CHINA TRAVEL LOGISTICS AND TRADING HONG KONG LTD v. CHINA TRAVEL HIP KEE GODOWN HONG KONG LTD

HCA 693/2021

[2021] HKCFI 1427

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 693 OF 2021

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DECISION

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Application

1.  In this action, which was commenced by writ of summons on 4 May 2021, the plaintiff seeks, amongst others:

(1)  a declaration that is and was at all material times since 1 January 2019 a lawful tenant and, as such, entitled to exclusive possession and quiet enjoyment of (a) Godown No 1[1], 20 Winslow Street, Hunghom, Kowloon (香港九龍紅磡溫思勞街20號中旅協記1廠) and (b) Godown No 2[2], 1 Cheong Hang Road, Hunghom, Kowloon (香港九龍紅磡暢行道1號中旅協記2廠) (“Godown 1” and “Godown 2” respectively and “Godowns” respectively); and

(2)  permanent injunctions restraining the defendant from, inter alia, interfering with the plaintiff’s possession and enjoyment of the Godowns.

2.  Before the court now is the plaintiff’s application by summons dated 4 May 2021 (“Summons”) for

(1)  an interim injunction restraining the defendant from:

(a)  “preventing, obstructing and/or in any way interfering with the plaintiff’s quiet enjoyment, access into, within and/or out of, occupation of, operation in, and/or usage of all and any parts of [the Godowns]” until trial or further order; and

(b)  “removing, disposing of, transferring and/or otherwise dealing with the goods, commodities and/or assets stored in or located at the [Godowns] or any part(s) thereof which are owned by and/or belonging to the plaintiff and/or will become under the plaintiff’s custody, possession, and/or control in the course of the plaintiff’s businesses and/or operations at the [Godowns]” until trial or further order; and

(2)  pending the determination of such application, an interim interim injunction in the same terms with such modifications as may be appropriate.

3.  This decision is concerned with the plaintiff’s application for interim interim relief.

Outline of events giving rise to action and application

4.  The plaintiff and defendant are both companies ultimately owned by the State Council (國務院) (“State Council”) of the Central People’s Government of the People’s Republic of China and are supervised by the State-owned Assets Supervision and Administration Commission of the State Council (國務院國有資產監督管理委員會/國資委) (“SASAC”). They presently belong to the following corporate structures:

5.  As shown in the above corporate chart, the defendant is the registered owner of the Godowns.

6.  By a written tenancy agreement in Chinese dated 29 April 2015 (“Tenancy Agreement”), the defendant let the Godowns (including the right to use the external walls)[3] to the plaintiff for a term of 4 years from 1 January 2015 to 31 December 2018 (both dates inclusive) at $1,420,000 per month, payable every month before the 15^th working day[4].

7.  After the expiry of the Tenancy Agreement on 31 December 2018, the parties did not enter into any further written tenancy agreement in respect of either of the Godowns.  Nevertheless, the plaintiff continued to use and occupy the Godowns.  It is the plaintiff’s case that it remains a lawful tenant of the Godowns on the following further and/or alternative bases:

(1)  clause 2.5 of the Tenancy Agreement which provided that “租賃期屆滿,乙方在同等條件下,享有優先續租物業的權利”;

(2)  a tenancy from year to year from 1 January 2019 arising by implication of law, based on the manner in which the plaintiff had paid “rent”;

(3)  an agreement (“Alleged 2019 Agreement”) reached orally in a meeting between China Chengtong (of which the plaintiff is an indirect subsidiary) and China Tourism (of which the defendant is an indirect subsidiary) in Beijing on 23 December 2019 (“2019 Meeting”), as evidenced by signed minutes of the meeting (“2019 Minutes”), under which, the plaintiffs says, the defendant could only terminate the plaintiff’s tenancy of the Godowns by giving at least 6 months’ written notice and in circumstances where the defendant had formed a concrete and clear plan for the redevelopment of the Godowns;

(4)  an agreement reached by conduct of the parties, including but not limited to their previous course of dealings and/or conduct subsequent to the 2019 Meeting;

(5)  a proprietary estoppel which prevents the defendant from asserting (a) that the plaintiff was not at all material times from 1 January 2019 (or any later date) a lawful tenant of the Godowns and/or (b) that the plaintiff was in wrongful and/or unlawful occupation and/or possession of the Godowns or any parts thereof[5].

8.  The plaintiff has, until the defendant’s protested re-entry of the Godowns on 26 April 2021, carried on the following businesses (“Businesses”) at the Godowns:

(1)  The entire Godown 1 has been sublet to one Iron Mountain Hong Kong Limited (“Iron Mountain”) under a sublease dated 28 January 2019 (“IM Sublease”) for a term from 1 January 2019 to 31 December 2021 at HK$1,484,165.50 per month from 1 January to 31 December 2019; HK$1,543,552.92 per month from 1 January to 31 December 2020; and HK$1,605,295.04 per month from 1 January to 31 December 2021, exclusive of government rent and rates and all other outgoings.

(2)  Turning to Godown 2, certain floors, including at least the 2 basement floors, part of the ground floor, the fourth and fifth floors, have also been sublet.

(3)  Space(s) on unidentified floor(s) of Godown 2 have provided for the storage of seized goods under a contract dated 11 December 2020 (“C&ED Contract”) between the plaintiff and the Custom & Excise Department (“C&ED”) for 24 months from 1 November 2020 to 31 October 2022 (both dates inclusive) at an estimated contract price of HK$7,727,400.

(4)  The plaintiff operates a public bonded warehouse (公共保稅倉庫) (“Bonded Warehouse”) for the storage of dutiable goods (alcohol and tobacco) on the first and third floors of Godown 2 under the supervision of, and licences[6] issued by, the C&ED.

(5)  The plaintiff carries on its own logistic and warehousing business on at least the second, seventh and ninth floors of Godown 2.  According to the plaintiff, on average, over 2,000 cubic metres of goods belonging to the plaintiff’s customers were deposited into and released out of the warehouse operated by it out of Godown 2 on a monthly basis.

(6)  The Plaintiff has also set up an office on the ground floor of Godown 2 (“plaintiff’s office”).

9.  Before I turn to the events giving rise to this action, I should mention that the plaintiff admittedly did not pay rent monthly as stipulated in clause 1.3 of the Tenancy Agreement.  It only paid rent sporadically and often in arrear for months or even for more than a year.  In this regard, as recorded under Heading 2 of the 2019 Minutes, as at 31 December 2019, the plaintiff owed the defendant HK$77,898,512.14, which comprised (1) HK$42,398,512.14 for arrears of rent prior to 30 November 2017 and (2) HK$35,500,000 for the rent payable from 1 December 2017 to 31 December 2019, all at the rate of HK$1,420,000 per month.  The plaintiff’s explanation for such poor payment record is that as at the date of the Tenancy Agreement, both the plaintiff and the defendant were still indirect subsidiaries of China Tourism; and that during the term of the Tenancy Agreement, the amounts of rent to be paid by the plaintiff to the defendant would take into account the fund flow of inter-group transfers between companies under CTS Corp and those under China Tourism.  The plaintiff’s payment of rent for the Godowns was often delayed while it waited for confirmation of the net amount payable by it to the defendant after the taking of such inter-group accounts (對數), which required the co-ordination between the plaintiff and defendant and other cop.

10.  On 9 July 2020, the plaintiff paid the defendant a sum of HK$41,262,703.79, leaving HK$36,635,808.35 outstanding.  In this connection, according to the plaintiff, a sum of RMB30 million, with interest in the sum of RMB1,440,000, was deposited with a company called CTS Finance Limited (港中旅財務有限公司), a subsidiary under China Tourism to the credit of a subsidiary under CTS Corp.  It was agreed that such principal and interest could be used to settle the said balance due from the plaintiff to the defendant.  There is, however, a dispute as to whether the plaintiff has caused any or any valid instruction to be given to the said CTS Finance Limited for the transfer of the said principal and interest to the defendant.  The defendant has taken the court to some evidence which suggests the plaintiff still owes the defendant RMB30 million plus RMB1,440,000, which the defendant had chased for by letter dated 7 August 2020.

11.  It is, however, common ground that the plaintiff has not paid for its use and occupation of the Godowns since 1 January 2020, whether as rent or mesneprofits.  To demonstrate that it has always been ready, willing and able to perform its obligations as a tenant of the Godowns, the plaintiff has offered to pay the sum of HK$17,040,000 to the defendant or into court on account of the rent payable for 2020. 

12.  Apart from demanding for the outstanding rent accrued under the Tenancy Agreement and payment for the plaintiff’s continued use and occupation of the Godowns thereafter, the defendant has since 2019 taken initiatives to regain possession of the Godowns.  By a letter dated 30 December 2020 from the defendant’s solicitors P Y Cheung & Co (“PYC”) to the plaintiff, the defendant demanded the plaintiff to yield vacant possession of the Godowns by 4 January 2021[7]. By PYC’s further letter dated 29 March 2021 to the plaintiff, the defendant gave the plaintiff an ultimatum to give up vacant possession of the Godowns by 6 April 2021, failing which the defendant will attend the Godowns on or after 7 April 2021 to commence lawful procedure for recovery of the Godowns[8].  On 8 April 2021, PYC attended all individual units of the Godowns and posted up and distributed to the plaintiff’s tenants and subtenants thereat notices informing them that the Tenancy Agreement had already expired on 31 December 2018; that the defendant was taking action to re-enter the Godowns; and that they should contact the defendant within 14 days to discuss arrangements for any further use of the Godowns.

13.  It is the defendant’s case that it exercised its rights under the Tenancy Agreement to re-enter and regain possession of the Godowns on 26 April 2021 by taking the following steps:

(1)  PYC, the defendant’s staff (around 20 of them) and security guards engaged by the defendant (around 49 of them) (“defendant’s agents” collectively) attended the Godowns at around 10:30 am to 11 am.

(2)  They entered the plaintiff’s office (on the ground floor of Godown 2) to serve notice on the plaintiff’s staff thereat and informed them that the defendant was re-entering the Godowns and requested them to leave the Godowns, which they did.  (Before they left, they locked the door to the plaintiff’s office and took the key with them.  The defendant has no access to this part of Godown 2.)

(3)  For Godown 1, the defendant and Iron Mountain have on 26 April 2021 signed a Chinese leasing memorandum, adopting the entire IM Sublease between them.

(4)  Turning to Godown 2, the defendant’s agents took control of the entrance of the building, which includes a wide entrance for vehicular access and a narrow entrance for people, by setting up a counter (“Registration Counter”) there.  Persons who seek entry to Godown 2 (the plaintiff’s staff and agents included) have to register with the defendant’s agents.  Provided that they have registered with the defendant’s agents first, the plaintiff’s staff and agents are free to go into, and withdraw goods from, Godown 2.

(5)  The defendant has also covered up the signs and logos of the plaintiff at the Godowns and installed a new CCTV system, which works in conjunction with the existing CCTV system installed by the plaintiff.  That is to say, the operation of the latter system has not been disturbed.

(6)  The defendant’s agents then visited each individual unit in Godown 2 to inform the hitherto tenants and/or subtenants of the plaintiff and/or other occupants that the defendant has re-entered the Godown and to invite them to contact the defendant to discuss arrangements for their respective leases and/or subleases.  Some such tenants and subtenants have already approached the defendant and signed leasing memoranda to enter into leasing arrangements with the defendant.

(7)  The defendant has adopted a procedure whereby the plaintiff or its hitherto tenants and/or subtenants can enter Godown 2 and withdraw goods therefrom (提貨流程) upon reasonable notice.

(8)  The representatives of the defendant (Mr Patrick Lam and Mr Cheung Chi Hung) have since 26 April 2021 liaised with the C&ED (including its Chief Supplies Officer Ms Tsang Pui Yee Sandra) on the removal of all of the seized goods of the C&ED stored at Godown 2. According to the defendant, the C&ED has indicated that it might take 2 months to complete the whole process.  The C&ED has since removed some of its goods from Godown 2.  It could invariably do so after registering the necessary details with the defendant’s agents.

14.  Regarding the areas presently occupied by the plaintiff, in addition to the plaintiff’s office, the defendant emphasises that they are under lock and are still controlled by the plaintiff and that the defendant have not accessed, or disturbed the goods placed at, such areas, nor has it attempted to do so.  The defendant specifically denies that it has threatened to remove the plaintiff’s properties at Godown 2.

15.  Not surprisingly, the plaintiff complains that the defendant has adversely jeopardised and/or disrupted the Businesses at the Godowns.  The harm and prejudice caused to the plaintiff is irredeemable, would be hard to quantify in monetary terms and cannot be adequately compensated by an award of damages.

(1)  The defendant’s act of preventing or obstructing the plaintiff’s access to the Godowns has severely damaged the operation of the plaintiff’s logistics, warehousing and trade business and the provision of ancillary services (such as movements of goods, information management etc) to the plaintiff’s subtenants.  The plaintiff fears numerous third party claims.

(2)  The undue disruption to the business operations of the plaintiff’s subtenants has already caused some of them to decide to rent elsewhere. 

(3)  In particular, the C&ED, one of the plaintiff’s significant tenants, has expressed concern over its “inability to remove the seizure by deadline”, which “may lead to a loss and/or damage of the seizures”.  The C&ED has reserved the right to terminate the C&ED Contract.

(4)  The licences for the operation of the Bonded Warehouse require, inter alia, that the licensee shall be the lawful tenant of the premises for the warehouse and shall endeavour to allow all dutiable goods to be admitted into or released from the warehouse forthwith at the request of any holders of valid permits.  The defendant’s denial of the plaintiff’s tenancy of the Godowns and obstruction of the plaintiff’s access to the Bonded Warehouse render the plaintiff in breach of such licensing conditions.  Further, the defendant, not being a licencee, is not allowed to access the Bonded Warehouse.

(5)  The defendant also threatened to remove goods and commodities which came under the plaintiff’s possession, custody and/or control and which came to be stored at Godown 2 in the course of the plaintiff’s trading and logistics business.  The removal of such goods and commodities would expose the plaintiff to liability to the depositing and/or intended receiving parties if such goods cannot be collected by or delivered to the right parties within the agreed timeframe.

Applicable principles

16.  As reiterated by the Court of Appeal in China Shanshui Cement Group Limited v Zhang Caikui, CAMP 58/2018, unreported, 19 July 2018; [2018] HKCA 409 at [13] per Lam VP, the grant of interim interim relief is meant to be an urgent temporary stop-gap measure and the circumstances were such that the court has to do practical justice on the balance of fairness even though it may not have sufficient time to consider the matter fully.[9] 

17.  The approach adopted by Ma J (as he then was) in Music Advance Ltd v Incorporated Owners of Argyle Centre [2010] 2 HKLRD 1041 at [12(d)] to take whichever course appeals to carry the lower risk of injustice if it should turn out to be wrong is equally applicable at the interim interim stage.

Discussion

18.  Counsel for the plaintiff, Mr Ambrose Ho SC (leading Mr Johnny Ma and Mr Michael Ng), and Counsel for the defendant, Mr Laurence Li SC (leading Mr Anthony Chan and Mr Jonathan Ng), have devoted significant portions of their respective written and oral submissions to the question whether the plaintiff has remained a tenant of the Godowns after 31 December 2018 on any of the said bases put forward by the plaintiff.  In this regard, it is worthy of note that the plaintiff invites the court to answer this question with reference to the background of the historical corporate restructure within which the plaintiff and the defendant both existed and the subsequent corporate restructuring exercises resulting in the eventual corporate structures shown in [4] above and the intention and purposes motivating such restructures.  For such purposes, the plaintiff has produced a large number of corporate and historical documents.  To assist the parties’ respective case, nuances were put on individual words and phrases used in various documents by the parties and other companies in the groups to which they belonged/belongs. 

19.  I hesitate to form any provisional view in haste on the merits of the parties’ respective case on the tenancy of the Godowns, but I readily see serious issues to be tried, based on such submissions.

20.  On this note, I turn to the balance of fairness/convenience. 

21.  I have come to the view that damages would be an adequate remedy for either party should the interim interim injunction sought by the plaintiff be granted/refused. 

(1)  On one hand, the defendant has conspicuously dodged the question why it cannot be adequately compensated by damages for the loss of rental of the Godowns, at open market rates, that it would continue to suffer as a result of the plaintiff’s continued use and occupation of the Godowns.  

(2)     On the other hand, I am not persuaded by the plaintiff that the court would be find the quantification of damages for the various types of loss and damage that it has identified unusual or difficult.  The court is accustomed to the assessment of damages for such kinds of loss and damage.

22.  However, I can see, by a margin, that the quantification of damages for loss of business (and, possibly, business reputation) to the plaintiff would be more complicated and would require the investment of more resources on the parts of the parties as well as the court than the assessment of damages for loss rental to the defendant.

23.  Lastly, while on the adequacy of damages, the parties are both substantial companies.  There is no suggestion that either of them would be unable to pay damages to the other.

24.  What I am unable to overlook in the instant case at the present stage are the changes that the defendant has already initiated and put in place at the Godowns since 26 April 2021, some of which have contractual force and affect innocent third parties.  I specifically have in mind the various leasing memoranda that the defendant has already entered into with the plaintiff’s hitherto tenants and subtenants.  I find the reversal of such changes with the prospect of restoration after the substantive hearing of the Summons unpalatable.  In my view, the fairer course would be to leave some of these changes alone with measures built in to protect the interest of the plaintiff should it prevail in the determination of the Summons.

25.  As there are constant movements of goods into and out of the Godowns, another aspect with which I am concerned is to avoid any future argument as to what has been deposited into and withdrawn from the Godowns.

26.  For these reasons, upon the plaintiff’s cross-undertaking as to damages and upon the plaintiff’s payment to the defendant within 7 days from today a sum for its use and occupation of the Godowns from 1 January 2019 to 25 April 2021 at the monthly rental under the Tenancy Agreement[10], pending the determination of the Summons:

(1)  The defendant may in the meantime continue to honour the leasing memoranda that it has already entered into with the plaintiff’s hitherto tenants and subtenants.

(2)  The defendant shall keep account, with all supporting documents, of all the rent and other payments that it has collected and will continue to collect under such leasing memoranda.

(3)  The defendant shall pay all the rent and other payments that it has so collected into a stakeholder’s account jointly held by the parties’ solicitors.  The monies in such account shall not be paid out without a court order.

(4)  Save as provided for in sub-paragraphs (1) to (3) hereof and subject to sub-paragraphs (6) to (8) hereof, the defendant shall not howsoever:

(a)  prevent, obstruct and/or in any way interfere with the plaintiff’s access into, within and/or out of all other parts of the Godowns not covered by the said leasing memoranda (“Other Parts”) and the plaintiff’s occupation of, operation in, and/or usage of the Other Parts;

(b)  remove, dispose of, transfer and/or otherwise deal with the plaintiff’s and/or the plaintiff’s tenants, subtenants and/or customers’ goods, commodities and/or assets stored in or located at the Other Parts; or

(c)  obstruct the movement of goods into and out of the Other Parts at the request of the plaintiff, its tenants, subtenants and/or customers;

(5)  Without prejudice to the generality of sub-paragraph (4) hereof, in particular, the defendant shall not have any access to the Bonded Warehouse (on the first and third floors of Godown 2).

(6)  The Registration Counter shall continue to be maintained and operated, but jointly by the plaintiff and the defendant. 

(7)  Prior registration at such counter shall be required before any goods can be deposited into or withdrawn from the Godowns. The information required to be registered shall be the identity of the party making the deposit/withdrawal or on whose behalf the deposit/withdrawal is made, the names and identity card numbers of the individuals actually effecting and handling the deposit/withdrawal, the vehicle registration numbers of the vehicles used for the deposit/withdrawal, sufficient identification of the goods and the quantity to be deposited/withdrawn and the dates and times of the beginning and completion of the deposit/withdrawal. 

(8)  The plaintiff and the defendant shall each be provided, on every Monday, with a copy of the registration log so compiled for the past week.  The original copy shall be stored at an agreed place at Godown 2.

27.  Neither party is wholly victorious.  I think a fair costs order for the hearing on 7 May 2021 would be costs in the cause of the Summons.  And I so order on a nisi basis.