GRANT SMART INVESTMENTS LTD v. ELITE RISE HOLDINGS LTD

HCA 1431/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1431 OF 2013

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REASONS FOR DECISION

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1. This is the plaintiff’s application for summary judgment. In the hearing on 10 December 2013, I granted unconditional leave to the defendant to defend the plaintiff’s claim. I also made an order for speedy trial and fixed the trial date on 28 April 2014 with 3 days reserved. I now give my reasons.

Background and the issues of the application

2. The plaintiff is the registered owner of the premises known as 2^nd and 3^rd Floors of Shining Building, Nos 477-481, Jaffe Road, Hong Kong (“the Premises”).

3. By a tenancy agreement dated 16 June 2011 made between the plaintiff as landlord and the defendant as tenant (“the Tenancy Agreement”), the plaintiff agreed to let and the defendant agreed to rent the Premises for a term of 2 years commencing from 2 August 2011 at a monthly rent of $250,000.

4. In fact, the defendant and its related company have been using the Premises to carry on business as a message, sauna and commercial bathhouse under the same business name since August 2003.  The tenancy has been renewed a number of times and the Tenancy Agreement was the latest written tenancy agreement made between the parties.

5. The term under the Tenancy Agreement expired on 1 August 2013.  By a letter from the plaintiff’s solicitors dated 4 July 2013, the plaintiff notified the defendant to quit and deliver up the possession of the Premises to the plaintiff before the expiry date.  The plaintiff made the same demand in the subsequent letters from the plaintiff’s solicitors dated 24^th and 26^th July 2013.

6. As the defendant has failed to deliver possession of the Premises to the plaintiff, the latter commenced the present proceedings against the defendant.

7. The plaintiff has already entered into agreements to sell the Premises to two separate buyers.  Under the sale and purchase agreements dated 23 July 2013, the plaintiff is required to deliver vacant possession of the Premises to the purchasers on or before 22 January 2014.  Hence, the plaintiff is eager to obtain vacant possession of the Premises as soon as possible.

8. The defence is also a simple one.  According to the defendant, the parties had made an oral agreement for the renewal of the tenancy at a net monthly rent of $250,000, and so the plaintiff is not entitled to claim for the possession of the Premises.

9. It is common ground that it is possible in law to grant a short lease of less than 3 years orally (see: ss 5 & 6 of the Conveyancing and Property Ordinance, Cap 219).

10. According to the affirmation of Ms Leung Po King Priscilla (“Ms Leung”) who is an accountant employed by the defendant, all the previous tenancies were renewed orally, though the parties would eventually sign a written tenancy agreement prepared by a solicitor as a matter of formality.  For the past renewals, the parties only need to agree on the new rent as the other terms of the tenancy agreement would remain the same.  The plaintiff’s contact person for tenancy matters has always been a lady known as Ms Cheung.

11. For the latest renewal, the negotiation actually started in February 2013.  On or about 25 June 2013, Ms Leung’s “boss”, Mr Yan Chi Leung (“Mr Yan”), told Ms Leung that he had settled with the plaintiff the monthly rental for the new tenancy in the sum of $250,000.  Ms Leung therefore prepared a letter of intention to renew the tenancy (續租意向書) (“the Letter of Intention”) and handed the same to Ms Cheung on 26 June 2013.

12. On 26 June 2013, Ms Leung received a notice from the plaintiff demanding for various payments including the payment of rates relating to the Premises covering the period from July to September 2013.

13. On 27 June 2013, Ms Cheung called Ms Leung and confirmed that the plaintiff had settled the tenancy renewal with Mr Yan and agreed to renew the tenancy at a monthly rent of $250,000.  Ms Cheung then sent to Ms Leung a draft tenancy renewal confirmation dated 13 April 2011 which was signed by the parties for the renewal of the previous tenancy (“the Draft Renewal Confirmation”).  Ms Cheung had made some amendments in the Draft Renewal Confirmation, including the proposal that the monthly rent be increased to $280,000 with a rebate of $30,000, i.e. the net monthly rent would still be $250,000. In the said document, Ms Cheung had also asked the defendant to prepare the payment of $98,550 being the incremental deposit for the new tenancy.

14. After confirming the new arrangement for payment of rent (i.e. monthly rent of $280,000 subject to a rebate of $30,000) with Mr Yan, Ms Leung typed out a document with the title “Renewal Confirmation” and dated 28 June 2013 (“the Renewal Confirmation”).  Mr Yan signed on the Renewal Confirmation on behalf of the defendant, and Ms Leung hand-delivered the signed Renewal Confirmation to Ms Cheung on the same day.  Ms Leung also told Ms Cheung that the defendant accepted the new arrangement for payment of rent proposed by the plaintiff.  Ms Cheung confirmed that the Renewal Confirmation was “okay” and the plaintiff would accept such document.  Later on the same day, Ms Leung faxed various documents including the business registration documents of the defendant to Ms Cheung to enable the plaintiff’s legal advisers to prepare the formal tenancy agreement.

15. On or about 2 July 2013, the defendant made various payments to the plaintiff including the payment of rates relating to the Premises up to September 2013.

16. On 4 July 2013, Mr Yan had a meeting with one Mr Ho King Sing of the plaintiff (“Mr Ho”).  Mr Ho told Mr Yan that the plaintiff wanted to retract from the renewal agreement and asked the defendant to accept a shorter tenancy of 6 months instead.  Mr Yan refused.

17. Mr Yan has also made an affirmation on behalf of the defendant, mainly confirming the matters stated in Ms Leung’s affirmation.

18. In reply to the defendant’s allegations, one Ms Cheng So Chu (“Ms Cheng”) made an affirmation on behalf of the plaintiff.  Ms Cheng is the same Ms Cheung as referred to in the defendant’s affirmations.

19. According to Ms Cheng, she is only employed as a secretary of a company (of which Mr Ho is a shareholder and director) which provides secretarial and other supporting services to various companies in which Mr Ho is interested.  The plaintiff does not have any staff of its own and she had no authority to make any decision on behalf of the plaintiff with regard to the letting of the Premises.

20. She agrees that the negotiation for the renewal of the tenancy had started in February 2013.  By that time, the plaintiff demanded the monthly rent of $320,000, but the defendant was only prepared to pay up to $300,000.  As there was no agreement, the plaintiff advertised for the sale or letting of the Premises in May and June 2013.

21. Ms Cheng denies that the plaintiff and the defendant have ever made any binding agreement for the renewal of the tenancy. Further, the wordings in the Letter of Intention, the Draft Renewal Confirmation and the Renewal Confirmation did not reflect any concluded agreement between the parties.  In fact, the defendant was only asking for an opportunity to continue to operate the sauna business in the Premises.

22. As there was no renewal of the tenancy, the plaintiff proceeded to sell the Premises on 3 July 2013.  On 4 July 2013, Mr Ho met Mr Yan and informed the latter about the sale of the Premises.  Mr Ho also told Mr Yan that if the defendant wished to renew the tenancy, he had to talk to the new purchasers.  In the meantime, the defendant could rent the Premises from the plaintiff on a short-term basis.  The meeting was a friendly one.

23. Mr Ho has made 2 affirmations in support of the O 14 application, the contents of which are more or less the same as those deposed by Ms Cheng.  A retired police officer, Mr Chan Hon Ming, has also made an affirmation deposing what happened in the meeting on 4 July 2013.

Merits of the O 14 application

24. According to Ms Wong, SC, counsel for the plaintiff, this is a simple case.  Most of the evidence is already before the court and the parties are unlikely to adduce further evidence at the trial.  In such circumstances, the court can easily make a determination on the merits of the case without hearing the oral evidence from the witnesses.

25. Despite the able submission of Ms Wong, I am unable to accept her submission.  The court cannot weight the evidence of the parties at this stage.  Further, the present case is very much a factual dispute.  Without the opportunity of observing the witnesses in giving evidence at the witness box and testing the testimony by way of cross-examination, it would be unsafe, and indeed unfair, for the court to adjudicate the case based on the preliminary view on the written evidence of the witnesses.

26. At this stage, I agree that there are some arguments that are in favour of the plaintiff’s case:

(i) the defendant initially offered to pay a monthly rent of $300,000 in early 2013, and so it was unlikely that the plaintiff would have accepted a monthly rent as low as $250,000 in June 2013;

(ii) the wordings in the Letter of Intention dated 26 June 2013 only express a desire to negotiate for a renewal and appealing to the plaintiff for an opportunity to continue its business at the Premises, and this does not sit well with the defendant’s case that the parties had already made a binding agreement on 25 June 2013;

(iii) the defendant continued to appeal to the plaintiff for an opportunity to stay in business at the Premises in the Renewal Confirmation dated 28 June 2013;

(iv) the plaintiff entered into binding sale and purchase agreements to sell the Premises on 3 July 2013 (under which the plaintiff had to deliver vacant possession of the Premises), and so it was unlikely that the plaintiff would have made an agreement earlier for the renewal of the tenancy;

(v) it was unlikely that Ms Cheng, who had a pure administrative role, would have made a binding agreement with the defendant for the renewal of the tenancy; and

(vi) if the defendant’s case about the renewal agreement were the truth, it was extremely odd that the defendant did not take any action to protest the plaintiff’s demand shortly after receiving the demand letters from the plaintiff’s solicitors.

27. On the other hand, there are also some arguments in favour of the defendant’s case:

(i) Ms Cheng admits that she had made some revisions in the Draft Renewal Confirmation and sent it to Ms Leung, which supports the defendant’s case that there were serious discussions between the parties about the renewal of the tenancy and Ms Cheng played an important part in these discussions;

(ii) there were a series of documents prepared by the parties during the negotiation ending up with the Renewal Confirmation, which again supports the defendant’s case that there were serious discussions between the parties;

(iii) there was a reference in the Renewal Confirmation about a consensus reached by the parties in June 2013 regarding the renewal of the tenancy;

(iv) Ms Cheng did ask the defendant to prepare the payment of the incremental deposit in the Draft Renewal Confirmation;

(v) Ms Cheng did ask for the necessary documents for preparation of the formal tenancy agreement, which would only be necessary after the parties had made a binding renewal agreement; and

(vi) the plaintiff had received the defendant’s payment of the rates up to September 2013.

28. In my judgment, all these issues have to be properly investigated at the trial.  Property market is volatile in Hong Kong and there might be a lot of reasons as to why the parties were prepared to accept a lower rent a few months after the commencement of the negotiation.  On the other hand, whether Ms Cheng had the authority to make a binding agreement on behalf of the plaintiff is a fact-sensitive issue, which can only be determined by the court after hearing the evidence from the witnesses.  The wordings in the documents are not conclusive in favour of either party’s case.  As the oral discussions form an important part of the negotiation, the court has to consider the oral evidence of the witnesses in determining whether the negotiation had ended up with a binding agreement.

29. I agree that it was odd for the plaintiff to sell the Premises with vacant possession after the alleged renewal agreement. However, one can still think of a lot of reasons as to why this was the case, e.g. breakdown of communication between Mr Ho and Ms Cheng, and the defendant should be allowed to test the plaintiff’s case in this regard at the trial.  Finally, Mr Yan gives an explanation as to why he did not take immediate action after receiving the demand letters from the plaintiff’s solicitors.  Whether such explanation is a genuine one has to be properly investigated at the trial.

30. The fact that there were documents going on between the parties confirms that there was active negotiation between the parties about the renewal of the tenancy.  The only issue is whether the negotiation had ended up with a binding agreement.  This is very much a fact-sensitive issue.  At this stage, I have to say that the defence put forward by the defendant is one capable of being believed, and the court should not embark on a mini trial on affidavits to resolve the dispute between the parties.  In view of the intended sale of the Premises, I have some sympathy with the plaintiff for an early resolution of the dispute.  Despite that, this is still not an appropriate case for the granting of summary judgment.

Order for speedy trial

31. In granting unconditional leave to the defendant to defend the plaintiff’s claim, I also made an order for speedy trial of this action.  Firstly, the plaintiff has entered into agreements for the sale of the Premises with an obligation to deliver vacant possession to the purchasers on or before 22 January 2014.  In such circumstances, it is most desirable for the present dispute to be resolved as soon as possible.  Secondly, if the trial is going to take place in 2 to 3 years’ time, it would in effect amount to a granting of a further tenancy to the defendant.  Hence, this is an appropriate case for speedy trial.

32. I have also liaised with the listing officer and fixed the trial date on 28 April 2014 with 3 days reserved.  This is a simple case.  Most of the evidence has already been put before the court, and so I believe that the parties will have more than sufficient time to prepare for the trial.

33. These are the reasons for the decision I made on 10 December 2013.