ALL VICTORY ASIA LTD v. KOO DICK YOUNG GUDY

LDPD 1124/2017

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPD 1124 OF 2017

__________________________

__________________________

_______________

Decision

_______________

Background

1.  This case may be considered as a sequel of my judgment handed down on 13 March 2017 in respect of LDPD 2152/2016 where the applicant company applied for recovery of possession of the property concerned (“the Property”) on the ground of tenancy expiry.

2.  Indeed, prior to 7 January 2017, the respondent and his family members were the shareholders of the applicant company.

3.  The respondent, in his opposition then, referred to a rental agreement (“the Rental Agreement”) as contained in a Share Transfer Agreement dated 4 January 2016 (“the Share Transfer Agreement”) whereby the Property was leased back to him from 16 January 2016 for a period of 18 months upon sale of his share and interest in the applicant being a company which holds the Property. That is, the respondent contended that he was a tenant in accordance with the Rental Agreement though he conceded that he had not paid rent to the applicant. The reason being so was that a Ms Wong who is more properly WONG Chow Han who purchased the respondent’s and his family’s shares of the applicant company had not paid the full purchase price agreed for the shares.

4.  I found, on the balance of probabilities, for the respondent as regards the existence of the Rental Agreement and accordingly, I ordered him to pay to the applicant company arrears of rent on or before 27 March 2017, subject to a relief against forfeiture pursuant to Section 21F of the High Court Ordinance (“the March Judgment”).

5.  Nobody appealed against the March Judgment and indeed the respondent settled the arrears of rent on 23 March 2017.

6.  But on 9 June 2017, the applicant company filed a Notice of Application again for recovery of possession of the Property on the ground that the respondent had failed to pay rent since 16 April 2017.

7.  No Notice of Opposition was filed by the respondent. On 4 July 2017, pursuant to an application by the applicant company under Rule 15 of the Lands Tribunal Rules, the Tribunal made a judgment that, apart from requiring the respondent to pay to the applicant arrears of rent/mesne profits from 16 April 2017, ordered him to deliver vacant possession of the Property to the applicant (“the Default Judgment”).

8.  The respondent filed an Interlocutory Application dated 5 July 2017 seeking to set aside the Default Judgment as well as seeking leave for time for filing and service of the Notice of Opposition to be extended for 21 days from the date of the order to be made on this application.

9.  Further on 10 July 2017, the respondent filed another Interlocutory Application seeking a stay of execution of the Default Judgment and as an alternative to his earlier application dated 5 July 2017, relief against forfeiture.

Setting aside the Defaulted Judgment

Set-Off

10.  In his affirmation dated 11 July 2017 (“the Affirmation”), the respondent alleged that the Share Transfer Agreement was a result of a fraud insofar that a significant part of the consideration for the transfer of shares or interest in the applicant company by him (as well as his family) remains unpaid. See also §7 of the March Judgment.

11.  At §§18-20 of the Affirmation, the respondent stated as follows:

“18. I have no intention to avoid any of my duty under the Rental Agreement. This is clear from the fact that I paid all the outstanding rental payments and legal costs awarded to the Company (ie the applicant) on 6 July 2017 by cheque in the sum of HK$8,300, which equates to rental payments in the sum of HK$7,500 for a period of 3 months ($2,500 per month) from 16 April to 15 July 2017 plus HK$800 legal costs awarded ……

19. After I received the application of the Company on these proceedings, I was alarmed that I needed to take action to set aside the Share Transfer Agreement on the basis of fraud and I started approaching legal firms to seek advice on that. I thought if I could set aside the Share Transfer Agreement on the ground of fraud, this would also resolve the matter on rental payments.

20. I did not mean to have the opposition filed late; it was an oversight ……. I thus mistakenly prioritized the discussion on the setting aside of the Share Transfer Agreement, which was very important to me, instead of the need to file an opposition timely.” (emphasis added)

12.  Thus, it is not disputed that the Notice of Application dated 9 June 2017 was duly served on the respondent. Through neglect or oversight, the respondent did not file the Notice of Opposition as a result of which the Default Judgment was granted. In a case like this, in order to successfully set aside the Default Judgment, the respondent has the burden to demonstrate that he had a defence on the merits which have a real prospect of success or carry with it some degree of conviction: Young Bing Ching (deceased) v Chow Yung Fong & Another [2001] 2 HKLRD 394 at 398G-402A.

13.  Then the respondent explained his failure to pay rent on time on the ground of set-off at §§23-25 of the Affirmation:

“23. I did not make the Rental Payments of HK$7,500 on time as I believed then that the Company and Ms Wong (ie WONG Chow Han, the person to whom the shares or interests in the applicant company was transferred initially) have owed me a far larger sum of money, ie the rates and management fee of the Property paid by me in the sum of more than HK$47,000. Thus, this larger sum owed to me by the Company and Ms Wong should be used to set off against the much smaller sum of outstanding rent.

24. Under the Rental Agreement, I only have to pay for the rental payment in the monthly sum of HK$2,500. However, not only did I pay for the rent from 16 January 2016 to 15 April 2017, I also paid for the management fee and rates in the total sum of HK$47,774 ….

25. Thus, on 20 June 2017, …, I brought a claim against the Company and Ms Wong for the management fee and rates owed to me in the sum of HK$47,887 in the Small Claims Tribunal …...”

14.  Based on the above, Ms Athena Wong (“Athena Wong”) for the respondent submits that the respondent has a real prospect of success in respect of having a good cause for a 2^nd relief against forfeiture.

15.  In support, Athena Wong refers to Far East Land Holdings Ltd v Empire Asian Ltd [2011] 4 HKLRD 472 (“Far East Land Holdings Ltd”). In this case, the judge found that the officer of the tenant company who was responsible for paying rent was out of town but had authorized another person to attend to the payment, which was due on a Friday.   That person, in what the judge described as a “slip” or oversight, did not come into the office to sign the cheque until Friday afternoon. Due to banking hours and the intervening weekend, the rent was only paid on the following Monday. The judge found in those circumstances, the slip or oversight constituted good cause for the court to exercise its discretion to grant a 2^nd relief against forfeiture.

16.  In my opinion, Far East Land Holdings Ltd should be distinguished from the present case. Here, the respondent purported not to pay the rent based on his conception of set-off. It might be his “oversight’ that he did not file the Notice of Opposition but it was not his oversight in not paying the rent. Firstly, by virtue of the March Judgment, the respondent should have known that he had the obligation to pay the rent under the Rental Agreement which was indeed his case for defence in LDPD 2152/2016. Secondly, it is trite that under the common law, the covenant to pay rent is independent of the other covenants or obligations under a lease, including for example, the covenant for quiet enjoyment[1]. Thirdly, as manifested at §24 of the Affirmation, he had no responsibility for paying the rates and management fee under the Rental Agreement; that he had somehow paid the rates and management fee by mistake or otherwise was self-inflicted and should not be a ground for not paying the rental due. I do not consider the respondent has established good cause for a 2^nd relief against forfeiture.

17.  Without prejudice to my view above, even if the respondent had demonstrated a defence of sufficient merit, it does not mean that he has an automatic entitlement to have the Default Judgment set aside. See Young Bing Ching (deceased), supra at 402H-403D. Recently, in Ramadour Industries Limited v Bullen Christian Anthony, CACV 19 of 2016 (unreported, dated 15 May 2017), the Court of Appeal had the following remark at §13:

“It should first be noted that by the time of the hearing before this court (February 2017), the lease had already expired by effluxion of time. There is therefore no question of the Tenant being able to set aside the order for vacant possession now on the basis of relief against forfeiture.”

18.  In the present case, the Rental Agreement expired by effluxion of time on 15 July 2017 but the respondent is still occupying the Property. It is a public interest in there being an end to litigation and in not having the time of the court occupied by two trials.  Per Leggatt LJ in Shocked v Goldschmidt [1998] 1 All ER 372. Thus, even if I have to exercise my discretion, I refuse to set aside the Default Judgment.

Lien on the Property

19.  It is Athena Wong’s alternative ground that the respondent is entitled to a lien on the Property when he has not been able to receive full payment from the purchaser for the transfer of shares of the applicant company. Athena Wong refers to Snell’s Equity, Sweet & Maxwell, 33^rd ed, §44-004 that a common law lien offers the lienee a defence to a possession while an equitable lien is a form of charge upon property until certain claims are satisfied. An equitable lien does not depend upon possession of property which it covers and it provides security without possession. She further cited §44-007 as follows:

“As soon as a binding contract of sale is made, the vendor has a lien on the property for the purchase-money and a right to retain the property until the money is paid. The lien may also secure the performance of the other obligations of the purchaser, eg an obligation on the sale of a business to collect the outstanding debts and account for them to the vendor. Even if the vendor executes an absolute conveyance and parts with possession both of the property and of the title deeds to the purchase, they still have an equitable lien on the property in respect of any part of the purchase-money which may not have been paid….” (emphasis added)

20.  I have difficulty however in relating the unpaid purchase-money of the applicant company payable by WONG Chow Han who had already sold all her shares and interest in the applicant company to a third person (ie Mr Ko Wai Cheung Albert or hereinafter referred to as Mr Ko who is now acting on behalf of the applicant) to the Property owned by the applicant company. That is, on record, the alleged debtor no longer has any interest in the applicant company or the Property.

21.  In Khan v Khan & Another[2015] EWHC 2625 (Ch), by way of further relief, the claimant asserts a lien over a property (“Charles Place”), until payment of sums allegedly due to him arising from his transfer of another property (“9 St Andrews”), to his father, ostensibly for natural love and affection, but, according to the claimant, on the footing of an agreement that his father would pay him either the then value of that property, or the amount (£112,000) which the claimant had had to borrow, by way of mortgage, in the purchase of another property.

22.  The English court found such a lien was fraught with difficulty at §§54-57:

“54. The underlying characteristic, of all, or any, equitable lien, is that there is a nexus to be found between the fund, or property, over which the equitable lien arises, by way of equitable charge, and the circumstances which give rise to the relevant equity. Accordingly, where a trustee expends his own money in the protection of, or to benefit, trust property, he has an equitable lien for the money expended. Similarly where a solicitor, by his exertions upon behalf of his client, secures the recovery of property (other than real property) upon behalf of his client, he has a lien over the property, or fund, recovered for his fees. Again, the unpaid vendor of real property retains an equitable lien over that property pending payment, on the principle that a person having got in the estate of another shall not keep that estate without payment of the consideration due. Correspondingly, a purchaser of property, where the sale goes off, other than by his default, obtains a lien over the property for any deposit paid, or other payment made, on the principle that a person having received the price for property (or a part of it) cannot retain the price without making the conveyance for which the price was paid. In both the last instances, the court protects the vendor and the purchaser, respectively, by imposing a lien over the property in question for the amounts, in the one case, unpaid and, in the other case, due to be repaid.

55. In all these instances and in other instances where an equitable lien may arise, for example, by way of subrogation, or, in those particular circumstances where a lien arises when money is expended upon, or in respect of, the property of another, there is a clear connection between the property or fund over which the lien arises and the transaction or circumstances out of which it arises.

56. In this case, however, there is no connection whatsoever between the property (Charles Place) said to be impressed with the lien and the circumstances, namely the non payment of the monies allegedly due in respect of 9 St Andrews which are said to give rise to the lien.

57. Nor, given that an unpaid vendor’s lien would, on the Claimant's case, have arisen in his favour over 9 St Andrews, does it seem to me to be a realistic conceptual possibility that an equivalent lien could independently arise in his favour over an entirely unconnected property.”

23.  Then the English court ruled that the claimant had no realistic prospect of establishing either a common law or an equivalent lien over Charles Place and would have dismissed that aspect of his claim upon that basis.

24.  And in Langen & Wind Ltd v Bell [1972] Ch 685, [1972] 1 All ER 296, [1972] 2 WLR 170, the two plaintiff companies entered into an agreement to employ the defendant as managing director, he being granted an option to purchase a certain proportion of the companies' shares. The defendant exercised this option and purchased shares in one of the companies. The agreement was subject to determination by either side at six months' notice; under the agreement the defendant undertook that, in the event of the termination of his employment for any reason, he would execute instruments of transfer in respect of shares held by him in the companies and deliver them to the third and fourth plaintiffs. The agreement further provided that “the consideration payable to [the defendant] shall be for each share so transferred the prescribed price” which was to be calculated.….. Then the defendant's contract of service ended in consequence of a notice served by him. He was further required to transfer the shares to the third and fourth plaintiffs in accordance with the agreement and it was intimated that the purchase money would be paid when the price had been calculated after the two accounting years had expired. The defendant refused to transfer the shares until he had been paid. The plaintiffs sought an order for specific performance in effect requiring the defendant to execute a transfer of the shares and deliver it with the relevant certificates to the third and fourth plaintiffs.

25.  Refusing to grant the specific performance sought by the plaintiffs, the English court also remarked on the difficult encountered by the lien that may arise in case the defendant who had not been paid the full purchase price:

“If the lien arose in the case of a sale of land there would be no problem. If the land were registered, no doubt a caution could be put on the register to protect the lien: if unregistered, no doubt there is a comparable notice which could be entered in the land charges register. But in the case of an incorporated company such as the production company, it will not be possible to require the company to accept notice of the lien. So clearly, although in my judgment the lien exists, it can quite easily be lost, because someone may purchase the shares from Mr Langen or Mr Wind without notice of the existence of the lien or otherwise in circumstances which override the lien.”

26.  As I stated at §20 above or at §10 of the March Judgment, WONG Chow Han had sold all her shares and interest in the applicant company to Mr Ko. At least up to the present moment, there is no evidence before me to suggest that Mr Ko was not a bona vide purchaser of the applicant company without notice of possible existence of the lien. That would have defeated the possible existence of the lien by the respondent.

27.  All the more, the applicant is claiming recovery of possession of the Property as landlord pursuant to the Rental Agreement put forward by the respondent as a defence in LDPD 2152/2016. The respondent is estopped from denying the right of the applicant under Rental Agreement.

Conclusion

28.  The Interlocutory Applications by the respondent dated both 5 July 2017 and 10 July 2017 be dismissed and there be no order as to costs.