XCHRX CAR PO LTD. v. CHAN PIK KUEN

1998 HCA No. 13517

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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The proceedings

1. The premises to which this action relates were let by the Defendant to the Plaintiff. The Plaintiff claims that, before the tenancy agreement was concluded, the Defendant said that (a) the premises were suitable for a light refreshment restaurant licence to be obtained for a restaurant on the premises, and (b) there were no illegal structures on the premises. The Plaintiff's case is that in fact there were illegal structures on the premises, and that their presence on the premises prevented the Plaintiff from obtaining a light refreshment restaurant licence, and subsequently a liquor licence, for the premises.

2. The Plaintiff's claim against the Defendant is for damages. It does not seek the rescission of the tenancy agreement, and therefore it wishes to continue to occupy the premises. However, it is not possible to tell from the Statement of Claim whether the Plaintiff's cause of action is misrepresentation (in which case its damages would be calculated by reference to what is necessary to put the Plaintiff in the position in which it would have been if the statements had never been made), or whether the Plaintiff's cause of action is breach of warranty (in which case its damages would be calculated by reference to what is necessary to put the Plaintiff in the position in which it would have been if the statements had been correct). I suspect that, since the Plaintiff is not seeking the rescission of the tenancy agreement, the Plaintiff's claim is for the latter.

3. The Defendant denies that she made the statements alleged. She is counterclaiming for possession of the premises, and her summons for summary judgment under Ord. 14 for possession is due to be heard next week. Her case is that, apart from the rent and rates for June 1998 (which was the first month of the tenancy), the Plaintiff has failed to pay any of the rent and rates due to her. In addition to the possession of the premises, she is counterclaiming for (a) the arrears of rent and rates which had accrued up to the date of her counterclaim, and (b) mesne profits in respect of the Plaintiff's use and occupation of the premises thereafter.

The application for an interim payment

4. The Defendant applied under Ord. 29 r. 10 for an interim payment. Since the rent was $35,500.00 a month, she sought (a) an interim payment of $213,000.00, being 6 months' arrears of rent or mesne profits up to the end of December 1998, and (b) an interim payment of $35,500.00 for every month thereafter. On 13th January 1999, Master Jones ordered the Plaintiff to make the following interim payments to the Defendant, though he did not specify the dates by which they had to be paid:

(i) the sum of $124,500.00 "representing the amount claimed of $213,000.00 less $53,000.00 demolition and less one month's rent for time for complying with the licensing requirements";

(ii) the sum of $35,500.00 for mesne profits for the Plaintiff's occupation of the premises in January 1999; and

(iii) "further interim periodical payments of $35,500.00 per month commencing on 1st February 1999."

The power to make an order for periodical payments is in Ord. 29 r. 13(4). The Plaintiff now appeals against these orders.

The Plaintiff's Notice of Appeal

5. There are two problems with the Plaintiff's Notice of Appeal. First, it describes Master Jones' order as an order giving "judgment for the Defendant against the Plaintiff for $160,000.00". The order was, of course, nothing of the kind, and Mr. Tracy for the Defendant contends that if the Notice of Appeal is not amended, the appeal must be dismissed. I decline to dismiss the appeal on that basis. Ord. 58 r. 1(2) merely requires the appeal to be made by "a notice to attend before the judge on a day specified in the notice or as on such other day as may be directed". Accordingly, the failure to describe correctly the order appealed from does not invalidate the Notice of Appeal.

6. Secondly, the Notice of Appeal was filed 8 days out of time. No evidence has been filed explaining the delay. However, Mr. Sadiq for the Plaintiff has told me what happened. It was only on the last day for filing the Notice of Appeal that the Plaintiff notified its solicitors that it wished to appeal Master Jones' order. Within a day or two, the Plaintiff's solicitors had sought counsel's view as to the prospects of a successful appeal, but a few days were lost after that because the Notice of Appeal had to be redrafted since the original draft had not included an application for an extension of time. On balance, I have decided to grant the Plaintiff the 8 days' extension of time sought. Most of the delay was caused by the Plaintiff's solicitors either unnecessarily deferring the drafting of the Notice of Appeal until counsel's advice had been sought, or not including in the Notice of Appeal an application for an extension of time. Moreover, I have not discerned any relevant prejudice on the part of the Defendant caused by the delay.

The merits of the appeal

7. A defendant who is counterclaiming against a plaintiff can claim an interim payment: see Ord. 29 r. 18. The Defendant's claim for an interim payment in this case is based on Ord. 29 r. 12(b) which provides, so far as is material, and substituting "the Plaintiff" for "the Defendant" and vice versa:

"If, on the hearing of an application [for an interim payment], the court is satisfied ... that the [Defendant's counterclaim] includes a claim for possession of land and, if the [counterclaim] proceeded to trial, the [Plaintiff] would be held liable to pay to the [Defendant] a sum of money in respect of the [Plaintiff'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 [Plaintiff], ... 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 [Plaintiff], order the [Plaintiff] 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 [Plaintiff] may be entitled to rely."

There is no doubt that, while the Plaintiff continues to occupy the premises, the Defendant is entitled to rent or mesne profits in respect of that occupation. The issue is whether the Plaintiff's claim (which constitutes the defence of set-off to the Defendant's counterclaim for arrears of rent or mesne profits) should deprive the Defendant of an interim payment to which she would otherwise be entitled. In the light of the authorities, including Shearson Lehman Brothers Inc. v. Maclaine Watson & Co. Ltd. [1987] 1 WLR 480, I conclude that an order for an interim payment under Ord. 29 r. 12(b) can only be made in favour of the Defendant in this case if the court is satisfied that she will succeed in defeating the Plaintiff's defence of set-off at trial. Mr. Tracy accepted that statement of the test which I have to apply as accurate.

8. I cannot say that I am satisfied that the court at trial will find that the Plaintiff did not make the statements about the restaurant licence and the illegal structures which she is alleged to have made. In the light of the evidence before me, the determination of that issue could go either way at trial. The critical question, therefore, for present purposes is what loss the Plaintiff could be said to have suffered as a result if such statements are found at trial (a) to have been made but (b) to have been incorrect. Although the Plaintiff was in fact refused a restaurant licence, and could not therefore apply for a liquor licence, the Plaintiff has continued to run a restaurant at the premises. The only profits it could be said to have lost so far, therefore, are such additional profits as it would have made if it had been able to serve its customers liquor. There is no evidence before me as to how to assess that amount.

9. In any event, the Plaintiff is under a duty to mitigate its loss. Two considerations are relevant here:

(i) The Defendant claims that the majority of the illegal structures which resulted in the Plaintiff's application for a restaurant licence being refused were installed or erected by the Plaintiff. Accordingly, the only illegal structures to which her statements could be said to relate were ones which the Plaintiff could have removed with ease.

(ii) In any event, the Plaintiff's own case is that it would have cost only $53,000.00 to remove all the illegal structures.

Thus, such losses as the Plaintiff would have incurred as a result of the pre-tenancy statements relied upon could have been brought to an end by the expenditure of $53,000.00. Mr. Sadiq points out that the Defendant was only prepared to pay the Plaintiff that amount by instalments over 2 years, but that expenditure could have been financed by the Plaintiff with the money which the Plaintiff would otherwise have paid to the Defendant as rent.

10. I appreciate that the Plaintiff may incur additional expenses in having to re-apply for a restaurant licence and in facing penalties for failing to comply with a prohibition order imposed for running an unlicensed restaurant. The latter loss would not have occurred if the Plaintiff had mitigated its loss by removing the illegal structures and re-applying for a restaurant licence. In all the circumstances of the case, I am satisfied that at trial the Plaintiff's defence of set-off to the Defendant's counterclaim will not exceed the aggregate of

(a) the sum of $53,000.00;

(b) the cost of re-applying for a restaurant licence; and

(c) such profits which the Plaintiff will have lost as a result of not having had a liquor licence between the date when such a liquor licence would originally have been granted (if the restaurant licence had been granted) and when such a liquor licence would subsequently have been granted (if the Plaintiff had caused the illegal structures to be removed).

There is no evidence before me as to how (b) or (c) should be calculated. Doing the best I can, I propose to take the sum of $100,000.00 as the figure which represents the Plaintiff's losses under those two heads of loss.

11. I turn to the exercise of my discretion, which is the second stage in the procedure for determining applications for interim payments. In Yeung Sek Sung v. Cheung For Ming (HCA 324/90), Jones J. refused to order an interim payment. Noting that an interim award should normally be considered when the trial is unlikely to take place for a long period of time, he concluded that the issues were not complex and the likely date for the trial could be fixed in the Running List within two months. The Plaintiff would have been better advised to proceed with the action to bring it to finality, instead of embarking upon an application for an interim payment, which had merely delayed the hearing and caused an unnecessary increase in costs. Jones J. also said that the object of an application for an interim payment was to alleviate hardship or prejudice to the plaintiff during the period from the institution of proceedings up to the date of trial. One of the reasons why Jones J. refused to order an interim payment in that case was because no evidence of hardship had been provided, nor had any need been put forward as to why an interim payment should be made.

12. It it is true that the Defendant does not suggest that she suffers hardship as a result of being deprived of the rent for the premises for the time being, but she is naturally concerned about her ability to enforce any order for the payment of rent and rates which she might eventually obtain. On the other side, the Plaintiff is continuing to run a restaurant at the premises, while at the same time paying nothing to the Defendant by way of rent or rates. It is all very well for Mr. Sadiq to assert that an order for an interim payment would result in the Plaintiff not being able to fund this action or its defence to the Defendant's counterclaim, but at the risk of repetition, it is still trading while at the same time paying nothing for the privilege of doing so. If it is closed down as a result of the prohibition order, that is only because it has not paid the relatively modest sum necessary to remove the illegal structures, and thereby remove the obstacle to the grant of restaurant and liquor licences. In my view, therefore, the proper exercise of the court's discretion favours the making of orders for interim payments.

Conclusion

13. For these reasons, I propose to vary the orders made by Master Jones, but simply to reflect (a) the lapse of time since he made the orders, and (b) the increased sum for which the Defendant should give credit. The orders, therefore, will be that

(a) the Plaintiff pays an interim payment to the Defendant of $202,000.00 within 28 days of today, i.e. by 23rd April;

(b) the Plaintiff pays to the Defendant interim payments of $35,500.00 on 1st May 1999 and thereafter on the first day of each month, by way of rent or mesne profits for the Plaintiff's use and occupation of the premises.

The figure of $202,000.00 is calculated by taking 10 months' rent at $35,500.00 a month, i.e. the rent for the months from July 1998 to April 1999 inclusive, and deducting from it the sums of $53,000.00 and $100,000.00 to which I have referred.