RAND CO LTD v. CHRISTIAN ANTHONY BULLEN

DCCJ 1488/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1488 OF 2013

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DECISION

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INTRODUCTION

1.  This is an appeal against a master’s decision.

2.  The defendant is appealing against the decision of Master Lai made on 26 November 2013 ordering that:-

(i)   the defendant’s summons dated 3 September 2013 to set aside a final and interlocutory judgment entered against him for failure to give notice of intention to defend be dismissed; and

(ii)   the defendant do pay the plaintiff’s costs for the application with counsel’s certificate and assessed by summary assessment at HK$27,660, payable forthwith.

BACKGROUND

3.  A dispute arose out of a written tenancy agreement (“the Tenancy Agreement”) entered between the plaintiff as the landlord and the defendant as the tenant on 12 March 2012 regarding a premises known as Block B, 6^th Floor, Lei Shun Court, No 116 Leighton Road, Hong Kong (“the Property”).  The Property was let to the defendant under a one year term from 1 August 2012 to 31 July 2013 at the rent of HK$16,100 per month.  There was no option to renew the tenancy.  The defendant breached the terms and conditions of the Tenancy Agreement by failing to pay the plaintiff arrears of rent and interest on late payment of rent.

4.  On 26 April 2013, the plaintiff issued a writ of summons (“the Writ”) and served the statement of claim at the same time.  Under the statement of claim, the plaintiff claimed against the defendant for, inter alia, possession of the Property, arrears of rent, outstanding interest, and rent and/or mesne profits at the rate of HK$16,100 per month until 31 July 2013 and thereafter at open market rent.

5.  On 10 May 2013, the defendant filed an acknowledgement of service of the Writ stating that he did not intend to contest the proceedings (“the Acknowledgement of Service”).

6.  Significantly, the defendant also indicated in the same document that he intended to make admission to the payment of liquidated money or unliquidated money which is part of the remedies sought by the plaintiff.

7.  Subsequently, the plaintiff successfully obtained a final and interlocutory judgment on 26 August 2013 against the defendant (“the Judgment”).  As the defendant had already paid to the plaintiff rent and/or mesne profits up to July 2013 when the Judgment was entered, the plaintiff was granted an order for the possession of the Property, an order for the defendant’s payment of HK$635.16 (interest accrued on various late payments of rent), mesne profits from 1 August 2013 to the date when vacant possession of the Property was given, in addition to further damages and costs.

8.  A copy of the Judgment as well as a notice of intention to recover possession of the Property was served on the defendant on 27 August 2013.

9.  On 3 September 2013, the defendant took out a summons (“the September Summons”) and applied for:-

(i)   the setting aside of (a) the order of possession of the Property; (b) the order for payment of HK$635.16; and (c) the order for payment of damages and costs; and,

(ii)   a stay of the proceedings pending the final outcome of this application.

10.  By the order of Master Ho dated 27 September 2013, the September Summons was adjourned for hearing on 24 October 2013.

11.  At the hearing on 24 October 2013, the defendant was absent and the September Summons was dismissed with costs to the plaintiff (“the Dismissal Order”).

12.  The defendant took out another summons on 29 October 2013 to set aside the Dismissal Order. On 12 November 2013, Registrar Lui set aside the Dismissal Order.  The September Summons was adjourned to 26 November 2013 for substantive argument and was subsequently dismissed by Master Lai after hearing on 26 November 2013.

THE LAW

13.  An appeal from a master to a judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal.  The judge treats the matter as though it came before him for the first time (see Hong Kong Civil Procedure, §58/1/2, and Chan Mo Ging v Leung Fong Kiu, DCCJ 2776, unreported, 26 January 2011, §22).

14.  O 13, r 5 of the Rules of the District Court, Cap 336H provides that:-

“Where a writ issued against any defendant is indorsed with two or more of the claims mentioned in the forgoing rules, and no other claim, then, if that defendant fails to give notice of intention to defend, the plaintiff may, after the prescribed time, enter against that defendant such judgment in respect of any such claims as he would be entitled to enter under those rules if that we the only claim indorsed on the writ and proceed with the action against the other defendants, if any.” [emphasis added]

15.  O 13, r 6A further provides that:-

“In the foregoing rules of this Order the “prescribed time” in relation to a writ issued against a defendant means the time limited for the defendant to acknowledge service of the writ, or, if within that time the defendant has returned to the Registry an acknowledgment of service containing a statement to the effect that he does not intend to contest the proceedings, the date on which the acknowledgment was received at the Registry.” [emphasis added]

16.  To set aside a default judgment, the defendant must show that he has a “real prospect of success” and this requires him to satisfy the court that his case and the evidence that he adduces in support of it is potentially credible and carries some degree of conviction (see Hong Kong Civil Procedure, §13/9/14).  A set of the guiding principles in exercising the court’s discretion to set aside the default judgment was set out in Saudi Eagle [1986] 2 Lloyd’s Report 221, which was followed in Tindixs Services Ltd v Cheng Wing Chun [1998] 4 HKC 194, at 199:-

“The discretionary power to set aside a default judgment which has been entered regularly is unconditional, and the court should not lay down rigid rules which deprive it of jurisdiction. The purpose of the discretionary power is to avoid the injustice which may be caused if judgment follows automatically on default. The primary consideration in exercising the discretion is whether the defendant has merits to which the court should pay heed, not as a rule of law but as a matter of common sense, since there is no point in setting aside a judgment if the defendant has no defence, and because, if the defendant can show merits, the court will not prima facie desire to let a judgment pass on which there has been a proper adjudication. Also, as a matter of common sense the court will take into account the explanation of the defendant as to how the default occurred.” [emphasis added]

DISCUSSION

Regularity of judgment

17.  The original application before Master Lai is for setting aside a final and interlocutory judgment. The plaintiff submits that it has effectively served the Writ on the defendant and hence the Judgment was obtained regularly.

18.  In the present case, the defendant has, within the time limit, returned to the Registry the Acknowledgment of Service containing a statement to the effect that he does not intend to contest the proceedings.  The plaintiff submits that this situation is covered by O 13, rr 5 and 6A.  Such a statement or indication of the defendant amounts to an admission of the claim made against him.  Therefore, the plaintiff may, and did, in the present action, after the date on which the Acknowledgment of Service was received by the Registry, enter against the defendant in respect of claims indorsed on the Writ that would be entitled to enter.  The plaintiff submits, which I accept, that although such a judgment would not, strictly speaking, be a “default judgment”, but nevertheless it is treated as if it were a “default” judgment (see Hong Kong Civil Procedure, 2014, §13/6A/1).

No meritorious defence

19.  In support of his application, the defendant filed the 1^st affidavit dated 3 September 2013 (“the defendant’s 1^st affidavit”) and the 2^nd affidavit dated 19 November 2013 (“the defendant’s 2^nd affidavit”).  The plaintiff submits that the contents of those affidavits, however, do not disclose any meritorious ground upon which the Judgment could be set aside in law.

20.  Having perused the 2 affidavits filed by the defendant, I agree with the plaintiff that there was no meritorious defence disclosed in those documents. 

21.  In regard to the defendant’s 1^st affidavit, in my view, the evidence does not disclose a meritorious defence against the orders the defendant is seeking to set aside.  First, the defendant disclosed that there was a previous tenancy agreement between the parties whereby rental payments were made by the defendant and receipts were issued by the plaintiff.  That however has no relevance to the present proceedings, in particular the obligations of the parties under the Tenancy Agreement.  Second, the defendant’s claim that he had made improvements to the Property also has no relevance to the present proceedings, even if they were done with the consent of the plaintiff as the defendant alleges here.  Third, the defendant freely admitted in the defendant’s 1^st Affidavit that he had failed to pay rent for 2 months (from 1 December 2012 to 31 January 2013) which has led to the present proceedings.  That does not provide him with a defence.  Fourth, I do not accept the defendant’s claim that his continuance to pay rent and the plaintiff’s continuance to issue “rent receipts” from February 2012 to end of July 2013 (when the Tenancy Agreement expired) led him to believe that everything was “back on track”.  Fifth,  his claim that he did not know how much costs he should pay under the Judgment and hence wanted to be heard does not in my view entitle him to frustrate the plaintiff’s claim for possession of the Property.  Sixth, it is my view that, instead of rent, the payment in August (and thereafter) is mesne profits to which the plaintiff was, and is still, entitled to under the Judgment as long as the defendant remains in possession of the Property.

22.  Similarly, in my view, the defendant’s 2^nd affidavit, which is in reply to the plaintiff’s affirmation, does not disclose any meritorious defence which entitles him to set aside the Judgment entered.

23.  Whereas necessary, I shall discuss some of the material issues in more detail below.

Vacant possession

24.  As the present action was brought for non-payment of rent, the governing provision for relief against forfeiture is s 69 of the District Court Ordinance (Cap 336) (“the Ordinance”). Relevant parts of that section are set out as follows:-

S 69(3) provides that:-

“The Court is to order that the lessor be given possession of land on the expiry of a period, not being less than 7 days from the date of the order, as the Court thinks fit if the Court at the trial is satisfied that the lessor is entitled to enforce the right of re-entry or forfeiture.” [emphases added]

S 69(4) provides that:-

“An order for possession lapses if the lessee pays into court all the rent in arrear and the sum the Court directs on account of the costs of the action before the date ordered for possession. The lessee holds the land according to the lease without any new lease.” [emphasis added]

S 69(9)(a) further provides that:-

“This section does not affect the power of the Court to enter final judgment where the defendant fails to give notice of intention to defend.”

25.  The equivalent provision in the High Court Ordinance (Cap 4) is s 21F(3) which contains a slightly different wording.

26.  In Bullen v Tam Yee Ni [1998] 1 HKLRD 552, at 555-F, which incidentally involved the same appellant as in this case, the Court of Appeal held that s 21F(3) of the High Court Ordinance:-

“appear[s] to be a mandatory power which obliges the court, in making an order for possession for non-payment of rent, to order possession to be returned to the lessor at the end of an appropriate period, not less than four weeks, within which the tenant may pay the arrears together with expenses for restoring his forfeited tenancy interest.” [emphasis added]

27.  Same obligation is imposed by s 69 of the Ordinance but the period be given by the court is “not less than 7 days”.  Failure to comply with the requirement of s 21F(3) would render the order invalid or vitiated: see Bullen, supra at 555-I.

28.  However, it is not mentioned in Bullen whether the statutory relief provided in s 69(3) applies to applications for default judgment under Order 13.

29.  In Hong Kong Land Property Co Ltd v Shung World Investments Ltd [1990] 2 HKC 545, Master P Chan (as he then was) held that O 13 cases were excluded from the operation of s 21F (3) and it was not necessary to include in an order for possession obtained under O 13, r 4 the condition imposed by s 21F(3).  In Tindixs, supra, attention was drawn to s 21F(10)(a) which is similar to s 69(9)(a) of the Ordinance. However, the court made no distinction as to whether the judgment was obtained by default or at trial.  Both Mortimer VP and Rogers JA (as he then was) held that s 21F(3) applied to judgment in default of notice of intention to defend and that the relief against forfeiture should have been included in the default judgment.  Nevertheless, it was decided that the default judgment should be restored subject it be amended to contain a provision providing for the 4-week period from the date of the original order.

30.  The plaintiff submits that, first, the defendant does not have a defence.  It was decided by the Court of Appeal in Tindix, supra that s 21F does not provide a defence.  It provides for relief against forfeiture.

31.  Second, the plaintiff submits that s 69(3) and (4) of the Ordinance does not apply in the present case for two reasons:-

(i)   The period of time as required by s 69(3) to specify in the order is for the lessee to pay into court within that period of time (a) all the rent in arrear; and (b) the sum directed to be paid on account of the costs of the action: see s 69(4).  In Tindixs, supra, Rogers JA (as he then was) said that:-

“[w]hereas the matter of the 4-week period is a mandatory period, if the Plaintiff does not seek an order of some sort in respect of the costs of the action that, in my view, is not a mandatory matter and if costs are not dealt with in the order no sum has to be paid.”

In the present case, at the time the Judgment was entered, there was no outstanding rent, ie no rent in arrear as stated in s 69(4).  There is no need, therefore, to specify a period of time within which the defendant could pay the rent to gain the relief against forfeiture.

(ii)   Even the defendant is entitled to relief against forfeiture, the term of thelease already expired on 31 July 2013 and there was no valid extension.  The lease was terminated by the effluxion of time.  There is simply no “forfeited tenancy interest” that can be “restored” by the relief against forfeiture: see Bullen, supra.  S 69(4) itself is clear on this point; it provides that “the lessee holds the land according to the lease without any new lease”.  It is not the intention of the statute to give a new lease to the defendant when the original lease has already expired.  In Mody Holdings Ltd v Sylvia Seto, unrep, CACV 14/1978 (CA, 12 March 1979), by the time judgment was delivered the lease had expired, the judge therefore made no order for relief against forfeiture.  It was commented by the Court of Appeal that it was the right approach, quoting Prickering JA’s words at p 18 of the judgment:-

“…… I would have held the learned judge eminently right in declining to exercise his discretion to grant relief from forfeiture for non-payment of rent in the light of the fact that the sub-lease had expired. To have done so would have been to achieve no practical result except to wreak injustice upon the lessor.”

(iii)           The plaintiff therefore submits that Master Lai has rightly decided that the mandatory forfeiture rule does not apply to the case where at the time judgment was entered the original lease has already expired and no implied tenancy was established on the face of the evidence.

32.  The defendant on the other hand submits that order of possession did not comply with section 69(3) of the Ordinance.  The defendant submits that the order of possession dated 26 August 2013 was an order made without the inclusion of the statutory 7 day period for relief against forfeiture.  It has been submitted that this is not a discretionary power/requirement, it was/is mandatory and there is no condition or “subject to” legislative wording on the legal status of the tenant at the time the order was made.  (See Tindixs, supra and Bullen, supra; See also O 13/4/3 of the White Book).

33.  The defendant further submits that all the past due rent had been paid and offer for costs tendered before possession was applied for and obtained.  The defendant also submits that the plaintiff did not plead or request possession on the ground or basis that the Tenancy Agreement had expired.

34.  I agree with the submissions of Mr Chan, counsel for the plaintiff, that the defendant does not have a valid defence to the plaintiff’s claim for vacant possession at all. 

35.  First, the Writ (and the statement of claim served thereunder) is one for vacant possession due to the non-payment of rent.  Not only does the defendant not dispute that he had failed to pay the rent in question in time, in fact, by filing the Acknowledgment of Service stating that he did not intend to contest the proceedings and indicating that he intended to make admission to the payment of liquidated amount of money or unliquidated amount of money, he has effectively conceded that he has no defence to the matter.

36.  Second, it is clear that s 69 of the Ordinance, like its equivalent provision of s 21F of the High Court Ordinance, does not provide a defence but a relief against forfeiture only: see Tindixs, supra, at 200 E-G per Rogers JA (as he then was).

37.  Third, in my judgment, for the reasons submitted by the plaintiff as summarized in §31 (i) & (ii) above, s 69(3) and (4) of the Ordinance does not apply in this case.  

38.  For the above reasons, I do not consider that the relief against forfeiture for non-payment of rent under s 69 of the Ordinance is available to the defendant as a defence for the purpose of setting aside the Judgment, which was entered regularly against the defendant in this case.      

Common law tenancy created after 26 April 2103?

39.  The plaintiff claims that the Tenancy Agreement either was terminated on 26 April 2013 due to the issue of the Writ or in any event the term of the tenancy would have expired on 31 July 2013 under the terms of the Tenancy Agreement: see §23 of the affirmation of Ngo Ching Yee Clara filed on behalf of the plaintiff (“the plaintiff’s affirmation”).  The defendant claims that a few days after the termination of the Tenancy Agreement,  the plaintiff accepted rent from the defendant on 1 May 2013 and issued a receipt with the wording “…. being Rent for Premises ……”.  This happened on 4 further occasions.  The defendant submits that by accepting the “rental payments” made by the defendant on those occasions and by sending “rent receipts” to the defendant for those amounts, a common law tenancy has been created after 26 April 2013.  The defendant contends that they should have been treated as mesne profits rather than rent.

40.  I note that the plaintiff has pleaded in the prayer of the statement of claim that they are claiming “rent and/or mesne profits in respect of the Property at the rate of HK$16,100.00 per month from the 1^st May 2013 to the 31^st day of July 2013 and thereafter at open market rent to the date when vacant possession of the Property is delivered up to the Plaintiff;” [emphasis added].     

41.  In my view, it is clear that there was no intention on the part of the plaintiff to create a common law tenancy with the defendant after the termination of the Tenancy Agreement as it is trite that any tenancy must be at the will of both parties: see Ley v Peter (1858) 3 H & N 101 at 107.  While it is unfortunate that the staff of the plaintiff had issued those receipts to the defendant, which was in a standard format with the words “RENT RECEIPT” and “Received from ………. the sum of Dollars ………. being Rent for Premises No. ……… from (date) to (date)” already pre-printed on the margin and the main body of the document respectively, by issuing the Writ and the statement of claim, the plaintiff had in my view made it abundantly clear that tenancy of the Property was terminated on 26 April 2013: (see §13 of the statement of claim and §23 of the plaintiff’s affirmation).

42.  Further, when those receipts were issued on 15 July 2013, which was still within the 1 year period of the Tenancy Agreement that was supposed to end on 31 July 2013 only, they were, in my view, intended to act as acknowledgment of mesne profits paid in arrears for the months of May to July 2013 and not as rent.

43.  Even if I am wrong on this, the fact that the plaintiff had issued “rent receipts” to the defendant does not necessary mean a common law tenancy has been created.  I agree that in some situations accepting payment as rent could be treated as evidence of creating a common law tenancy.  However, this is by no means conclusive.  Each case turns on its own fact.  As said, in this case, by commencing this action in April 2013 and subsequently obtaining the Judgment against the defendant in August 2013, the plaintiff had made their intention beyond any shadow of doubt.  The fact that the plaintiff only issued receipts for mesne profits after the expiry of the term of the Tenancy Agreement on 31 July 2013 also confirmed this.  Hence, in my view, no common law tenancy has ever been created or intended to be created.    

44.  I echo what Pickering JA said in Mody Holding Ltd, supra that it would achieve no practical result except to “wreak injustice” upon the landlord in this case if the court were to find a common law tenancy existed in situations like this.    

Want of prosecution

45.  The defendant claims that the plaintiff filed this action on 26 April 2013 and took no further steps until 26 August 2013.  He says that the 4 month delay was intentional, with no excuse or reason proffered by the plaintiff for the delay and no evidence of any good reason for the delay.  He claims this deliberate act amounts to an abuse of process.  He also claims that the prejudice to the defendant is that it might have deprived him of the relief sought under s 69 of the Ordinance.

46.  I have no hesitation to reject this submission entirely.  Under s 69 (2) & (3) of the Ordinance, the defendant has been given a statutory relief against forfeiture for the non-payment of rent.  He had not made use of the relief within the time frame and mechanism provided by the Ordinance.  Instead, he filed an Acknowledgment of Service stating clearly that he did not intend to contest the proceedings.  I see nothing wrong with the plaintiff to act prudently and to take time to consider its position while the plaintiff continued to make payments before the expiry of the Tenancy Agreement.  It was, in my view, perfectly reasonable for the plaintiff to wait until the expiry of the Tenancy Agreement before taking further steps in the circumstances of this case.  There was no undue delay on the part of the plaintiff in this case.

47.  Hence, the defendant’s argument based on want of prosecution is rejected.      

Estoppel

48.  The defendant also claims that the plaintiff represented to the defendant by inaction and continuing to accept rent and issue rent receipts that they would not enforce a possible legal right.  The defendant says that he relied on this representation and made no arrangements to move out reasonably believing that the tenancy would continue on a monthly basis.

49.  In my view, there is no estoppel at all in this case.  The plaintiff had by issuing the Writ and serving the statement of claim on the defendant on 26 April 2013 made its intention of terminating the Tenancy Agreement abundantly clear.  The action was not disputed by the defendant and he has not made use of the relief against forfeiture provided under the Ordinance.  In my judgment, there was no representation made by the plaintiff and no reliance by the defendant on any alleged representation made by the plaintiff.  Thus, any possible defence based on estoppel has no realistic chance of success also.        

Interest sum of HK$635.16

50.  The defendant has indicated in the Acknowledgement of Service his intention to admit the amount of the monetary claim.  Such monetary claim pleaded in the statement of claim includes the sum of $635.16 representing the total interest for the late payment of rent in December 2012, January 2013 and February 2013.

51.  Further, the defendant has failed to produce any evidence in support of his dispute about the liability to pay the sum of HK$635.16.  Under clause 4(c) of the Tenancy Agreement, the plaintiff is entitled to demand payment of interest on any sum payable which is in arrears for 15 days.  By the time of entering the Judgment, the defendant, although having paid up the outstanding rent, did not pay such an interest as claimed by the plaintiff.  I am therefore of the view that the plaintiff is entitled to be awarded the sum of HK$635.16.

Damages and costs

52.  Damages and costs also form part of the plaintiff’s claim that the defendant has elected not to contest.  In my view, the proper venue for disputing costs is through the taxation proceedings before a master.  This should not in itself avail the defendant an opportunity to set aside a regular judgment based on an alleged dispute over the damages and costs the plaintiff claimed under the statement of claim.

CONCLUSION

53.  In conclusion, I am of the view that the defendant has failed to show he has any “real prospect of success” in any of the issues raised by him by way of possible defence in this case.  As such, I have no hesitation in dismissing the defendant’s appeal against Master Lai’s decision made on 26 November 2013. 

54.  Costs should follow the event.  I see no good reason why the defendant should not pay the plaintiff’s costs of this appeal.  I order that there will be an order nisi of costs of the appeal to be paid by the defendant to the plaintiff, with certificate for counsel, such costs to be taxed forthwith if not agreed.  The order nisi will become absolute unless any party applies to vary the same within 14 days.