MAN SUN TRADING LTD v. LAU WING KEUNG STEPHEN

DCCJ 4410/2017

[2018] HKDC 1528

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4410 OF 2017

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DECISION

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Application

1.  This is an appeal by the defendant against the decision and order of Master Simon Ho, given on 4 October 2018 in respect of the plaintiff’s application for interim payment during the pendency of the action.  

2.  The learned Master ordered the defendant to pay as interim payment: (i) HK$150,000 for the period from 1 August 2017 to 31 October 2018 within 30 days of the Order; and (ii) HK$10,000 on the 1^st day of each calendar month starting from 1 November 2018 until further order of the court.  The defendant was also ordered to pay costs of the plaintiff’s application.

3.  An appeal from a Master’s decision to a judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time, save that the appellant has the right and obligation to open the appeal. (Hong Kong Civil Procedure 2019, Vol. 1 §58/1/2)

Background facts

4.  The plaintiff is the registered owner of the premises known as Commercial Units A and B on 6^th Floor, Bai Yun Building, 10 Wai Ching Street, Kowloon, Hong Kong (the “Premises”).  The defendant was the tenant of the Premises and entered into possession of the Premises since January 2015.  It is of note that the defendant remains in possession of the Premises up till today.  The defendant admits that he has stopped making any payment since 15 August 2017.

The plaintiff’s case

5.  The plaintiff’s case is that in January 2015 the plaintiff and the defendant entered into an oral monthly tenancy agreement under which the plaintiff let the Premises to the defendant at a monthly rent of HK$18,000 payable in advance on the 15^th day of every month (the “Oral Tenancy Agreement”).  This was allegedly supported by a hand-written note by the defendant.

6.  Contrary to the Oral Tenancy Agreement, the defendant had been in arrears in rental payment: the defendant had failed to pay rent in full from August 2016 and the alleged total amount in arrears until October 2017 when the Writ was issued was HK$230,600.  The alleged total amount of rent in arrears together with mesne profits up to October 2018 amount to HK$464,600.

The defendant’s case

7.  The defendant’s case is that in January 2015, the plaintiff orally agreed with the defendant that he could use the Premises and pay whatever amount of rent he could afford so long as the defendant would renovate the Premises.  It is alleged that the defendant had spent HK$130,000 to renovate the Premises.

8.  The defendant’s case as set out in paragraph 7 of his Amended Defence and Counterclaim is that he would pay whatever amount he could spare usually on a weekly basis, leading to an average monthly amount of HK$10,000 being paid.

9.  In paragraph 9 of his Amended Defence and Counterclaim, the defendant says he is entitled to a tenancy of 3 years at a monthly rent of HK$10,000 based on the parties’ oral agreement and conduct.

10.  The defendant counterclaims for HK$130,000 as expenses incurred in renovating the Premises.

Dispute

11.  Essentially the parties’ dispute boils down to what were the terms of agreement in January 2015.

12.  What is not in dispute are:-

(i)   The defendant has not paid any rent from 15 August 2017; and

(ii)   The defendant is still in occupation of the Premises.

13.  When questioned by the court, the defendant admitted he had not paid rent for more than a year now and he agreed that for occupying somebody else’s property, he ought to pay rent.  On this anomaly, the defendant explained that he was entitled not to pay rent as the plaintiff was suing him.

14.  The defendant also did not seem to understand the nature and the rationale of an interim payment application.  He stressed that before the conclusion of trial, he would not be making any interim payment.  He seemed to feel aggrieved that the Master never allowed for cross-examination of Mr Yam, a manager of the plaintiff and decided the case against him without hearing evidence in full.

15.  The defendant also disputed the monthly amount payable and in particular, disputed the amount of HK$10,000 per month ordered by the learned Master.

16.  When the court informed the defendant that his own case, as based on his Amended Defence and Counterclaim was that he had paid on average a monthly sum of HK$10,000 and that he was entitled to a tenancy of 3 years at a monthly rent of HK$10,000 based on the parties’ oral agreement and conduct, the defendant said he had already issued a summons to apply for amendment of the pleadings which was fixed to be heard on 18 December 2018.  The defendant thus asked the court to adjourn the current appeal to a date after 18 December 2018.  The defendant also said that he would attempt to negotiate settlement with the plaintiff in the meantime.

17.  Although the court welcomes parties to attempt settlement, given the following, the court refused the Defendant’s application to adjourn the present appeal:-

(i)   The application to amend his Amended Defence and Counterclaim seems to be a delaying tactic: the defendant had already indicated at the hearing before Master Ho on 4 October 2018 that he wished to amend his pleadings.  Yet he only took out the summons on 27 November 2018, less than a week before the present appeal.  The summons was not served on the plaintiff until the day of the appeal.  The application to amend his pleadings did not even include a copy of the draft amendments.

(ii)   Assuming the defendant is going to amend the amount of the monthly amount he paid as rent, such amendment may be contradictory to the content of his previously filed affirmations.

(iii)   The defendant did not indicate to what amount he would be amending the monthly payment.

(iv)   Costs have already been incurred by the plaintiff on the preparation of the appeal, although the defendant indicated he was prepared to bear costs of and occasioned by any adjournment.

18.  The court thus proceeded to hear the appeal.

Interim Payment

19.  The plaintiff’s application for interim payment is premised on the argument that even taking the defendant’s case to the highest, the defendant is still liable to make payment for use and occupation of the premises.

20.  The commentary of Hong Kong Civil Procedure 2019, Vol 1 §29/12/3 notes:-

“The object of this rule is to enable the court, during the pendency of the action, to order the defendant to make an interim payment to the plaintiff in respect of his continued use and occupation of the land, whoever should ultimately succeed on the claim for possession of the land itself. The underlying principle is that, during the pendency of the action, the plaintiff should not be deprived of money which he would be entitled to recover from the defendant in any event, and that conversely the defendant should not be enabled to retain money which he would be bound to pay the plaintiff in any event.

This rule operates by ‘decategorising’ the payment by the defendant to the plaintiff during the pendency of the action and disregarding its nature or character, whether it be by way of rent, mesne profits, damages for use and occupation or for trespass or otherwise, by simply describing such payment as “an interim payment”.

21.  For an interim payment order to be made under Order 29 rule 12(b) of the Rules of the District Court, two pre-conditions have to be satisfied:-

(i)   the plaintiff’s action includes a claim for possession of land; and

(ii)   if the action proceeds to trial, the defendant will be held liable to pay a sum of money to the plaintiff in respect of the defendant’s use and occupation of the land during the pendency of the action, even if the defendant succeeds after trial.

Winsworld Properties Ltd v Chance Full International Development Ltd (unrep) HCA 4161/2002

22.  “In the context of the second pre-condition, while the court cannot at an interlocutory stage resolve dispute of facts on affidavits, it is entitled to have regard to the apparent strengths and weaknesses of the parties’ case and evidence and to form a provisional view on the merits of the defence put up by a defendant.  Per Hon. Chu J. (as she then was) in the case of Wong Wai Ming v Sai Kung Flea Market & BBQ Paradise Co Ltd. (unrep, HCA 2289/2008) at §19.

23.  In the present case, there can be no dispute that the 1^st pre-condition is met.  There can also be no dispute that the 2^nd pre-condition is met, as the defendant admitted he would be liable to pay the plaintiff a sum of money as mesne profits in respect of use and occupation of the Premises during the pendency of the action, even if the final judgment was made in favour of the defendant.  Dispute, if any, arises only as to the quantum of such sum.

24.  The defendant said despite what he pleaded in his Amended Defence and Counterclaim, he did not agree that he had to pay a monthly rent of HK$10,000 for occupation of the Premises.  He said he had been paying Mr. Yam of the Plaintiff whatever he could afford on a weekly basis.  The defendant however, did not provide the Court with a sum that he had on average been paying in the past as rent.

25.  No evidence of prevailing market rent for the Premises was produced by either party.  However, the plaintiff can have mesne profits assessed at the normal letting value of the Premises (Megarry & Wade – The Law of Real Property 8^th Ed §4-029).  Mr Yam for the plaintiff relies on the monthly rental of HK$18,000 for the application of interim payment.

26.  Mr Ho, Counsel for the plaintiff relied on a hand written note submitted by the plaintiff which showed records of payment by the defendant during the months of March, April, May, June, July and August 2017. The plaintiff’s case is that these payments, although made in 2017, were in fact payment in arrears for rent due in the year 2016.

27.  From the records, the defendant had paid a total of HK$900 in March, HK$8,100 in April, HK$6,100 in May, HK$6,200 in June, HK$12,000 in July, HK$13,000 in July and HK$5,400 in August.  It is however not possible to tell for which respective months’ rent these payments were made.

28.  Mr Ho also relied on the defendant’s own evidence in his affirmation dated 9 July 2018 where he said he would pay HK$2,000 to HK$3,000 every week to Mr Yam and in another affirmation dated 31 August 2018 where the defendant said that every week he would pay HK$500 to HK$5,000 to Mr Yam. 

29.  Mr Ho submitted that the monthly sum of HK$10,000 ordered by the learned Master was made based on firstly the defendant’s pleaded case, and secondly on his affirmation evidence which broadly supports an average monthly sum of HK$10,000 was paid by the defendant historically.

30.  The defendant now disavowed the monthly sum of HK$10,000 pleaded in his Amended Defence and Counterclaim as erroneous and he would seek to amend that at the hearing fixed on 18 December 2018.

31.  However, as mentioned before, the court did not have sight of the defendant’s draft amendments.  The defendant also did not put forward any other sum which could be put forward with evidence in support of what the mesne profits should be.

32.  The court can only form a provisional view on the merits of the defence and the apparent strengths and weaknesses of the parties’ case and evidence based on what is before the court. 

33.  From the defendant’s own pleadings and the evidence available, it seems that the defendant had been paying on average a sum of HK$10,000 to Mr Yam of the plaintiff before payments ceased completely.

34.  I thus agree with Mr Ho that a monthly sum of HK$10,000, (being what the defendant had said in his pleaded case, as supported by and is consistent with what he said in his affirmations) represents the mesne profits for the Premises per month.

35.  As to the defendant’s counterclaim of HK$130,000 renovation costs, there was no document or receipt evidencing HK$130,000 having been incurred.  No particulars of the HK$130,000 were given.  The only mention of renovation costs was in an affirmation of Mr Lam Yat Shing (the father of one of the defendant’s students in his tutorial group).  Mr Lam claimed to have paid HK$25,000 for the defendant as renovation costs for partitioning the Premises and painting the walls.

36.  Leaving aside the lack of documentary evidence in support of the HK$130,000 (or HK$25,000) renovation costs, the defendant in paragraph 5 of the Amended Defence and Counterclaim specifically pleaded that part of the agreement between him and Mr Yam was that the defendant would be responsible for the costs of partitioning the Premises, whilst Mr Yam would be responsible for the cost of the air-conditioning and painting of the walls. 

37.  As such, even taking the HK$25,000 renovation costs paid by Mr Lam Yat Shing at face value, according to the Amended Defence and Counterclaim, at least part of it should be borne by the defendant.  With no particulars given as to apportionment, the court is unable to hold how much of the HK$25,000 was agreed to be borne by the plaintiff.

38.  Further, there is no mention in the pleadings or affirmations that the defendant had chased for such renovation costs from the plaintiff.  If indeed Mr Yam or the plaintiff had agreed to bear such renovation costs, one would have thought that the defendant would have chased for such reimbursement. 

39.  Although the court cannot resolve dispute of facts on affidavit evidence, it still needs to make provisional assessment as to the strength of the defence as pleaded in the exercise of its discretion in an application for interim payment.

“A defendant who relies on a counterclaim to resist an application for interim payment but chooses not to file any evidence to substantiate such counterclaim could not complain if the court entertains doubt about the bona fide of such counterclaim.” Winsworld Properties Ltd v Chance Full International Development Ltd (unrep) HCA 4161/2002 at §12.

40.  My provisional view is that the counterclaim is unlikely to be successful at trial.

41.  To address the defendant’s misguided sense of grievance of the court pre-judging the matter without taking full evidence from the parties, one must bear in mind the rationale behind interim payment applications as set out on paragraph 20 above.  One must also appreciate the nature of interim payments is such that, in giving or making a final judgment or order, if necessary, the court may make adjustments and order for repayment by the plaintiff of all or part of the interim payment.  The court also has the power to award interest to compensate for the period when the defendant has unjustifiably been deprived of the amount of an interim payment and the plaintiff has unjustifiably had the use of it. (Hong Kong Civil Procedure 2019, Vol 1 §29/17/1)

Conclusion

42.  Master Ho divided his order into two periods, the first period being the 15-month period from 1 August 2017 (the month when the defendant admitted to have stopped payment of rent) to 31 October 2018 (the month of the hearing before Master Ho).  The second period being from 1 November 2018 (being the month following the hearing before him) onwards.  Master Ho adopted the figure of HK$10,000 per month for both periods.

43.  For the reasons set out above, I am of the view that Master Ho was correct in ordering the defendant to make interim payments in the manner set out above.

44.  Accordingly, I dismiss the defendant’s appeal against the interim payment order.  As costs follows event, I make an order nisi that the defendant pays the plaintiff the costs of this appeal.  Although Counsel for the plaintiff had submitted a statement of costs for summary assessment at the end of the appeal, the defendant did not have the chance to go through it and reply.  I thus order costs of this appeal to be taxed if not agreed, with certificate for counsel.