INTERNATIONAL MEGA CAR SHOW LTD. v. INTERNATIONAL TRADEMART CO. LTD.

HCA 5934/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5934 OF 2000

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D E C I S I O N

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1. This is the Defendant's application for summary judgment on its Counterclaim and for striking out of the Statement of Claim on the ground that it is scandalous, frivolous or vexatious and/or an abuse of the process of the court. Further or in the alternative to these reliefs, the Defendant seeks an order for interim payment under O.29 r.11 and 12 of the Rules of the High Court. There is also a summons before me taken out by the Defendant under O.14A for determination of a question of construction of a licence. When the parties appeared before me, I gave leave to the Defendant to amend the O.14A summons and leave to the parties to file affirmations out of time for the purpose of this hearing. They are the second and third affirmations of Cheung Yuen Sing made on 16 and 19 October 2000 on behalf of the Plaintiff and the third affirmation of Eddie Ho Junior made on behalf of the Defendant.

2. The subject of this action relates to the letting of premises which have been used as a car exhibition centre in the Hongkong International Trade and Exhibition Centre ("HITEC") in Kowloon Bay. The Defendant is a subsidiary of Hopewell Holdings Ltd ("Hopewell") and is the registered owner and landlord of HITEC. The premises I am concerned with are the portion of Basement One ("B1"), Units 14 and 16 of the Ground Floor ("Units 14 and 16") and the portion of Basement Three ("B3"). The facts and matters leading to the dispute between the parties may be set out as follows.

3. HITEC was completed in 1995 and the Plaintiff was among the first occupants that moved in in 1996 as a sub-tenant of another subsidiary of Hopewell, which was the principal tenant. In 1998, the Plaintiff became a direct tenant when a lease was granted by the Defendant to the Plaintiff (then known as Nujine Ltd) in respect of B1 and Units 14 and 16 for two years from 1 January 1998 to 31 December 1999 ("the 1st Lease"). The rental was inclusive of management fee, air-conditioning charges, rates and government rent. Due to the Asian economic crisis, the Plaintiff was unable to keep up with the payment of rent and asked for a rental reduction in 1999. As a result, a new lease was made on 15 July 1999 ("the 2nd Lease") in respect of the premises let to the Plaintiff under the 1st Lease.

4. The material terms of the 2nd Lease was as follows:

(1) the duration of the lease was for two years from 1 December 1998 to 30 November 2000;

(2) rent was reduced to the flat rate of HK$626,350.00 a month (rental under the 1st Lease for the year of 1999 was HK$1,031,620.00 a month). As in the 1st Lease, rent was inclusive of management fee, air-conditioning charges, rates and government rent;

(3) there was a right of first refusal in that the Plaintiff should have the right of first refusal to lease the premises for a further term of two years at a rent to be agreed based on the market conditions at the time;

(4) the Defendant was to provide air-conditioning services during the operating hours which were defined; and

(5) there was an "exclusivity" provision in that save for those car displays organised by Car Manufacturers' officially appointed agents or dealers, the Defendant would not lease any space within HITEC to any car dealers or agents for exhibitions of used cars ("the non-competition clause").

5. The provision for making a rental deposit of HK$1 million under the 2nd Lease was deleted by consent, as a further concession to the Plaintiff at the request of the Plaintiff's director Mr William Chung.

6. Notwithstanding the rental reduction in the 2nd Lease, the Plaintiff defaulted in payment of rent from April 1999. As at 31 October 1999, the arrears amounted to HK$4.2 million. In October and November 1999, there were discussions between Mr William Chung and Mr Thomas J. Wu, a controller of Hopewell, regarding the Plaintiff's indebtedness. As a result, a deed of settlement which was prepared by the Defendant's solicitors was executed by the Defendant and by Mr William Chung on behalf of the Plaintiff on 3 December 1999 ("the Deed of Settlement"). There is dispute between the parties on the validity of the Deed of Settlement, which I will deal with in the subsequent part of this decision.

7. The material terms of the Deed of Settlement were as follows:

(1) the Plaintiff was to pay the arrears of HK$4.2 million by 36 instalments in accordance with a repayment schedule annexed thereto;

(2) time was of the essence to the repayment schedule;

(3) the Plaintiff was to settle the rent for November 1999 forthwith and pay rent due thereafter under the 2nd Lease on the first day of each calendar month commencing from 1 December 1999;

(4) if the Plaintiff should fail to pay any instalment of the arrears or any rent, the Defendant would be entitled to treat the settlement as void and revoked ab initio and to enforce its right as landlord under the 2nd Lease for termination, recovery of the full sum of the arrears and vacant possession;

(5) the Plaintiff "irrevocably" agreed that in the event of its default in the repayment schedule, the Defendant would have the right to disconnect power of electricity supply to the premises and to cease procuring any other facilities or services (i.e. air-conditioning, escalator etc) to which the Plaintiff should have been entitled in the 2nd Lease if payment of rent had been in order; and

(6) save for the terms contained in the Deed of Settlement, the 2nd Lease would remain unchanged.

8. In February 2000, the Plaintiff defaulted in the payment of arrears under the repayment schedule in the Deed of Settlement and failed to pay rent on 1 February 2000. The arrears in the repayment schedule in the amount of HK$600,000.00 were eventually paid on 15 March 2000, which was within the extension of time granted by Mr Thomas Wu to Mr William Chung in early March 2000.

9. During this time, there were negotiations between the Plaintiff and the Defendant for the Plaintiff to rent additional premises in HITEC, being B3. By a letter dated 22 February 2000 from the Plaintiff to the Defendant, the Plaintiff returned the leasing agreement for B3 which was duly signed by Mr William Chung for counter-signing by the Defendant. Due to the time taken for the stamping of the lease, the lease was dated 6 April 2000 ("the B3 Lease").

10. The B3 Lease contained the following material provisions:

(1) B3 was let to the Plaintiff for two years from 28 February 2000 to 27 February 2002;

(2) monthly rental would be inclusive of management fee, air-conditioning charges, rates and government rent and payable in advance on the first day of each calendar month;

(3) the Plaintiff would be given two separate rent free periods, from 28 February 2000 to 27 June 2000 and from 28 February 2001 to 27 April 2001. During the rent free period, the Plaintiff should be responsible to pay for other outgoings such as rates, government rent, air-conditioning and utilities charges. Upon the lease commencement date, the Plaintiff should pay to the Defendant the rates and government rent and upon the commencement of the air-conditioning supply to the premises the Plaintiff should pay to the Defendant the air-conditioning charges and the electricity charges at the rates as specified;

(4) the Defendant was to provide air-conditioning during operating hours as defined;

(5) if the rent and/or any charges payable thereunder should be in arrears for 15 days after the same had become payable (whether formally demanded or not) or if there was any other breach of the terms of the lease, it should be lawful for the Defendant at any time thereafter to re-enter the premises and thereupon the lease should absolutely determine and the deposit paid should be forfeited;

(6) in the event of default and in addition to (5) above, the Defendant might, and the Plaintiff thereby specifically authorised the Defendant to, suspend the service of escalator to the premises and the supply of electricity and air-conditioning to the premises; and

(7) the Plaintiff was given an option to renew at the expiry of the term for a further term of two years.

11. Although the Plaintiff had paid the rental arrears for February 2000 on 15 March 2000, the Plaintiff failed to pay other sums which were due including the rental for B1 on 1 March 2000. Following various demand letters from the Defendant in March 2000, the Defendant instructed its solicitors to write to the Plaintiff on 29 March 2000 and demanded payment forthwith of the amounts due under the Deed of Settlement and the B3 Lease. As no payment was made by the Plaintiff, the Defendant caused its solicitors to send a letter to the Plaintiff on 1 April 2000 in which the Defendant terminated forthwith the tenancy under the 2nd Lease due to the default in payment as provided in the Deed of Settlement. Further, the Defendant forfeited the tenancy under the B3 Lease on account of the Plaintiff's failure to pay other charges during the rent free period and that the amounts were in arrears for more than 15 days. The Plaintiff was asked to vacate the premises under the 2nd Lease and the B3 Lease within three working days of the letter. The letter was sent by the solicitors to the Plaintiff by fax and by post, as well as by posting up at the premises in question.

12. Also on 1 April 2000, the Defendant suspended the air-conditioning supply to B1, pursuant to the relevant provisions in the Deed of Settlement and the B3 Lease. On that day, after the air-conditioning was turned off, there were negotiations between Mr William Chung and Mr Eddie Ho Junior, the director of business development of the Defendant. The contents of the discussion between the two are in dispute. What is not in dispute is that the Defendant provided a schedule to the Plaintiff setting out the total amount in arrears under the 2nd Lease and the B3 Lease being HK$4,777,770.84 and it was stated that partial payment of HK$1,777,770.84 must be made to the Defendant by cashier order on or before 3.00 pm on 3 April 2000. A breakdown was given in the schedule for the partial payment of HK$1,777,780.84, there being a minor discrepancy of 10 dollars compared to the figure previously stated.

13. On 3 April 2000, at around 3.00 pm, Mr William Chung, Mr Cheung Yuen Sing and Mr Ken Wong of the Plaintiff went to see Mr Eddie Ho Junior at the Defendant's office and delivered three cashier orders totalling HK$1,777,780.84 in partial settlement of the arrears. Mr William Chung also handed to Mr Eddie Ho Junior the Plaintiff's covering letter dated 3 April 2000 in which reference was made to their meeting on 1 April 2000 and the "understanding" that upon the partial payment of HK$1,777,780.84 to the Defendant by 3.00 pm on 3 April 2000, "all the existing agreements between [the Defendant and the Plaintiff] shall remain valid and in full force for their remaining terms". In the letter, the Defendant was requested to acknowledge receipt of the three cashier orders enclosed and to confirm the "understanding" by signing and returning a copy of the letter. A sentence acknowledging receipt by the Defendant was typed at the end of the letter with a blank space for signature by the Defendant's staff. Mr Ho did not sign there. Instead, he wrote at the top of the letter the word "received" followed by the date of 3 April with his signature or initial. It is in dispute between the parties whether the Defendant had accepted the terms as set out in the Plaintiff's covering letter dated 3 April 2000.

14. I should mention that the cashier orders were not presented for payment on 3 April 2000 but were presented for payment on 5 April after the event described below.

15. On 3 April 2000, the Defendant gave instructions to its solicitors to prepare an offer letter to the Plaintiff, the effect of which was that a licence was to be granted to the Plaintiff on the terms and conditions set out therein in respect of the premises that had been let to the Plaintiff, i.e. B1, Units 14 and 16 and B3. Instructions were received by the solicitors some time after 3.00 pm and the letter was finalised and sent to the Defendant's office where the Plaintiff's representatives were waiting at about 7.00 pm. The offer made in that letter was accepted by Mr William Chung on behalf of the Plaintiff on the same day by signing at the bottom thereof to acknowledge his acceptance. I shall refer to this offer letter as accepted by the Plaintiff as "the Licence Agreement".

16. The Plaintiff disputes the validity of the Licence Agreement, alleging that it was obtained by economic duress and that it was repugnant to the terms of an alleged compromise agreement set out in the Plaintiff's offer letter dated 3 April 2000 which I have mentioned earlier. The Plaintiff also disputes the construction which the Defendant has put on the Licence Agreement, contending that the effect of the Licence Agreement was that a licence was to be granted in respect of B1, Units 14 and 16, and B3 "on the same terms and conditions" as contained in the 2nd Lease and Lease B3 so that the right of first refusal and the non-competition clause in the 2nd Lease as well as the option to renew in the B3 Lease would continue to apply. The Defendant has argued to the contrary. This is the question to be determined by the court in the O.14A summons issued by the Defendant. Last but not least, it is asserted by the Plaintiff that notwithstanding the wording of the Licence Agreement, the relationship between the parties remained in truth and in substance that of landlord and tenant.

17. As the Licence Agreement is of considerable importance in this action, I should give a detailed description of it. The Defendant's solicitors started by making reference to their letter to the Plaintiff dated 1 April 2000 terminating the tenancy under the 2nd Lease and the B3 Lease, the Plaintiff's covering letter to the Defendant dated 3 April 2000 enclosing the cashier orders and the telephone conversation between Mr Ken Wong and the Defendant's solicitors of 3 April 2000. This was followed by a "disclaimer" section in which the Defendant's solicitors stated that the tenancies had been terminated by their letter dated 1 April 2000 and that nothing in the conversation between Mr Ken Wong and the Defendant's solicitors was intended to be binding as the conversation was made without prejudice to the respective rights of the parties. It was further stated that the matters set out thereunder should form the "whole and full terms" as the Defendant's offer and that the offer was subject to contract. The "offer" section set out the terms and conditions on which the licence was to be granted and they were subsequently accepted by the Plaintiff as mentioned earlier. The actual wording of the material parts is as follows:

"1. You [the Plaintiff] fully and irrevocably agree and acknowledge that you had wrongfully repudiated the tenancies for the 1st and 2nd Premises whereupon our client, [i.e. the Defendant], by its letter dated 1st April 2000, through us, had duly accepted your repudiation and the said tenancies had been so terminated.

2. In consideration of your agreement to pay HK$1,777,780.84 by a cashier order in partial settlement of the arrears and further to comply with the following terms, our client agrees to grant a licence to you for your use and occupation of the 1st and 2nd Premises:-

(1) You agree and undertake that you will consent to a judgment to be entered in favour of our client in a High Court Action to be begun by our client for arrears, mesne profits and vacant possession of the 1st and 2nd Premises.

(2) You agree and undertake to do such acts and steps which are necessary and incidental to the judgment including but not limited to filing with the court an Acknowledgement of Service where you indicate that you would not contest the proceedings.

(3) You agree and undertake that you shall pay monthly installment payment as per the schedule annexed hereto in respect of arrears payable for the 1st Premises [i.e. B1 and Units 14 and 16].

(4) You agree and undertake that you shall pay monthly licence fee in respect of the 1st and 2nd Premises and on the same terms and conditions as contained in the [2nd Lease] and [B3 Lease] save and except the variation below:-

(a) 1st Premises

(i) The monthly licence fee shall from 1st April 2000 be HK$600,000.00 for [B1] and HK$26,350.00 for [Units 14 and 16].

(ii) The said licence fee is inclusive of management fee and air-conditioning charges but exclusive of rates and government rent and other outgoings such as electricity charges.

(b) 2nd Premises [i.e. B3]

(i) The monthly licence fee shall from 1st April 2000 be HK$350,000.00 up to 27th February 2001 inclusive of management fee and air-conditioning charges but exclusive of rates and government rent and other outgoings such as electricity charges.

(ii) The monthly licence fee from 28th February 2001 to 27th February 2002 shall be HK$385,000.00 inclusive of management and air-conditioning charges but exclusive of rates and government rent and other outgoings such as electricity charges.

(iii) You are entitled to a "licence fee free periods" from 1st April 2000 up to 27th June 2000 (both days inclusive) subject to your payment of the following:-

Rates, Government Rent, Air-Conditioning Charges ... and other Outgoings such as Electricity Charges ...

(iv) Save and except the above licence fee free periods, you have to pay the said licence fee in the manner as described in [the B3 Lease].

3. You agree that in the event of your default, whether under the installment payment schedule or under the licence period (time is of the essence for each installment payment and each monthly licence fee payment), our client shall be entitled to enforce the judgment forthwith without any prior notice and the licence for the 1st and 2nd Premises shall forthwith be terminated...

4. Our client agrees that upon your due discharge of the obligations or terms herein the judgment be stayed for execution.

5. Nothing herein in respect of the licence shall be construed as giving rise to a relationship between landlord and tenant. You agree and undertake that you will not avail yourself of any remedies or redress as a tenant and no notice pursuant to Part V of the Landlord and Tenant (Consolidation) Ordinance or otherwise shall be given by our client to you before the licence for the 1st Premises and 2nd Premises will be terminated automatically on 30th November 2000 and 27th February 2002 respectively as originally provided under the 2 Tenancy Agreements as aforesaid.

If the above terms are agreeable to you, kindly return a copy of this letter duly signed for confirmation of your full acceptance whereupon our client shall present the cashier order for payment and arrange resumption of the facilities." (underlining and italics as per the original letter)

18. On 18 May 2000, the Defendant entered into a tenancy agreement with a competitor of the Plaintiff known as Saleslink (Marketing Services) Limited ("Saleslink") whereby Exhibition Hall A, B and C on Ground Floor of HITEC was let to Saleslink for three years from 1 June 2000. Further, it was agreed between the Defendant and Saleslink that the Defendant would let B1 to Saleslink in the event that possession was recovered from the Plaintiff on the expiry of the licence on 30 November 2000 or the earlier termination thereof. It is the Plaintiff's case that the non-competition clause in the 2nd Lease continued to govern the relationship of the Plaintiff and the Defendant by virtue of the Plaintiff's offer letter dated 3 April 2000 (which the Defendant had accepted according to the Plaintiff's allegation), alternatively by the interpretation placed by the Plaintiff on clause 2(4) of the Licence Agreement which contained the words "on the same terms and conditions". Hence, it is alleged by the Plaintiff that the Defendant had acted in breach of the non-competition clause in letting premises in HITEC to Saleslink and as the Plaintiff had suffered loss and damage due to the Defendant's breach, the Plaintiff is entitled to set-off its claim for damages against the Defendant's counterclaim for rent and/or to withhold payment of rent to the Defendant. It is the Plaintiff's case that it was the Defendant who had first acted in breach after the Licence Agreement was made.

19. On 30 May 2000, the Plaintiff failed to pay the instalment payment of HK$100,000.00. On 31 May 2000, the Plaintiff failed to pay the agreed interest of HK$24,410.96. On 1 June 2000, the Plaintiff failed to pay the licence fee for B1 and Units 14 and 16 in the sum of HK$626,350.00 and other charges for B1, Units 14 and 16 and B3 in the sum of HK$137,427.36.

20. By a letter from the Defendant's solicitors to the Plaintiff dated 1 June 2000, reference was made to the Licence Agreement and the default in the instalment payment. A demand was made for immediate repayment of all the arrears for HK$2,524,410.96 within two days of the letter. On 2 June 2000, the Defendant's solicitors wrote to the Plaintiff and made a demand for immediate payment of HK$626,350.00 and HK$137,427.36 within a day of the letter. The Plaintiff did not comply with the demands.

21. On 5 June 2000, the Defendant's solicitors wrote to the Plaintiff and terminated the licence granted in the Licence Agreement. The Plaintiff first instituted proceedings by the issue of the writ herein on 13 June 2000. The Defendant filed its Defence and Counterclaim on 4 July 2000 and two days later, issued the summons for summary judgment, striking out of the Statement of Claim and for interim payment.

22. It would be readily apparent from the account I have given above that there are disputes between the parties both as to fact and law. Where there are disputes of fact, I cannot give summary judgment unless I am satisfied that what the Plaintiff says on affirmation is wholly incredible and there is no fair or reasonable probability of the Plaintiff having a real or bona fide defence to the Defendant's counterclaim. Where an issue of law is raised, I should not give judgment unless I am satisfied that the point is clear and that it is really unarguable. On the question of construction for determination under O.14A, I am not so constrained and that I do not have to find that the construction put forwarded by the Plaintiff is plainly unarguable. All that is needed is that I should be satisfied that the question of construction is suitable for determination under the O.14A procedure and whether the question of construction will finally determine an important issue herein, namely, if the non-competition clause would continue to govern the relationship between the parties. If that issue is resolved in favour of the Defendant, it will finally determine the entire matter. I am satisfied that this is an appropriate case for an application to be made under O.14A and Mr Anthony Cheung, who appeared on behalf of the Plaintiff, has not argued otherwise.

23. I turn to consider each of the points raised by the Plaintiff in defence to the Defendant's Counterclaim. It would be convenient to consider these points in their chronological sequence instead of by their order of importance.

The "Car-Boy" Incident

24. It is alleged by the Plaintiff that in 1998, the Defendant had leased the Ground Floor plaza of HITEC to Car-Boy, a used car dealer, in violation of the 1st Lease. That incident took place in January 1998. It would appear from the evidence adduced by the Defendant that what happened was that the Defendant had granted a licence, not a tenancy, to Car-Boy for a car show for three days from 9 January to 11 January 1998. The 1st Lease contained a non-competition clause. It might be argued that in granting a licence to Car-Boy for three days, the Defendant had acted in breach of this provision in the 1st Lease. This has absolutely no relevance to the 2nd Lease, which is what I am concerned with in these proceedings. The rights and wrongs over the "Car-Boy" incident has no relevance at all to any issue in dispute in this action.

The Deed of Settlement

25. A number of points have been taken by the Plaintiff in relation to the Deed of Settlement. It was pleaded in the Statement of Claim that a compromise agreement was made orally between the Plaintiff and the Defendant whereby the Defendant had allowed the Plaintiff to pay the arrears of rent from April to October 1999 by 36 instalments commencing from December 1999 and save for the payment schedule as agreed in the compromise agreement, the 2nd Lease should continue to be effective and binding on the parties. It was alleged that the subsequent payment by instalment made by the Plaintiff was pursuant to this oral agreement to compromise. As for the Deed of Settlement, it was alleged that when Mr William Chung signed it on 3 December 1999, he was told by the Defendant's officer that he must sign the document immediately and Mr Chung's request to consult his fellow directors and/or solicitors was refused. Mr Chung then signed the document without reading it.

26. No affirmation was provided by Mr William Chung to substantiate the above allegation. There was only an affirmation from the Plaintiff's general manager, Mr Cheung Yuen Sing stating that he was informed by Mr Chung and verily believed that Mr Chung was "forced" to sign the Deed of Settlement. There was no elaboration as to why Mr Chung was "forced" to sign the Deed.

27. The bare allegation in Mr Cheung's affirmation which was not even supported by Mr William Chung (and there was no explanation from the Plaintiff as to why Mr Chung had made no affirmation despite Mr Cheung's statement in his affirmation in July 2000 that Mr Chung would provide an affirmation within two weeks) is hardly sufficient to establish a prima facie case of duress. Moreover, the Defendant had adduced evidence to establish that a copy of the draft deed was sent to the Plaintiff for the attention of Mr William Chung on or about 29 November 1999 with a covering letter and a payment schedule and in which Mr Chung was requested to advise a convenient time on 3 December 1999 for the signing of the Deed. That covering letter with enclosure was copied to Mr Thomas Wu of Hopewell and to the Defendant's managing director Mr Joachim Burger. The Defendant had also exhibited e-mail exchanges between its general manager Mr Brian Connelly and Mr Thomas Wu on 30 November 1999 and 1 December 1999 showing that Mr Chung had requested an appointment on 3 December 1999 for the signing of the Deed, apparently in response to the letter of the Defendant to the Plaintiff dated 29 November 1999. I find that Mr Cheung Yuen Sing's denial that the Plaintiff had not received the draft Deed of Settlement in advance and his assertion that Mr Chung had no idea why he was asked to attend the Defendant's office on 3 December 1999 to be totally incredible. In my judgment, the Plaintiff has failed to raise any arguable defence that the Deed was invalid on the alleged ground of duress.

28. The Plaintiff has also raised the point that the Deed of Settlement was invalid as a deed, alleging that the Plaintiff's seal was not affixed by an authorised person of the Plaintiff but was affixed by the Defendant's credit manager, Mr Wong Wai Chuen. Mr Wong Wai Chuen has filed an affirmation denying this allegation in the Statement of Claim. It is unnecessary to rule on the point whether the Deed of Settlement was effective as a deed. It would be sufficient if the document was valid and effective as a contract. I have no doubt that that was the case and that consideration had clearly been provided by the Defendant in giving indulgence to the Plaintiff to pay the arrears by instalment. I find that the terms of the Deed of Settlement had governed the relationship between the parties at the material time.

The alleged compromise agreement on 1 April 2000

29. The Plaintiff alleged that after the Defendant had turned off air-conditioning and electricity during operating hours on 1 April 2000, Mr William Chung and Mr Ken Wong of the Plaintiff went to see the Defendant's officers and a revised compromise agreement was reached verbally in that Mr Chung agreed to arrange payment on 3 April 2000 and asked Mr Eddie Ho Junior if things would be "back to normal" upon payment. Mr Ho had responded by saying that "pay money and things will then be treated as back to normal". The Plaintiff was provided by the Defendant with a payment schedule whereby the Plaintiff was to settle by cashier order part of the indebtedness at HK$1,777,780.84 on or before 3.00 pm on 3 April 2000. The alleged revised compromise agreement was evidenced by a covering letter from the Plaintiff to the Defendant dated 3 April 2000 whereby the Plaintiff tendered three cashier orders for the required amount to the Defendant and Mr Eddie Ho had acknowledged receipt of this letter by writing the word "received" and signing after the word. These allegations were made in the affirmation of Mr Cheung Yuen Sing and, as I have mentioned earlier, there was no affirmation from Mr William Chung.

30. Mr Eddie Ho filed an affirmation giving his version of the discussion he had with Mr Chung on 1 April 2000. He denied that there was any agreement to compromise on 1 April 2000. The Defendant had given instructions to its solicitors to terminate the 2nd Lease and the B3 Lease forthwith and the solicitors had duly written to the Plaintiff on 1 April 2000. He had merely told Mr Chung that the Defendant would consider to settle with the Plaintiff if the Plaintiff would show sincerity by paying part of the arrears and Mr Wong Wai Chuen was asked to provide a schedule to the Plaintiff setting out the partial arrears that the Plaintiff must pay. As for his writing the word "received" on the Plaintiff's covering letter dated 3 April 2000, this was merely to acknowledge that he was given a copy of the letter and he did not sign at the bottom of the letter on the blank space for the Defendant's signature after the "acknowledgement" clause because he did not agree with the contents of that letter. It is clear from the evidence adduced that the cashier orders were not presented for payment until about 5 April 2000, after the Licence Agreement was signed by the Plaintiff.

31. I should also have regard to the events that happened on 3 April 2000. Mr Chung and the Plaintiff's staff went to the Defendant's office that day at about 3.00 pm and stayed there until the Licence Agreement was signed fours hours later. The Defendant gave instructions to its solicitors to prepare a letter offering a licence to the Plaintiff some time after 3.00 pm and the solicitors prepared the letter which was sent to the Defendant at about 7.00 pm that day. The terms of the Licence Agreement were very different from the alleged revised compromise agreement. If the Defendant had accepted the revised compromise agreement as alleged, the Defendant's conduct in giving instructions to their solicitors to prepare the Licence Agreement shortly after the Defendant had received the Plaintiff's covering letter dated 3 April 2000 with the three cashier orders was simply inconsistent with the alleged acceptance of the revised compromise agreement. I find the Plaintiff's allegation of a revised compromise agreement on 1 April 2000 as evidenced by the Plaintiff's covering letter dated 3 April 2000 to be totally incredible. Further, this alleged revised compromise agreement, in which the Plaintiff was required to pay only HK$1,777,780.84 by 3 April 2000 out of a total outstanding amount of HK$4,777,770.84 was not supported by any consideration on the Plaintiff's part. There was also no mention by the Plaintiff in the Statement of Claim or in the evidence filed as to what agreement, if any, was made between the parties as regards the payment of the balance of HK$3 million under the alleged revised compromise agreement. The balance of the arrears in the sum of HK$3 million was dealt with in the Licence Agreement, which supported the Defendant's version that the partial payment was merely a preliminary requirement the Defendant was asked to fulfil to show sincerity for a settlement agreement to be reached between the parties. The part payment by cashier order on 3 April 2000 could simply not be treated as the only requirement the Plaintiff was to meet. It would be against commercial reality to suggest otherwise.

32. As I have found that there was no revised compromise agreement on 1 April 2000 as alleged, the point that the Licence Agreement was voidable because it was repugnant to the alleged revised compromise agreement must also fail.

Was the Licence Agreement obtained by duress?

33. It was alleged by the Plaintiff that the Licence Agreement was obtained by economic duress because the Defendant had turned off the air-conditioning and lights during operating hours on 1 to 3 April 2000. It was alleged that Mr William Chung had "no alternative but to sign" the Licence Agreement.

34. The Defendant admitted that the air-conditioning was turned off but denied that the lighting was turned off as well. It was asserted that to avoid any accident that might happen because of the lack of illumination, the Defendant had particularly kept the "necessary lighting" on for B1 and B3.

35. It is not necessary to resolve this factual dispute. Under the Deed of Settlement, which I have found to be valid and binding, the Defendant was entitled in the event of default to disconnect power of electricity supply and to cease procuring facilities such as the air-conditioning. Under the B3 Lease, in the event of default in the payment of rent and/or any charges, the Defendant was entitled and the Plaintiff had specifically authorised the Defendant to, suspend the supply of electricity and air-conditioning to the premises. I cannot see how the Plaintiff can invoke economic duress in the situation when the Defendant was exercising the powers expressly given to it in the event of default under the agreement between the parties.

36. The point was faintly argued by the Plaintiff that the Defendant was obliged to give reasonable notice to the Plaintiff before turning off the air-conditioning and lights. It was alleged that there should be an implied term to this effect. I am unable to see the basis for any such implied term.

Was the Licence Agreement subject to the B3 Lease?

37. The Plaintiff's argument here, as I understand it, is that the Licence Agreement was made on 3 April whereas the B3 Lease was dated 6 April 2000. Hence, the Licence Agreement should be subject to the terms of the B3 Lease.

38. This is a patently bad argument. It is clear on the documentary evidence that the B3 Lease was entered into by the parties no later than 28 February 2000, which was the date of commencement of the B3 Lease.

Construction of the Licence Agreement

39. The point here made by the Plaintiff is that the Licence Agreement was expressly stated to be on the "same terms and conditions" as in the 2nd Lease and the B3 Lease. Hence, the right of first refusal and the non-competition clause in the 2nd Lease and the option to renew in the B3 Lease would continue to be applicable. This is the question of construction I have to determine on the O.14A summons.

40. It was submitted on behalf of the Plaintiff by Mr Anthony Cheung that in construing the Licence Agreement, I should also take into account a letter dated 10 May 2000 from the Plaintiff's solicitors to the Plaintiff, the material parts of which read as follows:

"It is common ground that the licence was premised upon the termination of your 2 tenancies for the 1st and 2nd Premises [i.e. B1, Units 14 and 16, B3] which were respectively made on 15th July 1999 and 28th February 2000. For the avoidance of doubt, the terms you are holding under the licence for the 1st and 2nd Premises, save as those expressly provided for in our letter dated 3rd April 2000, are identical to those as previously contained in the 2 tenancies [sic] agreements but exclusive of your interest or right to renew or right to first refusal, which ceased and were of no further effect upon the termination of the 2 tenancies.

If you commit no default under the licence, you are allowed to hold the 1st and 2nd Premises as a mere licence up to 30 November 2000 and 27 February 2002 respectively without any entitlement or right to renew or to refuse.

We trust that the matters herein clarify the position." (underlining and printing in bold as per the original letter)

41. As I understand Mr Cheung's argument, he has submitted that the Defendant's solicitors had found it necessary to issue the letter dated 10 May 2000 because it was realised subsequently that the effect of the Licence Agreement was to preserve the various provisions in the 2nd Lease and the B3 Lease. Hence, the letter was sent by the solicitors purporting to remove unilaterally the right of first refusal and the right of renewal.

42. I am unable to see how the letter dated 10 May 2000 could be used as an aid to construction of the Licence Agreement. Whatever the Defendant's solicitors might have thought on the construction and effect of the Licence Agreement, as submitted by Mr Cheung to be the reason for the letter dated 10 May 2000, is irrelevant to the proper construction of the Licence Agreement. I am not concerned with the subjective views of the person who drafted the agreement. I am concerned with the proper and ordinary meaning to be placed on the words used in the agreement and I am to construe the agreement with regard to the factual matrix. Besides, the letter dated 10 May 2000 was not even a contemporaneous document but was sent a month after the Licence Agreement. Whatever might be the views of one party a month after the concluded agreement cannot be used as an aid to construction.

43. In my judgment, the meaning of clause 2(4) of the Licence Agreement is clear. The material part of this provision is as follows:

"You [i.e. the Plaintiff] agree and undertake that you shall pay monthly licence fee in respect of the 1st and 2nd Premises on the same terms and conditions as contained in [the 2nd Lease] and [the B3 Lease] save and except the variation below ..." (emphasis supplied)

44. The words "same terms and conditions" referred to the payment of the licence fee and to nothing else. These words read in their proper context cannot be used to bring about an incorporation of all other terms and conditions in the 2nd Lease and the B3 Lease not in relation to the payment of sums due under these two agreements. Further, if one looks at the variation as provided in sub-clauses (a)(i) and (ii), and (b)(i) to (iv), it is quite clear that the variation provisions all related to the payment of the licence fee (which used to be rent under the 2nd Lease and the B3 Lease) and other charges. The construction placed upon clause 2(4) by the Plaintiff is untenable.

45. On the O.14A summons, I rule in favour of the Defendant and I hold that the Licence Agreement did not include a right of first refusal and the non-competition clause under the 2nd Lease, or the option to renew under the B3 Lease.

46. It was also argued by the Plaintiff that if I should find against it that the non-competition clause was an express term governing the relationship of the parties, I should find that there was an implied term to the same effect in the Licence Agreement. I am unable to see any legal basis for implying such a term in the Licence Agreement. I reject Mr Cheung's argument on this.

47. The Plaintiff's claim against the Defendant is founded on there being a non-competition clause governing their contractual relationship, hence the Defendant's tenancy agreement with Saleslink on 18 May 2000 whereby a part of the Ground Floor of HITEC was leased to Saleslink was in breach of the non-competition clause. As I have ruled as a matter of construction that the non-competition clause was not a term in the Licence Agreement and I have also rejected the Plaintiff's argument of an implied term to that effect, the entire basis of the Plaintiff's claim is gone and the Statement of Claim should be struck out as being frivolous and vexatious and an abuse of the process of the court. It must also follow that the Plaintiff is not entitled to rely on its claim for damages in the Statement of Claim as a set-off against the Defendant's Counterclaim.

Licence in truth a tenancy?

48. This point was raised in the 2nd affirmation of Mr Cheung Yuen Sing in which he asserted that the licence granted in the Licence Agreement was in fact a tenancy because the Plaintiff had exclusive possession of the areas in question and was entitled as before to sub-let the same to car dealers. I have heard extensive submission from Mr Benjamin Chain, who appeared on behalf of the Defendant, on this point and have been taken to a number of cases dealing with the determination of the question whether the relationship between parties was referable to a licence or a tenancy, subsequent to the House of Lords decision in Street v. Mountford [1985] 1 AC 809. Mr Cheung did not reply to Mr Chain's submission here, nor did he deal with any of the cases cited by Mr Chain.

49. In summary, Mr Chain's submission is that without conceding that the Plaintiff was granted exclusive possession of the premises in question in the Licence Agreement, the relationship governing them was referable to a licence in truth and in substance. The approach to be adopted in determining whether a particular relationship is governed by a licence or a tenancy, as one may extract from the cases cited by Mr Chain, may be summarised as follows:

(1) There is no simple all-embracing test for distinguishing a contractual licence from a tenancy. What each court, faced with the need to make the distinction, has to do is to weigh all the relevant and significant factors and to decide in the light of them on which side of the line the particular case falls (Mehta v. Royal Bank of Scotland 32 HLR 45 at 53).

(2) In Street v. Mountford, supra. at 825C, 826E-F , Lord Templeman referred to the hallmarks of exclusive possession, a periodic term and periodic payments during the term as the three hallmarks pointing to a tenancy rather than to a contractual licence. These observations of Lord Templeman cannot be applied indiscriminately, and particularly not in a case in which there are other equally significant factors to be taken into account in addition to the three hallmarks. It should be noted that the observations in Street v. Mountford were directed primarily to a case in which the three hallmarks were the factors of over-riding importance and in which the landlord had deliberately set out to try to exclude the Rent Act protection of the tenant. (Mehta v. Royal Bank of Scotland, supra at 53).

(3) Even if there is a grant of exclusive possession for a term certain in return for periodic payments, there may be special circumstances and exceptional situations in which a tenancy had nevertheless not been created, as was recognised by Lord Templeman in Street v. Mountford, supra. at 826-827. An example of an exceptional case was Essex Plan Ltd v. Broadminster (1988) 56 P & CR 353.

(4) Street v. Mountford was concerned with residential premises. The attributes of residential premises and business premises are often quite different and the indicia which may point to the relationship of landlord and tenant for residential premises may be less applicable or less likely to have that effect in the case of some business tenancies (Dresden Estates Ltd v. Collinson (1987) 55 P & CR 47 at 52).

(5) The decisive consideration is the intention of the parties. The parties to an agreement cannot turn a lease into a licence merely by stating that the document is to be deemed a licence or describing it as such. The parties' relationship is determined by law on a consideration of all relevant provisions of the agreement (Dresden Estates Ltd v. Collinson supra. at 52).

(6) Where the parties plainly did not intend to create a tenancy, it cannot be right to impute to them an intention to create a tenancy unless the legal structures within which they made their agreement force that conclusion (Burrows v. Brent London Borough Council [1996] 1 WLR 1448 at 1454F-G).

50. The circumstances in the present case were very special. The tenancies granted in the 2nd Lease and the B3 Lease had been terminated forthwith by the letter of the Defendant's solicitors dated 1 April 2000, as the Plaintiff was in default of the Deed of Settlement and payment of the amounts due under the B3 Lease. It is apparent from the Licence Agreement that the Plaintiff was allowed by the Defendant to remain in occupation on the most stringent terms. Of particular importance are clauses 2(1), (2), 3 and 4, the effect of which is that the Plaintiff would consent to judgment for arrears, mesne profits and vacant possession of the premises in question in an action to be brought by the Defendant, that the judgment would be stayed for execution if there was due discharge of the Plaintiff's obligations under the Licence Agreement, and that the Defendant would be entitled to enforce the judgment forthwith in the event of default. In my judgment, it was plainly not the parties' intention that a tenancy was to be granted in such exceptional circumstances. Clause 5 of the Licence Agreement clearly negatived any such intention. It would be wrong for the court to impute to the parties an intention to create a tenancy unless there are legal principles which compel the court to draw that inference. There are no such legal principles applicable here.

51. The question whether the Licence Agreement created a licence or a tenancy is a question of mixed fact and law. I am satisfied that the answer to this question is clear and there is no arguable defence to the effect that what was created under that document was in truth a tenancy. If I am wrong about this, and if the point is arguable, I agree with Mr Chain's submission that this does not assist the Plaintiff. Even if one were to assume that the Licence Agreement had created a tenancy, the Licence Agreement had provided for the payment of licence fee and various charges in respect of the premises in question and time was expressly provided to be of the essence for each instalment payment and each monthly licence fee payment. As the Plaintiff was in default of the payment obligation on 30 May 2000, 31 May 2000 and 1 June 2000, the Defendant was entitled to terminate the tenancy (assuming this was a tenancy) forthwith by virtue of clause 3 of the Licence Agreement.

Charges for B3 during rent free period

52. It was expressly provided in the B3 Lease that the Plaintiff was responsible for paying outgoings such as rates, government rent, air-conditioning and utility charges during rent free period. In the 2nd affirmation of Mr Cheung Yuen Sing, he alleged that this provision was introduced into the final draft of the B3 Lease by Mr Eddie Ho in the hope that the Plaintiff's personnel would not pick up the alteration when they signed the lease. This is a late allegation and a bare assertion of the Plaintiff. The Defendant had demanded payment of the outgoings in relation to B3 during the rent free period and these charges for March 2000 had been paid by the Plaintiff without protest. It does not seem to me that the Plaintiff has made out a prima facie case for mistake. In any event, I reject the bare allegation of the Plaintiff as incredible.

Whether the licence was terminated without proper notice

53. It was alleged in the 2nd affirmation of Mr Cheung Yuen Sing that the licence was terminated without proper notice. I think this point is unarguable. Firstly, the Defendant was entitled to terminate the licence forthwith in the event of default by virtue of clause 3 of the Licence Agreement. Alternatively, if the Defendant was obliged to give the Plaintiff a reasonable time to vacate the premises, the Defendant had given the Plaintiff a reasonable time to comply with the revocation of the licence in that the Counterclaim was made a month after the notice of termination of the licence was given (Minister of Health v. Bellotti [1944] 1 KB 299).

Conclusion

54. None of the matters raised by the Plaintiff in its pleading, evidence or submissions constituted an arguable defence. I have also found that there is no basis for the Plaintiff's claim for damages for breach of the non-competition clause which was alleged to govern the relationship of the parties at the time of the breach complained of in May 2000. The only appropriate order is to give summary judgment for the Defendant on its Counterclaim and to strike out the Plaintiff's claim. On the liquidated part of the Defendant's Counterclaim being the amount in arrears of HK$3,288,188.32, no evidence was filed by the Plaintiff disputing this figure and Mr Cheung did not raise any argument that the amount was incorrect. I find that this is the amount due to the Defendant in respect of arrears for rent and outgoings as particularised in the Defence.

55. The orders I make are as follows.

56. Having found for the Defendant on the determination of a question of law pursuant to O.14A in the Defendant's summons dated 10 October 2000 as amended on 19 October 2000, it is ordered that:

(1) final and interlocutory judgment be entered for the Defendant on its Counterclaim as hereinafter provided:

(i) the Plaintiff do deliver up vacant possession to the Defendant of B1, Units 14 and 16 and B3 in HITEC;

(ii) the Plaintiff do pay the Defendant the sum of HK$3,288,188.32;

(iii) the Plaintiff do pay the Defendant mesne profit for B1, Units 14 and 16 and B3 at such rate to be assessed from 1 July 2000 until vacant possession of the said premises is delivered up to the Defendant;

(iv) the Plaintiff do pay the Defendant damages to be assessed;

(v) the Plaintiff do pay the Defendant interest on HK$3,288,188.32 at the current judgment rate from 4 July 2000, being the date of the Counterclaim, until full payment;

(2) the Statement of Claim is to be struck out under O.18 r.19 and under the inherent jurisdiction of the court on the ground that it is frivolous and vexatious and an abuse of the process of the court.

57. I also make the following orders as to costs, which are orders nisi:

(1) the Plaintiff do pay the Defendant the costs of the action; and

(2) the costs of this application are to be paid by the Plaintiff to the Defendant, including the costs reserved on 24 July 2000, to be taxed if not agreed.