MILLION-ADD DEVELOPMENT LTD v. NOK WAH LOGISTIC (HONG KONG) CO LTD

HCA 2873/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2873 OF 2015

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s RHC Ord 14 application where the plaintiff seeks summary judgment for:

(a)  order for possession of a unit in an industrial building in Taipo (“the suit property”);

(b)  damages for the continuation of the breach of tenancy;

(c)  an account of profits.

2.  The plaintiff is and was the registered owner of the suit property.  It was the landlord, and the defendant was the tenant, of the tenancy agreement dated 23 November 2010 (“the subject tenancy”).

Background Facts

3.  The following summary is by and large undisputed.

4.  The subject tenancy was to run up to 30 November 2016 (the rents were increased by a supplemental tenancy agreement of November 2013).  One of its terms prohibited the sub-letting (or parting with possession) of the whole of any part of the suit property.

5.  The defendant entered into an agreement with a third party (“Manfred”) in around mid-2013 (“the Manfred agreement”). The plaintiff alleges that the Manfred agreement was a sub-tenancy, which therefore was in breach of the subject tenancy.  On the other hand, the defendant claims that it was a licence agreement only.

6.  By a letter dated 14 June 2013, the plaintiff notified the defendant (among other things) to remedy the said breach.  By a letter dated 25 June 2013 (and repeated in the letters of the defendant’s solicitors on 20 July and 20 August 2013), the defendant denied the said breach.

7.  The plaintiff continued to receive rents from the defendant until October 2015.

8.  By various letters from the defendant’s solicitors from June to August 2013 and November 2015, the defendant denied the said breach.

9.  The plaintiff indicated in the statement of claim:

(1)  treating the said breach as a repudiation of the subject tenancy;

(2)  its acceptance of the defendant’s said repudiation,

by way of:

(a)   a letter dated 29 October 2015;

(b)  service of the writ of summons herein (issued on 4 December 2015).

This Application

10.  The legal principles relevant to an Ord 14 application are trite: Hong Kong Civil Procedure 2016, Vol 1, para 14/4/1 to 14/4/16.  Among those principles, where the plaintiff has satisfied the “preliminary requirements”, it is for the defendant to show cause against the plaintiff’s application; the defendant must show a good defence to the claim on the merits (para 14/4/2).

11.  The defendant argues in this application essentially that there is an arguable defence as regards:

(1)  whether it has, in breach of the subject tenancy, sub-let the suit property;

(2)  if it has done so, whether the plaintiff has waived the said breach.

12.  In the context of real properties in particular, “possession” has two common meanings in law:

(a)  actual possession, which usually entails the one in possession having occupation (or custody), use and control of the property;

(b)  legal possession, which connotes the legal right or ability to obtain immediate possession of the property.

(see, for example, Yeung Lam v Law Po Chong [2000] 1 HKLRD 223; Bank of China (Hong Kong) Ltd v Sze Wang and Another HCMP 2825/2001 (30 January 2004), para 18)

13.  A perusal of the Manfred agreement shows that the overall tenure is that both actual and legal possession has been given to Manfred by the defendant: see, for instance, the recital and clauses 1.1, 9.1, 10.1 and 10.2.

“WHEREAS [the defendant] agrees to provide and make available [the suit property] together with all ancillary warehouse facilities for use by [Manfred] ...”;

“[The defendant] hereby agrees to provide and make available for use by [Manfred] [the suit property] together with all ancillary warehouse facilities ... for use by the Tenant [referring to Manfred] on 22^nd May 2013...”;

“[Manfred] hereby agrees and covenants with [the defendant] that it will not at any time ... sub-let, sub-licence or part with possession of [the suit property] or any part thereof ...”;

“[Manfred] agrees and covenants with [the defendant] that it will yield up possession of [the suit property] to [the defendant] in the same state and condition ...”;

“... [Manfred] further agrees and covenants with [the defendant] that it will deliver up [the defendant’s] equipment and ancillary warehouse facilities at and within [the suit property] in their good state and condition at the time [Manfred] delivers up possession of [the suit property] ... (emphasis supplied).”

14.  In view of the above, that the Manfred agreement was in truth a sub-tenancy cannot sensibly be disputed, despite it being called a “service agreement”.  Further, the above clauses show:

(1)  the suit property and the “ancillary warehouse facilities” were treated as separate subject-matters;

(2)  the Manfred agreement treated the suit property as the primary subject-matter, and the warehouse facilities (and probably also the equipment) as “ancillary” subject-matters (see the use of words such as “ancillary” and “further” therein).

15.  The defendant also contends that there is a triable issue as to whether it still retained sufficient physical control and possession of the suit property to refute sub-letting.

16.  First, it should be noted the parting with possession of the suit property or any part thereof was prohibited by the subject tenancy.  Secondly, the factual matters relied upon by the defendant in this connection are:

(a)  the defendant has installed, and still owns, various cold storage equipment and machinery inside the suit property;

(b)  the electricity bills of the suit properties were all in the defendant’s name, and paid for by the defendant;

(c)  the water bills of the suit property were all in the defendant’s name, and paid for by the defendant;

(d)  the responsibilities to repair the suit property and maintain the cold storage equipment and machinery rested with the defendant.

17.  In relation to the matters set out in para 16 above:

(1)  para 16(a) above is neutral in that tenancy agreements also often include the fixtures as part of the leased properties;

(2)  para 16(b) and (c) above are neutralized by the “back-to-back” payment arrangement between the defendant and Manfred (evidenced by the defendant’s debit notes);

(3)  similar to para 16(a) above, repair and/or maintenance responsibilities being taken up by landlords (para 16(d) above) is equally common in tenancies.

(sub-para (1) and (2) above should in fact be matters which lean against the defendant when they are considered with the Manfred agreement (see below))

18.  The following reasonable inference can be drawn:

(a)  when para 17(1) above is considered with clauses 1.1 and 10.2, Manfred agreement, the defendant could not be using the equipment and ancillary warehouse facilities;

(b)  when para 17(2) above is considered with clauses 1.1 and 10.1, Manfred agreement, that the utility expenses were wholly paid for by Manfred means that the defendant could not be using the suit property.

19.  What is equally important is what the defendant has not mentioned; namely, common indicia of actual possession:

(1)  regular and/or frequent access to, and occupation of, the suit property;

(2)  possession of the key(s) to the suit property, and the right (as against Manfred) to use them to gain access to the suit property .

20.  By reason of the above, I disagree with the contention referred to in para 11(a) above.

21.  Finally, relying on para 7 above, the defendant submits that there is a triable issue as to the plaintiff’s having waived the said breach because the plaintiff became aware of it for some time.

22.  Here, I agree with the plaintiff the facts of this case are almost on all fours with those in Chrisdell Ltd v Johnson and Tickner (1987) 19 HLR 406.  The Chrisdell decision concerned a residential flat in the UK.  It was let to a foreigner tenant and the tenancy contained a term prohibiting sub-letting or parting with possession.  When the tenant returned to the US to work, he proposed an assignment of the tenancy.  This was however refused by the landlords.  Despite the refusal, the tenant entered into an agreement with a third party whereby the latter then took up possession of the flat.  The tenant only told the landlords the third party would be “supervising the flat”.  The landlords later discovered the change but the third party, with the help of the tenant, claimed that the third party were merely a housekeeper.  In an action for recovery of possession, the English court of appeal (agreeing with the county court) held in the landlords’ favour, observing:

“... the only explanation for [the landlords’] failure to take ... proceedings is that they took the view that in those proceedings they might well fail because [the tenant’s] explanation might well be accepted by a judge. If that is correct, I do not ... see how it can be said that the landlords had waived the right they had ... [In] my judgment, it cannot ... be said that [the landlords] knew all the necessary facts to establish a breach” (p 413).

23.  In this application:

(a)  the defendant has repeatedly denied having sub-let the suit property (both in writing and verbally);

(b)  the defendant has also used the address of the suit property as its registered office;

(c)  there were attempts to conceal the identity of Manfred (delivery workers who went to the suit property stopped disclosing the name of the recipient to the building’s security staff),

thereby causing the plaintiff to doubt if there was a breach (alternatively, whether there was sufficient evidence of such breach).

24.  In these circumstances, the plaintiff could not properly be said to have waived the said breach by entering into the November 2013 supplemental tenancy agreement), or collecting rent before October 2015.

Conclusion

25.  There will be summary judgment for the delivery up of vacant possession of the suit property.

26.  As regards the claim for damages and/or an account of profits, the parties agree in effect that any summary judgment should be by way of assessment of damages before a master.  Accordingly, interlocutory judgment is entered against the defendant, but whether the defendant should be liable for damages and/or an account of profits (and if so, the quantum thereof) remains at large and are to be determined by the master.

27.  The counterclaim (which is the reverse of the plaintiff’s claim) should be dismissed.

Other Matters

28.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs Order

29.  The parties agree, following the usual rule, that costs should follow the event.  There will accordingly be a costs order that the costs of this action up to the date of judgment (together with the costs of this application) (including any reserved costs) be paid by the defendant to the plaintiff to be taxed if not agreed.  The costs of the assessment are to be determined by the master at the end of the assessment before him/her.