LIU ON CHAI v. LI KWAN YING t/a HING YIP MANAGEMENT CO

DCCJ 6784/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6784 OF 2004

--------------------

---------------------

---------------------

JUDGMENT

---------------------

1.  This is the Plaintiff’s application for summary judgment.

Background

2.  The Plaintiff is the owner of a number of music shops in Hong Kong under the name of “Ubesi Piano Company” and carries on the business of selling musical instrument and holding music and other tutorial classes.  The Defendant carries on the business of a management company under the trade name of “Hing Yip Management Company”.

3.  One of the Plaintiff’s music shops situate at G12, Lee Hong House, Shun Lee Estate, Kowloon (hereinafter called “the Shop”).  The Plaintiff has rented the said premises from the Housing Authority under successive tenancy agreements and the latest one was made on 16^th September 2003 (hereinafter called the “the HA Lease”).

4.  The Plaintiff and the Defendant entered into successive written agreements from about December 1996 concerning the management of the business of the Shop.  These agreements generally provided for the Defendant to pay the Plaintiff a monthly fee in return for the Defendant to manage the business of the Shop and retain the profit derived therefrom.

5.  The latest agreement between the Plaintiff and the Defendant concerning the management of the business of the Shop was dated 9^th July 2002 (hereinafter called “the Agreement”).  It is common ground that the Agreement provided, inter alia, that:

a.	The Plaintiff appointed the Defendant as manager of the Shop from 1st December 2001 to 30th November 2004 or until the Agreement was determined in accordance with the Agreement (clause 1).
b.	The Defendant should pay the Plaintiff $78,000 as deposit on the signing of the Agreement.  The said deposit should be held by the Plaintiff during the continuance of the Agreement and applied by the Plaintiff in satisfaction or part satisfaction, as the case may be, of any costs or damage suffered or incurred by the Plaintiff arising directly or indirectly from any breach of the obligations under the Agreement of the Defendant, but, subject as aforesaid, should be refundable without interest to the Defendant upon the expiration or sooner determination of the Agreement (clause 2).
c.	The Defendant should pay the Plaintiff a sum of $24,063.50 per month being the amount of profit guaranteed by the Defendant, and the Defendant might retain all income and receipts in excess of the said sum as their management fee for their services produced in managing the Shop (clause 8(a)).
d.	The Defendant should pay all charges direct to the proper authorities for water, electricity, telephone and gas consumed in the running of the Shop (clause 4(i)).
e.	All musical instrument and other goods displayed or sold at the Shop should be purchased from the Plaintiff or his designated company.  All musical instruments and goods newly purchased by the Defendant from the Plaintiff or his designated company and delivered to the Defendant should be paid by cheque and payable on the 1st day of the next calendar month.  Interest on late payment should be charged at 2 % per month, provided however that no such interest was payable if payment was made on or before the 10th day of that calendar month (clause 12(b)).

6.  It is the Plaintiff’s case that the Defendant left the Shop on 21^st September 2004 without prior notice and has since ceased to manage the business of the Shop in breach of the Agreement.  After deducting the said deposit of $78,000 held by the Plaintiff pursuant to the Agreement, the Defendant still owes the Plaintiff the sum of $305,416.50 being monthly fees in arrears, balance of price for goods sold and delivered to the Defendant, and outstanding water and electricity charges payable by the Defendant.  The Plaintiff has produced detail record of payment of monthly fees by the Defendant, utilities bills and invoices to substantiate his claim.

7.  By a summons dated 17^th March 2005, the Plaintiff applied for, inter alia, summary judgment on his claim of $305,416.50.

The Defences alleged by the Defendant

8.  In her Defence filed herein, the Defendant admits leaving the Shop on 21^st September 2004 without prior notice and ceasing to manage the business of the Shop ever since.  However, she denies that she is liable to the Plaintiff.

9.  Her pleaded defence is that the Agreement is unenforceable for two reasons.  First, the formation and/or performance of the Agreement was/were in breach of section 28 of the Housing Ordinance (Cap.283), rendering the Agreement void ab initio and unenforceable.  Secondly, the Agreement is against the “housing policy” of the Housing Authority and is therefore void ab initio and unenforceable. 

10.  At the substantive hearing, the Defendant’s counsel raises 2 further defences.  First, he argues that the Statement of Claim is defective in that the Plaintiff’s claim for goods sold and delivered has not been properly pleaded.  Secondly, he submits that there ought to be a trial because the Defendant will need to cross-examine the Plaintiff and various witnesses. 

Whether the formation and/or performance of the Agreement was/were in breach of section 28 of the Housing Ordinance?

11.  The first defence alleged by the Defendant is that the formation and/or performance of the Agreement was/were in breach of section 28 of the Housing Ordinance.

12.  Section 28 of the Housing Ordinance provides that:

“	(1)	Any person who, without the consent of the Authority, alters a lease shall be guilty of an offence and shall be liable on conviction to a fine at level 3 and to imprisonment for 6 months.
	(2)	Any person who, knowing that a lease has been altered without the consent of the Authority, makes any claim under, upon or by virtue of the same shall be guilty of an offence and shall be liable on conviction to a fine at level 3 and to imprisonment for 6 months.” (my emphasis)

13.  Defendant’s counsel submits at the hearing that the word “alter”, in the context of section 28, means “changing the object of the lease”.  He submits that the object of the HA Lease is to allow the Plaintiff and no one else to occupy the Shop.  The formation and/or performance of the Agreement has the effect of granting exclusive occupation of the Shop to the Defendant.  Hence, he argues, it “alters” the HA Lease and is thus in breach of section 28.

14.  To start with, there is nothing to support Defendant’s counsel’s proposed interpretation.  He can find no authority to support his contention.  Secondly, his formulation is very vague and imprecise.  For example, it is not clear what he meant by “the object of the lease”.  Does it extend to all the terms in a lease granted by the Housing Authority?  If so, any tenant of the Housing Authority who breaches a term of his lease will be guilty of an offence under section 28(1).  Thirdly, the proposed interpretation does not sit comfortably with section 28(2).  How does a tenant knowingly make a claim under, upon or by virtue of a lease whose object has been changed?  In my view, there is simply no justification for the Defendant’s proposed interpretation.

15.  Even if I am wrong in rejecting the Defendant’s counsel’s above interpretation, the mere fact that the performance of the Agreement is implicated with breach of section 28 does not necessarily mean the Agreement should be avoided.

16.  In Chitty on Contracts, 29^th Edition (2004), para.16-141, the learned editors observe that:

“Unenforceability by statute arises where a statute itself on its true construction deprives one or both of the parties of their civil remedies under the contract in addition to, or instead of, imposing a penalty upon them.”

17.  So the real question is whether the legislature intends the Housing Ordinance to prohibit the formation and/or performance of any agreements which contravenes the terms of a lease granted by the Housing Authority.

18.  The Housing Ordinance is enacted to provide for the establishment and functions of the Housing Authority and for purposes connected therewith (see the preamble).  The Housing Authority is a body corporate with a capacity to sue and be sued for the purpose of the Ordinance (see section 6).  The Housing Authority is empowered to, inter alia, let to any person, for any period, any land in an estate, subject to the payment of such premium, rent or other consideration as the Authority may determine, and fix the terms, covenants and conditions on which any land in an estate may be let or occupied (see section 16).  The term “lease”, in the context of the Ordinance, is defined to include, inter alia, a tenancy agreement granted or made under the Ordinance (see section 2).  The Housing Authority may terminate any lease without notice, if, in the opinion of the Authority, no person authorized under the lease to occupy the land or part thereof occupies the land or part thereof, notwithstanding the terms of the lease (see section 19(1)(aa)).  Part V of the Ordinance then provides for a number of offences and penalties including section 28, which has been set out above.

19.  Looking at the Ordinance as a whole, I can see nothing that points to an intention of the legislature to prohibit an agreement which contravenes the terms of a lease granted by the Housing Authority.  If a tenant of the Housing Authority enters into an agreement which contravenes the terms of his lease, such as granting a sub-lease to a third party without the consent of the Housing Authority, the Housing Authority may sue the tenant for the breach or even terminate the lease without notice.  If the legislative intent were to deprive tenants of their civil remedies under such agreements in addition to imposing a penalty, the Ordinance could have easily said so.  Examples of the legislature’s clear intention to deprive parties of their civil remedies in certain situations may be found in sections 17B and 27A of the Ordinance.

20.  In any event, the main thrust of the Defendant’s argument is that the Defendant has been given exclusive occupation of the Shop.  Even if I am wrong on all the above, I cannot see how it can be said in the circumstances of this case that the formation and/or performance of the Agreement conferred “exclusive” occupation of the Shop to the Defendant.

21.  The Defendant has tried very hard to substantiate her allegation that she had been given exclusive occupation of the Shop.  However, all she can say is, that she had been given almost complete autonomy over the management of the business of the Shop.

22.  There is nothing in the Agreement or in the circumstances of this case to suggest that the Defendant had been given exclusive occupation of the Shop.  In this regard, clause 7 of the Agreement is particularly pertinent and provides as follows:

“7.   NO TENANCY

The operation and management of the Shop by [the Defendant] shall not constitute [the Defendant] as a tenant or licensee of [the Shop] nor of the other parts of the buildings of which [the Shop] form part and the right of [the Defendant] to be [in the Shop] and other parts of the buildings of which [the Shop] form part is exclusively for the purpose of carrying out the terms of [the Agreement] and [the Defendant] shall not have the exclusive right to use [the Shop] or any part thereof.”

23.  I therefore am of the view that this alleged defence is both legally untenable and not supported by evidence.

Whether the Agreement is in breach of the “housing policy” of the Housing Authority?

24.  The second defence alleged by the Defendant is that the Agreement is in breach of the “housing policy” of the Housing Authority.

25.  The Defendant’s argument in this regard goes like this.  It is the policy of the Housing Authority to “provide and maintain, inter alia, fair allocation, standardized management, low-costs business opportunities and proper use of the commercial premises in public estates governed and managed by the Housing Authority”.  By reason of a number of matters, namely, (a) the fact that the Plaintiff was not the actual person occupying the Shop, (b) the fact that the Plaintiff allowed the Defendant to have de facto exclusive operation of the Shop, and (c) the fact that the Plaintiff failed and/or refused to enlist the Defendant’s name onto the schedule to the HA Lease despite the Defendant was the only occupant of the Shop at the material times, the Agreement is against the “housing policy” and is void ab initio and unenforceable.

26.  To start with, the Defendant has not adduced any evidence to substantiate the alleged housing policy.  Counsel for the Defendant has quite properly conceded at the hearing that there is at present no evidence to confirm the above alleged housing policy.  The most he can say is that, firstly, the Defendant’s solicitors have enquired with the Housing Authority but their enquiry has been referred to the Housing Authority’s leasing and management agent for follow up action, and, secondly, that the Defendant intends to call at trial witness(es) from the Housing Authority to testify as to such policy.  He, however, is unable to identify those intended witness(es) or to particularize the substance of their evidence. 

27.  Secondly, it seems to me that the Defendant may have misunderstood the effect of the schedule to the HA Lease.  Clause II (25) of the HA Lease provides that:

“II.   The Tenant agrees with the Landlord as follows:-

…

(25)   Not to assign sublet or part with the possession of the said shop or any part thereof or permit any person other than the Tenant, his family and his bona fide employees as listed on the Schedule hereto to occupy the same or any part thereof, without the prior written consent of the Landlord.” (my emphasis)

28.  So, under the terms of the HA Lease, the Plaintiff may name “his bona fide employees” for the purpose of occupying the Shop.  It is not the Defendant’s case that she is an employee of the Plaintiff.  The Agreement, properly construed, does not amount to an employment agreement between the Plaintiff and the Defendant and there is certainly no evidence pointing to such relationship either.  If the Defendant is not an employee of the Plaintiff, there is no basis for the Plaintiff to name the Defendant in the schedule.

29.  Thirdly, for the purpose of argument, even if the Defendant had been given “exclusive operation” and had been “the only occupant” of the Shop at the material times, the Plaintiff would at most be in breach of the HA Lease giving the Housing Authority the right to terminate the lease without notice.  There is nothing to elevate the terms of a private agreement (i.e. the HA Lease between the Housing Authority and the Plaintiff) into the “housing policy” of the Housing Authority or still less public policy.

30.  Fourthly, what the Defendant is in effect trying very hard to say here is that the Agreement may be invalidated on the grounds of public policy.  In this regard, Le Pichon JA in Yip Alice v. Wong Shun (No.2) [2003] 2 HKC 528 at 537 has observed that:

“One important element of public policy is that stated by Lord Wright in Vita Food Poroducts Inc v. Unus Shipping Co Ltd [1939] AC 277 at 293:

‘Nor must it be forgotten that the rule by which contracts not expressly forbidden by statute or declared to be void are in proper cases nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain save on serious and sufficient grounds’”

31.  In this particular case, it may be noted that the Defendant has complained to both the Housing Authority and the police but neither has taken action against the Plaintiff.  It is also difficult to see how the general public may benefit from depriving the Plaintiff of his contractual rights against the Defendant under the Agreement.  In fact, the only person who stands to reap a windfall would be the Defendant.  The Defendant would then be able to retain all profits derived from the business of the Shop and not having to pay the agreed monthly fee to the Plaintiff for the privilege of running the business!

32.  In the premise, I consider that this alleged defence is also unsupported by evidence and untenable in law.  I therefore reject this defence.

Whether the Statement of Claim is defective?

33.  Defendant’s counsel raises a technical objection towards the end of the hearing.  He alleges that Statement of Claim is defective in that the Plaintiff’s claim for balance of price for goods sold and delivered has not been properly pleaded.

34.  A short answer to his objection can be found in clause 12(b) of the Agreement quoted above.  This has in fact been pleaded in paragraph 8 of the Statement of Claim.

35.  I therefore find this alleged defence wholly without merits.

Whether there is some other reason for trial?

36.  The main thrust of the defence is on illegality and public policy.

37.  The Defendant’s counsel has submitted that the Defendant’s hands are presently tied, so to speak, as the Defendant does not know for sure whether the Agreement is illegal or in breach of the housing policy of the Housing Authority and it would be up to the police and/or the Housing Authority to assist her.  The Defendant has, through her solicitors, written to the police and the Housing Authority complaining against the Plaintiff.  The police have replied that the matter might be a contractual issue between the parties and referred the complaint to the Housing Authority.  The Housing Authority has referred the Defendant’s complaint to its leasing and management agent for follow up action but has taken no action against the Plaintiff.  In the circumstances, the Defendant should be given an opportunity to call witness(es) from the police and/or the Housing Authority to substantiate her defence on illegality or public policy.

38.  Furthermore, the Defendant counsel submits that the Defendant should be given an opportunity to cross-examine the Plaintiff on why he did not name the Defendant in the schedule to the HA Lease.  This, he says, would strengthen the defence on illegality and to expose the Plaintiff for giving “false statement” to the Housing Authority by not naming the Defendant in the schedule to the HA Lease.

39.  It is trite law that in summary judgment applications, it is for the defendant to satisfy the court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial: see Rules of the District Court, O.14, r.3(1).  And unless a defendant succeeds in doing that, he is not allowed his day in court.  The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff’s claim: Hong Kong Civil Procedure 2004, para.14/4/1.

40.  Looking at all the circumstances of this case in the round, I fail to see any reason that there ought to be a trial.  In my view, the Defendant’s suggestion is nothing more than a ploy to fish for evidence in her favour and should not be condoned.

Conclusion and order

41.  By reason of the above, I find that the Defendant has not satisfied the court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial.

42.  Parties have agreed that the Defendant has left her piano in the Shop and that the cost of the piano is $16,000.  The Plaintiff agrees to deduct such amount from his claim.

43.  I therefore enter final judgment against the Defendant for the sum of $289,416.50 (i.e. $305,416.50 – $16,000) together with interest thereon at judgment rate from the date of the writ until payment.

44.  Parties have further agreed that if I grant judgment in this case, I should further order the release of the money paid into court by the Defendant for the purpose of the mareva injunction granted herein on 28^th December 2004.

45.  I therefore order that the payment-in made by the Defendant on 3^rd January 2005 in the sum of $305,416.50 may be released to the Plaintiff to the extent of the judgment stated above and the balance (if any) be released to the Defendant.

46.  Lastly, I make an order nisi that the costs of this action including the costs of this application and all reserved costs, be to the Plaintiff with certificate for counsel, to be taxed if not agreed.  Unless an application has been made to vary such order, such order shall become absolute 14 days after this written decision is handed down.