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Kong Lai Restaurant Ltd (In Liquidation) v Swallow Kingdom Properties Ltd

Judgment Cited authorities 4 Cited in Precedent Map Related
Vincent
Judgment Date23 January 2014
Year2014
Judgement NumberDCCJ1332/2012
Subject MatterCivil Action
CourtDistrict Court (Hong Kong)
DCCJ1332A/2012 KONG LAI RESTAURANT LTD (In Liquidation) v. SWALLOW KINGDOM PROPERTIES LTD

DCCJ 1332/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1332 OF 2012

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BETWEEN
KONG LAI RESTAURANT LIMITED
(In Liquidation)		 Plaintiff

and
SWALLOW KINGDOM PROPERTIES LIMITED Defendant

and
HE ZHEN YUAN Third Party

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Before: HH Judge Wilson Chan in Chambers
Dates of Hearing: 6 December 2013 and 23 January 2014
Date of Decision: 23 January 2014

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DECISION

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INTRODUCTION

1. This is the hearing of the application by the third party against the liquidators of the plaintiff (“Liquidators”) pursuant to section 53 of the District Court Ordinance, Cap 336 for the following orders:-

(1) The Liquidators be personally liable to pay the third party’s costs of and in the following summonses (together the “3 Summonses”):

(a) The plaintiff’s summons for summary judgment against the defendant;

(b) The defendant’s summons for the striking out of the plaintiff’s claims; and

(c) The defendant’s summons for security for costs against the plaintiff.

(2) The Liquidators do indemnify the third party and keep him indemnified from and against all costs arising from and incidental to the defendant’s claim under the Third Party Notice and the defendant’s summons for refraining the third party from disposing of or dealing with his assets.

(3) Costs of and incidental to this application and of the third party in the Third Party Proceedings be borne by the Liquidators personally.

2. By my order dated 6 December 2013 made at the first day of the hearing, I ordered that the Liquidators be joined as respondents in the action for the purposes of costs.

PRELIMINARY POINT

3. First off, I reject the Liquidators’ submissions that the third party’s application should be rejected on the ground that the third party was not named as a party to the 3 Summonses.

4. By the order of Mr Registrar Lui dated 22 November 2012, the third party was granted liberty to attend and take part in the hearing of the 3 Summonses on 9 January 2013 and be bound by the result of such hearing. Such an order made the third party a party to the main action [see: Hong Kong Civil Procedure 2014, Practice Note 16/4/8 at page 362].

FACTUAL AND PROCEDURAL BACKGROUND

The Tenancy Agreements

5. I would gratefully adopt the comprehensive summary of background facts contained in the Liquidators’ Skeleton Submissions. On 25 November 2008, the plaintiff as tenant and the defendant as landlord entered into a tenancy agreement whereby the latter let a property in Nathan Road (“Property”) to the former for its operation of a restaurant business (“Tenancy Agreement”).

6. The Tenancy Agreement stated, inter alia, as follows:-

“(1) Rental period: From 1 November 2008 to 31 October 2013. …

(2) Rent: HKD119,000 per month. The rent shall be paid in the early period of each month, and shall not be paid late under any excuse. If the rent has not been paid within 7 days, this shall be regarded as Party B [the plaintiff] terminating the Tenancy Agreement. Party A [the defendant] shall be entitled to repossess the property, and claim all the loss and damage...

(3) Deposit: Party B shall pay a rental deposit of HKD357,000. After the expiry of the Tenancy Agreement, when Party B according to the “Vacancy” terms vacates, Party A shall return the deposit without interest to Party B within 3 days. Any unpaid rents shall be deducted from the deposit. Any deficiency shall be paid by Party B. However, Party B shall not use this excuse to delay paying the rent.”

7. The rental deposit of HK$357,000 was paid as agreed.

8. On 11 November 2008, the plaintiff and the defendant entered into a supplemental tenancy agreement (“Supplemental Tenancy Agreement”) to provide for a more flexible way of calculating rent in view of the economic downturn:-

(1) With effect from 1 November 2008, the plaintiff should pay a fixed rent of HK$90,000 on condition that the plaintiff would comply with all the provisions of the Tenancy Agreement. If the total monthly sales of the plaintiff exceeded HK$1 million there should be an additional rental payment of HK$15,000. If the total monthly sales exceeded HK$1.1 million, the additional rental payment would be HK$29,000 (clause 4.1).

(2) Of the HK$357,000 rental deposit paid, HK$270,000 would be regarded as the rental deposit representing 3 months’ rent and the remaining HK$87,000 together with the plaintiff’s additional payment of HK$3,000 cash would be regarded as the fixed rental payment for November 2008. If required to pay the full rent of HK$119,000, the plaintiff should then top-up an additional sum of HK$116,000 towards the rental deposit (clause 4.2).

9. On 1 June 2009, the defendant agreed to sell the Property to the third party subject to the Tenancy Agreement.

10. On 20 July 2009, the sale and purchase of the Property was completed. The third party also executed an indemnity (“Indemnity”) in favour of the defendant stating, inter alia, that he would be responsible for refunding the rental deposit to the plaintiff at the expiration or sooner determination of the tenancy. He also undertook to indemnify the defendant against all losses, claims and liability in respect of the return of the rental deposit.

11. Upon execution of the Indemnity, the defendant transferred the rental deposit to the third party.

12. Since July 2009, the plaintiff had made monthly rental payments of HK$90,000 to the third party until May 2010 when it stopped paying. Further, it would appear that the plaintiff had failed to pay any management fees, rates and charges since December 2009.

HCA 840/2010 and the plaintiff’s liquidation

13. In June 2010, the third party commenced proceedings in HCA 840/2010 against the plaintiff to recover all outstanding rent, charges as well as mesne profits and vacant possession of the Property. The plaintiff did not file any notice of intention to defend. Default judgment was therefore entered into against the plaintiff on 5 August 2010 for vacant possession and the recovery of the rent, charges and mesne profits (“Default Judgment”).

14. The Property was eventually repossessed in September 2010. The amount owed by the plaintiff under the Default Judgment added up to over HK$926,000.

15. On 10 November 2010, the plaintiff was wound up by the court under a creditor’s petition.

16. The Liquidators became the provisional liquidators of the plaintiff on 10 November 2010 and the liquidators of the plaintiff on 13 May 2011.

17. On 13 May 2011, Master Hui ordered in proceedings HCCW 361/2010 that there shall be no committee of inspection and the Liquidators may do all things that may ordinarily be done by a liquidator with the sanction of the committee of inspection.

DCCJ 1332/2012

18. Since December 2011, the plaintiff’s solicitors, Messrs Stephenson Harwood (“SH”) had been demanding the defendant to refund the rental deposit of HK$270,000.

19. On 20 April 2012, the plaintiff commenced the present action against the defendant for the return of the said rental deposit.

20. On 15 May 2012, the defendant filed a Form 16 in these proceedings admitting liability of HK$157,000 on the basis that it only had a receipt for such amount.

21. On 25 May 2012, SH provided copies of the receipts for the whole amount to the defendant’s solicitors.

22. On 7 June 2012, the defendant’s solicitors provided a copy of the Default Judgment to SH stating that the plaintiff was not entitled to the return of the rental deposit because it had been forfeited by the third party. This was the first time that the Liquidators were aware of the Default Judgment.

23. In a letter dated 19 June 2012 from SH to the defendant’s solicitors, the former stated that the defendant owed a personal obligation to the plaintiff for the return of the rental deposit. On the same day, the plaintiff filed a Form 16B notifying the court that they did not accept the defendant’s part admission as contained in the Form 16.

24. On 20 July 2012, the plaintiff issued a summary judgment application against the defendant.

25. On 9 August 2012, the defendant issued a Third Party Notice joining the third party in these proceedings on the ground that the third party had signed the Indemnity.

26. On 31 August 2012, the defendant issued a summons for security for costs and another summons to strike out the Statement of Claim against the plaintiff.

27. On 16 October 2012, the defendant issued a summons against the third party seeking a Mareva Injunction against him up to the value of HK$1 million.

28. Upon the third party undertaking to pay into court a sum of HK$1 million, consent orders were made on 19 October 2012 for the Mareva Injunction application to be adjourned to a date not earlier than 21 January 2013.

29. The third party has paid HK$1 million into court which has not been paid out.

Decision of His Honour Judge Simon Leung dated 18 January 2013

30. The 3 Summonses were heard by His Honour Judge Simon Leung on 9 January 2013.

31. At that hearing, the plaintiff contended, inter alia, that by operation of section 31 of the Conveyancing and Property Ordinance, Cap 219, any right to sue for the outstanding rent went with the reversionary estate from the defendant to the third party. However, since the obligation to refund the rental deposit was a personal obligation (as made clear by the decision of Godfrey J (as he then was) in Crocodile Garments Limited v The Prudential Enterprise Limited [1989] 1 HKC 474), the defendant remained liable to refund the...

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