TAM ON KWAI AND OTHERS v. TANG HOI WO

HCA1802/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1802 OF 2006

----------------------

-----------------------

----------------------

J U D G M E N T

----------------------

1.  This is the plaintiffs’ application by way of separate summonses to enter summary judgment against the defendant and to strike out the defendant’s Counterclaim.  The action concerns disputes arising out of a lease entered into between the plaintiffs and the defendant in respect of two lots of land in Yuen Long, New Territories.

The background facts

2.  The plaintiffs sue in their capacity as the managers of Tang Kwong Yu (or U) Tong (“the Tong”).

3.  By a Block Crown Lease dated 24 January 1905, the Tong becomes the lessee of the land known as: (i) the Remaining Portion of Lot No.100 (“Lot No.100RP”) and (ii) the Remaining Portion of Lot No.104 (“Lot No.104RP”) in Demarcation District Lot No. 115.

4.  Lot No.104RP comprises two land parcels that are separated by a fence. In this action, the parties have referred to the land parcel to the north of the fence and that to the south of the fence as the Northern Portion and the Southern Portion respectively.

5.  The plaintiffs and the defendant had executed a lease dated 1 June 2004 (“the Lease”). The Second Schedule of the Lease described the land to be let as:

“ALL THOSE PORTIONS of All those pieces or parcels of ground situate lying and being at Yuen Long, New Territories, Hong Kong known and registered in the Yuen Long New Territories Land Registry as THE REMAINING PORTION of LOT NO.100 and THE REMAINING PORTION of LOT NO.104 both in DEMARCATION DISTRICT LOT NO.115 (which said portions include all open spaces fenced with barbed wire are shown and coloured Red on the Plans annexed hereto for identification purpose only) but exclude all structures erected thereon (“herein referred to as “the said premises”).”

6.  Two plans are annexed to the Lease. On the plan relating to Lot No.104RP, only the Northern Portion was coloured red. 

7.  As for the duration of the Lease and the rent payable, the Third Schedule of the Lease provides as follows:

“For the term of THREE YEARS commencing on the 1^st day of January, 2004 and ending on the 31^st day of December, 2006 yielding and paying therefore a monthly rent of DOLLARS TWENTY THOUSAND AND FIVE HUNDRED ONLY, Hong Kong Currency (HK$20,500.00) (exclusive of rates) payable monthly in advance on the 1^st day of each and every calendar year during the said term without any deduction whatsoever and the Tenant shall pay to the Landlord a total sum of $246,000.00 being the first year’s rent in advance for the period from 1^st January 2004 to 31^st December 2004 upon execution of this Lease (receipt whereof the landlord hereby acknowledges).”

8.  Clause 4.1 of the Lease provides that if the rent remains unpaid for 15 days after becoming payable, the plaintiffs may at any time thereafter re-enter upon the said premises and determine the Lease.

9.  It is common ground that upon the execution of the Lease on 1 June 2004, the defendant had paid to the plaintiffs: (i) $41,000 as rent deposit; and (ii) $246,000 as rent for 1 January to 31 December 2004.

10.  Under clause 10 of the Lease, the parties agreed that the defendant would not be provided with vacant possession. It would appear that, at the time, there were trespassers on the land let under the Lease and that it was contemplated that the defendant might take action to evict them. Hence, clause 11 provides:

“11.1    all losses and damages obtained by the Tenant against any trespassers of the said premises for any period of time falling within the said term shall belong to the Tenant absolutely for his own use and benefit;

11.2     all rights of the landlord (if any) against any trespassers of the said premises from 1^st January 2004 to the date hereof shall, if an insofar as may be necessary, be deemed to have been assigned by the Landlord to the Tenant,  

11.3     …, the Landlord shall at the request of the Tenant, join as a party in any proceedings commenced by the Tenant against any trespassers of the said premises …”.

11.  Clause 13 of the Lease gives the defendant an option to renew for another two years at the expiration of the three-year term on the same term and conditions (save and except the renewal clause). The relevant part of clause 13 reads:

“The Landlord will, at the written request of the Tenant made not more than six calendar months and not less than three calendar months before the expiration of the term hereby created Provided that the rent for the whole 3-year term has been fully paid, AND Provided that there shall not be at the time of such request and up to the expiration of the term hereby created any existing breach of the terms agreements or conditions on the part of the Tenant hereinbefore contained and Provided further that the Tenant shall have paid to the Landlord at the same time as such request a sufficient sum to make up a new rent deposit equivalent to 2 month’s new rent, grant to the Tenant a Lease for a further term of TWO YEARS on the same terms conditions and stipulations as herein contained (save and except this Clause for renewal) and at the same monthly rent of HK$20,500 (exclusive of rates) from 1^st January 2007. …”

The plaintiffs’ claim

12.  The plaintiffs issued the writ herein on 18 August 2006. The plaintiffs’ claim as appeared by the Statement of Claim is threefold.

13.  The first claim is for rectification of the Lease.  According to the plaintiffs, it is the Southern Portion that was agreed to be let to the defendant and the plan annexed to the Lease therefore contains a mistake. After they discovered the mistake in the plan in about September 2005, they had through their solicitors herein written to the defendant on 3 and 18 October 2005 requesting rectification of the Lease, but to no avail. Thus, the plaintiffs seek an order to substitute the plan annexed to the Lease with another plan that has the Southern Portion coloured red (i.e. the Rectified Plan annexed to the statement of Claim). The plaintiffs further seek possession of the Northern Portion.

14.  The second claim is in trespass. The plaintiffs’ case is that the defendant had wrongfully entered onto the Northern Portion, demolished the structures on it and converted the land into a parking lot to become an extension to the car park operated by the defendant on the Southern Portion. The plaintiffs therefore seek an injunction to restrain the defendant from trespassing upon the Northern Portion and damages for trespass.

15.  The plaintiff’s third claim is for an order of possession of the land let under the Lease on account of non-payment of rent. It is the plaintiffs’ case that the defendant has since 1 May 2005 failed to pay rent such that the plaintiffs are entitled to forfeit the Lease and re-enter upon the land under clause 4 of the Lease.

The Defence

16.  In respect of the claim for rectification, the defendant’s defence, as appeared by the Amended Defence and Counterclaim, is that the plaintiffs had agreed to let the entire Lot No.104RP to him, as reflected in the Second Schedule to the Lease.

17.  As for the claim in trespass, the defendant denies the allegations and contends that any act of conversion was done by the trespassers of Lot No.104RP before the defendant becomes a tenant of the land.

18.  In relation to the claim for non-payment of rent, the Amended Defence pleads a number of things:

(1)  In respect of the rent for the year 2004, that had been paid at the time of execution of the Lease.

(2)  Rent for 1 January to 30 April 2005 had been paid by the defendant to the plaintiffs.

(3)  As for rent of the 11 months from 1 May 2005 to 31 March 2006, they had been settled in that:

(a)    Two trespassers, Wintop Management Limited (“Wintop”) and Well Luck (Hong Kong) Limited (“Well Luck”), had each deposited ten sums into the Tong’s bank account.

(b)   The deposits were made in January to June and September to December 2004 and totalling $205,000.

(c)    Under clause 11.1, these deposits belong absolutely to the defendant for his own use and benefit.

(d)   At a members’ meeting of the Tong held on 18 December 2005 (“18-12-2005 Meeting”), it was resolved that this sum of $205,000 should belong to the defendant.     

(4)  The plaintiffs have waived the rights under clause 4 of the Lease in that:

(a)    As a matter of custom and practice of the Tong, rent is payable per year;

(b)   Since 1 May 2005, the rent under the Lease was payable at the end of each year; and

(c)    The secretary of the Tong had consented to the non-payment of rent until the parties had resolved the disputes about the boundary of the land under the Lease.

(5) The defendant is entitled to relief against forfeiture.

The Counterclaim

The defendant also puts in a Counterclaim seeking: (i) the return of the sum of $205,000 that had been deposited by the two trespassers into the plaintiffs’ account, as money had and received by the Tong; and (ii) a declaration that the Lease is extended to 31 December 2008 on the same terms, except the renewal clause.

The applications

19.   By summons filed on 25 January 2007, the plaintiffs apply for summary judgment against the defendant. Although the summons seeks judgment based on all the three claims, Miss Mak indicated at the hearing that she only needed to and would proceed on the claim based on non-payment of rent.  Accordingly, the plaintiffs only apply to enter summary judgment for payment of arrears of rent and/or mesne profits and an order for possession of Lot No.100RP and Lot No.104RP.

20.  By another summons filed on 18 January 2008, the plaintiffs move to strike out the Counterclaim on the ground that it discloses no reasonable cause of action and that it is frivolous vexatious or otherwise an abuse of the process of the court and also to enter judgment for costs on the counterclaim.

The claim in non-payment of rent

(A)  The defence  

21.  The plaintiffs’ claim for non-payment of rent is straightforward. It is that since May 2005, the defendant has not paid rent under the Lease.

22.  As noted above, the defendant raises three defences in the Amended Defence. They are: (1) Rent had been paid up to 31 March 2006; (2) The plaintiffs had waived the right to forfeiture; and (3) Alternatively, the defendant is entitled to relief against forfeiture.

23.  In his affirmations in opposition to the plaintiffs’ application for judgment, the defendant, however, further raises the following matters:

(1)  Where the tenant is a member of the Tong, the practice of the Tong is that rent could be paid by the end of each year.

(2)  Under the Lease, the defendant had paid yearly rent to the Tong.

(3)  For the yearly rent of 2004, it was paid at the time the Lease was executed.

(4)  For the yearly rent of 2005, the defendant had paid it to the then treasurer of the Tong, Mr Tang Lik Yuen (“TLY”). The defendant has, however, lost the receipts for the rent from May 2005. 

(5)  As for the rent of the year 2006, the defendant accepts it has not been paid. He however says that it was not yet due when the writ was issued in August 2006. Further, he withholds payment because he was negotiating with the Tong on the dispute relating to what portion of Lot No.104RP was1et under the Lease.

24.  TLY had made an affirmation in support of the defendant’s defence. In it, he said that where the tenant is a male member of the Tong, the practice of the Tong is that rent is received yearly. He confirmed that the rent under the Lease was paid yearly. He further stated that the Tong has in practice waived its right to claim for monthly rent.

25.  In paragraph 11, TLY went on to say: 

“I confirmed that the Defendant had paid the yearly rent for year 2005. He recalled that he had made a part payment of the yearly rent in about March 2005, then I had issued several of rental receipts to him. At around the end of December 2005, he had paid the balance. So I issued another rental receipt to him. Although the Defendant claimed that he had lost some of the rental receipts, the Tong had kept record of the rental receipts.” 

26.  He then exhibited copies of three receipts all dated 23 March 2005 for the rent for January to March 2005, a fourth receipt dated 6 April 2005 for the rent of April 2005 and a fifth receipt dated 11 December 2005 for the rent of May to December 2005.

27.  TLY further exhibited copy of a one-page extract from the Accounts Book (進支簿) of the Tong. Under the income column, it recorded that the defendant had paid rent on Lot No.100RP and Lot No.104RP for January to December 2005 in the amount of $246,000. Further under the expenditure column, it recorded a refund to the defendant of money deposited by anonymous person  (支無名人入數退給鄧海和) in the amount of $225,500.

(B)  Analysis of the defence

28.  The law relating to summary judgment is trite and counsel have no disagreement on it.  Essentially, the court will give leave to defend if it is satisfied that there is a fair or reasonable probability of the defendant having a real and bona fide defence. The defendant is under a duty to condescend to particulars. In considering the assertions of the defendant, the test is whether they are capable of belief: Hong Kong Civil Procedure 2008 para.14/4/9.  

29.  Before analysing the various defences raised by the defendant, it is obvious from reading the papers that the defendant’s case as pleaded in the Amended Defence and that stated in his affirmation differ in two material aspects.  The first is that while the Amended Defence pleads that rent had been paid up to 31 March 2006, the defendant accepts in his affirmation that rent for 2006 has not been paid. He is further prepared to consent to an interim payment order for rent as from 1 January 2006.  The second difference relates to the rent for May to December 2005.  In the Amended Defence, it is said that the payments deposited into the Tong’s bank account should be credited as payment of rent by the defendant.  However, in his affirmation and also in TLY’s affirmation, it is said that the rent for May to December 2005 had been paid to and received by TLY and a rent receipt dated 11 December 2005 was issued by TLY to the defendant. Moreover, the extract from the Tong’s Accounts Book exhibited by TLY in his affirmation records that the money deposited into the Tong’s bank account was refunded to the defendant.  There is no explanation for these apparent inconsistencies and contradictions.  Given that these are critical aspects of the defendant’s case, these unexplained inconsistencies and contradictions inevitably casts doubts on the veracity of the defence.

30.  I turn now to the various defences put up by the defendant to the claim based on non-payment of rent. In respect of the rent from May to December 2005, the defendant’s defence is that it had already been settled or paid. However, as noted above, there are two versions as to how the rent was settled or paid. The first version is that the rent had been settled by taking the deposits made by the two trespassers into the Tong’s bank account as rent paid on the defendant’s behalf. There are a number of difficulties associated with this assertion.

31.  Firstly, while paragraph 6 of the Amended Defence pleads that 11 months of rent (May 2005 to March 2006) totalling $225,500 had been settled by the deposits made by the trespassers, the particulars of deposits pleaded under the same paragraph only come up to $205,000. Secondly, the evidence does not show that these deposits represent damages for trespass such that clause 11 of the Lease applies and the defendant becomes entitled to them. The plaintiffs had pleaded in the Defence to Counterclaim that Wintop and Well Luck had claimed to be the defendant’s tenants and later demanded the plaintiffs to return the money deposited, and further that the defendant had claimed to the plaintiffs that the money was rent paid by Wintop and Well Luck. In the affirmations filed on behalf of the defendant, there is no attempt to refute or deal with these incompatible allegations.  Thirdly, there is no evidence to show that the plaintiffs were aware that the deposits represent damages paid by the trespassers or that they knew the deposits were intended to be credited to the defendant as rent payments. The extract of the Tong’s Accounts Book only refers to deposits made by anonymous person(s). The plaintiff’s evidence further shows that the $205,000 has remained in the Tong’s bank account.  Fourthly, given that the last of these deposits were made in December 2004, it is difficult to understand why the defendant would pay for the rent of January to April 2005 and would only seek to credit the deposits as rent for May 2005 onwards. Fifthly, this version is inherently incompatible with the Counterclaim which seeks the return of the $205,000 deposited by Wintop and Well Luck as money had and received by the Tong on the defendant’s behalf.   

32.  The defendant also relies on the 18-12-2005 Meeting and says that the members of the Tong had resolved that he is entitled to the $205,000 deposited by Wintop and Well Luck. The plaintiffs have challenged the validity of this meeting, including that it was not convened by any of the managers of the Tong and that none of the managers was present. Quite apart from this, the plaintiffs have adduced in evidence a members’ meeting held on 5 February 2006, during which it was unanimously resolved that the 18-12-2005 Meeting and the resolutions passed at the meeting were invalid. It is significant to note that the defendant was present at this meeting. Despite that this is a matter pleaded in the Defence to Counterclaim, the defendant has not sought to contradict or deal with this subsequent meeting in the affirmations filed. 

33.  The second version given by the defendant in his affirmation and in TLY’s affirmation is that the rent for May to December 2005 had been paid and received by TLY in December 2005 and TLY had issued a receipt on behalf of the Tong.  The first striking point to note is that the defendant has adduced no evidence to show how the $164,000 was in fact paid. The second unusual feature is that the relevant receipt only bore the signature of TLY but not the chop of the Tong. In contrast, the receipts for the rent of January to April 2005 were all stamped with the Tong’s chop.  Moreover, it is evident that TLY is not an independent witness. The plaintiffs’ evidence reveals that he worked closely with the defendant in the dealings relating to the land in question. TLY, jointly with the defendant, had signed a Chinese note dated 15 July 2005 to let Lot Nos.100RP and 104RP to a Tam Sheung Chi alias Tam Chi Yan at a monthly sum of $30,000 for a term of two years expiring on 31 July 2007. By another document dated 14 August 2005, Tam purported to transfer the tenancy over Lot Nos.100RP and 104RP to TLY at the monthly sum of $30,000 commencing 15 August 2005. Then under a Chinese tenancy agreement dated 5 September 2005, TLY purported to let Lot Nos.100RP and 104RRP to a Goldwood Asia Limited for a term of five years from 1 October 2005 to 30 September 2010. The defendant had signed this tenancy agreement as a witness.  To say the least, these documents are on the face of it highly dubious. The plaintiffs’ suggestion that they demonstrate that TLY has been acting in collusion with the defendant is well justified.

34.  Having regard to these matters and the irreconcilable inconsistencies between the two versions, for which there is no explanation, the credibility and genuineness of the defendant’s assertion and defence that the rent for May to December 2005 had been settled or paid must be left in serious doubts.

35.  As for the rent from January 2006 onwards, the defendant’s latest position is that the rent has indeed not been paid. His first line of defence is that as a matter of practice and custom of the Tong and as he is a male member of the Tong, the rent under the Lease is payable only at the end of the year.  The first difficulty faced by the defendant in mounting this defence is that the alleged practice and custom is directly contradictory to the express term of the Lease.  The Third Schedule of the Lease provides that a monthly rent of $20,500 is “payable monthly in advance on the 1^st day of each and every calendar year” (emphasis added).  The important point is not whether the rent is to be payable monthly or yearly, but that the Lease has expressly provided for the rent to be payable in advance. By contrast, the practice and custom that the defendant seeks to pray in aid is that the rent is payable in arrears and at the end of the year.  Additionally, the minutes of the members’ meeting held on 14 December 2003, when the terms of the Lease were approved, records that one-year rent was payable upon the signing of the lease and thereafter a monthly rent is payable in each month. There was no mention of the adoption of the practice and custom that rent was payable at the end of each year.  In the circumstances, the defendant has not made out a case that the express term of the Lease had been superseded by the alleged practice and custom.   

36.  The second hurdle faced by the defendant is that, other than the bare assertions made by him and TLY, there is no objective evidence to support the adoption or application of the alleged practice or custom to the Lease. The plaintiffs, while accepting that where agricultural land is let to a Tong member for cultivation and if it is a yearly tenancy, then rent is payable at the end of the year, point out that such practice has no application to the Lease since the land in question was not let for cultivation purpose.  In both the pleading and the affirmation, the defendant stated that as a matter of fact rent under the Lease was paid at the end of the year. This, however, is not borne out by the evidence. In the case of the rent for the year 2004, the rent was paid on 1 June 2004 upon the execution of the Lease. It is not paid at the end of 2004.  In the case of the rent for 2005, the rent for the first four months was not paid at the end of 2005.  Four receipts were issued by TLY for the rent payments of January to April 2005 and they are dated March and April 2005. This does not support the assertion that the rent under the Lease was payable yearly or at the end of the year.  As for the rent from May to December 2005, to the extent that the defendant relies on the deposits made by Wintop and Well Luck, the deposits were made on a monthly basis. To the extent that the defendant says that the rent was paid in one go at the end of 2005, there is, as noted above, no direct evidence of how and when the payment was effected and the receipt produced by TLK does not bear the chop of the Tong.  The assertion that as a matter of the Tong’s practice and custom, the rent under the Lease is payable in arrears at the end of the year is not believable. It follows that the defence that the rent for 2006 was not yet due when the writ was issued is unsustainable. 

37.     The defendant also defends on the ground that the plaintiffs had waived the right to forfeit the Lease. One of the bases for this defence is the alleged practice and custom that rent is payable at the end of the year, which I have said is unsustainable. The other bases is that the Secretary of the Tong, Mr Lai, had agreed that the defendant could withhold payment of the rent until after the dispute over which part of Lot No.104RP was let under the Lease had been resolved.  The evidence of the plaintiff is that Mr Lai is only an employee of the Tong and has no authority to give the alleged consent. It does not appear that the defendant disputes that Mr Lai is the Tong’s employee. The defendant has given no particulars as to how Mr Lai, as a salaried secretary, could have authority to give consent on behalf of the Tong to the suspension of rent payment.  Further, since the defendant was negotiating with the Tong, it would have been more logical for him to seek consent to suspension of rent payment from the plaintiffs, who are the managers, instead of from an employee of the Tong.

38.  As an alternative, the defendant contends that he is entitled to relief against forfeiture. Even if the defendant is indeed entitled to relief against forfeiture, this does not amount to a defence to an Order 14 application. Further, for reasons which I will come to in connection with the striking out application, the term of the Lease expired on 31 December 2006 and there was no valid extension. The defendant is therefore not entitled to relief against forfeiture.  

39.  Having regard to the matters set out above, I do not consider that the defendant has shown that he has a real and bona fide defence to the plaintiffs’ claim that the rent has not been paid since May 2005. 

40.  Mr Siu argues that the plaintiffs’ case is suspicious in that the plaintiffs did not demand for rent until May 2006, after the dispute over what portion of Lot No.104RP was let under the Lease had arisen. Relying on the case of Billion Silver Development Limited v. All Wide Investment Limited (unreported) CACV 258/1999, it is said that as the plaintiffs’ case is suspicious, the defendant should be given unconditional leave to defend. In that case, the judge at first instance accepted that the defence arguments might have sown some seeds of suspicion and that some aspects of the plaintiff’s case “remained in the realm of suspicion and speculation”. The Court of Appeal was of the view that if possibly genuine weaknesses were exposed in the plaintiff’s case, then the proper course is to give unconditional leave to defend. In allowing the defendant’s appeal, the Court of Appeal had identified a number of matters as showing that “both sides have a great deal of explanation to make of apparently questionable conduct”. The present case is, however, very different. The only suspicion that has been identified is that the plaintiffs did not demand payment of rent until almost a year later. As Miss Mak observed, there are a number of probable reasons for this, including the fact that the defendant is a member of the Tong. The lack of prompt action does not pose a disturbing feature in the plaintiffs’ case. Neither does it impact materially or adversely on the viability of the plaintiffs’ claim of non-payment of rent.

41.  Mr Siu also submits that the mode and manner of rent payment and whether the defendant had paid rent for May to December 2005 can only be ascertained after the plaintiff has made discovery of the entire accounts book of the Tong. I cannot agree that this desire for discovery warrants the claim going to trial, especially in light of the inherent weaknesses and contradictions in the defence case.  I am of the view that no triable issue has been shown on the claim for rent andmesne profits and possession on account of non-payment of rent, and that summary judgment should be entered for the plaintiffs.

The striking out application

42.  I turn to deal with the application to strike out the Counterclaim. Again, there is no disagreement on the law relating to striking out. It is sufficient to note that the power to strike out should only be exercised in a plain and obvious case.

(A)  The claim for the return of $205,000

43.  The first limb of the Counterclaim is for the return of $205,000, representing money deposited by Wintop and Well Luck into the Tong’s bank account, by way of money had and received. As indicated above, this claim is in direct contradiction to paragraph 6 of the Amended Defence, which pleads that the rent for May to December 2005 was settled by the $205,000 deposited by Wintop and Well Luck. If indeed the sum had been or was to be credited as the defendant’s rent payment, then it cannot be money had and received by the plaintiffs and the defendant has no proper basis to claim for its return.  It should be noted that the Counterclaim has repeated and adopted the entire Defence, including paragraph 6.  Purely on the pleading, the Counterclaim for $205,000 isself-contradictory and defective. As such, it is liable to be struck out.  

44.  Mr Siu submits that as the defendant’s entitlement to the $205,000 and his right to use it to set-off the rent is disputed by the plaintiff, the defendant has to establish his entitlement to the sum by maintaining the counterclaim. I do not agree that this affords a proper basis for counterclaiming for the return of $205,000.  What the defendant is counterclaiming is not a declaration as to his entitlement to apply the $205,000 for his own use and benefit. Instead, he is seeking a return of the sum.

45.  Mr Siu further argues that if the Court were to find that the amount of $205,000 should not be applied to discharge the rent under the Lease, then the money should be returned to the defendant. However, the counterclaim for $205,000 is not pleaded as an alternative to the Court holding that the $205,000 was part payment of the rent under the Lease.  More importantly, the Counterclaim does not plead the nature of the deposits and the basis for applying clause 11 of the Lease. Thus viewed, the Counterclaim has not disclosed a reasonable cause of action for the return of the $205,000.

(B)  The declaration on extension of the Lease

46.  The second limb of the Counterclaim is for a declaration that the Lease had been extended for two years to 31 December 2008.  The plea is set out in paragraph 19 of the Counterclaim, which reads:

“Moreover, by instituting the present proceedings, the plaintiffs evinced an intention not to be bound by clause 13 of the Lease and/or the said resolution of the Tong on 18 December 2005 for the extension of the Lease for a 2 year period from 1^st January 2007 to 31^st December 2008. As a result, the Defendant’s right to exercise his option was wrongfully deprived by the Plaintiff. In the premises, the Defendant is entitled to exercise his option under the Lease.”   

47.  In nutshell, the defendant says that the issuance of the writ amounts to a wrongful repudiation of the Lease, and has deprived the defendant of his right to renew for another two years under clause 13 of the Lease and/or pursuant to the resolution passed at the 18-12-2005 Meeting. On this basis, the defendant contends that he is entitled to exercise the option, thus he seeks a declaration that the Lease had been extended for two years. 

48.  There are three fundamental problems with this Counterclaim for a declaration.  First, even if accepting that the issuance of the writ was wrongful so as to amount to a wrongful repudiation, the defendant could, as a matter of law, either elect to accept the repudiation and treat the Lease as being terminated, or elect to affirm and continue with the Lease.  If he made the latter election, the Lease would be kept alive and he could, if he wished, exercise the option to renew in accordance with the stipulations in clause 13.  On the defendant’s case, he has not vacated from the land in question.  It would therefore suggest that he did not treat the Lease as being terminated by the issuance of the writ. That being the case, he could have exercised the option to renew in accordance with clause 13.  It cannot be said that the issue of the writ, even if wrongful, has deprived the defendant of his right to exercise the option under the Lease or in furtherance of the resolution passed at the 18-12-2005 Meeting.

49.  Second, under clause 13, the option to renew cannot be exercised earlier than six months or later than three months from the expiration of the three-year term. In other words, the option had to be exercised between 1 July and 30 September 2006.  The writ herein was issued on 18 August 2006. The defendant could have exercised the option before the writ was issued. On the analysis in the preceding paragraph, the defendant was at liberty to exercise the option even after the writ was issued. However, at no time had the defendant attempted to exercise the option to renew.

50.  Third, clause 13 has prescribed the requirements for exercising the option. Apart from the restriction on the time to exercise the option, it also requires the defendant to give written notice of the intention to exercise the option. Even if the 18-12-2005 Meeting had validly resolved to extend the Lease for two years, it is still incumbent upon the defendant to comply with his contractual obligation by complying with the requirements under clause 13 in order to effect a valid exercise of the option.  There is no evidence that the defendant had ever given notice, let alone written notice, of the exercise of option, whether within the stipulated time or at all.  There is thus no proper basis for counterclaiming that the Lease has been extended for two years. The counterclaim for declaratory relief should be struck out as disclosing no reasonable cause of action.

51.  For the above reasons, the Counterclaim is clearly bad and is incapable of being remedied.  It should be struck out and dismissed.

(C)  Costs on the striking out application

52.  Mr Siu submits that the striking out application was made late and no prior notice of the broad grounds for the application had been provided to the defendant in accordance with paragraph 5 of Practice Direction 19.1. He says that the plaintiffs should not be given the costs of the application.

53.  Although the plaintiff did not make the striking out application promptly, that has not occasioned any prejudice to the defendant. Mr Siu had at one stage suggested that the plaintiff had consented to the filing of the Amended Defence and Counterclaim, thus induced the defendant to incur more costs. This, however, is not the case. The amendments to the Defence and Counterclaim were in fact opposed and were allowed after hearing arguments.   

54.  Similarly, the omission to indicate the broad grounds for the striking out application has not caused prejudice to the defendant. As noted above, the Counterclaim is inherently bad and incapable of being remedied. There is no reason to depart from the usual rule that costs follow event.

Conclusion

55.  On the summons filed on 25 January 2007, I enter summary judgment for the plaintiffs against the defendant for:

(1)    Vacant possession of Lot No.100RP and Lot No.104RP.

(2)    HK$328,000, being arrears of rent from 1 May 2005 to 31 August 2006 together with interests thereon at judgment rate from the date of the Writ to full payment.

(3)    Mesne profits in the sum of HK$20,500 per month from 1 September 2006 until delivery up of vacant possession as aforesaid together with interests thereon at judgment rate from the date of the Judgment until full payment.

(4)    Costs of the action, including the costs of the application and all costs reserved, to be taxed if not agreed.

56.  On the summons filed on 18 January 2008, it is ordered that:

(1)    The Counterclaim be struck out and dismissed.

(2)    Judgment be entered for the plaintiffs against the defendant for the costs of the Counterclaim, including the costs of the application to strike out and all costs reserved, to be taxed if not agreed.