HO YAN DEVELOPMENT CO v. FASHION ACCESSORIES INTERNATIONAL LTD

HCA 1373/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1373 OF 2011

BETWEEN

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AND

HCA 1374/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1374 OF 2011

BETWEEN

________________________

_______________________________

DECISION

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THE APPLICATIONS

1.  HCA 1373/2011 and HCA 1374/2011 are two separate actions in respect of the tenancy agreements of two workshops, namely, Workshop B3 and Workshop B4, Ground Floor, Block B, Hong Kong Industrial Centre, No. 489-491, Castle Peak Road, Kowloon, Hong Kong (workshop B3 and workshop B4 respectively).  The plaintiff for B3 is a corporation, with the same plaintiffs for B4 as its shareholders.  They are the landlords of the respective workshops. They claim against the defendants, the tenants, under the respective tenancy agreements for possession of the workshops, mesne profits, damages, interest and costs[1]. Possession of the workshops had been delivered to the plaintiffs on 26 August 2011[2] and the defendants had agreed to pay the mesne profit, subject to a set-off of money due to the defendants by the plaintiffs as set out in the Counterclaims[3].  What hotly in dispute are the defendants’ Counterclaims for waiver fee deposits, the waiver fees and the government rents paid by the defendants for the plaintiffs for the past years[4].

2.  The defendants in both actions have taken out summons for leave to amend the defence and the counterclaim (for HCA 1373/2011 it is the first amendment and for HCA 1374/2011 it is the second amendment), which applications the plaintiffs now contest.

3.  Ms L. Lau, counsel acts for the defendants and Mr. K. Poon, counsel acts for the plaintiffs.

4.  This morning, Ms Lau has submitted the Amended Defence and Counterclaim for HCA 1373/2011 and Amended Defence and Re-Amended Counterclaim for HCA 1374/2011 with some rectifications to replace those annexed to the summonses.  Mr. Poon has no objection to the replacements, but he contests them on the same grounds submitted in his skeleton arguments.

5.  By consent of the plaintiffs, I order that the defendants’ applications for the replacement of the annexure to the summonses be allowed.

6.  Both counsel consider that the issues in questions are common issues, with substantively the same plaintiffs and the same defendants, the applications should be dealt with at the same time.  Ms Lau also agrees that her applications for both actions will stand and fall together.[5]

7.  Mr. Poon agrees that the present applications for amendment are not too late to warrant a refusal by the court.  His main argument against leave for the amendment is on the contents of the amendment, which, he considers to be flaw[6]. He has two concerns, viz. (1) the cause of action is not specific and (2) the defendants are not the proper contracting parties.[7]

THE OTHER RELATED APPLICATIONS

8.  Before the discussion of the arguments for the present applications, I should note two other matters relating to the applications:

a.  The plaintiffs have taken out two applications, one for striking out the parts of the Counterclaims on waiver fees and another for specific discovery from the defendants as to the accounts for payments of the waiver fees and government rents for the workshops. These two applications have been scheduled to be heard on 19 December 2012 before Master Ng, with the estimated time of 3 hours.

b.  With consent of the parties, the above applications are to be heard today.

DISCUSSION

A.  Cause of action not specific

9.  I shall now deal with Mr. Poon’s arguments on the first concern – the cause of action being not specific at all.

10.  Mr. Poon’s major complaint against the defendants’ proposed amendments is that the defendants have failed to suggest any cause of action and the plaintiffs have “no idea how these particulars are to be used by the defendant. Reading from the particulars alone, they are possible to raise different causes of action…[8]  The difficulty the plaintiffs are facing with these proposed new particulars is that we do not know how they are going to be used by the defendant without the latter pleading fairly and squarely on what cause(s) of action it is going to rely[9]...The proposed amendments to paras. 17, 18 and 18A simply does not help determining the real issue of the current dispute. On the contrary, they open up possibilities for the defendant to run further unpleaded cause(s) of action as it may deem fit in the future through introducing irrelevant particulars[10]…Moreover, the defendant fails to explain why the proposed amendments were material facts to its contractual claims…[11]”.

11.  In essence, Mr. Poon considers that the defendants should plead contractual terms for the counterclaims only.  It is simply a case of a breach of the tenancy agreements, the terms of which are clearly set out in the written tenancy agreements.

12.  Ms Lau responds that with the additional particulars in the replaced pleadings, the defendants have already set out the particulars to say that there had been an oral agreement between Mr. Chan Cheung for the landlords and Miss Gogo Wong for the defendants for the payment of waiver fees by the defendants for the landlords and the reimbursements of the same upon the condition that if the defendant did not exercise the option to buy workshop B4.

13.  Order 18 rule 7 provides for the ingredients of pleadings:

“Subject to the provisions of this rule and rules 7A, 10, 11 and 12, every pleading must contain, and contain only, a statement in a summary form of the material facts on which the party pleading relies for his claim or defence, as the case may be, but not the evidence by which those facts are to be proved, and the statement must be as brief as the nature of the case admits.

(2)

(3)

(4) A statement that a thing has been done or that an event has occurred, being a thing or event the doing or occurrence of which, as the case may be, constitutes a condition precedent necessary for the case of a party is to be implied in his pleading.”

14.  It seems that the defendants do not have to spell out specifically in the Counterclaims the cause of action.  Mr. Poon’s first concern does not support his argument against the defendants’ application for amendment to the defence and counterclaim.

B.  The proper contracting parties

15.  As to Mr. Poon’s second concern on the proper contracting parties, he maintains that with the propose amendments, the defendant is not the proper contracting party to make the counterclaim and he said: “….that the defendant was not party to any such alleged oral agreement because the defendant (HCA1373) only incorporated on the 15^th October 2004 that was even after the death of Chan Cheung on 10^th September 2004[12]…Without founding its cases on a valid locus, the whole action concerning waiver fee is liable to be struck out for disclosing no reasonable cause of action.  The proposed amendments do not cure the defect…For this reason alone, the Court should not allow the proposed amendments…There is no reason why it is not Gogo Wong but the defendant who should seek to enforce the alleged oral agreements.  The defendant is obviously a wrong party to maintain such claims[13]…Leaving aside of credibility, such meeting was held, as agreed by parties, on the 21^st September 2004, a date still before the defendant’s incorporation.  Any oral agreement on that day, if ever existed, would simply not concern the defendant.”

16.  Mr. Poon is also concerned about the plaintiffs’ right, which will be prejudiced by the defendants’ proposed amendment under the Limitation Ordinance, Cap. 347. At §18 of his skeleton he said: “Still further, any such oral agreement allegedly made in September 2004 arises out of entirely new set of facts in para.18 which have not been pleaded before.  This constitutes new causes of action and is subject to the limitation period of 6 years for contractual claim… While the plaintiff agrees that new cause of action itself is not time-barred as the defendant’s claim for breach is a continuous one, some losses as particularized in para. 21(B) as a result of the breach is obviously more than 6 years ago at the date of the summons for amendment and have been caught by the limitation period.”

17.  Ms Lau’s reply is that Chan Cheung was the authorized agent acting for the landlords of the workshops B3 and B4 respectively when the tenancy agreements were entered into.  Miss Gogo Wong was the director of the defendants.  She had also informed Mr. Chris Chan, the 1^st plaintiff in HCA1374/2011 in respect of workshop B4 in 2005 of her oral agreement with Mr. Chan Cheung relating to the payment of waiver fees and government rents by the defendants to the government for the landlords.  Mr. Chris is the son of Mr. Chan Cheung, who had passed away in 2005.  Mr. Chris Chan had agreed to pass the message to the other siblings, the other plaintiffs in HCA1374/2011.  As such, as submitted by Miss Lau, the landlords of workshop B3 and workshop B4 are bound by Mr. Chan Cheung’s oral agreement with Miss Gogo Wong.

18.  As to Mr. Poon’s concern that at the time of the oral agreement, the defendants had not been incorporated, the defendants therefore cannot make the counterclaims, Ms Lau responds that under section 32A of the Companies Ordinance, Cap. 32, a contract can be made before a pre-incorporated company and it remains binding after the incorporation of the company.  Section 32A of the Companies Ordinance reads:

“(1) Where a contract purports to have been made in the name or on behalf of a company at a time when the company has not been incorporated-

(a) subject to subsection (2) and any express agreement to the contrary, the contract shall have effect as a contract entered into by the person purporting to act for the company or as agent for it, and he shall be personally liable on and entitled to enforce the contract accordingly;

(b) the company may, after incorporation, ratify the contract to the same extent as if it had already been incorporated at that time and as if the contract had been entered into on its behalf by an agent acting without its authority.

(2) ”

19.  It is not in dispute that Miss Gogo Wong was the one who had, on behalf of the defendants, entered into all the tenancy agreements in respect of the workshops throughout the whole period of the two tenancies of workshop B3 and workshop B4.

20.  The proposed amendments are clearly relevant for the determination of the Court in respect of the waiver fees, waiver deposit and the government rent if they are the facts.  Miss Gogo Wong has signed her statement of truth to verify those are the facts of the case.  The Court should not, at this stage of the proceedings without investigation into the facts of the case, bar the defendants from adducing the evidence at trial.

21.  As to Mr. Poon’s concern on limitation, Miss Gogo Wong’s allegation in the Counterclaim said that the waiver fees were to be refunded to her after she had exercised her right not to buy workshop B4 by giving one month’s notice to Mr. Chan and she had already told Mr. Chris Chan Wing Ho, the 1^st plaintiff in HCA 1374/2011 about it. [14]  Since possession of workshop B4 has been delivered to the plaintiffs, it is obvious that Miss Gogo Wong would not buy the workshop B4.  The cause of action for the refund should run from the date she had decided not to buy workshop 4, which is sometime after August 2011.  The limitation issue does not apply.

DECISION

22.  For the above reasons, I allow the defendants’ applications for amendments for the respectively actions.

23.  The parties agree that my decision on the defendants’ applications will have effects on the pending applications for striking out and specific discovery taken out by the plaintiffs  in the actions.

24.  I therefore adjourn the hearing for 15 minutes for counsel of both parties to consider the submissions that they would make for the other outstanding applications so that I may deal with them by listening to their oral submissions and the hearing on 19 December 2012 can be vacated.

25.  The parties has taken about 45 minutes for discussion and they have come back with their agreement on the following:

a.  there be an order in terms of paragraph 1 of the Amended Summonses taken out by the defendants on 26 October 2012, with the annexed replaced;

b.  costs of and occasioned by and all costs thrown away due to the Amendment Summonses be paid by the defendants to the plaintiff (in HCA 1373/2011) and the plaintiffs (in HCA 1374/2011) &

c.  costs of the hearing on 7 December 2012 be paid by the defendant to the plaintiff/plaintiffs be summarily assessed by the Court, with certificate for counsel;

d.  the striking out summons dated 21 August 2012 be withdrawn;

e.  costs of the striking out summons be paid by the defendant to the plaintiff/plaintiffs agreed at a total sum of $45,000 for both applications;

f.  the hearing on 19 December 2012 be vacated.

26.  Having considered the above agreed terms, I accept them and shall make an order in terms of the same except c. above because I have already heard all the submissions and have made up my mind that, based upon the reasons above, the defendants’ applications in respect of both actions should be allowed even without the rectifications made this morning.  As the Court has seized jurisdiction of the matter, the question of costs should be decided by the Court.  It will be unfair for the defendants, who have succeeded the application, but have nevertheless to pay the costs.  I refuse to endorse the consent on this item.  As the defendants are successful, they should have the costs with counsel’s certificate and I so order.  The costs are to be summarily assessed by the defendants’ lodging and serving the schedule of costs within 7 days from the date hereof and the plaintiffs be at liberty to lodge and serve the objections within 7 days thereafter and the assessment shall be on paper, unless otherwise ordered.

APPLICATION FOR SPECIFIC DISCOVERY

27.  There is one outstanding application of specific discovery taken out by the plaintiffs.  With consent of the parties, I order that plaintiffs’ counsel shall within 7 days from the date hereof submit written submissions, followed by the defendants’ counsel’s written submissions within 7 days thereafter and with the plaintiff having the liberty to submit the written submission in reply within 7 days thereafter.  I shall then decide if I will dispose of the application on paper, in which event, I shall deliver my reasons.  Alternatively, I may give notice to the parties for a hearing on a date to be fixed.  The parties shall also lodge and serve their schedules of costs for this application at the same time when they lodge and serve their written submissions.