JAPAN LEASING (HONG KONG) LTD v. SHUN KAI FINANCE CO LTD AND OTHERS

cacv 266/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 266 of 2004

(on appeal from HCA NO. 2027 of 2003)

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J U D G M E N T

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Hon Rogers VP:

1.  This is an appeal from a judgment of Sakhrani J given on 9 August 2004.  The matter before the judge was an application to strike out the defence of the 2^nd and 3^rd defendants on the grounds that it was scandalous, frivolous or vexatious or an abuse of the process of the court.  The judge made an order striking out the defence and entered judgment in favour of the plaintiff.  The order went on to declare that the 2^nd and 3^rd defendants were trespassers of premises comprising Apartment 10A, 10^th Floor together with 2 carparks and a carport of No. 3 Stubbs Road (“the premises”) granting vacant possession of the premises with damages to be assessed by a Master.  At the conclusion of the hearing this appeal judgment was reserved.

Background

2.  The appeal in this case first came before another division of this court on 17 February this year.  On that occasion it became clear that the argument being put forward on behalf of the 2^nd and 3^rd defendants was not open to them on the basis of the pleadings and the notice of appeal as they then stood.  In order that an appropriate form of pleadings could be presented, the hearing of the appeal was terminated in order to enable an amended notice of appeal to be filed.  The 2^nd and 3^rd defendants were put on terms as to payment of costs thrown away and, importantly, in view of the assertion that the 2^nd and 3^rd defendants did not wish to impede the sale of the premises they gave an undertaking that they would not put any difficulty in the way of the plaintiff selling the premises with vacant possession.  The matter then came before this court with an amended notice of appeal.

3.  This action has a long history of proceedings in which the plaintiff has been involved with the defendants and another company connected to them.  The premises were originally owned by Fully Well Investment Limited (“Fully Well”).  There was a legal charge dated 10 December 1992 whereby Fully Well charged the premises to the plaintiff as security for loans.  The 2^nd and 3^rd defendants lived in the premises.  They did so without payment of rent because they or at least one or other of them, and it matters not which because they were husband and wife, owned and controlled Fully Well.  They also owned and controlled another company namely the 1^st defendant.  There is no dispute that Fully Well fell into financial difficulties and was unable to pay the amounts due to the plaintiff.  As a result the plaintiff took proceedings to obtain possession of the premises with a view to selling them.  In order to do that it commenced action, MP 4359 of 1998, and sought an order for recovery of possession.  The 1^st defendant in this action applied to be joined as a defendant in those proceedings on the basis that it had a tenancy agreement covering the premises and its rights would thereby be affected.  Joinder was not allowed.  The master ordered that the plaintiff should have vacant possession.  When the matter was taken before the judge, Suffiad J substituted the order for vacant possession with one simply of possession without prejudice to the rights of any alleged tenants.

4.  In April 2000 the 1^st defendant commenced an action, HCA 4215 of 2000, against the plaintiff seeking three declarations.  They were as follows:

“(a)  The plaintiff (the 1^st defendant in this action) is entitled to possession of the Property as hereinabove pleaded (the premises) to the exclusion of all others including the defendant (the plaintiff in this action) and any purported purchaser;

(b)  The plaintiff’s (the 1^st defendant in this action) entitlement to damages against the defendant (the plaintiff in this action) in the 1998 action as hereinabove pleaded has been set off against any entitlement to rent enjoyed by the defendant (the plaintiff in this action) in respect of the plaintiff’s (the 1^st defendant in this action) aforementioned possession of the property;

(c)  The defendant (the plaintiff in this action) is unable in law to assign to any other party any better right to possession and/or to rent in respect of the property;”

5.  Application was made to strike out those proceedings both on procedural grounds and on the merits.  That application was successful.  It was said in this court, possibly with some justification, that that action had been commenced in order to create difficulties for the plaintiff in the sale of the property which was due to take place by auction two days after the commencement of that action.

6.  The present proceedings were commenced on 3 June 2003.  The prayer for relief sought a declaration that the defendants were trespassers of the premises and an order for delivery up of vacant possession and damages.  Although, initially, the 1^st defendant had filed a joint defence with the 2^nd and 3^rd defendants and all the defendants had the same representation, that joint representation ceased when the 1^st defendant went into liquidation.  In a letter which was exhibited to an affidavit filed just prior to the present hearing the liquidators of the 1^st defendant have stated unequivocally that they are prepared to have the stay of proceedings under section 186 of the Companies Ordinance, Cap. 32 lifted so that a default judgment can be entered against the 1^st defendant.  The liquidators have thus intimated that they have no intention of defending the action and are prepared to consent to a default judgment.

7.  The defences on behalf of the 2^nd and 3^rd defendants which were argued on this appeal which were said to give rise to a defence to the claims were not originally pleaded.  When the matter came before the judge below an attempt was made to introduce amendments to the defence which were said to give rise to defences on behalf of the 2^nd and 3^rd defendants.  The judge refused leave to amend because he considered those amendments did not give rise to defences.  In this court the 2^nd and 3^rd defendants have applied to make different amendments.  As referred to above, at the hearing of this appeal which took place in February 2005 an adjournment was sought so that a re-formulation could be put in an amended notice of appeal.  That has been done and this matter came before a different division of this court on the new grounds in the amended notice of appeal. 

8.  The first point taken is that there is res judicata in respect of the existence of a tenancy between Fully Well and the 1^st defendant.  It is said that that arises because those matters should have been raised in HCA 4215 of 2000.  It is said that if the plaintiff had wished to challenge the existence of a tenancy by the 1^st defendant it should have raised the matter in that action.  This is a new point, because although there was a plea in the original defence that the plaintiff had consented to or acquiesced in such a tenancy, the plea raised by the amendment is that there was res judicata. 

9.  The short answer to that argument appears to be that any res judicata arises between the 1^st defendant and the plaintiff.  It is a matter for the 1^st defendant to rely upon.  That res judicata or issue estoppel would be one which is personal to the 1^st defendant.  Since the 1^st defendant has now indicated that it is willing to consent to judgment in default, its defence must be treated as not being pursued.  The 2^nd and 3^rd defendants not being privy in estate or interest are therefore not in a position to rely upon the matter of res judicata or issue estoppel arising between the plaintiff and the 1^st defendant.  I would add for completeness that the 1^st defendant on its own would seem to have good grounds for averring that the matter of the existence of the tenancy should have been raised in HCA 4215 since the strike out was sought both on procedural grounds and on the merits and the existence of the tenancy would have been relevant to the merits of the matters sought to have been raised in that action.  

10.  The major matter which is said to constitute a defence was the main ground argued by Mr Swaine on behalf of the 2^nd and 3^rd defendants namely that there was an estoppel in their favour by reason of the fact that when the tenancy was first created the plaintiff expressly consented to it, albeit not in writing, but in the person of a sufficiently senior person in the plaintiff company.  It is alleged that the 2^nd and 3^rd defendants relied upon that and thereafter became occupants of the premises, occupying those premises as a family home as licensees of the 1^st defendant and not licensees of Fully Well.

11.  I am unable to see how this combination of facts can give rise to an estoppel.  The 2^nd and 3^rd defendants cannot, in my view, have altered their position to their detriment or given any consideration in respect of it.  They remained the occupants of the premises, even if as licensees of 1^st defendant who were the tenants of Fully Well.  Previously they had been licensees of Fully Well.  Provided the 1^st defendant continued paying the rent the position of the 2^nd and 3^rd defendants’ position might indeed have been better than that of being licensees of Fully Well, since it is clear that Fully Well was creating a mortgage on the premises and as licensees, if the mortgage terms were not adhered to, the 2^nd and 3^rd defendants were liable to lose any right of occupation.

12.  In my view this appeal falls be dismissed and I would make an order nisi that the costs of the appeal be to the plaintiff.  The only further order I would make would be to make an order that the plaintiff’s rights against the defendants date from 4 January 2000, which was the date on which the plaintiff obtained an order for possession against Fully Well.  In view of the abandonment of any defence by the 1^st defendant, the defendants would clearly have been trespassers on the premises thereafter.

Hon Yuen JA:

13.  I agree.