FINEDALE INDUSTRIES LTD v. ONG BAN SENG

HCA 1350/2021

[2023] HKCFI 1952

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1350 OF 2021

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J U D G M E N T[1]

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The defendant’s application to adjourn the trial

1.  I refuse the defendant’s application to adjourn today’s trial. 

2.  The last appearance of the defendant in this action was in May 2022 when he attended the first case management summons hearing.  Since then, he had not participated in this action.  He did not make discovery of documents.  He did not serve witness statements as these were all directed by the court in the first CMS hearing.  He did not attend the second CMS hearing in December 2022.  At that hearing, master granted leave to the plaintiff to set the case down for trial. 

3.  Before today, the expectation was that the defendant would not attend today’s trial.  Yet, he has turned up this morning and asked for adjournment of today’s trial.  He says he needs two weeks to consult counsel.  He is not very fit to proceed with the trial.  He told me this morning that he has been suffering from depression since early 2022.  His wife had cancer and passed away in August 2022.  He himself was hospitalised for a couple of days for a minor stroke in mid-2022 and he has been on medication since. 

4.  Trial dates are milestone dates under our rules.  They can only be altered in exceptional circumstances.  I am afraid that no exceptional circumstances are made out in this case by the defendant. 

5.  The defendant has confirmed to me that he in fact received the notice of trial from the court in February this year.  The court notice is clear on its face that the trial will take place today.  The defendant ought to have consulted counsel then.  Or if he considered that he would not be fit to attend today’s trial, he ought to have reached out to the plaintiff or the plaintiff’s solicitors much earlier on.  But he did not do so until today. 

6.  As to the defendant’s medical history or illnesses, he has not brought along any medical records at all to the court to substantiate his claims.  Particularly, he has not shown me any medical records or certificates as to how his condition would affect the trial.  These are all bare assertions.  Given that they are raised only at the very last minute, I cannot accept these bare assertions at face value. 

7.  The defendant suggested that we adjourn for two weeks for him to consult counsel.  It is not practicable for the court to fix another date in two weeks’ time.  There will be a long delay if this trial is adjourned and this would amount to real prejudice to the plaintiff, who is, of course, ready to proceed with the trial today. 

8.  No exceptional circumstances have been made out.  Therefore, I refuse the defendant’s adjournment application and will proceed with the trial today. 

The plaintiff’s application to rely on new documents

9.  I grant leave to the plaintiff to rely on, first, the letter dated 3 November 2020 from Messrs Ford, Kwan & Company to the provisional liquidators; second, the letter dated 4 November 2020 from the provisional liquidators to Ford Kwan; and, third, the first two pages of the deed of guarantee.  My reasons are as follows. 

10.  These are all very late discovery, but the defendant has confirmed that he has no objection to the first and the second documents.  As for the third document, it is plain that these two pages have been omitted from the exhibit to the plaintiff’s witness statement inadvertently.  In the defence filed by the defendant, there is no mention or issue taken as to the actual contents of the deed of guarantee. 

11.  Given that it is purely an inadvertent mistake, allowing in the two pages of the deed of guarantee would cause no prejudice to the defendant.  And therefore I would allow those two pages of documents. 

12.  I would, however, disallow the plaintiff to rely on the unsigned warning notice.  It is very, very late discovery.  And I do not think there is any direct relevance to the issues in dispute in this action. 

(Trial proceeded)

Introduction

13.  This is the trial of a tenancy dispute. 

14.  The plaintiff, the landlord, is represented by Mr Jonathan Ah-weng, counsel, instructed by Ford Kwan, in this action. 

15.  The defendant, whom the plaintiff says is the guarantor of the tenancy, is not legally represented.  He has been acting in person since he lodged his acknowledgement of service in September 2021.  He filed an affirmation entitled “Defence against the claim by the plaintiff” in October 2021.  He attended a case management summons hearing in May 2022. However, the defendant has made no discovery of documents, made no witness statements in this action.  Furthermore, he did not attend the case management summons hearing in December 2022. 

16.  The defendant, however, has appeared at the trial today and asked for an adjournment in order to consult counsel on this case.  I have already dealt with and refused his application to adjourn the trial. 

17.  According to the affidavit of service filed by the plaintiff, written opening submissions was sent to the defendant by the plaintiff by post last week.  The defendant says today that he has not received them.  I should put on the record that time has been given this morning to the defendant to read the submissions of the plaintiff such that counsel does not have to recite them word-by-word orally in court. 

18.  I should also put on record that shortly before today’s trial, the plaintiff disclosed further documents and seeks to rely on them today.  I have earlier granted leave to the plaintiff to rely on:

(1)  pages 1 and 2 of the deed of guarantee dated 3 May 2018.  The two pages were omitted from the exhibit to the plaintiff’s witness statement; and

(2)  two letters between Ford Kwan and the provisional liquidators of the tenant company in November 2020. 

19.  At the same time, I have refused leave to allow the plaintiff to rely on an undated warning notice. 

Factual background

20.  The property concerned is situated at Units 13, 15, 16, 17, 18, 19, 20, 21 and 22 on the 17^th Floor, No 1 Hung To Road, Kowloon.  The plaintiff was the landlord.  A company called Schmidt Biomedtech (H.K.) Ltd (“Schmidt”) was the tenant.  The defendant was a director of Schmidt. 

21.  The plaintiff’s case is that the defendant signed a deed of guarantee dated 3 May 2018 in respect of the tenancy (“the Deed of Guarantee”).  The tenancy agreement was dated 14 May 2018 (“the Tenancy Agreement”).  The property was let for a term of three years from 2 May 2018 to 1 May 2021.  The monthly rent was $180,000.  Schmidt was to use the property for lawful industrial use as workshop and ancillary accommodation for non-domestic use. 

The Tenancy Agreement and the Deed of Guarantee

22.  Under the Tenancy Agreement, Schmidt agreed to pay:

(1)  rent; 

(2)  management fees, in each case on the first day of each calendar month; and

(3)  rates on the first day of each quarter. 

23.  In the event of default in payment of any sum of money not received by the plaintiff within 14 days from the due date, Schmidt should pay to the plaintiff interest on the arrears at a monthly rate of 3.5%.  See clauses 1.1 and 5.19 of the Tenancy Agreement.  Further, under the Tenancy Agreement, the plaintiff held security deposit in the sum of $686,211 as security for the performance of Schmidt’s obligations. 

24.  The Tenancy Agreement also contains a proviso for re-entry.  It entitles the plaintiff to re-enter the property in the event of default for 14 days or if Schmidt should enter into liquidation whether compulsory or voluntary: see clause 6.1. 

25.  The terms of the Tenancy Agreement are not controversial. 

26.  According to the express terms of the Deed of Guarantee, the defendant guaranteed and undertook to the plaintiff the due payment of the rent, rates, management fees and all other charges of the property and the due performance and observance of the terms and conditions. 

27.  Further, in default by Schmidt, the defendant should assume primary liability of and should on demand pay to the plaintiff the outstanding sums under the Tenancy Agreement.  The defendant should also indemnify the plaintiff against all losses, damages, costs and expenses arising or incurred by the plaintiff as a result of default, and that was so notwithstanding the insolvency or liquidation of Schmidt.  See clauses 2.1 and 2.1.4 of the Deed of Guarantee. 

The plaintiff’s case

28.  The plaintiff’s case is straightforward.  It is a company under the Chinachem Group, a well-known developer in Hong Kong.  In this trial, it has called one witness, Mr Lee Hei Yik.  Mr Lee works for the group and his title is “Manager – Leasing”.  His duties include leasing of the plaintiff’s properties, including the property in question, to tenants and attending to incidental matters to such leases. 

29.  It is the plaintiff’s case that in breach of the Tenancy Agreement, Schmidt had been late in paying rent, management fees and rates and that from 1 October 2019 onwards, it had stopped paying these sums altogether.  Furthermore, a compulsory winding-up order was made against Schmidt on 26 August 2020 in the winding-up proceedings in HCCW 406/2019.  Provisional liquidators have since been appointed. 

30.  In the circumstances, the plaintiff invoked clause 6.1 of the Tenancy Agreement.  On 3 November 2020, Ford Kwan issued a letter to the provisional liquidators of Schmidt exercising its rights under clause 6.1.  In that letter, Ford Kwan demanded vacant possession of the property pursuant to the clause.  On the following day, the provisional liquidators wrote back, indicating that they had no objection to the plaintiff’s re-entry.  In the end, it was about five months later, on 26 March 2021, that the provisional liquidators of Schmidt returned the keys of the property to the plaintiff, thus delivering vacant possession. 

31.  The plaintiff’s case is that the Tenancy Agreement was therefore terminated on 26 March 2021 pursuant to the provisions in clause 6.1 of the Tenancy Agreement.  I shall refer to this date below as “the termination date”. 

32.  By letter dated 8 July 2021, the plaintiff demanded the defendant as guarantor to repay the rent, management fees and rates of the property, which were then outstanding under the Tenancy Agreement, together with further loss and damage suffered by the plaintiff as a result of Schmidt’s breach of the Tenancy Agreement.  The defendant has failed to pay those outstanding sums. 

33.  The plaintiff says that the defendant was in breach of the guarantee.  Hence, it commenced the present action in September 2021. 

34.  Accordingly, the plaintiff makes claims under the following heads: 

(1)  rent, management fees and rates, which have been outstanding and remained unpaid as of the termination date.  The total outstanding sum, after deduction of the security deposit, is $3,048,757.59. This sum includes one month’s rent, representing the rent-free period previously given to Schmidt under the Tenancy Agreement.  The plaintiff’s case here is that it is entitled to claim back this one month’s rent because of the breach pursuant to Part IV of the Schedule to the Tenancy Agreement. 

(2)  interest at a monthly rate of 3.5%, which has accrued by reason of late payment or non-payment of the rent, management fees and rates up to the termination date in the total sum of $1,299,092.67.  The plaintiff also claims ongoing interest at the same contractual rate from the termination date. 

(3)  for the remainder period of the tenancy, after the termination date, the plaintiff claims loss of rent, management fees and rates in the sum of $237,339.48.  It is the plaintiff’s evidence that after the termination date, the plaintiff has tried to mitigate its losses under the Tenancy Agreement by engaging estate agents, including Midland Realty, Jones Lang LaSalle, and Knight Frank, in order to try to lease out the property. However, despite all these efforts, the property has not been leased out up to the expiry of the original term of the Tenancy Agreement.  Hence, its claim for the loss of the full rent, management fees and rates for the remainder period. In respect of this item, the plaintiff also claims ongoing interest from 2 May 2021. 

35.  Detailed calculations have been set out in paras 17 and 19 of the statement of claim.  I do not propose to reproduce them here.

The defendant’s case

36.  In this trial, there is no evidence tendered by the defendant, whether in the form of documentary evidence or witness statement.  There are three points raised in the document entitled “Defence against the claim by the plaintiff” filed by the defendant back in October 2021.  This document may be taken as the defence of the defendant in this action. 

37.  These three points are: 

(1)  To the best of his knowledge and belief, the Deed of Guarantee was not executed between the plaintiff and the defendant.

(2)  The commencement date of the tenancy was 2 May 2018.  According to Part IX(6)(e) of the Schedule to the Tenancy Agreement, Schmidt should provide a copy of the Deed of Guarantee to the plaintiff on or before the commencement date of the tenancy.  However, the document was only provided to the plaintiff after that date. 

(3)  To the best of the defendant’s knowledge, the plaintiff has not informed him that the liquidators of Schmidt had disclaimed the Tenancy Agreement. 

38.  In his closing speech today, the defendant highlights three points. 

(1)  He does not remember signing the Deed of Guarantee.

(2)  The Deed of Guarantee was not witnessed and therefore was not executed properly. 

(3)  As far as the defendant knows, there is no such thing as an individual seal in Hong Kong. 

Discussion

39.  The plaintiff’s case is straightforward.  It is premised on the Tenancy Agreement and the Deed of Guarantee.  These documents have been produced in these proceedings.  The claim under the Deed of Guarantee is in respect of unpaid amounts due under the Tenancy Agreement.  The claim is generally supported by contemporaneous documents. 

40.  The plaintiff is a commercial landlord.  Mr Lee works for the plaintiff.  There is really no basis on which to doubt Mr Lee’s truthfulness and credibility as a witness.  In fact, in today’s trial, the defendant did not have any cross-examination for Mr Lee.  In the circumstances, I accept Mr Lee’s evidence in its entirety and hold that the plaintiff’s factual case is a truthful account of the events concerned. 

41.  As far as the defence is concerned, I say that there is nothing in the three points raised by the defendant in writing. 

42.  As regards the first point, it is trite that a deed is required to be signed, sealed and delivered.  In the present case, I hold that the Deed of Guarantee has fulfilled these requirements, on the face of the documents and on the basis of Mr Lee’s evidence. 

43.  It is the plaintiff’s evidence, which I accept, that on 3 May 2018, Ford Kwan sent a copy of the Deed of Guarantee to Schmidt and it was later returned signed by the defendant.  The defendant has so far not filed any witness statement to state that he did not sign the Deed of Guarantee.  It is only in his closing speech today that he says that he does not remember signing it.  That does not form part of the defendant’s evidence.

44.  Further, there is no requirement for the Deed of Guarantee to be witnessed or attested.  The requirement is set out in section 19 of the Conveyancing and Property Ordinance, Cap 219. 

45.  Overall speaking, the deed is enforceable as against the defendant.  Insofar as the defendant is saying that there is a need for the plaintiff to be made a party to the document in order for it to be enforceable, there is nothing in this point as that is not a legal requirement. 

46.  As regards the second point, the validity of the Deed of Guarantee is not affected by when Schmidt provided the signed document to the plaintiff.  I accept the plaintiff’s submission that the Deed of Guarantee came into effect after being signed, sealed and delivered.  There is no term provided for in the Deed of Guarantee to the effect that it would become invalid or unenforceable if Schmidt had been late in providing it to the plaintiff in accordance with the Tenancy Agreement. 

47.  After all, that provision referred to by the defendant in the Tenancy Agreement was clearly a clause affording protection to the plaintiff as landlord.  It is true that according to the timeline, that protection in fact was not given in strict compliance with the contractual terms.  This is because the Deed of Guarantee was only given to the plaintiff shortly after the commencement of the tenancy.  But there is nothing there to affect the validity and enforceability of the Deed of Guarantee itself. 

48.  As regards the third point, there is nothing in this point.  Whether or not the provisional liquidators had disclaimed the Tenancy Agreement is beside the point.  It does not affect the plaintiff’s right to call the Deed of Guarantee and enforce it against the defendant. 

49.  I therefore hold that the Tenancy Agreement terminated on 26 March 2021 by virtue of clause 6.1 of the Tenancy Agreement.  See the letters exchanged between Ford Kwan and the provisional liquidators of Schmidt in November 2020.  The defendant is liable to the plaintiff under clause 2.1 of the Deed of Guarantee. 

50.  On quantum, I am satisfied that the amounts claimed up to the termination date are correctly calculated in accordance with the terms of the Tenancy Agreement.  I accept the plaintiff’s submission that the monthly interest rate of 3.5% which applies in the event of default is enforceable and is not penal in nature when the commercial context is taken into account. 

51.  As for the period of just over one month after the termination date and up to the original expiry date of the tenancy, the plaintiff should be compensated for its loss and damage arising from the breach of the Deed of Guarantee subject to its duty to mitigate. 

52.  Here, it is notable that there is only just over one month left.  I accept the plaintiff’s evidence that it had taken steps to re-let the property in the open market, but it had remained vacant during the remainder period.  In the circumstances, I am satisfied that the plaintiff is entitled to claim the full amount of the loss of rent, management fees and rates for that remainder period. 

Orders

53.  For the above reasons, I enter judgment for the plaintiff in the sum of: 

(1)  $4,347,850.26, ie the sum of the two items set out in paras 34(1) and (2) above; and

(2)  loss and damage in the sum of $237,339.48, ie the sum referred to in para 34(3) above. 

54.  The plaintiff is also entitled to: 

(1)  interest on the sum of $3,048,757.59 at the contractual rate of 3.5% per month from 27 March 2021 to today and after that at judgment rate until payment in full; and

(2)  interest on the sum of $237,339.48 at the rate of 1% above HSBC prime rate from 2 May 2021 to today and after that at judgment rate until payment in full. 

(Submissions re costs)

55.  Costs should follow the event.  I therefore order on an absolute basis that the plaintiff do have costs of the action, including all reserved costs, to be summarily assessed. 

56.  The plaintiff has handed up a statement of costs to the court and to the defendant.  I am going to give some time to the defendant to review the statement and I direct that the defendant do, within 14 days from today, lodge with the court and serve on the plaintiff a list of objections, if any, to the items claimed in the statement of costs.  The list of objections, if any, should not exceed three pages.  The court will summarily assess the costs of the action after the deadline.