ALABAMA INVESTMENT CO. LTD. v. CHAINTEXT CO. LTD. AND ANOTHER

IN THE COURT OF APPEAL

1993, No. 147
(Civil)

________________

____________________

JUDGMENT OF THE COURT

____________________

Macdougall, V.-P.:

1. On 5 August 1993 Rhind J. upheld the decision of Master Beeson on 17 May ordering that judgment under Order 14 rule 3 be entered for the appellant/plaintiff against the respondent/2nd Defendant for possession of part of premises situated at Telford Garden, Kowloon which the respondent occupies for the purpose of operating a restaurant called the "Martini Restaurant and Snack Bar".

2. On 17 August the judge ordered that there be a stay of execution of the judgment for possession for a period of six months from the date of the Order conditional upon the respondent's undertaking to pay mesne profits of $20,000 to the appellant on the 1st of each calendar month without prejudice to the final assessment of the amount of mesne profits. It is against that Order the appellant now appeals.

3. The evidence before the judge on the basis of which he upheld the Master's decision and made the Order now complained of was as follows. Until the end of 1984 Bang Bang Restaurant Limited ("Bang Bang"), which is a sister company of the appellant in the Far East Group, had operated a restaurant and snack bar at the suit premises. In September 1984 the appellant became the assignee under a lease from the MTR Corporation of premises at Telford Garden. This included the suit premises and other premises used as a bowling centre. The lease was due to expire in December 1988. On its expiry, however, the MTR Corporation granted the appellant a further lease for seven years. Whether Bang Bang occupied the premises as the tenant or licensee of the appellant was not clear on the evidence before the judge but, as he rightly observed, this did not have any relevance to the issue before him. The restaurant was an adjunct to the adjacent bowling centre operated by the appellant, or one of its sister companies.

4. According to Mr. Shuen, who is the director of the respondent and who made an affirmation on behalf the respondent for the purpose of the proceedings, the first defendant, a company which is not a party to this appeal, was verbally offered in about December 1984 a sub-tenancy of the suit premises by a Mr. Chiu, a director of Bang Bang, on condition that the restaurant and snack bar remain open for the same hours as the bowling centre. The offer was accepted, and the first defendant began operating the restaurant from those premises at the beginning of 1985.

5. On 17 November 1986, the appellant served on Mr. Shuen in his personal capacity a notice in which it purported to terminate with effect from 31 December 1986 the licence agreement which it alleged existed between the appellant and Mr. Shuen in respect of the premises. However, the first defendant, behind whom Mr. Shuen was the moving force, as the judge put it, continued in occupation.

6. On 26 January 1987 the appellant served a notice to quit on the first defendant. This was said to be founded on an Agreement for Surrender and Termination of Licence whereby Bang Bang as the licensee of the appellant was said to have surrendered possession with effect from 15 January 1987. The first defendant, however, continued to remain in possession. It continued to pay Bang Bang, and Bang Bang continued to accept, what Mr. Shuen asserted was rent for the premises.

7. On 1 February 1988 the appellant served on the first defendant a notice purporting to terminate its "licence" with effect from 1 March 1988. On 31 March that year the appellant issued the writ in these proceedings against the first defendant.

8. The matter then seemed to slip into limbo. The first defendant regularly tendered $20,000 per month as rent or licence fee. Neither Bang Bang nor the appellant would accept these payments. By July 1991 the respondent was still in occupation, and arrears of payment at the rate of $20,000 per month stood at $800,000.

9. On 1 July 1991 an Order was made by Master P. Chan, as he then was, that the first defendant make an interim payment of $800,000 to the appellant for the use and occupation of the premises from 1 April 1988 to 1 July 1991 - a period of three and a half years - and that it pay $20,000 per month from 1 August 1991 until trial or further order.

10. In pursuance of this order the sum of $800,000 was paid to the appellant on 1 July 1991. The first defendant went into liquidation and a new company, the respondent, of which Mr. Shuen was a director, was formed. The shareholders of the respondent are different from those in the first defendant company.

11. From April 1992 onwards, the cheques by which the appellant was paid the interim monthly payments of $20,000 were issued by the respondent and were sent to the appellants solicitors with a note stating, "Rental From Martini Restaurant", or words to a like effect.

12. The judge found it impossible to believe that the respondent had ever become the appellant's tenant of the premises. He was satisfied that the monthly cheques issued by the respondent were simply payments made in pursuance of Master Chan's Order, and that the fact that they had been issued by the respondent or other third party did not indicate that the respondent had become the appellant's tenant.

13. A representation of another company in the Far East Group visited the premises on 6 August that year to levy execution against the first defendant under a writ of fit fa. which had issued in respect of an entirely different matter. It was on that occasion that it was learnt that Mr. Shuen was asserting that the respondent had taken over the restaurant from the first defendant. As a result of this disclosure the appellant made the respondent the party to the action on 16 October 1992. It appears that a winding up order was made against the first defendant on 25 November 1992.

14. Having expressed the view that the respondent's case was hopeless and doomed to fail, the judge upheld the Master's order that the respondent surrender possession of the premises to the appellant and pay mesne profits to be assessed. He concluded, however, that the appellant had given the first defendant "unconscionably short notice of termination" and that therefore a reasonable stay of execution of the possession order should be granted to enable Mr. Shuan to close down the business of the Martini Restaurant and Snack Bar in an orderly fashion. He then indicated that he would hear evidence limited to the issue of what was a reasonable duration for a stay. The hearing to determine this issue took place on 17 August. However, the evidence that was put before the judge in the form of an affirmation from Mr. Shuen did not address the issue of what would amount to a reasonable duration of stay to enable the orderly closing down of the restaurant. Instead it dealt with the difficulties which lay in the path of the respondent, first, in finding suitable alternative premises within a radius of one mile from the suit premises so that it could retain its regular patrons, secondly, in ensuring that the intended decoration work on the new premises complied with all statutory requirements including the newly enacted Environmental Protection Ordinance, thirdly, obtaining the necessary approvals, fourthly, the carrying out of the necessary decoration work, and fifthly, the obtaining of the requisite statutory licences to serve cooked food, alcoholic drinks and light refreshments. This last difficulty involved the carrying out of inspections by the Urban Services Department and the Environment Protection Department to ensure that all statutory requirements had been complied with. Mr. Shuen expected that this alone would take three months. Moreover, if any alterations were required by the authorities a further delay would occur. In all the circumstances it was urged that a period of six months be granted in order to enable all of these steps to be carried out.

15. In making the order for the stay of execution which is the subject of the appeal, the judge stated that each case depended on its own circumstances and that since the restaurant had been operating for eight years a stay of six months was reasonable.

16. There can be no doubt that each case must be decided in the light of its own individual circumstances. The question that arises is whether or not the judge had plainly exercised his discretion wrongly. Counsel referred us to a number of case in which were stated the principles concerning the exercise by a judge of his discretion and the circumstances under which it can be interfered with by an appellate court. Those principles are well known and do not need restating.

17. Of greater assistance to us is a decision of Huggins J., as he then was in Lo Chi and The Protective Gloves Manufactory Ltd. [1969] HKLR 626. There the defendants sought a stay of execution for four months to enable them to transfer their business. Huggins J. held that the judicial discretion should be exercised so as to give the defendants no more than is reasonably necessary to enable them to vacate the premises. This decision has never been the subject of adverse criticism by this court as far as we are aware. We are of the opinion that it is good law.

18. Had the judge adhered to the course which, at the conclusion of his judgment on the main issue, he stated that he proposed to adopt, he would not have gone astray. Unfortunately, he allowed himself to be led onto the wrong track. The issue was what was a reasonable time to give the respondent to enable it to vacate the premises, not what was a reasonable time to enable it to set up another restaurant in another location for the purpose of carrying on its business. The judge's discretion plainly miscarried. A stay of six months to enable the respondent to vacate the suit premises is grossly excessive. We set aside the judge's order and substitute for it an order that execution be stayed for 14 days from the date of this judgment.