DAY MARK LTD v. GD MANAGEMENT LTD

HCA 362/2022

[2023] HKCFI 2327

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 362 OF 2022

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JUDGMENT

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INTRODUCTION

1.  This was an appeal from an order made by Master Alexander Tang on 9 February 2023 wherein, amongst other orders made, he granted summary judgment to the Plaintiff (“P”) for a portion of its claim, namely, granting an order for vacant possession of The Remaining Portion of Section B of Lot No. 487 in D.D. 80, North, New Territories (“the Lot”), unless within 28 days of the order the Defendant (“D”) paid into court the rent in arrears calculable on the basis of rent payable at HK$80,000 per month from August 2021 up to the date of payment, and an amount to be assessed as being the costs of P’s action in relation to the issue of possession.

2.  The other parts of the order, which were unrelated to the summary judgment, were not appealed.

3.  At the hearing on 29 August 2023, there were the following applications before the Court:

(1)  D’s appeal against the summary judgment granted by the Master; and

(2)  D’s application to adduce new evidence and re-amend its Defence and Counterclaim).

4.  Owing to various developments (further detailed below), the substantive appeal in respect of the summary judgment, the amendment of pleadings by D (and costs associated therewith), and the admission of evidence by D were essentially agreed.  What remained in dispute was:

(1)  The costs of the appeal;

(2)  The costs of the court below; and

(3)  The costs of the new evidence application.

5.  Before me, P was represented by Counsel Mr Simon Wong and D was represented by Counsel Mr Vincent Chiu.

BACKGROUND

6.  By a tenancy agreement dated 28 October 2019 (“the Head Lease”), P became a tenant renting the Lot from the Landlord, Ip Shiu King Tso, the registered owner of the Property.

7.  P and D entered into a sub-lease on 22 November 2019 (“the Sublease”), whereby the Lot was sublet to D. The material terms thereof were as follows:

“1. 租期 議定租期為13年5個半月，由2019年11月16日 至2033年4月30日止。

2.1 雙方同意租期至 2022 年 5 月 31 日為止的每月租金為 HK$218,000 (“第一期每月租金” )，之後 2022 年 6 月 1 日至 2027年5月31日每月租金( “第二期每月租金” )及2027年6 月1日至2033年4月30日為止每月租金( “第三期每月租金” ) 上調幅度雙方協商，但無論如何，每次上調在 12% 之内。即是 説，第二期每月租金，最多是第一期每月租金的 112%，如此 類推。第一期每月租金、第二期每月租金及第三期每月租金統 稱為 ( “每月租金” )。租客並須於每個月 1 號 ( “付租日”) 以上 期支付。

4.1 日保(P)不向租客(D)保證該地段可作任何用途。日保向 租客陳述，它現在已經向城市規劃處 ( “城規” ) 申請，在 該地段興建 4 萬呎密封倉。雙方明白，現時申請仍然未有批出。

10.2 如果租客有下列行為或其中之一，日保有權終止本租約， 收回該地段，並且保証金不予退還。⋯⋯

(c) 拖欠每月租金或任何一部份超過 30 天;　或

(d) 第 10.3 條所指的情況。

10.3 租客逾期超過30 天內支付每月租金，日保可以即時根據 本租約第 2.2 條收回該地段管有權。此外，如果因違反租約其 他條款而收到日保的一個月書面通知，須要糾正錯誤但沒有按 要求妥善處理違約事項，日保有權在一個月期滿之後再以書面 通知，立即終止及解除本租約，並可以即時採取法律行動或其 他行動自行取回該地段。收回該地段的權利是獨立於日保向租 客追究及追討金錢上中的損失的權益。”

8.  In about October 2020, the parties agreed that the monthly rent was to be reduced to HK$50,000 for four months from November 2020 to February 2021 (“the October 2020 Variation”).

9.  It is P’s case that in breach of the lease (as amended), D only paid HK$50,000 from March to May 2021, and thereafter failed to pay any rent since 1 June 2021. P requested that D remedy its breach, failing which P would inter alia forfeit the Sublease and recover vacant possession of the Lot.

10.  D’s case is in essence that:

(1)  The Sublease had been entered into as a result of various misrepresentations by P.

(2)  D relies on the October 2020 Variation.

(3)  D further says that there was a verbal variation of the October 2020 Variation whereby the reduced monthly rent of HK$50,000 was extended to apply to March to May 2021.

(4)  On or about July 2021, D says that there was a written second variation to the Sublease, whereby the parties agreed to bear in equal shares legal obligations and costs arising from the Lot and to debar P from claiming the outstanding rent in June and July 2021. It was also agreed, D says, that P would not be entitled to any rent unless D managed to sublet the Lot to its another sub-tenant. Since the Lot was not sublet by D, P was not entitled to any rental payments.

(5)  The material part of the relevant clause relied on by D in the Second Variation states as follows:

“……原 DD80, LOT487 地段之租金 218,000 元為改 [sic] 每月甲方先收底 80,000元，倉庫出租后，即由 2021 年 8 月 1 日起生效，即乙方願意把租金收入攤分如下: 每月底，甲方收 80,000 元，乙方收 30,000 元，餘下收益雙方平分 ……”

(6)  Further or in the alternative, D was also entitled to withhold rental owing to P’s breach thereof in refusing to contribute half of the costs for removing a roof to a warehouse structure on the Lot.

(7)  In the premises, D’s contention is that it was not in breach of the Sublease.

11.  In answer to the above, P’s case is in essence that:

(1)  The Second Variation is unbelievable and unarguable. P refers to various contemporaneous records prior to the pleaded defence, wherein no reference was made to the Second Agreement. P also queries the signing process of the agreement described by D’s deponent, and on such basis also queries whether any alleged acceptance of the variation was properly communicated to P in any event.

(2)  Even if the Second Variation were agreed and is binding, P’s case is that D’s interpretation of the relevant clause (at paragraph 10(1) above) is misplaced. In essence, it says that even on that basis, the clause provides that P should first receive HK$80,000 per month, and that this was not dependent on there being any subletting by D to any other party.

(3)  P relies on the principle that the covenant to pay rent as being independent of the landlord’s compliance of its obligations under the lease. In short, the proposition is that even if P were not in compliance, this does not permit D to withhold payment of the rent.

12.  P’s claim was initiated on 12 April 2022 by a writ with statement of claim endorsed thereon. In the prayer, P sought vacant possession of the Lot, and also various other reliefs including: (1) rent in arrears, amounting to HK$2,684,000 (calculated on the basis that there was no Second Variation, and that therefore the monthly rent of HK$218,000 as originally agreed was still effective); and (2) mesne profits of HK$218,000 per month from 1 April 2022 until the date of delivery of vacant possession.

13.  Following the close of pleadings, on 27 September 2022, P filed a summons seeking summary judgment solely in respect of the relief seeking vacant possession of the Lot, but not in respect of the outstanding rent or mesne profits. The parties are agreed that the effect of such a step is to leave the balance of the disputes between the parties to be determined at trial including, crucially, the issues surrounding the Second Variation and the amount of rent payable in consequence thereof.

14.  At the hearing before the Master, D ran the substantive arguments summarized at paragraph 10 above, and in addition thereto, also put forward an argument that it was inappropriate for P to seek what was in effect “partial” summary judgment (i.e. it only sought the relief for vacant possession), as this would fragment the case into parts and thus risked there being inconsistent judgments (between the Master’s findings and the eventual trial judge).  The Master did not accept any of Ds’ arguments, and granted the “partial” relief, making the order as set out in paragraph 1 above.

15.  D then appealed by Notice of Appeal dated 22 February 2023.

16.  There were further developments in April 2023 and thereafter. In April 2023:

(1)  On 13 April 2023, the term of the Head Lease expired.

(2)  By letter dated 18 April 2023 from the Landlord’s solicitors to P, the Landlord informed P of inter alia the expiration.

(3)  By letter dated 26 April 2023, the solicitors for D also informed solicitors P of the aforesaid.

(The above-mentioned correspondence is hereinafter referred to as “the April Letters”)

17.  As the date for the present hearing approached, parties exchanged further correspondence:

(1)  On 20 July 2023, solicitors for D wrote to solicitors for P seeking their agreement to include the April Letters as evidence for the purposes of the appeal, and putting forward inter alia the contention that since P has ceased to be the tenant of the Property, P no longer has any interest and also no locus standi to seek an order for vacant possession of the Lot.

(2)  On 25 July 2023, solicitors for P wrote back, indicating that they would not consent to the inclusion of the letters, that the arguments in D’s letter were “misconceived”, and that “To be practical, [P] is prepared to undertake not to enforce paragraph 1 of the Order (i.e. the delivery of possession).”

18.  Thereafter, D took out its summons regarding adducing of fresh evidence, which comprised a few paragraphs of an affirmation, giving a short description of the developments and P’s points, and exhibiting the April Letters.

19.  No further steps were taken by either side until the filing of skeleton submissions. After multiple rounds of written submissions, P confirmed that it would not oppose the adducing of new evidence, nor the appeal proper against the vacant possession order. It was in those circumstances that the parties came before me to argue the issues in paragraph 4 above.

COSTS OF THE NEW EVIDENCE APPLICATION

20.  On The substance of D’s application was to adduce the April Letters and inform the Court of the developments subsequent to the hearing before Master Tang. Counsel relied on O.58, r.1(5), which specifies that “No further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds, contending that since the developments in April took place after the hearing before the Master, D did not need to satisfy any “special grounds” requirement.

21.  P’s argument was essentially that since they had taken a ‘practical’ stance in their letter dated 25 July 2023, there was no need to admit the evidence. Further, counsel pointed to parts of the evidence where the deponent gave background on how the April Letters came to be, indicating that P could not have agreed to those parts of the evidence of which it had no knowledge.

22.  I do not accept P’s points as being valid reasons for opposing the admission of the new evidence.  As P ultimately accepted, the developments in April did have a bearing on whether it could continue to insist on enforcing the vacant possession order, and also on whether it continued to oppose the appeal proper (which it did not to the extent that it agreed the setting aside of the order originally made by the Master, further discussed below).  In those circumstances, by its actions it effectively agreed and acknowledged that the April Letters and the developments spoken to therein were relevant to the issues to be canvassed by the Court. As such, whether as a matter of the merits of the appeal or simply as a matter of case management, I consider that P ought not to have adopted the stance that it did in the July correspondence.

23.  In the circumstances, I make an order that the costs of the new evidence application be to D.

COSTS OF THE APPEAL AND COSTS OF THE COURT BELOW

24.  As indicated above, by the time the matter came before me, the parties had agreed that the summary judgment order as to vacant possession was to be set aside. The essential reasoning in support of the setting aside was that a tenant may show, as a matter of defence, that his landlord’s title has expired by reason of the landlord having been himself a tenant under a limited interest which has since been determined (Clerk v Lindsell on Torts (23^rd ed) at §18-74).

25.  However,the parties were unable to agree the costs of the court below and the costs of the appeal.

26.  D’s position was in essence that it had a meritorious appeal throughout (and not just because of the developments in April 2023), and thus both sets of costs should be to D.  P, on the other hand, held to the position that it had been appropriate for it to seek the ‘partial’ summary judgment, and that accordingly, the costs of the court below must be to it, and furthermore, it was D who had insisted on pressing on with the appeal notwithstanding P’s reasonable concessions (to not enforce the Master’s order, and subsequently to not oppose the setting aside of the order).

27.  The primary contention placed before the Court by D at the appeal hearing was that it was and is undesirable for litigants to fragment their cases into parts and advance them as they please. In a summary judgment application involving part of a plaintiff’s claim, it may be rejected to the risk of inconsistent judgments upon trial of the remaining claim and grounds of procedural economy (citing Skillsoft Asia Pacific Pty Ltd v Ambow Education Holding Ltd (No 2) [2016] 1 HKLRD 1052 at §§9-10; also citing as examples of application of this principle River Plate Company Limited v Tang Tung Sang [2023] HKCFI 262 and  H&M Hennes & Mauritz GBC AB v Zoetop Business Co Ltd [2023] HKCFI 1175).

28.  Counsel pointed to the fact that in making the order that he did in the present case, the Master had to make a partial determination on the disputed issues as to the Second Variation – in essence because he incorporated into the terms of the vacant possession order terms for relief against forfeiture pursuant to S.21F, High Court Ordinance (see Worldwide Flight Services Holdings SA Royal Caribbean Cruises Ltd v Kai Tak Cruise Plaza Ltd [2019] 4 HKLRD 56 at §31; Bullen v Tam [1998] 1 HKLRD 552 at 555E-F), but based on the relevant sum of arrears being HK$80,000 per month.

29.  As I understand the logic of the Master’s reasoning, in fashioning the order that he did, he considered that whatever disputes may exist as to the bindingness of the Second Variation, D certainly had no defence against the lesser figure of HK$80,000 per month. In so finding, he had accepted P’s ‘fallback’ argument on the interpretation of the Second Variation summarized at paragraph 11(2) above.

30.  As a matter of principle, D objects to there having been a collateral determination on the bindingness and interpretation of the Second Variation in the course of the ‘partial’ summary judgment application, when the issues of quantum, interpretation of the Second Variation, etc. were not fairly and squarely before the Court, and when those actual disputes remain to be determined at trial.

31.  P, on the other hand, continued to maintain that in the circumstances of the present case D had no defence, if not in relation to its primary case (i.e. that alleged the Second Variation was not binding) then at the very least D could not argue against the lower sum of HK$80,000 per month. In the circumstances, P says, the fact that there may be dispute in respect of the exact quantum of rent still outstanding (but not in relation to this lower sum) should not bar P from obtaining vacant possession in the meantime.  P asks the Court to endorse or agree with the reasoning of the Master (viz. that D has no defence insofar as its fallback interpretation of the Second Variation). In support of its argument, Counsel for P pointed to the cases of:

(1)  Legend Pacific Limited v Ng Choi Chi, HCA 1320/2009 judgment dated 11 August 2009, where the Court had ordered inter alia vacant possession on the basis that there was no defence to a portion of the claim for rent in arrears “subject to section 21F relief” (without specifying the exact terms of the said relief); and

(2)  Worldwide Flight Services Holdings SA Royal Caribbean Cruises Ltd (supra) at §56, where the Court of Appeal ordered possession of the premises subject to the section 21F relief on the part of the claim to which the defendant had no defence in respect of outstanding rents, while giving unconditional leave to defend on the claim for mesne profits.

32.  Neither of the above cases are entirely clear, in that they do not discuss the specific issue as to what the Court is to do when there is a live dispute, yet to be determined, as to the quantum of rent which is in arrears during a specified time (and thus forms the basis upon which relief against forfeiture is to be ordered). In Legend Pacific, it would appear that the plaintiff had sought summary judgment for the entirety of its claim (vacant possession, arrears of rent, mesne profits, etc), and unconditional leave to defend was given on certain periods and parts thereof. There was no recorded reasoning on whether there had been debate on the 21F relief and the quantum of rent to be adopted in relation to such relief. In Worldwide Flight Services Holdings SA Royal Caribbean Cruises Ltd, if one considers the full terms of the judgment, the Court similarly did not appear to consider that there was any dispute on the quantum of rent which would form the basis for the 21F relief. The original error in that case was more fundamental, in that the first instance judge had not given any order in relation to 21F at all, simply ordering vacant possession (amongst other reliefs). The Court indicated at §53 that all the rent in arrears was “[left] to the parties to work out and agree under s.21F(3)(b).”

33.  The nub of the matter in the present case is that the Master had rightly made a s.21F order, but had in so doing, made a partial determination on the issue of the Second Variation and how that fed into question of the quantum of arrears of rent – essentially finding that D must “at least” owe HK$80,000 per month on the wording of the clause. D says that this is undesirable because it gives rise to an issue estoppel on the fallback case and this lesser figure.

34.  In approaching the issue, one comes back to first principles. The competing considerations are essentially between the risk of inconsistent judgments and issue estoppel on the one hand (to D’s chagrin), and the right of a landlord to obtain possession of its property on the other when the tenant has failed to pay rent – despite there being some ongoing dispute about the exact quantum – on the other.

35.  In the circumstances of the present case, and given the clear wording of the clause (set out in paragraph 10(5) above), I tend to agree with P’s contention. Putting its case at the highest, D had no good answer to the fact that it has failed to pay the of at least HK$80,000 per month specified in the clause in question. D’s interpretation of the clause simply does not tally with the express wording of the clause.

36.  In the premises, I consider that it was right for P to be granted summary judgment for vacant possession at the hearing before the Master, and the appeal in its original form (prior to the developments in April) was not meritorious. In those circumstances, the costs of the court below remain as originally ordered and will not be disturbed, and I order that the costs of the appeal be to P.  In making the latter part of this order, I take note that although there had been some correspondence exchanged in the flurry of activity prior to the hearing before me, the end result is that D continued to maintain its point on the Skillsoft line of authorities. The appeal and the hearing before me thus were by and large necessitated by D’s stance on its original arguments before the Master.

37.  I thank both counsel for their assistance.