NEW JET HARBOUR LTD v. YUEH HSI H K TRANSPORTATION CO LTD

CACV 312/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 312 OF 2004

(ON APPEAL FROM HCA NO. 4730 oF 2003)

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J U D G M E N T

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Hon Woo VP:

Introduction

1. This is an appeal against the order of Yam J dated 3 September 2004 which affirmed Master Lung’s order dated 28 May 2004 whereby it was ordered that interim payment of mesne profits at the rate of $120,323.20 per month for a period of six months from 1 December 2003 to 31 May 2004 and further monthly interim payments of mesne profits at the same rate as from 1 June 2004 were to be made by the defendant into court in an interest bearing account.  

2. The only complaint against the order appealed from is that the judge refused to order the interim payments to be made to the plaintiff or to be paid out to the plaintiff.

Background

3. The issues regarding mesne profits are not set out in the pleadings.  The claim as pleaded is merely for possession of land.

4. It is pleaded in the Statement of Claim and admitted in the Defence that at all material times the plaintiff was, and still is, the tenant of five lots of land known as Lots Nos 674RP, 733RP, 741RP, 742RP and 744RP, all in Demarcation District No. 99, Yuen Long, New Territories comprising an area of 75,202 square feet (“the suit premises”) as set out in the tenancy agreement in writing in Chinese dated 16 September 2003 made between the plaintiff as the landlord and the defendant as the tenant (“the tenancy agreement”).

5. The claim by the plaintiff against the defendant is that the defendant was using the suit premises in breach of the express condition in the tenancy agreement that the defendant should use the suit premises for the lawful purpose of parking only container trucks.  It is alleged that the defendant has since about November 2003 used the suit premises or caused, permitted or allowed the suit premises to be used as a public car park for the parking of motorcars at a fee.  Despite the plaintiff’s warnings (which are admitted by the defendant), the defendant has continued to use the suit premises as aforesaid, whereby evincing an intention no longer to be bound by the tenancy agreement and has wrongfully repudiated the same.  The plaintiff by the service of the writ accepted the repudiation and claims possession of the suit premises from the defendant.

6. In its Defence, the defendant has admitted the existence of the tenancy agreement.  The only positive case that the defendant has pleaded is that it had been in occupation of the suit premises under a former tenancy agreement entered into between the defendant as tenant and the plaintiff’s predecessor Jet Harbour Limited dated 21 August 1999 and had since been using the suit premises for the parking of container trucks and private vehicles as well as an open warehouse.

7. No defence of set-off or counterclaim has been made. 

8. In opposition to the plaintiff’s application for interim payments pursuant to O 29, r 12(b) of the Rules of the High Court, the defendant has raised several issues.  Indeed, before the judge, the defendant cross-appealed against Master Lung’s order, contending that it should not have been ordered to make interim payments into court. 

The judgment

9. After hearing the parties on the appeal and cross-appeal against Master Lung’s order, on 3 September 2004, the judge gave a short judgment, dismissing the plaintiff’s appeal and the defendant’s cross-appeal.  The judge said:

“	In my view, I think the Master is right.  The court is dealing with an interim measure and it is not the time to decide on those points raised by the parties: who is right and who is wrong and these are the several issues to be tried:
	(1)	whether the subject matter, the five lots, included government land of 6,141 square feet;
	(2)	whether clause 1 and clause 13 of the tenancy agreement together constituted a warranty by the plaintiff that the defendant can use the land lawfully as a container truck parking and open storage; and
	(3)	whether it is the plaintiff’s duty to ensure that the necessary permission should be obtained from the Lands Office.
	The amount of damages due to which party could not be ascertained or decided at this stage.  The continued use of the land will attract payment of mesne profit but that should be paid into court at this stage instead of to the plaintiff.  The amounts should be the monthly rental used to be paid by the tenants.		”

The plaintiff’s case

10. On behalf of the plaintiff, Mr Chong puts the plaintiff’s case that the interim payments should be paid to it on the following bases:

(a)	The defendant has admitted the tenancy agreement and that it was the tenant of the plaintiff.
(b)	The plaintiff’s claim against the defendant is for recovery of possession of the suit premises for the defendant’s breach of the user condition.  While the defendant has denied that the use it made of the suit premises was in breach of condition, it has refused to give up possession and has remained in occupation since the service of the writ.  Mr Chong submits that there is no reason why the defendant should not be ordered to pay for the use and enjoyment of the suit premises in the interim pending trial of the action.
(c)	None of the three issues mentioned by the judge should amount to any obstacle for him to consider whether the interim payments should be made to the plaintiff.
(d)	On the allegation that the suit premises included government land of 6,141 square feet, which forms about 8 per cent of the total area of the suit premises (issue (1) mentioned by the judge), it is argued that the defendant is estopped from challenging the plaintiff’s title to let.
(e)	As regards issues (2) and (3) mentioned by the judge, on behalf of the plaintiff, Mr Chong relies on Hill v Harris [1965] 2 QB 601 CA for the principle that there is no implied covenant in a lease that the land let may be lawfully used for the purpose for which it is let.  Therefore, Mr Chong submits, issues (2) and (3) are not considerations or reasons for the judge not to order the interim payments to be paid to the plaintiff.
(f)	The defendant has not raised any claim for damages in the Defence and anyway it has not quantified any damages which would justify the judge to refuse to order the interim payments to be paid to the plaintiff.

The defendant’s case

11. On behalf of the defendant, Mr Chan relies on the three issues identified by the judge and other matters as justifying the judge’s refusal to order the interim payments to be made or paid out to the plaintiff.  Briefly, the defendant’s case is as follows.  Since the suit premises let by the plaintiff to the defendant includes government land, such letting is illegal and the plaintiff should not be allowed to get any benefit out of the illegal letting; the illegality affects the entirety of the suit premises.  The provisions of the tenancy agreement have given rise to or constitute a warranty by the plaintiff that the defendant can lawfully use the suit premises as a container truck parking ground and open storage.  Moreover, the defendant used to be a tenant to a company Jet Harbour Limited, which had let the suit premises or part of it to the defendant as a carpark (without limitation that it was only for container trucks).  Mr Chou, a common shareholder and director of that company and the plaintiff, had assured or misrepresented to the defendant that the tenancy agreement between the plaintiff and the defendant was a renewal of the former tenancy agreement and thus the user of the suit premises as a carpark was permissible.  It is the plaintiff’s duty to ensure that the necessary permission for such user be obtained from the Lands Office.  It is alleged that the owner of Lots Nos 741RP and 744RP, about one-fifth of the suit premises, had denied that it had let the lots to anyone (including the plaintiff), and the plaintiff is thus not entitled to benefit in respect of the lots.  It is further argued that the defendant would suffer damages due to its being liable to be evicted by the proper owner of the lots and/or the government.  It follows that the defendant has a strong and substantial claim or counterclaim for damages. 

12. The parties before us confirm that possession of the suit premises was delivered up by the defendant on 31 December 2004, but the cause or reason for that is subject to dispute.

My decision

13. Before going into the merits of the appeal, I remind myself that the Court of Appeal should not interfere with the exercise of a judge’s discretion unless it is shown that he exercised his discretion under a mistake of law, or under a misapprehension of facts, or that he took into account irrelevant matters.  See para 59/1/49 of Hong Kong Civil Procedure 2004.

14. Section 56 of the High Court Ordinance, Cap 4 provides:

“(1)      The power to make rules of court under section 54 shall include power to make provision for enabling the High Court in such circumstances as may be specified to make an order requiring a party to pending proceedings to make an interim payment of such amount as may be specified in the order, either by payment into court or (if the order so provides) by paying it to another party to the proceedings.”

15. O 29, r 12(b) provides as follows:

“	12.	Order for interim payment in respect of sums other than damages (O. 29, r. 12)
		If, on the hearing of an application under rule 10, the Court is satisfied –
		(a)	…
		(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; or
		(c)	…
		the Court may, if it thinks fit, and without prejudice to any contentions of the parties as to the nature or character of the sum to be paid by the defendant, order the defendant to make an interim payment of such amount as it thinks just, after taking into account any set-off, cross-claim or counterclaim on which the defendant may be entitled to rely.		”

16. When making an order for interim payment, the court has the discretion to order the money to be paid into court or to another party in the action.  O 29, r 13 provides:

“(1)     Subject to Order 80, rule 12 [which are irrelevant to this appeal] the amount of any interim payment ordered to be made shall be paid to the plaintiff unless the order provides for it to be paid into court, and where the amount is paid into court, the Court may, on the application of the plaintiff, order the whole or any part of it to be paid out to him at such time or times as the Court thinks fit.”

17. All the three issues referred to by the judge are not alluded to in the Defence, which has not raised any set-off, cross-claim or counterclaim.  The defendant had been remaining in occupation of the suit premises despite the plaintiff’s claim for recovery of possession.  It had been using and occupying the suit premises for its own purposes.  In this context, there is no question that it must pay for such use and occupation.  The defendant does not cross-appeal against the order requiring it to make the interim payments into court.

18. Mr Chong submits that the plaintiff had been deprived of the use and occupation of the suit premises.  As between the parties, the defendant had agreed by the tenancy agreement to pay the rent of $120,323.20 per month to the plaintiff, but it has not done so since December 2003.  It follows that this is a clear case where “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” eventually, squarely fitting the wording of O 29, r 12(b). 

19. Mr Chong further contends that the issues referred to by the judge and the other matters raised by the defendant are mere complaints that have so far not been reduced into any claim for quantified damages.  They have not even been raised as a set-off or a counterclaim in the Defence filed by the defendant.  Thus they were matters that should not properly have been taken into account by the judge in considering whether the interim payments should be paid to the plaintiff. 

20. In my view, however, as the Statement of Claim only seeks recovery of possession and damages for breach of the user condition, no complaint can be made that these issues now raised by the defendant are not included in the Defence in support of a set-off and as bases for a counterclaim.  I do not see any difficulty that they can be introduced by way of an amendment. 

21. There will be no more interim payments after 31 December 2004 under the order made by the judge as the defendant has since no longer been in occupation.  The plaintiff has now obtained possession of the suit premises, and the main purpose of the plaintiff in bringing this action has been fulfilled.  The plaintiff will need to amend to include a claim for rent or mesne profits, when the defendant will raise the issues against that claim or any set-off and counterclaim.

22. In my judgment, it would be proper for the court to take into account the possible claim for damages based on the issues or some of them.  Unless none of the issues as bases for supporting a claim for damages in the form of set off or counterclaim can be substantiated, it is proper for the court, as the judge did, to take them into account in exercising its discretion under O 29, rr 12(b) and 13 and indeed, it is incumbent on the court to do so.

23. Regarding the allegation that the suit premises included government land of 6,141 square feet, this may give rise to a contravention of sections 4 and 6 of the Land (Miscellaneous Provisions) Ordinance, Cap 28.  In Li Wing-sun v Wu Man alias Wu Shek-kwan, CACV 53 of 1978 (23 November 1978, unreported) and Fung Siu Kam and Ors v Lo Shun Cheung [1984] HKC 107, despite the admission by the parties of the relationship of landlord and tenant, the Court of Appeal held that the plaintiff’s claim for rent and mesne profits was bound to fail.  The reason was that that the Court was obliged to take notice of the illegality and the plaintiff could not benefit by an illegality to which he was a party.  The plaintiff was barred from obtaining for himself any benefit under such illegal contract. 

24. Nonetheless, Mr Chong contends that the alleged government land forms about only 8 per cent of the 75,202 square feet of land let under the tenancy agreement, and as such the illegality, even to be taken as having been established, should only relate to so much of the suit premises as comprising government land.  Mr Chong relies on the principle of substantial performance of the tenancy agreement on the part of the plaintiff, but he is not able to cite any authority in support.  He concedes that it is not unarguable that the illegality would affect the entirety of the suit premises.  Thus, it seems to me that the illegality issue is a matter that the court should, as the judge did, take into account and may even justify the refusal to order any portion of the interim payments to be paid out to the plaintiff.

25. Despite Mr Chong’s arguments that the damages to be claimed by the defendant are not quantified, he is not able to say that such damages may not be substantial.  The tenancy agreement was for a term ending on 29 June 2005, but the defendant had given up possession on 31 December 2004, about 6 months before the expiry of the term.  In the circumstances of this case, I do not agree with Mr Chong that the unquantified damages should not have been taken into account by the judge, nor am I persuaded that the claim for damages to be raised by the defendant is totally unsustainable.  The judge’s exercise of discretion to refuse to order the interim payments to be made to the plaintiff had materials in support and he has not been shown to have operated under a mistake of law or misapprehension of fact or to have taken into account irrelevant matters.  For my part, I do not feel it just or safe for the interim payments already paid into court to be released to the plaintiff.

Conclusion

26. For the above reasons, I would dismiss the appeal and make an order nisi that the plaintiff pay the costs of this appeal to the defendant. 

Hon Le Pichon JA:

27. I agree.