WFC HOLDING LTD v. NEW CASTLE INVESTMENTS LTD (新港投資有限公司)

FAMV No. 259 of 2020

[2021] HKCFA 5

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 259 OF 2020 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL FROM

CACV NO. 399 OF 2020)

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REASONS FOR DETERMINATION

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Mr Justice Ribeiro PJ:

1.  At the hearing, we dismissed this application for leave to appeal with costs.  These are our reasons.

A.     The tenancy agreement and proceedings below

2.  The plaintiff, New Castle Investments Limited (“P”), was the landlord of certain properties in Shouson Hill which it let to the 1^st defendant, WFC Holding Limited (“D1”), under a tenancy agreement dated 27 April 2018 for a term of three years starting on 2 March 2018 at the rent of $2 million per month payable in advance.  A deposit of $8.5 million was paid.  The 2^nd and 3^rd defendants are D1’s two directors, namely Yuan Yiqiang (“D2”) and Foo Wai Lok (“D3”), who provided personal guarantees in respect of D1’s punctual payment of rent and observance of the other terms of the tenancy agreement.

3.  D1 failed to pay the rent due on 1 July 2018 and, on 13 July 2018, P issued a writ claiming arrears and other charges.  D1 only made partial payments during August 2018 of arrears totalling $600,000.  On 7 September 2018, P obtained default judgment (expressed to be partly final and partly interlocutory) for HK$1,400,818.87 (after deducting the partial payments) for arrears, interest and other charges; and judgment for mesne profits and management charges at $2,016,610 per month until delivery of vacant possession; for damages to be assessed; and an order for vacant possession.

4.  A week later, P issued statutory demands against D2 and D3 for payment of $4,401,248.73 and, on 28 December 2018, petitioned for D2’s bankruptcy.  Vacant possession was obtained by P on 29 November 2018.  By then, the amounts in arrears exceeded the amount of the deposit which was at that stage appropriated towards setting off those arrears leaving a balance of $966,336.88 in P’s favour according to counsel for the plaintiff. 

5.  It was only on 20 June 2019 that the defendants applied to set aside the default judgment.  And on 16 September 2019, Master Queenie Lau set aside that judgment on condition that the defendants pay $1,400,818.87 (being half of the judgment sum) into court. After various applications, Au-Yeung J set aside the bankruptcy order originally made against D2 and dismissed the bankruptcy petition presented in respect of D3. 

6.  On the defendants’ appeal against the conditional setting aside of the default judgment, Linda Chan J set aside Master Queenie Lau’s order except in relation to the order for vacant possession and gave the defendants unconditional liberty to defend the action.[1]

7.  By its judgment dated 20 August 2020, with reasons handed down on 8 September 2020,[2] the Court of Appeal allowed the appeal against Linda Chan J’s judgment and restored the default judgment.  And on 7 October 2020, the Court of Appeal allowed P’s appeals and made bankruptcy orders against D2 and D3.  Their Lordships subsequently refused the defendants leave to appeal to this Court regarding both the Writ and bankruptcy proceedings.[3] 

8.  D1 now seeks leave to appeal from the Appeal Committee putting forward the following as a question of law of great general or public importance:

“Whether, upon a landlord’s final election to terminate or forfeit a tenancy by serving proceedings on the tenant, the landlord has an implied obligation under the tenancy to reduce the landlord’s monetary claim (for, e.g., outstanding rent, damages, monetary compensation, etc.) against the tenant by the amount of the tenant’s deposit paid to the landlord, so that the landlord and the tenant can achieve, inter alia, a clean break as finally elected by the landlord.”

9.  Related questions are sought to be raised on the “or otherwise” ground.

Disposition of this application

10.  D1’s central proposition is that when faced with its failure punctually to pay the rent, P should have paid itself the overdue rent by taking the amount in arrears from the deposit which it had received, instead of proceeding to obtain judgment for the unpaid amounts and the consequent bankruptcy orders.

11.  That argument succeeded before Linda Chan J but her Ladyship’s decision was reversed by the Court of Appeal.  The outcome of those proceedings turned on the true construction of the express terms of the tenancy agreement, in particular of its Clause 5.03. It is unnecessary here to examine the competing arguments of construction which are fully set out in the judgments referred to.  We comment in passing that we consider the points developed in the judgment of the Court of Appeal compelling and would have had grave doubts as to the arguability of the arguments to the contrary if D1 had sought to rely on them as a basis for seeking leave to appeal.

12.  Discussion of the construction of the tenancy agreement is made unnecessary because, as reflected in the question as formulated and as the Court of Appeal pointed out in refusing leave to appeal,[4] counsel appearing for D1 does not dispute the construction adopted by the Court of Appeal below.  Leave is sought to argue for the existence of a term implied as a matter of law requiring the landlord to have recourse to the deposit instead of pursuing a monetary claim against the tenant in the circumstances postulated in the question.

13.  We are not persuaded that any basis for granting leave to appeal is disclosed.  In the first place, it is trite law that no term will be implied which contradicts an express term, which is the course the Court is being invited to take.  Much less is there a basis for arguing that the term contended for will generally be implied as a matter of law regardless of the express terms agreed.  Secondly, the circumstances postulated in the question are framed in a tendentious manner as to the landlord allegedly electing to forfeit the tenancy by serving proceedings, and do not correspond with the course of events which actually occurred.  And thirdly, this is a fact-specific case related to the particular terms of the tenancy agreement and the particular acts of the parties, raising no question of law of great general or public importance.  The application was accordingly dismissed with costs.