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Sunbroad Holdings Ltd v A80 Paris Hk Ltd ( Formerly Known As A80 Anoufa Paris Hk Ltd) And Another

Judgment Cited authorities 6 Cited in 1 Precedent Map Related
Vincent
Judgment Date03 June 2021
Neutral Citation[2021] HKCFI 1422
Year2021
Judgement NumberHCA735/2020
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA735/2020 SUNBROAD HOLDINGS LTD v. A80 PARIS HK LTD ( Formerly known as A80 ANOUFA PARIS HK LTD) AND ANOTHER

HCA 735/2020

[2021] HKCFI 1422

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 735 OF 2020

________________________

BETWEEN
SUNBROAD HOLDINGS LIMITED
( 信寶集團有限公司)		 Plaintiff
and
A80 PARIS HK LIMITED
( Formerly known as A80 ANOUFA PARIS HK LIMITED)		 1st Defendant
BEAUTY EXPRESS GROUP HOLDINGS LIMITED 2nd Defendant

________________________

Before: Master Jonathan Wong in Chambers (By Paper Disposal)

Date of Plaintiff’s Written Submissions: 4 and 6 January 2021

Date of Defendants’ Written Submissions: 5 January 2021

Date of Decision: 3 June 2021

_________________________________

DECISION

_________________________________

A. Introduction

1. By a summons dated 14 October 2020, the plaintiff (“Landlord”) seeks (1) summary judgment against the 1st and 2nd Defendants (respectively “Tenant” and “Guarantor”) or (2) in the alternative, interim payment in the sum of HK$493,893.96, being 50% of the principal sum claimed by the Landlord in this action.

2. By her order dated 27 October 2020, Master Tse directed that the Landlord’s summons be adjourned to a date to be fixed for disposal on paper and gave directions for filing of evidence and lodging of submissions.

3. The plaintiff filed two affirmations from Mr Ho Shek Tim, a director of the Landlord. The Defendants rely on the affirmations made by Ms Ho Wai Yee Maria (“Maria 1st”) and Mr Aviad Ben Ezra (“Ezra 1st”). Maria is the Chief Operating Officer of the Tenant and Mr Ezra is a director of both the Tenant and the Landlord.

4. The Landlord is represented by Mr Kevin Hon (“Mr Hon”) and the defendants by Ms Jacqueline Law (“Ms Law”), both of counsel.

5. The Landlord is the registered owner of Shops F, G and H on the Ground Floor of No 15 Pak Sha Road, Causeway Bay, Hong Kong (“Premises”). The Premises are located a stone’s throw away from Hysan Place, in or at the fringe of a prime shopping area frequented by tourists and local shoppers.

6. The Guarantor is in the business of beauty equipment and supplies such as skincare and hair products. It has acquired exclusive distribution rights and developed key partnerships with international leading brands and has built an extensive network of over 80 stores covering locations such as Hong Kong, Singapore and Macau. At the material time, one of such brands was A80 Anoufa Paris which was a Parisian brand for hair, beauty and fashion bearing a signature colourful graffiti pattern and the Anoufa Bear icon (“Brand”). The Guarantor indirectly holds 90% shareholding in the Tenant.

7. The Tenant was incorporated on 2 March 2018. By a tenancy agreement dated 19 August 2019 (“Tenancy Agreement”), the Premises were let by the Landlord to the Tenant for a fixed term of three years from 26 August 2019 to 25 August 2022 at a monthly rent of HK$240,000 (exclusive of management fees, government rates and all other outgoing utilities) payable in advance on the 1st day of each and every calendar month during the tenancy without any deduction. The Guarantor executed a deed of guarantee dated 12 August 2019 (“Guarantee”) in favour of the Landlord. Ms Law submits that, under the terms of the Guarantee, the liability of the Guarantor stands or falls with that of the Tenant. Mr Hon has not submitted to the contrary.

8. There is no dispute that the Tenant had only paid rent for the period up to and including January 2020. The Landlord commenced these proceedings on 21 May 2020 and claims for arrears of rent, arrears of government rates and contractual interest (as a liquidated sum of HK$987,797.91 for the amounts outstanding as at 20 May 2020) and for unpaid rent and government rates (or damages) for the remainder of the term of the Tenancy Agreement (ie from 21 May 2020 to 25 August 2022).

9. Although additional grounds are advanced in the Amended Defence, Ms Law has confined the defendants’ opposition in respect of the Tenant’s liability to three grounds.[1] First, it is said that, in January 2020, the Landlord had offered, and the Tenant had accepted, a rent reduction of 10% (“Rent Reduction Ground”). Secondly, the Tenant contends that the Tenancy Agreement had been frustrated by reason of what Ms Law describes as Unforeseen and Unprecedented Circumstances, namely the disruption or closure of the Tenant’s business caused by the social unrest and the COVID-19 pandemic (“Frustration Ground”). Thirdly, although not pleaded in the Amended Defence,[2] the Tenant argues that the Landlord has failed to mitigate its loss (“Failure to Mitigate Ground”).

10. In assessing the three grounds of defence advanced by the Tenant, I have borne in mind the applicable (and undisputed) principles. In gist, summary judgment is only for clear cases and ought not be applied in cases where there are material factual disputes, or a legal issue which is more than a crisp legal question fit for summary determination. The test to be applied is (1) whether the defendants’ factual case is believable and (2) if the factual case is believable, does it amount to an arguable defence in law.

B. Events prior to the execution of the Tenancy Agreement

11. After the Tenant was incorporated in early 2018, it started to search for premises to operate a physical store. A printout of the Tenant’s website shows that it also operates an online business in respect of the Brand.

12. Between June to July 2019, the Tenant negotiated with the Landlord in respect of the Premises through a representative of Savills Hong Kong Limited, namely Mr Thomas Waterhouse (“Mr Waterhouse”). As accepted by the Tenant, at the time of negotiation and the execution of the Tenancy Agreement, it was aware of the then ongoing social unrest and its negative impact on the retail sector generally. The figures released by the Hong Kong Government showed an increasingly significant year-on-year decrease in the value of retail sales from June 2019 onwards: Ezra 1st §26.[3] The Tenant nevertheless chose to enter into the Tenancy Agreement despite the attendant business risks, as its management made an assessment to the effect that the social unrest would not last long since the controversial Anti-Extradition Law Amendment Bill had been suspended on 15 June 2019: Ezra 1st §23.

13. The above matter is particularly relevant to the Frustration Ground to which I shall return below.

14. The defendants also rely on certain pre-contractual negotiations. At Ezra 1st §14, the defendants contend that from the telephone conversations between Mr Ezra and Mr Waterhouse (ie not directly between the Landlord and the Tenant), the Landlord was made aware that (1) the Tenant’s business relied heavily on tourists from mainland China and overseas and only a small percentage of its business was from local customers, and the foregoing was the main reason why the Tenant was interested in the Premises which is located at the heart of Causeway Bay and (2) the Tenant would arrange an area which occupied around 30% of the Premises for the purpose of providing hair-styling and hairdressing services to its customers (who were mainly tourists from mainland China and overseas) (“Pre-Contractual Negotiations”).

15. In my view, the defendants are unable to derive any particular assistance from the Pre-Contractual Negotiations.

16. Indeed, as I understand Ms Law’s submissions, she only relies on the Pre-Contractual Negotiations for the proposition that the purpose of the parties entering into the Tenancy Agreement was for the Tenant to set up a retail shop for the sale of its health and beauty products.[4]

17. However, as pointed out by Mr Hon (and accepted by Ms Law), there can be no dispute that the common intention between the Landlord and the Tenant was that the Premises were to be used as a retail store. Under Clause 7 of Part V of the Tenancy Agreement, the Tenant was not to use the Premises “for any purpose other than a SHOP for retail sales of high-end designers’ label Beauty, Hair, Fashion and Accessories products trading under the name of “A80 ANOUFA PARIS” for the Tenants lawful business only.”

18. Also as pointed out by Mr Hon, pre-contractual negotiation is generally inadmissible and Clause 6 of Part XI of the Tenancy Agreement contains an entire agreement clause to which Mr Law’s written submissions do not provide any adequate response.

19. In any event, I do not regard the defendants’ evidence on the Pre-Contractual Negotiations believable or that it leads to a triable issue, for the following reasons.

20. First and foremost, the defendants’ evidence, at its highest, only states that the Landlord was made aware of the Tenant’s unilateral views. There is no suggestion that the Landlord agreed with the Tenant’s views before the execution of the Tenancy Agreement: Ezra 1st §14. Thus, I do not agree with Ms Law’s characterization that the Pre-Contractual Negotiations amounted to a mutual understanding or common intention.

21. Secondly, no particulars have been put forward by the defendants as to when and how the Landlord was made aware by Mr Waterhouse of the matters forming the subject of the Pre-Contractual Negotiations. As is trite, the burden is on the defendants to condescend upon particulars.

22. Thirdly, the assertion that the Tenant’s business relied heavily on tourists from mainland China and overseas is a bare one. One would have expected that where, as here, the business to be operated by the Tenant at the Premises was a new venture (or at least at a new location), there would have been some studies into the demographics of the intended customers or projected sales. No business plan or forecast has been adduced into evidence by the defendants. Nor is...

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