SUNEASY LTD t/a TAIPAN MANAGEMENT CO v. SUYONG DESIGNS LTD AND ANOTHER

DCDT 2254/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO 2254 OF 2015

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DCDT 2518/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO 2518 OF 2015

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DECISION

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1.  In the present applications, the defendant seeks to set aside the warrants of distress obtained by the plaintiff in the above 2 proceedings.

BACKGROUND

2.  The present proceedings arose out of a tenancy agreement entered into between the plaintiff as landlord on one part and the defendant as tenant on the other for a premises situated at 7^th Floor, Arts Mansion, 43 Wong Lai Chung Road, Hong Kong (“the Premises”) for a period of two years from 1 December 2013 to 30 November 2015 (the “Tenancy Agreement”).

3.  The same Tenancy Agreement was the subject matter of a decision made by Deputy District Judge A Ng on 30 July 2015.  The background to the dispute can be found in that decision.

4.  On that occasion, the defendant has successfully set aside the warrant of distress dated 19 May 2015 on the ground that the deputy judge has ruled, as a matter of factual finding, that the warrant was issued on a faulty basis and that the plaintiff had failed to disclose to the judge material matters for his consideration at the ex parte application stage.    

5.  The background to the present applications started with the issue of warrants of distress issued in respect of DCDT 2254/2015 and DCDT 2518/2015 on 1 September 2015 and 22 September 2015 respectively.

6.  On 16 October 2015, the defendant’s solicitors filed a notice to act on behalf of the defendant.

7.  On 20 October 2015, the defendant by way of ex parte application applied for a stay of execution in respect of both actions.  I granted the application on condition that the defendant pays into court a sum of HK$180,000 on or before 4:00 pm on 30 October 2015.

8.  On 30 October 2015, one of the named defendants, namely Mr Michael Ritchie Callahan (“Mr Callahan”) filed a notice to act in person. 

9.  On the same day, the defendant made a payment into court of HK$80,000 instead of the HK$180,000 ordered by me.

10.  Also on the same day, the defendant, who was then acting in person, made an ex parte application before me for an extension of stay of execution which was rejected by me.     

11.  On 6 November 2015, the defendant’s solicitors filed a notice to act again on behalf of the defendant again.

DISCUSSION

Issues in Dispute

12.  The defendant relies on the following grounds for setting aside the 2 warrants of distress, namely:-

(a) Whether the applications for the 2 warrants of distress had been properly taken out;

(b) Whether there was any material non-disclosure on the part of the plaintiff in making the ex-parte application for the warrant of distress;

(c) Whether the plaintiff is entitled to make a claim based on the monthly rental of HK$54,000; and

(d) Whether the plaintiff and/or the bailiff have been acting in contrary to section 91 of the Landlord and Tenant (Consolidation) Ordinance, Cap 7 (“the Ordinance”) by breaking into the Premises without “the 1^st and 2^nd visits”.

13.  I consider that (a) to (c) above can be considered under the issue of whether there was any material non-disclosure when the plaintiff made the ex parte application for the warrants of distress.  Further, the issue of whether the plaintiff and/or the bailiff have been acting improperly can be considered as a separate issue.     

The defendant’s case

14.  In short, the defendant’s case is that:-

(a) The way the figure of the outstanding rent was calculated was not disclosed, and/or the calculation relied on by the plaintiff was misconceived for the following reasons:-

(i) Mr Tat-Chiu Thomas Young (“Mr Young”) of the plaintiff was wrong in saying that the defendant “had been late in (paying rent) all the previous months”.  The defendant, in his 3^rd affidavit, deposed that he had “paid the rent on time for the rent of November 2014, January 2015, and July 2015”, and the copies of payment records and cheques were produced;

(ii) the plaintiff did not take into account the rents for May and June 2015, which the defendant had already paid by way of payment into court on 18 June 2015 for the amount of $90,000 in accordance with the Order made by Deputy District Judge A Ng; and

(iii) the plaintiff failed to disclose the fact that the defendant has been paying $45,000 monthly rental, and when accepting the previous rents of $45,000, the plaintiff did not inform the defendant on any occasion that he should be liable to pay $54,000 instead.

$54,000 or $45,000 Rental?

15.  It is undisputed that the monthly rent stipulated in the Tenancy Agreement was $54,000, with a $9,000 discount term, and therefore the monthly rent payable was $45,000.

16.  The first question the Court has to deal with in this application is, whether, upon the proper interpretation of Clause 4(a) of the Tenancy Agreement, the plaintiff is entitled to claim a monthly rental of $54,000 (without discount) if the defendant is in arrears for over 15 days?

17.  Clause 4(a) of the Agreement provides as follows:-

“If the rent hereby stipulated or any part thereof shall be unpaid for 15 days after becoming payable (whether legally or formally demanded or not) or if the Tenant shall fail or neglect to perform or observe any term or condition herein contained and on his part to be performed or observed ….. then and in any of the said cases shall be lawful for the Landlord at any time thereafter to re-enter upon the said premises or any part thereof…..

…….. Alternatively at the Landlord’s discretion, the Tenancy may continue suspended of Landlord’s obligation to honour repairs services discounts or liability until arrears or Tenant’s breach is remedied”.

18.  As Deputy Judge A Ng stated in DCDT 1324/2015, Clause 4(a) is the controversial provision in this case.  I agree with the deputy judge that the first part of clause 4(a) is a normal clause and on its plain meaning the plaintiff has a right to re-enter, ie the right to forfeit.

19.  It is the second part of clause 4(a) which is controversial. 

20.  In my judgment, clause 4(a) must be construed in the context of the main terms of the Tenancy Agreement which can be found in table form on the first page of that document. In it, the “monthly rent” was stated to be at HK$54,000.  And the “term discount” is stated to be at HK$9,000.  A sum of HK$45,000 was said to be “payable” “upon due”.  The above rent of HK$54,000 included management fee and rate.

21.  It is trite that if the meaning of the clause is ambiguous and capable of more than one interpretation, contra proferentem rule shall apply, and the preferred meaning should be the one that works against the party who provided the wording, ie the plaintiff in this case.  However, I agree with Deputy Judge A Ng that the interpretation put forward by the plaintiff is a capable and reasonable interpretation.  In my view, the plain reading of the second part of clause 4(a) does carry the meaning that “the full $54,000 per month rent is payable, without discount, if tenant is in arrears over the last 12 months” as alleged by the plaintiff.  

22.  In my view, when signing the Tenancy Agreement the parties must have been fully aware that the actual rental was agreed at HK$54,000 per month, as specified on the first page of the document.  However, as the Tenancy Agreement has clearly provided, if the tenant pays the rent on time each month, ie on or before the due date on the 1^st day of each month and in any event no later than 15 days after it becomes payable, then the tenant is entitled to the discounted rent at HK$45,000, ie with the discount of HK$9,000 per month. 

23.  In this case, if the Court takes the view that the plaintiff is not entitled to claim for $54,000 per month for the rent in arrears, it then follows that the basis of the plaintiff’s calculation of rent outstanding must have been wrong. 

24.  However, in my judgment, there is nothing unclear about the “discounted rental” arrangements. The second part of Clause 4(a) in my view has clearly provided that the landlord (ie the plaintiff) has the discretion to suspend the landlord’s obligation to give “discounts” to the rent until the arrears of rent are paid up or the tenant’s (ie the defendant’s) breach is remedied.  In this respect, I totally agree with Deputy Judge A Ng that the second part of clause 4(1a) is capable of carrying that plain and obvious meaning.        

25.  While I agree that “distraint for rent is a very efficient but draconian remedy provided by the statute to the landlord in the event the tenant fails to pay the rent.  It is therefore incumbent on the landlord to give essential details behind the application, which include the fact that the rent is owed, the amount of rent owing, and the period in respect of which the rent is due.  Such details form the substratum of every distraint application.”: per deputy district judge A Ng in Suneasy Ltd T/A Taipan Management v Suyong Designs Limited & Mr Callahan, Michael Ritchie DCDT 1324/2015 (30 July 2015), I do not consider that such details are lacking in this case when the plaintiff applied for warrants of distress in both actions.

26.  In my view, the affirmation of the staff of the plaintiff Ms Chan Mei Yin Ceclia (“Ms Chan”) affirmed on 25 November 2015 in the present actions, which produced the payment records of the defendant since renting the Premises, have made it beyond any shadow of doubt that the defendant had been late in its rental payment from 1 March 2014 onwards.  Instead of tendering $54,000 as the proper rental payment before all the arrears were paid up, the defendant had chosen to pay the discount rent at HK$45,000 but were late on almost each and every single occasion.  In this respect, I reject the defendant’s case that he had paid the rent on time in November 2014, January 2015 and July 2015 as he was paying the rent at the discounted rate of HK$45,000 only.  In my view, once the defendant was in arrears in paying the rent, the landlord is entitled to rely on Clause 4(a) to suspend the “discounted” rent and charge the agreed rental.  Hence, in my judgment, as of 27 August 2015 when Ms Chan stated in her affirmation to support the application for warrant of distress in DCDT 2254 of 2015 and gave the breakdown that a sum of HK$180,000 rental payment was owed by the defendant to the plaintiff, there was no material non-disclosure or any impropriety about the applications at all. 

27.  Hence, insofar as the defendant is relying on this ground to set aside the warrants of distress, the same must be dismissed.       

When can the bailiffs break open the door and enter the Premises

28.  The next question is whether the alleged wrongful execution of the warrants of distress, ie breaking open the Premises’ door without “the 1^st and 2^nd visits”, is a relevant and/or valid ground for setting aside the warrant of distress.

29.  Section 91 of the Ordinance provides that:-

“(1) A bailiff or officer appointed to execute a warrant may break open inner doors;

(2) If he is denied admittance to any building in respect of which he has a warrant to distrain, after declaring his name and business, or if, after waiting a reasonable time, no person answers or is in the building, he may apply to the court for authority to break open outer doors and windows, so far as may be necessary to enable him to execute the warrant’;

(3) The court, on being satisfied, by the affidavit of the bailiff or officer, that there are no reasonable means of executing the warrant without breaking open the outer doors or windows, may grant an order in writing, addressed to a bailiff, authorising him to break open, or have broken open, the doors and windows;

(4) Before executing such order, however, the bailiff shall inform any person in or about the building that he has such order and that he is about to act on it, unless the doors or windows are opened.”

[emphasis added]

30.  The defendant deposed in his 1^st affirmation that, on 14 October 2015, 3 females purportedly acting for the bailiff office had broken open the door of his premises and changed the lock of the front door without any prior visit. [emphasis added]

31.  The bailiffs’ records however revealed that a bailiff was sent to the Premises on 16 September 2015 at 10:25 am when he was refused entrance by a foreign female who claimed to be the maid of the defendant.  After the bailiff explained his identity and the purpose of his visit, the maid claimed that she could not settle the debts on behalf of the defendant and would not allow the bailiff and his colleague to get into the Premises as the defendant was not in at the time.  Hence, no seizure could be executed on that occasion. 

32.  The defendant had not mentioned about this at all in his affidavits.  In my view, there is no reason for the bailiffs to record this down on their record had this encounter never taken place at all.  I find it difficult to believe that the maid would have failed to inform the defendant of the bailiffs’ 1^st visit on 16 September 2015 as it was clearly a serious matter when the purpose of the visit had been clearly explained by the bailiffs to her.

33.  Further, I also accept as a fact that on the 2^nd visit by the bailiffs on 24 September 2015 at 2:15 pm, he found the outer door of the Premises locked and nobody responded to his calls. 

34.  According to the bailiffs’ records, it was only on the 3^rd visit on 14 October 2015 at 11:30 am that they broke open the door after finding the doors of the Premises locked and no one responded to their calls.  It was on that occasion that 2 sets of seizure documents were handed to Ms Chan of the plaintiff and the security guard(s) respectively and the other set for the defendant was left at the Premises.  Also, security guard(s) stayed at the Premises to safeguard the goods under seizure. 

35.  This was when Mr Callahan of the defendant complained in his affidavit filed on 20 October 2015 that the plaintiff had unlawfully broke open the door and entered the Premises without first making 2 proir visits first. 

36.  Based on the above records kept by the bailiffs, I find as a fact that the defendant was wrong to say that this was the first attempt of seizure by the bailiffs.

37.  Mr Callahan in his 4^th affidavit deposed to the fact that, “according to his understanding” and “normally”, upon an unsuccessful visit, the bailiff would leave a notice at the front door.  He complained that he had never received any such warning or notice of communication from the plaintiff to either himself or his wife prior to the evening of 14 October 2015. 

38.  While it is true that the plaintiff in both of its affirmations and written submissions have not dealt with this issue at all, this in my view is perfectly understandable as this would become a matter for the bailiffs once the landlord has successfully applied for a warrant of distress.  It is for the bailiffs to apply under Section 91(2) of the Ordinance to break open the doors of the doors after 2 unsuccessful attempts to get entry into the Premises are made.  In this case, the bailiffs had done exactly that on 25 September 2015 after the second unsuccessful attempt.  An order to break open the door was made by HH Judge J Lam on 29 September 2015.  Thus, in my view, there is no question of the bailiffs having entered the Premises unlawfully or without proper authority from the Court. 

39.  Further, as a matter of law, which was agreed by the solicitor representing the defendant at the hearing, there is no requirement under section 91 of the Ordinance or anywhere that either the plaintiff or the bailiffs have to give written notice of the first 2 visits to the tenant/defendant before an application can be made to the court for a breaking open order.

40.  In this case, I am of the view that the application of the bailiffs under section 91 of the Ordinance was properly done and followed the laid down procedures.   

41.  In the aforesaid premises, I do not see any substance in the defendant’s second limb of argument also.

CONCLUSION

42.  In the aforestated premises, I find the grounds relied on by the defendant to set aside the warrants of distress contain of no substance at all and the defendant’s applications in the above actions must be dismissed with costs, including the costs of posting the security guards at the Premises from 14 October 2015 until either the arrears of rent are fully paid up or when seizure of goods and chattels take place under the warrants of distress (save for the period when the wasted costs was caused by the failure of the defendant’s solicitors in serving the written submissions on the plaintiff in time which led to an adjournment of the hearing on 27 November 2015), whichever is earlier.  Such costs should be paid on an indemnity basis, to be taxed if not agreed.