Ardis International Kindergarten Ltd v. Tang Kai Ming, Kenneth and Others
Read the full judgment text of DCCJ 4649/2015 on BabelCite. This District Court judgment.
1. This case is about a tenancy dispute where the tenant (“P”) claims the landlords (“Ds”) for the return of rental deposits and damages and the landlords counterclaim for arrears of rent and damages.
Cites 2 cases
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DCCJ 4649/2015 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 4649 OF 2015 ________________________
________________________ Before: Deputy District Judge S.P. Yip in Court Dates of Hearing: 1st, 2nd June & 4th July 2017 Date of Judgment: 17th November 2017 ________________________ JUDGMENT ________________________ Background 1.This case is about a tenancy dispute where the tenant (“P”) claims the landlords (“Ds”) for the return of rental deposits and damages and the landlords counterclaim for arrears of rent and damages. 2.P is a limited company incorporated about one year before the commencement of the present action. Madam Allison Lee (“Lee”), P’s only witness, is the shareholder and sole director of P. She is also the founder of Mulberry Tree Progressive Unschool Limited, which provides learning-through-playing programmes for children under 6 years old in Tai Po. 3.D1 to D3 are brothers and indigenous villagers. They are at all material times the registered owner of the premises known as “all those second floor (2/F) and top roof of nos.157-159 Kwong Fuk Road, Tai Po, New Territories” situated at Lots Nos.1400 and 1399 in Demarcation District No.6 (“the 157 Property”), and the Tong (D4) of which D1 is the manager is the registered owner of the adjoining flat known as “all those second floor (2/F) and top roof of nos.161-163 Kwong Fuk Road, Tai Po, New Territories” situated at Lots Nos.1398 and 1397 in Demarcation District No.6 (“the 161 Property”) and they are collectively referred as “the Properties” hereinafter. D1 to D3 authorised Kency Brothers Limited (“Kency”) to manage the Properties. The manager of Kency, Mr Clarence Chan (“Chan”), gave evidence in court for Ds. 4.Since May 2015, the parties began to negotiate for the tenancy in respect of the Properties. P intended to rent the Properties for education purpose. Eventually, P entered into two written tenancy agreements both dated 28 July 2015 (“Tenancy Agreements”) with D1-3 and D4 respectively to rent the Properties. They were both 3-year tenancies from 1 September 2015 to 31 August 2018 (both days inclusive) and their terms were identical, save and except for Clause 5.1 which provided the amounts of deposits and relevant schedules. 5.It is common ground that P paid HK$170,844 and HK$150,652 to D1-3 and D4 respectively with the following breakdowns:
6.P then proceeded to instruct Mr Lam of Masters Engineering Limited to commence renovation work of the Properties. 7.The whole block of the Properties was under renovation at the material time. Although D1 has applied to CLP Power Hong Kong Limited (“CLP”) for independent electricity supply for all 6 units of the whole block in 2014, Chan informed Lee on 20 August 2015 during a meeting that electricity supply was still not available at the commencement of the tenancy on 1 September 2015. After the meeting, P wrote to Ds to complain about the lack of electricity supply. 8.P then instructed its solicitors to write to Ds to reiterate the complaint about the lack of electricity supply and warned Ds if electricity supply remained unavailable on 1 September 2015, P would terminate the Tenancy Agreements and require the refund of deposits and rental paid to Ds. 9.Electricity supply was still unavailable to the Properties at the commencement of the tenancy on 1st September 2015. The next day, P through its solicitors gave notice to the Ds to terminate the Tenancy Agreements, whereas Ds held the view that they were not obliged to provide electricity to P. 10.On 9 September 2015, the Ds’ solicitors wrote to the P’s solicitors and asked P to “reconsider its position” and reply by 5 p.m. on 14 September 2015, or else the Ds shall accept P’s repudiation of the agreements. 11.P’s position remained unchanged. On 11 September 2015, P’s solicitors wrote back to Ds and reiterated the demand for return of the deposits and pre-paid rental. 12.On 12 October 2015, P commenced the present action claiming repayment of HK$170,844 against D1-3 and HK$150,652 against D4, on the ground that Ds were in breach of the implied covenants of non-derogation and/or quiet enjoyment because of their failure to supply electricity to the Properties at the commencement of the Tenancy Agreements. Procedural History 13.On the first day of the trial, I granted leave to P by consent of the parties to amend the writ of summons as per draft annexed to its summons filed on 31 May 2017 with no order as to costs of such application. 14.Upon hearing parties’ submissions, I granted leave to P to adduce a supplemental witness statement of Lee annexed to its summons filed on 18 May 2017 with costs of such application be in the cause. Leave was given to Ds to give evidence-in-chief in response to the new matters arising from P’s supplemental witness statement. Issues 15.P’s counsel in his closing submissions summarised the live issues as follows:
16.When I compare with paragraph 4 of the P’s opening submission, I find that P also submitted that “the Landlords, however, take issue on whether the Electricity Supply formed part and parcel of their covenants. The Landlords denied, and still deny that they were under any express duty to install, connect and/or provide electricity supply to the properties by the Commencement Date, and during the term of the tenancy”. 17.When I read the Statement of Claim (“SoC”), I find that in paragraph 9, P pleaded that the true meaning and the intent of the clauses of the tenancy agreement was that:
18.Further, in paragraph 14 of the SoC, P pleaded breach of the tenancy agreements, as of the commencement date that the Ds still failed and/or refused to install, connect and/or provide adequate independent electricity supply or at all to the Properties. Then it was followed by seven subparagraphs of particulars of breach. 19.However, when P pleaded the repudiatory breach in paragraph 15 of the SoC, P stated that:
20.Although P pleaded that it was an express duty to install, connect and/or provide independent electricity supply to the Properties, P did not plead further that such duty was an independent implied covenant or implied condition of the contract and breach of which will lead to repudiation. Therefore, breach of such duty should not be a repudiatory breach per se. P must rely on his plea of breach of the implied covenants of quiet enjoyment and non‑derogation pursuant to paragraphs15.1 and 15.2 of the SoC, ie, as summarised by the live issues in the closing submissions of P’s counsel. Legal Principles on Non-derogation / Quiet Enjoyment 21.No doubt, non-derogation overlapped, to a large extent, with quiet enjoyment. P’s counsel cited Platt & Ors v London Underground Ltd [2001] 2 EGLR 121. There is no dispute as to the legal principles stipulated in this leading case on the implied covenant against non‑derogation. Mr Lau for P has summarised the principles as decided in Platt, in paragraph 18 of his Opening Submissions:
22.However, I wish to add, in the judgment on page 4, paragraph 2, it says:
23.I also drew the attention of the parties to the discussion in Woodfall: Landlord and Tenants, Volume 1 at paragraph 11.083:
24.Mr Lau further submitted two cases on non‑derogation to illustrate how a landlord breached such implied covenant. The first one was McCall v Abelesz & Anor [1976] QB 585 in which the landlord was found liable for the tenants for breach of the covenant for quiet enjoyment. 25.In the above case, the gas and electricity were cut off by the landlord. The tenants sued the landlord breach of the implied term that the landlord would supply the gas and electricity through the meters, so long as the tenancy continued. 26.On page 591 of the judgment, the second‑last paragraph, it stated that the subject property in that case was a furnished room. There was a gas cooker for which the tenant had to put coins in the gas meter and similarly, electricity meter which required coins to be put in for electricity for light. 27.In McCall the act of the landlord involved deliberate cutting off of the electricity. Besides, the property was a furnished room. But in the present case unlike McCall, the landlords have never cut off the electricity supply. There were no complaints that Ds were guilty of taking any deliberate action to delay the installation of electricity meter for the P or delay the supply of electric power. Omission 28.So the question is, what act or deliberate act that the landlords have done to derogate from grant. The issue is whether they have committed any omissions. In paragraph 11.286 of the Woodfall, it sets out what omissions constitute breach of the implied covenant:
29.In the present case, the question is whether the landlords owe the tenant a duty. It is the P’s case that the landlords did owe such duty and that the exact omissions were stated in paragraph 85(3) of P’s closing submission:
30.P’s counsel in his opening submissions, also cited another case in support. It is Tat Ming Trading Company Ltd v Alpino Limited HCA 1659/2004. In that case, electricity supply was badly affected by water seepage problems in a domestic property, and the High Court held that the landlord was liable for breach of the implied covenant not to derogate from his grants. 31.I find that Tat Ming case should be distinguished from the present case for the following reasons. Firstly, the property in Tat Ming case was a furnished property in which Part 4 of the Landlord and Tenant (Consolidation) Ordinance Cap 7 applies. In that case, the landlord’s breach was his omission to investigate or to repair the water seepage problem[1]. It was not an omission to provide electricity, as pleaded by P in the present case. Correlative Implied Obligations 32.Apart from paragraph 85(3) of the P’s closing submissions, P also mentioned the landlords have correlative implied obligations which are corresponding to a tenant’s covenants[2]. P refers to clause 2.1 of the Tenancy Agreement, including clauses 2.1(aa)(ad)(ak)(e)(f), in respect of the electricity charges, restriction on electrical installations, wiring, etc. 33.Then Mr Lau cited two authorities in support of the correlative implied obligations on the landlords and summarised these cases in paragraph 22 of his opening submissions:
34.By citing these two cases to impose on the landlord such correlative implied obligation, it seems to be over‑simplifying such legal principles. In fact, there are authorities decided otherwise, which could be found in Woodfall. For example, paragraph 7.184 provides that:
35.Further down, in the second paragraph, the sixth line:
36.Secondly, in paragraph 11.314, the last sentence of the first paragraph:
37.Then in paragraph 13.007.2, the fifth line:
38.The way that such obligations could be implied depends on facts of each case. In paragraph 11.079 of Woodfall, it sets out a list of guidelines for implied terms. I must say that they are the general principles of implied terms.
39.In paragraph 23 of P’s opening submission, it was submitted that where the premises leased to the tenant were materially less fit for the intended purpose, the landlord was in repudiatory breach of the tenancy agreement and cited Smith v Marrable 152 ER 693N, Hussein & Ors v Mehlman [1992] 2 EGLR 87. 40.We must read these cases in the context of the general implied obligations of the landlord. In paragraph 13.001 of Woodfall, it says:
41.An exception to this general rule could be found in the following paragraph in Woodfall, 13.002:
42.I just highlight two exceptions applicable to the authorities cited by P. The first one is:
43.The second relevant exception is:
44.In Smith v Marrable, the property was a furnished house, an exception to the general rule. In Hussein & Ors, the landlord’s covenant to repair was implied by section 11 of the Landlord and Tenant Act 1985. The landlord was in breach of such implied covenant by refusal to repair. As such, P’s summary of these two cases is not quite correct to say that the landlord was in repudiatory breach because the premises were materially less fit for the intended purpose. At least, it does not apply to the case of Hussein. 45.But in the present case, no doubt it is not a furnished property and we do not have a similar provision of section 11 of the Landlord and Tenant Act 1985. Therefore, I do not think that Smith v Marrable and Hussein v Mehlman could assist me in deciding this case. 46.P also relies on Howard‑Jones v Tate [2012] 2 ALL ER 369. It is a sale of land case. The purchaser contracted to purchase a warehouse from the vendor. The vendor agreed to provide the warehouse with a new, directly metered single‑base electricity supply. The court found that the vendor had failed to do so. 47.I do not think that P could rely on this case as there is a distinguishing feature in that case which Mr Lau seemed to have missed out. In that case, the duty of the vendor to provide electricity was stated in the written contract of sale, a special condition 12, as per page 371 of the judgment. In the present case, P is not suggesting any breach of express written condition. 48.Therefore, I think it is necessary to look at the general principles when it comes to implying any obligation on the landlords. In this case, there is no doubt that the landlords have made the application to CLP for independent electricity meter for the P’s future use. Under such circumstances, there is no dispute that the electricity should be provided by CLP, not by the Ds or to be shared with Ds. 49.It should be in the contemplation of the parties that P would become an independent electricity user of CLP. So the question is, why there is an implied duty on the landlords to install or connect electricity as pleaded. We have to bear in mind that any such implied term must be reasonable and equitable. 50.No doubt the construction work of connecting the electricity, wiring and to provide the electricity power would be done by the CLP and might involve other parties as well, but not by the Ds. I cannot see how the Ds could control the work of CLP. 51.In the circumstances, would it be too onerous to impose such a correlative obligation on the landlord? In my view, a fair, reasonable or equitable implied duty would be a duty to facilitate the connection of electricity, but not to provide, install or connect electricity by the commencement date of the tenancy agreement, as pleaded by the P. 52.As there is no dispute that the Ds have made the application to the CLP before the tenancy agreement, what else can Ds do to ensure that CLP would complete the work and to supply electricity by 1 September 2015. Therefore, I find that there was no omission on the part of Ds when electricity supply was still not available to the Properties at the commencement of the tenancies. Conclusion of P’s Claim 53.As I have found that there was no omission on the part of Ds for the lack of electricity supply to the Properties at the commencement of the tenancies, it follows that Ds are not liable for causing if any substantial and material interference and disturbance to P’s full benefit and enjoyment of the Properties[3], and thus there is no breach of the quiet enjoyment covenant as alleged. 54.By the same token, I also find that Ds are not liable for rendering the Properties unfit or substantially less fit for the purpose for which they were let to P (ie for running a kindergarten), thereby depriving P of the enjoyment of the benefit of the Tenancy Agreement[4] (if that was the case), and thus there is no breach of the non-derogation covenant as alleged. 55.For the above reasons, P’s claim is dismissed. Counterclaim 56.Since it was found that Ds were not in breach of the Tenancy Agreements and P’s claim be dismissed, there is little dispute that P’s termination of the Tenancy Agreements must be wrongful repudiation and P should be liable to Ds for their consequential loss and damage. 57.Ds counterclaimed the following items[5]:
58.P denied Ds’ counterclaim. In particular, it did not admit Ds had put the Properties to open market for lease and if Ds suffered any loss and damage which was not admitted by P, it was caused by their failure to mitigate their loss[6]. 59.Ds adduced various emails correspondence with estate agents from 6 February 2016 to 4 August 2016 in support of Ds’ effort to seek estate agents’ assistance to lease the Properties in open market and in particular, the email to Michael Lin sent on 6 February 2016 and the email from Wu to Chan Chun Keung sent on 13 May 2016. Such emails were not in serious dispute. 60.In view of the evidence before the court, I find on balance of probabilities that Ds have sought assistance from various estate agents to lease the Properties at least for the period covered by the emails and thus Ds partly succeeded in establishing their attempt to mitigate their loss. I reject P’s defence to counterclaim of Ds’ total failure to mitigate their loss at all. The outstanding issue is the amount to be discounted from Ds’ counterclaim for the partial failure to mitigate their loss. 61.Mr Lau for P submitted that as Ds have abandoned the allegation of reinstatement during the trial[7], they should be debarred from pursuing the claim of damages caused by any breach of reinstatement obligation. I agree with Mr Lau. Therefore, save and except for item (e) of the paragraph 57 above which I disallow, I allow the other heads of Ds’ counterclaim subject to the issue of mitigation of loss. Quantum 62.After setting off the first month of rent and deposit paid by P, the counterclaims in respect of the 157 Property and 161 Property amounted to HK$494,427.48 and HK$599,309.77 as per the statement of damages lodged with court on 29 May 2017. 63.Mr Chan for Ds eventually conceded that Ds have failed to mitigate loss for the period from 14 September 2015 to 6 February 2016, ie, 4.8 months. As a result, Ds revised their calculations of damages by deducting: (i) rent; (ii) government rates; and (iii) management fees for 4.8 months as follows: (1) 157 Property:
(2) 161 Property:
64.I find the above concessions reasonable. 65.As I disallow the claim of damages caused by any breach of reinstatement obligation, a sum of HK$16,750 representing half of reinstatement cost shall be further deducted from each property: (1) 157 Property:
(2) 161 Property:
66.For the above reasons, I enter judgment against P on the counterclaim as follows:
Interest 67.Interest is awarded on the judgment sums at judgment rate from the date of writ, ie 12 October 2015, until full payment. Costs 68.Costs should follow the event. I therefore make an order nisi that costs of the whole action be to Ds, save and except that there be no order as to costs of P’s summons for amendment of writ filed on 31 May 2017. 69.Such costs shall be taxed if not agreed and this order nisi shall become absolute after 14 days from the date hereof, unless parties make any applications to vary it within such time.
Mr Lau Ka Kin, instructed by Gallant, for the plaintiff Mr Jeffrey Chan, of Au, Thong & Tsang, for the 1st to 4th defendants [1]Paragraph 19(c), page 9 [2] Paragraph 22, p.10 of P’s Opening Submission [3] Paragraph 15.1, Statement of Claim [4]Paragraph 15.2, Statement of Claim [5] Paragraph 21, Defence and Counterclaim [6] Paragraphs 19-20, Reply and Defence to Counterclaim of the 1st, 2nd, 3rd and 4th Defendants [7] Ds’ letter dated 9 June 2017 confirming the abandonment the grounds of their counterclaims stipulated in paragraphs 18(e), 19(c), (d) and (e) of the defence and counterclaim filed on 8 April 2016. | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under DCCJ 4649/2015