Mak Kum Kok James v. Michael Monaghan Johnson

DCCJ 3852/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3852 OF 2016

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DECISION

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THE APPLICATION

1.This is an application for summary judgment by the plaintiff against the defendant by a summons dated 22 November 2016 under Order 14 of the Rules of the District Court (“Order 14 Application”).  The matter was first adjourned by Master on 29 December 2016 for substantive argument and filing of affidavits by both parties.  To support this application, the plaintiff filed two affirmations dated 22 November 2016 and 24 February 2017 respectively.  To oppose this application, the defendant filed three affidavits, one dated 16 December 2016 by himself, another one also dated 16 December 2016 by his wife Lisa Marie Johnson and lastly, one dated 27 January 2017 by his relocation agent Imelda Bernadette Diaz.  

2.Certain facts are undisputed.  By a tenancy agreement dated 12 November 2014, the plaintiff’s predecessor-in-title (“Predecessor Landlord”) leased “House 1B, Sheung Yeung standing at the remaining portion of Lot No 779 in DD 225 and the extension thereto, Sai Kung, Hong Kong” (“Property”) to the defendant as tenant at a monthly rent of HK$120,000 for a term of two years from 1 February 2015 to 31 January 2017 (“Tenancy Agreement”).  It is worth-noting that clause 4 of the Tenancy Agreement provided that the tenant and the landlord should have the right to terminate the lease by giving not less than two months’ written notice or paying two months’ rent in lieu thereof after a minimum period of twelve months’ occupancy (ie a minimum lease term of 14 months) (“Break Clause”).  The Property consists of a house and a garden.  By an assignment dated 31 March 2015, the plaintiff acquired the Property subject to and with the benefit of the existing tenancy from the Predecessor Landlord. Since then the plaintiff had become the landlord of the defendant and had been receiving rents from the defendant until the end of November 2015.  The defendant left the Property and returned the keys to the Property to the plaintiff on or about 15 December 2015 and did not pay any rent starting from 1 December 2015. The plaintiff signed a new tenancy agreement dated 6 May 2016 with another tenant for a term of two years from 30 May 2016 to 29 May 2018 at a monthly rent of HK$75,000 (with two rent free periods from 30 May 2016 to 29 June 2016 and from 30 April 2018 to 29 May 2018 respectively).

THE PARTIES’ RESPECTIVE POSITIONS

3.As set out in the statement of claim dated 4 August 2016, the plaintiff’s claim is this.  The plaintiff treated the defendant’s act of leaving the Property without the plaintiff’s consent or before the Break Clause became exercisable as a wrongful repudiation of the Tenancy Agreement, and by a written notice dated 18 December 2015 accepted it.  The tenancy of the Property was forfeited or otherwise terminated.  The plaintiff, therefore, claims payment of HK$915,000 (being outstanding rental payment of HK$840,000 plus difference between the rent payable by the defendant and the rent receivable from the new tenant of HK$315,000 less security deposit paid under the Tenancy Agreement of HK$240,000) with interest and costs.

4.In this Order 14 Application, the plaintiff seeks summary judgment for the sum of HK$840,000 (being the outstanding rental payment due from the defendant) or that judgment for liability be entered for the plaintiff with damages to be assessed or that the defendant be ordered to pay $240,000 (being two-month-rent) in court as condition to defend. 

5.The defendant disputes both liability and quantum.  As to liability, the defendant’s case is one of “misrepresentation”.  The defendant argued that he was induced to enter into the Tenancy Agreement by misrepresentation made by the Predecessor Landlord and its agent about the exact area of the garden included in the Property and that the misrepresentation was carried through by the plaintiff.  As to damages, the defendant contended that the plaintiff had not reasonably mitigated its loss.

6.The plaintiff’s arguments, for the purpose of this Order 14 Application, were that the alleged misrepresentation was not believable and even if made, could not be used to resist the plaintiff’s claim as the plaintiff should not be held responsible for the acts of the Predecessor Landlord or its agent.  In any event, the defendant should have pursued the matter against the Predecessor Landlord but not the plaintiff.  It was also argued that the plaintiff as the landlord had no duty to mitigate loss by taking steps to relet the Property which had been abandoned by the defendant as tenant during the term.     

THE LEGAL PRINCIPLES

7.The relevant legal principles for an Order 14 application are well stated in the Hong Kong Civil Procedure 2017, Volume 1, at paragraph 14/4/1:-

“Order 14 proceedings for summary judgment when there is no defence to a claim are an important feature of the legal process. … When applied for, it is for the defendant to show that there is a triable issue or an arguable defence if he is to be allowed his day in court. … The machinery of O.14 works on the basis that if the plaintiff’s application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed. In every summons under O.14, the first considerations are (1) whether the case comes within the Order, … and (2) whether the plaintiff has satisfied the preliminary requirements for proceedings under O. 14, … If the plaintiff fails to satisfy either of these considerations, the summons may be dismissed; if, however, these considerations are satisfied, the plaintiff will prima facie be entitled to judgment (provided, of course, that he has raised a prima facie sustainable case in the first place: …). The burden, as it were, then shifts to the defendant to satisfy the court why judgment should not be given against him.”

ANALYSIS

Liability – issue of misrepresentation

8.The plaintiff’s argument on the alleged misrepresentation, which was in relation to the garden area of the Property, was three-fold.  First, it was argued that the alleged misrepresentation was not believable and in fact had not been made.  The alleged words uttered by the Predecessor Landlord or its agent were too vague, there were no contemporaneous documents or records and it was not mentioned at all in the Tenancy Agreement, and that it was unreasonable for the defendant not to follow up with the Predecessor Landlord or its agent in good time.  Second, it was argued that even if such misrepresentation had been made, it was made by the estate agent and there was no or insufficient evidence to prove that the agent was making it at the instruction of the Predecessor Landlord and therefore having the actual or ostensible authority to do so (see Jopard Holdings Ltd v Ladefaith Ltd & Another [2015] 1 HKLRD 317 at para 28-29).  Finally, in any event, such misrepresentation, if any, was not binding on or actionable against the plaintiff who was a bona fide purchaser of the Property without notice of it (see Spencer Bower & Handley Actionable Misrepresentation (5^th edition) at paragraph 16.37).

9.The defendant, by relying on the authorities Green Park Properties Ltd v Dorku Ltd [2000] 2 HKLRD 400 and SAR Developments Limited v Worldex Stone Cladding Engineering Limited DCCJ 2193/2007 (unreported; 31 January 2008) with similar or comparable factual scenarios, argued that the court should be reluctant to adjudicate the dispute over any allegations of misrepresentation in an Order 14 application as it should be properly ventilated at trial.  It was argued that there was inference of fact to show actual or ostensible authority by the agent to make the misrepresentation on behalf of the Predecessor Landlord at the early stage of property viewing.  At the later stage and in particular on the handover date of the Property, the misrepresentation was repeated and confirmed by the Predecessor Landlord to the defendant’s wife.  More importantly, the misrepresentation, as argued by the defence, was carried through by the plaintiff after he had acquired the Property since 31 March 2015.  It was the defence case (to which the plaintiff denied or disagreed) that the plaintiff confirmed the misrepresentation with the defendant and his wife upon enquiry by the latter on or about 5 October 2015 and in particular by an email dated 16 November 2015.  The defence would also seek to argue that there was misrepresentation by conduct with reference to various matters, including the boundary walls and the private gate at the garden of the Property, the high value of the Property, the general descriptions of the Property under the Tenancy Agreement and the lack of index lot plan thereof.  With respect to the plaintiff’s alleged status of bona fide purchaser without notice of the misrepresentation, the defence argued that “[N]otice in the present context includes not only actual notice (including ‘wilful blindness’ or ‘contrived ignorance’…) but also constructive notice” (see also Spencer Bower & Handley Actionable Misrepresentation (5^th edition) at paragraph 16.37) and there were circumstances suggesting both in this case.

10.Quite obviously, there is a serious factual dispute as to the exact garden area of the Property leased or what was represented in relation thereto under the Tenancy Agreement.  There is an inherent difficulty in this matter as the descriptions of the Property (merely “House 1B Sheung Yeung standing at the remaining portion of Lot No 779 in DD 225 and the extension thereto”) in the Tenancy Agreement are too vague or too general and worse still, in the absence of any layout plan.  All the relevant matters, including what misrepresentation (if any) had been made, by whom (the estate agent and/or the Predecessor Landlord), whether the agent was having the authority to make the misrepresentation, whether the plaintiff had confirmed the misrepresentation (by words and/or by conduct), whether the plaintiff was a bona fide purchaser without notice (or in other words, whether the plaintiff was having actual or constructive notice) of the misrepresentation, are all triable issues which can only be resolved by proper cross-examination of the relevant witnesses.  I am therefore of the view that this general issue of misrepresentation relied upon by the defendant involves several triable issues and/or amounts to an arguable defence that should go to trial.

Quantum – duty to mitigate

11.The plaintiff’s argument in this aspect is simply that he has no duty to mitigate in the circumstances of this case, relying solely on a passage in Elements of Land Law (5^th edition) at paragraph 4.4.102:-

“The landlord has, supposedly, no duty to mitigate loss by taking steps to relet premises which have been abandoned by the tenant during the term, even though the tenant has committed breaches which entitle the landlord to terminate the lease.”

12.The defendant challenged the plaintiff’s proposition with regard to the landlord’s duty to mitigate as the correct legal position in Hong Kong.  It is argued that, first of all, it is a triable issue in law as to whether or not the plaintiff had a duty to mitigate in this case and second, if he did have such a duty, it is also a triable issue in fact as to whether or not he had reasonably complied with his duty to mitigate loss.  It was the defence argument that the fact that the plaintiff took five months to find a new tenant at a significant undervalue and with two rent free periods warrants close examination which could not be properly done in this Order 14 Application.   

13.I agree that the issue of duty to mitigate is a triable issue, both as a matter of law and that of fact, which should not and could not be adjudicated in this Order 14 Application.  When coming to this view, I am mindful of the authorities relied upon by the defendant, eg Wing Siu Company Limited v Goldquest International Limited HCA 3183/2001 and HCA 4145/2001 (unreported; 11 November 2002), Harvest Top Development Limited v HKS Parking Limited HCA 20165/1998 (unreported; 21 October 1999), Golden Investment Limited v NPH international Holdings Limited HCA 5457/1999 (unreported, 10 August 2004), where the issue of duty to mitigate had been considered by the court during assessment of damages in similar cases of landlord and tenant disputes.

DISPOSAL

14.Accordingly, for the reasons given above, I dismiss this Order 14 Application. Since the Defence and Counterclaim was filed on 26 October 2016, ie before the summons for this Order 14 Application which was issued on 22 November 2016, I am satisfied that the plaintiff knew that the defendant had these triable issues and/or an arguable defence which would entitle him to unconditional leave to defend.  Pursuant to Order 14 rule 7, I make an order nisi that the costs of this Order 14 Application be to the defendant in any event, to be taxed if not agreed, with liberty to the parties to lodge written submissions as to costs within 14 days from the date of this decision, the costs order to stand as an order absolute without further direction in the absence of such submissions.

Mr Paul Wong, instructed by Ong & Chung, for the plaintiff

Mr Adrian Leung, instructed by K C Ho & Fong, for the defendant