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Holdwin Ltd v Prince Jewellery And Watch Co Ltd (Formerly Known As Success Light Investments Ltd

Judgment Cited authorities 10 Cited in Precedent Map Related
Vincent
Judgment Date20 September 2021
Neutral Citation[2021] HKCFI 2735
Year2021
Judgement NumberHCA718/2020
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA718/2020 HOLDWIN LTD v. PRINCE JEWELLERY AND WATCH CO LTD (formerly known as SUCCESS LIGHT INVESTMENTS LTD

HCA 718/2020 &
HCA 414/2021

[2021] HKCFI 2735

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 718 OF 2020

____________

BETWEEN
HOLDWIN LIMITED Plaintiff
(豪百有限公司)
and
PRINCE JEWELLERY AND WATCH COMPANY LIMITED
(太子珠寶鐘錶有限公司)		 Defendant
(formerly known as
SUCCESS LIGHT INVESTMENTS LIMITED
(勝光投資有限公司))

________________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 414 OF 2021

____________

BETWEEN
HOLDWIN LIMITED Plaintiff
(豪百有限公司)
and
PRINCE JEWELLERY AND WATCH COMPANY LIMITED
(太子珠寶鐘錶有限公司)		 Defendant
(formerly known as
SUCCESS LIGHT INVESTMENTS LIMITED
(勝光投資有限公司))

____________

(Heard Together)

Before: Deputy High Court Judge William Wong SC in Chambers

Date of Hearing: 29 June 2021

Date of Decision: 20 September 2021

____________________

DECISION

____________________

A. INTRODUCTION

1. There are two applications before this Court which were ordered to be heard together pursuant to the directions made by Deputy High Court Judge Winnie Tsui on 26 May 2021:-

(1) First, by notice of appeal dated 8 March 2021, the Defendant appeals against the decision of Master Norman Nip on 22 February 2021 granting summary judgment in favour of the Plaintiff in HCA 718/2020 (the “Appeal”); and

(2) Secondly, by way of Summons dated 8 April 2021, the Plaintiff applies for summary judgment against the Defendant in HCA 414/2021 (the “Summons”).

B. BACKGROUND

2. The Plaintiff, qua landlord, leased to the Defendant, qua as tenant, a 3-floor shop premises[1] located in the “Bo Yip” Building in Tsim Sha Tsui (the “Premises”). Shortly after the outbreak of the COVID-19 pandemic in Hong Kong, the Defendant began to default on its payment obligations to the Plaintiff.

3. The Defendant is a chain retailer in luxury watches, jewellery and other high-end products. It and its affiliates operate more than 21 retail branches in Hong Kong, including more than 6 shops in Tsim Sha Tsui.

4. On 20 March 2012, the Plaintiff and the Defendant entered into a written lease for a fixed term of 6 years from 1 June 2012 to 31 May 2018 (the “Lease”). The Lease was subsequently extended by a letter of renewal dated 18 August 2015 for a fixed term of 3 years from 1 June 2018 to 31 May 2021 at a monthly rent of $3,120,000 (“the Letter of Renewal”).

5. Since August 2019, the Defendant has been periodically asking the Plaintiff to reduce the monthly rent of the Lease by 50% to no avail.

6. In February 2020, the Defendant began to default on its payment obligations to the Defendant under the Lease.

7. On 20 March 2020, the Defendant issued a letter to the Plaintiff enclosing 2 cheques for a total sum of HK$3,347,965 which were said to represent 50% of the rents for February and March 2020. The Plaintiff maintains that there has been no agreement between the parties to reduce the rent. The payment was subsequently accepted by the Plaintiff to settle various outstanding charges for March 2020.

8. Between April and July 2020, the Defendant made further part payments to the Plaintiff in respect of the outstanding sums due under the Lease.

9. On 19 May 2020, the Plaintiff commenced HCA 718/2020 claiming against the Defendant the outstanding sums owed under the Lease for the period between 1 April and 18 May 2020 which amounted to HK$5,017,061.11.

10. On 26 June 2020, the Defendant informed the Plaintiff that it would cease business operations in the Premises. The Plaintiff replied on 30 June 2020 indicating that it would not accept repudiation of the Lease and insisted that the Defendant was to comply with its payment obligations until the expiry of the term of the Lease. On 1 July 2020, the Defendant ceased its business in the Premises.

11. On 8 October 2020, the Defendant asked the Plaintiff whether vacant possession could be delivered up so that all payment obligations could be released and discharged.

12. On 28 October 2020, the Plaintiff made an application for summary judgment against the Defendant .

13. On 2 November 2020, the Defendant issued a letter to the Plaintiff enclosing the keys of the Premises and urged the Plaintiff to accept delivery up of the Premises.

14. By reply letter of 11 November 2020, the Plaintiff refused to accept delivery up of the Premises or repudiation of the Lease, and stated that the Lease was to continue until 31 May 2021.

15. On 22 February 2021, the Plaintiff’s summary judgment application was heard before Master Norman Nip. The Master granted summary judgment in favour of the Plaintiff in HCA 718/2020 in the amount of HK$3.371 million together with pre-judgment interest and 50% costs to the Plaintiff to be taxed on an indemnity basis.

16. On 8 March 2021, the Defendant appealed against this decision.

17. On 17 March 2021, the Plaintiff commenced HCA 414/2021 claiming outstanding rent and other expenses due from 19 May 2020 to 16 March 2021 in the amount of HK$33,285,021.50 and interest thereon.

18. On 8 April 2021, the Plaintiff took out the present application for summary judgment in HCA 414/2021.

19. The Plaintiff now claims against the Defendant the total amount of HK$34,401,340.35 (inclusive of interest accrued up to 17 March 2021) and further interest thereon up to 28 June 2021.

20. The Defendant disputes that the sums are owed to the Plaintiff. The Defendant’s case is that the COVID-19 pandemic was a frustrating event that had the effect of discharging the lease agreement, or alternatively, it relies on the operation of a force majeure clause to suspend or cease its obligations under the agreement. The Defendant also contends that the Plaintiff was not entitled to affirm the contract and sue on a debt action.

C. ISSUES

21. The Court is asked to determine whether the Defendant has raised an arguable defence on the following issues:-

(1) Whether the Lease may be discharged by frustration as a result of the COVID-19 pandemic (the “Frustration Issue”)?

(2) whether Section VIII of the Lease, i.e., the Abatement of Rent and Development Clause, applies as a force majeure clause in the event of the COVID-19 pandemic to suspend or cease the Defendant’s obligations under the Lease (the “Force Majeure Issue”)?

(3) whether the Plaintiff was entitled to claim for the sums owed under the Lease in an action in debt (the “Proper Remedy Issue”)?

D. APPLICABLE LEGAL PRINCIPLES ON SUMMARY JUDGMENT

22. The principles on summary judgment are well established and not in dispute. The burden is on the Defendant to show that there are triable issues. It has to satisfy the Court that it has a real or bona fide defence. Unless a difficult question of law is raised, the Court may determine points of law under the summary judgment procedure. See Hong Kong Civil Procedure 2021 §14/4/9 and 12.

E. ANALYSIS

E1 FRUSTRATION ISSUE

23. As a general rule, a contract may be discharged on the ground of frustration when something occurs after the formation of the contract which (1) renders it physically or commercially impossible to fulfil the contract or (2) transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract: Chitty on Contracts, 33rd ed. (2018), Vo1.1, at §23-001.

24. It is common ground between the parties that the common law doctrine of frustration applies to leases. This has been the position since the leading case of National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 and is now well established law in Hong Kong. Counsel for the Plaintiff and the Defendant both extensively relied on National Carriers in which the relevant test was stated by Lord Simon of Glaisdale as follows:

“Frustration of a contract takes place when there supervenes 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 stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.” (at 700F) [emphasis added ].

25. A more recent formulation of the doctrine of frustration was given by Rix LJ in Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The Sea Angel) [2007] 1 CLC at [111] in which he said that the application of the doctrine of frustration requires a “multifactorial approach”. As to the applicable test for frustration, relevant factors include:-

(1) the terms of the contract and its context;

(2) the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of the contract at any rate so far as these can be ascribed mutually and objectively;

(3) the nature of the supervening event; and

(4) the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances.

26. He then went on to say at [111]-[112] that:-

“…Since the subject matter of the doctrine of frustration is contract, and contracts are about the allocation of risk, and since the allocation and assumption of risk is not simply a matter of express or implied provision but may also depend on less easily defined matters such as ‘the contemplation of the parties’, the application of the doctrine can often be a difficult one. In such circumstances, the test of...

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