ACEGROWTH DEVELOPMENT LTD v. BOLDTON INTERNATIONAL LTD

HCA 538/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 538 OF 2008

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

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

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

D E C I S I O N

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

Applications

1. This is an Order 14 application.  Shortly before the hearing, the Plaintiff asked to amend its summons to apply alternatively for interim payment.  On a de bene esse basis, I allowed it to be pursued.  Now, after thoughts, I do not see any real prejudice suffered by the Defendant and will therefore allow the amendment summons issued by the Plaintiff and deal with the 2 matters together.

The Plaintiff’s case

2. The Plaintiff was and is the registered owner of various shops on the ground floor and first floor (“the Premises”) of Shaukeiwan Centre.  By an agreement dated 10 November 2004, the Plaintiff agreed to let the Premises to the Defendant for 3 years at a monthly rent of $308,000.  Under the tenancy, the Defendant had an option to renew the tenancy for 6 years at new rents.

3. On 31 March 2008, the Plaintiff commenced the present proceedings against the Defendant for, inter alia, recovery of vacant possession of the Premises and mesne profits thereof from 10 December 2007.  The Plaintiff found its claims upon 2 grounds, namely (a) the tenancy ended by effluxion of time, and/or (b) there had been unlawful subletting and change of business name.

“ 7.  By effluxion of time, the term of the Lease expired on 9th November 2007, upon which date the Lease was terminated.

8.    …

9.    Further or alternatively, in or about early February 2008, it has come to the Plaintiff’s attention that the name of the Restaurant has been changed to one Grand Banquet Restaurant which was and is legally owned by one Gold Rise Limited.  The said Gold Rise Limited is a limited company incorporated under the laws of Hong Kong on 4th January 2008 which used the address of the Premises as its registered office.

10.    At all material times, the Defendant had never informed the Plaintiff or obtained the Plaintiff’s prior written consent in relation to any change of business name in accordance with Clause 2(i)(v) of the Lease.  Accordingly, the Defendant is wrongfully in breach of Clause 2(i) of the Lease.

11.    Further or alternatively, the Defendant is wrongfully in breach of Clause 2(i) by having assigned, transferred, underlet, parted with possession of the Premises or any part thereof by subletting the Premises to the said Gold Rise Limited for the operation of the said Grand Banquet Restaurant.”

(Statement of Claim dated 31 March 2008)

The Defendant’s case

4. The Defendant contested the proceedings.  Before a Defence was filed, the Plaintiff issued the present Order 14 application.  By the affirmation in opposition dated 20 May 2008, a draft Defence and Counterclaim was exhibited.  Briefly, it argued that:

(a)   The option to renew for a further term of 6 years was exercised by sending of a written request to the Plaintiff on 3 August 2007.  Alternatively, the Plaintiff waived such requirement.

(b)   The subletting and change of business name was usual practice of the Chinese restaurant in Hong Kong.  Although the subject tenancy did contain terms to prohibit them, they were indeed waived by the Plaintiff through oral assurances.

(c)   The Plaintiff had also orally assured that diesel-cooking system would be available during the term of the tenancy.  However, an important part of such system, viz., the Chimney, was found to be illegal structures and would have to be demolished.  The Defendant therefore would suffer substantial damages for several millions of dollars.

Ruling

5. The parties appeared before me on 4 August 2008.  Miss Debora Poon of Counsel acted for the Plaintiff and Mr. Albert Li of Counsel represented the Defendant.  Having heard from the parties, I adjourned my decision to be handed down and now do so.

6. Upon consideration, I have decided that conditional leave is to be granted to the Defendant to defend the present proceedings, and the condition being that interim payment should be paid to the Plaintiff during pendency of the proceedings until further order of this Court.  My reasons appear in below.

Shadowy Defence

7. To start with, upon the evidence before this Court, I have come to the conclusion that the Defence is shadowy.

(a)   There was a dispute between the parties as to whether the Defendant had exercised the option under the Lease.  The Defendant said that a Chinese letter dated 3 August 2007 was sent to the Plaintiff’s registered office by post.  The Plaintiff denied the receipt of it and further said that its registered office had been changed.  However, upon perusing the annual return produced, I noted that is was only filed with the Company Registry on 4 January 2008.  In my view, all these matters remain facts to be resolved at trial.

(b)   However, even assuming that the tenancy has been renewed, the Plaintiff may still rely on its alternative course of action of unlawful subletting.  In this respect, I am of the opinion that there is only little substance in the Defence.

(i)    The Defendant relied upon a collateral oral agreement, and the burden of proof lies heavily upon it.

“Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are therefore viewed with suspicion by the law.  They must be proved strictly.  Not only the terms of such contracts, but the existence of an animus contrahendi on the part of all the parties to them, must be clearly shown.  Any laxity on these points would enable parties to escape from the full performance of the obligations of contracts unquestionably entered into by them and more especially would have the effect of lessening the authority of written contracts by making it possible to vary them by suggesting the existence of verbal collateral agreements relating to the same subject matter.”

(Heibut, Symms & Co. v Buckleton [1913] AC 30 at 47 and 48)

(ii)  As pointed out by Miss Poon, the task of the Defendant became even more difficult when the following terms of the tenancy were taken into account.

“2.   THE TENANT COVENANTS AND AGREES …

(i)  Not to assign transfer underlet or part with the possession of the said premises or any part thereof either by way of subletting sharing or other means whereby any organization company firm or person not a party to this Lease obtains the use or possession of the said premises or any part thereof irrespective of whether any rental or other consideration is given for such use or possession.  The tenancy hereby created shall be personal to the Tenant and without in any way limiting the generality of the foregoing, the following acts and events shall, unless approved in writing by the Landlord be deemed to be breaches of this Clause: -

(i) …

(v) The change of the Tenant’s business name without the previous written consent of the Landlord which shall not be unreasonably withheld or delayed.”

“5.   PROVIDED ALWAYS AND IT IS MUTUALLY AGREED …

(p) This Lease sets out the full agreement between the parties hereto.  No other warranties or representations have been made or given relating to the Landlord, the Tenant, the Building, or the said premises or if any warranty or representation has been made the same is hereby waived.”

(iii) Regarding the defence of waiver, with respect, it is nothing more than a bare assertion on the part of the Defendant.  From the contemporaneous evidence put before this Court, I am not satisfied such defence has been established.  Further and in the alternative, the Plaintiff’s position is protected by clauses 5(i) and (j) of the tenancy.

“(i)  Any acceptance of rent by the Landlord shall not in any way constitute any waiver or acquiescence in any breach of any terms and conditions herein.

 (j)   Any acceptance of rent by the Landlord on or after expiration of this term shall not create any new tenancy or renewal or extension of the existing tenancy unless written agreement has been signed between the parties hereto show otherwise.”

(c)   Having said that, however, in relation to the argument on subletting, upon having considered the involvement of Gold Rise Limited and clause 5 of Part VI of the tenancy,

“5.  In the event the Tenant shall use the said Premises as a restaurant, the Tenant hereby expressly agrees with the Landlord that at the expiration or sooner determination of this Lease the Tenant shall transfer or procure the Licensee named in the Restaurant Licence and the Liquor Licence covering the said premises to transfer to the Landlord or it nominee unconditionally and free of charge the Restaurant Licence and the Liquor Licence covering the said premises.”

I consider that I am only prepared very nearly to give summary judgment for the Plaintiff.

Condition/Interim Payment

8. I now proceed to decide what condition is going to be imposed.  In so doing, I am of the view that Order 29 rule 12(b) covers squarely the present situation.

“12. If, on the hearing of an application under rule 10, the Court is satisfied—

(a)  ……

(b)  that the plaintiff’s action includes a claim for possession of land and, if the action proceeded to trial, the defendant would be held liable to pay to the plaintiff a sum of money in respect of the defendant’s use and occupation of the land during the pendency of the action, even if a final judgment or order were given or made in favour of the defendant; or

(c)  ……

the Court may, if it thinks fit, and without prejudice to any contentions of the parties as to the nature or character of the sum to be paid by the defendant, order the defendant to make an interim payment of such amount as it thinks just, after taking into account any set-ff, cross-claim or counterclaim on which the defendant may be entitled to rely.”

In the present case, the Plaintiff said that the tenancy had come to an end.  The Defendant disputed the same.  Hence, no matter whether the Defendant’s case would or would not be accepted by this Court in the end, it had to pay rent or mesne profits of the Premises.

9. Then, does the intended Counterclaim offer an excuse for the Defendant not to pay?  I do not consider that it should be the case.

(a)   The intended Counterclaim, albeit quantified, contains estimated damages to be incurred in future only.  No proof has been shown to show the calculations and back up the basis of such claims.

(b)   The Defendant’s contemporaneous document does not support such Counterclaim.

“本公司「寶敦國際有限公司」於2007年9月12日收到貴公司有關拆除煙囪事宜，本公司現正作進一步跟進，希望貴公司暫時不要安排拆除，原因如下：

1）   本公司已於八月中聯絡過屋宇處之林小姐。林小姐給予本公司之回覆，他們將於9月中開會時提出在小組中討論，因煙囪是十多年前已存在的生財工具，並提議我們解決方法。（一）先做一條新煙囪給我們使用後才清拆舊有煙囪。（二）找出前科有關不用拆煙囪之例子作通過。等處長研究後才通知以什麼方式解決。到時再以書面通知順業主，以何種方法處理。

2）   本公司會根據建築事務監督編號「DBZ/U05-35/0001/06」2（A）維修煙囪及UBZ/U05-36/0002/06條例修復玻璃墻。

3）   本公司已請有一位政府認可建築商負責聯絡及處理有關事務，敬請貴公司如有任何提意或處理上方案，以書面通知本公司。多謝！”

(letter issued by the Defendant to the Plaintiff on 12 September 2007)

(c)   The Plaintiff’s position appears to be well protected by the terms of the tenancy.

“  Part IV – Special Conditions

1. The Landlord shall handover, and the Tenant shall take, the Premises in an “as is” condition.  Any additional decoration of the said premises shall be at the cost of the Tenant and shall only be carried out upon the prior written approval of the Landlord.

2. …

3. The Tenant acknowledges that no warranty is given by the Landlord that the said premises can be used for as a shop or as a restaurant or for any other purpose which the Tenant intends and no reliance has been made on any representation or warranty given by the Landlord or its agents.  If any such representation or warranty has been made the same shall be deemed to have been withdrawn immediately prior to the execution of this Lease by the Tenant.”

Conclusion

10. In the circumstances, I will be making the following orders.

(a)   The Defendant may defend the action if it shall pay the Plaintiff the followings:

(i)    A sum of $2,722,000 within 14 days from today, being mense profits at $308,000 p.m. from 10 December 2007 to 9 September 2008.

(ii)  A sum of $308,000 on the 10th day of each calendar month commencing from 10 September 2008 during pendency of the present proceedings or until further order from this Court.

(b)   If any of the above sums is not so paid, the Plaintiff may apply for leave to enter default judgment against the Defendant with costs.

(c)   Subject to the above, the Defendant do have leave to file and serve its Defence and Counterclaim, if any, within 14 days.  The Plaintiff shall file and serve its Reply and Defence to Counterclaim, if applicable, 14 days thereafter.  Time continues to run during court vacation.

(d)   There is an order nisi that costs of the applications, including all costs reserved, costs of the Plaintiff’s amendment summons filed on 31 July 2008 and Certificate of Counsel for hearing on 4 August 2008, be costs in the cause.