VIRTYRE LTD v. CENTURY GROUP LTD

HCA3235/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3235 OF 2003

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J U D G M E N T

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1. The plaintiff is the landlord and the defendant the tenant of premises in Wyndham Street. The tenancy started in 1996. There were, apparently, substantial arrears of rent, and on 24 May 2002 the parties executed a Deed of Surrender under which the defendant covenanted to pay the plaintiff by instalments a sum of $3,858,697.77, and a new lease for a period of five years from 1 January 2002. The plaintiff in its Statement of Claim avers that under the provisions of the Deed, if the defendant should fail to pay any instalment the whole sum would become due, and that the defendant has failed to pay any of the instalments. It further avers that the defendant failed to pay rent of $725,000.00 up to 31 August 2003. It now claims payment of the sum due under the Deed, the outstanding rent, vacant possession and mesne profits of $165,000.00 per month until vacant possession is delivered up.

2. On 30 September 2003 the plaintiff issued two summonses, one for judgment under Order 14 of the Rules of the High Court and the other for an interim payment under Order 29, rule 12(b). The Order 14 summons is for hearing in February 2004. The Order 29 Summons came before Mr Registrar Chan on 20 October 2003, and he dismissed it. Against that dismissal the plaintiff appeals, and now seeks an interim payment of $915,380.44 in respect of the period of occupation from 1 May to 30 November 2003, and a further order for interim payments of $165,000.00 per month in respect of continuing occupation of the premises thereafter.

3. For the purposes of Order 29, rule 12(b) the court must be satisfied :

"(b) that the plaintiff's action includes a claim for possession of land and, if the action proceeded to trial, the defendant would be held liable to pay to the plaintiff a sum of money in respect of the defendant's use and occupation of the land during the pendency of the action, even if a final judgment or order were given or made in favour of the defendant."

4. The defendant claims that the terms of the lease have been varied by a series of correspondence and telephone conversations between the defendant's managing director, Mr Hattu and the plaintiff's agent, Ms Lam, and by the acceptance by the agent of three cheques for the total amount of $150,000.00 which he told the agent were delivered pursuant to the defendant's latest letter; in other words acceptance by conduct. Part of the agreement included the vacation by the defendant of the 2nd floor of the premises and this was under way when the plaintiff sued; prematurely according to the defendant. The defendant further says by accepting the cheques, as well as later cheques, the plaintiff is estopped from pursuing the claim.

5. The plaintiff says that the alleged agreement was never completed; it never got beyond the stage of counter-offers. In any event, even if it be found that there was some agreement or some conduct which gives rise to estoppel that did not and could not cover rent for the period to the end of September 2003. So whatever the outcome the defendant will ultimately be held liable for this.

6. Mr Registrar Chan in giving reasons for the dismissal of the application apparently stated that he believed that if an interim order was made, it would jeopardise the Order 14 application. Counsel for the defendant argues that although this is a re-hearing I may and should follow this reasoning. He says that it is impossible for the court to be satisfied on the one hand that a plaintiff will succeed at trial and on the other that the defendant has an arguable defence sufficient to warrant unconditional leave to defend. He relies on British Commonwealth Holdings plc v. Quadrex Holdings Inc. [1989] QB 842, CA. In that case the Court of Appeal in England held that it was an impossible concept that the same court could be satisfied that the defendant would succeed at trial and at the same time consider that the defendant had an arguable defence and that it was impossible to make an order for interim payment where unconditional leave had been given although such an order might be made where conditional leave was given. Counsel further argues that it would be undesirable to risk a situation where, on the one hand, I find that the defendant would succeed at trial but on the other the Master or Judge hearing the Order 14 application grants unconditional leave to defend.

7. In British Commonwealth Holdings plc the Court of Appeal declined to follow Ricci Burns Ltd v. Toole [1989] 3 All ER 478, C.A. in which the court had held that although a reasonable doubt as to the possibility of success of the defendant on some issue had to preclude summary judgment against him it was still open to the court to decide on the same evidence that, for the purposes of an order for interim payment it was satisfied that the plaintiff would succeed.

8. The plaintiff's solicitor says that an order for interim payment would not affect the Order 14 proceedings and refers to Rule 15 which provides for non-disclosure, as follows :

"15. The fact that an order has been made under rule 11 or 12 shall not be pleaded and, unless the defendant consents or the Court so directs, no communication of that fact or of the fact that an interim payment has been made, whether voluntarily or pursuant to an order, shall be made to the Court at the trial, or hearing, of any question or issue as to liability or damages until all questions of liability and amount have been determined."

9. The commentary in the Hong Kong Civil Procedure 2002 at 2915/1 indicates that an order for interim payment is placed by Rule 15 in the same position as a payment into court under Order 22, rule 7. However at 22/2/7 the learned authors write :

"The rule has no application to interlocutory proceedings in the course of which it is often both necessary and desirable that the court should know of a payment into court (Williams v Boag (1941) 57 TLR 70 per Goddard LJ at 71)."

10. It is in fact my understanding that if an order for interim payment is made it will not be regarded as non-disclosable in later interlocutory proceedings. So it will be available to be seen by the Master or Judge who hears the Order 14 application.

11. I am not now hearing the Order 14 application so I am not required to come to contradictory conclusions. What is required is that I be satisfied after consideration of the evidence that the defendant would at trial be held liable to pay to the plaintiff a sum of money in respect of its use and occupation. If it appears on the evidence that there is a triable issue in respect of any head of claim, such that unconditional leave would be given on Order 14, then it may be that I cannot be so satisfied. However given the conflict in the authorities I do not see that I am bound to say that because someone else may take the view there is an issue which is fit to go to trial, I cannot be satisfied that, on the trial of that issue, the defendant will probably be found liable. I think the two concepts are different. What I am to do here is to make an estimate of what is likely to happen at trial, rather than whether there should be a trial at all.

12. The relevant correspondence begins on 14 April 2003 when Mr Hattu wrote to Ms Lam expressing the hope that the defendant would be able to start paying its outstanding debts by the following winter, but pleading poverty because of the SARS crisis and asking for the rent to be reduced to $140,000.00 per month. On 9 May 2002, following further meetings and a letter dated 14 April Ms Lam put forward the plaintiff's offer that the defendant should surrender the second floor by 30 June, vacate the third floor podium by that date, and thereafter pay $135,000.00 per month.

13. Then on 30 May Mr Hattu put forward a different set of proposals regarding the vacation of parts of the premises and rent at $100,000.00 per month commencing from the beginning of 2003. On 12 June the plaintiff raised the question of outstanding debts, asking for early settlement of basic rent amounting to $575,000.00. On 20 June Mr Hattu made a proposal for payments towards the outstanding debts but did not mention the rent.

14. On 30 June Ms Lam put forward a proposal that the defendant surrender the 2nd floor by 31 August 2003; that it may lease a vacant unit in the building for $14.00 per square foot; that the basic rent for the ground and first floors be $106,000.00 from 1 September and that monthly repayment of outstanding debts from 1 September be $40,000.00 or 5% of turnover whichever was the greater.

15. On 9 July Mr Hattu agreed to surrender the 2nd floor as requested; proposed rent for Unit 1901 at $12.00 per square foot with a rent free period; accepted the offer of the new rent from 1 September but then went on to request that the rent be adjusted retrospectively from 1 January 2003 to 15% of turnover with a return of deposit; and, subject to the above, agreed to the proposal in respect of the outstanding debt. There was no mention of arrears of rent.

16. In his first affirmation dated 15 October 2003 Mr Hattu refers to the correspondence of 30 June and 9 July. He says that he believes that by virtue of these letters the plaintiff has waived its rights to sue on the "old arrears", i.e. what is due under the Deed, or any other arrears incurred before the date of his acceptance letter, i.e. 9 July. He says that the defendant performed the varied lease and varied Deed by paying in accordance with the 3rd and 4th paragraphs of that letter.

17. Then in a 2nd affirmation dated 3 November 2003 Mr Hattu says that what he really meant by the 4th proposal in his letter of 9 July was not that the "old arrears" be paid, but that the "outstanding debt" be paid at the proposed rate. He then goes on at paragraph 11 to say that on 23 August he told Ms Lam that he was going to send three post-dated cheques to a total of $150,000.00 "being the payment of the new rental for September for the remaining premises and part repayment of outstanding debt as per offer (d)." Although the plaintiff had given evidence (in Xu Minlou's first affirmation) that these payments were made and applied in partial settlement of arrears of rent, this was not true and the plaintiff had misappropriated the payments.

18. At best, on the correspondence, the defendant agreed a new figure for rent from 1 September, made a counter-proposal for a retrospective reduction of rent and agreed a figure for repayment of what was due under the Deed. As far as I can see, although Mr Hattu does not say so explicitly, he seems by his second affirmation to be trying to include the outstanding rent arrears with the arrears under the Deed. That cannot be accepted, given his deposition under oath in the beginning that what he meant was the "old arrears". He is not talking about a meeting or a telephone conversation where there might be a dispute as to what was said; he is referring to correspondence and contradicting himself. If I were applying the Order 14 standard I would find that this is simply believable.

19. As I have indicated, I am not applying that standard. Another court may on applying it come to a different conclusion. I am deciding whether at trial, even if this evidence is given, the court is likely to find the defendant liable to pay the plaintiff a sum of money in respect of the for the period in which rent was unpaid and on the evidence before me I am satisfied that it is.

20. It may be that, if I were hearing the Order 14 application, I would find that there is a triable issue as to whether there is a new agreement for rent and repayment of arrears under the Deed, with effect from 1 September 2003, effected partly by correspondence and partly by conduct. Again, I am not applying the Order 14 standard, and I leave whoever has to do that to reach his own conclusion. On the defendant's own evidence, however, it has agreed to pay basic rent of $106,000.00 per month for the ground and first floors with effect from 1 September 2003, and it has been doing so. I do not see how it can be said that the trial court is not likely find the defendant liable for at least this sum for its use and occupation of those parts of the premises from that date onwards.

21. It follows that the plaintiff should make an interim payment of $725,000.00 in respect of the period up to 31 August 2003, plus $106,000.00 per month for the period from 1 September to 30 November 2003, minus the payments made, as per Ms Lam's affirmation, of $304,619.56. The total is $738,380.44. It should thereafter pay $106,000.00 per month for the ground and first floors.

22. The appeal is allowed. The order of the Registrar is set aside. In substitution the following orders are made :

(a)	The defendant do within 14 days from the date of the Order, pay to the plaintiff the sum of $632,380.44 on account of its use and occupation of the premises from 1 May to 30 November 2003; and
(b)	The defendant do, on the 14th day of each calendar month, pay to the plaintiff the sum of $106,000.00 in respect of its use and occupation of the ground and first floors of the premises since 1 December 2003 until further order, the first payment to be made on 14 December 2003.

23. The plaintiff has succeeded in overturning the dismissal of its original application, even if it has not succeeded in getting quite what it sought, so it is proper that it have the costs in their entirety and therefore I order that the costs (nisi) of the appeal and before the Registrar be paid by the defendant in any event.