TAI TUNG INDUSTRIAL EQUIPMENT LTD v. CROWN HONOR DISTRICTION CENTRE LTD (In Liquidation)

DCDT 3019/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT NO. 3019 OF 2009

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Decision

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1. By a consent summons filed on 23 May 2012, the plaintiff and the defendant jointly applied to this court for the adjudication of the relationship between the plaintiff and the defendant in relation to the house and premises situated at Portion A, Portion B, Portion C, Portion F1, Portion F2 and Portion F3 on Ground Floor, Cockloft D and Cockloft E above the Ground Floor, the whole of 1^st Floor, the whole of 2^nd Floor, the 3^rd Floor, the 4^th Floor and the 6^th Floor of Tai Tung Industrial Building, Nos 29-33 Tsing Yi Road, Tsing Yi, New Territories, Hong Kong under the agreement dated 23 January 2009, by using the affidavits/affirmations filed in these proceedings as the basis of the adjudication.

2. Apart from this summons, I have to deal with 2 summonses taken out by the defendant, and two summonses taken out by the plaintiff, as mentioned hereinafter.

3. By a summons issued on 22 June 2009, the defendant applied to the court for the discharge of the warrant of distress issued against the defendant by Deputy District Judge SM Sham on 8 June 2009.  By another summons issued on 6 October 2009 (amended on 28^th May, 2012), the defendant applied to strike out all the plaintiff’s applications (this item was deleted by reason of the amendment) and for the sum of HK$100,000 paid into court by the defendant on 24 June, 2009 be paid out (together with accrued  interests thereon) to the defendant.

4. By a summons issued on 11 November 2009, the plaintiff applied to set aside the order made by Deputy District Judge A Kwok on 22 June 2009.  By another summons issued herein on 1 February 2012, the plaintiff applied for the sum of HK$100,000 together with accrued interest thereon paid into court by the defendant on 24 June, 2009 be paid out to the plaintiff.

Background

5. On 1 December 2005, the parties entered into a written agreement in Chinese entitled “准用協議書” (the “1^st Agreement”) in which the plaintiff agreed to grant the defendant the right to use the premises situated at Portions A and B on Ground Floor, the whole of the 1^st, 2^nd and 6^th Floors of Tai Tung Industrial Building, Nos 23-33 Tsing Yi Road, Tsing Yi, New Territories, Hong Kong (“Area 1”) for the period from 15 December 2005 to 14 December 2008 at a monthly management fee and miscellaneous charges (管理費及雜費) of HK$364,827. Clause 14 of the 1^st Agreement specifies that the Agreement was not a lease agreement of Area 1.

6. On 13 April 2006, the parties entered into another written agreement in Chinese also entitled “准用協議書” (the “2^nd Agreement”) in which the plaintiff agreed to grant the defendant the right to use the premises situated at Portions C on the ground floor, the whole of the 3^rd and the 4^th Floors of Tai Tung Industrial Building (“Area 2”) for the period from 13 April 2006 to 14 December 2008 at a monthly management fee and miscellaneous charges (管理費及雜費) of HK$287,550. Clause 17 of the 2^nd Agreement specifies that the Agreement was not a lease agreement of Area 2.

7. On 23 January 2009, the parties entered into another written agreement in Chinese also entitled “准用協議書” (the “3^rd Agreement”) under which the plaintiff agreed to grant the defendant the right to use Areas 1 and 2 (collectively called “the Premises”) for the period from 15 December 2008 to 14 December 2011 at a monthly management fee and miscellaneous charges (管理費及雜費) of HK$750,233.55.  Clause 17 of the 3^rd Agreement specifies that the Agreement was not a lease agreement of the Premises.

8. Disputes arose between the parties, and the defendant did not pay management and miscellaneous fees for the period from 15 January 2009 to 14 June 2009.

9. On 15 May 2009, the defendant commenced a High Court action against the plaintiff in respect of the Premises (HCA 1205 of 2009) but it was subsequently discontinued.

10. On 5 June 2009, the plaintiff applied for a warrant of distress (the “Warrant of Distress”) against the defendant to recover arrears of rent due by the defendant to the plaintiff under the 3^rd Agreement.  On 8 June 2009, Deputy District Judge SM Sham issued the Warrant of Distress against the defendant in the District Court Distraint Action and a certain quantity of goods in the premises were seized.

11. By a summon issued on 22 June 2009 by the defendant, the defendant applied, inter alias, to discharge the Warrant of Distress and for the further execution for selling of the goods seized by the bailiff on 18 June, 2009 be stayed.  By an order dated 22 June 2009, Deputy District Judge A Kwok in chambers ordered that the goods seized by the Bailiff  be returned to the defendant upon a deposit of HK$100,000 into the court as security for the return of the goods and that the Warrant of Distress be stayed.  The defendant paid into the District Court a sum of HK$100,000 on 24 June 2009.

12. On or about 17 August 2009, the plaintiff issued a Writ of Summons in the Court of First Instance (HCA 1769/2009) under which it claimed against the defendant for, inter alias, the recovery of possession of the Premises and damages, on the ground that the defendant had committed a breach of the 3^rd Agreement as a licensee.  Judgment was entered in favour of the plaintiff against the defendant on the 28^th October, 2009.

Analysis of evidence

13. The Warrant of Distress of rent was issued pursuant to section 77 of the Landlord and Tenant Ordinance, which provides:-

“The court shall have jurisdiction to issue warrants of distress for areas of rent in all cases, ……”

The fundamental question to be decided by this court is whether the 3^rd Agreement was a licence, or a lease agreement.  The element of exclusive possession is essential to the formation of a lease agreement.  In Halsbury’s Law of Hong Kong, vol 17(1), para 235.008, it is stated that:-

“Save in exceptional circumstances, an agreement creates the relationship of landlord and tenant and not that of licensor and licensee where there is the grant of exclusive possession for a fixed or periodic term at a stated rent.”

The defence counsel submitted that no landlord and tenant relationship existed between the parties at the time of the application for the Warrant of Distress.  He argued that the Third Agreement was a licence agreement, because the defendant was not given exclusive possession of the Premises concerned.  To support his contention, he cited the following paragraph of the affirmation Mr Chan Chi Wah, a director of the defendant:-

“31.  Secondly, the defendant has in fact not been given exclusive possession of Licenced Areas 1 and 2.  The defendant could only gain access to these areas from 8 am to 6 pm (business hours) every day.  The defendant have no keys to the main gate of the building and the defendant need to inform the security guard if the defendant need to gain entry to Licensed Areas 1 and 2 after business hours.  The defendant are not allowed to lock up the door to Licenced Areas 1 and 2.  Any body can enter into Licenced Areas 1 and 2 though the lift, and the lift can be access by the plaintiff anytime.  Also, the main switch room, the phone control room and the fire extinguishers room (“the 3 Rooms”) servicing the entire building are all situate at Licenced Areas 1 and 2.  The defendant could not refuse the plaintiff from entering Licenced Areas 1 and 2, more particularly the 3 Rooms.  Last but not the least, as mentioned earlier, the plaintiff just went to Licenced Areas 1 and 2 and removed all 16 gates the defendant installed.” 

  (Underlines provided)

This part of the affirmation of Mr Chan Chi Wah was not refuted by the plaintiff.  The facts infolded by the affirmation clearly show that the defendant did not and could not have exclusive possession of Licensed Areas 1 and 2.  The Clauses 14 and 17 of the three Agreements show the intention of the parties that they did not intend the Agreements to be lease agreements.  This is consistent with he fact that the defendant did not have exclusive possession of the Premises.  Accordingly the 3^rd Agreement is not a lease agreement, and the Warrant of Distress was wrongfully issued.

14. The plaintiff’s counsel relied on the written reasons given by Registrar Au-Yeung in the High Court action to support her contention that the 3^rd Agreement was a lease agreement.  But the Registrar did not decide whether the agreement in question was a lease or a licence agreement.  Hence The Registrar’s reasons do not support the plaintiff’s contention that the 3^rd Agreement was a rental agreement.

15. The plaintiff’s counsel also relied on the fact that in HCA 1205 of 2009 the defendant claimed that it was a teneant and that the plaintiff had breached its covenant in not giving exclusive possession and quiet enjoyment to the defendant.  The nature of the relationship between the parties was created at the time the 3^rd Agreement was entered into.  It would not be changed subsequently at the unilateral act of the Defendant.

16. The security of $100,000 was paid by the defendant so that the Warrant of Distress would not be executed.  It was issued when the 3^rd Agreement was a licence agreement.  So it was wrongfully issued.  For this reason, the plaintiff’s summonses should be struck out.  I therefore dismiss them.   The defendant succeeds in the two summonses it took out.  I order that the Warrant of Distress be discharged and the sum of $100,000 paid into court by the defendant be paid out to the defendant, together with accrued  interests thereon (if any).

17. I make an order nisi, to be made absolute in 14 days’ time, that the plaintiff do pay costs of all the above five summons to the defendant, to be taxed, if not agreed.