CHOI CHI WAI t/r OLIVA CHOCOLATE CO v. HSIU JUI HEIN

DCCJ 1175/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1175 OF 2015

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DECISION

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1.  This is the plaintiff’s application for summary judgment and for striking out of the Defence and Counterclaim.

2.  The defendant was the tenant of Shop B on the Ground Floor, No 82 Wing Kwong Street, Hunghom, Kowloon, Hong Kong (“the Shop”) pursuant to a tenancy agreement dated 12 June 2013 (“Head Tenancy Agreement”).  Madam Yu Choi Fa (“Madam Yu”) was the landlord. 

3.  Clause 2 of the Head Tenancy Agreement provides:-

“The [defendant] shall not make any alternation and / or additions to the [Shop] without the prior written consent of [Madam Yu], which consent shall not be unreasonably withheld.”

4.  Clause 3 of the Head Tenancy Agreement provides:-

“The [defendant] shall not assign, transfer, sublet or part with the possession of the [Shop] or any part thereof to any other person. This tenancy shall be personal to the [defendant].”

5.  The defendant sublet the Shop to the plaintiff pursuant to a tenancy agreement dated 14 June 2013 (“Sub Tenancy Agreement”) for two years, from 8 July 2013 to 7 July 2015 (“the Term”).

6.  Clause 2 of the Sub Tenancy Agreement provides:-

“… 乙方 [the plaintiff] 不得分租或轉租與別人 …”

7.  Clause 8 of the Sub Tenancy Agreement provides:-

“… 乙方 [the plaintiff] 不得在該樓宇 … 幹一切觸犯本港政府法例之事 … ”

8.  Clause 14 of the Sub Tenancy Agreement provides:-

“此單位地址為二房東 [the defendant] 分租於三房客 [the plaintiff] 之用，唯未正式經業主 [Madam Yu] 簽署合約証實，如因業主不同意分租於三房客之事宜，二房東應當負一切責任賠償三房客之損失。”

9.  Upon entering the Sub Tenancy Agreement, the plaintiff merged the Shop with his adjoining shop unit (“Shop 84”) (where he had been running a chocolate business) by demolishing the party wall in between (“the Demolition Work”), and he erected a partition wall within the Shop (“the Erection Work”) such that the front portion of the Shop would be used by one Mr Fu Jing (符晶) (“Mr Fu”) to run a snack shop under the trade name “東尼小食” (“the Snack Shop”).

10.  On 11 February 2014, Madam Yu complained to the defendant that he was in breach of the Head Tenancy Agreement by causing the Demolition Work and the Erection Work to be carried out and allowing the occupier/tenant of Shop 84 (ie the plaintiff) to occupy/use the rear portion of the Shop without her knowledge or consent, and demanded him to reinstate the Shop to its original state.

11.  On 25 February 2014, the defendant complained to the plaintiff that he was in breach of the Sub Tenancy Agreement by causing the Demolition Work to be carried out without the prior knowledge or consent from the plaintiff or the head landlord (ie Madam Yu) and the approval from the Building Authority, demanded the plaintiff to reinstate the Shop to its original state. 

12.  On 21 March 2014, the defendant further complained that the plaintiff had failed to make rental payments for the Shop since January 2014, claimed that the plaintiff had repudiated the Sub Tenancy Agreement, and accepted his repudiation.

13.  On 31 March 2014, the defendant commenced proceedings against the plaintiff in the Lands Tribunal under LDPE 301/2014 (“the Lands Tribunal Proceedings”) to recover possession of the Shop on the following grounds:-

(1)  the plaintiff had failed to pay rent since 8 January 2014;

(2)  without the defendant’s consent and in breach of clause 8 of the Sub Tenancy Agreement, the plaintiff caused the Demolition Work and the Erection Work to be carried out, which seriously affected the building structure; and

(3)  without the defendant’s consent and in breach of clause 2 of the Sub Tenancy Agreement, the plaintiff sublet the Shop to a third party, namely Mr Fu.

14.  Trial of the Lands Tribunal Proceedings took place before Member Mr Lawrence Pang on 29 April 2014 and 16 May 2014.  On 27 May 2014, Member Pang handed down his written Judgment (“the LT Judgment”) and dismissed the defendant’s claim.  In the LT Judgment, Member Pang made the following findings:-

(1)  The defendant knew about and did not object to the Demolition Work and the Erection Work, and was estopped from complaining that such work amounted to a breach of the Sub Tenancy Agreement.

(2)  There was no evidence that the Demolition Work and the Erection Work were structural works that required approval from the Building Authority.  There was no breach of clause 8 of the Sub Tenancy Agreement.

(3)  There was no evidence that the plaintiff had sublet (分租/轉租) part of the Shop to Mr Fu in breach of clause 2 of the Sub Tenancy Agreement.  At most, Mr Fu was a licensee sharing the business or profits at the Shop, rather than sharing its occupation.

(4)  Whilst there was no justification for the plaintiff to refuse to pay rent, upon the plaintiff paying all the outstanding rent in the course of the proceedings, Member Pang granted relief against forfeiture and reinstated the Sub Tenancy Agreement.

15.  Separately, on 7 May 2014, Madam Yu also commenced proceedings in the Lands Tribunal, under LDPE 417/2014 against the defendant, to recover possession of the Shop, on the ground that in breach of the Head Tenancy Agreement, the defendant, without the knowledge of Madam Yu, sublet the Shop to the plaintiff and caused the Demolition Work and the Erection Work to be carried out.  A Notice to Occupier to Quit issued by the Bailiff in that action was served on the Shop on 30 July 2014, demanding delivery up of possession of the Shop to Madam Yu, which the plaintiff did on 6 August 2014. 

16.  On 19 March 2015, the plaintiff brought the present action against the defendant for compensation pursuant to clause 14 of the Sub Tenancy Agreement for his loss and damage resulting from the early surrender of possession of the Shop before the expiry of the Term in the total sum of $620,500 as follows:-

(1)  Renovation costs for the Snack Shop: $170,000.

(2)  Renovation costs for the Shop and Shop 84: $200,000.

(3)  Reinstatement costs: $186,500.

(4)  Rental deposit: $64,000.

17.  In the Defence and Counterclaim filed on 3 June 2015, the defendant alleged as follows:-

(1)  The defendant was the tenant of Shop A (“Shop 82A”), adjacent to the Shop, for two years from 20 March 2012 to 19 March 2014 with an option to extend for one further year (“Shop 82A Tenancy Agreement”).  The landlord was also Madam Yu.

(2)  The defendant rented the Shop from Madam Yu only upon the plaintiff’s representation to him in or about May or June 2013 that they would run a snack shop together at the Shop (“Representation”).

(3)  In breach of the Representation, the plaintiff refused to run the snack shop with the defendant and instead induced the defendant into subletting the Shop to the plaintiff.  The defendant did so on the condition that the plaintiff shall not demolish any part of the party walls in the Shop as Madam Yu’s son had in or about June 2013 forbidden the defendant from doing so before entering the Head Tenancy Agreement (“the Oral Agreement”).

(4)  In breach of the Oral Agreement, and unbeknown to and without the authorization of the defendant, the plaintiff carried out the Demolition Work and the Erection Work.  Despite the defendant’s protest, the plaintiff refused to carry out reinstatement work (“the Required Reinstatement”).

(5)  In breach of clause 2 of the Sub Tenancy Agreement, the plaintiff sublet the front part of the Shop to Mr Fu to run the Snack Shop.

(6)  The defendant contended that Madam Yu would not have terminated the Head Tenancy Agreement and recovered the Shop, but for the plaintiff’s breach of the Oral Agreement and the Sub Tenancy Agreement and refusal to effect the Required Reinstatement.  He further contended that as a result, Madam Yu also refused to extend the Shop 82A Tenancy Agreement for the optional third year and renew it for a further two-year term with an option for a third year.

(7)  The defendant claimed that he had suffered loss and damage and counterclaimed against the plaintiff for the total sum of $935,766.66 as follows:-

(a)  Renovation costs of Shop 82A: $66,666.66.

(b)  Rental deposits of Shop 82A: $23,100.

(c)  Rental deposits of the Shop: $39,000.

(d)  Rent for June and July 2014 under the Sub Tenancy Agreement: $32,000.

(e)  Loss of profit from the Head Tenancy Agreement and Sub Tenancy Agreement for 10 months: $30,000.

(f)  Legal costs for LDPE 417/2014: $25,000.

(g)  Loss of profit arising from the defendant’s various business operated at Shop 82A for 12 months: $720,000.

18.  On 24 September 2015, the plaintiff applied for summary judgment against the defendant with damages to be assessed and for striking out of the Defence and Counterclaim.

19.  Mr Alan Yung, counsel for the plaintiff, submitted that the Defence and Counterclaim is premised upon the plaintiff’s purported breach of the Oral Agreement (by carrying out the Demolition Work and the Erection Work) and the Sub Tenancy Agreement (by subletting the Shop to Mr Fu to run the Snack Shop) which has been adjudicated upon and found against the defendant in the Lands Tribunal Proceedings.  As such, by operation of the doctrine of res judicata, the defendant is barred from re-litigating the same issues in this action.  It follows that there is no viable defence to the plaintiff’s claim, and the counterclaim also ought to be struck out as being an abuse of the court process.

20.  Mr Poon Chi Ming, counsel for the defendant, submitted that the doctrine of res judicata should not apply on the particular facts of this case, for a number of reasons.

21.  First, Mr Poon submitted that the defendant was acting in person in the Lands Tribunal Proceedings.  The Tribunal determined the case against him without the benefit of his witnesses (including Madam Yu and her son, and his business partner) who (the defendant said) would have supported his case about the landlord’s prohibition of demolition work in the Shop and his lack of knowledge and consent for such work, and whom he would have called, but did not call, to give evidence given he thought he could have won the case without them.  The defendant also did not contend there was the Oral Agreement between him and the plaintiff because he was acting in person, and promissory estoppel is a very complicated point of law for a layman.  Mr Poon submitted that these were issues which could not have with reasonable diligence been raised by the defendant in the Lands Tribunal Proceedings.

22.  I disagree.  The application of the doctrine of res judicata barring re-litigation on issues which have been previously decided (in the narrow sense of the doctrine) and on issues which could and should have been raised in the previous proceedings (in the extended sense of the doctrine) could not depend on whether a party has the benefit of legal representation.  Allowing the defendant to argue the same issues in this action which have been decided against him in the LT Judgment would completely defeat the very purpose of the doctrine, which is, in broad terms, to prevent any abuse of the court process by protecting a party from being vexed twice with the same subject matter.

23.  For completeness, and in any event, I do not find the Oral Agreement to be believable based on the materials before me:-

(1)  The Sub Tenancy Agreement had no provision against demolition work being carried out in the Shop.  Had there been the Oral Agreement which the defendant claimed to be the condition for him entering into the Sub Tenancy Agreement with the plaintiff, there was no reason why the Oral Agreement was not in any way reflected in the Sub Tenancy Agreement.

(2)  There was no mention of the Oral Agreement in the letters dated 25 February 2014 and 21 March 2014 issued by the defendant’s solicitors to the plaintiff.

(3)  The defendant did not allege that there was any Oral Agreement in the Lands Tribunal Proceedings.  It is inconceivable that the defendant did not put the Oral Agreement at the forefront of his application in those proceedings.  Indeed, the evidence before the Tribunal (set out in paragraphs 19 and 20 of the LT Judgment) showed that the complaint about the Demolition Work and the Erection Work only came from Madam Yu, not the defendant.  As found by the Tribunal, this showed that the defendant knew of and did not object to the Demolition Work and the Erection Work, which undermined the claim of the Oral Agreement.

24.  Second, Mr Poon argued that whether the plaintiff had sublet the Shop to Mr Fu was an issue which had not been resolved in the LT Judgment, which only found (at paragraph 26) that there was no evidence from the defendant in support of the subletting (申請人也未能提供任何證據證明答辯人確有分租).  Mr Poon submitted that given there was no dispute that Mr Fu did occupy the front portion of the Shop to run the Snack Shop exclusively and continuously for more than 10 months within the 2-year Term of the Sub Tenancy Agreement, and the Tribunal also rejected Mr Fu’s evidence that he had not entered into any written co-operation agreement with the plaintiff, the only reasonable inference was that the plaintiff had sublet part of the Shop to Mr Fu.  Mr Poon further argued that even though there was no evidence of subletting at the trial of the Lands Tribunal Proceedings, the plaintiff’s breach of clause 2 of the Sub Tenancy Agreement “could have re-started” after the trial and had continued until the Shop was eventually surrendered to Madam Yu.

25.  I reject the argument.  It was still a finding of fact in the LT Judgment that the plaintiff did not breach clause 2 of the Sub Tenancy Agreement, even though such finding was arrived at by reason of the inadequacy of evidence of subletting from the defendant.  The defendant was also unable to point to any new evidence which was not before the Lands Tribunal that supported his case of subletting to Mr Fu, save that the defendant wished to re-argue the same point in this action.  It is also pure conjecture for the defendant to claim that the subletting of the Shop to Mr Fu restarted after trial of the Lands Tribunal Proceedings.  It is an abuse of court process for the defendant to now have a second bite.

26.  Finally, Mr Poon argued that even though not pleaded in the Defence and Counterclaim, the defendant in his affirmation alleged that:-

(1)  The plaintiff had actual knowledge of the Head Tenancy Agreement in particular the restrictive clause on subletting of the Shop (clause 3); and

(2)  The plaintiff had the intention to induce the defendant to breach the Head Tenancy Agreement by inducing him to sublet the Shop to the plaintiff without Madam Yu’s approval.

27.  Mr Poon submitted that it was inequitable for the plaintiff to bring the present claim for damages against the defendant when it was the plaintiff’s tortious act (of inducing the defendant to breach the Head Tenancy Agreement) that had caused Madam Yu to apply to repossess the Shop and evict the plaintiff.

28.  I reject the argument:-

(1)  There was no evidence that the plaintiff knew about the terms of the Head Tenancy Agreement.  It was not alleged in the defendant’s affirmation that the Head Tenancy Agreement was produced or explained to the plaintiff at any time.  Member Pang also found in the LT Judgment that the defendant did not produce the Head Tenancy Agreement or refer to its contents to the plaintiff for reference (paragraph 19).

(2)  In any case, the plaintiff and the defendant knew full well that the Sub Tenancy Agreement had not yet been approved by Madam Yu, which was why they had agreed under clause 14 that if Madam Yu refused the sub-letting to the plaintiff, the defendant would have to compensate the plaintiff for all of his loss and damage.  There was therefore nothing inequitable for the plaintiff to rely on clause 14 of the Sub Tenancy Agreement to claim compensation from the defendant when Madam Yu did refuse to sublet the Shop.

29.  For the above reasons, I conclude that the defendant did not raise any viable defence to the plaintiff’s claim. The counterclaim is premised upon matters which have been found against the defendant in the LT Judgment and must be struck out as an abuse of the court process.

30.  I make the following orders:-

(1)  Interlocutory judgment be entered for the plaintiff against the defendant, with damages for breach of the Sub Tenancy Agreement to be assessed before a District Court Master in accordance with Order 37, rule 1 of the Rules of the District Court.

(2)  The Defence and Counterclaim be struck out.

(3)  There be liberty to apply for directions in relation to the assessment of damages.  Parties should note that the automatic directions under Order 37, rule 1(1A) of the Rules of the District Court shall apply.

31.  There is no reason why costs should not follow the event.  The plaintiff’s summons asked for costs not only of the application but also of the action against the defendant.  At the hearing, I queried with Mr Yung the basis for such a costs order in the event that I acceded to the plaintiff’s application for summary judgment against the defendant, when the action had not yet been concluded but would have to proceed to an assessment of damages, and it would not be correct to regard all costs incurred so far in this action as costs for establishing liability against the defendant.  In addition, the assessment of damages may result in nil or insubstantial damages in favour of the plaintiff, which may provide the platform for argument as to whether the plaintiff is to be regarded as the successful party in this case (which may impact on costs of the action), particularly when on the issue of costs, the court may consider the conduct of the parties including whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim: see Order 62, rule 5(2)(c) of the Rules of the District Court.

32.  In reply, Mr Yung referred me to two case authorities.  The first one is Volly Best Investment Limited v Joinland Holdings Limited, HCA 1438/2013 (11 May 2015) at [43] where Recorder Linda Chan SC, upon entering interlocutory judgment against the defendant with damages to be assessed and striking out the counterclaim, ordered the costs of and occasioned by the plaintiff’s application and “of the action” be paid by the defendant to the plaintiff to be taxed if not agreed. With respect, there was no explanation by the learned Recorder as to how she had come to such a costs order.  The second one is Au Fo Kiu v Liu Kwok Kei, HCPI 417/2014 (12 September 2014), where Master Roy Yu at [35] remarked that in personal injuries cases where liability has been admitted with damages to be assessed, and when interlocutory judgment is granted, “only costs on liability would be awarded to the plaintiff”.  This no doubt reflects the practice in personal injuries cases where there could be a clear demarcation of liability and quantum and, in turn, their associated costs.  However, in normal civil litigation such as the present case, no such clear demarcation may be possible, and it would be unfair for the defendant to bear all the costs incurred to date in the action despite the plaintiff’s successful application for interlocutory judgment against him.

33.  I therefore make a costs order nisi that the plaintiff shall have the costs of his summons dated 24 September 2015, including costs of the hearing on 16 March 2016 and all costs reserved (if any), to be taxed if not agreed and to be paid forthwith, with certificate for counsel.  Costs of this action will be reserved to the Master hearing the assessment of damages.  The costs order nisi shall be made absolute in 14 days in the absence of any application by way of summons for its variation.

34.  I thank counsel for their assistance.