ON PARK PARKING LTD. v. THE SECRETARY FOR JUSTICE AND OTHERS

CACV256/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL 256 OF 2004

(ON APPEAL FROM HCA 11174/1999)

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JUDGMENT

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Hon. Yuen JA:

1.  This is an appeal by the Third Party ("West Coast") from an order of Deputy Judge Muttrie given on 19 May 2004 that (amongst other things):

(1)   the Defendant (“Government”) pay the Plaintiff (“On Park”) a sum of $183,940.30, together with interest at commercial rate on that sum from the date of writ to 15 January 2003, and costs of the main action up to 15 January 2003;

(2)   Government be entitled to deduct the said sum, interest and costs from a sum paid to it by West Coast as deposit;

(3)   West Coast’s counterclaim against Government for the whole of the deposit be dismissed with costs to Government.

2.  It may be helpful to first set out some relevant facts.

Background

3.  West Coast and On Park were rival car park operators.  Government had a piece of land in Kwai Chung (“the site”) which it had leased to West Coast to operate a car park for container trucks.  The lease expired on 30 September 1998, but Government permitted West Coast to continue occupying the site as a monthly tenant until 28 February 1999. 

Tender

4.  Meanwhile Government advertised for tenders for a Short Term Tenancy.  The Form of Tender referred to terms set out in a tenancy agreement (“the Tenancy Agreement”) providing for a term commencing on 1 March 1999.  The Tender also stated:

“if this Tender is accepted, then until the Tenancy Agreement is signed or executed, this Tender together with the written acceptance thereof, shall constitute a binding agreement between [the tenderer] and [Government]”.  

5.  Both West Coast and On Park submitted tenders.  On Park offered a higher rent.  By a letter dated 22 February 1999, Government accepted the On Park tender.

Government’s letter to On Park of 22.2.1999

6.  The letter also enclosed the Tenancy Agreement for execution by On Park and a demand note for “rent for the period from 1.3.1999 to 30.9.1999".  Clause 3 of the Tenancy Agreement provided that On Park as tenant would have quiet possession and enjoyment of the site.  It has been understood that that meant vacant possession on hand-over (from West Coast to Government, then from Government to On Park) unless On Park agreed otherwise (para. 17 of the judge’s judgment). 

7.  In the same letter, Government stated that on receipt of the Tenancy Agreement completed by On Park and the receipted Demand Note, Government would execute and date the agreement.  The letter ended:

“subject to [On Park’s] prompt settlement of the Demand Note ... and the due execution of the Tenancy Agreement, possession of the site will be given to [On Park] on 1.3.1999, on which date the tenancy will commence”. 

8.  On 27 February 1999, On Park executed the Tenancy Agreement and paid the rent demanded for the period from 1 March 1999. 

9.  It is not clear when Government executed the Tenancy Agreement, but I do not think it matters. First, Government had undertaken in its letter dated 22 February 1999 to execute the Agreement when it received it together with the receipted Demand Note from On Park, and it is not disputed that by 1 March 1999 at the latest, Government had received the receipted Demand Note.  Secondly, even if Government had not received or executed the Tenancy Agreement, the Tender and the written acceptance on 22 February 1999 constituted a binding agreement (see para. 4 above).

No vacant possession on 1 March 1999

10.  On 1 March 1999, West Coast , On Park and Government attended the site for the purpose of hand-over.  However a number of vehicles that West Coast had previously let onto the site remained parked there.  West Coast had also failed to finish some restoration work on site.  On Park refused to accept the site in that state and it was not “handed-over”. 

11.  In the days that followed, West Coast and On Park were locked in dispute over the state of the site, with Government involved in discussions with both.

On Park’s position

12.  On 1 March 1999, On Park’s then solicitors Boughton Peterson Yang Anderson (“BPYA”) wrote to Government complaining about the failure to deliver vacant possession and stating amongst other things that “a delay in the actual commencement date of the tenancy would mean a loss of the interest on the amount of the advance rent for the duration of the delay”.  Clearly the “delay in the actual commencement date” referred to On Park’s refusal to enter into possession of the uncleared site.

13.  On 4 March 1999, BYPA wrote to Government again, stating amongst other things:

 “ ... even if vacant possession of the Site is delivered in the next week or so, [On Park] anticipates that it will have no business for the month of March.  Therefore [On Park] would like to request that the tenancy commences on April 1, 1999. [On Park] would be grateful for [Government’s] favourable consideration of this request”. 

14.  On 5 March 1999, On Park instructed new solicitors, Y.S. Lau & Partners (“YSL”).  On the same day, YSL wrote to Government referring to a telephone conversation between a representative of On Park and a representative of Government and “put on record” the following:

"(i) Without prejudice to [On Park’s] right to claim against the Government for non-delivery of vacant possession of the Site as from 1^st March 1999, particulars of the complaints whereof are stipulated in [the BYPA letters] dated 1^st March 1999 and 4^th March 1999, [On Park] is willing to assist the Government in taking possession of the Site on 6^th March 1999 at 9:30 a.m. notwithstanding vacant possession of the Site is not given.

(ii) that [On Park] is not liable to carry out further restoration works on the drainage culverts drains and channels and shall only be liable to return the Site to the Government in future in the same physical state as the date hereof.

We are instructed to put on record that nothing herein shall be construed as waiver of [On Park’s] right to claim against the Government for all losses and damages arising out of breach on the part of the Government in failing to give vacant possession of the Site to [On Park] on 1^st March 1999" (Emphasis added).

Conditional entering into possession of site

15.  On 6 March 1999, On Park entered into possession of the site.  By that time (as the judge found), On Park and Government had agreed to postpone the commencement date of the tenancy from 1 March 1999 to 6 March 1999.  This was evidenced by the hand-over note signed on behalf of On Park which stated:

“I confirm that I have accepted possession of the premises described in the above tenancy agreement on the 6^th day of March 1999, being the commencement date of the tenancy, to my satisfaction.  Subject to the conditions of YS Lau and Partners’ letter dated 5-3-1999".  (Emphasis added). 

16.  The sheets in the Tenancy Agreement containing the commencement date of 1 March 1999 were replaced by ones with the new date of 6 March 1999.

Legal proceedings

17.  Legal proceedings followed, involving On Park, Government and West Coast.

Main Action

(1)  In the main action, On Park sued Government for loss and damage for breach of the Tenancy Agreement; further or alternatively, for breach of collateral warranty and/or for breach of collateral agreement and/or for breach of agreement for a lease under which vacant possession of the site would be given on 1 March 1999. 

In its Defence, Government asserted that On Park had agreed that the Tenancy Agreement commenced on 6 March 1999, but in para. 12 it admitted para. 12 of the Re-Amended Statement of Claim which pleaded that the letter of 22 February 1999 provided that possession would be given on 1 March 1999 on which date the tenancy would commence. 

Third Party Action                                             

(2)  Government issued a Third Party Notice against West Coast and withheld the deposit which it was due to return to West Coast at the end of its lease.  West Coast filed a defence in the Third Party Action and counterclaimed against Government for the return of the deposit.

Fourth Party Action

(3)  West Coast claimed that its inability to deliver up vacant possession was due to various actions taken by On Park affecting its customers, and instituted Fourth Party proceedings against On Park, which On Park contested.

Trial

18.  After a 6-day trial, the judge found that West Coast was at fault for having failed to deliver vacant possession on 1-5 March 1999 (both days inclusive) and that On Park had nothing to do with that failure.  He dismissed the Fourth Party Action with costs to On Park.  There is no appeal from that order.

19.  I come then to the judge’s findings on the Main Action, which are relevant to the Third Party Action.

20.  As I have mentioned earlier, the Tender and the original version of the Tenancy Agreement were based on the premise that the term would commence on 1 March 1999 when Government would deliver vacant possession to On Park.  However, as events transpired, Government could not deliver vacant possession because of West Coast’s fault and On Park did not enter into possession until 6 March 1999.

On Park’s primary case

21.  On Park’s primary case before the judge was that 1 March 1999 remained the commencement date of the tenancy and that the two pages of the Tenancy Agreement containing that commencement date had been unilaterally replaced by Government with pages containing the postponed commencement date of 6 March 1999.

22.  Government pleaded in its Defence that the parties had agreed that the Tenancy Agreement  commenced on 6 March 1999 instead of on 1 March 1999. 

23.  On Park did not file a Reply, so there was an implied joinder of issue: O.18 r.14(1) RHC.  On Park’s director Mr Wan Chi Hing also said expressly in his witness statement that it denied Government’s allegation that the Tenancy Agreement  commenced on 6 March 1999. 

24.  However the judge found that "the lease was amended to run for two years from 6 March 1999 and On Park in fact accepted that, whatever it may plead" (para. 29). 

25.  I think what the judge meant when he said that On Park “accepted” that the lease was “amended” was that he found that the parties had mutually agreed to postpone the commencement date of the tenancy to 6 March 1999.  This was evidenced by the hand-over note which was subject to the conditions of the YSL letter.

Alternative causes of action

26.  Although the judge found that the tenancy did not commence until 6 March 1999, he did not find that On Park had no claims against Government for the aborted tenancy from 1 March 1999 to 5 March 1999.  In para. 29 of his judgment he said:

“The Government was obliged, whether by the terms of the Short Term Tenancy Agreement, or the various other alternatives pleaded, to give vacant possession on 1 March 1999, but it did not.  It clearly accepts that, having refunded the rent for the five days for which On Park was kept out.  So the question remains of what other losses flow from this failure.”  (Emphasis added).

27.  The judge then proceeded to examine in detail the evidence of losses allegedly suffered by On Park (paras. 30-43) and concluded that no losses were suffered by On Park after 6 March 1999.  He found that Government was only liable to On Park for the sum of $183,940.30, being the sum paid as rent in advance for the 5 days from 1 March 1999 to 5 March 1999, interest and costs up to the date when Government repaid this sum (15 January 2003).

Indemnity order against West Coast

28.  The judge also found that West Coast was liable to Government for having failed to deliver vacant possession and held (para. 51):

“It follows that the Government is entitled to a judgment against West Coast for an indemnity for its liability to On Park and to dismissal of the counterclaim.”   

Appeal - locus standi

29.  West Coast appealed.  Before dealing with the issues raised on appeal, I should first deal with a preliminary objection raised by Mr Rimsky Yuen SC leading counsel for On Park to West Coast’s locus standi to lodge an appeal against the judgment in the main action.

30.  Mr Yuen argued that as a Third Party, West Coast needed leave before it could lodge an appeal against the judgment in the main action.  He referred to Asphalt and Public Works Ltd v Indemnity Guarantee Trust Ltd (Campbell, Third Parties) [1969] 1 QB 465 for the proposition that “in the ordinary course, there is no right of direct appeal by a third party against a judgment awarded in favour of the plaintiff” (472D). 

31.  That proposition was accepted by Edmund Davies LJ as a truism, but in the same judgment he set out three criteria for testing whether a third party was entitled to lodge a direct appeal.  The first, and in the present case, the relevant criterion, was whether the third party was bound by the judgment between the plaintiff and the defendant (Hong Kong Civil Procedure 2006, vol. 1 §16/7/6).

32.  In the present case, Master Lung had made an order on 30 November 1999 that the Third Party be “at liberty to appear at the trial of this action ... and be bound by the result of the trial”.  There can be no doubt that in the context, that order must be understood to mean that the Third Party would be bound by the judgment in the main action.

33.  Accordingly, West Coast was bound by the judgment between On Park and Government, and it therefore has a right of direct appeal against the judgment awarded in favour of On Park.

Appeal - claim for loss of sum paid as rent for 5 days was pleaded

34.  I then come to the main arguments raised on appeal.  Mr Remedios counsel for West Coast argued that the judge’s order was inconsistent with On Park’s claim which was pleaded on the basis that the tenancy commenced on 1 March 1999, not 6 March 1999, and that On Park had not claimed the sum of $183,940.30 as loss of rent for the 5 days (or to put it more precisely, as loss of money paid as rent for the 5 days).

35.  I shall proceed to consider: (a) whether there was evidence to support the judge’s findings and (b) whether the claim had been pleaded.

36.  First, whilst On Park’s primary case was that the tenancy commenced on 1 March 1999 and that there was no agreement to postpone the commencement date to 6 March 1999, the judge was entitled to find on the contemporaneous documentary evidence (the YSL letter and the hand-over note) that by reason of West Coast’s failure to deliver vacant possession, Government and On Park had agreed to postpone the commencement date of the tenancy to 6 March 1999, subject to On Park’s right to recover its loss due to the aborted tenancy from 1 March 1999 to 5 March 1999 (which right, asserted in YSL’s letter, was a condition of the agreement to postpone the commencement date). 

37.  Secondly, in my view On Park’s right to recover its loss from the aborted tenancy had been made the subject of claim in the alternative pleading which I have summarized in para. 17 - that On Park had an agreement with Government  (evidenced by the Tender and the written acceptance of 22 February 1999) for a lease under which vacant possession would be given on 1 March 1999.  Government admitted this in para. 12 of the Defence, and in para. 11 of its Third Party Notice, Government claimed damages from West Coast for its inability to give vacant possession to the new tenant (On Park) on 1 March 1999.  Accordingly, although it is fair to say that On Park’s claim for breach of the agreement to let the site commencing on 1 March 1999 was not the most prominent in the plethora of claims and counterclaims in this case, I do not think the criticism that the judge gave judgment on an unpleaded cause of action can be substantiated.

38.  There was clearly a breach of the agreement for a lease under which vacant possession would be given on 1 March 1999.  What On Park got in the end was only a lease under which vacant possession would be given only on 6 March 1999.  The agreement to postpone the commencement date did not purge this breach because that agreement was expressly made subject to the preservation in the YSL letter of On Park’s right “to claim against the Government for all losses and damages arising out of breach on the part of the Government in failing to give vacant possession of the Site to [On Park] on 1^st March 1999".  There was therefore no inconsistency in the judge’s findings of fact.

39.  The loss suffered by On Park as a result of Government’s breach of the agreement to grant a lease under which vacant possession would be given on 1 March 1999 was On Park’s wasted expenditure in having paid rent in advance for those 5 days, i.e. $183,940.30.  This was quantified in Wan Chi Hing’s witness statement (para. 59) and was obviously so understood by Government as it repaid the sum as “overpaid rent”. 

40.  In the circumstances, West Coast’s main grounds of appeal have not been made out.  As for West Coast’s appeal against the judge’s costs order, costs orders are given in the judge’s discretion.  Mr Remedios has not been able to point to any error in principle.  It matters not whether members of this court might have made a different order had we dealt with the case at first instance.

Order

41.  Accordingly, the appeal must be dismissed with an order nisi that the costs of the appeal be paid by West Coast to Government and On Park.

Hon. V. Bokhary J:

42.  I agree.

Hon. Chung J:

43.  I agree and have no other comments.