GREAT CITY HOLDINGS LTD v. TO CHUN HUNG

HCA 47/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 47 OF 2009

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D E C I S I O N

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APPLICATION

1. This is an application for interim payment.

BACKGROUND

2. On 7 January 2009, the Plaintiff commenced the present proceedings.  It was said that by a tenancy agreement (“the Tenancy Agreement”) dated 15 February 2008, the Plaintiff let certain pieces of land (“the Land”) to the Defendant for one year from 1 February 2008 at a monthly rent of $40,000.

3. However, the Defendant was later found establishing an illegal barbecue site on the Land.  The Plaintiff was then convicted and fined $30,000.  Further, the Defendant did not pay rent commencing from 1 April 2008.  Because of these breaches, the Plaintiff sued for possession of the Land, payment of outstanding rent/mense profits, interest and costs.

4. The Defendant contested the proceedings.  It averred that in about March 2006, one Mr. Chu (“Mr. Chu”), being the nephew of the Defendant and acting as agent for the Plaintiff, agreed with the Defendant that he would be allowed to occupy the Land as a barbecue site for 5 years, rent free, if he could help evicting certain tenants/sub-tenants there.

5. The Defendant did so, and the barbecue site was also operated successfully.  In about May 2006, upon request from Mr. Chu, and on a wholly without prejudice basis, the Defendant paid $140,000 deposit and $10,000 monthly rent to Mr. Chu of the Plaintiff.

6. Then, in or about February 2008, the Defendant further signed the Tenancy Agreement with the Plaintiff upon Mr. Chu’s representation that it was to be shown to the Town Planning Board for application of a barbecue licence.  It was a sham agreement and did not have any legal effect.  Further or alternatively, it should be rescinded because of the fraudulent representation of Mr. Chu.  The Defendant went on counter-claming damages because of the operation of the barbecue site having been tampered by the Plaintiff through Mr. Chu.

7. The Plaintiff filed its Reply and Defence to Counterclaim.  The Defendant’s case was denied.  It said that the Land was acquired with vacant possession.  The Plaintiff then let it together with other pieces of land to Silver Moon Limited from 13 June 2006 to 31 December 2007.  Mr. Chu was one of the guarantors of that tenancy.  All rent therein was duly paid.  Then, in early 2008, Mr. Chu introduced the Defendant to the Plaintiff for the Tenancy Agreement.  It was a bona fide commercial transaction.  Post-dated cheques for rent since June 2008 were bounced.  Mr. Chu has never been agent for the Plaintiff.  Distrait action DCTT 3863/2008 had been issued, but the Defendant did not raise any defence at all.

8. In the meantime, Defendant issued Order 14 application on 6 April 2009.  It was adjourned for argument with 2 hours reserved.

9. Further, on 30 April 2009, the Plaintiff separately issued the present application for interim payment.  Parties appeared before me on 6 July 2009 for substantive argument of the same.  Mr. Au of Simon Chan & Co. acted for the Plaintiff and Mr. Lee of Messrs. Paul Kwong & Co. represented the Defendant.

DISCUSSION

(I)  Evidence to be considered?

10. Mr. Lee made 2 preliminary applications.  He asked to rely on the 3^rd affirmation of the Defendant filed 2 days ago as well as to refer to affidavit evidence filed for the Order 14 application.  Upon thought, I decide to refuse the former and allow the later.

11. At the call-over hearing of the interim payment application, Master Hui gave directions for filing and serving of affidavit evidence, including that:

“4.   Any application for leave to file further affidavit must be made not less than 14 days before the substantive hearing, supported by reasons on affidavit.”

Further, after Civil Justice Reform, the new rule Order 32 rule 11A(4) states that:

“4.   Where the determination of the application is adjourned for the hearing of the summons, no further evidence may be adduced unless it appears to the Court that there are exceptional circumstances making it desirable that further evidence should be adduced.”

Mr. Lee told me that the 3^rd affirmation of the Defendant was supplemental only and that the Plaintiff had been late in his filing and serving of the affidavit in reply. Upon consideration, I am afraid that they are not “exceptional circumstances” or sufficient reasons not to comply with the order of Master Hui.

12. As to the evidence relating to the summary judgment, this Court has to consider merits of the parties’ case in an application for interim payment.  Certainly, such evidence can be located in the Order 14 application.  I see no prejudice to Mr. Au as he is familiar with the case.  Indeed, application for summary judgment and interim payment are usually considered at the same time.

(II)  Applicable principles in application for interim payment

13. The relevant principles relating to interim payment can be located at page 572 to 579 HKCP 2009 (Order 29 rule 10 to rule 12).  For our present purpose, it suffices to set out the followings.

“29/12/4 (c)  Recovery of substantial sum apart from damages or costs—The ground is that if the action proceeded to trial, the plaintiff would obtain judgment against the defendant for a substantial sum of money apart from any damages or costs (see r.12(c)).  This provision envisages an intermediary situation between the court awarding a final judgment on an application for summary judgment under O.14, and a final judgment awarded at the time of the action.  The court is empowered to have regard to all the circumstances of the case, including the pleadings, any documents disclosed or exhibited and any other relevant material and any admissions made by the defendant, and to determine on such material whether it is satisfied that the plaintiff will at the trial obtain judgment for a substantial sum of money ……

  An application for an interim payment under O.29, r.12(c) should be considered by the court in two stages.  The court must first be satisfied that, if the action proceeds to trial, the plaintiff will obtain judgment for a substantial sum, and, if so, the court should then consider whether, in its discretion, it should order an interim payment.  At the first stage the plaintiff must satisfy the court on the balance of probabilities, but to a high standard, that he will obtain judgment for a substantial sum; the likelihood of a set-off or any other defence succeeding must be considered by the court.  At the second stage the rules also require the court to take into account any set-off claimed by the defendant, and also any counterclaim arising out of some other transaction and not available as a defence (Shanning International Ltd v. George Wimpey International Ltd [1988] 3 All E.R. 475, CA).”

(III)  Application of the principles to the facts

14. By applying the above 2 stages test, having taken into account of the Defendant’s counterclaim, and upon the available evidence before the Court now, will this Court find that the Plaintiff is to obtain judgment of a substantial sum at trial?

15. I say “yes” to the question.

(a)   The Defendant’s case is unbelievable in the circumstances.  It is against commercial sense that, by evicting tenants and sub-tenants of certain pieces of land, he will be allowed to enjoy the same rent-free for 5 years.

(b)   The Plaintiff’s case is well supported by contemporaneous documents when that of the Defendant is full of bare allegations with no particulars.

(c)   The Defendant’s case is contradictory in itself.

(i)    On the one hand, he alleged that he was entitled to enjoy the Land free for 5 years.  However, on the other, he did not deny having paid certain sums of monies and tendered post-dated cheques to the Plaintiff.

(ii)  The Plaintiff had instituted distraint action against the Defendant, but he never raised any defence or counterclaim therein as in the proceedings herein.

(iii)    The Defendant made no reply to 2 demand letters issued by the Plaintiff.

(d)   Even if the Defendant’s case might be believable (which is not accepted by me), as a matter of law, it is not enforceable because the same is not written (section 3 of the Conveyancing and Property Ordinance (Cap. 219)).

(e)   I am not optimistic about the Defendant’s counterclaim.  It is not quantified.  No particulars and supporting documents have been supplied at all.

(f)    Mr. Chan tried his very best to locate loopholes in Mr. Au’s case by pointing to the Tenancy Agreement and board minutes produced by the Plaintiff.  However, as discussed with him at the hearing, this Court is required to decide the matter on balance upon the available evidence.  The problems pointed out by Mr. Chan are clerical and can easily be remedied and/or explained.  After all, they are not serous enough to persuade me not to grant it the interim payment sought.

CONCLUSION

16. In the end, I therefore order the Defendant to pay the Plaintiff by way of interim payment,

(a)   within 14 days from the date hereof the sum of $610,000 being the amount of accrued arrears of rent and/or mesne profits of the Land from 1 April 2008 to 31 July 2009, and

(b)   commencing from 1 August 2009, $40,000 per month until delivery of vacant possession of the Land to the Plaintiff, further order from this Court or determination of the proceedings herein, whichever is earlier.

17. There is also an order nisi that the Defendant shall pay costs of the application, including costs reserved and hearing on 6 July 2009, to be summarily assessed by me with half an hour reserved, failing agreement by the parties within 21 days.