HECNY TRANSPORTATION LTD v. L HOLDING LTD

HCA 2004/2019

[2020] HKCFI 1256

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2004 OF 2019

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DECISION

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INTRODUCTION

1.  This is the Plaintiff (landlord)’s application for summary judgment against the Defendant (tenant) for arrear of rents, management charges and damages under a tenancy agreement dated 15 January 2018 (the “Tenancy Agreement”) in respect of the premises known as Ground Floor, Prosperity Industrial Building, No 89 Wai Yip Street, Kowloon, Hong Kong (the “Premises”).  The term of the tenancy was from 15 January 2018 to 28 February 2020 at the rent of HK$65,000 per month exclusive of rates and management charges.  The Defendant has ceased to pay rent from 1 August 2019, and returned possession to the Plaintiff on 10 December 2019.  The Plaintiff claims that the Defendant breached the Tenancy Agreement, and claims arrears of rents and management charges, as well as damages suffered as a result of the breach to be assessed. 

DEFENCE

2.  The first defence raised by the Defendant is based on a misrepresentation, fraudulent or otherwise, in reliance upon which it entered into the Tenancy Agreement.  The representation (the “Representation”) was an oral representation made by the Plaintiff’s agent Mr Tong to the Defendant’s agent Ms Lee in or around early January 2018 that the Premises was fit and suitable for the purpose (the “Purpose”) of a motor vehicle service centre with a clear and uninterrupted vehicular access connecting to a road which allows vehicles to come in and out because the Premises would enjoy such an access during the currency of the Tenancy Agreement.  It was the only purpose for which the Defendant would enter into the Tenancy Agreement.  The Defendant claims that the Representation was false because in May 2019, the Highways Department erected pavement posts (the “Pavement Posts”) right outside the entrance of the Premises making any vehicular access impossible.  The Defendant further claims that the Plaintiff well knew that the Pavement Posts would be erected because the District Officer had back in September 2017 consulted the owners of the various buildings (including the one where the Premises situated) about a proposal to erect posts in the area of the Pavement Posts.  As a result of the false Representation, by its email sent to the Plaintiff on 23 August 2019, it rescinded the Tenancy Agreement.  The Defendant further counterclaims for assessment of damages caused by the Misrepresentation, and relies on the counterclaim for a defence of set-off. 

3.  In its skeleton submissions, the Defendant also contends that the Representation connotes a statement of fact that the Plaintiff held an opinion that the Premises would enjoy such an access during the currency of the Tenancy Agreement.  This I accept, but of course, by nature, this statement of fact rises and falls with any finding about the existence of the Representation itself. 

4.  The second defence raised by the Defendant is frustration.  The Defendant argues that with the Pavement Posts blocking the entrance, the Purpose was frustrated and thus the Defendant was released from its obligations under the Tenancy Agreement. 

ANALYSIS

5.  It is trite that in the absence of express agreement to the contrary, the tenant’s obligation to pay rent is independent of any other covenants or obligations under the lease, for example, the covenant for quite enjoyment: see Worldwide Flight Services Holdings SA Royal Caribbean Cruises Limited v Kai Tak Cruise Plaza Limited [2019] 4 HKLRD 56 per Au JA and Lisa Wong J (delivering judgment of the Court of Appeal) at paragraph 21. 

6.  Therefore, even assuming that there was the Representation and/or frustration, this per se is not a defence to the Plaintiff’s claim.  That said, a defence of equitable set-off may be available in this regard.  (Although it is not pleaded in the Defence and Counterclaim, I am prepared to consider the same).  However, no particulars of damages have been set out.  Not even a figure.  So, even if there are triable issues as to the Representation and frustration, no defence of set-off can be established. 

7.  By way of footnote, I note that in the Defence and Counterclaim, the Defendant is counterclaiming also for the return of all the rents, rates and management fees paid to the Plaintiff even before the erection of the Pavement Posts, but such counterclaim obviously is unmeritorious and simply stated to be dismissed, whether such claim is based on misrepresentation or frustration, because the Plaintiff did use and occupy the Premises. 

8.  I should also mention that the defences raised by the Defendant seem to serve no real practical purpose, because the Defendant also admits that the possession was returned on 10 December 2019, and thus, whether the Tenancy Agreement had been terminated or not, the Defendant is still liable to pay the rents and management charges or mesne profits at the same rates until 10 December 2019.  The real practical significance may be that if there is no arguable defence and/or triable issue raised, the Plaintiff would be entitled to assessment of damages for the remaining term of the Tenancy, namely, 11 December 2019 until 28 February 2020, a period of less than 3 months.  I really doubt if the Plaintiff would still actively pursue the assessment of damages (if so ordered), and that had the parties (especially the Defendant) come to realise all this, whether the action and the application would still proceed. 

9.  In any event, in my view, the allegation of the Representation is unbelievable for the following reasons: -

(1)     Given the importance of the Purpose, if the Representation was indeed made as alleged, it is inherently improbable that there were no contemporaneous records or any record at all, especially when a fairly detailed tenancy agreement such as the Tenancy Agreement was entered into. 

(2)     If the Representation were indeed made as alleged, it is inherently improbable that the Defendant would not have mentioned it in the correspondence (including Whatsapp conversation) between the Plaintiff and the Defendant even after May 2019 when the Pavement Posts were erected.  Instead, in an email from the Defendant to the Plaintiff on 18 October 2019, the Defendant only complained that the Pavement Posts interfered with its quite enjoyment of the Premises. No allegation of the Representation was raised. 

10.  Further and in any event, assuming that the Representation was indeed made, it is inherently improbable that the Defendant placed any reliance on the Representation when there are no contemporaneous records or any record at all referring to the Representation.  In this regard, I should add one more reason – it is inherently improbable that the Defendant would rely on the Plaintiff’s representation that vehicular access would be available throughout the whole term of the Tenancy Agreement, given clearly that the pavement outside the Premises was not owned and controlled by the Plaintiff at all.  

11.  As regards the defence of frustration, the following legal principles are relevant: -

(1)     “Frustration of a contract takes place when there supervenes as an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulation in the new circumstances”: see National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 at 700F per Lord Simon, quoted by HH Judge Lok (as he then was) in paragraph 9 of Li Ching Wing v Xuan Yi Xiong [2004] 1 HKLRD 754;

(2)     “[The tenants] were undoubtedly put to considerable expense and inconvenience.  But that is not enough…” National Carriers Ltd, supra. 

(3)     “[A]n event which causes interruption in the expected use of the premises by the lessee will not frustrate the lease, unless the interruption is expected to last for the unexpired term of the lease or at least for a long period of that unexpired term”: see Li Ching Wing, supra at paragraph 10. 

12.  In the present case, according to the approved building plans, there is in fact a second entrance to the premises, to which vehicles could gain access from the roads.  It is not in dispute that that second entrance has been blocked off by walls.  However, the Defendant has not explained why the walls could not be removed to re-open this second entrance.  Of course, to do so may mean substantial expenses, onerousness, and inconvenience, but if it can be done, the Purpose would not be frustrated. Applying the legal principles set out above, I find that the Defendant has failed to raise any arguable defence and triable issue as to frustration. 

CONCLUSION AND ORDER

13.  In the circumstances, the Plaintiff is entitled to summary judgment, and I order, that: -

(1)     The Defendant do pay the Plaintiff: -

(a)     The total sums of HK$280,967.00 being arrears of rent from 1 August 2019 to 10 December 2019.

(b)     The total sums of HK$11,598.00 being arrears of management charges from 1 August 2019 to 10 December 2019.

(c)     Post-judgment interest on (a) and (b) above at judgment rate. 

(2)     The Plaintiff do retain the deposit of HK$211,955 paid by the Defendant under the Tenancy Agreement to offset the sum in paragraph (1)(a) above.

(3)     There be assessment of damages suffered by the Plaintiff as a result of the Defendant’s breach of the Tenancy Agreement for the period from 11 December 2019 until 28 February 2020. 

14.  I also order that the costs of this action (including the present application) up to today be to the Plaintiff with certificate for counsel, to be summarily assessed.