CHINA RESOURCES PROPERTY MANAGEMENT LTD v. SHINE GRAND LTD

DCCJ 76/2019

[2020] HKDC 518

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 76 OF 2019

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JUDGMENT

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1.  The plaintiff claims as landlord against the defendant as its former tenant for arrears of rent and other outgoings as well as damages for breach of the tenancy agreement.

Background

2.  The subject office premises (“the Premises”) are Rooms 2609-10 on the 26^th Floor of China Resources Building, No 26 Harbour Road, Wanchai, Hong Kong (“the Building”). The defendant had been the tenant of the Premises since 2012.  By a written tenancy agreement dated 28 January 2016, the plaintiff agreed to let and the defendant agreed to rent the Premises for another term of 3 years until 31 January 2019 at the monthly rent of HK$238,844, exclusive of rates and management fees (“the Tenancy Agreement”).

3.  There is no dispute that the defendant had not paid the rent and outgoings since May 2018.  On 30 May 2018, the plaintiff commenced an action in the High Court (HCA 1250/2018) against the defendant to recover the possession of the Premises, arrears of rent and outgoings as well as damages for breach of the Tenancy Agreement. Shortly after the writ had been served, the defendant handed over the vacant possession of the Premises to the plaintiff.  By a consent order dated 3 December 2018, the plaintiff withdrew its claim for possession with costs of such head of claim in the cause.  The rest of the claim and the defendant’s counterclaim were then transferred to the District Court.

4.  Trial of this action was scheduled to take place on 11 February 2020.  That was overtaken by the general adjournment of court proceedings for public health concern since late January.  The fact however was that on 7 January 2020, the defendant was placed into creditors’ voluntary liquidation, and professional joint and several liquidators of the defendant (“the Liquidators”) were appointed.

5.  In late May 2020, the former solicitors for the defendant also ceased to act for it with the leave of the court.  By the written direction of this court dated 18 June 2020, the attention of the defendant was drawn to O 5A, r 2 of the Rules of the District Court, Cap 336H which mandates the representation of a body corporate by solicitors or alternatively its director upon compliance with the rule.  Failure to properly appear at the trial in accordance with the rule would be treated as absence, and the trial might nevertheless proceed in that event.

6.  The defendant was absent from the trial.

7.  Prior to the commencement of the trial, the Liquidators also informed the court in writing that they would not attend the trial, and would leave it to the plaintiff to satisfy the court as to the appropriate orders to be made.

The defendant’s liquidation

8.  Where a winding up order has been made by the court, no action or proceeding shall be proceeded with or commenced against the company except with leave of the court and subject to such terms as the court may impose: section 186 of the Companies (Winding Up & Miscellaneous Provisions) Ordinance, Cap 32.  Literally this does not apply to the situation where the company is under a voluntary liquidation.

9.  Section 255 of the same Ordinance provides that the liquidators or contributory or creditor may apply to the court to exercise any of the powers which the court may exercise as if the company were being wound up by the court.  This includes the power to stay the proceedings in an action: see Cheung Ying Lun & Anor v Legal Way Ltd & Anor [2014] 1 HKLRD 106 at §4.  However, no such application has been taken out.  Nor has any contrary view in this respect been expressed by the Liquidators.

10.  In the circumstances, I allowed the plaintiff to proceed.

The Tenancy Agreement

11.  The following terms of the Tenancy Agreement are relevant to the plaintiff’s claim:-

Clause 3

“The Tenant agrees with the Landlord as follows:-

(1) To pay the Rent as aforesaid without any set off or deduction whatsoever …

(2) To pay and discharge punctually all Rates quarterly in advance within the months of January, April, July and October or other months designated by the Landlord such payments to be made to the Landlord at the same time of payment of rent for the said respective months ……

……

(6) To pay and discharge to the Landlord punctually during the Term all service and management fees … subject to escalation/adjustment by the Landlord from time to time … without deduction whatsoever……

……

The Landlord shall be entitled to treat any non-payment of monies under the above (1) to (7) as non-payment of Rent and all monies and payments due under this Agreement shall be deemed to be part of the Rent for the Property [i.e., the said premises] and shall accordingly be recoverable by the Landlord by distraint or otherwise.”

……

(38)  To pay all costs charges and expenses (including any professional fees) incurred by the Landlord on an indemnity basis in relation or incidental to:-

(a)  ……

(b)  the recovery or attempted recovery of arrears of rent or other sums due from the Tenant”

Clause 5

“IT IS HEREBY EXPRESSLY AGREED as follows:-

(1) If at any time during the Term:-

(a) the rent hereby agreed to be paid or any part thereof shall be unpaid for five (5) days after the same shall become payable (whether legally or formally demanded or not); or

……

then and in any such case it shall constitute wrongful repudiation of this Agreement on the part of the Tenant and it shall be lawful for the Landlord at any time thereafter to … accept the said wrongful repudiation … whereupon this tenancy shall absolutely cease and determine but without prejudice to any right of action of the Landlord in respect of any outstanding breach ……and also without prejudice to the Landlord’s right to deduct all loss damage and proper expense thereby incurred from the Deposit … and also without prejudice to the right of the Landlord to claim against the Tenant for all loss and damage that it may have suffered as a result of the breach or non-observance or non-performance by the Tenant as aforesaid including but not limited to the loss and damage that it may have suffered due to the early termination of this Agreement effected by and incidental to the acceptance of wrongful repudiation … by the Landlord …

(2)  If the Rent or any other sum payable by the Tenant to the Landlord under this Agreement shall not be paid after becoming due, the same shall be payable with interest thereon at the rate of 1% per month from the date when it was due to the date on which it is actually paid ……”

……

(6)(a)   The Landlord shall not be under any liability whatsoever to the Tenant … for any loss accident damage injury to person or property or loss of business or of profit or other liability whatsoever which may be sustained by the Tenant ……”

Clause 8

“(a) The Tenant shall on the signing hereof pay to and maintain at all times during the Term with the Landlord the Deposit, which shall at all times be the aggregate of three (3) months’ rent and management fees, to secure the due observance and performance by the Tenant of agreements stipulations terms and conditions herein contained and on the Tenant’s part to be observed and performed. The Deposit shall be retained by the Landlord throughout the Term … without prejudice to any other right or remedy hereunder to deduct therefrom the amount of any cost expense loss or damage sustained by the Landlord as a result of any non-observance or non-performance by the Tenant of any such agreements stipulations terms or conditions and/or to apply the Deposit to remedy any breach of any of the Tenant’s covenants and conditions in this Agreement and to indemnify consequential costs and losses arising therefrom including legal costs.…”

Clause 13

“The Tenancy Agreement and the obligation of the Tenant to pay rent and other sums due hereunder shall in no way be affected impaired or excused because the Landlord is unable to fulfil any of its obligations under this Agreement or to supply or is delayed in supplying any service expressly or impliedly to be supplied...”

The dispute

12.  By its defence, the defendant admitted non-payment of the rent and management fees for May 2018 in the sums of HK$238,844 and HK$35,003 respectively.  It also admitted non-payment of the rates in the sum of HK$32,750 for the quarter ended June 2018.  Prima facie, the plaintiff is entitled to treat that as repudiation of the Tenancy Agreement, and to accept the same for termination of the agreement, pursuant to clauses 3 and 5 (above).

13.  However, the defendant denies repudiation of the Tenancy Agreement, and contends that the plaintiff is not entitled to its claim on the following grounds:-

(a)  At the time of entering into the previous tenancy agreement between the parties back in 2012, the plaintiff’s representatives orally represented to the defendant that the latter might use the hourly parking spaces of the Building (“the Hourly Parking Spaces”) and the covered pick-up/drop-off areas near the lobby of the Building (“the Covered Areas”).

(b)  The plaintiff has denied the defendant’s use of the Hourly Parking Spaces since early 2017 and its use of the Covered Areas since August 2017.  Due to the inconvenience, many business partners of the defendant refused to have meeting with the defendant at the Premises or even deal with the defendant.

(c)  In the premises, the plaintiff has interfered with the defendant’s quiet enjoyment of the Premises and was thus in breach of clause 4(2) of the Tenancy Agreement.

(d)  In the event that the plaintiff is found to be entitled to its claim, the plaintiff has nevertheless failed to mitigate its loss.

14.  The defendant also put forward a counterclaim. First, on the ground that it is the plaintiff which was in alleged repudiation of the Tenancy Agreement, the defendant claims for the return of the security deposit in the sum of HK$812,893.20 paid under the Tenancy Agreement.  Second, the defendant claims damages for the plaintiff’s alleged interference with its quiet enjoyment of the Premises.

15.  It is the burden of the defendant to substantiate its contentions in defence and its counterclaim.  Following its absence, the witness statement of Mr Ng, its director, was not confirmed and adopted under oath, and therefore must be disregarded.  For the following reasons, even assuming that the defendant’s contentions and evidence are taken into account, they do not constitute any bona fide defence to the plaintiff’s claim.

The alleged oral representations

16.  The defendant’s complaint against the plaintiff relates to its alleged entitlement to use the Hourly Parking Spaces and the Covered Areas.  Such alleged entitlement came about as a result of the alleged oral representations of the plaintiff’s representatives to the defendant at the time when the parties entered into the previous tenancy agreement in respect of the Premises in 2012.

17.  The plea of the alleged oral representations failed to identify the alleged responsible representatives of the plaintiff.  The subsequent statement of the defendant’s director, even if accepted, cast no light on this either.  All that he would have said about the alleged representations would be hearsay from a staff of the defendant, who, albeit identified, is said to have refused to testify.

18.  It is not alleged that the alleged oral representations somehow became incorporated into the Tenancy Agreement binding on the plaintiff.  In any event, this will be contradicted by the entire agreement provision under clause 14 of the Tenancy Agreement:-

“The Landlord shall not be bound by any representatives or promises with respect to the Building and its appurtenances or in respect of [the Premises] except as herein expressly set forth with the object and intention that the whole of the agreement between the Landlord and the Tenant shall be set forth herein and in no way modified by any discussion or correspondence which may have preceded the signing of the [Tenancy Agreement]”

19.  Insofar as the alleged oral representations are relied on as inducement to the defendant to enter into the Tenancy Agreement, there is no plea of any reliance on misrepresentation.  The defendant only intended to introduce the alleged reliance through the back door by way of its director’s witness statement.

20.  In the circumstances, the allegations in relation to the oral representations must be rejected.

Quiet enjoyment of the Premises

21.  It is alleged that the plaintiff was in breach of clause 4(2) of the Tenancy Agreement.  It provides:-

“That the Tenant paying the rent, rates, management fees and all other charges and outgoings as aforesaid and observing and performing the agreements stipulations terms and conditions herein contained and on the Tenant’s part to be observed and performed shall peacefully hold and enjoy [the Premises] during the Term without any interruption by the Landlord or any person lawfully claiming under or through or in trust for the Landlord save as specifically provided therein.”

22.  Properly construed, the plaintiff’s obligation under the covenant for peaceful enjoyment of the Premises during the term of the tenancy was premised on the defendant’s performance of its obligations under the Tenancy Agreement.  Therefore, short of repudiation on the part of the plaintiff as the landlord, which would have entitled the defendant to terminate the Tenancy Agreement, the defendant was contractually not in a position to subject its performance of its obligation (to pay rent, management fees, charges and outgoings) to the plaintiff’s performance of its obligation (including the covenant for quiet enjoyment) as if the latter was condition precedent to the defendant’s performance.  This is reinforced by clause 13:-

“[The Tenancy Agreement] and the obligation of the Tenant to pay rent and other sums due hereunder shall in no way be affected impaired or excused because the Landlord is unable to fulfil any of its obligations under [the Tenancy Agreement] or to supply or is delayed in supplying any service expressly or impliedly to be supplied.”

23.  Further, there are two significant features of the covenant for quiet enjoyment.  First, it was a covenant of the plaintiff in the context of the possession and enjoyment of the Premises.  In Greens Nursery & Tree Planting Design Ltd v Secretary for Justice, HCA 1286/2015 (23 November 2018), DHCJ Keith Yeung (as he then was) said (at §113, citing Lord Hoffman in Southwark LBC v Mills [2001] 1 AC 1):-

“ … a covenant that the tenant’s lawful possession of the land will not be substantially interfered with by the acts of the lessor or those lawfully claiming under him. For present purposes, two points about the covenant should be noticed. First, there must be a substantial interference with the tenant’s possession. This means his ability to use it in an ordinary lawful way. The covenant cannot be elevated into a warranty that the land is fit to be used for some special purpose …. On the other hand, it is a question of fact and degree whether the tenant’s ordinary use of the premises has been substantially interfered with. …”

24.  Second, a transient or temporary interference or inconvenience or disorderly conduct on adjoining premises may be not regarded as sufficient to show that quiet enjoyment is interrupted: see Chong Lap Fu George v Hydra Shipping Services Ltd and Others [2009] 4 HKLRD 369 at §16.

25.  The plaintiff’s case is that the Hourly Parking Spaces were actually open to the public, and therefore there was in the first place no basis or need for any alleged assurance for the defendant’s use of them during the tenancy.  Further, those spaces were only temporarily closed from October 2016 to May 2017 due to construction work undertaken at the Building, and there were other hourly car parking spaces available at buildings nearby or adjacent to the Building.  As to the Covered Areas, there were other pick-up and drop-off areas of the Building available for use.  These are substantiated by the unchallenged evidence of the plaintiff.

26.  More importantly, the Hourly Parking Spaces or the Covered Areas were neither part of the tenanted property under the Tenancy Agreement nor were their use related to the quiet enjoyment or ordinary use of the Premises.  The defendant does not say that the alleged use of these areas had any bearing on its reasonable access to or egress from the Building or the Premises.  All it says is the alleged inconvenience caused to itself and its business partners.  By its director’s statement, the defendant attempted to allege for the first time danger in the course of resorting to the other alternative locations in the vicinity for pick-up or drop-off.  Such allegation would have gone beyond its pleaded case and been rejected.

27.  In the circumstances, the defendant’s complaint, even if entertained, did not cause substantial interference with its possession or quiet enjoyment of the Premises rented under the Tenancy Agreement.

Mitigation

28.  The plaintiff retook vacant possession right after service of the writ in HCA 1250/2018.  It succeeded in letting the Premises to a new tenant from September 2018 (with one month rent free).  There is on its face nothing unreasonable about the steps or time taken to mitigate the plaintiff’s loss.

Counterclaim

29.  The counterclaim for damages for the plaintiff’s alleged breach of the covenant for quite enjoyment of the Premises was totally un-particularised.  As to the security deposit, clause 8(a) (above) affords the plaintiff with the right to deduct from the deposit the amount of loss and damage as well as costs and expenses sustained by the plaintiff for the defendant’s breach.  Solicitor for the plaintiff confirmed during the hearing that credit will be given to the amount of the deposit for the amount claimed.

Quantum

30.  The plaintiff presented the following calculation during the trial:-

(1)  rent, management fee and rates in arrears in the total sum of HK$306,597.00;

(2)  contractual interest at 1% per month (per Clause 5(2) of the Tenancy Agreement) on the above sum from 1 May 2018 to the date of Writ (30 May 2018)[1] at the sum of HK$2,769.26; and

(3)  damages for loss and damage resulting from the early termination of the Tenancy Agreement from 1 June 2018 to 30 September 2018 in the total sum of HK$1,128,138.00 (being the rent and management fees for 4 months plus one quarterly rates).

31.  Giving credit to the security deposit, the amount will become HK$(306,597.00 + 2,769.26 + 1,128,138.00 – 812,893.20) = HK$624,611.06.  The plaintiff also claims interest at the judgment rate from the date of judgment until payment.

Costs

32.  The plaintiff should be entitled to its costs on an indemnity basis pursuant to clause 3(38) of the Tenancy Agreement (above).

Order

33.  Judgment is entered in favour of the plaintiff against the defendant for the sum of HK$624,611.06 with interest thereon from today until full payment at the judgment rate.  The counterclaim is dismissed. The defendant shall pay the plaintiff’s costs of this action, including any costs reserved, to be taxed on an indemnity basis, if not agreed.