AFH HONG KONG STORES, LIMITED & ANOTHER v. FULTON CORPORATION LIMITED

FAMV No 36 of 2023

[2024] HKCFA 5

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 36 OF 2023 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL FROM

CACV NO 201 OF 2021)

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(by original action)

(by counterclaim)

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REASONS FOR DETERMINATION

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Mr Justice Lam PJ:

1.  The Applicants sought leave from this Court to appeal against the judgment of the Court of Appeal of 25 August 2022. On 17 January 2024, the Appeal Committee ordered that an oral hearing be held in respect of Question (3) only and the balance of the Notice of Motion of 9 February 2023 be dismissed under Rule 7(2) of the Hong Kong Court of Final Appeal Rules. Question (3) is set out in the Annex to this Determination.

2.  After hearing oral submissions, we refused to grant leave to appeal based on Question (3) and dismissed this application with costs. These are our reasons.

3.  The dispute between the parties concerns the obligation of the 1^st Applicant as former tenant to yield up the leased premises upon the determination of a lease of several floors of the Pedder Building in Central. As defined in Part II of the First Schedule of the Lease dated 17 March 2011, the leased premises consisted of the Lower Ground Floor, Mezzanine Floor, First Floor, Second Floor and portion of the Ground Floor of Pedder Building. For present purposes, the most relevant clause in the Lease is Special Condition 13, the relevant part of which reads as follows:

“(13) Reinstatement and Hand Back Condition of the Premises

Upon the expiry of this Agreement or sooner determination of the said term, the Tenant shall return the Premises to the Landlord in a ‘bare shell’ good clean state of repair and condition on each floor of the Premises to the reasonable satisfaction of the Landlord. …”

4.  The Court of Appeal held that this part of the clause required the 1^st Applicant to reinstate the floor slabs of the leased premises which it had previously demolished with the Landlord’s consent[1]. Yuen JA arrived at that conclusion not only with reference to the expression “bare shell” but also to the definition of the “Premises” and the reference to “each floor of the Premises” in the phrase. The obligation of the 1^st Applicant to “return the Premises … in a ‘bare shell’ good clean state of repair and condition on each floor of the Premises …” has to be construed and read as a whole. Viewed in that light, the Court of Appeal’s construction of the clause is plainly correct.

5.  With respect, the argument of Mr Fung SC[2] focusing on the difference in the meanings of “bare shell” as an adjective and a noun failed to pay proper regard to the subject matter of the obligation of the 1^st Applicant. The subject matter of the Lease were the Premises which consisted of five floors and the 1^st Applicant was obliged to return that to the Respondent. Even assuming that “bare shell” in Special Condition 13 is only an adjective, it could not absolve the 1^st Applicant from such obligation.

6.  Mr Fung submitted that Special Condition 13(1) should be construed in the light of Special Condition 13(2), in particular (2)(ii)[3]. He said the Respondent could only insist on reinstatement by exercising the option under (2)(ii) by giving the 1^st Applicant not less than 9 months’ notice. As explained by the Court of Appeal, Special Condition 13(2) provides an option to the Respondent to “pick and choose” and caters for a different situation from Special Condition 13(1)[4]. We do not find it reasonably arguable that Special Condition 13(2)(ii) could have the effect of changing the clear meaning as to the subject matter to be yielded up under Special Condition 13(1) when the option was not exercised.

7.  Nor are we satisfied that Question (3) raises any issue of great general or public importance. In the present case, the expression “bare shell” was used in the context of Special Condition 13 which had to be construed against the rather unusual background of a tenant demolishing the floor slabs of the leased premises for its own purposes. As submitted by Mr Mok SC[5], the determination of the construction issue in the present case would not provide guidance to the construction of this expression in other contexts. It follows that the Applicants’ summons of 9 February 2023 for leave to adduce further evidence was also dismissed with costs.

ANNEX

Whether the natural and ordinary meaning of the words “bare shell … condition” in a lease (a) merely connotes “unfurnished and undecorated” as an adjective to describe the state of the premises to be delivered up by the tenant to the landlord, or (b) additionally connotes “the structural concrete frame of the building and that only, free of non-structural partition walls” as a noun to define the subject-matter to be delivered up. (“Question (3)”)