XCHRX RISE CHAMPION HOLDINGS LTD. v. TRUE LINES INDUSTRIAL LTD.

HCA 1680/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1680 OF 1998

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J U D G M E N T

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Introduction

1. This is the Defendant's appeal against the order of Master Lok dated 27 August, 1999, entering final judgment in the Plaintiff's favour for possession of the suit premises, payment of $103,040.20 being payment due as rent and management fee and interlocutory judgment for damages to be assessed, and for costs of the action.

2. The Plaintiff (as the former landlord) brought this action against the Defendant (as the former tenant) for wrongfully occupying the suit premises after the tenancy had expired. The defence raised in the Defendant's pleading (filed and served before the O.14 application) and the Defendant's evidence can be summarized as follows :

a) the Defendant had exercised the option to renew the tenancies;

b) the notice of termination served by the Plaintiff was irregular and ineffective;

c) in any event, there was an oral agreement reached between the Plaintiff and the Defendant in about mid-October, 1997 to the effect that :

i) the Defendant was entitled to occupy the suit premises rent free until the Plaintiff's notification to the Defendant to vacate the suit premises;

ii) the Defendant should comply with the Plaintiff's notification to vacate and upon removal, the Plaintiff should pay the Defendant compensation of $500,000.

The Plaintiff has allegedly breached this oral agreement by failing to notify the Defendant to move or to pay the Defendant $500,000. Further, the Defendant has thereby suffered loss and damage.

Undisputed facts

3. The following facts are not in dispute :

a) the suit premises are two shops, i.e. Shops G2 and G3 on Ground Floor, Kimberley Plaza, Nos.45-47 Kimberley Road, Tsimshatsui, Kowloon;

b) the tenancies were entered into between the Plaintiff's predecessor-in-title (as landlord) and the Defendant (as tenant) on 23 October, 1995;

c) the suit premises were let for commercial use to the Defendant from 16 May, 1995 to 13 December, 1997;

d) the Plaintiff purchased the suit premises and became their owner on 16 October, 1997;

e) the Defendant has been occupying the suit premises since the commencement of the tenancies up to now;

f) the Defendant has not paid rent or management fees since 1 November, 1997; and

g) the tenancies fall within Part V of the Landlord and Tenant (Consolidation) Ordinance, Cap.7.

The Defendant's fresh evidence

4. When the matter was heard by the Master below on 27 August, 1999, there were four affirmations filed by the Plaintiff's side and two affirmations filed by the Defence.

5. On 3 September, 1999, the Defendant filed a new affirmation, i.e. the 3rd Affirmation of Lai Sing Man. The Plaintiff objects to the filing of this fresh evidence for use in this appeal. In Core Resources v. Sky Finders Ltd. [1992] 1 HKLR 193, Kaplan J (as he then was) dealt with the question of adducing fresh evidence on appeal from the Master to a Judge in chambers. The learned Judge decided that while it is common for fresh evidence to be adduced on appeal, it remains a matter of the court's discretion as to whether the fresh evidence ought to be allowed. He further decided that the court's discretion ought to be exercised against allowing fresh evidence which raises a completely new defence for the first time and which was totally different from that which did not find favour with the Master. Although the decision in Core Resources is not binding on me, I agree with the approach adopted therein.

6. As Mr Chang for the Defendant confirmed at the hearing before me, the fresh evidence does not seek to adduce any new defence, but is merely an elaboration of the earlier defence. For this reason, I would exercise my discretion to allow the 3rd Affirmation of Lai Sing Man to be used for this appeal.

Option to renew

7. I find that there is no triable defence over this issue as both agreements require in effect the written notice to be given not less than six months prior to the expiration of the tenancy, i.e. not less than six months before 13 December, 1997. The Defendant was plainly out of time when it only purported to give such notice on 7 October, 1997. In fact, Mr Chang for the Defence did not advance any argument to the contrary based on the notice to renew.

Was the Notice of Termination valid?

8. The Notice of Termination dated 13 May, 1997 stated :

".... we hereby terminate your tenancy and require you to quit and deliver up vacant possession of the [suit premises] on 13th December 1997 being the date after SIX MONTHS from the service upon you of this Notice in accordance with Section 122 Cap 7 ...."

The Defendant argued that the notice was one day short and therefore ineffective relying on observations made in Hankey v. Clavering [1942] 2 All ER 311 (CA). The notice there stated the date to be 21 December, 1941 when the lease did not expire until 25 December, 1941.

9. I do not agree with the Defence's submission. The phrase "on 13th December, 1997" is capable of including the whole of 13 December, 1997, that is, the Defendant would have until the end of 13 December, 1997 to move out of the suit premises and deliver up possession thereof to the Plaintiff. I find that the wording of the notice is clear and carries that meaning. Even if two ways of construction are equally possible, the court should adopt the one which makes the document effective. If it had been necessary to do so, I would have adopted the construction that the notice allowed the Defendant to stay until the end of 13 December, 1997. The notice was therefore valid.

Was service of the Notice of Termination ineffective?

10. The Notice of Termination was served by the Plaintiff on the Defendant by registered post (prima facie) on 13 May, 1997 - the date of the notice itself. The Notice of Termination was referred to in the letter dated 23 June, 1998 of the Defendant's solicitors. It is therefore apparent that the notice had been received by the Defendant prior to 23 June, 1998. The Defendant now argues (as it was argued before the Master) that a notice of termination only takes effect from the time it was actually received by the tenant, relying on Law Chee Sing v. Lau Kwong Kun, Civ. App. No.102 of 1993. While as a matter of legal proposition that may be true, in an O.14 application, the burden is on the Defendant to establish a triable defence.

11. The Defendant's evidence has not dealt with when the notice was actually received and has not even asserted that it was received out of time. If the Defendant had wanted to, there should be no difficulty for it to state in an affidavit when the notice was actually received. For these reasons, I do not find that any triable defence has been established regarding this point.

The oral agreement to compensate

12. The oral agreement that the Plaintiff would compensate the Defendant and so on was set out in para. 7 of the 1st Affirmation of Lai Sing Man. If there had only been this affirmation, I would have found that the "agreement" alleged by the Defendant was an "agreement" conferring on the Plaintiff a right (rather than an obligation) to terminate the tenancies earlier than originally provided for in the agreements. There was, however, the 3rd Affirmation of Lai Sing Man which asserted (in paras. 6 and 9 thereof) that the Plaintiff had repeatedly represented that it would definitely require an earlier termination of the tenancies. These assertions raised a triable defence as to whether the Plaintiff had incurred an obligation to do so.

13. However, in view of the shift in this part of the Defendant's case, I consider the defence to be shadowy. Further, the enforceability of the alleged oral agreement is questionable because its terms seem to be uncertain, for example, whether it was certain (or ascertainable) when the latest time (if any) was for the Plaintiff (if it was obliged) to notify the Defendant to vacate the suit premises.

14. For these reasons, I consider leave to the Defendant should be given only conditionally. However, even though I find the defence relating to the oral agreement to have raised a triable defence, this line of defence (as Mr Chang fairly accepted) only relates to the Plaintiff's monetary claim and to a possible monetary counterclaim.

Conditional leave to defend

15. Mr Tse for the Plaintiff argued that if I consider it appropriate to impose a condition for giving leave to defend, the condition should be for the Defendant to pay into court the following sums :

1) $103,040.20 (being the rent and the management fee in arrears up to the end of the tenancies on 13 December, 1997); and

2) 20 months' rent/mesne profit, management fee and rates in arrears from 14 December, 1997, i.e. $71,885 x 20 = $1,437,700.

On the other hand, Mr Chang for the Defendant argued that the court should not order the Defendant to make any payment-in regarding mesne profits after 13 December, 1997 because the amount has to be assessed on the basis of the prevailing market rent and there is no such evidence before the court as to what is the appropriate amount.

16. It is trite law that the rent agreed to by the parties in the tenancy agreement is prima facie the prevailing market rent. However, although I cannot take judicial notice of the exact amount of the prevailing market rent today, I can take notice that there has been a downward trend in the rent market since December, 1997. I am therefore prepared to err in the Defendant's favour by reducing by half the sums in arrears for 20 months commencing from 14 December, 1997, to arrive at a sum of $718,850.

Conclusion

17. For the above reasons, the appeal is allowed to the extent that :

1) the order for possession stands;

2) upon the Defendant paying into court the sum of $821,890.20 ($103,040.20 + $718,850) within 14 days from today, the final and interlocutory monetary judgment entered on 27 August, 1999 be set aside and leave be given to the Defendant to defend the Plaintiff's claim for sums relating to the Defendant's occupation of the suit premises; and

3) in the event the Defendant defaults in complying with the condition above, final and interlocutory monetary judgment be entered as claimed in the Statement of Claim.

[Submissions on costs heard]

18. After hearing the parties' submissions on the question of costs, I make the following orders :

1) If the Defendant had not filed any fresh evidence, I would have agreed with the Master. For this reason, I agree with Mr Tse that the costs order of the Master (regarding the costs of the application before him) should stand.

2) As regards the costs of the appeal, I agree with Mr Chang for the Defendant that the appropriate order should be :

a) costs of the appeal should be in the cause of the action if the Defendant complies with the condition; and

b) costs of the appeal should be to the Plaintiff if the Defendant defaults in complying with the condition.