XCHRX WORLD EMPIRE INVESTMENT LTD. v. HOPSEN INVESTMENT LTD.

HCA90/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 90 OF 1998

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J U D G M E N T

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1. This is an appeal against a summary judgment given by Mr Registrar Betts under Order 14 of the Rules of the High Court.

The Action

2. The action is by a landlord against a tenant for arrears of rent. It is not in dispute that the Plaintiff leased to the Defendant Shop Nos. 13 and 28 on the ground floor of Avon Park, Sheung Shui. The lease was dated 4th April 1995. It was for a term of six years from 1st August 1994 to 31st July 2000. The rent was $72,128.00 per calendar month for the first to the third years of the tenancy and $97,372.80 per calendar month for the fourth to the sixth years. The management fees were set at $13,524 per calendar month, subject to adjustment by one month's notice in accordance with the terms and conditions of the Deed of Mutual Covenant and they were increased to $14,171.00 per calendar month with effect from 1st January 1998. The Plaintiff does not admit the increase but admits that notice of the increase was purportedly given.

3. The Plaintiff says that the Defendant defaulted in payment of the rent and management fees from 1st October 1997 to 31st January 1998, and claims the outstanding rent, management fees, and interest due thereon under Clause 5(c)(ii) of the lease. The Defendant's defence as pleaded is a simple denial of liability.

The Background

4. In fact, as appears from the affirmations, there were in all three tenancy agreements between the Plaintiff as landlord and the Defendant as tenant. The lease of Shops 13 and 28 is the second in time.

5. The first tenancy agreement, dated 22nd September 1994, was for Shop Nos. 15-18, 27 and 30 on the ground floor of Avon Park. It was for three years, expiring on 1st May 1997, with an option to renew for three years. The deposit paid was $888,678. In these premises the Defendant operated a Chinese restaurant.

6. The lease of Shops 13 and 28 under which the Plaintiff claims arrears of rents was dated 4th April 1995 and is for a term of six years. The Defendant paid a deposit of $256,956. These premises are in effect next door but one to those which are the subject of the first tenancy agreement. In these premises the Defendant operated a Malaysian restaurant.

7. The third tenancy agreement, dated 1st July 1995, was for Shop Nos. 14 and 28A, i.e. the shops between those which are the subject of the first lease and those which are the subject of the second lease. These premises were also for use as a Chinese restaurant; in effect they became an extension of the original restaurant. The term was two years 10 months and 10 days, to expire, like the first tenancy agreement, on 1st May 1997. The deposit was $181,830.

The Evidence

8. Evidence for the Plaintiff comes from its manager, Mr TSOI Ki Leung. For the Defendant evidence comes from its director, Mr CHUNG Wai Hung. Mr TSOI's first affirmation simply supports the claim and affirms his belief that the Defence which had by then been filed disclosed no arguable defence. His second affirmation is in reply to that of Mr CHUNG. There is no other evidence.

9. I should note at this stage that at the beginning of this appeal Mr TANG for the Plaintiff applied for an adjournment. The reasons given for the adjournment were twofold. The first was the difficulty caused by the unfortunate sudden death, in late July this year, of the legal executive employed by the Defendant's solicitors who was handling the proceedings under the supervision of the senior partner. The second was the need for the Defendant to file further affidavit evidence. I refused the application. I could not see that the legal executive's death made an adjournment necessary because he would have been handling the matter under the supervision of the partner and in any event the same Counsel appeared before the Registrar as now appears before me. As to further affidavit evidence, the Defendant had ample time between the date of Mr TSOI's second affirmation, 8th May 1998, and the hearing before the Registrar on 14th July 1998 to apply for leave to file it; but no such application was made.

10. According to Mr CHUNG, the first and third tenancy agreements duly expired on 1st May 1997. The Defendant had discharged its entire contractual obligations under these agreements. At this stage the Plaintiff was holding deposits totalling $1,327,464.00 for all three sets of premises. The Defendant engaged one Ms LAM Kwok Fai to negotiate with the Plaintiff concerning the settlement of the remaining portion of the lease, i.e. the lease of Shops 13 and 28. In about June 1997 "the said Mr LAM" informed the Defendant that the Plaintiff would accept early termination of the lease on condition that the Defendant's deposits for all three tenancies be deducted as confirmation. This the Defendant accepted as a termination agreement and, in pursuance of this termination agreement, issued a written notice to the Plaintiff on 26th June 1997.

11. According to Mr TSOI, the Defendant had not discharged its entire contractual obligations under the three agreements. It was owing rent and various other charges from 1st April 1997 in respect of all of them. Mr CHUNG, on being pressed for payment by the Plaintiff's employee Mr YEUNG, suggested that the deposits should be applied towards the reduction or rent and other charges for the lease, and in support of this sent the Plaintiff a fax message dated 26th June 1997.

12. There seems to be no dispute that the fax message produced by Mr TSOI as exhibit TKL-3 is the written notice referred to by Mr CHUNG although the former contains a letterhead, handwriting, chops and signatures which do not appear on the copy produced by Mr CHUNG as exhibit CWH-4.

13. The fax message has been translated and its import is clear. It admits to being in arrears of rent for Shops 13 and 28, "operating as Sentosa" and says that the Defendant would like to deduct the outstanding rent from the rental deposits. The handwritten note goes on:

"Please deduct the outstanding rental, management fees and interest for the period April to July owing by Sentosa from the rental deposit of Shop No. 14-18, 27, 28A, 30, G/F, Avon Park, Fanling, N.T."

There is no mention of any agreement to terminate the lease of Shops 13 and 28.

14. Mr TSOI says that the Plaintiff acted in accordance with this fax message. It deducted the outstanding rent and other charges due under the first and third tenancy agreements from the deposits, so as to produce, in the case of the first agreement, a balance of $542,275.31, and in the case of the second agreement a balance of $111,402.87, and issued credit notes (exhibits TKL-1 and TKL-2) to the Defendant; and it applied the total of these two balances, i.e. $653,678.18 towards the rent, interest and other charges due for Shops 13 and 28. In effect this money paid for the rent, interest and other charges up to October 1997; and it is for the rent from 1st October 1997 (part rent for October only) to 31st January 1998 which the Plaintiff claims in this action.

15. Mr TSOI denies that any agreement for termination was reached. He says that he did receive an approach from a Mr Ringo LAU Kwok Fai who offered an alternative corporate tenant to him for the remainder of the lease of Shops 13 and 28, but nothing came of it. He said that he would have been involved personally in any negotiations with a tenant of the Plaintiff for termination of a lease. If Mr CHUNG's evidence were true, it would mean that the Plaintiff would have lost rent for four years and one months for nothing, and he would never have agreed to that.

The Law

16. Counsel agree that the appropriate test for Order 14 is whether the Defendant has satisfied the Court that there is a fair or reasonable probability of the defendants having a real or bona fide defence : National Westminster Bank PLC v Daniel & Ors. [1993] 1 WLR 1453 at 1457 E-F.

17. In fact, in National Westminster Bank, Glidewell L.J. went on to say that the test posed by Lloyd L.J. in Standard Chartered Bank v. Yaacoub (unreported), Court of Appeal (Civil Division) Transcript No. 699 of 1990, "Is what the defendant says credible?" amounts to much the same thing. National Westminster Bank was applied by the Hong Kong Court of Appeal in Ng Shou Chun v. Hung Chun Shung, [1994] 1 HKC 155. In that case Godfrey J.A. also said (at p. 158G) :

"It will in future be sufficient for the court to ask itself the simple question: 'Is what the defendant says credible?' If so he must have leave to defend. If not the plaintiff is entitled to summary judgment."

18. I must therefore apply the credibility test to the evidence put forward on behalf of the Defendant. Assistance on how to apply the test comes from Bokhary J.A. in Re Safe Rich Industries Ltd. C.A. 81/94 (unreported) ([1994] HKLR 183) :

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - because failure to recognize it would create a debt dodger's charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute."

Evaluation

19. The Defendant's case is that there was an agreement between it and the Plaintiff for the termination of the lease on payment to it of the deposits under all three tenancy agreements, and further that the Defendant having fully discharged its contractual obligations under the first and third agreements was entitled to repayment of the full deposits in respect of them.

20. Dealing with the second point first, it is noted that the Plaintiff deducted outstanding rent and other charges from those two deposits and sent the Defendant credit notes showing these deductions in September 1997. The Defendant never queried these deductions. This suggests that the Defendant had not fully discharged its contractual obligations under those two agreements and that Mr CHUNG is not telling the truth.

21. Dealing with the first point, the Defendant says that the agreement was made between the Plaintiff and the Defendant's agent Mr or Ms LAM Kwok Fai. This may or may not be the same person as Ringo LAU Kwok Fai. But the point is that there is no direct evidence from this person, which one would expect to see if the story were true.

22. However, perhaps the most glaring inconsistency is that between the evidence of Mr CHUNG and the content of the fax message of 26th June 1997, on which he clearly relies in support of his contention that there was an agreement. That fax message cannot be read as an agreement to terminate. It is quite simply an instruction to apply the deposits in respect of Shops 14-18, 27, 28A and 30 towards payment of the outstanding rental, management fees and interest owing in respect of Shops 13 and 28 for the period from April to July, no more and no less.

23. The suggestion that there may have been such an agreement, but it does not appear in this document because its author was not a lawyer, clearly has no merit. Mr CHUNG may not be a lawyer but he designs himself as a merchant; he is a company director and his company has been in the restaurant business, and a tenant, for some years. He does not need to be a lawyer to record the fact of an agreement if there was an agreement. Nor is there anything in the suggestion that it might have been in the Plaintiff's interest to accept termination because at the time the market was active and the recession had not yet happened.

24. I conclude that what the Defendant says, taken in the context of so much of the background as is either undisputed or beyond reasonable dispute, is simply not credible. Accordingly the Plaintiff is entitled to summary judgment.

25. The Appellant's appeal against the decision of Mr Registrar Betts is dismissed. Costs of the appeal (nisi) be to the Plaintiff.