application, the court took the view that in deciding whether to make a final costs order for an interlocutory application there are two risk of injustice which have to be balanced against each other – (1) a final order might award a party costs which, upon fuller consideration at the trial, that party would not have been given, and (2) failure to make a final costs order might have the practical effect of depriving a party of their costs which they should have recovered in all fairness.  Hoffmann J (as he then was) held that (at 438):-

“An order for a party’s costs to be ‘in the cause’ is made because the court has not investigated the merits and considers that it would not be fair for him to recover those costs unless he succeeded at the trial. But the fact that the merits have not been investigated, or not fully investigated, does not necessarily mean that the court cannot dispose finally of interlocutory costs. The question cannot be settled simply by reference to practice: it must be answered on the facts of the individual case. Would it be unfair in this case for the defendants to have the costs of the motion even if they lost at the trial? On balance I do not think that it would. Although I cannot decide the merits, I can form a view on whether the plaintiff, on the material it has produced and what it must have known about the defendants, was justified in launching the motion. I do not think it was. There fore whatever the outcome of the trial, the motion which has now been abandoned has put the defendants to a great deal of unnecessary expense.

One solution sometimes adopted is to reserve the costs of the motion to the trial judge.  There is a superficial attraction about this course because the trial judge will have all the facts and be in the best position to decide whether a party should have interlocutory costs despite the fact that he has lost at the trial.  But in practice it has serious disadvantages.  One is the difficulty of reconstructing for the trial judge how things looked at the time of the interlocutory application, particularly when it involved questions of balance of convenience which were irrelevant at the trial.  But the more important reason is that very often there is no trial.  In such a case, an order that costs be in the cause or reserved to the trial judge is in practice a decision that there should be no order as to costs.  Not many defendants, even with the encouragement of success at the interlocutory stage, are willing to insist on a trial for the purpose of recovering their interlocutory costs.  But unless they do, the costs are left in limbo, as in Stratford v Lindley (No. 2) [1969] 1 W.L.R. 1547.  This gives the unsuccessful plaintiff a powerful bargaining weapon.  He can face the defendant with the alternative to accepting a substantial discount on the interlocutory costs or having to incur the trouble, expense and risk of a trial.  Furthermore, the existence of an order for substantial costs contingent upon the outcome of the trial, or reserved to the trial judge, may push the parties into a trial of an action which would otherwise have settled.

Thus it seems to me that in making a costs order at the interlocutory stage, there are two risk of injustice which have to be balanced against each other.  On the one hand, a final order might award a party costs which, upon fuller consideration at the trial, he would not have been given.  On the other hand, failure to make a final order might have the practical effect of depriving a party of some or all of the costs which he should in fairness have recovered.  I think it is possible that in the past the courts may have been more impressed by the first risk than by the second.”

36.  The Court of Appeal in Bushbury Land Rover Limited v Bushbury Limited [1997] FSR 709 agreed with Hoffmann J’s judgment in Kickers International and held that where the interlocutory application fell far short of satisfying the criteria for the grant of interlocutory relief that the applicant should never have sought it, the Court may penalise the applicant in costs.

37.  In Wah Cheong Construction Company Limited v Super Bright Engineering Limited and Others HCCT 10/2003 (unreported, 6 June 2003), the Court made a final costs order in favour of the plaintiff in respect of its interlocutory injunction application.  In doing so, Deputy High Court Judge To (as he then was) took the view that it was unlikely that the case would proceed to trial and thus there was a risk of injustice to the plaintiff if it were not able to recover its interlocutory costs.

38.  In these proceedings, the plaintiff seeks specific performance of the Oral Agreement to Renew which if it does exist and is enforceable (and I make no finding as to this), it would have extended the Tenancies to 26 August 2012.  Given that the plaintiff has now undertaken to deliver vacant possession of the Premises by 26 August 2012, for the plaintiff to continue with these proceedings, would in my view be academic and serve no useful purpose. Similarly, the essence of the defendants’ counterclaim is to secure the plaintiff delivering vacant possession of the Premises.  I note that in the counterclaim, the defendants also claim mense profit of HK$34,500 per month for each floor of the Premises from 27 August 2010 to the date of the plaintiff delivering vacant possession.  I have been told by Mr Cheung during the Hearing that the plaintiff has been paying that sum to date although the plaintiff’s case is that such payments represent rent under the Oral Agreement to Renew. Whatever the payments may represent, in my judgment, given that the plaintiff will be vacating the Premises by 26 August 2012, and the defendants have been receiving payments from the plaintiff (whether it be mense profit or rent), it would serve no meaningful purpose for the defendants to continue to pursue its counterclaim following the plaintiff vacating the Premises.  In the light of the above, the prospect of this case proceeding to trial is in my view, remote.

39.  For the reasons set out in paragraphs 33 and 38 above, on balance, I consider that I should now make a final costs order in favour of the plaintiff on the defendants’ injunction application.  If I were not to make a final costs order, this could have the practical effect of depriving the plaintiff of its costs of the injunction application.  The plaintiff had been put into incurring unnecessary expense to oppose the defendants’ injunction application which should not have been taken out in the first place.

Defendants’ summary judgment application

40.  Pursuant to Order 14, rule 7 of the Rules of the District Court, the Court may dismiss an application for summary judgment on a counterclaim with costs to be paid forthwith if it appears to the Court that the defendant knew that the plaintiff relied on a contention which would entitle the plaintiff to unconditional leave to defend.

41.  At the beginning of his submissions, Mr Cheung conceded (and quite rightly so) that the issue of whether there was an Oral Agreement to Renew was triable and ought to go to trial.  However, Mr Cheung sought to argue that for the purposes of the summary judgment application, the defendants were not seeking an order for possession simpliciter but for an order to gain access into the Premises to carry out the Rectification Works.  Mr Cheung submits that accordingly, the issue of the Oral Agreement to Renew does not arise.  I disagree.

42.  In order to determine the defendants’ application, it is necessary to consider whether the plaintiff has raised a credible defence to justify their refusal to allow the defendants to access the Premises to carry out the Rectification Works.  The plaintiff has set up the Oral Agreement to Renew as its defence.  In Luk’s Affirmation, the plaintiff contends that apart from the term of the lease and rent, pursuant to the Oral Agreement to Renew, the terms and conditions of the renewed leases were the same as those of the Tenancies. The Tenancies contained the usual covenant that the plaintiff would have quiet possession and enjoyment of the Premises without interruption by the defendants.  The Tenancies also contained a covenant that the plaintiff would permit the defendants to carry out maintenance repair works to the Premises. The plaintiff relies on the covenant for quiet enjoyment in answer to the defendants’ counterclaim.  As I understand Mr Hung’s submissions, the plaintiff does not go as far as to suggest that its right to quiet enjoyment is unqualified ie that the plaintiff is entitled to shut out altogether the defendants from entering into the Premises to carry out repair works (if the Rectification Works can properly be considered as such, which the plaintiff denies and I make no finding as to this) but that the covenant to repair and the covenant for quiet enjoyment coexist on a basis of parity and not of priority.  If there was indeed the Oral Agreement to Renew (and assuming that it is enforceable as it has not been reduced into writing), the question would be whether the defendants had taken all reasonable steps to avoid disturbing the plaintiff in carrying out the Rectification Works.  If there was no Oral Agreement to Renew or that it is unenforceable, the plaintiff would have been remaining in the Premises after 26 August 2010 (ie expiration of the Tenancies) as a trespasser and there would appear to be no defence to the defendants’ counterclaim.

43.  For the above reasons, I cannot see how I can possibly determine the summary judgment application without considering the Oral Agreement to Renew.

44.  Mr Cheung submitted that it was only after he had considered Mr Hung’s skeleton argument that he came to the view that the issue of whether there was the Oral Agreement to Renew was triable.  I reject this.  The issue of the Oral Agreement to Renew is clouded with numerous oral discussions and exchange of correspondence between the parties which cannot possibly be determined on affidavit evidence.  The defendants should have known this from the outset. This is not a case where the issue of the Oral Agreement to Renew was only recently raised by the plaintiff.  By the latest when the parties filed their pleadings herein in July 2011, if not earlier given that prior to the commencement of these proceedings, the parties had already indulged in extensive discussions and exchange of correspondence arguing over the issues of the Rectification Works and the Oral Agreement to Renew, the defendants must have known that the plaintiff would rely on the Oral Agreement to Renew in defence to the defendants’ counterclaim.  This is particularly so given that the defendants had been legally represented well before the commencement of these proceedings.

45.  In the circumstances, if the defendants had continued to pursue its summary judgment application, I would have dismissed the same.  For the reasons above, I consider that the plaintiff should be entitled to its costs of the defendants’ summary judgment application to be paid forthwith.

Conclusion

46.  Accordingly, I order that the defendants do pay the plaintiff’s costs of the defendant’s summons filed on 14 December 2011 to be paid forthwith with certificate for counsel.

47.  Mr Hung has requested that I make separate costs orders for the applications for injunction and summary judgment.  I do not consider this to be necessary given that I have come to the same view on the two applications referred to in paragraphs 39 and 45 above.