SHUI ON CENTRE CO LTD v. BPB (HK) LTD

CACV 246/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 246 OF 2006

(ON APPEAL FROM DCDT NO. 638 OF 2006)

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R E A S O N S   F O R   J U D G M E N T

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Hon Tang JA (giving the reasons for judgment of the Court):

1.  By tenancy agreement dated 24 April 2003, Unit 506, Shui On Centre, 6-8 Harbour Road, Wanchai, was let by the plaintiff to the defendant for a term of 4 years from 1 March 2003 to 28 February 2007.

2.  On 17 February 2006, a warrant of distress was issued on the application of the plaintiff in respect of rent allegedly payable from 1 November 2005 to 31 January 2006.

3.  On 23 February 2006, the defendant paid a sum of $132,575.00 in satisfaction or in lieu of execution of the warrant.

4.  By a summons dated 28 February 2006, but issued on 1 March 2006, the defendant applied to have the warrant quashed.

5.  On 27 April 2006, Deputy Judge S T Poon dismissed the summons with costs.  The application was based on supposed material non-disclosure on the part of the plaintiff.  The defendant was represented by its solicitors.

6.  On 7 July 2006, Deputy District Judge granted leave to appeal.  Miss Ho Wai Yang of counsel, then appearing for the defendant, submitted that the plaintiff had no right to apply for a warrant of distress, after service of a counterclaim claiming forfeiture and possession, on 3 October 2005, in separate proceedings between the parties, namely, DCCJ 4017 of 2005.  The plaintiff’s counterclaim was for possession of the premises based on forfeiture for non-payment of rent.

7.  The application for leave to appeal was filed on 11 May 2006.  On 30 May 2006, the plaintiff applied for and obtained leave to discontinue the counterclaim for forfeiture and possession in DCCJ 4017 of 2005.

8.  On appeal, the only point which arose for consideration was, whether, having regard to the counterclaim by the plaintiff for forfeiture and possession, the plaintiff was entitled to the issue of the warrant of distress.

9.  Mr Malcolm Merry, who appeared for the plaintiff on appeal but not in the court below, submitted, since a claim for forfeiture would not bring a lease to an end for all purposes, the court ought to consider the validity of the warrant of distress as at the time when it had to adjudicate on its validity.  And since the point was only taken after the discontinuance of the counterclaim, and as at that time, there could be no question of the lease having been forfeited, the application to set aside the warrant should be dismissed.  He submitted, in a case of a forfeiture for non-payment of rent, relief against forfeiture is virtually automatic.  In a case where the tenant disputes the right of the landlord to forfeit, the landlord might withdraw his claim of forfeiture.  Lastly, the landlord’s claim of forfeiture might turn out to be unfounded.  In all these cases, it is submitted, the lease is restored to its full existence as from the beginning, and there is no forfeiture and no need for a new lease.

10.  In Ivory Gate Ltd v Spetale and Ors [1998] 2 EGLR 43, Sir John Vinelott said in his judgment, which had the agreement of Beldam and May LJJ as follows:

“… If the tenant challenges the claim by the landlord that the right of re-entry has arisen by reason of breach of covenant or otherwise, the question whether the lease has been forfeited must await the outcome of the action; similarly, if the landlord serves a writ claiming possession and the tenant claims that the landlord has no right to re-enter.  Again, in both cases if the tenant claims relief against forfeiture, the question whether the lease will be restored to full life remains in abeyance pending the determination of that claim.”

11.  In Wong Wan Leung & others v Secretary for Transport [2001] 4 HKCFAR 69, Litton LPJ referred to Sir John Vinelott’s observations with approval.  Then on the same page, came this passage which is relevant to the present appeal:

“… Seen from the landlord’s point of view the issue and service of the writ for forfeiture determines the tenant’s interest once and for all: The tenant ceases from that point onwards to have any entitlement: As far as the landlord is concerned the tenant stays on as a trespasser: The claim thereafter is not for rent but for mesne profits: That is to say, for the value of the property to the former tenant for the period of his wrongful occupation: see Halsbury’s Laws of Hong Kong, Vol.17, para.235.224.”

12.  Here the critical issue is, whether having regard to the counterclaim for forfeiture, the plaintiff was still entitled to a warrant of distress.

13.  The right to distrain is to be found in Part 3 of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 (section 78(1)).

14.  Only a person who claims “to be entitled to arrears of rent … may apply for a warrant” (section 81).  The application for a warrant “shall be supported by an affidavit in Form 1 in the Fifth Schedule” (section 82).  The affidavit in Form 1 confirmed that the distress could only be levied in respect of arrears of rent.

15.  A warrant of distress is a powerful weapon which may affect the interests of third parties.  An application to set aside the warrant which may be made by “the debtor, or any other person alleging himself to be the owner of any property seized” has to be made within 5 days of the seizure (section 93).

16.  It can also give arise to criminal consequence, for example, section 109 which, where relevant reads as follows:

“If the tenant or lessee or person in possession or occupation of any premises on which there is an arrear of rent due, recoverable by distress, removes or carries away, or causes or permits to be removed or carried away, from the premises any movable property liable to be seized for such rent, so as to prevent or hinder the bailiff from distraining the same, the court may, on application verified by affidavit, authorize the bailiff to whom the warrant to distrain for the rent on such premises is addressed, … to follow and to take and seize the property as a distress for the arrears of rent, …”

17.  Section 111 makes a fraudulent removal of property under section 109 an offence triable upon indictment.

18.  We believe the validity of warrant of distress should be considered as at the date of its issue.  As at that date, on the plaintiff’s case, it was not entitled to distrain for rent after 31 October 2005.  We do not believe it is right that the validity of the warrant should await the resolution of the claim for forfeiture.  Nor should the outcome of the application depend on whether the claim for forfeiture had been decided by the time of the hearing of the application.  Nor should any claim for damages for wrongful distress depend on the choice of the person who obtained the warrant, for example, in discontinuing a claim for forfeiture.  The fact that the counterclaim for the forfeiture might eventually be regarded as never having taken place would not retrospectively validate the warrant of distress.  To conclude, in our view, at the time when the plaintiff applied for the warrant, the plaintiff could not be a person “claiming to be entitled to arrears of rent”.  For that reason, the warrant must be set aside.

19.  There is statutory provisional for distress after termination of tenancy (section 102).  But it is only applicable to arrears of rent and if the distress is made during the continuance of the possession of the tenant from whom such arrears became due.  Here it is clear that as at the date the warrant was issued, the plaintiff was not entitled to be paid any arrears of rent for the period after 31 October 2005.  It mattered not that had the plaintiff distrained for rent due and owing prior to the 1 November 2005, the situation might be covered by section 102.

20.  For the above reasons, we allowed the appeal, and ordered the repayment of the sum of $132,575.00.

21.  We reserved our decision on costs.

22.  Since the hearing of the appeal, we have been supplied with certain without prejudice save as to costs correspondence, between the defendant and the plaintiff.  These correspondence do not conclude the matter.  However, in all the circumstances, we believe the costs of the appeal should follow the event.  Thus, the defendant is to have the costs of the appeal to be taxed if not agreed.  As for the costs below, it is quite clear that much of the costs were wasted because the solicitors for the defendant relied on unsupportable arguments, and as the argument on which the defendant succeeded on was not advanced until after the summons had been dismissed.  In the circumstances, we believe we order that there be no orders as to costs in the court below.