XCHRX YIP ALICE AND OTHERS v. WONG SHUN

HCA12614/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Civil Jurisdiction)

ACTION NO.12614 OF 1999

---------------------

-----------------------

J U D G M E N T

-----------------------

Background

1. This is the Defendant's appeal against the Order of Master Kwan dated 17th May, 2000 whereby the Learned Master granted the Defendant conditional leave to defend upon payment into court $750,000 within 30 days from the date of the Learned Master's Order.

2. Prior to March, 1986, the Plaintiffs allegedly carried on a restaurant business in the name of Hyde Park Garden Restaurant ['the Business'] at No.44, Hoi Bong Road, C, Ground Floor, Leeumoon, Kowloon ["the Land"].

3. The Plaintiff as "the Employers" and the Defendant as 'the Manager" entered into a written agreement dated 4th March, 1986 ["the 1986 Agreement"]. After reciting that the Plaintiffs were carrying on the Business and that they "are the only persons legally and beneficially entitled to carry on [the same]", the 1986 Agreement went on to provide for the engagement of the Defendant by the Plaintiff to run and manage the Business. The 1986 Agreement further recited agreement on the part of the Defendant to guarantee in favour of the Plaintiffs "minimum net profit" of $8,000 per month for the period between 1st May, 1986 to 30th April, 1991 and $12,000 per month for the period between 1st May, 1991 to 30th April, 1996. Clause 6 of the 1986 Agreement provided that "The Employers will not part with possession of the premises". Clause 7 provided that "The fact that the manager shall be in and upon the said premises for the purpose of this Agreement shall not in any way create any tenancy thereof...". Clause 11 of the 1986 Agreement further provided that "The period of service shall be one hundred and twenty months commencing 1st May 1986. In the event of the Landlord of the said premises obtaining possession thereof or in the event of the Employers being required to deliver up vacant possession of the said premise to the Landlord... this agreement shall ipsofacto come to an end."

4. The 1986 Agreement was prepared by Messrs. Yu, Tsang & Loong. According to an interpretation clause at the end of this agreement, the 1986 Agreement was interpreted to the parties in the Cantonese dialect by a clerk of Messrs. Yu, Tsang & Loong.

5. The Defendant produced before me various rental receipts. The earliest of such receipts was dated 1st May, 1996. By that receipt, the 1st Plaintiff acknowledged rent from Hyde Park Restaurant in the sum of $12,000. Payments at the rate of $12,000 continued till 1st September, 1997. By 6 further receipts commencing on 1st September, 1997, the 1st Plaintiff acknowledged rent also from Hyde Park Restaurant at the rate of $30,000 per month.

Case of the Plaintiffs

6. The Plaintiffs' case rests on an agreement made in about September 1997 '"the September, 1997 Agreement"] whereby the Defendant agreed to continue with his provision of management services at a guaranteed net profit of $30,000 per month in favour of the Plaintiffs. The September, 1997 Agreement is said to be terminable by 1 month prior notice effected by either party.

7. The Plaintiffs further aver that the September, 1997 Agreement was constituted partly orally; partly in writing and partly as a result of the past dealings between the parties. The written part of the September, 1997 Agreement is said to be "contained in or is to be inferred from" the 1986 Agreement duly amended.

8. The Plaintiffs say that the Defendant acted in breach of the September, 1997 Agreement. The Defendant ceased paying the agreed monthly guaranteed net profit of $30,000 since April, 1998. The Defendant's repudiation was allegedly accepted on 23rd June, 1999. The overdue monthly guaranteed net profit for the period between April, 1998 and June, 1999 was $450,000. The Plaintiffs claim liquidated damages in the sum of $450,000; unliquidated damages for trespass at the rate of $30,000 per month and "Possession of the premises of the Restaurant."

Case of the Defendant

9. The Defendant accepts that an agreement was struck in or about September, 1997. The Defendant however avers that the increase of rental to $30,000 per month was on condition that the same "should be paid on a trial basis for a 6 months period and to be reviewed again thereafter." [See para. 2(e) of the Defence and Counterclaim].

10. The Defendant further avers that at all material times, the Plaintiffs represented and still represent to the Defendant that they were the legal owner of the Land [See para. 2(a)(i) of the Defence] and they signed the 1986 Agreement "in reliance upon the false and fraudulent representation made to him by the Plaintiffs that it was a lease".

11. The Defendant places substantial reliance on the rental receipts and a further receipt dated 4th March, 1986 evidencing payment of $86,000 "as security for the minimum net profits guaranteed under [the 1986 Agreement]".

12. Miss Lan, Counsel for the Defendant, submitted before me that the Plaintiffs failed to identify the interest which supports their cause of action in trespass and that the Learned Master erred in imposing as a condition payment into Court a sum of $300,000 [$750,000 - $450,000 being the amount of liquidated damages claimed] as there is no evidence in relation to loss at the rate of HK$30,000 per month.

The applicable principles

13. I have borne in mind the following principles in considering this appeal :

1. The summary jurisdiction under Order 14 must be used with great care. A defendant ought not to be shut out from defending unless it is very clear indeed that he has no case in the action under discussion [White Book 14/4/9].

2. Under O.14 r.3, unless "the defendant satisfies the Court with respect to the claim...to which the application relates that there is an issue or question in dispute which ought to be tried... the Court may give such judgment for the plaintiff against that defendant on that claim...".

3. The defendant's affidavit must "condescend upon particulars" [White Book 14/4/5]. It is trite law that the mere assertion in an affidavit of a given situation does not, ipsofacto, provide leave to defend, since the defendant must satisfy the court that he has a fair or reasonable probability of showing a real or bona fide defence, i.e. his defence is reasonably capable of belief [White Book 14/4/9].

4. Fraud must be distinctly alleged and distinctly proved. [White book 14/1/2]. The pleader must give the necessary particulars of the fraud and the fraudulent intention [O18 r.12(1)(a)]. If the defence relied on is fraud the affidavit should state the particulars of the fraud [White Book 14/4/5].

5. Conditional leave is given where there is ground in the evidence for believing that the defence set up is a sham defence or that the defence is "shadowy" [White Book 14/4/16].

Application of these principles

14. I am of the view that the defence put forward by the Defendant in relation to the liquidated damages claim is shadowy. No particular has been furnished as to when where and how the Plaintiffs "represented and still represent to the Defendant that they were the legal owner of the land". Clause 11 of the 1986 Agreement makes it plain that the Plaintiffs held from "the Landlord of the premises". Paragraph 1(1) of the Statement of Claim merely pleads that the Plaintiffs are entitled to possession of the restaurant. it is no part of the Plaintiffs' case that they were the legal owner of the land.

15. In paragraph 7 of his affirmation dated 30th March, 2000, the Defendant deposed to an intimation from a Mr. Lee "that the lease was for 10 years with the agreed monthly rental" and he "had to trust in this Mr. Lee who appeared to [him] as a lawyer". It is not clear what was the relationship between this Mr. Lee and the Plaintiffs. If the statement that Mr. Lee allegedly made is the relevant representation relied upon, there is no material to justify an averment that the representation was fraudulently made.

16. It is common ground that there was an agreement in September, 1997 for payment at the rate of $30,000 per month. The Defendant says this was on a trial basis. It would appear from paragraph 6 of the Defence that the Defendant refused to review the matter as he allegedly discovered that the land was a piece of Crown Land. Given his failure to identify the relevant representation, this alleged discovery is of doubtful relevance.

17. The rental receipts and the receipt of 4th March, 1986 are being put forward in support of a lease agreement. The terms of the latter receipt is inconsistent with that case.

18. For these reasons, I am of the view that the Learned Master is right to impose as a condition for leave to defend the liquidated claim that the Defendant should pay $450,000 into Court.

19. As far as the cause of action in trespass is concerned, Miss Lan submitted that the Plaintiffs failed to identify the interest which forms the basis of their present right to possession of the land. Standard precedents in relation to a trespass plea [See pp. 924 - 927 of Bullen & Leake & Jacob's Precedents of Pleadings] lend weight to her contention. Miss Lan further submitted that there is no evidence to indicate that $30,000 represents the correct measure of damages. In response, Mr. Chan cited for my consideration passages in Hill & Redman on Tenancies by Estoppel. I find it difficult to see how that concept sits with the Plaintiffs' case of an oral agreement in September, 1997. No other evidence has been placed before me t support the Plaintiffs' case that they "are entitled to possession of the Restaurant" as pleaded in paragraph 1(2) of the Statement of Claim. I am therefore of the view that the Defendant had demonstrated that there is a triable issue vis-a-vis the cause of action in trespass. It would not be right to impose any condition in these circumstances.

Conclusion

20. I allow the Defendant's appeal in part. The amount of security is reduced to $450,000. As the Defendant had ample time to make preparation for payment, I further order that the time allowed for payment in be 14 days from the date of this Judgment. I make an order nisi that the costs of this appeal be costs in the cause.

21. I am grateful to Miss Lan for all her assistance. Her eloquence and determination indicate that the Junior Bar is thriving and well.