SHINY RICH INDUSTRIAL LTD v. VICTOR SINO LTD

HCA 2163/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2163 OF 2006

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J U D G M E N T

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1.  This is an appeal from the Order of Master Ho granting summary judgment to the plaintiff for possession of premises let to the defendant and for arrears of rent and mesne profits. The question is whether the defendant has raised a triable issue. The issue which the defendant seeks to raise can only be explained after a brief account of the facts.

The Facts

2.  The plaintiff is the registered owner of certain premises in the Basement of Sunshine Kowloon Bay Cargo Centre, 59 Tai Yip Street, Kwun Tong. For the purpose of these proceedings there are three portions of these premises which are relevant. These have been identified in the plan annexed to the Statement of Claim as coloured pink (“the 1^st Premises)，coloured pink hatched black (which is called “the Surrendered Premises” in the Statement of Claim) and coloured green which are loading spaces and are referred to as “the 2^nd Premises”). I am told that the 1^st Premises is about 24,000 sq ft and the Surrendered Premises is about 2,000 sq ft.

3.  The defendant is a company which carries on the business of testing of release of exhaust fumes from motor vehicles.

4.   Mr Yeung Chak Por (“Mr Yeung”) is a director and the major shareholder of the plaintiff. Mr Yeung also holds 50% of the shares of the defendant. He is also a director. The other director and shareholder of the defendant is Mr Li Kin Bon. At the commencement of the hearing of this appeal, Mr Luk presented this Court with a draft Originating Summons for the purpose of applying for an order under s. 114B of the Companies Ordinance to convene a meeting of the company to sanction the authorization of the defendant’s solicitors in the conduct of the defence of this action. In the event, this application was not proceeded with.

5.  The plaintiff acquired the relevant Premises since August 2005 subject to and with the benefit of a written tenancy agreement between the plaintiff’s predecessor-in-title and the defendant. That agreement was for a term of 2 years in respect of the 1^st Premises and the Surrendered Premises for a rent of $50,000 per month.

6.  The plaintiff’s case is that after it acquired the relevant Premises, there was an oral agreement between Mr Yeung on behalf of the plaintiff and Mr Li on behalf of the defendant that there should be a tenancy to the defendant at the same rent of $50,000 per month but that the defendant agreed to give up the Surrendered Premises in exchange for the 2^nd Premises. The defendant denies there was such an oral agreement, and maintains that it is entitled to use and occupy the same premises which it was entitled to use under the written tenancy agreement with the plaintiff’s predecessor-in-title i.e. the 1^st Premises and the Surrendered Premises. As for the 2^nd Premises, the defendant says that these are loading bays which the defendant has all along been permitted to use anyway.

7.  The plaintiff claims that the defendant failed to pay rent since 17 February 2006, and the plaintiff claims possession, arrears of rent for the period from 17 February 2006 to 28 September 2006 and thereafter mesne profits at the rate of $50,000 per month. The plaintiff also claimed interest on the arrears of rent and mesne profits at the rate of 1.5% per month. The plaintiff claims in the alternative on 4 dishonoured cheques issued by the defendant which were drawn for the purpose of paying the rent due for each of the 4 months from 17 February 2006 to 16 June 2006. Each of these cheques was for $50,000, totaling $200,000.

8.  The defendant’s case is that subsequent to January 2006, it was discovered that about 90% of the subject matter of the tenancy had been encroached by a company called Wing Wai, which was a previous client of the defendant for their testing services. It is said that this was done under a licence from the plaintiff and that this constituted a breach of clause 3.3 of the tenancy agreement which imposed an obligation on the  plaintiff to give quiet enjoyment of the 1^st premises and the Surrendered Premises to the defendant. It is said that the defendant confronted the plaintiff in relation to this breach and made known to the plaintiff that the market rent of the space which the defendant occupied was $5,000.

9.  The plaintiff does not dispute that it granted a licence to Wing Wai by an agreement dated 1 May 2006.  The plaintiff says that this licence related only to the Surrendered Area and does not concern the 1^st or the 2^nd Premises which are the subject matter of this case. The defendant retorts that the alleged agreement to surrender was invented by the plaintiff to justify its later signing of the licence agreement with Wing Wai, which was a clear breach of the tenancy agreement.

Discussion

10.  If the defendant is able to establish that the plaintiff did permit a third party to use and occupy a substantial portion of the premises, the plaintiff would be liable to pay damages to the defendant which the defendant can apply to set-off against rent which would otherwise be payable.

11.  Counsel for the plaintiff does not dispute that in law the defendant may have a defence of set-off. He relies instead on the dictum of Bokhary JA (as he then was) in Re Safe Rich Industries Ltd, CA No. 81 of 1994 to the effect that the test at the summary stage is whether the defendant’s assertions are believable. Mr Lin relies on a number of points. First he says that it is unlikely that Wing Wai would be able to enter into possession and occupy part of the compound without the 1^st defendant’s consent. Secondly, he relies on a form of provisional tenancy agreement signed by the defendant in which a plan is attached and the area shown on that plan did not include the Surrendered Premises. The defendant has provided some answers to these points and I am not prepared to say at this stage that his assertions are unbelievable. As the matter has to go to trial, it is inappropriate for me to say anything more.

12.  However, the area that the plaintiff licensed to Wing Wai is only an area of about 2,000 sq ft. Although the defendant complains of encroachment by Wing Wai of a much larger area, Mr Luk is unable to show why it is arguable that the plaintiff should be held responsible for  the encroachment by Wing Wai beyond the licensed area. I would accept that it is arguable that the loss and damage to the defendant caused by the alleged breach of the tenancy agreement may extend beyond being deprived of the use of the Surrendered Area since the whole area has only one entrance and it must be reasonably foreseeable that permitting Wing Wai to use the Surrendered Area would inevitably be allowing Wing Wai to use part of the 1^st Premises for access.

13.  In the circumstances, whilst I am satisfied that the defendant has raised a triable issue in respect of a defence of set-off, I do not think that this is anything more than a partial defence to the claim for payment of rent and mesne profits and it would be inappropriate to grant unconditional leave to defend.

14.  The claim on dishonoured cheques appears to me to attract different considerations. The only answer put forward by the defendant is that Mr Yeung of the plaintiff knew that the bank account of the defendant would not have the funds to meet the cheques. This is obviously not a defence to a claim on dishonoured cheques. Mr Luk did not contend otherwise.

15.  I would therefore allow the appeal in part, set aside the judgment granted by the Master and substitute it by a judgment in favour of the plaintiff for the sum of HK$200,000 on the dishonoured cheque and an order for possession, and order that the defendant do have leave to defend the rest of the claim conditional upon the defendant paying to the plaintiff a sum of $810,000 (calculated on the basis of $45,000 per month x 18 months) as partial payment of rent within 28 days and a further sum of $45,000 a month so long as the defendant continues in possession of the 1^st  and 2^nd Premises; provided that if the defendant pays the sum of $200,000 and the sum $810,000 within 28 days and the said sum of $45,000 per month, the defendant be relieved from the forfeiture incurred herein.

16.  In default of compliance of the conditions, judgment be entered for the plaintiff as follows:

(1)	The defendant do deliver vacant possession of ALL THAT Portion of Godown C (also described as Godown Space C) on the Basement of Sunshine Kowloon Bay Cargo Centre, 59 Tai Yip Street, Kwun Tung, Kowloon, Hong Kong as shown coloured Pink on the Plan attached to the Writ of Summons herein (“the 1st Premises”) and All those Loading Spaces Nos. L13, L14 and L15 on the Basement of Sunshine Kowloon Bay Cargo Centre as shown coloured Green on the Plan attached to the Writ of Summons herein (“the 2nd Premises”).
(2)	The defendant do pay the plaintiff the sum $370,000 being arrears of rent of the 1st Premises and 2nd Premises for the period from 17th February 2006 to 28th September 2006, provided that for the avoidance of doubt this sum includes the sum of $200,000 ordered to be paid under the judgment dated 4 January 2008.
(3)	The defendant do pay the plaintiff mesne profits at the rate of HK$50,000 per month from 29 September 2006 until vacant possession of the 1st Premises and the 2nd Premises is delivered up to the plaintiff.
(4)	The defendant do pay the plaintiff the sum of HK$23,4000 being the amount of interest on the arrears of rent up to 28 September 2006.
(5)	The defendant do pay the plaintiff further interest on the said arrears of rent/mesne profits of HK$370,000 at judgment rate from the date of the Writ of Summons (i.e. 29th September 2006) until payment.
(6)	The defendant do pay the plaintiff the costs of this action including the costs of the Order 14 appeal and all reserved costs, such costs to be taxed if not agreed.
(7)	AND IT IS FURTHER ORDERED THAT if the defendant shall pay to the plaintiff all the arrears of rent and mesne profits up to the date of delivery up of vacant possession and a sum of $200,000 on account of costs of this action pending taxation within 28 days from the date of judgment, the defendant be relieved from the forfeiture incurred herein and that he do hold the premises according to the lease without any new lease.

17.  (After hearing the parties), I order that the costs of this appeal be in the cause.