Zenith Refinery (1977) Ltd v. Chan Kam-chuen and Others

HCA002749/1980

Coram: Liu, J. in Court

Date of Judgment: 4th June, 1981.

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JUDGMENT

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1. This is one of the rare actions in which the Court was faced with pure facts. The plaintiff's claim against the defendants erase from a letter jointly signed on 14th January 1980, which embodied the following term :

"Wing Kai Dyeing & Sizing Factory agrees to make good all the floor and walls that have been damaged during their stay in the above premises and will vacate by January 31, 1980."

2. None of the parties to the signed agreement was legally educated, and obviously the terms above quoted would have to be interpreted against the background of all the surrounding circumstances of this case.

3. It must be realized at the very inception that landlords in general would unlikely be prepared to accept the return of their premises at the expiration of the letting unless they are in good condition. Mr. WONG Man, the owner/landlord of the factory premises in this case, is no exception. He told the Court that he purchased the factory premises in March 1976 subject to an existing lease to Nam Yeung Textile Mill's Godown. He testified that his then tenants vacated in the middle of September 1976, having used his premises as a warehouse for the storage of cotton yarns on wooden racks six inches from the floor. The premises he purchased in March 1976 were over ten years old, but the floor was left in good condition. Little cross-examination on the condition of the floor was pursued, and no more than scratches and minor blemishes thereon were suggested on behalf of the defendants. Despite the lack of any real challenge to the evidence of Mr. WONG Man, from his complacency in accepting delivery of possession at the expiration of the lease granted to the defendants in 1980, it might possibly have been the case that in whatever condition, the floor was simply taken as good when an in-coming tenant was available to take over the premises and assume the obligation to surrender the same in good tenantable repair. I need only refer briefly to Mr. Wong's attitude when he assumed possession of the premises in suit in 1980 at the expiration of the lease granted to the defendants for delivery to the plaintiff. He testified that even for what was visible, he was not satisfied with the floor but that he was prepared to and did accept it so long as he was protected by an assurance in writing from his incoming tenant that in all respects the premises were in good condition.

4. Mr. LAU Lok, the only witness called on behalf of the defendants, testified that the floor was poor in 1976 when the defendants entered and that he did all the necessary repair in 1980 when the defendants vacated. As for the floor, he seemed to confine himself to the surface. He was driven in cross-examination to concede that he was unaware of the condition underneath. Mr. Lau was a very confused witness, and added difficulty was experienced in his testimony which often alternated the events in 1976 with those in 1980 without any clear demarcation. Under cross-examination, he related to the digging of a trench for laying a pipe presumably in 1976 when he found the concrete bad. He was less than specific as to how poor the concrete was in 1976. Confused as he was, nevertheless I accept that with minor exceptions he was substantially telling the truth. But the truth is unfortunately not good enough, in as well its scope as its extent, for the defendants in this case.

5. The defendants took over from Mr. WONG Man in 1976 under a lease, Exhibit D1, whereby they covenanted inter alia "to keep the said premises including all fixtures thereto in complete tenantable repair and condition throughout the term hereby granted (fair wear and tear excepted)". It is tolerably clear that vis-a-vis the landlord, Mr. WONG Man, and the defendants the floor and the rest of the premises were assumed, to all intents and purposes, to be in good condition. That was conclusive. Moreover, we were not assisted as to nature, extent and degree of the damage to the concrete. It could have been merely trivial, and it probably was the case: There was no evidence that the defendants were so informed as indeed they should have been with severely affected concrete if only to enable them to take the matter up with the owner or at least place it on record. Further, Mr. Lau had never claimed that he did remind the defendants to put the concrete in repair on their vacation, but on the contrary, Mr. Lau maintained that only superficial repair was necessary. The Court was left, therefore, with the defendants' acknowledgment in their lease covenant and Mr. WONG Man's evidence that the premises were all in a good condition in 1976, which I accept and find.

6. Mr. WONG Man testified that on 31st January 1980, certain patches had been filled but certain areas were not, as more particularly shown in their respective positions drawn as circles and triangles on Exhibit D2. Mr. WONG Man described the untreated holes as of irregular sizes, one or two feet long, with some two by four feet, and two or three inches deep.

7. He further told the Court that even the patched-up areas were not properly done "in a good way" with different materials used. He asked the defendants to effect further repairs, and ultimately Mr. Hui observed that the defects were minor and agreed to the plaintiff effecting proper repair and deducting the expenses from monies owed to the defendants. He testified that he would not have accepted the surrender of the premises with the floor in that condition but for the written assurance of the incoming tenant.

8. Mr. Chan, the then General Manager of the plaintiff testified that he visited the premises twice before 14th January 1980. He told the Court that naturally he was more concerned with the area available than the condition of the premises. The plaintiff was badly in need of accommodation. He noticed pits and holes, some of three feet in diameter, three or four inches deep with some smaller holes of three to four inches in diameter and one inch deep. The corridors were then covered by steel plates of five feet wide running the whole length of the factory. He further told the Court that the floor was covered with dye and the top layer was flaking off. Mr. Chan was then serving as the plaintiff's Chief Chemist with a degree in chemistry. He ventured to hazard a guess that the floor could possibly have been corroded by water and chemicals, acidic or alkaline in nature.

9. Mr. Koo, the plaintiff's contractor, gave evidence that the first time he visited the factory premises was when the machinery of the defendant had all been removed. He recalled that among the holes, the deepest was about six inches all the way through the concrete. He put on Exhibit P.3 blue circles representing holes and semi-circles and squares for damaged parts. He told the Court that two-third of the holes had been patched up. He said that they were not firm enough, leading him to believe that they were badly done largely with sand and only a small portion of cement. He told the Court that he found the surface loosened in many parts. He speculated that they were damaged by chemicals. Mr. Koo explained that he had been engaged to renovate upper floors for use as dyeing factories, for which he advised the installation of steel tanks to guard against leakage. Criticisms were justifiably levelled by Counsel for the defendant at such speculation.

10. On his first visit to the premises, Mr. Koo met two or three people including a European and Mr. Chan. He was emphatic that the poor filling and patching-up of the superficial damage could only be temporary and that hole by hole repair would attract a higher cost on account of more labour though with less cement. He concluded that the whole floor would have to be dug up for repairing the concrete and a new paving to be thereafter put on. His estimates at p.10 of the Agreed Bundle came to $106,400.

11. Let me turn back to approximately the same time when Mr. Chan, the then General Manager of the plaintiff company, had a meeting on 31st January with some of the defendants in the presence of the owner and Mr. Novak. He confirmed that not all the holes had been filled. He claimed that the patched-up work was not up to standard. Mr. Chan further told the Court that to him the damage appeared to be minor but would take more than $10,000 to $20,000 in repair.

12. According to Mr. Chan, Mr. Hui agreed to have it rectified and commented that it was only a small matter which the defendant would in any event be obligated to have it put right on vacation. Mr. Chan added that a few days before the meeting on 31st January, he had an opportunity of meeting the contractor of the defendants who suggested that a mere layer of cement on top of the floor would suffice, but he disagreed. Mr. Koo denied any such encounter. If indeed he was the contractor spoken to, he must have been confused in his recollection. On 31st January, Mr. Chan tried the patched-up parts with his foot and found that the surface was loose. He drew the attention of those of the defendants present to the problem and made known his dissatisfaction. Mr. Chan was adamant that he duly translated what was said by Mr. Novak to those of the defendants present to the effect that "the floor in this condition wouldn't do". According to Mr. Chan, he emphasized: "I don't care if you have to dig the whole floor up" and "you fix the floor to its original state no matter how you do it". Mr. Chan seemed, however, to be uncertain as to when such utterances were first made. Mr. Hui, according to Mr. Chan said that the defendants would not be prepared to spend much on the floor and suggested a layer of concrete which would be less costly. The defendants also offered to deliver ten bags of cement to the plaintiff for the purpose. Ultimately, so claimed Mr. Chan, it was agreed that the plaintiff was to effect the repair itself and deduct the expenses therefor from the $40,000 for the purchase of parts of the defendants' equipments. Mr. Chan understood "make good" as meaning "restore the floor to its original state", but he agreed that nothing specific was mentioned between the parties as to what that term meant.

13. Mr. Novak, when he came to give evidence, spared no efforts in making his disappointment felt. His evidence was slightly colourful and not entirely without exaggeration. However, he testified the floor was in an "unusable condition", tentamount to "no floor at all".

14. The only witness, Mr. Lau Lok, called by the defendants has been in the decoration business for 30 years and has run his own firm for 18. In 1980, he was instructed to demolish concrete platforms running alongside each machine to the whole length of the premises. He described the floor as having impressions or holes. He filled up the holes with cement and sand and smoothened the surface with cement. He claimed that his work was accepted without any complaint, but he did not put a layer of concrete over the entire floor. There was no mention that the pipe sunk in 1976 was removed or repair done to the concrete. He was of the opinion that it was unnecessary to dig up the whole floor, and he told the Court that in his experience that was never done. Under cross-examination, when he was asked to elaborate what he meant by "being unnecessary", he denied having even made that statement in examination-in-chief. Subsequently, he said that he was confused and did not recall having given that evidence. He was driven to admit that in the past, he repaired floor as he was told and that digging up the entire floor to have the concrete redone would yield a better result.

15. There can be no doubt that return of a good floor was what was bargained for and that it was the responsibility of the defendants to deliver vacant possession with a floor in tenantable repair. Ultimately, the primary questions to be decided are whether the floor was then repairable or damaged beyound repair and what was the reasonable cost for repairing or renewing it.

16. I prefer and accept the evidence of Mr. Koo as corroborated by the evidence, which I also accept of Mr. WONG Man, Mr. Chan and Mr. Novak as to the condition of the floor at the time of the defendants' vacation. I find that the floor was beyound repair and had to be completely renewed for the reasons given by Mr. Koo.

17. Initially, the defendants seemed to have been unaware, as was the plaintiff at one time, of the full extent of damage to the floor. I find that by their letter dated the 14th January, 1980, the parties intended to agree to a good floor to be surrendered to the plaintiff by the defendants on their vacation. I hold that the term in question did achieve, as it was meant to, that effect in all the circumstances of this case. A good floor was clearly bargained for, and a good floor had to be delivered.

18. Reference was made by Counsel for the defendants to the correspondence exchanged between the parties to this action. The dates given therein were relied upon as an indicator that work to the floor, if any, could not have been commenced before the end of March, 1980. Such, Counsel suggested, was at least evidence that the floor was considered by the plaintiff to be tolerable for some period of time. In addition, Counsel urged that these dates given in the correspondence cast doubt on whether in fact any work had been done to the floor at all. No issue was specifically taken during these proceedings on these dates with any of the witnesses called by the plaintiff. There may or may not be good explanations for the dates given in these correspondence, but I am not prepared in the circumstances to speculate or draw any inference therefrom. After all, these correspondence were agreed on admissibility and authenticity alone.

19. I find that a new floor has been put in as testified to by Mr. Koo. I further find that Mr. Koo was paid $106,400 by the plaintiff for the new floor. There was some confusion as to the receipts. It was more a matter of conjecture, but in the re-examination of Mr. Chan he did refer to a pit of 100 sq. ft. dug on the floor of the premises. Consequently, the actual cost for the floor might have been less than the original oral quotation submitted by Mr. Koo. This single reference to the 100 sq. ft. pit was not further pursued. I have found Mr. Koo to be an honest witness. We know not whether the pit was similarly paved with cement. If it had been, it was unknown whether Mr. Koo charged the plaintiff for the extra four sides of the pit in cement. The bottom of the pit would have compensated for the missing floor surface. As far as Mr. Koo was concerned, he would then have paved more area than he had quoted in his estimate. The digging up and the concrete layer would have to be done in any case. It is really a matter of speculation. We were not told what precisely transpired.

20. I accept that the floor was dug up, concrete laid and surface paved for the renewal of the floor which was virtually non-existent. Work for the new floor, I find, commenced almost immediately after the defendants had vacated the premises for the plaintiff and was completed about four weeks thereafter. Mr. Novak complained that if the work for the new floor had not been necessary, it would have been unwise to waste four weeks' rent without the use of the premises. Argument could possibly arise as to whether the plaintiff was entitled to cement paving over the area of 100 sq. ft., said to have been occupied by the pit, if there was one. I accept $106,400 as being a reasonable charge for the new floor that had to be put in. But giving the defendants the maximum benefit of doubt, I hope it would not be wrong of me to allow a deduction of $100, being the paving cost for 100 sq. ft.

21. In conclusion, the plaintiff is entitled to be reimbursed to the extent of $106,300 by the defendants. Allowing a deduction of $40,000 now held by the plaintiff, there will be a net balance of $66,300 due to the plaintiff by the defendants. I give judgment against the defendants in that sum with interest thereon at the rate and in the manner as claimed. The counterclaim of the defendants is dismissed. Costs to the plaintiff.

Representation:

Mr. A. Huggins instructed by J.S.M. for Plaintiff

Mr. Edward Chan instructed by Cheng & Lam for all Defendants.