PONENTE CO LTD v. MANSTER LTD AND OTHERS

HCA 2840/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2840 OF 2003

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D E C I S I O N

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1. There are two summonses before me,

(a) a summons dated 16 March 2004 seeking stay of execution of my order made in the summary judgment appeal;

(b) a summons dated 30 March 2004 seeking "extension of time for relief against forfeiture".

2. The application for stay of execution was made on the basis that the 2nd to 4th Defendants wish to appeal against my determination on the application for summary judgment. The principles governing a stay pending appeal has been well summarized by Ma J (as he then was) in Star Play Development v Bess Fashion Management HCA No. 4726 of 2001, 7 June 2002, in particular Paras. 6 to 10 of the judgment. It is not necessary for me to repeat the applicable principles. Ultimately it is a balancing exercise.

3. On the one hand, if there were no stay, the 2nd to 4th Defendants would be evicted from the premises and on that basis it is argued by Mr Allan that this would render the appeal nugatory. Despite Mr Fung's argument to the contrary, I shall proceed on the assumption that Mr Allan is correct on this point.

4. On the other hand, Mr Fung argued that judging from the grounds set out in the Notice of Appeal, the appeal clearly has no merit and to allow a stay of execution in these circumstances could cause serious prejudice to the Plaintiff. Mr Fung emphasized what was said by Ma J in Paragraph 9(6) of his judgment,

"... however exceptional the circumstances may be otherwise justifying a stay of execution, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted."

Having considered the grounds in the Notice of Appeal, I am of the view that there is no arguable ground of appeal. Given the determination of the tenancy of the 1st Defendant, the 2nd to 4th Defendants have no right to remain in occupation even if they were sub-tenants unless relief is granted to them under Section 58(4) of the Conveyancing and Property Ordinance.

5. I regret to note that up to now, despite the undertakings given by the 2nd to 4th Defendants and their solicitors given to this court on 29 March 2004, they still fail to make any proper application under Section 58(4) of the Conveyancing and Property Ordinance. The summons of 30 March 2004 does not contain any proper application in accordance with Section 58(4) although its marginal note referred to it. Mr Allan accepted that the summons is defective but he invited this court to give directions for the intended Section 58(4) application. It behoves a party to put before the court a proper application before he could expect the court to give directions thereon. As matter stands, despite the fact that they were advised by solicitors and Mr Allan and despite the undertakings given to this court on Monday, the 2nd to 4th Defendants still failed to place before this court properly an application under Section 58(4). I fail to see how this court could be expected to give directions in these circumstances. Further, for reasons given below, it appears to me on the indisputable facts in the present case, any application under Section 58(4) must doom to fail and it would be futile to embark on such exercise.

6. Putting aside the question whether the 2nd to 4th Defendants were actually subtenants, one relevant consideration is the likelihood of them acting in accordance with the terms of tenancy if relief were granted. The material before me suggests that they were aware of the defaults of the 1st Defendant for a considerable time. They had been using the premises without making any payments for a substantial period of time. Even after the handing down of my judgment of 9 March 2004, they still fail in making any interim payment as ordered notwithstanding that they do not intend to appeal against that part of the judgment. No reasonable explanation has been given about this default between 9 March 2004 and today. Bearing in mind the length of time these Defendants have been using the premises without paying and the amount involved, this is unacceptable. Their evidence in support of their application for stay contained minimal information about their financial strength and they did not exhibit any audited financial statements in support of their application. On their own evidence, their accounts were kept by the same account clerk. Their assertions of sub-tenancy were shadowy and I would not blame the Plaintiff for questioning their bona fide. Against such a background, there is every reason for the Plaintiff to fear that these defendants would persist in defaults of payment of rent in the future if relief were granted to them.

7. Moreover, Mr Allan has indicated repeatedly that these defendants were not willing to pay the rent at the rate under the Tenancy Agreement between the 1st Defendant and the Plaintiff. It seems that they only agreed to pay the rent at the same rate as the interim payments. At the beginning of today's hearing, Mr Allan told this court that his clients were not willing to pay the arrears in the sum of $9,075,615.00 and costs in the sum of $288,762.00. He also said his clients could not afford to pay those sums. Although at a later stage, Mr Allan asked for 21days to pay those sums, he also indicated that there is no guarantee that his clients would or could pay. As I said, there is no evidence before this court to demonstrate that these Defendants had the ability to make such payments, whether within 21 days or otherwise. In such circumstances, it would be futile to entertain such a request.

8. As I have pointed out repeatedly, the basis for granting interim payment is wholly different from that for granting relief against forfeiture. In the former case, the liability of the 2nd to 4th Defendants stemmed from trespass committed after the forfeiture of the tenancy of the 1st Defendant. In the latter case, once relief is granted, the tenancy was "revived". Hence, even for relief under Section 58(4), the sub-tenant will normally be required to accept terms no less onerous than the terms of the head-lease (see Woodfall's Law of Landlord & Tenant Para. 17.171, Halsbury's Laws of England, 4th Edn., Vol. 27(1) Para. 523; Gray v Bonsall [1904] 1 KB 601; Creery v Summersell [1949] Ch 751 and Hill v Griffin [1987] 1 EGLR 81). The principle that the landlord should be put back in the same position as he was in before forfeiture applied equally to a case where a subtenant of part only of the premises was seeking relief, see Chatham Empire Theatre (1955) Ltd v Ultrans Ltd [1961] 1 WLR 817.

9. In fact, if the 2nd to 4th Defendants were willing and able to pay up all the arrears under the tenancy of the 1st Defendant, they could have done so under the Section 21F relief subject to the question whether they are actually subtenants. Up to this moment, there is no indication whatsoever that they would do so.

10. In my judgment, these considerations must outweigh the hardship that would allegedly be suffered by the 2nd to 4th Defendants set out in the Affirmation of Ho Wing Chuen. Having used the premises for so long without paying a single cent to the Plaintiff, they only have themselves to blame. They have not demonstrated any likelihood of payment of the arrears in the future. Substantial indulgence has been granted to them by this court and they simply did not make any payment.

11. In the circumstances, having regard to the factors that should be taken into account in the exercise of the discretion under Section 58(4) as set out in Para. 17.170 of Woodfall's Law of Landlord & Tenant, even if the 2nd to 4th Defendants could satisfy this court that they are subtenants, I am of the view that it would not be equitable to impose a tenancy with these defendants on the Plaintiff and the application must fail.

12. Hence, I fail to see any prospect of success in the intended appeal and Mr Fung was correct in saying that such an appeal could only serve to cause further prejudice to the Plaintiff by way of delay. I therefore dismiss the application for stay of execution.

13. As regards the summons of 30 March 2004, it is an application under Section 21F (4) of the High Court Ordinance. It is not an application under Section 58(4) of the Conveyancing and Property Ordinance. I have explained why an application under Section 58(4), even if a proper application for that purpose were to be filed in the future, must fail. In respect of the application under Section 21F(4), it is again a matter of discretion. Given the background of this case and the matters that I have already alluded to above, I have no hesitation in refusing to extend the time for payment. As I said, the Defendants were given more than enough indulgence and they have not demonstrated any willingness to make any payment, not to mention payment in the amounts specified under the Section 21F relief in my earlier order. The summons is therefore dismissed.

14. As regards the validity of the Writ of Possession dated 19 February 2004, Mr Allan agreed that no summons has been issued for the setting aside of that writ. I do not accept that submission that the point has any bearing on the application for stay of execution. As I see it, it is a separate matter. Although a stay of execution would stop further enforcement of the order for possession, whether there should be a stay has nothing to do with the validity of that Writ of Possession. It is up to the Plaintiff to consider whether they should apply for another Writ of Possession pursuant to the order of possession made by me in place of that made by Master So. I have indicated clearly at the hearing on Monday that if the 2nd to 4th Defendants wish this court to deal with that matter, they should issue a proper application for that purpose. They have not done so. In such circumstances, the matter is not before me and I would not deal with it. I have however referred parties to two authorities which may be relevant on the topic: Tuohy v Bell [2002] EWCA Civ 423; Spurgeons Homes v Gentles [1971] 1 WLR 1514.

15. For these reasons, both summonses are dismissed.