PENDRAY LTD v. LIMITLESS CONCEPTS LTD

LDPE 114/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 114 of 2014

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REASONS FOR DECISION

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Introduction

1.  The applicant is the owner of Shop on Ground Floor and Mezzanine Floor and Flat Roof of Yue Thai Commercial Building, Nos 128-129 Connaught Road Central, Hong Kong (hereinafter referred to as “the Premises”). By virtue of a tenancy agreement (which was in English) dated 8 May 2013, the applicant let the Premises to the respondent for a term of 4 years commencing from 1 April 2013 to 31 March 2017 at a monthly rent of $130,000 exclusive of government rate, management fees, air-conditioning charges, maintenance charges and all other Tenant’s outgoings (hereinafter referred to as “the Lease”). After the 4 years of the Lease, the respondent shall have the right to renew the Lease for two more years at market rent provided that the increase in rental shall not exceed 30% of the prevailing rent.

2.  Also reserved in the Lease are 3 rent free periods commencing:-

(i) from 1 April 2013 to 30 June 2013;

(ii) from 1 May 2015 to 31 May 2015; and

(iii) from 1 May 2016 to 31 May 2016.

3.  Through Messrs Paul Ng & Company, Solicitors, the applicant filed the captioned application to the Lands Tribunal on 30 January 2014 for recovery of possession of the Premises on the ground that the respondent had failed to pay rent since 1 September 2013. The applicant also applied for an order for arrears of rent and/or mesne profits at the rate of $130,000 per month from 1 February 2014 till the date of delivery of vacant possession of the Premises. In addition, the applicant claimed for management fees, rates/government rent plus interest and costs.

4.  The respondent took out two summonses on 21 August 2014: one for discovery of documents (“1^st Summons”) and the other for expert evidence to be adduced (“2^nd Summons”).

5.  As regards the 1^st Summons, the documents included:

(a) the previous tenancy agreement between the applicant and the former tenant of the Premises, and

(b) the documents showing the progress of the applicant’s application to the relevant government authorities for the purpose of obtaining a hotel licence covering the 1^st Floor to the 15^th Floor above the Premises.

6.  The purpose for taking out these summonses is explained as follows:

(a) The Lease relied on by the applicant is subject to a collateral contract under which the applicant had promised that (i) a hotel (hereinafter referred to as “the Hotel”) would be opened on the floors above the respondent’s restaurant, ie the Premises in April 2013 and (ii) the Hotel would require the respondent to provide paid meals to the Hotel guests.

(b) Points (i) and (ii) in the preceding paragraph when amount to assurances will make available the defence of promissory estoppels to the respondent so that the applicant, by failing to live up to the assurances, should be estopped from claiming the full amount of the rent under the Lease thereby taking unjust advantage of the assurances which did not materialize.

(c) There is an implied term to the Lease that the Premises leased to the respondent had a hotel operating on the floors above the restaurant.

(d) The rent expressly stated in the Lease represents the rent the respondent had agreed to pay in anticipation of the applicant’s promises/assurances materializing in about April 2013. As no hotel was up and running by the time the applicant took out the present Notice of Application, the question falls to be decided is what rent the respondent should pay for the Lease over the Premises when there is no hotel in operation as promised/assured.

(e)    The respondent will resist the applicant’s claim for re-possession on the ground that because of the applicant’s breach of the said promises/assurances, the respondent is entitled to negotiate a new rent with the applicant which will truly reflect the rental value of the Premises without a hotel above it.

7.  The applicant lodged a submission dated 8 September 2014 objecting to the two summonses above (hereinafter referred to as “the Objection”).

8.  After reading the two summonses and the Objection as well as hearing submissions from both parties on 11 September 2014, I dismissed both of the respondent’s applications.These are my reasons.

History

9.  Initially, the respondent failed to respond to the Notice of Application of 30 January 2014. Upon application by the applicant for judgment in default of opposition, the Tribunal made an order as requested on 28 February 2014 subject to the relief against forfeiture under section 21F of the High Court Ordinance.

10.  On 12 March 2014, Mr Law Kam Sing (who signed in English) for the respondent made an interlocutory application to the Tribunal for

(1) setting aside the order of the Tribunal dated 28 February 2014;

(2) extending the time for filing the Notice of Opposition for 14 days from the date of the order to be made on this application;

(3) extending the date of relief against forfeiture to 15 May 2014.

11. In support of this application, the respondent stated, inter alia, that:-

“(1) 業主代表律師沒有提供書面中文或口頭的判令解釋;

(2) 業主突然中止一切有關還款方案及減租方案;

(3) 大廈酒店由業主在去年2013年五月開幕延遲到至今仍未有開幕日期, 由於租金高於同街40%, 所以業主一直和本公司商討優惠。”

12.  When this interlocutory application was heard by me on 19 March 2014, the respondent was represented by Ms Emily Yu instructed by Messrs Ho Tse Wai, Philip Li & Partners. I ordered that:

(a) the order of the Tribunal dated 28 February 2014 be withheld;

(b) the trial hearing be adjourned to a date to be fixed by the parties;

(c) the respondent do have leave to amend its affirmation;

on condition that the respondent do deposit $910,000 into the Tribunal by 26 March 2014.

13.  On 25 March 2014, Messrs Ho Tse Wai, Philip Li & Partners took out a summons seeking to extend the deadline for the respondent to deposit the amount of $910,000 to 2 April 2014.

14.  When hearing of this summons took place before me on 31 March 2014, the respondent was represented by Mr Jonathan Man of Messrs Ho Tse Wai, Philip Li & Partners. I ordered to amend the condition as contained in my order made on 19 March 2014 to that the respondent do deposit $1,040,000 into the Tribunal by 2 April 2014.

15.  The respondent then changed its solicitors to Messrs C K Mok & Co.

16.  The applicant took out another summons dated 17 April 2014 requesting the respondent to file its Notice of Opposition on or before 30 April 2014.

17.  When hearing of this summons took place before me on 24 April 2014, the respondent was represented by Ms Kelly Ho of Messrs C K Mok & Co. I ordered, inter alia, the following:

(1) The respondent do file the Notice of Opposition by 30 April 2014;

(2) the trial hearing be fixed on 9 June 2014 to 11 June 2014;

(3) the respondent do pay to the applicant direct the rent, management fees, rates/government rent from May 2014 onwards;

(4) the respondent do pay to the applicant direct the arrears of management fees, rates/government rent.

18.  Then came the Notice of Opposition filed by the respondent on 30 April 2014. The grounds of opposition can be summarised as follows:

(1) The respondent had relied on the representations by the estate agent, the applicant’s representatives etc the Hotel would be opened in May 2013 and the Hotel would require the respondent to provide paid meals to the Hotel guests.

(2) The respondent had relied on an offer letter (subject to contract) as prepared by the estate agent dated 3 September 2012, which, upon insistence by the respondent, included a Note stating that: “It is understood between the parties that the tenant, upon request by the landlord to do so, shall take up the responsibility as supplier of meals (breakfast, lunch and dinner) to the hotel guests staying at 1^st floor to 15^th floor on chargeable basis”.[1]

(3) On 5 September 2013, ie some 5 months after the Lease commenced, upon the request by the respondent, the applicant agreed to bring forward the two later rent free periods (as stated in §2 above) so that the respondent was not required to pay the rental for September 2013 and October 2013.

(4) Since November 2013 the respondent had started to request for rent reduction to no avail.

(5) Not only the Hotel failed to be opened in May 2013, works were carried out on the external walls of the subject building since March 2014 thereby causing nuisance, loss of comfort etc.

(6) The respondent hereby requested an order from the Tribunal that:

(i) The rental in arrears for the months of September 2013 and October 2013 be set off by the last two rent free periods (as stated in §2 above); and

(ii) The rental from November 2013 onwards should be $78,000 (instead of $130,000) until the Hotel has commenced operation for 6 months and further agreement by the parties.

19.  By a consent summons dated 26 May 2014, however, the dates fixed for the hearing on 9 June 2014 to 11 June 2014 were vacated.

20.  The respondent then changed its solicitors to Messrs K L Leung & Co.

21.  Hearing resumed on 14 August 2014 when I raised the issue of jurisdiction of the Tribunal on the counterclaim. The respondent applied to adjourn the trial for 7 days so as to take out all necessary summons (if any) for continuation of the proceedings in the Lands Tribunal or in other Courts. Then came the present Summonses.

Objection by the Applicant

22.  As stated in the submission dated 8 September 2014, the applicant objects to the respondent’s application to discovery of the documents listed in the 1^st Summons on the grounds that those documents were irrelevant to the present proceeding which is to recover the possession of the Premises. The same objection applies to the application by the respondent seeking leave to adduce the surveyor’s report on market rental.

23.  The Objection referred to the hearing on 14 August 2014 when I drew the parties’ attention to黃英對譚炳新, HCMP 2049/2000 (unreported, dated 1 August 2000), 陳燕群對黃金海, CACV 223/2007 (reported as [2008] 1 HKCLRT 27) and Ngai Ngok Pang & Another v Lee Syn Yuk, Michelle, LDPD 3030/2012 (unreported, dated 10 May 2013) where the courts ruled that the Lands Tribunal did not have jurisdiction to entertain any counterclaim by the respondents.

24.  If this be the case, the discovery of the required documents in the 1^st Summons is based on the assumption that there would be a counterclaim, which has not been filed at all by the respondent. Any counterclaim raised by the respondent should have been done through amending the pleading ie the Notice of Opposition or issuing a new proceeding. The adducing of the surveyor’s report is wintin the purview of counterclaim.

25.  More particularly, the applicant recited the view of His Honour Judge Ko in  Ngai Ngok Pang & Another v Lee Syn Yuk, Michelle, supra:

“15. The Lands Tribunal may only, in an application for possession or ejectment, make an order for the payment of damages in respect of breach of a condition of the tenancy (see section 8(8) of the Lands Tribunal Ordinance, Cap 17). A counterclaim is generally treated as an independent action (see Hong Kong Civil Procedure 2013, paragraph 15/2/4). Since the respondent is not also counterclaiming for possession or ejection, the Lands Tribunal does not have jurisdiction to entertain her claim for damages.”

26.  The applicant also referred to Topbase International Limited T/A New Kwok Wah Meat Co v Pacific Crown Enterprises Limited [2011] HKCU 2466 where the Lands Tribunal stated that:

“6. It is common ground that the Respondent must establish a prima facie case that :

(a) a specific document or class of documents exists;

(b) the Applicant has or had the documents in its possession, custody or power;

(c) the documents relate to a matter in question in the action; and

(d) discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

And once a prima facie case is made out, the court has a discretion whether or not to order disclosure.”

27.  The applicant submits that, at this stage, requesting discovery and adducing surveyor’s report for the issues of counterclaim would clearly be a waste of cost. This is contrary to the aim of discovery, with saving cost as one of its most important rationales.

28.  The applicant submits further that there is no ground for the respondent to ask for discovery to support the issue on the damages or variation of the Lease. The dispute in this current action should only lie on the recovery of rent and possession of the Premises.

Discussion

29.  It is trite that a tenant’s obligation to pay rent as reserved in a tenancy agreement is independent of the other covenants or obligations under the tenancy agreement, including the landlord’s covenant for quiet enjoyment. Similarly a tenant’s obligation to pay rent is not dependent upon compliance by the landlord with his obligations under the tenancy agreement. See Charmway Development Limited v Long China Engineering Limited [2001] 5 HKC 515 at 519G per Chu J and Ridge Limited v Golden Castle Limited [2005] 5 HKC 592.

30.  Thus where the Lease contemplates that the obligation to pay rent is independent of all other covenants, and the tenant’s counterclaim is unliquidated, there is no legal set-off. As regards the respondent’s counterclaim itself, I agree with the authorities as cited in §22 above that the Lands Tribunal does not have jurisdiction to entertain its claim for damages or in the terms of the respondent, the reduction in monthly rent payable.

31.  Ms Winnie Chan (“Ms Chan”) for the respondent tries to argue that the respondent’s case is not making a counterclaim but simply the Lease by itself does not reflect all the terms agreed by the parties – there exists a collateral agreement or implied terms that (i) the Hotel would be opened on the floors above the respondent’s restaurant, ie the Premises in April 2013 and (ii) the Hotel would require the respondent to provide paid meals to the Hotel guests. The respondent’s case is the applicant had breached the collateral agreement or implied terms.

32.  With respect, I do not see the difference between the alleged breaches, if any, by the applicant of the collateral agreement or implied terms and other terms of the Lease such as the landlord’s covenant for quiet enjoyment.

33.  By virtue of Order 24 Rule 8 of the Rules of the High Court, I dismiss the 1^st Summons because the discovery is not necessary, or not necessary at this stage either for disposing fairly of the cause or matter or for saving costs.

34.  Whereas the purpose of adducing the surveyor’s report is for determining what the rental would be had there be no such collateral agreement or implied terms, it is tantamount to a request for set-off if the counterclaim succeeds.

35.  Ms Chan also argues that the surveyor’s report would assist in determining the mesne profits if the applicant succeeds in obtaining the possession order. Here I remind her that as this is the first time that the applicant applies for the order of possession on the ground that the respondent failed to pay rent, Section 21F of the High Court Ordinance would operate such that if the respondent pays all the rent in arrears and the costs of the action, the action shall cease, and the respondent shall hold the Premises according to the Lease without any new lease. There is no need to assess the mesne profits.

36.  How about if the respondent chooses not to pay all the rent in arrears and the costs of the action? In Well Century Holdings Limited v. Leung Kam Yu, CACV 370 of 2002 (unreported, dated 7 March 2003), it was held that the landlord was entitled to pursue both the forfeiture remedy and the common law remedy. Should the latter be the case, the rent being reserved in the Lease matters instead of the market rent to be determined by a surveyor.

37.  Mr Victor Luk for the applicant also argues that the adduction of the surveyor’s report at this stage would only unnecessarily prolong the proceedings and complicate the matter. Mr Luk says if the adduction of the surveyor’s report is allowed, the applicant would take time to review the report and most likely to appoint its own expert in preparing another report in rebuttal. There will be further wastage of time and costs. I agree.

Conclusion

38.  For the above reasons, I dismiss the respondent’s 1^st Summons and its 2^nd Summons.

Costs

39.  There is no reason why costs should not follow event. In this regard, I have heard submissions of both parties for the purpose of making a summary assessment. I hereby order the respondent to pay the applicant costs in the sum of $30,000.

[1] The respondent conceded that this offer was not accepted by the applicant and such note or clause is not found in the Lease.