INTERNATIONAL TRADEMART CO LTD v. PROCON HONG KONG LTD AND ANOTHER

HCA 1301/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1301 OF 2013

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D E C I S I O N

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1.  This is a tenancy dispute. The plaintiff (“ITC”) is the landlord and the 1^st defendant (“ProCon”) is the tenant. The 2^nd defendant (“Li”) is the sole shareholder and director of ProCon. Li applies to strike out ITC’s claim against her; and ITC applies to amend its claim against Li.

THE CLAIM

2.  By a tenancy agreement dated 13 September 2010, ProCon as the tenant had the use of the office premises of ITC for a term of 3 years from 1 September 2010 to 31 August 2013.  The tenancy agreement provided, among other things, that ProCon should deliver up vacant possession of the premises at the expiration or sooner determination of the tenancy agreement.

3.  Further, if ProCon was desirous of renewing the tenancy for another term of 2 years, it should give notice in writing of such desire to ITC not more than 7 months and not less than 6 months before the expiry date of the tenancy agreement (ie within the month of February 2013).

4.  The tenancy agreement provided that any notice required or permitted to be given under the agreement should be in writing and should, if served on ITC, be sufficiently served if addressed to ITC and sent by ordinary or registered post or delivered by person to its principal place of business given by ITC.

5.  The pleaded case against ProCon is as follows:

(1) By letter dated 7 March 2013, ProCon asserted that it had sent a notice requesting for renewal of tenancy dated 25 February 2013 (“the Alleged Notice”).

(2) On the telephone on 8 March 2013, ITC confirmed to Ms Sao of ProCon the receipt of the above letter but not the Alleged Notice.

(3) By letter dated 14 March 2013, the then solicitors for ITC put on record that ITC had not received a notice requesting renewal of the tenancy pursuant to the tenancy agreement.

(4) On the same day, Ms Sao of ProCon enquired with ITC as to whether the tenancy could be renewed outside the period prescribed for the renewal notice; or whether ProCon might move to another premises in the building.

(5) By letter dated 24 April 2013, the property agent on behalf of ITC requested ProCon to deliver up vacant possession of the premises on or before 31 August 2013.

(6) On 8 May 2013, Li telephoned ITC and insisted that her company had exercised the option to renew the tenancy by the Alleged Notice.  The same stance was reiterated by letter dated 8 June 2013.

(7) By letter dated 5 July 2013, the then solicitors for ITC demanded ProCon to confirm if it would be prepared to deliver up vacant possession of the premises when the current tenancy came to the end, failing which it would be “treated as steadfast in the continuation to wrongfully occupy the premises after 31 August 2013”.  No reply was received.

(8) ProCon is said to have evinced an intention not to be bound by the tenancy agreement.

6.  Clearly ITC was then alleging repudiatory breach of the tenancy agreement on the basis that ProCon has evinced an intention not to deliver up vacant possession of the premises when the tenancy expired.  Whilst ITC did not seek to terminate the tenancy agreement forthwith, it commenced the present action on 16 July 2013 without waiting until the expiration of the term of the tenancy.  Nevertheless ITC only claims to be entitled to vacant possession of the premises on 31 August 2013.

7.  The claim against Li is pleaded as further or alternative to that against ProCon. The basis as pleaded is as follows:

(1) Li was and is the sole shareholder and director of ProCon.

(2) In truth and in substance, Li is the alter ego of ProCon and vice versa.

(3) The tenancy agreement was signed by Li on behalf of ProCon.

(4) The Alleged Notice and the letter dated 7 March 2013 mentioned above were also signed by Li.

(5) Li had knowledge about the tenancy agreement and the Alleged Notice.

(6) Li has intentionally interfered in ProCon’s performance of the tenancy agreement by alleging the issuance of the Alleged Notice, causing ProCon to maintain that, and refusing to deliver upvacant possession of the premises when the tenancy expired.

(7) As a result of Li’s procurement or inducement of ProCon’s breach, ITC has suffered loss and damage.

(8) Further or alternatively, Li is joined as a defendant pursuant to section 52A(2) of the High Court Ordinance (“HCO”) and O.62, r.6A of the Rules of the High Court (“RHC”).

8.  ProCon has filed its defence and counterclaim, while Li has filed her defence. Further particulars of ProCon’s pleading were subsequently supplied.  Those particulars included the contention that the Alleged Notice was posted through the mailbox on 25 February 2013.

STRIKING OUT

9.  By summons dated 2 November 2013, Li applies to strike out the claim against her pursuant to O.18, r.19 of the RHC or inherent jurisdiction o of the court on the ground that the pleading (i) discloses no reasonable cause of action, (ii) is frivolous or vexatious or (iii) is otherwise an abuse of process of the court.

10.  As far as ground (i) is concerned, only the pleading is considered without reference to any evidence.  I must be satisfied that the pleaded claim is plainly and obviously liable to be struck out before an order will be made accordingly.  As to the other grounds, affidavit evidence could be referred to.

11.  A couple of points have apparently escaped counsel’s attention.

12.  First, section 52A of the HCO and O.62, r.6A of the RHC would be invoked if the court considers that any person not being party to the action should be liable for costs.  In such event, an order would not be made without affording the non-party the opportunity to be heard.  It is not for ITC to put forward such statutory basis for seeking costs against Li as an independent cause of action.  When asked, Mr Hui for ITC confirmed that this will not be pursued as such.  Otherwise this is liable to be struck out.

13.  Second, whilst the claim for declaration that the option to renew the tenancy has not been exercised pursuant to the tenancy agreement is expressly directed against ProCon only, the claim for declaration that the tenancy agreement would expire and that ITC is entitled to vacant possession of the premises is directed against both ProCon and Li.  Mr Hui conceded that this is obviously incorrect.

14.  Having the above clarified, I proceed to consider the cause of action against Li for procurement of ProCon’s breach of the tenancy agreement.

15.  Where a person by unlawful means intentionally procures a second person to commit a breach of an existing contract with a third party or prevents the performance of that contract, so that the third person suffers damage, the first person commits a wrong actionable in tort at the suit of the third person, unless the breach of the contract is justifiable: see Halsbury’s Laws of Hong Kong (2^nd ed) Vol.47 at 380.504, citing Lumley v Gye (1853) 2 E&B 216; Said v Butt [1920] 3 KB 497.

16.  In the case of breach of contract by a body corporate, which must act by and through its directors, the directors, as the company’s alter ego, would not be personally liable for their decision which is said to have caused the body corporate its breach of the contract with the third party: see Said (above) (at 505-506); DC Thomson & Co Ltd v Deakin [1952] Ch 646 (at 681); Halsbury’s (above).

17.  The situation would differ if a director, acting as an entire stranger or wholly outside the scope of his powers or authority, procures the company to wrongfully break the contract with a third party.  This is often described as the exception in Said: see Said (above); DC Thomson & Co Ltd (above); and the Hong Kong case of East Asia Satellite Television (Holdings) Ltd v New Cotai LLC, HCA 2189/2009 (16 July 2010) (at §§75-76).

18.  In the case of 厦門新景地集團有限公司v Eton Properties Limited & Ors, HCCL13/2011 (14 June 2012), Stone J took the same view of the above principles (at §§338-339; 356-357).

19.  In East Asia Satellite Television (Holdings) Ltd, Reyes J struck out the claim against the directors for procuring their company’s breach of contract, partly because there was no explicit pleading of bad faith on the part of the directors that would take them outside the scope of authority to act for the company in alleged breach (see §§79-81).

20.  The case of East Asia Satellite Television (Holdings) Ltd subsequently went on appeal: see [2011] 4 HKC 115.  The Court of Appeal also cited (at §17) the principle and the exception in Said.  However, at the same time, the appellate court referred to Lewison J’s observation in Reeves v Sprecher [2008] BCC 49 (at §§31-32) and Evershed MR’s observation in DC Thompson & Co Ltd (at 681) about the formulation of the exception in Said.  The appellate court (at §§21-24) took the view that the precise limits of the exception in Said required careful consideration and might depend on the true juridical basis for the exception.

21.  As far as the appeal against the striking out was concerned, the appellate court accepted (at §18) the new submission that numerous paragraphs of the statement of claim could well provide the basis of the contention that the directors had procured their company’s breach of contract by, among other things, knowingly making false representations purportedly on behalf of the company.  The appellate court therefore reinstated the claim against the directors for procurement of breach.

22.  Relying on the above observation of the Court of Appeal, Mr Hui now argued that one does not need to explicitly plead the legal conclusion that the directors acted with malice, or lacked good faith, or acted outside their scope of authority. One simply needs to plead the materials facts which may lead to such a conclusion, if the court so finds.  In support of this argument, Mr Hui also relied on the New Zealand case of Official Assignee v Dowling [1964] NZLR 578 (at 581-582).

23.  Further, Mr Hui argued that this area of law, including what amounts to malice and mala fide of the directors for the purpose of establishing the cause of action for procurement of their company’s breach of contract, is still developing and unsettled.  Such consideration, he argued, could not be clear and obvious case for striking out.

24.  As far as the rules of pleading are concerned, I reject the argument that malice or lack of good faith need not be specifically pleaded, if any of them is per se the allegation.  As far as act of malice or mala fide is said to render the act of the director outside the scope of his authority, such conclusion, in my view, is not a legal question as suggested by Mr Hui.

25.  But more importantly, the emphasis on the room for argument on the precise limits of the exception in Said, in my view, is misplaced.  So is the emphasis on whether the conclusion that the act of the director went outside the scope of his authority needs to be explicitly pleaded.  I say this because of the peculiar circumstances of this case, namely, ProCon was at all material times and still is a one-person company.

26.  Not only was and is Li the sole director, but she was and still is also the sole shareholder of ProCon.  As ITC pleaded, she is in truth and in substance the alter ego of ProCon (and even vice versa, as ITC also pleaded).  Whether Li knowingly and intentionally asserted the existence and the sending of the Alleged Notice; and whether such assertion was in fact false, there is virtually no room for arguing that by so acting, Li effectively became acting as if she were not the brain and hands of ProCon.  Any attempt to argue otherwise so as to attribute personal liability to Li for so acting, as the alter ego of ProCon, in my view, is artificial.

27.  If what ITC intends and suggests is that somehow Li should not be permitted to hide behind the shield of separate corporate identity in the circumstances of the case, it should be seeking to pierce the corporate veil.  Yet Mr Hui unequivocally confirmed during the hearing that that is not what his client pursued.

28.  In my view, the claim against Li for procuring ProCon’s breach of the tenancy agreement must in the circumstances fail.

AMENDMENT

29.  By summons dated 4 March 2014, ITC seeks to amend the statement of claim against Li in the following manner:

(1)   The contention that Li is the alter ego of ProCon is replaced by that ProCon is under the sole control of Li.

(2)   In line with ITC’s affidavit evidence, particulars are added in the pleading in support of the inference that the Alleged Notice did not exist on 25 February 2013; or alternatively, if the same existed, it was not sent within the month of February 2013.

(3)   By putting forward the Alleged Notice and asserting that it was sent in compliance with the tenancy agreement (and thus the already pleaded case that she intentionally interfered with her company’s performance of the tenancy agreement), Li did not act bona fide and within the scope of her authority as a director, servant and agent of ProCon.

30.  The proposed amendments essentially improve the current one by explicitly pleading the conclusion about Li’s position, if proved, that would fit into the exception in Said.

31.  In view of the fundamental flaw of the claim against Li in the circumstances of the present case as discussed above, this is not really a question of salvaging the cause of action by amendments.  The proposed amendments, even if allowed, would not make the claim against Li become a viable one in the circumstances of this case.

32.  The application to amend is therefore refused.

ORDER

33.  The Striking-Out Summons is allowed; and the action against Li is thus dismissed. The Amendment Summons is dismissed.

34.  I make a nisi order that ITC shall pay Li’s costs of the action, including those of the Striking-out Summons and the Amendment Summons.  Costs shall be taxed, if not agreed, with certificate for one counsel.  In the absence of application within 14 days to vary, this costs order shall become absolute.