SUNEASY LTD. t/a TAIPAN MANAGEMENT CO. v. SUYONG DESIGNS LTD AND ANOTHER

DCDT 1324/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO 1324 OF 2015

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DECISION
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1.  This is the defendant’s application to set aside the warrant of distress dated 19 May 2015.

2.  On 28 November 2013 the defendant and others entered into a tenancy agreement with the plaintiff, whereby the plaintiff let a property known as 7th Floor, Arts Mansion, 43 Wong Nai Chung Road, Hong Kong (hereinafter referred to as “the Premises”) to the defendant for a period of two years from 1 December 2013 to 30 November 2015 (hereinafter referred to as “the Tenancy Agreement”).

3.  Under the Tenancy Agreement, the monthly rent was agreed at HK$54,000, with a term discount of HK$9,000, and the discounted rent payable upon due was agreed at HK$45,000. 

4.  The body of the Tenancy Agreement expressly referred to “the covenants and conditions set out overleaf”.  The covenants and conditions set out on the reverse of the Tenancy Agreement include:

5.  Clause 2(a) provided that:

“The Tenant [the defendant] to the intent that the obligations may continue throughout the term/extensions hereby agrees with the Landlord [the plaintiff] in the manner following that is to say:-

(a) To pay the rent (including rate and management fee if payable by the Tenant [the defendant]) hereby stipulated on the day and in the manner aforesaid without any deduction.  In event of Tenant’s [the defendant’s] abandonment or early vacating not agreed to in writing, the rent or its cash equivalent remains payable for the full contracted term.  Rate and management fee subject to adjustment.”

6.  Clause 4(a) is the controversial provision in this particular case. 

7.  The first part of clause 4(a) is a normal clause, whereby “[i]f the rent hereby stipulated or any part thereof shall be unpaid for 15 days after becoming payable (whether legally or formally demanded or not) or if the Tenant [the defendant] shall fail or neglect to perform or observe any term or condition herein contained and on his part to be performed or observed”, then the plaintiff has a right to re-enter, ie the right to forfeit.

8.  The second part of clause 4(a) is not a normal clause.  It is provided that:

“Alternatively at the Landlord’s [the plaintiff’s] discretion, the Tenancy may continue suspended of Landlord’s [the plaintiff’s] obligation to honour repairs services discounts or liability until arrears or Tenant’s [the defendant’s] breach is remedied.”

9.  As I have said, the second part of clause 4(a) is not a normal clause.  It takes time for this court to understand this provision, but the correct understanding of this clause has no material bearing on the result of this case and therefore I need not address the meaning of this clause, save, as I have indicated in my exchange with the parties, that the interpretation advanced by the plaintiff is a capable and reasonable interpretation.

10.  On the plaintiff’s ex parte application, the warrant of distress was issued on 19 May 2015.  The plaintiff’s application was accompanied by the affirmation of one Miss Chan Mei Yin Cecilia of the plaintiff made on 15 May 2015.

11.  In the affirmation, Miss Chan affirmed that the defendant is justly indebted to the plaintiff in the sum of HK$153,000 for the arrears of rent of the Premises due for the balance of three months, from 1 March 2015 to 31 May 2015, at the rate of HK$54,000 per month, payable in advance on the first day of each and every month.

12.  The warrant of distress contained a direction to the court bailiff to distrain the goods and chattels on the Premises for a stated amount of HK$153,000, being the balance of three months’ rent due to the plaintiff for the same on 1 May 2015.

13.  The warrant of distress was executed and goods, chattels on the Premises have been impounded by the court bailiff by leaving a security guard on the Premises to guard them, and an inventory and appraisal of values of the goods seized has been prepared by the court bailiff.

14.  On 4 June 2015, Raymond Kwong & Co, who acted for the defendant, filed their notice to act. 

15.  The defendant’s solicitors have engaged in correspondence with the Bailiff Office and the plaintiff. 

16.  In the correspondence, the defendant’s solicitors asked for the breakdown of the alleged HK$153,000 and the return of the two cheques, each of the sum of HK$45,000, issued by the defendant to the plaintiff for the May and June 2015 rental payment.

17.  In one reply e-mail by one Miss Emily Wong of the plaintiff to Mr Kwong of the defendant’s solicitor dated 4 June 2015, Miss Emily Wong said: 

“Simply stated, your client [the defendant] has never paid rent on time, and has never qualified for the discount stated in the tenancy agreement, but your client [the defendant] does not believe to honour any covenant regarding late payment. Details of the distraint are available to you from the Court.”

18.  On 17 June 2015, the defendant applied ex parte for leave to set aside the warrant of distress; alternatively, to stay the execution of the warrant of distress. 

19.  The ex parte application was first heard on 18 June 2015 and the warrant of distress was stayed initially for 21 days. 

20.  Then, upon the defendant’s inter partes summons filed on 8 June 2015, the warrant of distress was further stayed until 14 July 2015 and, by the order of Deputy District Judge Cheng on 14 July 2015, the stay was further extended to 23 July 2015.

21.  As part of the condition for the warrant of distress to be stayed, the defendant has paid into court the sum of HK$90,000, two-month rental payment for May and June 2015, and date of payment was 18 June 2015.

22.  The defendant’s position is set out in the two affirmations of Mr Kwong and the two affirmations of Mr Callahan filed for the purpose of setting aside the warrant of distress and stay.

23.  Firstly, the defendant said they never intended to evade liability to pay rent.

24.  Secondly, the defendant asked the plaintiff for a breakdown of the arrears of rent, but in vain.

25.  Thirdly, the plaintiff withheld banking in the two cheques issued on or about 12 May 2015, each in the sum of HK$45,000 for May and June rental payments, and there was, in fact, sufficient money in their bank account to settle the two cheques.

26.  Fourthly, the defendant asked for a breakdown and was prepared to settle all the outstanding rent, but met with no response from the plaintiff.

27.  Fifthly, the defendant asked for the return of the two cheques, but was refused.

28.  Sixthly, the outstanding rent was HK$90,000 instead of HK$153,000.

29.  Mr Callahan said that the monthly rental was actually agreed at HK$45,000 and there was no negotiation, discussions and agreement about the HK$54,000, that the defendant had been paying the rental on time, though there were one or two occasions of slight delayed payment, that cheques with incomplete names could be banked in, and, in fact, the plaintiff had on previous occasions successfully banked in those cheques with incomplete name, that the plaintiff refused to return the two cheques unaccepted by the bank and no breakdown had ever been provided, and finally that there was no outstanding rent which should have been paid by the defendant .

30.  I now turn to the plaintiff’s position and its subsequent response to the defendant’s enquiry.

31.  In the plaintiff’s supporting affirmation for the issue of the warrant of distress (Miss Chan’s affirmation), she deposed that defendant owed the plaintiff the arrears of rent for the balance of three months from 1 March 2015 to 31 May 2015 at the rate of HK$54,000 per month.

32.  In one reply letter by the plaintiff to the defendant’s solicitors dated 26 June 2015, the plaintiff stated that “the breakdown is very simple, which is the shortfall of total undiscounted rent less the amount paid by your client [the defendant]”.

33.  The plaintiff has filed two affirmations dated 13 July 2015 and 23 July 2015 by Mr Thomas Young who is the director of the plaintiff to conduct this distraint action and is the one who conducts the plaintiff’s case before me. 

34.  It is apparent from Mr Young’s affirmation that the reason for justifying the issue of the warrant of distress has changed. 

35.  Mr Young now deposes that the rental arrears of HK$153,000 was the difference between the discounted rental (i.e. HK$45,000) and the undiscounted rental (i.e. HK$54,000) for the period from 1 June 2014 to 31 May 2015, and that, by virtue of clause 4(a) of the Tenancy Agreement, the plaintiff was not obligated to give the defendant 10 per cent discount, because the defendant had been late by more than 15 days each time to pay the monthly rental payment from 1 June 2014 to 31 May 2015.

36.  Apart from changing the entire substratum of the plaintiff’s application for the warrant of distress, this new basis has also brought about various questions.

37.  To say the least, there is no evidence to show that the defendant has always been late by more than 15 days on each occasion in paying the monthly rental.  Why did the plaintiff not chase the defendant for the difference on each occasion when the defendant was late in making discounted rental payment and why was this basis not put forward when the plaintiff applied for the warrant of distress?

38.  That is exactly the reason I allowed the plaintiff to file Mr Young’s second affirmation on the last occasion.

39.  Mr Young’s second affirmation has exhibited a reminder dated 7 May 2015 from the plaintiff to the defendant, showing how the arrears of rent of HK$153,000 was calculated.  The reminder asserted that the defendant was late by more than 15 days for paying monthly rent from 1 June 2014 to 1 March 2015. 

40.  However, on a closer scrutiny, the reminder exhibited has caused more problems to the plaintiff’s case than explanation.  The reminder has put forward a third basis for the calculation of the outstanding rent owed by the defendant to the plaintiff. 

41.  The sum of HK$153,000 was calculated by adding the difference of the undiscounted and discounted rental from 1 November 2014 to 31 March 2015 (i.e. a total five-month difference of HK$45,000), to the April and May 2015 outstanding undiscounted rental payments of HK$108,000.

42.  But at the time of the issue of the reminder, it is noteworthy that the April rental has already been paid (see the court bundle, page 50, a cheque of HK$45,000 for the April rental has been issued by the defendant to the plaintiff on 10 April 2015) and, according to the parties, this cheque has already been banked.

Reasons for my decision

43.  Simply put, the defendant argues that the application for the warrant of distress was not properly taken out.  The plaintiff has no right to distrain, because the defendant has paid all the rentals to date.  In respect of May and June 2015 rentals, it is the plaintiff who has deliberately chosen not to bank in the two cheques and then put up an excuse that the bank has refused acceptance of the two cheques.  At any rate, the defendant has already paid into court a sum of HK$90,000 representing the May and June rentals.

44.  Furthermore, the defendant argues that there was material non-disclosure on the part of the plaintiff in making the ex parte application for the warrant of distress and that the plaintiff is not entitled to make a claim based on the monthly rental of HK$54,000.

45.  Before I resolve the aforesaid issues, it should be remembered that distraint for rent is a very efficient but draconian remedy provided by the statute to the landlord in the event the tenant fails to pay the rent.  It is therefore incumbent on the landlord to give essential details behind the application, which include the fact that the rent is owed, the amount of rent owing, and the period in respect of which the rent is due.  Such details form the substratum of every distraint application.

46.  On these important matters, the plaintiff has been contradictory and, to say the least, wavering all along. 

47.  At the outset and forming the basis of the ex parte application, the plaintiff said that the rent owed was HK$153,000 for the months of March to May 2015. 

48.  However, Mr Young of the plaintiff in his affirmation has put forward a different basis to substantiate the warrant of distress issued.  He deposed that the rental arrears was the difference between the discounted and undiscounted rental for the period from 1 June 2014 to 31 May 2015, and that, as I understand him correctly, the plaintiff was not obligated under clause 4(a) of the Tenancy Agreement to give the defendant the HK$9,000 discount because of the defendant’s delay in making the rental payment.

49.  As I have said, the recent affirmation filed by Mr Young pursuant to leave given by me on the last occasion has put forward a further third basis to justify the issue of the warrant of distress, which is contradictory to the basis raised by the plaintiff in Miss Chan’s first affirmation and the basis advanced by him in his first affirmation.

50.  In my view, those three bases put forward are very different and the reliance by the plaintiff on the second and third bases must mean that the first basis put forward by the plaintiff to support the ex parte application for the issue of the warrant of distress must be wrong, and this removes the substratum of the warrant of distress.  This is particularly so when the plaintiff applied for the issue of the warrant, the defendant had already paid the April rental and two cheques for May and June 2015 rentals had already been issued by the defendant and received by the plaintiff on 13 May 2015, although, for one reason or another, the plaintiff had not deposited the two cheques with the bank.

51.  In my view, the fact that the defendant had already paid the April rental and the two cheques for May and June 2015 rentals had been received by the plaintiff on 13 May 2015 are material matters which should have been brought to the attention of the judge at the time when the plaintiff made its ex parte application for the issue of the warrant of distress.

52.  I am therefore driven to find that the warrant of distress dated 19 May 2015 was issued on a faulty basis and that the plaintiff has failed to disclose to the judge material matters for his consideration at the ex parte application stage.

53.  Accordingly, the warrant of distress issued on 19 May 2015 must be set aside and the plaintiff shall pay costs of the defendant’s application and in these distraint proceedings (including the costs of execution of the warrant of distress), to be taxed if not agreed.

54.  On the last issue, I do not see it has a material bearing on the defendant’s application to set aside, save to mention that the fact that the plaintiff has put forward various bases to justify the issue of the warrant of distress is a clear indication that the question of whether the defendant owes the plaintiff rent and the quantum of rent owed are very controversial issues to be determined by the court.  This is another feature of this case which should not have called for the deployment of this summary process of warrant of distress.

55.  Finally, I shall also order that the sum of HK$90,000 paid in by the defendant to be paid out to the plaintiff as the May and June 2015 rental payments, and this is my order.