LINCOLN (H.K.) LTD v. KHAN, MOHAMED AFZAL

DCDT 2042/2017

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO 2042 OF 2017

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DECISION

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Background

1.  On 18 July 2017, the court issued a warrant of distress in respect of the property at Flat D, 3^rd Floor, Lyton Building, Nos 36-38 Mody Road, Kowloon in accordance with Part III of the Landlord and Tenant (Consolidation) Ordinance, Cap 7.

2.  The rent arrears to which the warrant relates were in the sum of $180,000.

3.  The plaintiff landlord is a limited company in Hong Kong.  It is represented by Ms Priscilla Chow, counsel, at today’s hearing.

4.  The defendant tenant, Mr Khan, Mohamed Afzal, acts in person in these distraint proceedings.

5.  Having visited the property on two occasions and finding no one within the property to answer the call, the bailiff obtained a break open order on 17 August 2017.

6.  On 28 August 2017, the bailiff, accompanied by a representative of the plaintiff, attended the property, broke open the door and made an inventory of the goods and chattels at the property. However, he was of the view that the value of the goods was insufficient to justify the expense required for proceeding with the execution.  The plaintiff’s representative acknowledged to that effect in writing on the inventory and requested the bailiff “not to proceed [with] the execution for [the] above seizure”.

The defendant’s application

7.  One month later, on 25 September 2017, the defendant took out a summons.  He did not exactly spell out the order which he sought but stated the following:-

“Handover process of the restaurant (Leased property) has not been completed yet, because there were some mutual agreements made for renovation, Restaurant License and Replacements of Fixture.”

8.  In his supporting affirmation, he said that although the lease agreement in respect of the property was signed on 15 December 2016, it was mutually agreed between the “landlord” and him that rent would only be payable after completion by the “landlord” of a number of renovation or replacement works.  The defendant was to operate a restaurant at the property and he said that the “landlord” was to make certain improvements to the property and to arrange for the restaurant licence and transfer of visa for the chef.

9.  These works, he now claims, were never completed by the “landlord”.  However, following his discussion with the “landlord”, the defendant spent a lot of money on renovating the restaurant himself.  He was requested by the “landlord” to complete the works by himself and he would be paid back the costs later on.  Then, to his dismay, on 28 August 2017 (which is the day of the bailiff’s visit to the property), the defendant’s renovation workers found that the lock of the door was changed and he was effectively locked out of the property.  After some enquiries, the defendant found out that the “landlord” with whom he had been dealing up to August 2017, namely a Mr Gautam, was in fact not the landlord of the property.

10.  In his affirmation, he described what happened after he found himself locked out on 28 August 2017:-

“17. … However, I immediately called the landlord and requested to come to 3^rd Floor (restaurant premises) with the key but when he came, he said the change of lock of the restaurant is surely don by the court. When I requested for key, he said, you wait. Landlord left after few minutes. I called him again on his phone, he said his partner is not giving the key. Then I asked him that earlier you told me that you are the only owner of the premises but now you telling me that you have partner for this premises. He then disconnected the call.

18. … I asked him how come you went to the court without informing me because I was the new tenant of the restaurant premises.  He said it’s not him, who did this, it is his partner who did it.  I ask him, before you say only this is your property. Now you say your partner did this, even then I requested him to solve the matter immediately because I spent a lot of money on this project.  I am too much worried now about the money, I spent on this restaurant on your advice. … ”

11.  On the following day, 29 August 2017, the defendant went to the bailiff’s office to try to find out what was going on and was told that the key to the property was now with the landlord.  The defendant stated in his affirmation:-

“20. The landlord, who posed himself as owner of the restaurant premises and his name was Mr. GAUTAM, KASHI RAM. However, when I came to know that he is not actual landlord or share holder GAUTAM, ‘LINCOLN (H.K.) LIMITED. … ”

12.  At today’s hearing, the defendant was not entirely clear as to the relief or order that he wished to seek from the court.  He insisted that the landlord had failed to complete the works as mutually agreed.

13.  Given his factual account, it seems to be the defendant’s case that he was not liable to pay the rent, pending the fulfilment by the landlord of its obligations.  In other words, based on his factual case, it would seem that the warrant of distress was not validly issued.

14.  The defendant confirmed in the course of his submissions that he would apply for a discharge of the warrant and I shall treat that to be his application under the summons.

15.  The plaintiff resists the application on two grounds.  First, the defendant’s application is time-barred under section 93(1) of the Ordinance.  Secondly, the warrant was validly issued and there is no basis to discharge it.

Is the defendant’s application out of time?

16.  Section 93(1) of the Ordinance provides as follows:-

“The debtor, or any other person alleging himself to be the owner of any property seized under this Part, may, at any time within 5 days from such seizure, apply to the court to discharge or suspend the warrant or to release a restrained article; and the court may discharge or suspend the warrant or release the article, on such terms as it may think just.” (emphasis added)

17.  If a debtor wishes to apply for a discharge or suspension of the warrant, he may do so within five days after the seizure.  He may also apply before the goods are seized, if he happens to discover that a warrant for distress has been issued: see Standard Chartered Bank v Grow Up Trading Ltd [1999] 3 HKC 530 at 537A-B.

18.  In the present case, what is slightly unusual is that in the course of the bailiff executing the warrant, he came to the view that the goods were not of sufficient value to justify the continuing execution of the warrant and therefore the goods were not physically seized.  Although he made an inventory of the goods, he did not proceed to serve a notice on the defendant in the requisite form informing him that unless he pays up the rent arrears and the costs of distress or obtain a court order to the contrary within five days, those goods would be sold on a specified date: see section 87 and Form 3 of Schedule 5 of the Ordinance.

19.  There was no physical seizure here.  A question therefore arises as to whether the defendant was still required to lodge his present application within five days after the date on which the bailiff sought to execute the warrant, ie 28 August 2017.  If so, the defendant is clearly out of time as he only took out his summons on 25 September 2017.

20.  On the one hand, it may be argued that even though there was no physical seizure, the bailiff in fact executed the warrant on that day to the extent of taking stock of the goods at the property and it is only by reason of their inadequate value that he declined to proceed further with the execution.  Time therefore should start to run from that day since if the goods had been of a sufficient value, the bailiff would have gone ahead to seize them.  Applying a purposive approach, it may be argued that the time limit of “within 5 days from such seizure” should be interpreted to cover the present situation.

21.  On the other hand, it should be noted that the five-day period specified in section 93(1) is replicated in the Form 3 notice to be given by the bailiff to the debtor.  In a normal case where goods are seized, the tenant would be notified by means of Form 3 that either he paid up the rent arrears within five days or applied to court for a contrary order within the same period, the goods seized would be sold.  And that appears to explain why the same five-day period appears in section 93(1).

22.  In the present case, the Form 3 notice was in fact not given to the defendant, as confirmed by the plaintiff at the hearing.  He was therefore not notified of the five-day time limit within which to make an application to discharge or suspend the warrant. Is it therefore fair to bind him to the five-day time limit when he was not made aware of the fact of the execution of the warrant in the first place?

23.  Further, purely from a practical perspective, there would be no reason why the defendant would have to apply within five days, as no auction would ever take place.  Why should he be barred from asserting his substantive rights, if any, in such a situation?

24.  Parties have not made any detailed submissions addressing the above issues at today’s hearing.  I do not therefore feel that it is proper for me to express any concluded view on them.  In any event, it is unnecessary for me to do so as even if the defendant’s application is within time, I am of the view that his application should not be granted.

Should the warrant be discharged?

25.  By way of affidavit evidence, the plaintiff has produced a copy of the tenancy agreement, which was signed by the plaintiff and the defendant.

26.  In his affirmations, the defendant does not dispute the signing of the tenancy agreement.  As seen from the above evidence extracted from the defendant’s affirmation, all along he had been treating Mr Gautam as the landlord and the alleged terms varying, or effectively delaying, the defendant’s obligation to pay rent were agreed orally with Mr Gautam, not the plaintiff.

27.  There is no evidence to the effect that Mr Gautam had any authority, whether actual or apparent, to represent the plaintiff in relation to the tenancy agreement, including effecting any amendment to it.  Hence, even if the defendant’s evidence is accepted as true, legally speaking, the defendant was liable to pay rent in accordance with the tenancy agreement.  He did not do so.  The plaintiff is entitled to the rent arrears.  Accordingly, the warrant has been validly issued under the Ordinance.

Conclusion

28.  There is no legal basis to set aside the warrant.  

29.  I therefore dismiss the defendant’s application.

(Discussion re costs)

30.  I order that the defendant do pay the plaintiff the costs of the summons, with certificate for counsel, summarily assessed in the sum of $12,000, payable by the defendant on or before 8 December 2017.

31.  The plaintiff do draw up, file and serve today’s order.