CHUE WAI SEEN AND ANOTHER v. WONG CHUI LING

HCA236/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.236 OF 2002

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REASONS FOR DECISION

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Introduction

1. This dispute arose out of a Chinese tenancy agreement dated 24 October 1997 made between the plaintiffs (through their attorney, Ms Cheung Heung Wan ("Ms Cheung")) as landlord and the defendant as tenant at the monthly rent of HK$28,000 for a term of five years commencing on 1 December 1997 ("the Agreement"). The subject property described in the Agreement was Ground Floor (Shop No.3), No.1D, Nanking Street, Kowloon. At the time of the Agreement, the property was divided into three shops : the left, middle and right shop ("the Left, Middle and Right Shop" respectively). The Middle Shop was the largest among the three. Both the Left and Right Shops were then occupied by other tenants. Despite the description in the Agreement, the defendant went into occupation of the Middle Shop only and had been operating a herbal tea house called "Robert Tom" there. She had failed to pay rent since 1 July 2001.

2. On 21 January 2002, the plaintiffs commenced the present proceedings against the defendant for recovery of vacant possession of the Middle Shop. It is their pleaded case that the subject matter of the Agreement was the Middle Shop. The defendant denied liability and alleged in her defence and counterclaim that the subject matter was the entire property, that the plaintiffs had in breach of the Agreement failed to deliver vacant possession of the Left and Right Shops, and that she had suffered loss and damage as a result. She counterclaimed for, inter alia, a declaration that the Agreement was still binding on the parties, a delivery of vacant possession of the Left and Right Shops and damages including loss of profit totalling more than HK$3,000,000.

Order 14 application

3. By a summons dated 25 February 2002, the plaintiffs applied for summary judgment. On 15 May 2002, the master granted summary judgment in favour of the plaintiffs ordering the defendant to deliver vacant possession of the Middle Shop, pay to the plaintiffs a sum of HK$277,200 being arrears of rent for the period from 1 July 2001 to 31 May 2002 and mesne profits from 1 June 2002 at the rate of HK$25,200 per month until delivery of possession with costs of the action including the costs of the application for summary judgment to the plaintiffs.

Appeal

4. Dissatisfied, the defendant appealed. The appeal first came before me on 12 July 2002 whereupon Mr Wong, solicitor for the plaintiffs, applied for an adjournment so that the statement of claim could be amended to include a plea of rectification of the Agreement to include "the Middle Shop" in the description. I allowed the application and adjourned the appeal with costs to the defendant. By consent, the statement of claim and the Order 14 summons were subsequently amended on 27 August 2002. The defence and counterclaim was also amended on 29 August 2002. The appeal eventually came back before me again on 12 and 17 September 2002.

5. After hearing counsel, I allowed the appeal, set aside the master's order with costs to the defendant to be taxed if not agreed. But I entered summary judgment in favour of the plaintiffs on the amended statement claim for rectification of the Agreement, vacant possession of the Middle Shop subject to section 21F of the High Court Ordinance, Cap.4 ("the Ordinance"), arrears of rent of HK$151,200 for the period from 1 July to 31 December 2001, and thereafter mesne profit at the rate to be assessed until delivery of vacant possession with costs to the plaintiffs to be taxed if not agreed. These are the reasons of my decision.

Approach on evidence

6. Before going into the evidence, in light of the submissions of Mr Wong, counsel for the plaintiffs, I would like to preface my discussion with one preliminary point on how to approach the evidence in an Order 14 application. It is derived mainly from the useful summary in paragraph 14/4/9, Hong Kong Civil Procedure, Vol.1 at pp.154-155. (Mr Wong had cited a number of cases in this regard. I do not propose to set them out here. For the principles that Mr Wong sought to deduce from the authorities are well established and can be conveniently found in the aforesaid summary.)

7. The test in an application for summary judgment is well settled. The defendant must show that there are triable issues. He has to satisfy the court that he has a real or bona fide defence. It will be sufficient if his assertions are believable. However, a bare allegation that he is not liable is not sufficient. The court is entitled to test the credibility of his allegation against all the evidence before the court, including the context in which the allegation was raised, contemporaneous documents and the parties' relevant conduct. The court may also in appropriate circumstances draw inferences from primary facts which are either undisputed or beyond reasonable dispute. However, the court must refrain from embarking a mini-trial on affidavits. It must also be careful before it deprives the defendant of the opportunity to have his evidence tested at trial. This is how I approach the evidence before me.

Middle Shop or the entire property?

8. The crux of the appeal lies in what the proper subject matter of the tenancy is. (Although the defendant had raised other matters in the pleadings like failure to repair and drainage problems, her counsel, Mr Ma, did not in substance seek to rely on them for present purposes.) The defendant relied on the express term of the Agreement whereas the plaintiffs asserted that the parties all along intended it to be the Middle Shop only and it was a mistake to have omitted the reference in the description in the Agreement. In the circumstances, it is necessary to examine all the circumstances including the parties' conduct closely to ascertain what the parties' real intention was. Having done so, I come to the conclusion that the defendant's case is not believable. I will explain why below.

9. At the time of the Agreement, the tenancy for the Left Shop was to expire on 31 December 1997. But the plaintiffs had just entered into a two years tenancy for the Right Shop on 1 July 1997. If the defendant's allegation were true, in order to fulfil the obligation to deliver these shops, the plaintiffs must cause the tenancy for the Right Shop to be terminated well before its expiry. On the evidence before me, there is no indication that it the plaintiffs could certainly achieve this. It defies commercial sense for the plaintiffs to commit themselves when the risk of not being able to terminate the tenancy for the Right Shop must be considerable and apparent. Further, the Agreement was silent on the plaintiffs' obligation to deliver vacant possession of these shops in early January 1998. The defendant saw fit to insert or cause to be inserted in the Agreement (which was a standard form Chinese contract) by handwriting a break clause enabling the defendant to terminate the tenancy by giving two months notice. In other words, she was obviously able to protect her own interest. Given the importance to have vacant possession of these two shops, the fact that the other two shops were then occupied by other tenants, and her intention to operate a restaurant at the entire property as opposed to a herbal tea house at the Middle Shop, it is incredible that the defendant would have failed to include a term requiring the plaintiffs to deliver the other two shops in early January 1998.

10. It is the defendant's allegation that renovation work for a restaurant began in November 1997. In December 1997 when the renovation work was on the way, Ms Cheung told her that the other shops could not be delivered in early January 1998. She had to modify the renovation as a result. She had however failed to adduce any documentary evidence or evidence from the contractor to support the alleged change in renovation plan. In January 1998, she commenced the herbal tea house business after completion of renovation work. At the same time, the plaintiffs began to issue rental receipts to her stating therein that the subject of the tenancy was the Middle Shop. It is the defendant's allegation that she made various oral complaints to Ms Cheung in the first few months of 1998 about the plaintiffs' failure to deliver vacant possession of the other two shops. But in April 1998, she stopped doing so. Her explanation is that she was afraid that if she continued to do so, her relationship with the plaintiffs might turn sour and they might evict her. She was also concerned about the legal costs that might be involved. In June 1998, she obtained the permit to operate the herbal tea house.

11. The defendant's version in my view does not bear scrutiny. If she were right, it was the plaintiffs who committed a serious breach of the Agreement. She had been deprived of a substantial portion of the property. That was not the original bargain. There is simply no reason for her to feel intimidated. On the contrary, she had every reason to be vocal and made strong demand to the plaintiffs to put the matter right. She must have made considerable investment in her business. In April 1998, it was then still the early stage of the tenancy. But there was already every indication that the plaintiffs would not honour their obligation. She could have either exercised the break clause or taken legal action. She did neither. Further, despite the plaintiffs' persistent and flagrant breach throughout the substantial term of the tenancy, she had not taken any effective step to protect her interest at all. She kept on running the herbal tea house and paying rent to the plaintiffs without any complaint or protest (at least since April 1998 on her case) faithfully until 1 July 2001. The plaintiffs continued to issue rental receipts covering the Middle Shop only. In January 1999, the rent was reduced to HK$25,200 at her request. She had not taken the opportunity to raise complaint at this juncture either.

12. Since 1 July 2001, the defendant defaulted in paying rent. By a letter dated 13 December 2001, the plaintiffs, through their solicitors, demanded repayment of rent and terminated the tenancy. In response to this demand letter, the defendant wrote a letter dated 18 January 2001 to the plaintiffs ("the Letter"), admitting the non-payment of rent, asking for indulgence and a further reduction of rent. She did not mention anything about the flagrant breach on the part of the plaintiffs. Instead, she made a clear admission of liability. The defendant explained that she was told by Ms Cheung to write the Letter is such a way. She was told that the tenant of the Left Shop had written similar letter to the plaintiffs and was given a reduction of rent. This the plaintiffs denied. Again, I find the defendant's explanation difficult to accept. The plaintiffs' persistent breach throughout the substantial term of the tenancy had caused her considerable loss and damage. According to her counterclaim, the loss of profit alone exceeded HK$3,000,000. She should not have asked for a reduction of rent. On the contrary, she should have pointed out the plaintiffs' breach and demanded for compensation. The defendants sought to rely on the affirmation of the tenant for the Left Shop in this respect. But I do not think his evidence added any weight to her case. The Letter was simply not written in the manner as alleged. As I had already rejected the defendant's evidence in this respect, I do not propose to deal with the tenant's affirmation any further.

13. The defendant also alleged that the rent of HK$28,000 is for the entire property. But as rightly observed by Mr Wong, this assertion rested on no solid basis. There is no evidence to show a fall of the rent at the time of the Agreement was entered.

14. Having considered all the evidence before me, I am of the view that the defendant's purported defence is inconsistent with all the circumstances and in particular, her own conduct. It is devoid of any credibility. It is simply not believable. I am satisfied that the parties had all along agreed to let out the Middle Shop only. It was just a mistake to have omitted the reference in the description in the Agreement.

Demand

15. Mr Ma lastly complained that the plaintiffs had failed to make any formal demand for rent. The action for recovery possession could not be maintained. Mr Wong readily accepted that the letter of the plaintiffs' solicitors dated 13 December 2001 was not a formal demand for rent as such. But he relied on section 21G of the Ordinance, which reads :

"In a case where section 21F has effect, if

(a) One-half-year's rent is in arrear at the time of the commencement of the action;

(b) the lessor has a right of re-entry for non-payment of that rent; and

(c) no sufficient distress is to be found on the premises countervailing the arrears then due,

the service of the writ in the action in the prescribed manner shall stand in lieu of a demand and re-entry."

16. Mr Wong submitted that there was clearly insufficient distress in the Middle Shop to satisfy the arrears of rent. Mr Ma disagreed.

17. In my view, a reasonable and prima facie inference that can be drawn from the undisputed facts is that there is insufficient distress. The defendant had admitted in the Letter that her business was bad, the fixture and fittings belonged to the contractor, being subject to instalment payment not fully discharged. She had not been paying rent for six months at the time of the Letter and asked for a reduction of rent. In these circumstances, if the defendant seeks to argue that there is sufficient distress, the burden rests upon her to adduce evidence in support. But she had failed to do so. In the absence of any evidence to rebut the prima facie inference, I am of the view that section 21G bites and the plaintiffs are entitled to rely on it.

Conclusion

18. For the above reasons, I am satisfied that the plaintiffs had demonstrated a cogent case for rectification and that the defendant had failed to discharge the burden imposed on her to raise an arguable defence.

19. Mr Wong conceded that in the absence of rectification of the Agreement to describe accurately its subject matter, summary judgment could not have been entered. I agree. It is trite that summary judgment can only be entered on the pleaded case. Without a proper amendment to the statement of claim, the master erred in entering summary judgment on it. I would also point out that on the plaintiffs' case, the tenancy had come to an end by December 2001. The master could not in such circumstances enter summary judgment for arrears of rent from 1 July 2001 up to 31 May 2002. Further, mesne profit, as rightly conceded by Mr Wong, has to be assessed. It is also for these additional reasons that the master's order could not stand. Accordingly, I allowed the appeal and set aside the master's order with costs to the defendant.

20. However, as I have ruled above, the defendant has no credible defence to the plaintiffs' claim as pleaded in the amended statement of claim, I therefore entered summary judgment as indicated in paragraph 5 above with costs to the plaintiffs.