ADCO ENTERPRISES LTD v.PETS CENTRAL (HK) LTD

CACV 253/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 253 OF 2011

(ON APPEAL FROM DCCJ NO. 4322 OF 2010)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Tang VP:

1.  I have had the benefit of reading Kwan JA's judgment in draft. I agree with it and have nothing to add.

Hon Kwan JA:

2.  This is an appeal from an order of HH Judge H C Wong on 22 August 2011 by which the judge refused to strike out the counterclaim of Pets Central (HK) Limited (“PC”) against ADCO Enterprises Limited (“ADCO”) and Ms Chan Kit Chau (“Chan”). We have allowed the appeal at the end of the hearing and these are the reasons for judgment.  

Background

3.  The relevant background matters may first be stated as follows.

4.  ADCO is the registered owner of certain business premises (“the Premises”) in Tung Choi Street, Mongkok, Kowloon. At all material times, Chan, its assistant manager, dealt with matters relating to the leasing of the Premises.

5.  By a lease dated 20 September 2005 (“the ADP Lease”), ADCO let the Premises to ADP Pentagon Pets Limited (“ADP”) for four years from 29 September 2005 to 28 September 2009. Pursuant to clause 13.1 of the ADP Lease, ADP had an option to renew the lease for another four years at the monthly rate of $193,085 upon giving ADCO written notice of not less than three months before the expiry of the ADP Lease.

6.  ADP is a retailer and wholesaler of pets and related products and services, trading under the business names of “Red Carrot” and “Q-Pets” shops. Yip Yuk Tat Alexander (“Alex Yip”) and Yip Yuk Ming Paul (“Paul Yip”) are the managing director and general manager respectively of ADP.

7.  In July 2006, PC and ADP entered into a joint venture agreement to set up a business for an emergency animal hospital and to provide veterinary care, pet retail products, pet grooming and pet adoption services in Hong Kong. As a result, ADP entered into a number of licence agreements with PC including a licence agreement dated 16 October 2006 (“the Licence Agreement”) for the use of a portion of the Premises being 10% of the Ground Floor unit in the rear portion, 40% of the 1^st Floor unit and the whole of the 2^nd Floor unit. The joint venture fell through in March 2007 but PC continued to occupy the licensed portion, paying a monthly licence fee to ADP. PC used its portion to operate a pet hospital and clinic and to provide pet grooming services and to sell pet products. The other parts of the Premises were occupied by ADP trading as Red Carrot, providing retail services of animal foodstuffs and pet related items.

8.  The Licence Agreement was made with the consent of ADCO. Clause 4 of this agreement provided that ADP shall exercise the option to renew the ADP Lease pursuant to clause 13.1 thereof if PC gives ADP not less than 15 days prior notice in writing.

9.  PC wrote to Alex Yip on 6 April 2009 informing him of its intention to renew the Licence Agreement. However, ADP and Alex Yip denied that this letter was ever received by them. ADP did not exercise the option to renew under the ADP Lease before the deadline of 28 June 2009.

10.  By a lease dated 26 August 2009 (“the ULL Lease”), ADCO let the Premises to United Linkage Limited (“ULL”) for four years from 29 September 2009 to 28 September 2013 at the monthly rent of $184,690. ULL was incorporated on 23 March 2009 and was acquired as a shelf company by its present shareholders in July 2009 when 99 shares were allotted to them. Ms Wong Oi Chun (“Wong”), who is married to Paul Yip, is one of the shareholders. She is also the company secretary and a director. Another shareholder, Chan Yuk Yee Catherine, shared the same residential address as Alex Yip. Alex Yip is a common director of ADP and ULL.

11.  ADP notified PC by letter of its solicitors dated 28 August 2009 that it would not renew the ADP Lease. On 18 September 2009, PC’s solicitors wrote to ADP’s solicitors requesting an extension of the Licence Agreement until PC had found alternative premises. ADP’s solicitors turned down this request on 21 September 2009. PC surrendered the rear portion of the Ground Floor unit but continued to occupy 40% of the 1^st Floor unit and the whole of the 2^nd Floor unit as before notwithstanding the expiry of the ADP Lease. 

12.  On 15 October 2009, ADCO brought proceedings against PC to recover vacant possession of the Premises in HCMP 2077 of 2009. PC filed evidence opposing the claim. On 29 October 2009, Master Ng ruled in ADCO’s favour and ordered that ADCO was to recover possession from PC by 12 November 2009 on the ground that it was entitled to possession and that those in occupation were without its licence or consent.

13.  Despite the order for possession, PC did not comply with it. It only vacated the area occupied on 16 December 2009.

14.  By letter dated 29 January 2010, ULL requested ADCO to refund the rent paid by ULL from 29 September 2009 to 16 December 2009 and reserved its right to claim damages against ADCO for the delay in handing over the Premises. By its letter of 26 February 2010, ADCO offered to compensate ULL by waiving the rent for three months and bearing the costs of repairing the damage to the Premises caused by PC. ULL accepted this offer by letter dated 5 March 2010.

15.  On 13 December 2010, ADCO issued the writ against PC in the present action in DCCJ 4322/2010, claiming damages for trespass from 29 September 2009 to 16 December 2009 in the sum of $554,070, being the loss of three months’ rent ADCO agreed to waive in favour of ULL.

16.  PC filed its amended defence and counterclaim in February 2011 denying that its occupation of part of the Premises was wrongful or that ADCO was entitled to damages. It averred that if it is liable to ADCO, it is entitled to and claims against ADP for a contribution or indemnity of ADCO’s claim and that it will seek to set-off against such liability such sums it may be awarded by its counterclaim against ADCO.

17.  PC’s counterclaim is against a total of seven defendants. They are ADCO, ADP, ULL, Chan, Alex Yip, Paul Yip and Wong. The amount of damages claimed is in excess of $6 million.

18.  On 23 March 2011, ADP, ULL, Alex Yip, Paul Yip and Wong issued a summons to strike out PC’s counterclaim against them on the grounds they are scandalous, frivolous, vexatious, an abuse of the process of the court and/or discloses no reasonable cause of action.

19.  On 31 March 2011, ADCO applied for summary judgment against PC in respect of its claim in this action.

20.  On 4 May 2011, ADCO and Chan issued their summons to strike out the amended defence and counterclaim insofar as it related to them on the ground it is frivolous, vexatious, an abuse of process of the court and disclose no reasonable cause of action.

21.  All three summonses were heard by the judge on two days in July and judgment was given on 22 August 2011.

The judgment below

22.  The judge dismissed both applications to strike out the counterclaim by the seven defendants by counterclaim. Summary judgment was given in favour of ADCO against PC on ADCO’s claim in the amount as claimed with a stay of execution until the trial of the counterclaim or pending further order. Costs of the claim in the original action were awarded in ADCO’s favour against PC. Costs of the striking out applications were costs in the cause.

23.  There is no appeal regarding the summary judgment in ADCO’s favour or the dismissal of the application of ADP, ULL, Alex Yip, Paul Yip and Wong to strike out the counterclaim against them.

24.  The only appeal is in respect of the dismissal of the application of ADCO and Chan to strike out the amended defence and counterclaim insofar as it related to them.

The counterclaim against ADCO and Chan

25.  According to PC’s counsel, Miss Elizabeth Herbert, two causes of action were pleaded in the counterclaim against ADCO and Chan. They are (1) nuisance and unlawful interference with business; and (2) conspiracy to injure by unlawful means, to unlawfully interfere with business, and to deprive PC of its right to renew the Licence.

26.  Miss Herbert has clarified that PC is not mounting a claim against ADCO based on the option to renew in the Licence Agreement, although it is pleaded in the counterclaim that ADCO was in breach of clause 13.1 of the ADP Lease and that ADCO has wrongfully evicted PC from the Premises. This concession must be right. There is no basis for alleging that ADCO had wrongfully evicted PC from the Premises. This is contrary to the ruling of the Master in making the order for possession against PC in HCMP 2077/2009. And even assuming ADCO were in breach of Clause 13.1, PC was not a party to the ADP Lease and has no right of action against ADCO. Whatever rights and remedies PC might have arising out of its exercise of the option to renew under the Licence Agreement are only against ADP. They would not assist in founding a contractual claim against ADCO.

27.  I turn to the two causes of action identified above with regard to the pleading and the evidence filed, bearing in mind the applicable principles in a strike out application – that the summary powers of striking out should be exercised only in a plain and obvious case where the court is satisfied that the claim is obviously unsustainable.

Nuisance and unlawful interference with business

28.  The relevant pleading is paragraph 29 of the amended defence and counterclaim in which it was pleaded that “in light of the above [ADCO] and [the other 6 defendants] intended to, and have caused loss to [PC] by unlawful means.”

29.  The acts of nuisance and unlawful interference relied on were pleaded in paragraph 10b of the amended defence and counterclaim. I do not propose to set out the eleven complaints in sub-paragraphs i to xi in extenso.

30.  Suffice it to say I agree entirely with the analysis of Mr Damian Wong, counsel for ADCO and Chan, that it is plain on PC’s own evidence in the 2^nd affirmation of Peter De Krassel, that ADCO and Chan were not involved in the following complaints pleaded under paragraph 10b: emission of noxious fumes (sub-paragraph i); signs erected outside the Premises to the effect that PC was ceasing business and it was a trespasser (sub-paragraphs ii, v, vi); a group of at least ten people marching towards the Premises in matching blood red T-shirts (sub-paragraph iii); distribution of flyers and blocking the entrance to the Premises (sub-paragraph vii); erection of tarpaulins on exterior wall (sub-paragraph viii); cutting of electricity (sub-paragraph ix); and loud broadcasting to the effect that PC had no right to occupy the Premises (sub-paragraph xi).

31.  In the judge’s decision in refusing leave to appeal on 16 September 2011, the judge referred to the 3^rd affirmation of Chan wherein she deposed that ADP handed over the vacant part of the Premises not occupied by PC to ADCO on 28 September 2009 and ADCO in turn handed it over to ULL on 29 September 2009. The judge stated it is not known if ULL had accepted the handover on 29 September of the vacant part of the Premises. She took the view there are disputes on the evidence as to who was in possession of those parts of the Premises not occupied by PC where the noxious fumes came from and for that reason refused to strike out the counterclaim against ADCO and Chan.

32.  Whether ULL had accepted the delivery of vacant possession of part of the Premises in the sense that it had agreed to forego any remedy at law it might have for ADCO’s failure to deliver vacant possession of the entirety of the Premises is immaterial. What matters for present purpose is the de facto occupation of the vacant part at the time the alleged acts of nuisance were committed. There is no dispute as to the de facto possession on the pleadings and the evidence.

33.  In paragraphs 12c to g of the amended defence and counterclaim, it is pleaded that ADP and/or ULL had on 28 September 2009 erected partitions between Section A [the part of the Premises occupied by PC from 28 September 2009 to 16 December 2009] and Section B [the parts not occupied by PC, being 100% of the Ground Floor unit and 60% of the 1^st Floor unit]; that between 28 September and 16 December ADP had left its chattels in Section B and that between those dates renovation works were carried out in Section B; that between those dates ADP remained in occupation of Section B; and that further or alternatively between those dates ULL was in occupation of Section B.

34.  The above pleaded case of PC is also consistent with the 1^st affidavit of Alex Yip that ULL, as the new tenant of the Premises, had put up tarpaulins on 29 September in preparation for its renovation works on the Premises. There is no evidence to indicate that ADCO was occupying Section B at the material time. All indications on the available evidence are to the contrary. In the account given in the 2^nd affirmation of PC’s Chief Executive Officer, Peter De Krassel, of PC’s investigation of the source of noxious fumes and the equipment for broadcasting in Section B, he mentioned that it was Paul Yip and Wong who had turned up at the scene when the alarm in Section B went off in the course of the investigation, and Wong had explained to the police that the containers giving off the fumes belonged to her and Paul Yip.

35.  The judge was in error in holding that there are disputes as to possession of Section B that should be resolved in a trial.

36.  Miss Herbert accepted that a landlord is entitled to use reasonable force to evict a trespasser from his premises. She pointed to two acts as amounting to excessive force in this instance. One was the emission of noxious fumes, which, as analysed above, had nothing to do with ADCO or Chan. The other act was the alleged assault of Chan on Philip Curlewis, a security consultant retained by PC, when Chan went to the Premises on 1 October 2009. Chan was alleged to have shouted at Curlewis, repeatedly prodded him with her finger and had stomped on his foot, in the presence of PC’s customers. The judge took the view in her decision in refusing leave to appeal that this too raises a triable issue whether Chan’s actions had amounted to interference with PC’s business.

37.  Chan had denied PC’s aforesaid allegation in her affirmation and her solicitors had written on 12 October 2009 to put forward her version to which there was no reply from PC. Curlewis is 6 feet tall and strongly built, whereas Chan is a petite lady of 5 feet 2 inches tall. Curlewis had provided a detailed report to PC dated 15 November 2009 on alleged assaults in contravention of Cap. 212 offences against the person. He did not see fit to mention Chan’s assault on him on 1 October. De Krassel deposed in his 2^nd affirmation that although he had told Curlewis to report Chan’s assault on him to the police, Curlewis thought it best not to do so as he felt silly in making such a complaint.

38.  The alleged assault was obviously not of a serious nature. It is very doubtful if excessive force had been used. There was no evidence that PC’s business was interfered with as a result of the alleged assault, other than an assertion that customers of PC were present. De Krassel deposed in his 2^nd affirmation that following an incident on 28 September 2009 when Alex and Paul Yip led a group of people in blood-red T-shirts to storm the Premises, Chan, Alex and Paul Yip had entered the Premises on “numerous occasions” to shout at PC’s directors, staff and customers. As far as Chan is concerned, other than the incident on 1 October when the alleged assault occurred, no particulars were given in PC’s pleadings or evidence of any other occasion in which she had attended the Premises.

39.  The judge was plainly in error in holding that the alleged assault had raised any triable issue.

Conspiracy

40.  In her decision in refusing leave, the judge held that in respect of an alleged conspiracy that ADCO, ADP, ULL, Chan and the other defendants by counterclaim had conspired together to deprive PC of its contractual right to renew the Licence Agreement, there are sufficient issues to be investigated and that this alleged conspiracy raises a triable issue.

41.  In support of her contention there is prima facie evidence of this alleged conspiracy, Miss Herbert pointed to a number of matters she submitted should be considered cumulatively. It is PC’s case that ADP and ULL are effectively one and the same. Miss Herbert submitted that ADCO would have known that the same individuals were running these companies as Chan had dealt with Alex Yip in handling the ADP Lease and the ULL Lease. It is not in dispute that the Licence Agreement was entered into with ADCO’s consent and ADCO was aware of PC’s intention to renew the option. ADCO did not enter into the ULL Lease with ULL until 26 August 2009 and yet on 15 August ADCO wrote to PC asking PC to stop contacting it about the renewal of the ADP Lease. Chan had attended the Premises on 1 October 2009 with Alex Yip. ADP had left some chattels in the Premises after the expiry of the ADP Lease. It was submitted that notwithstanding the Premises were let to ULL, in effect ADCO is allowing the same persons to carry on the same trade at the Premises.

42.  Miss Herbert would seem to have abandoned the allegation pleaded in the counterclaim that Chan and ADCO had, with the other defendants by counterclaim, decided to incorporate ULL with a view for this new company to sign a new lease with ADCO. This allegation is wholly speculative and has not been substantiated in any way.

43.  In my judgment, the matters now relied on by counsel, whether taken singly or cumulatively, could not have amounted to prima facie evidence of an alleged conspiracy between ADCO and the other defendants by counterclaim to deprive PC of its right to renew the Licence Agreement. There is no evidence to show that the negotiation of the ULL Lease was not an arm’s length transaction. As submitted by Mr Wong, ADCO had absolute freedom to choose a tenant for the Premises. And even though Chan had dealt with Alex Yip in entering into the ULL Lease, there is nothing unusual for a businessman to use a different company for another purpose.

44.  The judge had observed in an earlier part of her judgment in granting summary judgment to ADCO that it is evident ADCO would receive a higher rent if the option under the ADP Lease was exercised than if the Premises were let to a new tenant paying market rent. The judge did not think PC had shown ADCO as the landlord was in any way connected to the dispute between ADP and PC, nor would it benefit ADCO to take part in a conspiracy. On this view, the judge should have rejected the contention there is any proper evidence to support the alleged conspiracy of ADCO and Chan with the other defendants by counterclaim to deprive PC of its right to renew the Licence Agreement.

45.  PC also alleged there was a conspiracy of ADCO, Chan and the other defendants by counterclaim to unlawfully interfere with its business and a conspiracy to injure PC by unlawful means. I do not think these alleged conspiracies would add anything to PC’s case of nuisance and unlawful interference with business which have already been considered.

Conclusion and orders

46.  For the above reasons, the judge had erred in holding that the counterclaim of PC against ADCO and Chan should go to trial. We have therefore allowed the appeal and made the following orders as a result. The judge’s order on 22 August 2011 is set aside to the extent as stated below:

(1)  the amended defence and counterclaim insofar as related to ADCO and Chan is struck out;

(2)  the counterclaim by PC against ADCO and Chan is dismissed;

(3)  the stay of execution of the judgment of ADCO against PC by original action herein until the trial of the counterclaim by PC against ADCO and Chan is set aside; and

(4)  PC is to pay ADCO and Chan their costs of the application to strike out the counterclaim, the costs of the application for leave to appeal, and the costs of this appeal, to be taxed if not agreed, with certificate for counsel in the court below.