CAMBRIDGE NURSING HOME (KOWLOON EAST) LTD v. LOYAL MERIT DEVELOPMENT LTD

HCA 367/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 367 OF 2012

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REASONS FOR DECISION

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1.  By a summons dated 17 April 2012 the Defendant (the Landlord) applies under O 29, r 1(1) of the High Court Rules for a mandatory interlocutory injunction against the Plaintiff (the Tenant) that within 7 days of the hearing it delivers up vacant possession to the Landlord of the premises known as Office Units 1-17 (including Flat Roof), 1/F Tak Bo Garden, 3 Ngau Tau Kok Road, Kowloon (the premises).

2.  The Landlord owns the premises; it let them to the Tenant for a 10 year term at the monthly rent of $396,115.20 by a tenancy agreement dated 12 August 2011.

3.  The Tenant had occupied the Premises from 29 August 2005 pursuant to an earlier tenancy agreement between the Tenant and the Landlord's predecessor-in-title. 

4.  Until March of this year (2012) the Tenant carried on the business of a nursing home at the Premises.

5.  In February of this year (2012) the Tenant stopped paying the rent and the management fees.  On 28 February 2012, the Tenant's solicitors wrote to the Landlord's solicitors complaining, among other things, that there had been problems with the drainage since 2005 and that the drainage and the piping system were completely blocked due to structural and latent defects.

6.  In the letter it was alleged that the drainage problems were structural ones and therefore the Landlord's responsibility to put right. The letter went on to say that the drainage problems had caused serious interruption to the Tenant’s business and demanded that the Landlord rectify them within 7 days.

7.  On 7 March 2012 the Tenant commenced this action, claiming damages for breach of the tenancy agreement by the Landlord in relation to the drainage problems.

8.  In paragraph 13 of the Statement of Claim it was pleaded that:

“By reason of the facts pleaded herein, the Defendant is deem to wrongfully repudiated the Tenancy Agreement and the Plaintiff is entitled to claim for all damage and loss arising from the breach of the Tenancy Agreement by the Defendant. The Plaintiff is ready and prepared to hand over the keys and vacant possession of the Premises to the Defendant if the Defendant accepts the Tenancy Agreement is wrongfully repudiated by the Defendant. (sic)”

9.  Paragraph 14 of the statement of claim requires the Landlord to return the security deposit of $188.345.60 paid under the tenancy agreement, after deducting the rent due for February 2012, amounting to 792,230.40.

10.  On 8 March 2012, the Landlord’s solicitors replied to the Plaintiff’s solicitor’s letter.  In their letter, they pointed out that that rent had been in arrears since (and including) February 2012. They disputed the claim that there were drainage problems and drew attention to the fact that, according to their client, the Tenant had never informed the Landlord of these problems.  They also referred to clause 2(c) of the tenancy agreement, which provides:

“The Tenant to the intent that the obligations hereunder shall continue throughout the said term of tenancy hereby agrees with the Landlord as follows…(c)To keep all the interior of the Premises including the flooring, the drainage, the pumps, the water supply, the pipes, the toilet and interior plaster or other finishes or rendering to walls, floors and ceilings and the Landlord’s fixtures therein including , all doors, pipes, windows, electrical installation and wiring in good, clean tenantable repair and condition and properly preserved and painted (fair wear and tear inherent and structural defect excepted) and so to maintain the same at the expense of the Tenant…”

11.  At the end of the letter the Landlord’s solicitors invited the Tenant to deliver up vacant possession of the premises forthwith for the purpose of re-letting them pending the determination of the action.

12.  On 20 March 2012 the Landlord filed a defence and counterclaim pleading the terms of the tenancy agreement, including clause 2(c) as well as clauses 4(f) and 9 which, among other things, provide:

"4(f) Save and except where the same is caused by the default and neglect of the Landlord or its servant, agent or authorised person, the Landlord shall not be under any liability to the Tenant or to any person whomsoever in respect of any loss or damage to person or property sustained by the Tenant or any such other person caused by or through or in any way owing to the overflow of water…… 9. The Tenant hereby declares and confirms that the Premises is now being occupied by the Tenant... The Parties hereto agree that the Premises will be let to the Tenant by the Landlord on an "as is" basis and no warranty or representation whatsoever has been given or is made by the Landlord... regarding the state and condition of the Premises or the said Building and the user thereof. Any problems with the state and condition of the Premises as well as the fixtures and finishes and appliances therein are the responsibility of the Tenant.(sic)"

13.  Paragraph 29 of the defence and counterclaim pleads that the tenancy agreement is liable to be forfeited and that the Landlord is entitled to re-enter the Premises.

14.  And paragraph 30 pleads, in the alternative, that the Tenant has wrongfully repudiated the tenancy agreement, that the Landlord has accepted the Tenant’s repudiation and terminated the tenancy agreement by the letter of 8 March.

15.  In the prayer, the Landlord seeks vacant possession of the premises, payment of outstanding rent, management fees, mesne profits and other damages.

16.  On 21 March 2012, the Landlord applied for summary judgment on the counterclaim. This has been adjourned for the filing of evidence.

17.  On 16 April 2012, the Landlord’s solicitors again wrote to the Tenant’s solicitors demanding that the Tenant deliver up vacant possession of the premises and for the dispute between the parties to be resolved in court.  The Tenant’s solicitors replied on the next (17 April 2012), but said nothing about the demand to deliver up the premises.  The Landlord issued the injunction summons on the same day.

18.  The principles governing the making of interlocutory mandatory injunctions were set out by Lord Diplock in American Cyanamid v. Ethicon Ltd [1975] AC 396; briefly they are that (a) the Court must be satisfied that claim of the party seeking the injunction is not frivolous or vexations; in other words, that there is a serious question to be tried and (b) the balance of convenience lies in favour of granting the injunction.

19.  No special rule applies to the making of a mandatory as opposed to a prohibitory injunction.  Section 21L of the High Court Ordinance, Cap.4 makes no distinction between the two types of injunction and simply states that interlocutory injunctions may be granted if it appears to be just or convenient to do so.

20.  The fundamental principle, regardless of whether the injunction is mandatory or prohibitory, is: Where does the greater risk of injustice lie if the order transpires to have been wrongly made?   The Court’s concern in dealing with the application is that it might come to the wrong decision, in the sense that, after trial, the party obtaining the injunction may lose, or the party who has been refused the injunction may win.  The Court should, therefore, take whichever course appears to carry the less risk of injustice if it should turn out that it was wrong.

21.  Where there is no arguable defence and the claim for an interlocutory injunction is justified, it is unnecessary for the Court to consider the issue of ‘balance of convenience’ in terms of American Cyanamid principles; see, for example, the decision of Chung J in Yeko Trading Ltd v. Chow Sai Cheong Tony & Ors [2000] 2 HKC 612.

22.  I agree with Mr. Douglas Lam, counsel for the Landlord that this is a clear case for the making of the mandatory injunction sought by the Landlord.  Irrespective of which party is ultimately found to have been in breach of the tenancy agreement, there can be no serious dispute that it has been terminated.

23.  In the statement of claim the Tenant claims that the Landlord has repudiated the tenancy agreement, but, rather than accepting that repudiation and vacating the premises, the Tenant has pleaded that it is ready to do so, provided the Landlord accepts that it is responsible for the repudiation.

24.  Leaving aside whether, as a matter of law, there can be a conditional acceptance of an alleged repudiatory breach on the basis that the other party admits fault; the statement of claim, in particular the claim in paragraph 14 that the Landlord return the security deposit, clearly evinces the Tenant's intention to treat the tenancy agreement as ended.

25.  Similarly, the Landlord's position in the defence and counterclaim is clear: the agreement has been terminated by the Landlord's acceptance of the Tenant's repudiatory breach in failing to pay the rent and management fees since February of this year.

26.  It is trite law that once a contract has been terminated by either party by the acceptance of a repudiatory breach, it is ended for all intents and purposes and cannot be revived.  The only question that remains is damages; see Chitty on Contracts 30th Edition at para 24-013.  In the circumstances, the tenancy agreement having come to an end, the Tenant has no legal right to remain on the Premises.  There is thus no arguable defence to the Landlord's claim for delivery up of vacant possession.

27.  In deference to the arguments of counsel at the hearing, even if I had to consider the issue of balance of convenience, I would have found in favour of the injunction sought for the following reasons.

28.  It is clear that the Tenant vacated and abandoned the premises last month.  This can be seen from:

(1)  a notice from the Tenant to the residents of the nursing home carried on at the premises, dated 20 February 2012, stating that it was giving up the premises and relocating to other premises in San Po Kong;

(2)  a further notice by the Tenant to the residents also dated 20 February 2012, stating that it was giving up the premises and relocating to the San Po Kong Premises due to "crazy" increases in rent by the Landlord;

(3)  a letter to the Landlord from the Management Office of the building in which the premises are located, dated 16 April 2012 stating, among other things, that the Tenant had moved out of the premises in March 2012 and that the premises were vacant.  It would appear that the Tenant never informed the Landlord of its intention to vacate the premises; and

(4)  photographs of the premises showing that the furniture, fittings and equipment of a nursing home have been removed from the premises and that all that remains are damaged items of furniture including heavily soiled mattresses, a quantity of old TV sets, a quantity of plastic storage boxes and folding tables and a number of filled plastic rubbish sacks.

29.  Having abandoned the premises and left them vacant, I can see little, if any, prejudice to the Tenant in my ordering it to deliver them up.  And, as previously mentioned, the Tenant has indicated in the statement of claim that it is ready to do so.

30.  There is no risk of prejudice, harm or inconvenience to the residents of the nursing home as the Landlord has relocated them to the San Po Kong home, which is operated by another corporate body called 81 Limited.

31.  On the other hand, I see a real risk of prejudice to the Landlord in not granting the injunction.  There is no dispute that the Tenant has neither paid rent nor management fees since February 2012.  The amount outstanding exceeds $1.2 million as at the date of hearing of this application and continues to accrue.  It does not appear that the Tenant has any intention to make any further rental payments.  The Tenant’s shareholders are two British Virgin Island companies and its issued share capital is only $10,000.  Its human secretary and director ( namely, Ms Icy Luk and Ms Irene Luk respectively) both resigned their offices on the date of issue of the writ (7 March 2012) and were replaced by a corporate secretary and a British Virgin Island company as director.

32.  There is a real risk that by the time this action is determined the outstanding rent and management fees will have accumulated to several millions of dollars and, irrespective of the outcome of the action, it is highly likely that the outstanding rent and management fees will far exceed the Tenant's damages claim.  Given the Tenant’s corporate structure, it is highly unlikely that it would have the means to pay the outstanding rent and management fees at the end of the trial.  The granting of the injunction will have the effect of quantifying the amount of the outstanding rent and management fees.

33.  For the above reasons, I grant a mandatory interlocutory injunction against the Tenant ordering that it delivers up vacant possession of the premise to the Landlord by Wednesday, 2 May 2012.  I have set that date instead of the ‘within 7 days of hearing’ sought by the injunction summons as there are two public holidays coming up and the Tenant may require some time to remove its remaining property from the premises should it wish to do so.

34.  As to costs: costs follow the event, as the losing party the Tenant is to pay the Landlord’s costs of this interlocutory application.

35.  At the hearing I ordered that the Landlord’s costs be paid forthwith and be taxed if not agreed.  In the course of writing these Reasons my attention was drawn to O 62 r 9A(1)(a) of the High Court Rules, which provides that the Court making a costs order in an interlocutory application may make a summary assessment of the costs by ordering payment by the party against whom a costs order is made of a sum of money to the party benefiting from the order in lieu of taxed costs; as well as to Practice Direction 14-3, Part C, paragraph 6, which makes it clear that this is the order that should be made on the determination of interlocutory applications, such as this is, unless there is good reason not to do so; had my attention been drawn to the Order and the Practice Direction at the hearing that is the order I would have made; regrettably, as it is too late for me to change it, my order for taxation (if necessary) stands.