PROWELL INTERNATIONAL TRADING LTD v. KAN SHUE REALTY LTD AND ANOTHER

HCA 1088/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1088 OF 2009

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BETWEEN

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D E C I S I O N

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APPLICATION

1.  This is an application for summary judgment.

BACKGROUND

2.  The Plaintiff was and is the registered owner of the premises known as Shop C on G/F, Flat A (including Flat Roof thereof) and Flat B (including Flat Roof thereof) on 1/F of Fortune Mansion, 28-36 Apliu Street, Kowloon (“the Premises”).

3.  By a tenancy agreement (“the Tenancy Agreement”) dated 1 August 2007, the Plaintiff agreed to let the Premises to the 1^st Defendant for 2 years from 21 June 2007 to 20 June 2009 at a monthly rent of $65,000. The 1^st Defendant was also required to pay all rates and management fees of the Premises.

4.  The 2^nd Defendant was and is the guarantor under the Tenancy Agreement. He also executed the Deed of Guarantee (“the Guarantee”) on 1 August 2007.

5.  On 28 April 2009, the Plaintiff commenced the present proceedings for recovery of the Premises upon non-payment of:

(a) management fees for $4,732 per month since May 2008,

(b) rent of $65,000 per month since 21 March 2009, and

(c) rates of $5,025 per quarter since April 2009.

6.  The Defendants indicated in their acknowledgments of service that they would contest the proceedings.

7.  The Plaintiff then issued the present Order 14 application on 22 May 2009. At the call-over hearing of the application, usual directions for affidavit evidence was given. By the opposing affirmation filed by the Defendants, they complained that there was an overflow of salt flush water incident at the Premises on 31 January 2008 and the Plaintiff should be held liable to pay them, among others, damages of about 1 million and loss of goodwill to be assessed. Indeed, the Defendants instituted another High Court proceedings HCA 1322/2009 on 3 June 2009 against the Plaintiff. The claims (or counterclaims) therein stand as set-off to the present proceedings.

8.  In reply, the Plaintiff said that there was such a water overflow incident. However, at all material times, the 1^st Defendant only negotiated and claimed against the building manager, its insurer and/or loss adjustor. It was a water tank at common area causing the water overflow. The Plaintiff could not be held responsible for it. The alleged breaches of the Tenancy Agreement on the Plaintiff’s part were untrue.

9.  Parties appeared before me on 16 July 2009 for substantive argument. Mr. Danny Fung of Counsel acted for the Plaintiff. Mr. William Au of Messrs. Simon Chan & Co. represented the Defendants. Upon hearing from them, I reserved my decision to be handed down. I now do so.

DISCUSSION

I. Principles relating to set-off

10.  The Defendants are not denying the claim of the Plaintiff. They only asked for a set-off. The relevant principles of set-off can be located at pages 196 to 198 HKCP 2009. For our present purpose, it suffices to set out the followings.

“An analysis of the authorities as to what orders should be made where the defendant raises a set-off or counterclaim shows that there are four different classes or groups of such orders, namely:

1. where the defendant can show an arguable set-off, whether equitable or otherwise, he is entitled to leave to defend to the extent of the set-off and the court had no discretion;

2. where the defendant sets up a bona fide counterclaim arising out of the same subject-matter as the action and connected with the grounds of defence, the order should not be for judgment on the claim, subject to a stay pending trial of the counterclaim, but should be for unconditional leave to defend, even if the defendant admits the whole or part of the claim;

3. where there is no defence to the claim but a plausible counterclaim of not less than the claim is set up, judgment should be for the plaintiff on the claim with costs, stayed until trial of the counterclaim;

4. where the counterclaim arises out of a separate and distinct transaction or is wholly foreign to the claim, judgment should be for the plaintiff with costs without a stay; the lack of clarity between classes 2, 3 and 4 gives the court freedom to respond to the perceived justice of the individual case.”

II. Merits of the Defendants’ case?

11.  Upon consideration of the evidence before this Court, I am not optimistic about the Defendants’ case in HCA 1322/2009. With respect, it is not arguable, bona fide or plausible.

(a) Under the Tenancy Agreement, the rent is “payable in advance on the 21^st day of each and every calendar month without any deduction whatsoever” (emphasis added) (Clause 1 of the Tenancy Agreement).

(b) The water overflow incident happened on 31 January 2008. The 1^st Defendant continued to pay rent to the Plaintiff for more than one year thereafter until 20 March 2009. During such period, there was no complaint or claim made against the Plaintiff by the Defendants or any other party.

(c) At all material times, the “victim” of the water overflow incident was Yiu Wing Entertainment Company Limited, not the 1^st and/or the 2^nd Defendant(s) herein. As pointed out by Mr. Fung, according to all contemporaneous documents, it was Yiu Wing Entertainment Company Limited who claimed for damages.

(d) Further, Yiu Wing Entertainment Company Limited only negotiated or argued for the damages with the Building Manager, the Incorporated Owners and/or their Insurer/Loss Adjustors. Apparently, the Plaintiff had no control over the water tank at common area. It was also only until the “negotiations” having failed, Yiu Wing Entertainment Company Limited (not yet the Defendants until the commencement of HCA 1322/2009) then turned to the Plaintiff.

(e) Finally, I agree with Mr. Fung that the prevention principle is also against the 1^st Defendant. Under clause 2(k) of the Tenancy Agreement, the 1^st Defendant was required to maintain an insurance policy to cover various risks, including flood. It had not been done and as such, the 1^st Defendant should not be allowed to take advantage (obtaining compensation from the Plaintiff) for his own wrongdoings (failure to take out proper insurance).

12.  To put the set-off of the Defendants to its highest, it is something akin to a separate and distinct transaction or is wholly foreign to the Plaintiff’s claim under the present proceedings. Further or alternatively, if discretion is to be exercised in the matter, I see no injustice done to the Defendants by not allowing them the set-off as claimed.

CONCLUSION

13.  In the end, as vacant possession of the Premises was delivered to the Plaintiff on 20 June 2009, I will grant summary judgment to the Plaintiff against both Defendants for payment of: -

(a) the sum of $191,250,

Particulars

Rent (21.3.2009 to 20.5.2009)                               130,000

Management charges (1.5.2008 to 30.4.2009)          56,784

Rates (1.4.2009 to 30.6.2009)                                   4,466

                                                                              191,250

(b) arrears of rent/mesne profits in the sum of $65,000, being monthly rent from 21 May 2009 to 20 June 2009, and

(c) management charges in the sum of $7,887, being monthly management charges of $4,732 from 1 May 2009 to 20 June 2009.

(d) Interest on the said sum of $191,250 at the rate of 8% per annum from 28 April 2009 until today and thereafter at judgment rate until payment.

14.  There is an order nisi that the Defendants shall pay costs of the action and application, including costs reserved and Certificate of Counsel for hearing on 16 July 2009, to be summarily assessed by me, with one hour reserved, failing agreement by parties within 21 days.