CHINA TRAVEL HIP KEE GODOWN HONG KONG LTD v. ASIARAY ADVERTISING MEDIA LTD

DCCJ 1950/2016

IN THE DSTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1950 OF 2016

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D E C I S I O N

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1.  The following 2 summonses call for determination at this hearing:

i) The Plaintiff’s summons dated 29 May 2017 for an order transferring the present action to the Court of First Instance (“CFI”) pursuant to section 41 of the District Court Ordinance, Cap 336 (“DCO”) and O.4 r.1 of the RDC;

ii) The Defendant’s summons dated 19 June 2017 for a summary judgment in respect of its counterclaim and an order for striking out of the Plaintiff’s clams for being frivolous and vexatious pursuant to respectively O.14 and O.18 r.19 of the RDC.

2.  It is the parties’ common ground that the core issue is whether the termination clause (i.e. Clause 5(6) of the Chinese Licence Agreement to be discussed below) became operative on 23 February 2016 when the Defendant served its termination notice. Both agreed that if the answer is in the affirmative, the deposit of HK$320,000 should be returned to the Defendant pursuant to the summary judgment on the counterclaim. At the same time, the entire action will be disposed of, and it will be unnecessary for this Court to deal with the Plaintiff’s transfer summons.

Facts Basically Not in Dispute

3.  The Plaintiff is the owner of the property know as China Travel Hip Kee Godown No. 2, No 1, Cheong Hang Road, Hunghom, Kowloon (“Godown”) near the Hunghom Cross Harbour Tunnel. There is a large signboard installed at the outer wall on one side of the Godown between 8^th floor and its roof (“Signboard”) facing certain roads leading to the Tunnel.

4.  The Defendant engages in the business of media and advertisement.

5.  By a licence agreement dated 12 December 2014 in Chinese (“Chinese Licence Agreement”), the Plaintiff agreed to grant a licence to the Defendant to use the Signboard for advertisement purpose for a term of three years commencing 16 January 2015 at the monthly rates of H$128,000, HK$160,000 and HK$185,000 for respectively the 1^st, 2^nd and 3^rd year of the term. It is understood that the Defendant would then sub-let to its customers for shorter terms at a higher fee.

6.  Pursuant to Clause 3(8) of the Chinese Licence Agreement, a sum of HK$320,000 as deposit was paid by the Defendant to the Plaintiff. On completion of the term of the Agreement, the said deposit has to be returned within 7 days of full payment of all monies required to be paid under the Chinese Licence Agreement and provided that there is no antecedent breach of the Agreement on the part of the Defendant.

7.  Clause 5(6) of the Chinese Licence Agreement provides that if there is any obstruction which affects (presumably, adversely,) the commercial value of the Signboard for advertisement purpose, the Defendant is entitled to serve on the Plaintiff a one-month written notice to terminate the Chinese Licence Agreement[1].

8.  It is the Defendant’s case that starting mid-December 2015, a crane appeared in front of the Signboard partially obstructing the Signboard when viewed from roads Tunnel bound. The crane was situated in a construction site for a MTR railway project near the Godown. The appearance of the crane is basically not disputed. It is the extent of obstruction, and whether the crane has any effect on the commercial value of the Signboard that are in dispute.

9.  On 23 February, 2016, the Defendant through its solicitors served a notice on the Plaintiff pursuant to Clause 5(6) of the Chinese Licence Agreement to terminate the said Agreement with effect from 28 March 2016. It is not in dispute that licence fee had been paid by the Defendant up to 28 March 2016.

10.  The present action was initially instituted by the Plaintiff on 27 April 2016 claiming outstanding licence fee up to April 2016 for a total sum of HK$175,483.88[2]. However, on 31 May 2016, the Defendant filed and served a Defence and Counterclaim denying liability and asking for return of the deposit.

11.  On 13 June 2016, the Plaintiff through its solicitors accepted the Defendant’s purported repudiation of the Chinese Licence Agreement and expressed its intention to re-let the Signboard with a view to mitigating its loss. The statement of claim was amended accordingly to claim for loss and damages represented by loss of licence fee as from 29 March 2016. In paragraph 11 of the amended statement of claim, the Plaintiff expressly pleads that the present claims fall within the jurisdiction of the District Court but that is without prejudice to its application to transfer the action to the CFI should the loss and damages suffered by it exceed HK$1 million.

The Defendant’s Summary and Striking Out Summons

12.  It is the submission of Mr Chan, counsel for the Defendant, that in order to trigger off Clause 5(6) as at 23 February 2016, it will be necessary for the Defendant to prove, firstly, there is an obstruction to the view of the Signboard, and secondly, the commercial value of the Signboard for advertisement purpose was affected. It is Mr Chan’s submission that this is a plain and obvious case that the Defendant has established so.

13.  As for the first requirement, he submitted that since the appearance of the crane before the Signboard is not disputed, the first requirement under Clause 5(6) is satisfied. The threshold is, Mr Chan submitted, very low. Any obstruction (任何遮擋) will do.

14.  As for the second requirement, the gist of the Defendant’s case is that it had a list of potential customers to whom certain Media Rate Card for promotion would be sent. Its marketing staff would also follow up on these customers. However, none of these potential customers on its record placed any order for the 2016 time slots despite the already-reduced prices. One of the feedbacks is that they had other alternative choices of outdoor signboards instead of having to tolerate a view with a crane in its front which affects the aesthetic sense of the advertisement as a whole. The response from customers direct is the best objective evidence that the commercial value was reduced. Accordingly, the second requirement under Clause 5(6) can be established. It will not be necessary for the Defendant to prove the obstruction being the sole factor of the price reduction. It will suffice if the Defendant can establish obstruction being one of the many factors. In the circumstances, it will also be unnecessary for any expert, as suggested by the Plaintiff, to give any opinion for the impact of the crane on the commercial value of the Signboard. The alleged failure on the part of the Plaintiff to re-let despite effort is telling and supports the Defendant’s case[3].

15.  The Plaintiff took a preliminary objection as to the manner in which evidence is adduced by the Defendant. Mr Ho, counsel for the Plaintiff, takes the view that it is unfair for the Defendant to put in material factual evidence only in the affirmation in reply, which the Plaintiff has no chance to rebut. It amounts to an ambush and Mr Ho asks this Court to disregard this evidence, relying on Sze Ching Lok v China Resources Power Holdings Co Ltd[4]. Even if the evidence is to be considered de bene esse, Mr Ho submits that the evidence is only the Defendant’s bare assertions. The evidence lacks particulars and is not corroborated. Further, there may be numerous causes for customers not wanting to rent the Signboard, such as market factors including market downturn. This, according to Mr Ho, may be relevant as to why the Plaintiff remained unable to re-let the Signboard even when the crane has gone since latter part of 2016. There are triable issues and the Plaintiff’s action should not be struck out without a trial.

16.  Mr Chan’s reply, so far as can be discerned from his submission, is that the Plaintiff now based his case on causation but it has not been properly pleaded. He understood the Plaintiff’s case on termination to be[5]:

i) The obstruction was de minimis as the crane is mobile rather than static, and the obstruction is from a distance and only from a certain angle;

ii) There is no evidence that the commercial value of the signboard for advertising was affected by the crane at all.

17.  Mr Chan considers the Plaintiff should be limited by his case, and the ground of causation between obstruction and reduction in commercial value cannot be raised.

Striking Out

18.  This Court considers that the following are principles applicable to striking out a claim on ground it being frivolous and/or vexatious:

i) The object is to stop cases which ought not be launched – cases which are obviously frivolous or vexatious, or obviously unsustainable;

ii) Where a party brings a claim knowing that there is no substance in it or that it is bound to fail, or if the claim is manifestly misconceived that it can have no prospect of success, it is deemed frivolous and an abuse of process;

iii) Vexatiousness implies the doing of something over and above that which is necessary for the conduct of the litigation, … desire to harass the other side…;

iv) It will be a serious finding to make a litigant to be vexatious and frivolous, … and the discretion by the Court is to be sparingly exercised;

v) Discretion to strike out is only exercised in “plain and obvious” case. This is because the exercise of the power to strike out would summarily drive a party from the judgment seat when otherwise it would be entitled to have a full hearing after discovery of documents and with oral evidence;

vi) Although affidavit can be used, there should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out;

vii) The Court should not decide on difficult point of law in a striking out proceedings. If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that the proceedings are frivolous or vexatious, then, there should be no striking out; and

viii) the onus is on the applicant (in the present case, the Defendant) to demonstrate that the claim is plainly and obviously frivolous and/or vexatious.

(see paragraphs 18/19/4, 18/19/7, Hong Kong Civil Procedure (Vol 1) 2017, H v Lau Ka Yee Michael[6] )

19.  The gist of [5] and [6] of the Counterclaim is simple, and is this: the Signboard was blocked and that the commercial value was serious affected by such blockage. The Defendant is therefore entitled to terminate the Chinese Licence Agreement and it did so on 23 February 2016.

20.  [3] of the Amended Reply and Defence to Counterclaim is the Plaintiff’s averment to the above paragraphs of the counterclaim. It is pleaded that “the subject matter signboard [i.e. the Signboard] was clearly visible and its commercial value as a billboard was never adversely affected. In any event, it is averred that as a matter of law clause 5(6) must be construed objectively and may only be triggered when it can reasonably be said that its value as a billboard was adversely affected.”[7]

21.  By the above averment, the Plaintiff expressly denied views being blocked and the Signboard’s commercial value being adversely affected by such blockage. Further, by raising the issue of proper construction of Clause 5(6), this Court considers that the Plaintiff has directly put the causation between obstruction and commercial value as an issue. With due respect to Mr Chan, this Court does not accept his submission that the Plaintiff has not raised the issue of causation.

22.  Against the Plaintiff’s pleadings set out above, the Plaintiff filed 2 affirmations. From the evidence deposed to in the affirmation of Mr Law Chi Wo[8], it is fair to understand it to mean that in respect of the obstruction point, he basically denied the crane amount to obstruction as the construction site was there before the Chinese Licence Agreement was signed and when the parties were still negotiating for the said Agreement. Further, the crane is always moving which does not amount to obstruction good enough to trigger off Clause 5(6). Even if there were obstruction, its effect was “de minimus”. He also queried that despite the alleged obstruction, even according to the Defendant’s own evidence there was a customer “Dr Morita” (later said by Defendant to fetch a rate of $2,605/day) willing to place advertisement at the Signboard shortly before the termination. He also stated that despite the removal of the crane in or about December 2016, the Plaintiff was unable to lease out the Signboard. The Plaintiff therefore challenges that factors other than the crane factor might be operating affecting the inability of the Defendant to secure customers at the material time. In other words, even if the commercial value of the Signboard has been changed or reduced, it might not be caused by the crane.

23.  From the striking out principles stated above, the evidence in support of the Plaintiff’s pleadings should be taken as true for striking out purpose. Further, this Court does not consider the Plaintiff’s case so devoid of merit or evidence, or is bound to fail, or is manifestly misconceived that is hopeless that deserved to be struck out. On the other hand, in light of the Plaintiff’s affirmation evidence, one should not do a mini trial of affirmation evidence at the interlocutory stage by accepting that filed on behalf of the Defendant in preference to that of the Plaintiff.

24.  It has been submitted by Mr Chan in his Reply submission that the photos adduced by the Defendant are conclusive evidence as to the obstruction of the Signboard as at the material time when the termination notice was served. It is also submitted that as a matter of common sense the commercial value is bound to be affected.

25.  In the Court’s judgment, it boils down to a matter of construction of “any obstruction (任何遮擋)” in the termination clause. As can be seen in photos taken by the Plaintiff and exhibited in the affirmation of Law Chi Wo[9], the Signboard seemed to have been obstructed by building/flyover at some angle. Sometimes its view was also blocked by other vehicles travelling, apparently, on a nearby flyover. From some angle it was even blocked by vegetation. Accordingly, the extent of obstruction that could be qualified as an obstruction within the meaning of Clause 6(5) is a live issue that requires a trial. Accordingly, I cannot agree with the proposition that the commercial value is bound to be affected by any obstruction. It hinges on the degree of obstruction. It is something that are hotly in dispute that needs be resolved by a trial.

26.  I therefore dismiss the Defendant’s striking out application.

Summary Judgment in Respect of the Counterclaim

27.  It is trite that in an application for summary judgment, the burden rests on the respondent [i.e. the Plaintiff in the present application] to demonstrate a triable issue and a real and bona fide defence: see paragraph 14/4/9 Hong Kong Civil Procedure (Vol 1) 2017 (emphasis added).

28.  The gist of Mr Chan’s submission is that the case of the Defendant is so strong that the evidence shown by the Plaintiff fails to raise any triable issues. However, despite the able submission of Mr Chan, this Court disagrees.

29.  Firstly, this Court considers the discussion about the evidence relating to striking out (see [22] above) is also applicable to the Defendant’s O.14 application. From the affirmation filed by the Plaintiff, it can be seen that the Defendant was still able to secure customers up to almost its last date of notice when the crane was there, but on the other hand the Plaintiff was unable to re-let the Signboard even when the crane has gone. Further, it appears that there is very wide range of price for the Signboard over the year. From the above, at least prima facie, it can be argued that the crane may not be an operating factor as there were still customers agreeable to take up the Signboard when the crane was there. On the other hand, there is no evidence as to how the Defendant’s last customer came about or whether the price had been reduced as a result of the crane. This evidence casts doubts as to whether there was any change in the commercial value of the Signboard at the material time, and if so, whether it was caused by the crane. In the interest of justice, the dispute must be resolved by a trial.

30.  Secondly, I share the sentiment expressed by Mr Ho that quite a lot of material factual matters were disclosed in the 2^nd affirmation of Lam Ka Po. However, even if the evidence disclosed was considered de bene esse, I must say that this evidence is primarily self-serving and lacks particulars. In the Court’s judgment, it will be unsafe to rely on it to deprive the Plaintiff’s right to a full trial. For examples, it is said that only their potential customers set out in their spread sheet were contacted. However, it can be noted that the list is only a rather short one with apparently 24 customers. Further, particulars of their staff[10], the persons whom the Defendant’s staff had contacted and what other terms would be bundled in their contracts with their customers are lacking. As correctly pointed out by Mr Ho, the price range deposed to by the Defendant was wide. It ranged from $3,929/day (Sept/Oct 2015) to $10,643 (Nov/Dec 2015) for 2015. It is noted that the daily rate was $4,107 (Dec/Jan 2016) when the crane was said to be there. It can be regarded as low compared with the corresponding period the year before. Although one can appreciate the thrust of the Defendant’s case, this Court is not satisfied that without a trial, where witnesses are cross-examined for their explanation and market conditions more thoroughly explained, one can come to definite view on the extent of obstruction, and that the commercial value of the Signboard had been adversely affected as a result. Even according to the Defendant’s affirmation evidence, it is one of the many feedbacks that their potential customers decline to take up the Signboard. It is understood that excuses of all sorts, genuine or otherwise which include window-dressing ones, might be put up in commercial dealings. Without full disclosure and proper cross-examination, it would be unfair to rely solely on non-particularized affirmation assertions of the party seeking to rescind a contract to deny his opponent a trial.

31.  The question of whether Clause 5(6) of the Chinese Licence Agreement could be triggered off by the Defendant remains a triable issue. This Court therefore grant the Plaintiff unconditional leave to defend.

The Plaintiff’s Summons to Transfer

32.  Section 41(1) of the DC stipulates:

“The Court shall, either of its own motion or on the application of any party, order that an action or proceeding be transferred to the Court of First Instance where an action or proceeding commenced in the Court, not being a counterclaim, is outside the jurisdiction of the Court but is within the jurisdiction of the Court of First Instance.”

(Emphasis added)

33.   O.4, r.1 of the RDC provides that an application under s.41 of the DCO shall be by summons and supported by an affidavit stating the grounds on which the application is made and verifying the facts relied on. It was deposed to in the 2^nd Affirmation of Kevin Nie affirmed on 21 July 2017[11] that up to the date of the affirmation, despite efforts, the loss and damages represented by loss of licence fee from 29 March 2016 to 21 July 2017 amounted to HK$2,680,000. Obviously it is a situation anticipated by the pleadings[12] of the Plaintiff who does not intend to forgoes its entitlement beyond HK$1 million. On a proper construction of s.41 of the DCO, if the Plaintiff’s claim exceeds HK$1 million, i.e. the current monetary limit of the District Court under s.32[13] of the DCO, it is mandatory for this Court to transfer the action to the CFI.

34.   It seems that the Defendant’s only ground of objection is that there is no evidence of mitigation shown by the Plaintiff.

35.   Mr Ho has helpfully referred this Court to 2 decisions, namely,Wong Miu Kwan v FPD Savills Property Management Ltd[14] and Wong Kwong Wa v Hip Hing Construction Ltd[15] which provide useful guidelines on how to approach an application for transfer.

36.   Wong Miu Kwan (supra) was a case concerning an appeal against a CFI master’s decision to transfer a case from the CFI down to the District Court. However, the approach of Hon Suffiad J also provided very useful guidelines for this Court to transfer up. The summary set out in the case report, which this Court finds very useful, is as follows:

i) In the absence of abuse, a plaintiff should be entitled to frame his case in the manner he wished;

ii) At an interlocutory stage, it would not be proper for the court or a master to view the plaintiff’s claim in the same way as it would do at trial by weighing the different evidence or by believing or disbelieving some or all of the evidence. That exercise can only be carried out when all the evidence, cross-examination and submission has been heard, particularly where there are factual and or other disputes between the parties, as for instance disputed expert opinion;

iii) Accordingly, the plaintiff’s case on quantum as framed by him ought to be viewed at its highest when determining the proper jurisdiction where the case should be brought.

37.   The approach formulated in Wong Miu Kwan (supra) was applied with approval by HHJ Au (as he then was) in Wong Kwong Wa (supra) which concerned an application by the plaintiff therein transferring up a personal injury case. It was opposed on the ground that it was unlikely the plaintiff could achieve an award of over $1 million or alternatively, the Court should strike out the plaintiff’s claim under s.41(2)[16] of the DCO (which part is irrelevant here).

38.   HHJ Au (as the learned judge then was) noted in [16] of Wong Kwong Wa (supra) the following:

“16. Thus, construing section 41 of DCO together with the principles laid down in Wong Mui Kwan, I am of the view that if the Court comes to the view that the claimed sum as framed, which say is above the District Court’s statutory jurisdiction, does not amount to an abuse and if there is nothing to conclusively contradict it at an interlocutory stage, the Court must and should transfer the matter to the High Court, unless it sees fit to exercise its discretion under s. 41(2) of DCO to instead strike out the action.”

39.   This Court considers both cases have correctly set out the proper approach in deal with an application to transfer up. Applying these guidelines, given that it is still in the early stage of the proceedings, this Court cannot say that the Plaintiff will be unable to discharge its duty of mitigation thus bringing the total damages below HK$1 million. It is now too early for the Plaintiff to table all its evidence about mitigation with a view to substantiating a transfer application. As such, it cannot be said that the case as framed by the Plaintiff is bound to fail so that its claim remains within the District Court’s jurisdiction.  

40.   It follows that an order to transfer up should be made.

Disposition and Costs

41.   By reasons of the above:

i) The Defendant’s summons dated 19 June 2017 for summary judgment in respect of its counterclaim and for striking out of the Plaintiff’s claims be dismissed; and

ii) The Action be transferred to the CFI pursuant to section 41(1) of the DCO.

42.   As the Defendant is unsuccessful in both summonses, I make a costs order nisi that the Defendant do pay the Plaintiff’s costs of both summonses on the District Court scale with certificate for counsel. This order nisi will be made absolute if no application is made to vary it in 14 days.

43.   I do thank both Mr Ho and Mr Chan for their able assistance rendered to the Court.