SHANGRI-LA PROPERTIES LIMITED v. UNITED SINO COMPANY LIMITED

Courts practice and procedure - appeal from Master's order for stay of execution of writ of possession issued in respect of unlicensed restaurant premises pending determination of new separate action to set aside original consent judgment - long delays by defendant in attempt to obtain restaurant licence - multiplicity of interlocutory applications filed by defendant together with appeals from Masters orders - failure of defendant's directors to file undertakings required as a condition of the appealed order for stay - plans now approved but restaurant licence not yet granted - whether defendant's application for stay conditionally granted by Master made in good faith or merely another delaying tactic - whether plaintiff has waived non-compliance with tenancy agreement requirement to obtain restaurant licence and waived related delays - Held: 1. Defendant's application for the conditional stay now subject to appeal not made in good faith; 2. The defendant's failure to obtain restaurant licence and related delays not waived by plaintiff; 3. Appeal from Master upheld; 4. Plaintiff at liberty to enforce forthwith writ of possession issued on 14th March 1988.

IN THE SUPREME COURT OF PONG KONG

HIGH COURT

H. C. Action No. 6193 of 1987

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JUDGMENT

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1. This is an appeal from a Master who on 25th August 1988 ordered that execution under a writ of possession, issued on 14th March 1988, be stayed pending the determination of High Court Action No. 5769 of 1988, taken out by defendant to set aside the consent judgment entered in this action on 6th November 1987.

2. The facts reveal an extreme example of the not uncommon Hong Kong story of a defendant leasing premises for use as a restaurant and carrying on business for several years in anticipation of a restaurant licence eventually being granted. During this indefinite intervening period, typically every available legal procedure is deployed in the attempt to defeat any effort by the landlord to recover possession.

3. The suit premises in this action are situate at Auto Plaza, 13th Floor, 65 Mody Road, Tsimshatsui East, Kowloon where the defendant carries on business under the name of the Flory City Restaurant and Night Club. The defendant first entered into possession during December 1984. On 12th July 1985 it executed a tenancy agreement of the suit premises for a period of 7 years from 1st March 1985. Under the tenancy agreement the defendant agreed to use the suit premises exclusively for the business of a restaurant and night club. The suit premises had been designed as offices and under the tenancy agreement the defendant also agreed to carry out the necessary alterations to convert the premises to their new use and to obtain all appropriate licences.

4. These obligations included obtaining a licence for the restaurant under By-law 32 of the Food Business (Urban Council) By-laws Cap. 132. By-law 36 provides that any person who carries on the food business of a restaurant without a licence is guilty of an offence. Clause 3(6) of the tenancy agreement required the defendant to comply with these By-laws as well as other ordinances and regulations. The defendant by this clause also undertook to obtain the licence within 6 months of the commencement of the tenancy agreement. If the defendant failed to obtain the licence within that period, the landlord had the right, by serving 30 days notice, to determine the tenancy.

5. The defendant carried out some of the required alterations including contributing one-third of the cost, to construct an additional fire escape staircase. Other requirements of the relevant authorities, which were the defendant's sole responsibility, remain unsatisfied. The defendant has nevertheless elected to carry on the business of the restaurant without a licence. At present the defendant employs a staff of about 129 persons and claims to have invested more than $15 million in establishing the restaurant. The defendant has still not obtained a licence. The plaintiff's predecessor in title did not give any notice to the defendant under Clause 3(6) after the period of 6 months prescribed therein expired.

6. During August 1987 the defendant fell into arrears of paying rent at the then monthly rate of $282,187.50 and other charges. On 24th August 1987 notice to quit was served. On 16th October 1987 the present action was commenced for possession, on the ground of non-payment of rent and other charges and the failure of the defendant to obtain a restaurant licence within the 6 months stipulated in Clause 3(6). No defence was entered but on 3rd November 1987 a consent summons was filed. In terms of that consent summons the Master on 5th November 1987 gave judgment in favour of the plaintiff for possession and the $954,610.95 claimed and by consent made several consequential orders.

7. The consequential consent orders are important for they included, subject to conditions, a very long stay of execution for a period which corresponded with the residue of the tenancy agreement, namely to 28th February 1992. The conditions of stay concluded in these terms:

                "2...

8. The plaintiff, since the further period of 2 months allowed under the consent order for the defendant to obtain a restaurant licence expired, has taken far more positive steps to enforce that part of the order, than its predecessor in title took to enforce the comparable 6 months provision under the tenancy agreement. On 26th February and 3rd March 1988 the plaintiff's solicitors wrote to the defendant demanding production of copies of the restaurant and other permits and licences. The latter letter warned that if the restaurant licence and other documents were not produced by 10th March 1988 the plaintiff in terms of the consent order would proceed to have issued a writ of possession to recover vacant possession. The plaintiff on 12th March 1988 applied for a writ of possession on the grounds of the defendant's non-compliance with paragraphs 2(iii) and (iv) of the order for stay. The writ of possession issued on 14th March 1988.

9. During the next 5 months the defendant filed a series of interlocutory summonses and lodged various appeals in a so far successful attempt to remain in possession and continue to carry on the unlawful restaurant business. The first step by the bailiff to enforce the writ of possession was taken on 7th April 1988 when he posted 7 days notice to quit on the suit premises. The second appointment for review of the notice to quit, took place on 22nd April 1988 with the final 4 days notice to quit expiring on 26th April 1988 when the bailiff would have attended at the suit premises for the physical eviction of the defendant. One day before the date appointed for eviction, the defendant obtained ex parte an interim stay of the writ of possession, pending the hearing of an inter partes summons filed on 26th April 1988.

10. The inter parte summons sought a stay of execution and an extension, of the period limited under paragraph 2(iii) of the consent order to obtain a restaurant licence, for a further 2 months. The affirmations filed by the defendant at this stage alleged that progress was being made in obtaining the Building Authority's approval to the change of user and that it was anticipated that the plans would finally be approved in May 1988. The Building Authority's approval of the plans and the satisfactory completion of consequential work was necessary before a restaurant licence could be issued. On 29th April 1988 the plaintiff consented to the adjournment of the inter parte summons sine die with the ex parte interim stay of execution being extended, until the determination of the adjourned summons.

11. In addition to the default in obtaining a restaurant licence, the defendant, liable to pay rent on the first of each month, had at least since November 1987, only being paying rent towards the end of each month. The plaintiff's solicitors letter of 26th February 1988 already referred to also gave notice of non-compliance with the obligation under the tenancy agreement to pay rent on due date. The rent due on 1st May 1988 was not paid on that date.

12. On 5th May 1988 the plaintiff applied to have the inter parte summons restored. The plaintiff later filed an affirmation by Mr. Edmund Ho, its Marketing Executive, who alleged that since November 1987 rent had been persistently in arrears and he also affirmed that as at 19th May 1988 the rent due on 1st May 1988 had not been paid. The defendant's affirmations in reply explained that the plans had not yet been approved but it believed that it had a proper case for judicial review against the last adverse decision of the Building Authority. However, because of the time judicial review proceedings would take, the defendant had instead decided to lodge new amended plans. Approval was anticipated in August 1988.

13. The restored summons came before a Master on 10th June 1988 when twofold orders were made. The Master first dismissed the defendant summons but then went on to grant liberty to the defendant to restore the summons in terms which on the face of the order were unclear. Liberty to restore was granted upon all the directors of the defendant agreeing to give an undertaking which unfortunately is only described in the order as being in terms "indicated to Defendant's Counsel". The Master further ordered that the stay of execution on the order for possession be lifted and the plaintiff was at liberty to enforce the order for possession forthwith. The Master's final substantive order was that if the directors gave the required undertaking there would be an interim stay of execution of the order for possession, pending the determination in that event of the defendant's restored summons.

14. Whatever the form of the directors undertakings required by the Master to be filed by affidavit, none were ever given or filed. Instead the defendant on 15th June 1988, filed notice of appeal against the Master's order of 10th June 1988. The appeal came before Liu J., on 27th June 1988 when it was dismissed without Counsel for the plaintiff having to be heard. In the judgment delivered by Liu J., it is disclosed that the undertaking to be given by the directors was that they would not run or continue to run the restaurant without a licence.

15. The judgment described that condition as an indulgence granted by the Master and that as it had not been taken advantage of by the defendant, it had become inoperative. The judgment treated the prior hearing before the Master as in effect an application for further stay. The judgment also recorded that the defendant considered the 2 months period in the consent order within which to obtain a licence, had been agreed under a misapprehension, as the grant of a licence would more likely take 1 year. Liu J., held that there were no grounds for further stay and that if there had been an misapprehension, the proper procedure was to apply to have the consent order for stay set aside.

16. The dismissal of the defendant's appeal did not diminish its capacity to file further applications. Its first response was to file an inter partes summons on 7th July 1988 for an order setting aside the consent order for stay made on 5th November 1987. On the same day this summons was withdrawn by the defendant as misconceived. Later that day a further inter partes summons was filed for stay of the execution of the writ of possession, pending a fresh action being commenced by the defendant to set aside the 5th November 1987 consent orders. The new action was commenced on 20th August 1988 being No. 5769 of 1988. The second summons of 7th July 1988 came before a Master on 8th July 1988 when it was adjourned after leave was granted for filing further affirmations.

17. The adjourned summons eventually came on for hearing on 25th August 1988. When notice of this date of hearing was given, the defendant filed a further summons for the hearing to be adjourned to a later date. On 22nd August 1988 the latter summons was dismissed.

18. The orders made by the Master on 25th August are those now the subject of the present appeal. I confirm that the Master ordered that the writ of possession be stayed pending determination of High Court Action No. 5769 of 1988. However, the Master's order was conditional upon all the directors of the defendant within 21 days filing affidavits containing the following undertaking:

"The defendant company is not to continue and is to cease operating in business as a restaurant and/or nightclub at the said premises until the Defendant Company has obtained a general restaurant licence required by the Food Business By-Laws of the Public Health and Urban Services Ordinance and all necessary permits and licences in connection with or in relation to its use of the said premises as a restaurant and/or nightclub." (sic)

19. The 21 days limited by the Master for filing the undertakings by affirmation expired on 15th September 1988. No affirmations were filed by that date. However, on 12th September 1988 the defendant filed a further inter partes summons for hearing one day before the 21 days expired. This summons came on for hearing before a Master on 14th September 1988 and sought an extension of time for filing the undertakings until the appeal was determined or until further order. Counsel for the defendant also orally applied for a further stay. The Master refused the order for stay but granted the defendant a further 14 days to file the directors undertakings. This further period of 14 days has expired and the undertakings have still not been filed.

20. Before returning to the facts I record that since the summons heard on 14th September 1988, the defendant has filed 3 further inter partes summonses. On 5th October 1988 the defendant filed a summons for clarification of the Master's order now subject to appeal. I am informed from the Bar that it is sought to clarify whether the directors undertakings to cease business, required business to cease forthwith. This summons is for hearing on 8th November 1988. A second summonses was filed on 10th October 1988 for an interim stay of execution pending the hearing on 8th November 1988. This summons is to be heard on 3rd November 1988. A third summons was filed on 14th October 1988 for orders that execution be stayed until delivery of the present judgment and for an alternative order that the period for directors to file undertakings be extended until 25th October 1988. The same summons seeks as a final alternative relief against forfeiture. This summons is for hearing on 22nd October 1988 by which time this judgment will have been delivered.

21. I confirm that the defendant failed to comply with the condition of the Master's order in its favour now under appeal, by not filing the undertakings within the 21 days period. In other circumstances that failure on the part of the defendant would have rendered the plaintiff's present appeal unnecessary. The plaintiff could safely have abandoned any appeal. However, because of the defendant's subsequent summonses for clarification of the Master's order and for further extension of time, this appeal has had to continue to be pursued.

22. To return to the facts, at the hearing before me on 12th October 1988, the defendant tendered a further affirmation of Mr. Tam Wing On, one of its directors, which Counsel undertook to be filed. This affirmation stated that on 27th September 1988 the Building Authority had at last approved the plans. The affirmation also stated that several contractors had been invited to tender for the work required to be carried out. Mr. Tam in paragraph 3 went on to refer to a Directors Meeting held on 10th October 1988 affirming:

 

"3.    The defendant has resolved at a directors meeting held yesterday that, subject to the approval of the shareholders of the defendant at an extraordinary general meeting to be convened in due course, the defendant will cease business at the suit premises not later than the 25th of October 1988 to enable works to be carried out in accordance with the said plans. "

23. The affirmation does not state when the extraordinary meeting will be held; if as a matter of law it is necessary under the defendant's Articles of Association; whether in the case of this relatively small unlisted Company there is any significant difference between its directors and shareholders.

24. The plaintiff first submitted that the defendant's application for stay of execution, pending the determination of the action to set aside the consent order, is not made in good faith. Secondly, that the undertakings had not been filed. Thirdly, it was submitted, the defendant's application was misconceived. The defendant's reason for obtaining the stay was to avoid in the interim losing possession of the restaurant and as a consequence being at risk of not enjoying the fruits of any success it may achieve in the setting aside action. Counsel for the plaintiff pointed out that the new action only seeks to set aside the consent order and even if successful would still leave the defendant's breaches of the tenancy agreement, giving rise to forfeiture, unaffected.

25. Counsel for the plaintiff after taking me through the affirmations and the chronology of events, submitted that it quite clear that the defendant throughout was merely attempting to delay and buy time. On the merits of the new action to set aside the consent order, I was referred to the plaintiff's affirmations and to the contradictions in the affirmations filed by the defendant's directors. In the affirmation of Madam Susanna Tang, an officer of the plaintiff, she states that after the issue of the writ Miss Alice Wong, a director of the defendant, approached her expressing the wish to settle the action. Miss Tang stated that Miss Wong asked for a further 6 months to obtain the restaurant licence but when this period was refused the defendant accepted the period of 2 months included in the consent order.

26. Miss Wong in her affirmation of 24th August 1988, states that after the defendant's solicitor received the consent summons he pointed out the short period of 2 months to obtain a licence and advised that period was unfavourable. The defendant's solicitor went so far as to refuse to sign the summons until he received further instructions from the defendant. Miss Wong claims that she then telephoned Miss Tang, who told her there would be no problems and that the relevant clause - which I infer was Clause 2(iii) and not the Clause 2(c) mentioned in the affirmation - was not important. Miss Tang denies these later allegations. What is important is that Miss Wong having given express consideration to the 2 months period, then instructed the defendant's solicitor to sign the consent summons and agree to the consent orders in terms.

27. Mr. Choi Fai, another director of the defendant, on 5th July affirmed that the parties by entering into the consent order were under a "common misconception and mistaken belief that they equated the approval of plans with the obtaining of a general restaurant licence. " On the evidence before me this allegation is without merit. I record that in any event, even after the further 2 months had passed, the plans had still not been approved quite apart from any subsequent issue of a restaurant licence. I find that the defendant, with adequate knowledge of the facts and with full awareness of the consequences, agreed to the consent summons on which the consent order was granted.

28. Counsel for the defendant submitted that from the very beginning the defendant's landlord now represented by the plaintiff, was aware that it would take time for the restaurant licence to be granted and the tenancy agreement itself expressly provided for a period of 6 months. Since then major problems in obtaining approval of the plans had arisen. The defendant in good faith had pursued obtaining approval which had now been granted. The steps taken included at one stage terminating instructions to its own architect and employing the plaintiff's architect. It was submitted that the plaintiff had, after the 6 months period expired, waived any requirements as to time and the reality now was that the plans were approved and the restaurant licence would shortly be granted.

29. Counsel submitted that it was unfair to blame the defendant for its solicitors error, in earlier pursuing an appeal against the Master, instead of commencing a separate action to set aside the consent order. On the authority of The Prudential Enterprise Ltd. v. Yu Kwai Chi HCA No. 4158/85 I was invited to disregard the unlawful nature of the restaurant's operations which were a separate matter to be pursued, at their election, by the appropriate authorities. By analogy with the principles which apply to appeals under Order 14 RSC, it was submitted that the evidence indicated that a triable issue existed in the new action to set aside the consent order. I was referred to Wilson v. Church (No. 2) (1879) 12 Ch. D. 454 which held that where an unsuccessful party is exercising an unrestricted right of appeal, it is the duty of the Court in ordinary cases to grant a stay to prevent the appeal, if successful, from being nugatory. The other action, in the present circumstances, it was submitted, had similarities to an appeal.

30. In the present action, the defendant submitted, there were good grounds for a stay. I was also referred on this issue to Schofield v. Church Army (1986) 3 All ER 715. In that case the Court of Appeal held that the mere fact that there was an arguable cross claim was not of itself sufficient to warrant a stay, but if the cross action raised serious issues to be tried, that could amount to special circumstances, justifying on the facts of that particular case, a stay of payment out.

31. Counsel for the defendant also sought some support from Schofield v. Church Army for the recognition by this Court of the defendant's fear that if the present action was not stayed and it won the new second action, it would still suffer substantial loss. In particular I was referred to the final paragraphs of the judgment of Croom-Johnson L.J. at page 723:

"It may well be that on a full investigation the respondent will be vindicated. But the material as it was before the judge did indicate that there is a serious issue to be tried out.

 

        If the money is paid out and the Church Army should subsequently be successful in an action against him, there must be a risk that it will be unable to recover its money. In those circumstances the judge should not have ordered the payment out of the money in court."

32. Finally, it was submitted for the defendant, that in view of the long history of the plaintiff allowing the defendant time, the difficulties with the Building Authority which the defendant had persistently attempted to and had now successfully overcome, its actions had been reasonable and in good faith. On the need for the directors to go to the shareholders before closing down the unlawful restaurant business, I was referred to Northern Counties Securities Ltd. v. Jackson & Steeple Ltd. (1974) 2 All ER 625. The defendant also relied on The Prudential Enterprise Ltd. v. Yu Kwai Chi in its attempt by stay to preserve the status quo.

33. In reply Counsel for the plaintiff pointed out that in The Prudential Enterprise Ltd. v. Yu Kwai Chi the position was quite different, because an offence was only committed after a party had failed within the time limited by notice, to comply with the requirements of the appropriate lawful authority. In the present case, notice was not a pre-condition, to the creation of an offence under the Food Business (Urban Council) By-laws. The offence was committed immediately upon a defendant, carry on a food business without a restaurant licence. It was also submitted that Wilson v. Church (No. 2) did not assist the defendant, for apart from the principle cited by the defendant only applying to ordinary cases, the Court of Appeal had gone on expressly to hold, that a stay will be refused if the appeal appears not to be bona fide.

34. I have laboriously gone through the chronology of the procedural steps taken in this action, because they form an essential part of the relevant background facts. In my view it is material only to go back to the consent order of 5th November 1987. Whatever indulgences the plaintiff and its predecessors in title had given to the defendant until that time, it is clear from the express terms of paragraph 2(iv) of the order, that henceforth the defendant was liable to comply with the provisions of the tenancy agreement. The only concessions were those appearing elsewhere in the order, which included the extension of 2 months to obtain the restaurant licence.

35. The plaintiff's insistence thereafter that those terms be complied with, is evidenced by its solicitors letters of 26th February and 3rd March 1988, the issue of a writ for possession on 14th March 1988 and the plaintiff's consistent stance since then, seeking to recover possession on the grounds of the defendant's continued default. I do not find the affirmation of the plaintiff's Mr. Edmund Wong inconsistent with that stance, for its limited reference to arrears of rent, clearly resulted from those arrears being a new factor which had to be dealt with, during the continued default of the defendant carrying on business unlawfully without a restaurant licence.

36. As to the authorities cited I hold that The Prudential Enterprise Ltd. v. Yu Kwai Chi is properly distinguisable on the ground advanced by Counsel for the plaintiff. The first principle contained in the judgments of the Court of Appeal in Wilson v. Church (No. 2) is applicable to ordinary cases and where there is no question of lack of bona fides. But this is not an ordinary case and on the instant facts that authority supports the plaintiff rather than the defendant.

37. In Schofield v. Church Army the respondent a former Church hostel warden having recovered £8,370 for unfair dismissal, issued garnishee proceedings which resulted in £7,461.67 being payed into the County Court. Meanwhile the Church Army commenced a High Court action against him alleging theft of 32 sums totalling $8,986. The Court of Appeal held that there were sufficiently serious issues to be tried in the action to justify a stay of payment out. Those facts are quite different to the instant position. In addition, the evidence before this Court, in relation to the strength of the defendant's case in the other action, does not satisfy me that there are serious issues to be tried.

38. I also find Northern Counties Securities Ltd. v. Jackson & Steeple Ltd. of no assistance for in that case it was the official lawful requirement of a third party, namely the London Stock Exchange, that the consent of the shareholders in general meeting be obtained. Here there is no such requirement. So long as the defendant carries on the restaurant business without a licence it is unlawful and in breach of the tenancy agreement. The forfeiture proceedings culminating in the present writ of possession are based on that breach. The defendant has always had the power to remedy its default by ceasing its restaurant business. There is no evidence before this Court that the directors were not empowered to make that decision. In any event the plaintiff is not concerned with the internal management of the defendant or whether the directors preferred to obtain a resolution from the shareholders in general meeting. The directors, if they preferred that course, could have convened a meeting of shareholders for that purpose several months ago. If the defendant really wished to comply with the tenancy agreement it could have ceased the restaurant business forthwith after the plaintiff's first demand.

39. The whole catalogue of events, highlighted by the various chronologies tendered to the Court or exhibited to affirmations, demonstrates that after defaulting under the consent order of 5th November 1987, the defendant has consistently used the interlocutory and other procedures of this Court for delay. The defendant has deliberately frustrated the plaintiff enforcing the judgment and consent orders. Judgment by consent is clearly binding until set aside and acts as an estoppel. At a very late stage, during the plaintiff's enforcement proceedings, the defendant has commenced an action to set the consent order aside. Some of even the defendant's own affirmations, do not support the cause of action pleaded.

40. I am satisfied that the defendant's appeal like the new action, has been launched merely as another step in its strategy to delay enforcement of the judgment in the hope that in the meantime it obtains a restaurant licence. One indication of the defendant's persistence in invoking this Court's assistance to achieve further delay, is that the defendant did not file undertakings within the time limited by the Master. Instead of taking advantage of that indulgence the defendant adopted a more time consuming procedure of filing at the last moment yet another summons for time to be extended. The time has come, at least for this Court, to declare that it will not assist the defendant to achieve any further delay. The time has at last come for the plaintiff to be able to enforce the writ of possession issued in its favour as long ago as 14th March 1988. The plaintiff's appeal is upheld. There will be an order nisi pursuant to Order 42 Rule 5B(6) that the defendant will pay the plaintiff's costs both before the Master and on this appeal, to be taxed if not agreed; the order to become absolute if no application to the contrary is made within 14 days. Liberty to apply is reserved on any other consequential matters.