GOLDCO DEVELOPMENT LTD v. SECRETARY FOR JUSTICE

HCA4219, 4220 & 4221/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS.4219, 4220 AND 4221 OF 2003

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(Consolidated pursuant to Order of Master Hui dated 15 September 2004)

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J U D G M E N T

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1. The plaintiff appeals against the order of Master J. Wong dated 29 April 2005 for interim payments.

2. The plaintiff is an operator of fee-paying car parks in Hong Kong.  The Government, through the Lands Department, leases various plots of land to the plaintiff, under Short Term Tenancy agreements (“STTs”).  These consolidated actions concern three such STTs in Kwai Tsing, particulars of which are :

3. The STTs required the plaintiff to pay the rent on the first day of each quarter.  If it was not paid on the due date, contractual interest at 2% above the HSBC until full payment was provided for.  The STTs further provided for the Government to determine the tenancy by re-entry if the rent was unpaid and in arrears for 21 days after becoming due.

4. In late 2003, the plaintiff became concerned that the greater supply of land for STTs in Kwai Tsing was causing it loss of profits.  It asked the Government to reduce the rent due under STT3491.  The Government refused.  The plaintiff stopped paying rent in respect of all the STTs concerned in this action with effect from 1 October 2003.  It commenced the three actions on 14 November 2003, claiming, inter alia, rescission of the STTs.  On 21 November 2003, the Lands Department warned that, if rent remained unpaid, the subject STTs would be determined with effect from 3 December 2003.  The plaintiff was also asked to deliver up vacant possession.  It refused to pay rent or deliver up vacant possession.  It remains in occupation, paying no rent, of the sites covered by STT3491 and 3473.  It delivered up vacant possession of the site covered by STT3514 on 12 April 2005.

5. The plaintiff applied for interim payment in the sum of $29,701,200 with interest at the contractual rate, and further interim payment of $4,950,200 per quarter to be paid on the first day of each quarter from 1 April 2005 until trial or delivery of possession.  The learned Master on 29 April 2005 ordered an interim payment on account of the use and occupation of the three sites, of $18,504.00 with interest at the contractual rate and further interim payments of $3,084,000 per quarter from 1 April 2005.

6. The plaintiff appeals against this order.  On the basis that this is a re-hearing, the defendant now says that if the appeal is dismissed I should increase the lump sum interim payment to $40,837,000 to cover liabilities which have accrued up to 30 September 2005, plus periodic interim payments of $3,544,388 for the period from 1 October to 31 December 2005, and $2,418,000 thereafter.

7. The court approaches an application for interim payment in two stages.  First, it must be satisfied that if the action proceeds to trial, the applicant will obtain judgment for damages (under rule 11) or a substantial sum of money (under rule 12), taking into consideration the likelihood of any set-off, cross-claim or counterclaim succeeding; and then, if it is so satisfied, it will proceed to consider whether, in the exercise of its discretion, it should order and interim payment and of what amount, taking again into consideration any set-off, cross-claim or counterclaim claimed by the respondent.  See Shanning International Ltd v. George Wimpey International Ltd [1989] 1 WLR 981.

8. In deciding the first stage, the test is whether the applicant will succeed in the claim at the trial, and not whether he is likely to succeed.  See British & Commonwealth Holdings v. Quadrex Holdings Inc. [1989] Q.B. 842.  But, as Lloyd LJ put it in Shearson Lehman Brothers Inc. and Anor v. Maclaine, Watson & Co. Ltd [1981] 1 WLR 480 at 489 :

“	The burden is high. But it is a civil burden on the balance of probabilities, not a criminal burden.”

9. Applying the civil burden, then, it seems to me that the court must be satisfied that it is more probable than not that the applicant will obtain judgment for a substantial sum of money if the action proceeds to trial.

10. It seems to me that the proper approach here is to consider at the first stage the strength of the defendant’s claims, and then the strength of the plaintiff’s claims, in deciding whether the defendant will obtain a substantial sum of money if the action proceeds to trial.

11. If the plaintiff’s claims had not been made, then obviously the defendant has a very strong case indeed.  The plaintiff has been in continuous possession of two of the sites since December 2003 to date, and possession of one of them up to April 2005, refusing to vacate and paying no rent at all.  The defendant claims that the plaintiff is liable for common law remedies after the landlord has forfeited the lease; Well Century Holdings v. Leung Kam Yu [2003] HKLRD 653, and therefore is liable to pay the contractual rent up to the term of the lease and mesneprofits based on market rent thereafter.  The total claimed for the purposes of the application (amended by letter following the hearing, some arithmetical errors having been found) up to 30 September 2005 of $36,039,975.05 plus over $2 million per month thereafter and until vacant possession be given up.  I do not need to set out the arithmetic but on any reckoning, this is a substantial sum.

12. The learned Master found that the defendant was liable for rent up to the date of forfeiture and mesne profits thereafter.  I will return to this point later but even on the plaintiff’s own evidence of the market rent, the defendant’s entitlement up to 31 March 2005 was, on the figures the Master accepted, $18,504.00; and that too is a substantial sum.

13. I turn to the plaintiff’s claims, which are all based on the same grounds.  The first is that the plaintiff was induced to enter into the STTs by misrepresentation on the part of the Government.  The second is that it was Government policy to give rent concessions to its tenants following the SARS outbreak in 2003 and should have given such concessions to the plaintiff.  The third is that the Government was in breach of an implied condition of the STTs which provided that the plaintiff should be allowed to bid for other sites in the vicinity, which the Government breached by not evaluating the plaintiff’s later tenders on the same footing as those submitted by other car park operators.  In fact the second of these grounds was not relied on by counsel in argument.

14. It is argued for the plaintiff that that if the plaintiff had not relied on the Government’s representations it would not have entered into the STTs, or would have entered into contracts at a much lower bidding price, or perhaps a bid at market value.  The plaintiff estimates the difference between the rent and the market value of the three sites, for the terms of the STTs, at a total of over $18 million.  Again, I will not set out the arithmetic but counsel has calculated the figure at $18,487,195 up to 31 March 2005.  The figure would of course have to be increased to bring it up to date.

Misrepresentation

15. I will set out in brief the plaintiff’s pleaded case in HCA4220/2003; it is essentially the same as in the other two cases, and relates to the first STT entered into, namely STT3514.  The plaintiff says that on 17 July 2002 the Lands Department published in newspapers a tender notice inviting the public to submit tenders for a fee-paying public car park, under tenancy no. 3514 Kwai Tsing.  Particulars were given and it was said that all inquiries should be directed to a Mr Yip Ping Wah, whose telephone and fax numbers were given.  The plaintiff continues at paragraph 8 of the Amended Statement of Claim :

“	In answer to enquiries made by the plaintiff’s employees…as to whether more pieces or parcels of land designated as short term tenancy fee-paying public car parks ... would be made available by the Government in Kwai Tsing and Tsing Yi districts, New Territories during the term of STT No. 3491, the officers at the Lands Department represented that other than those lands as currently revealed in the Short Term Tenancy Tender Forecast on the website of the Lands department, there would not be any further short term tenancy car parks made available by the Government in Kwai Tsing and Tsing Yi districts at least during the term of the tenancy STT No. 3491.
	Particulars
	The said enquiry was made orally on or about 26 July 2002 in a telephone conversation between an officer of Lands Department on behalf of the Lands Department and an employee of the plaintiff on behalf of the plaintiff. The said representations were made orally in the course of the said telephone conversation.”

16. The plaintiff pleads that at the time of making the representations, the representatives of the Lands Department knew that the plaintiff would rely on the representations and would be induced thereby to tender; they or those responsible for publishing the website forecast were under a duty to take care in making the representations.  Acting on the faith of the representations, the plaintiff tendered for, and then entered into STT3491 and the other two STTs.  However, the representations were false and made negligently whereby the plaintiff suffered loss and damage.  In fact, the Government made available sites for tender for car parks in Kwai Chung and Tsing Yi between 2003 and the date of the writ, to a total area of 298,954 square metres.  The Lands Department’s employees were negligent in making the representations.  The plaintiff claims the difference in value from 1 September 2003 to the termination of the STT between a fair market rent per square metre, and the rent per square metre to be paid in accordance with the STT, or damages to be assessed.

17. The plaintiff’s supervisor, Mr Chan Tsz Kwong affirms that he relied on the tender forecast on the Land’s Department’s website for information as to what other sites would become available, before deciding to tender.  It was also the plaintiff’s practice to delegate a person to ascertain the supply situation; that person would routinely make telephone calls to the District Lands Office to ask if any more land was to be supplied in the future.  He himself made a couple of telephone calls to the number given on the tender notice and was told that the information in the forecast was accurate.  He was told that other than the sites listed, there would not be any further lands supply for use as car parks in the vicinity.

18. The defendant’s Senior Land Executive, Mr Yip Ping Wah affirms that the website forecast, which was started in February 2002, is for a period of three months, and subject to revision every month.  The Government does not accept legal liability for changes.  He says that he does not remember having spoken to Mr Chan but is certain that he never advised any prospective tenderer that, other than those listed on the website forecast, there would be no further supply of lands for use as car parks in Kwai Tsing.  Given the procedure for review of supply which he describes — it is decided at a periodic “District Lands Conference” which takes into account both supply and demand for car parking facilities — it would be impossible for him to predict future supply; it would not be known to him, beyond the next conference meeting.

19. The relevant website forecast is before me.  It is the first one in which STT3514 appears.  Its heading reads :

“		Short Term Tenancy (STT) Tender Forecast
		(6/2002-8/2002)
		(Subject to review from time to time)
	Note :	The particulars of the STT tender below are tentative and for indication purpose only. They are subject to changes. For exact terms and conditions of the STT please refer to the respective tender documents to be available upon tender invitation. Government does not accept any legal liability that may arise for any changes in the tender forecast.”

20. The tender forecasts started from February 2002.  Mr Chan knew about them; he has exhibited them from that date.  They run for three months ahead, in each case.  They claim to be tentative and subject to changes, and indeed it would have been Mr Chan’s experience, by observing the forecasts from February 2002 onwards, that that was correct.  There is simply nothing in the June to August forecast on which the plaintiff could rely as indicating that no more land would be supplied during the term of the tenancy STT3514.

21. The oral misrepresentation, if made would indicate that the supply of land for car parks in Kwai Tsing and Tsing Yi was to dry up completely for the next three years.  Leaving aside for the moment questions raised before the learned master of the credibility of Mr Chan’s evidence, given the date on which he became the plaintiff’s supervisor, it is pretty obvious that no civil servant in his right mind would tell a car park operator that, first because it would not be true, and second because, if made, it would produce unrest among car park operators and container truck operators.  It is also pretty obvious that no sensible car park operator would believe it, if he were told it; from his own point of view, he has inside information which will enable him to make a killing but the information is too good to be true.

22. Further as counsel has pointed out, if there was any oral representation following the first website forecast concerned here, Mr Chan would inevitably know that it was not true and that “he had been fooled” when the next forecast was published.  In particular, it is pleaded that the oral representation was made on 26 July 2002 in respect of STT3514.  The forecast for STT3491 came out after that date; so inevitably Mr Chan would know that any representation that no further land would be available was untrue.  Also STT3473 appeared in the forecast after the plaintiff’s alleged inquiries, and the alleged representation, regarding STT3491.  In fact, STT3491 first appeared in the August-October forecast, so Mr Chan and the plaintiff must have known of it before the plaintiff entered into STT3514 on 23 September 2002.

23. It is also to be noted that the plaintiff tendered for three more STTs, namely nos.3545, 3548 and 3555 the tender periods for which were respectively 13 August to 29 August, 10 September to 26 September and 3 December to 19 December 2002.  This is simply inconsistent with the plaintiff’s case on misrepresentation.  The plaintiff’s own actions belie its case.

24. As I see it, therefore, the plaintiff’s case on misrepresentation is highly unlikely to succeed at trial.

Implied Term

25. It is pleaded that it was an implied condition of the STTs and/or business efficacy in the trade of fee-paying public car parks in Hong Kong that during the terms of the STTs, the plaintiff should be allowed to tender for other STTs.  If the tender was successful the plaintiff would enjoy a reduction in its overall operating costs due to economy of scale.  In breach of this implied condition the Lands Department since some time unknown to the plaintiff would not evaluate the tenders it submitted on the same footing as those submitted by other car park operators.

26. The plaintiff’s witness Mr Chan says that the Lands Department “blacklisted” the plaintiff as a result of a dispute between the plaintiff and the Lands Department over the plaintiff’s performance of a contract, KX2102.  This dispute gave rise to another action, HCA696/2003.  Reference is made to correspondence between the Lands Department and the Government over this.

27. On 21 October 2003 the Director of Lands wrote to the plaintiff to advise that :

“

… it is the policy of the Lands Department that the conduct and perfomance of the tenant under all short term tenancies granted by tender by the Government will be taken into account when the Director of Lands considers whether or not to award any future tenders received from the tenant or any individual or company connected or related to the tenant.”

28. The Director continued that it had been identified that the plaintiff was in breach of certain provisions in the short-term tenancy no. KX2102 and concluded :

“	In the circumstances, I wrote to advise that the poor performance record will be a factor in considering any future tenders from your company or other related companies or individual(s).”

29. It appears from minutes of the Lands Department’s periodic Lands Administration Meeting that the Government’s complaint was that the plaintiff, having entered into a tenancy of a plant nursery and flower stall, was using the site as a fee-paying car park.  The total area of the site was 2250 square metres, but only about 12.5 square metres was used for placing pots of plants.  Eighty parking spaces were provided, and on one inspection 50 of them were found occupied.  The tenancy only provided for the parking of vehicles for loading and unloading of plants.

30. The Government does not deny that in December 2003 it refused to accept the plaintiff’s bid for STT3555, even though the plaintiff was the highest bidder.  The relevant Land Administration Meeting minutes show that the Government took the view that, acting in its private capacity as a landlord, it was at liberty to refuse to deal further with tenants with poor performance records.

31. In fact the plaintiff does not plead, in terms, that there was an implied term that if it tendered for another STT and was the highest bidder, it would be awarded that STT.  What it pleads is simply an implied term that it “should be allowed to bid by tenders” with, presumably, the implication to be taken from the further pleading that it should be treated on the same footing as other tenderers.

32. The defendant argues that the device of an implied term is to give effect to the presumed but unexpressed intention of the parties.  It relies on Clause 2 of the Tender Notice issued to the tenderer in every case, which states :

“	The Government … does not bind itself to accept the highest or any tender submitted.”

33. The requirements for an implied term were set out in B.P. Refinery (Westernport) Pty Ltd v. President, Councillors and Ratepayers of Shire of Hastings [1978] 52 ALJR 20.  Lord Simon, delivering the majority opinion in that case at page 26, said :

“

Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied : (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

34. While it is true that the terms of the Tender Notice are not imported into the STT itself, the Tender Notice is a standard form issued to all tenderers.  It is obvious that the Government did not intend that it should be bound to accept the highest or any tender and it communicated this to the plaintiff.  It is impossible therefore to see how the implied term contended for could be one which the parties had not thought fit to express.  It is also impossible to see why this term would be necessary to give business efficacy to the contract.  The contract can work perfectly well, even if the plaintiff never has any other tender accepted for another car park site in the same district; and it is in no way necessary or obvious that the Government, having once leased a car park to an operator, should be bound to lease others to it so as to bring down its operating costs.

35. I conclude that the plaintiff’s case on implied term has no basis in law and will not succeed at trial.

36. As I have indicated, counsel did not touch in argument on the claim regarding rent concessions so I do not need to deal with it.  However, there is evidence that the Government did not have any general rent concessions policy.  It did, as a result of the SARS epidemic, give certain concessions to certain classes of tenant.  However, there is no evidence to show why such concessions should have been extended to the plaintiff or other car park operators.  It is difficult to see what basis there could be for this claim in any event.

37. I conclude that it is highly unlikely that the plaintiff will succeed on its case on misrepresentation, and it will not succeed on its case on implied term.  It follows that, even if the defendant’s claim is restricted to lost rent from October to December 2003 and mesne profits thereafter, it is more probable than not that the defendant will be awarded a substantial sum at trial.

38. I turn to the quantum of the defendant’s counterclaim.  It is the defendant’s case that the plaintiff’s non-payment of rent amounted to a repudiation of the SSTs at common law and also triggered the Government’s right of re-entry under Clause 4(a).  The common law remedy and the contractual forfeiture remedy co-exist; see Well Century Holdings v. Leung Kam Yu.  The Government did in fact forfeit the STTs on 3 December 2003.  The plaintiff did not give up vacant possession; it remained in possession, paying no rent.  On the same authority, the defendant is entitled to loss of rent for the unexpired period of the lease in each case, i.e. up to 30 September 2005 in the case of STT3491, 31 August 2004 in STT3514 and 17 October 2005 in STT3473, and thereafter to mesne profits, to be calculated according to the open market rent.  In fact the plaintiff vacated the site of STT3514 on 12 April 2005.  The defendant does not accept the plaintiff’s open market rent figures but counsel has calculated the total claim, for the purposes of this application, based on those figures.

39. I accept that on the authority of Well Century Holdings the common law remedy and contractual forfeiture co-exist; the non-payment of rent having amounted to repudiation.  Therefore, despite the forfeiture the defendant can claim common law damages.  If the plaintiff had vacated, no doubt those would be the mesne profits, calculated on the prevailing market rent.  But the plaintiff did not vacate.  The defendant was precluded from obtaining either the contractual rent, or the prevailing market rent.  I do not see why the measure of damages should not be the contractual rent, for the unexpired period.

40. It follows that even if the plaintiff were, per impossibile, to succeed on its claims, the defendant will still recover a substantial sum of money after trial; about $18 million to date, plus mesne profits from the expiry of the terms of the two continuing STTs.  But, in the light of what I have said above, I take it that it is more likely than not that the defendant will recover at least the greater sum which it now claims, even accepting the plaintiff’s open market figures for the purpose of the application.  So clearly the plaintiff’s appeal against the master’s decision must be dismissed.

41. I turn to the question whether, in the exercise of discretion in this re-hearing, I should increase the interim payments to the figures now set out by the defendant’s counsel.  Mr Chan for the defendant refers, in his submissions on discretion, to the fact that a certificate for speedy resolution has been granted.  He argues that an interim award is appropriate where the is likely to be a long delay, and also that the object of it is to alleviate hardship or prejudice which may be caused to the applicant during the period from the institution of proceedings up to the date of trial.

42. I do not see that the fact of the certificate should be taken to mean that no interim award should be granted.  Although the alleviation of hardship is one of the purposes of the interim award, the discretion is wide.

43. I am asked, in effect, to make an order which will probably finally dispose of monetary claims in the action; subject of course to appeal.  What will remain will be any dispute about the quantum of the mesne profits plus of course the claims for possession; but one of the terms has now expired, and other two will expire on 30 September and 17 October 2005, i.e. before any possible date of trial.

44. I have some difficulty with this.  In effect, if I were to make the order which the defendant seeks, the effect would be the same as if I had struck out the plaintiff’s claims, and given summary judgment on the monetary part of the defendant’s counterclaims.  That is not what the defendant applied for in the first place, though no doubt it could have done so, and might well have succeeded, and I do not think it would be right to give the defendant the same result by the back door in an interim payment application.

45. It seems to me that the proper course is to dismiss the appeal simpliciter in respect of the order for the lump sum payment.  I have considered submissions on the interest element included in the lump sum payment but I do not see any reason why it should not have been ordered given that the rate is provided for by the STT itself.  So the appeal is dismissed and the lump sum payment order will stand.

46. The periodic payment rate ordered by the Master was $3,084,000 but that will need to be varied now, because the terms of STT3419 and STT3473 will expire shortly.  The order of the Master is varied to provide that $3,084,000 per quarter be payable for the period from 1 April to 30 September 2004; $2,614,239.13 be payable for the period from 1 October to 31 December 2005; and thereafter the plaintiff pay $2,418,000 per quarter until the plaintiff delivers up possession of the sites of STTs3491 and 3473.

47. The costs of the appeal will be to the defendant to be taxed if not agreed.  Since this ruling is to be handed down the costs order is nisi.