WING TAK TRANSPORTATION CO LTD v. MAK CHAN YUK AND ANOTHER

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REASONS FOR JUDGMENT

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1. At the conclusion of the hearing of the Defendant's application for Interim Payment, I dismissed the application and indicated I would hand down my Reasons for the Judgment. I now hand down my Reasons.

2. By the Tenancy Agreement in August 1994 ("Lease"), the Premises which is on the Ground Floor of Wang Kwong Industrial Building, No. 45 Hung To Road, Kowloon ("Premises") were let by the Defendant as landlord to the Plaintiff as tenant for a period of 2 years commencing from October 1994. The Lease provided for restriction of user to industrial use. The Lease also contained the usual cesser clause providing for stoppage of payment of rent upon the happening of defined disastrous events which render the premises unfit for occupation.

3. The business of the Plaintiff was in the transportation of goods and the premises were used for the storage of the vehicles as well as storage of the goods carried by the vehicles of the Plaintiff tenant. The Premises were previously occupied and used by the Defendant landlord and very heavy machineries were installed on the Premises by means of large iron bolts being driven down onto the floor slab of the Premises to hold down these heavy machineries. These machines were removed when the new tenancy of the Plaintiff commenced but there were apparently large cracks and holes left on the floor slab of the Premises.

4. In November 1994, the first flooding of the Premises started and complaints were made by the Plaintiff tenant to the Defendant landlord. Promises were made by the Defendant to the Plaintiff that remedial work would be done. After the dry season, in April 1995 flooding started again but apparently with greater frequency and seriousness as water came up from the cracks of the floor slab, thereby causing extensive damage to the property of the Plaintiff including goods of customers stored at the Premises. This state of affairs of flooding with water coming up from the floor continued so that eventually in August 1995, the Plaintiff stopped paying the August rent and stopped the August rent cheque. There then followed discussions between the son of the Defendant's beneficial owner and the senior person of the Plaintiff. The case of the Plaintiff is that there was an agreement reached between the Plaintiff and the Defendant whereby the Defendant agreed to carry out immediately remedial works to ensure that water would not come up from the floor and that until the problem was solved, no rent payment need to be made by the Plaintiff. This settlement agreement was disputed by the Defendant but it is not disputed that the August rent cheque was not sued upon and that no demand was made for the payment of rent which otherwise would be due in August and the following few months.

5. From August to December 1995 many contractors attended at the Premises for inspection and provision of quotations of remedial work to the Defendant but no remedial work of any kind was carried out. The Plaintiff continued with the non payment of rent. On the 21st of March 1996, the Defendant obtained in the District Court distress warrant for arrears of rent of some $1 million covering the period from August 1995 to March 1996 and on the 24th April 1996 the Plaintiff issued the Writ in the present Action against the Defendant, which was then followed by the agreement of the parties that the execution of the Distress Warrant in the District Court be stayed. On the 14th of May 1996, the Defendant filed its Defence and Counterclaim and on the 23rd May 1996, the Defendant issued the Summons for Order 14 Judgment. On the 5th June, the Defendant issued the Interim Payment application for interim payment of $1,320,000. On the 30th June 1996, the Plaintiff vacated the Premises.

6. Before considering the merits of the application, the principle by which any order can be made is worth re-examining. The application is for interim payment under Order 29 and to succeed with the application, it is not in dispute, that the applicant Defendant must fully satisfy the Court that:-

When the court is in doubt as to whether the applicant would recover substantial damages at the end of the day, the Court should not grant Interim Payment and as was said in British & Commonwealth Holdings v Quadrex Holdings Inc. [1989] Q.B. 842, the test is whether the Court is satisfied that the applicant will succeed in the claim at the trial and not whether the applicant is likely to succeed. The Court must take into account any set-off, cross-claim or counterclaim in deciding whether it is satisfied that the applicant will recover substantial damages.

7. At the beginning of the hearing before me, the Defendant withdrew the Order 14 application and therefore the only matter which required to be determined was the Defendant's application for Interim Payment of $1,320,000 which was reduced by the submission of Mr. Miu to $1,000,000. In the course of the hearing, a number of the issues fell away and effectively, there were three matters which were relied on by the Plaintiff in opposition to the Interim Payment application. The three defences are:-

SETTLEMENT AGREEMENT

8. The Plaintiff's case on the Settlement Agreement is very simple namely that the Plaintiff was going to terminate the Lease immediately and leave and that the Settlement Agreement reached was that the Plaintiff would not immediately terminate the Lease (and by implication would not serve the Notice under the Cesser Clause) and that the Defendant would carry out the remedial work and not require the Plaintiff to pay any rent until the remedial work was done. Having regard to the surrounding circumstances of the serious flooding and the damage caused to the Plaintiff, the actions of the parties including the immediate stopping of the August cheque and the subsequent non payment of the rent for the following months and the Defendant taking no step in relation to these non payment of rent for so many months, I cannot possibly say that there is no prospect of such Settlement Agreement being established at the trial and it therefore follows that on this ground alone, I must refuse the Interim Payment application.

9. Mr. Miu's point however on this Settlement Agreement is that even if I find as I do against him on the Settlement Agreement, there is still the question of the two months rent for May and June 1996 because according to the Statement of Claim of the Plaintiff, the Settlement Agreement was in any event terminated when the Plaintiff accepted the repudiation of the Defendant, namely in late April 1996 and that therefore the Defendant would still be entitled to at least two months rent namely for May and June 1996. The answer of Mr. Chong to this is that the repudiation of the Defendant was not only the Settlement Agreement but also the Lease agreement and that therefore in the circumstances, there would be no rent under the Lease Agreement which could be recovered by the Defendant and that point is plainly arguable and in the circumstances, there could be no Interim Payment because of the Settlement Agreement and the repudiation of the Settlement Agreement. I accept this submission of the Plaintiff and it follows therefore that in my judgment the Interim Payment Application must fail.

10. As to the other two points argued, as it is not necessary for me to base my decision in this application on these two points I will merely give my brief conclusions on them as the matter had been argued.

CESSER CLAUSE

11. The Cesser Clause at Clause 8(c) of the Lease reads:-

"In the event the Premises or any part thereof at any time being damaged or destroyed by fire typhoon or any force majeure so as to be rendered uninhabitable or becoming subject to a closure order ..... then the Rent hereby stipulated or a fair proportion thereof according to the nature and extent of the damage sustained shall after the expiration of the then current month be suspended until such damage shall be repaired or such closure order be uplifted ....."

The debate under this issue is whether this Clause can arguably apply because if it can then obviously it would provide an arguable defence to the claim and the Defendant would not be able to establish with the necessary certainty that some $1 million is bound to be found due at the trial of the Action. On the evidence before me, it is clear that there had been damage to the Premises by the flooding which is of a very unusual nature as being from the floor or from under the ground with the consequence that the Premises could not be occupied or used for the business purpose of the Plaintiff. I of course appreciate that there is room for argument as to the extent of the damage and what parts of the Premises could not be used or inhabited but these matters do not affect the conclusion that this is not an appropriate case where the Court should order Interim Payment. In my judgment, there are sufficient uncertainty in relation to the non-applicability of the Cesser Clause as to convince me that I must decline to order Interim Payment as sought by the Plaintiff.

DAMAGES

12. The final point of the Plaintiff on damages is really quite simple and it is this. The Plaintiff says that the Defendant was in breach of both the Settlement Agreement and the Lease. The Settlement Agreement was broken by the Defendant because the Defendant did not immediately cause the remedial work to be done so as to prevent further flooding and this led to damages suffered by the Plaintiff. The Lease was broken by the Defendant because the Defendant did not provide the Premises to the Plaintiff which was free from this flooding caused from water coming up from the ground.

13. An argument was however mounted by Mr. Miu that Clause 8(d) of the Lease provided that the landlord shall have no liability for any damage caused by or through or in any way owing to overflow of water from any part of the building. So far as the damages arising from the breach of Settlement Agreement this Clause obviously does not assist the Defendant. So far as the breach of the Lease is concerned, Mr. Chong argued that the damage which was alleged to have been caused to the Plaintiff was not caused by the "overflow of water from anywhere within the building." He emphasized the words "from" and "within". The submission of Mr. Chong is that the Clause was intended to aim at water from within the building, for example from upstairs bathroom etc. and not intended to be water from outside the building such as in this case coming out of the floor slab. The source of the overflow water is obviously important to determine if the flooding is within the clause or outside the clause. The precise cause of the damage would obviously have to be ascertained and in particular as to where exactly the water was coming from which caused the damage, within the building or without and although I have some reservation about some aspects of the arguments presented to me, I cannot say that having regard to the circumstances, the point is unarguable. This issue on damages therefore provides yet a third reason why the Interim Payment application must fail.

14. For the above reasons, I am not satisfied that the Defendant have established sufficient grounds for the Court to grant the Interim Payment. The application of the Defendant accordingly must be dismissed with costs.