THE ONE PROPERTY LTD (FORMERLY KNOWN AS CHINESE ESTATES (THE ONE) LIMITED) v. STAR WIN ENTERPRISES LTD

DCDT 544/2022 & DCDT 541/2022
(Heard Together)

[2022] HKDC 662

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 544 OF 2022

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 541 OF 2022

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DECISION

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1.  There are two summonses taken out by the defendant on 19 April 2022 (“the Summonses”) seeking, inter alia, that the Warrants of Distress No. DCDT 541/2022 and DCDT 544/2022 (“the Warrants”) be suspended pending the outcome of two actions, namely, DCCJ 4810 of 2020 and HCA 1591 of 2021 (“the DCCJ and HCA Actions”).

Background

2.  At the relevant time, the plaintiff is the landlord and the defendant is the tenant in a lease agreement (“the Agreement”) for leasing of premises for a cinema complex (“the Premises”).

3.  Clause 8 of the Agreement states:

“Abatement of rent and service charges

If the Premises or any part thereof are rendered unusable unfit for occupation or inaccessible by closure order…by the Government…and such other events beyond the control of the [defendant]…the Rent and Service Charge(s) or a part thereof proportionate to the extent to which the Premises shall have been so rendered unusable or inaccessible shall abate and cease to be payable from the month following the happening of the events mentioned hereinabove until the Premises shall have been gain rendered fit for use and accessible…”

4.  Owing to the outbreak of the Covid-19 pandemic, the Hong Kong Government has ordered total or partial closure of all cinemas in Hong Kong including the Premises at different periods of time since 2020.

5.  Although there were various voluntary reductions of rent by the plaintiff at various periods of time and the defendant has made some payments of rents, the defendant’s case is the Government’s closure orders were within the ambit of Clause 8 which meant that there were overpayments because during certain months, there should be 50% or 100% abatements of rent and service charges.

6.  The defendant therefore initiated DCCJ 4810 of 2020 (on 9 September 2020) and HCA 1591 of 2021 (on 20 October 2021) to seek recovery of such overpayments from the plaintiff. These actions covered different periods of time for the alleged overpayments. These actions are on-going.

7.  The plaintiff’s case, on the other hand, was that such Government closure orders were not within the ambit of Clause 8 so there should be no abatement of rent and service charges.

8.  Thus, the crux of the dispute is the interpretation of Clause 8 (“the Dispute”).

9.  Due to the 5^th wave of Covid-19, the Government again ordered the total closure of cinemas at the beginning of 2022. The defendant did not pay the rent and the plaintiff took out the Warrants for rental arrears for the months of January 2022 (DCDT 544 / 2022) February 2022 (DCDT 541 / 2022).

Application of section 93(1)

10.  Mr. Kwan of Deacons, acting for the plaintiff, argued that it was premature for the defendant to take out the current application under section 93 of the Land and Tenant (Consolidation) Ordinance, Cap 7 (“LTO”) because the section 93(1) states that:

“The debtor…may, at any time within 5 days from such seizure, apply to the court to discharge or suspend the warrant or to release a restrained article…”

11.  Mr. Kwan argued that as there was no seizure of goods in this case, this was a pre-emptive and premature application.

12.  In Standard Chartered Bank v Grow Up Trading Ltd & Ors [1999] 3 HKC 539, the same argument was raised. The Court of Appeal stated at 536-537:

“The bank’s argument is that s 93(1) is only triggered once goods have been seized under the warrant, in which case the debtor has five days from the seizure to make the application. No goods were ever seized under these warrants, and s 93(1) had therefore not been triggered.

I cannot accept this argument. In my view, s 93(1) merely prevents an application for the discharge or suspension of a warrant from being made after five days have elapsed since the seizure. It does not prevent an application for discharge or suspension being made before the seizure. I do not regard that view as in any way inconsistent with the language of s 93(1). The words ‘at any time within 5 days from such seizure’ could be construed as meaning ‘at any time up to 5 days after any seizure of the property’ just as it can be construed as meaning ‘at any time during the 5 days immediately following the seizure of the property’.

This view also accords with common sense. I appreciate that someone other than the debtor who claims ‘to be the owner of any property seized under this Part’ can only apply for the discharge or suspension of the warrant after the property has been seized. But that does not apply to the debtor. Why would the legislature have wanted to require debtors — on those admittedly rare occasions when they happen to discover that warrants for distress have been issued against them and wish to have the warrants discharged or suspended — to wait until the goods have been seized and then to allow them only a few days to make their application to the court? In my opinion, the judge was entirely correct to reject the bank’s argument on this issue.

I should add that if s 93(1) is only triggered once goods have been seized under the warrant, and if Pt III of the Ordinance is intended to be a complete and comprehensive code governing distress for rent, there is a gap in the legislation. I think it unlikely that the legislature intended debtors to be without a remedy before goods have been seized under the warrant, and that suggests that there must be another route by which the court has power to discharge or suspend a warrant before it has been executed. However, that is not an issue which I need to address in view of my conclusion on the construction of s 93(1).”

13.  As such, I would not accept Mr. Kwan’s argument that this was a premature application.

The duty for full and frank disclosure

14.  Distraint for rent is a very efficient but draconian remedy provided by the statute to the landlord in the event the tenant fails to pay. It is an ex parte application for a summary process which is only appropriate when there cannot be any serious dispute as to the outstanding rent.

15.  In Suneasy Ltd T/A Taipan Management Co v Hirohito Hayashi [2012] HKCU 404, Acting Chief District Judge S. T Poon (as he then was), stated that:

“2. There is a serious dispute between the parties as to whether there has been outstanding rent and the amount of outstanding rent, if any.

…

18. It is all along the live issue between the parties as to the serious dispute in relation to the alleged outstanding rent…

19. So the dispute as to the subject rent had been there all along, and the purpose of distress proceedings was for a situation where there is little dispute as to outstanding rent…

20. If there is serious dispute, the proper course is to issue a writ for the issue to be resolved at trial and not summarily in the proceeding of distress…”

16.  The facts of the Suneasy case were different e.g. there was a dispute as to whether the tenancy agreement was forged. However, there has to be a general principle that if there is a bona fide and serious dispute regarding the outstanding rent, it is inappropriate for the matter to resolved summarily in the proceeding of distress.

17.  Indeed, the plaintiff must have been aware that there was a live issue between the parties at the time the Warrants were taken out on 24 February 2022: the Dispute was raised in DCCJ 4810 of 2020 on 9 September 2020 and again in HCA 1591 of 2021 on 20 October 2021.

18.  The principles concerning the duty of full and frank disclosure when making ex parte applications is trite. Deputy High Court Judge Marlene Ng (as she then was) in TYG Capital Fund (in liquidation) v Hilda Hor Yee Chan & Ors [2014] HKCU 2010) stated, under paragraph 39 of her decision:

“…Just to give a brief synopsis of the legal principles, to comply with the duty of full and frank disclosure, the applicant for the ex parte relief has to disclose all matters relevant to the "weighing operation" that the court has to consider in deciding whether or not to grant the ex parte relief, and also to identify matters of fact or law which could reasonably be raised by the defendant against the making of the order had he been present at the application provided that (a) the defence is one which can reasonably be expected to be raised in due course by the defendant or (b) the defence is not one which can be dismissed as without substance or importance…”

19.  In both ex parte applications for the Warrants, the supporting affirmations (both are the Affirmations of Chan Hoi Kei) simply stated, under paragraph 3:

“That the defendant…as Tenant is justly and truly indebted to the above named Plaintiff…”.

20.  There was no disclosure of the Dispute which might cast doubt as to whether the defendant was “justly and truly” indebted. The Dispute is clearly what “can reasonably be expected to be raised by the defendant” had it been present at the application.

21.  As such, under the circumstances, given the draconian nature of the remedy sought under the Warrants, the plaintiff has clearly failed to discharge its duty to make full and frank non-disclosure.

Other considerations

22.  In the Affidavit of Kwan To Pui (in opposition to these Summonses), the plaintiff also sought to argue that the defendant fully paid up the outstanding rent in at least 7 previous distraint actions under the Agreement (the “Previous Actions”) and claimed that, by its conduct, the defendant was “estopped” from exercising any right to withhold payment in the current actions.

23.  Mr. Chan of Messrs. Chan, Lau and Wai, acting for the defendant, explained that the defendant has in the past made similar applications to discharge the Previous Actions but the hearings were fixed months later (perhaps affected by closure of the courts during the pandemic). As such, when the bailiff executed the warrants, the defendant had no choice but to pay the rent allegedly due in order to prevent disruptions to its business.

24.  I find Mr. Chan’s explanation reasonable and cannot see, in any case, how the “doctrine of estoppel” is applicable in the circumstances.

25.  In any case, in his skeleton submission and during the hearing, Mr. Kwan appeared to have abandoned “estoppel” but instead argued that the Summonses were an abuse of process.

26.  Firstly, Mr. Kwan argued that the defendant had already sought injunctive reliefs in the HCA Action to restrain the plaintiff from pursuing any distrain action, and if granted, it would have the same effect as the current application. Further, the defendant could have applied for an interlocutory injunction and as such “should not be allowed in through the back door”, and it would not “serve the end of saving time, costs and valuable judicial resources.”

27.  However, I am of the view that given that the defendant is already claiming for injunctive relief in the HCA Action, it is arguably the plaintiff, and not the defendant, which “should not be allowed in through the back door”: the plaintiff is here attempting to bypass the Dispute by using ex-parte applications for the Warrants. In any case, this is clearly what “can reasonably be expected to be raised by the defendant” had he been present at the application and as such, should have been disclosed by the plaintiff.

28.  Secondly, the plaintiff argued that the defendant had an opportunity to raise similar objections in the Previous Actions so it is “unfair” that the defendant “be allowed to have two bites at the cherry” and as such, amounts to an abuse of process.

29.  I disagree.

30.  Each distraint action amounts to a separate action and circumstances may be different. The reasons why the defendant might choose to settle previous actions would be specific to the circumstances in those actions and should not be taken as some form of waiver of rights to dispute future actions.

31.  Thirdly, the plaintiff also argued that the DCCJ and HCA Actions are irrelevant because they do not concern with the period of rent that the Warrants are concerned with.

32.  I think the period of rent is not the point. As stated above, the significance of the DCCJ and HCA Actions was that these have put the plaintiff on notice that there were live issues as to a serious dispute in whether the defendant was justly and truly indebted under the circumstances, and it was the duty of the plaintiff to disclose such when making an ex parte application.

33.  Fourthly, Mr. Kwan argued that the DCCJ and HCA Actions were unmeritorious in that an identical clause has been construed in the plaintiff’s favour in the recent case The One Property Ltd. v Swatch Group (Hong Kong) Ltd [2022] 1 HKLRD 975.

34.  However, I note that the Swatch case concerned a tenant operating a retail shop selling watches and the Government never ordered the closure of retail shops during the Pandemic, but the Government did order the closure of cinemas, like the one operated by the defendant. Thus, the circumstances of the two cases are clearly very different.

35.  Lastly, Mr. Kwan mentioned that the defendant has failed to obtained a summary judgment (under Order 14 and Order 14A) in the DCCJ Action (the defendant in this action is the plaintiff in the DCCJ Action).

36.  I have perused the decision by Judge H. Au-Yeung and, in short, this only shows that the plaintiff (in the current case) has an arguable defence regarding, inter alia, the Dispute.

37.  One cannot read this decision as an indication that the defendant’s case is somehow unmeritorious. In fact, it shows that there is a serious dispute between the parties which remains a live issue.

38.  Indeed, if Judge Au-Yeung found that the Dispute could not be resolved by way of an inter-partes hearing under Order 14 and Order 14A application, it was entirely inappropriate and unfair for the plaintiff to attempt to resolve the same in its own favour summarily in an ex-parte distraint action, especially when the applications were made without the requisite full and frank disclosure of the Dispute.

Order

39.   Section 93(1) further provides that the court “may discharge or suspend the warrant or release the article, on such terms as it may think just.”

40.  Although the Summonses sought for suspension of the Warrants, during the hearing, the defendant asked for a discharge of the Warrants.

41.  However, having considered the circumstances of this case, in particular that there is a limitation of time for issue of warrant within 12 months of arrears of rent (Section 79 of the LTO), I think it just and appropriate that the Warrants should simply be suspended pending the outcome of the DCCJ and HCA Actions.

42.  I will therefore give the following orders:

a.  The Warrant of Distress No. DCDT 541 of 2021 filed by the plaintiff be suspended pending the outcome in (i) District Court Civil Action No. 4810 of 2010; and (ii) High Court Action No. HCA 1591 of 2021, wherein the defendant is the plaintiff and the plaintiff is the defendant in both actions;

b.  Execution of the Warrant of Distress No. DCDT 541 of 2021 be stayed;

c.  The Warrant of Distress No. DCDT 544 of 2021 filed by the plaintiff be suspended pending the outcome in (i) District Court Civil Action No. DCCJ 4810 of 2010; and (ii) High Court Action No. HCA 1591 of 2021, wherein the defendant is the plaintiff and the plaintiff is the defendant in both actions;

d.  Execution of the Warrant of Distress No. DCDT 544 of 2021 be stayed;

e.  Costs of and incidental to the Summonses be to the defendant. If there is no agreement as to costs, the defendant shall lodge and serve a summary bill of costs within 14 days of this Decision and the plaintiff shall lodge and serve a summary list of objections 14 days thereafter. The costs will then be assessed summarily on paper.