Tse Pok Lok and Another v. Yuen Siu Hong
Read the full judgment text of DCCJ 4830/2003 on BabelCite. This District Court judgment.
1. In this action, the Plaintiffs’ claim against the Defendant is for arrears of rent and for damages for breach of a tenancy agreement.
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DCCJ4830/2003 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 4830 OF 2003 __________ Between
__________ Coram : Deputy District Judge W. K. Kwok in Court Dates of hearing : 3rd, 4th and 5th May 2005. Date of handing down of judgment : 18th August 2005. JUDGMENT 1.In this action, the Plaintiffs’ claim against the Defendant is for arrears of rent and for damages for breach of a tenancy agreement. Background 2.By a written tenancy agreement dated 29th November 2001 (‘the Tenancy Agreement”), the 1st and 2nd Plaintiffs agreed to let and the Defendant agreed to rent the premises known as Flat B, 11/F., No. 96 Broadway, Mei Foo Sun Chuen, Kowloon (“the premises”) for residential purposes for a term of 24 months between 1st December 2001 and 30th November 2003 at a monthly rent of $21,000 inclusive of rates and management fees payable in advance on the 1st day of each and every calendar month. 3.Upon signing of the Tenancy Agreement, the Defendant paid to the Plaintiff the rent for the first month of the tenancy. In addition, pursuant to Clause 7 of the Tenancy Agreement, she paid to the Plaintiffs a security deposit equivalent to 2 months’ rent, i.e. $42,000, for the due observance and performance of the terms and conditions therein. 4.On 1st December 2001, the Defendant and her family entered into possession of the premises. 5.The Plaintiffs and the Defendant agreed that there was a rent-free period for 14 days between 1st and 14th December 2001. They further agreed that the Defendant should thereafter pay the monthly rent in advance on the 15th day of each and every calendar month commencing from 15th January 2002. 6.On 22nd September 2002, the Defendant returned the keys and delivered up vacant possession of the premises to the Plaintiffs. 7.Subsequently, on 23rd March 2003, the Plaintiffs re-let the premises to another tenant for residential purpose at a monthly rent of $17,000 inclusive of rates and management fees for a term of 2 years commencing from 24th April 2003. 8.By a letter dated 15th April 2003 from the Plaintiffs’ solicitors Messrs. Christopher Li & Co. to the Defendant, the Plaintiffs demanded the Defendant to pay arrears of rent and damages for the loss and damage suffered by the Plaintiffs as a result of the Defendant’s repudiation of the Tenancy Agreement. 9.On 15th August 2003, the Plaintiffs commenced these proceedings against the Defendant. The Plaintiffs’ Case 10.The Plaintiffs contend that the Defendant has failed to pay the rent that has accrued between 15th August and 22nd September 2002. They further say that she has repudiated the Tenancy Agreement by terminating it before the end of its contractual term, and that they have accepted her breach on 22nd September 2002. They contend that as a result of her breach, they have suffered complete loss of rental between 23rd September 2002 and 23rd April 2003 when the premises were re-let to another tenant, and thereafter they have suffered partial loss of rental until 30th November 2003 when the contractual term of the Tenancy Agreement would have otherwise expired. The Defence case 11.The Defendant contends that she had duly surrendered the tenancy to the Plaintiffs on 22nd September 2002. She says that there was a surrender of the tenancy either by consent or by operation of law. In addition, she also says that the Plaintiffs by their conduct are estopped from asserting that they have not accepted her surrender of the tenancy. She also contends that if she were found to have breached the Tenancy Agreement, the Plaintiffs had failed to mitigate their loss and damage. The Witnesses 12.The 1st Plaintiff is the husband of the 2nd Plaintiff. They gave evidence in support of their claim. They also called Miss Lau See Wing who provided expert evidence on the market rental value of the premises at the material times to substantiate their claim for damages. 13.The Defendant and her husband Mr. Yau Lai Po Lawrence (“DW2”) gave evidence for the defence. 14.Each of the witnesses confirmed the truth and accuracy of his or her respective witness statement, and adopted it as evidence. Each of them was further subject to oral examination in Court by Mr. Hon, Counsel for the Plaintiffs, and Miss Myint, Counsel for the Defendant. There is no issue about authenticity and admissibility of the documents in the bundle of documents. 15.I shall deal with the issue of liability first. Evidence for the Plaintiffs 16.The Plaintiffs testified that the Defendant failed to pay the rent that had fallen due from 15th August 2002 onwards until she moved out of the premises on 22nd September 2002. 17.According to the 2nd Plaintiff, she received a telephone call from DW2 in mid-September 2002. In that conversation, DW2 told her that his financial condition and business situation were not good and that he was unable to pay for the rent. He requested to return the keys of the premises to her, and said, “After that, I would not be able to pay you rent.” DW2 also said that he had a friend who liked the premises very much. He asked whether the 2nd Plaintiff was interested in letting the premises to his friend. The 2nd Plaintiff replied that she could not make a decision and that she had to discuss with her husband. 18.The 2nd Plaintiff denied under cross-examination that DW2 had in this conversation offered to her to use one month’s rent in the security deposit to pay off the arrears of rent and the balance of one month’s rent as compensation for early termination of the tenancy. 19.After this approach from DW2, the 2nd Plaintiff discussed with the 1st Plaintiff. According to the 1st Plaintiff, the 2nd Plaintiff told him that DW2 had told her in that telephone conversation that he had no money to pay the rent and that he would not pay the rent anymore. In light of DW2’s approach and the fact that the Defendant had not yet paid for the rent due on 15th August 2002, they decided that they should consult a solicitor for advice on how they could claim damages for breach of the Tenancy Agreement. 20.They approached Mr. Tse Ka Lok for advice. Mr. Tse is a solicitor of Messrs. Christopher Li & Co. and also the younger brother of the 1st Plaintiff. Mr. Tse advised them that the Defendant’s voluntary delivery up of possession of the premises without termination of the tenancy by mutual consent would amount to a repudiation of the Tenancy Agreement, and that they would be entitled to recover from her arrears of rent as well as damages for her breach after they had taken back possession of the premises. Mr. Tse further advised that they could get back the keys of the premises if the Defendant returned them, but they should not agree to the termination of the Tenancy Agreement, or promise the Defendant anything, or sign any document if they wanted to retain their right to claim damages. 21.Several days after DW2’s initial approach, the 1st Plaintiff contacted DW2 by phone. He asked DW2 when DW2 would give him back the keys of the premises. DW2 replied that the keys could be returned on 20th September 2002. 22.The 1st Plaintiff testified specifically that since he had borne in mind the legal advice that he had received, he had said nothing else in this conversation. He stressed in particular that he had not promised DW2 anything. In his witness statement, the 1st Plaintiff stated that in this conversation, he “agreed to take up possession of the premises from the Defendant but did not give consent to the termination of the said Tenancy Agreement”. 23.The Plaintiffs then decided that they would let out the premises again after the Defendant had vacated from the premises. They instructed estate agents to look for prospective tenant. The 2nd Plaintiff asked DW2 by phone whether she could bring along estate agents and their customers to view the premises, but DW2 declined on the ground that it was not convenient. The 2nd Plaintiff then suggested that she would only ask one estate agent, i.e. the Miss Chan who closed the deal between them to bring along customers. DW2 agreed. However, Miss Chan later told the 2nd Plaintiff that DW2 refused to make appointment with her when she asked to bring customers to the premises. 24.The Plaintiffs then waited for the Defendant and DW2 to return the keys of the premise. However, they heard nothing from them. At the night of 20th September 2002, the 1st Plaintiff contacted DW2 by phone again. They eventually agreed that the keys should be returned on 22nd September 2002 in the premises. 25.On 22nd September 2002, the Plaintiffs went to the premises where they were received by the Defendant and DW2. They inspected the conditions of each room inside the premises and checked whether the air-conditioners, oven, water heater and massage bathtub were in proper working condition. They found that two bed mattresses and two desks were missing. DW2 told them that he had thrown away the mattresses when he moved in. The 1st Plaintiff then demanded for the return of the two desks. DW2 said he would give him a reply two days later. DW2 then returned the keys of the premises to the Plaintiffs, and vacated from the premises with DW2 and their family. 26.While the 1st Plaintiff could not recall, the 2nd Plaintiff did confirm that during the handover of possession of the premises on 22nd September 2002, the parties had discussed about bills for utilities charges, and the Defendant or DW2 had paid her $10 as the outstanding payment. 27.In the following two days, the 1st Plaintiff did not receive any reply from DW2 about the return of the missing desks. He called DW2 up by phone, only to be told that the desks could not be returned. The 1st Plaintiff hung up the phone and did not pursue this matter further. 28.In the subsequent 7 months, save for the few occasions when the 2nd Plaintiff contacted DW2 to collect some letters and asked him to pay a small outstanding sum of utilities charges, the Plaintiffs had no contact with the Defendant or DW2. But after they had re-let the premises again, they instructed their solicitors to send a demand letter dated 15th April 2003 to the Defendant, demanding her to pay arrears of rent and damages for repudiation of the Tenancy Agreement. Evidence for the Defendant 29.According to the Defendant and DW2, in or about August 2002, they noticed that the rent they were paying for the premises was higher than the then market rent. At that time, they were in financial difficulties because DW2’s garment manufacturing business was hard hit by the global economic downturn. The rent had become a heavy burden to them. By that time, they had already been consistently late in paying rent to the Plaintiffs, and they feared that the late payment would become worse or they might even be unable to pay rent. They decided that they should look for a smaller and cheaper flat, and that if such a flat were available, they would inform the Plaintiffs of their financial difficulties and of their intention not to rent the premises anymore. They would also offer to use the security deposit that they had paid to the Plaintiffs to settle the arrears of rent and to be used as compensation. 30.In early September 2002, DW2 telephoned the landlords and asked for early termination of the tenancy on behalf of the Defendant. The 2nd Plaintiff received his call. He told her that since he had financial problem but he did not want to delay payment of rent, he did not want to rent the premises anymore. He reminded the 2nd Plaintiff that the security deposit equivalent to two months’ rent was still retained by the Plaintiffs. He offered that the Plaintiffs could deduct one month’s rent from the deposit to pay off the arrears of rent due for the month between 15th August and 14th September 2002, and that they could retain the balance of one month’s rent as compensation for early termination of the tenancy. DW2 denied under cross-examination that he had told the 2nd Plaintiff that he or the Defendant would no longer pay rent to the Plaintiffs. 31.According to DW2, the 2nd Plaintiff did not agree or disagree with his proposal. She just said that she had to inform her husband and that she would give a reply a few days later. DW2 understood the 2nd Plaintiff meant to say that she could not make a decision and that she had to discuss with the 1st Plaintiff. 32.The Defendant was sitting next to DW2 whilst he was speaking with the 2nd Plaintiff over the phone. She said that if the 2nd Plaintiff had rejected her proposal right away, she would have asked the 2nd Plaintiff whether she was willing to reduce the rent. But the 2nd Plaintiff never said over the phone that she disagreed with the proposal. 33.DW2 further testified that about 3 days after his call to the 2nd Plaintiff, the 2nd Plaintiff asked him if he could allow her estate agent a Miss Chan of Midland Real Property Agency to bring some clients to view the premises. He rejected her request because his sick and elderly father who was living with him would feel uncomfortable if strangers were inside the premises and if he knew he had to move away soon. 34.In a subsequent telephone conversation, DW2 informed the 2nd Plaintiff that his friend Mrs. Leung might be interested in renting the premises. The 2nd Plaintiff told him that she intended to sell the premises but she might consider letting it out if the rent was good. This proposed deal however did not proceed further since Mrs. Leung showed no interest in renting the premises after she had inspected it. 35.Several days after his approach to the 2nd Plaintiff for early termination of the tenancy, DW2 received a telephone call from the 1st Plaintiff. The 1st Plaintiff asked him whether he was not going to rent the premises anymore. Upon DW2 answering in the affirmative, the 1st Plaintiff asked him for the time when the keys of the premises could be returned. DW2 replied that it would be around the middle of the month, but the exact date had yet to be confirmed. Before the 1st Plaintiff hung up, he said telephone contact would be made for handing over the keys. 36.DW2 testified that what he understood from this telephone conversation with the 1st Plaintiff was that the Plaintiffs accepted his offer to pay the arrears of rent out of the security deposit and use the balance as compensation for early termination of the tenancy. He stressed that the 1st Plaintiff had not imposed any other condition. On the contrary, he said he had also informed the 1st Plaintiff of his proposed use of the security deposit in this conversation. Under cross-examination, he did agree that in this telephone conversation, he had not sought the 1st Plaintiff’s confirmation that he agreed to use the security deposit in the way he proposed. 37.DW2 further testified that both sides subsequently agreed over the phone the handover date to be 22nd September 2002. On that day, the Defendant and DW2 returned the premises and its keys to the Plaintiffs. They gave evidence similar to those given by the Plaintiffs about what had happened prior to handing over the keys and the premises, except that they said the Plaintiffs did not demand for the return of the two desks after they had told them that the desks had been moved away. According to the Defendant, the handover was quite smooth and the Plaintiffs did not say much or have any significant reaction. Both the Defendant and DW2 further testified that when they were about to leave, they asked the Plaintiffs whether there was any other problem so as to feel more assured, and the 1st Plaintiff replied in the negative. 38.After they had vacated from the premises, the Defendant and DW2 felt that all matters relating to the Tenancy Agreement had been resolved satisfactorily, and that they would not be required to pay rent after 22nd September 2002 since they no longer used the premises. They had no more contact with the Plaintiffs save for the few occasions when the 2nd Plaintiff asked DW2 over the phone to collect letters and settle an outstanding payment of utilities charges in the sum of $10 odd. 39.They lived thereafter at the new premises known as Flat D, 20/F., No. 94 Broadway, Mei Foo Sun Chuen, Kowloon at a reduced monthly rent of $12,500. They found this new flat through an estate agent. DW2 signed on both preliminary and formal tenancy agreements for renting this new flat. The formal tenancy agreement was undated, but the Defendant and DW2 said that the formal agreement was signed on 12th September 2002 because the receipt issued by the estate agent for acknowledging receipt of the commission paid by DW2 bore that date. 40.The Defendant was not certain of the time when DW2 signed the provisional tenancy agreement for the new flat and paid the preliminary deposit. She said it should be around early September 2002 because there was a lapse of about 2 weeks before DW2 signed the formal agreement, but she forgot the exact time. She was not even certain whether the provisional agreement was signed before DW2 contacted the 2nd Plaintiff and asked for early termination of the tenancy, but she was certain that it was only after this approach of the 2nd Plaintiff by DW2 that DW2 signed the formal tenancy agreement for the new flat. 41.On the other hand, DW2 was more specific about the time. He said under cross-examination that he signed the provisional tenancy agreement and paid a preliminary deposit at the end of August 2002, and that about 3 or 4 days afterwards, he spoke with the 2nd Plaintiff about early termination of the tenancy. He further said that it was within 10 days after he had paid the preliminary deposit for the new flat that the 1st Plaintiff asked him when he could return the keys of the premises. DW2 further testified that it was 2 days (as said in evidence-in-chief), or one or two days (as said in cross-examination) after this conversation with the 1st Plaintiff that he entered into the formal tenancy agreement for the new flat because the 1st Plaintiff had given him the impression, by asking for return of the keys, that the Plaintiffs had accepted the proposal for an early termination of the tenancy agreement. 42.The Defendant admitted that DW2 had paid about $5,000 as preliminary deposit for renting the new flat before he spoke with the 2nd Plaintiff for early termination of the tenancy. She said that if DW2 did not proceed to sign the formal tenancy agreement, DW2 would lose the preliminary deposit. In addition, he had to pay compensation equivalent to one month’s rent to the estate agent who procured the agreement. 43.The Defendant and DW2 denied the suggestion that they were determined to terminate the tenancy irrespective of the Plaintiffs’ response because they wanted to get out of a bad deal for paying high rent to the Plaintiffs. The Defendant explained that but for the fact that she could not afford the rent, she would have remained in the premises until DW2’s father who was suffering from stomach caner passed away because DW2’s father liked the premises very much as it was quiet and comfortable, and moving out of the premises was a blow to this old man. 44.According to the Defendant, if the Plaintiffs had refused to accept her proposal for early termination of the tenancy, she would not have returned the premises to the Plaintiffs, and would not have entered into the formal agreement for renting the new flat. She said she would instead negotiate with the Plaintiffs for a lower rent, and even if she failed, she would still rent and live in the premises though she would need to seek the financial assistance of DW2’s siblings. However, the Plaintiffs gave her a different impression because the 2nd Plaintiff had engaged estate agents and asked for permission to allow her agents to bring along clients to view the premises, and the 1st Plaintiff kept on asking when the premises and the keys could be returned to him. Action statue-barred 45.Miss Myint has taken the preliminary point that the Plaintiffs are statute barred from bringing this action against the Defendant on the ground that they had not lodged a notice relating to the Tenancy Agreement with the Commissioner of Rating and Valuation in the prescribed form, i.e. Form CR109, and the Commissioner had not endorsed the notice at the time when this action commenced. 46.It is common ground between the parties that Part IV of the Landlord and Tenant (Consolidation) Ordinance, Chapter 7, Laws of Hong Kong, applied to the tenancy between the Plaintiffs and the Defendant. It is also clear that the Plaintiffs instituted this action in the District Court on 15th August 2003, and that the relevant Form CR109 was endorsed by the Commissioner only on 9 February 2004. 47.Section 119L(2) of the Landlord and Tenant (Consolidation) Ordinance provides that: - 48.The Plaintiffs’ claim consists of two parts. First, they claim for arrears of rent between 15th August and 22nd September 2002. Second, they claim for damages for repudiation of the Tenancy Agreement, and the particulars of damages refer to the amount of rent that the Plaintiffs have allegedly lost due to early termination of the tenancy. According to Miss Myint, this claim for damages is in fact “an action amounting to an action for arrears of rent”. Hence, she submits that the Plaintiffs had to have a duly endorsed Form CR109 before they could maintain this action for both arrears of rent and damages. She further submits that the Form CR109 subsequently obtained by the Plaintiffs did not save this action because it was not in existence at the time when this action commenced. She contends that the word “maintain” in section 119L(2) includes not only continuing but also bringing an action or suit to recover rent. She refers to the Solicitors Act 1843 to support her submissions. 49.Mr. Hon argues that an endorsed Form CR109 is required for supporting, continuing and sustaining an action to recover rent, but not for the commencement of the action. He refers to the meaning of the word “maintain” in The New Shorter Oxford English Dictionary, i.e. “to have ground for sustaining (an action at law)”, and some judicial interpretations given to the word “maintain” in some statutory enactments like the Gaming Act 1845 and Administration Act, R.S.B.C., 1960. 50.In my view, in this particular case, it is not necessary to decide whether section 119L(2) prevents the Plaintiffs from recovering arrears of rent on the ground that they only obtained a duly endorsed Form CR109 after the action had commenced. 51.First, even if the Plaintiffs were not entitled to commence this action to recover arrears of rent for the period between 15th August and 22nd September 2002 in the sum of $26,916.13, they are entitled to deduct that sum of money from the security deposit paid by the Defendant under the Tenancy Agreement. The Defendant does not dispute that she was liable to pay rent for this period of time, and it is in fact her case that the parties had agreed upon her request through DW2 to use the security deposit to pay off the arrears. In other words, even if the Plaintiffs are barred from commencing this action to recover the arrears of rent by section 119L(2), they can still deduct the arrears from the security deposit without the need to commence an action. What they are required to do is simply to make available the balance of the security deposit in the sum of $15,083.87 to satisfy whatever sum of damages that might be found to be recoverable by them. 52.Second, section 119L(2) prevents only recovery of rent but not damages. Damages assessed on the basis of loss of rental are still damages and not arrears of rent. In Ho Wai Fung v Tang Mei Lin [1987] 3 HKC 458, Downey DJ held that the landlord was not entitled to an order for payment of arrears of rent because she failed to produce the specified form (CR109) endorsed by the Commissioner. The learned judge went on to say: -
53.I agree entirely with the observation of the learned judge. Mesne profits, by their nature, are different from rents, though they are usually assessed by reference to the rents. The same principle also applies to a claim for damages. Miss Myint’s submission that this claim for damages is “an action amounting to an action for arrears of rent” must be rejected. In my view, it was not necessary for the Plaintiffs to obtain a Form CR109 properly endorsed by the Commissioner before they could commence this action to claim damages for repudiation of the tenancy. 54.For these reasons, I rule that the Plaintiffs are not barred by section 119L(2) to bring this action against the Defendant. Assessment of the evidence 55.It is clear from the evidence given by the Plaintiffs on the one hand and the evidence given by the Defendant and DW2 on the other that most of the facts are not in dispute, although they may differ from one another on some specific details of the event, or on the time when or the sequence in which the event took place, which have no material bearing to the outcome of this case. The factual disputes that are or may be of material nature appear to be on three points. 56.The first two points concern the contents of the first telephone conversation between DW2 and the 2nd Plaintiff. First, did the Defendant through DW2 say that she refused to pay rent? Second, did the Defendant through DW2 offer to use the security deposit to settle the arrears of rent and the balance as compensation for early termination of the tenancy (“the security deposit proposal”)? 57.The third point concerns the contents of the first telephone conversation between DW2 and the 1st Plaintiff in which the 1st Plaintiff asked DW2 when the keys of the premises could be returned. DW2 said that he had also mentioned the security deposit proposal to the 1st Plaintiff in this conversation, but the 1st Plaintiff denied. 58.On the first point, both Plaintiffs testified that in the first telephone conversation, DW2 told the 2nd Plaintiff that the Defendant refused to pay rent from 15th August 2002 onwards. On the other hand, the Defendant and DW2’s evidence indicated that they were merely trying to make known to the Plaintiffs of their financial difficulties and that they would not be able to afford to pay the rent. 59.It is clear from the evidence that what the 1st Plaintiff knew about this conversation was from what he was told by the 2nd Plaintiff. The evidence of the 2nd Plaintiff is therefore of crucial importance. She has been asked to recount the contents of this telephone conversation in Court. According to her evidence, before DW2 made the request to return the keys of the premises on behalf of the Defendant, he told her of their inability to pay rent due to financial difficulties, and after DW2 had made the request to return the keys, what he said was merely that “afterthat, I would not be able to pay you rent.” 60.In my view, even on the evidence of the 2nd Plaintiff, it is not a case where the Defendant and DW2 refused to pay rent to the Plaintiffs in the sense that they would not pay even if they were financially capable. It is not a case where they expressed an intention not to be bound by the contractual term to pay rent, but rather an expression of their perceived inability to comply with the contractual term which they admitted to be binding upon the Defendant, and that was exactly why they asked for an early termination of the tenancy so as to be released from the contractual obligation to pay rent. I find that the Defendant had not through DW2 told the Plaintiffs that she refused to pay rent, and that she had not evinced an intention to repudiate the Tenancy Agreement on this ground. 61.As far as the second point is concerned, the 2nd Plaintiff is adamant that DW2 had never put forward the security deposit proposal to her in the telephone conversation. Mr. Hon points out that neither the Defendant nor DW2 had ever asked the Plaintiffs to indicate or confirm their acceptance of the proposal. He submits that such failure led to the inference that the security deposit proposal had in fact never been made. The Defendant and DW2, on the other hand, explained that they did not ask the Plaintiffs to confirm their acceptance of the security deposit proposal because they believed that the Plaintiffs had already accepted it. 62.The issue to decide here is of course whether DW2 had put forward the security deposit proposal to the Plaintiffs. If DW2 had done so, their evidence that they believed that the Plaintiffs had accepted their proposal would be entirely credible because what happened after the first telephone conversation was that, in short, the Plaintiffs made arrangement with DW2 for taking back possession of the premises and its keys without rejecting or otherwise indicating their disagreement with the Defendant’s request. When the Defendant and DW2 had such a belief in mind, it is hardly surprising that they found it unnecessary to, and hence did not seek the Plaintiffs’ confirmation of their acceptance. 63.On the other hand, if the Plaintiffs’ evidence were correct, it would be the case that neither the Plaintiffs nor the Defendant nor DW2 had said anything about the disposal of the security deposit before, at and after the time when the Defendant vacated from the premises. I find this not believable. At the time when the Defendant was about to vacate from the premise, she was indebted to the Plaintiffs for 5 weeks’ rent. It is common ground in the evidence that the Plaintiffs and the Defendant had discussed about the outstanding utilities charges and DW2 had paid ten dollars to the Plaintiffs to settle the payment. Under such circumstances, it was simply inherently improbable that the Plaintiffs, the Defendant and DW2 would not have said anything about payment of the arrears of rent, which was nearly $27,000, but they would bother to talk about utilities charges that came down to a minimal sum of ten dollars. The whole factual matrix only made sense if and only if they had already discussed and agreed upon this issue prior to that point of time, and it is the defence evidence that DW2 had proposed to use the security deposit to pay off the arrears of rent in the first telephone conversation with the 2nd Plaintiff and that this proposal had never been rejected. Furthermore, while one may argue that the Plaintiffs might prefer not to talk about the security deposit since they had the money in hand, it was highly unlikely that the Defendant or DW2 would not have asked for refund of its balance after deducting the arrears of rent, which was about $15,000, especially when they were terminating the tenancy because of financial difficulties and with the apparent, if not actual, consent of the landlord, unless they had agreed to give up the money as compensation to the Plaintiffs as testified in their evidence. In addition, it is a fact that the Plaintiffs have kept the security deposit and up till now the Defendant has never asked for its return. In my view, the fact that neither party had said or done anything about the security deposit at and after the time when the Defendant returned the premises to the Plaintiffs fully supports the defence evidence. In this regard, I prefer the evidence of the Defendant and DW2. 64.As far as the third point is concerned, DW2 said that he had mentioned to the 1st Plaintiff the security deposit proposal in their first conversation when the 1st Plaintiff asked for the time when the keys of the premises would be returned. However, DW2 did not mention this point in his witness statement, and he raised this point only when he was under cross-examination. In my view, while I do not consider DW2 to be untruthful, I find it has not been proved on a balance of probabilities that the security deposit proposal was repeated in this conversation. 65.As I have already said, the other factual matters are not really in dispute. I make the following findings of primary facts: -
Surrender or repudiation of the tenancy 66.It is a fact that on 22nd September 2002, the Defendant had given up and the Plaintiffs had recovered possession of the premises and its keys before the end of the contractual term of the Tenancy Agreement. Based on this fact, the defence contends that the tenancy had been duly terminated by surrender by express agreement or by operation of law, and the Plaintiffs are accordingly not entitled to their claim. 67.The Plaintiffs on the other hand contend that the change in possession of the premises was brought about not by a surrender of the tenancy but by their acceptance of the Defendant’s repudiation of the Tenancy Agreement. It is apparent from the witness statements made by the Plaintiffs that they drew a sharp distinction between recovery of possession of the premises and agreement to terminate the tenancy. In paragraph 7 of their respective witness statements, they both stated that while they agreed to take up possession of the premises, they did not give their consent to the termination of the Tenancy Agreement. 68.Mr. Hon submits that when the Defendant had failed to pay rent from 15th August 2002 onwards in breach of Clause 1 of the Tenancy Agreement, when she expressed her intention not to rent the premises and not to pay rent anymore, and when she handed back possession of the premises to the Plaintiffs to terminate the tenancy, she had committed a fundamental breach amounting to a repudiation of the Tenancy Agreement. Mr. Hon submits that the Plaintiffs were therefore entitled to re-enter the premises pursuant to Clause 7 of the Tenancy Agreement and bring an action against the Defendant for damages afterwards according to the principle accepted in Silver Source Development Ltd v Time Century Ltd [1992] 1 HKC 366 and Sano Screen Manufacturers Ltd & Another v J & R Bossini Trading Ltd, HCA Nos. 12351 & 12352 of 1998. 69.Clauses 1 and 7 of the Tenancy Agreement stipulated that: -
70.It is a fact that the Defendant had not paid rent since 15th August 2002 before she vacated from the premises on 22nd September 2002. She had breached Clause 1, but it must be said that the rent for each month did not fall due on the first but on the 15th day of each month, because it was common ground that the Defendant was given a rent-free period for 14 days till 14th December 2001, and the first time she needed to pay rent again after the initial payment was on 15th January 2002. The evidence shows that the Defendant had all along been late in paying her rent since the commencement of the tenancy. Each month, she deposited rent into the Plaintiffs’ bank account, and the pay-in slips indicated that she had been consistently late for about 2 weeks in making payment. The delay did not appear to be substantial, and in any event the Plaintiffs had not taken any action in respect of the delay. In addition, while the Defendant had been late, she had never been in default of paying rent each month. It is therefore clear that the mere fact that the Defendant had failed to pay rent due on 15th August 2002, while constituting a breach of Clause 1, would not by itself be sufficient to constitute a repudiation of the Tenancy Agreement. In arriving at this conclusion, it is not even necessary for me to resort to the finding of fact that the Defendant had made the security deposit proposal to pay the arrears of rent. 71.Regarding the allegation that the Defendant refused to pay rent anymore under the Tenancy Agreement, I have already made the findings of fact, as stated in paragraph 60, that the Defendant did not refuse to pay rent, that she merely informed the Plaintiffs of her perceived financial inability to pay rent when asking for an early termination of the tenancy, and that she was not repudiating the Tenancy Agreement. 72.Furthermore, an interesting issue has arisen: was it open to the Plaintiffs to hold the Defendant’s failure to pay one month’s rent coupled with her stated inability to pay future rent as repudiation of the Tenancy Agreement? There are strong arguments in favour of a negative answer. First, it is doubtful, in the particular circumstances of this case, whether the breach was serious enough to constitute a repudiation of the tenancy. Second, it is doubtful, as a matter of general principle, whether the Plaintiff could deprive the Defendant of her right to apply for relief against forfeiture by treating the non-payment of rent as repudiation rather than as a ground for forfeiture or re-entry pursuant to Clause 7 of the Tenancy Agreement in light of the statutory scheme under sections 69 and 69B of the District Court Ordinance, Chapter 336 as well as section 58 of the Conveyancing and Property Ordinance, Chapter 219, that enable a tenant to apply for relief against forfeiture for non-payment of rent, no matter the forfeiture is effected by action or otherwise. I am inclined to the view that the Plaintiffs were not entitled to treat non-payment of rent by the Defendant, even for a substantial period, as a repudiatory breach, not to mention a mere expression of her inability to pay future rent that had not yet fallen due. It is however not necessary to decide this issue because Mr. Hon accepts that if the Defendant had not returned possession of the premises and its keys back to the Plaintiffs, she would not have repudiated the Tenancy Agreement. 73.It is however essential to decide whether the Defendant’s request for early termination of the tenancy, by itself, amounted to a unilateral repudiation of the Tenancy Agreement. If it were, the Plaintiffs could have accepted the repudiation at once, and it is their case that they had done so by asking DW2 when he would return the keys of the premises. In my view, it is important to bear in mind two matters. 74.First, when DW2 acted on behalf of the Defendant to ask for early termination of the tenancy, even though he had also mentioned their financial inability to pay rent, he was not saying that they would terminate the tenancy irrespective of the Plaintiffs’ response. Mr. Hon submits that since the Defendant and DW2 had entered into a provisional tenancy agreement for another flat at a much cheaper rent before asking the Plaintiffs for early termination of the tenancy, they would have moved out of the premises in any event. I do not accept this submission. It was true that they had every incentive to do so because they could save $8,500 a month in rent, avoid forfeiture of the initial deposit of $5,000 odd, and avoid payment of compensation of $12,500 to the estate agent. However, if moving out would cause them greater loss, they could choose to stay, and this was exactly the evidence given by the Defendant. Furthermore, in the conversation between DW2 and the 2nd Plaintiff, it is important to note that even according to the version given by the 2nd Plaintiff, the Defendant and DW2 were just asking the Plaintiffs for their consent to terminate the tenancy earlier, and the Plaintiffs were free to accept or reject their request. The 2nd Plaintiff was well aware that she had a free choice, or else she would not have told DW2 that she needed to discuss with the 1st Plaintiff and would give a reply a few days later. The action taken by the Defendant was completely different from that taken by the tenant in Sano Screen Manufacturers Ltd & Another v J & R Bossini Trading Ltd, where the tenant just sent back the keys of the premises to the landlord by post without the landlord’s prior consent. In the present case, at the time when the Defendant made her request, she had not abandoned the premises, and she had not created a situation in which the Plaintiffs had no choice but to take back possession of the premises. 75.Second, it was a mistake to assume that acceptance of the Defendant’s request for early termination of the tenancy would only benefit the Defendant and not the Plaintiffs. It was because by virtue of the contractual right given to her under the Tenancy Agreement, the Defendant was entitled to stay in the premises until 30th November 2003 during which the Plaintiffs had no right to use or recover possession of the premises unless there were grounds upon which they could terminate the tenancy by forfeiture or otherwise. By asking for early termination of the tenancy, the Defendant was in fact offering to give up her contractual right to use and possess the premises in exchange for the Plaintiffs’ agreement to release her from further liability to pay rent. In other words, if the Plaintiffs accepted her request, they would regain possession of the premises much earlier than what they would have been entitled to under the Tenancy Agreement. Redelivery of possession of the premises by the Defendant to the Plaintiffs was a detriment to the Defendant but a benefit to the Plaintiffs. This change of possession of the premises alone would constitute sufficient consideration to support a binding agreement for early termination or surrender of the tenancy: Hill & Redman’s Law of Landlord and Tenant, paragraph 7985. 76.In my view, when the Defendant was merely asking for consent from the Plaintiffs who were at liberty to decide according to their wish, and when acceptance of the Defendant’s offer would in law and in fact result in a benefit to the Plaintiffs and a detriment to the Defendant, the Defendant’s request for early termination of the tenancy could not, by itself, constitute a repudiation of the Tenancy Agreement. Hence, at that point of time, there was no repudiatory breach capable of being accepted by the Plaintiffs. 77.The only remaining ground that the Plaintiffs rely upon to say that there was a repudiation of the Tenancy Agreement is that the Defendant returned the premises and its keys to them unilaterally before the expiration of the contractual term without their agreement or consent. 78.On the evidence before me, it is clear that the Plaintiffs had never spoken to the Defendant or DW2 words to the effect that “we agree to your request for early termination of the tenancy and we will not hold you liable for any loss and damage arising from it”. On the contrary, it is clear that they had every intention of holding the Defendant liable for any loss in rent caused by her early vacation from the premises as evidenced by their taking legal advice before replying to the Defendant’s request, and trying their best to avoid entering into any agreement or signing any document so as to preserve their intended claim for damages against the Defendant. However, all these matters were within the subjective minds of the Plaintiffs and had never been made known to the Defendant. 79.In considering whether the Defendant returned the premises to the Plaintiffs unilaterally or pursuant to a mutual agreement for early termination of the tenancy, two principles of the contract law are relevant. 80.First, in deciding whether the parties have reached agreement, the courts normally apply the objective test, i.e. once the parties have all outward appearances agreed in the same terms on the subject-matter, then neither can rely on some unexpressed qualification or reservation to show that he had not in fact agreed to the terms to which he had appeared to agree. Such subjective reservations of one party therefore do not prevent the formation of a contract: Chitty on Contract, Vol. 1, 29th Edition, paragraph 2-001. 81.Second, an oral offer put forward by an offeror can be accepted by the conduct of an offeree to result in a legally binding agreement, if it is clear that the offeree does the act with the intention, ascertained in accordance with the objective test, of accepting the offer: Chitty on Contract, Vol. 1, 29th Edition, paragraph 2-027. 82.These general principles of the contract law are applicable in a landlord and tenant situation. In deciding whether there is an agreement for surrendering a tenancy through redelivery of possession of the demised premises back to the landlord, the agreement must be judged by the parties’ unequivocal acts and the facts must be assessed objectively: Hill & Redman’s Law of Landlord and Tenant, paragraph 7987. 83.In R v Hammersmith and Fulham London Borough Council, ex parte Quigley, Queen’s Bench Division (Crown Office List) CO/2034/98 (hearing date: 20th April 1999), Ognall J. stated the following approach should be adopted by the court in determining whether there was a surrender of tenancy: -
84.The same principles were adopted and applied by the Court of Appeal in Hong Kong in World Realty Ltd v Kwan Ngar Yin [1987] 3 HKC 148, where Kempster J.A. stated as follows: -
85.It is therefore clear that the subjective state of mind or unexpressed reservation of the Plaintiffs would not necessarily prevent the formation of a mutual agreement between them and the Defendant for early termination or surrender of the tenancy. What counts is not their actual intent but “the presumed common intent” ascertained by the objective test in light of the conduct of the respective parties. 86.It is a fact, as admitted by the Plaintiffs, that at no time before their solicitors’ demand letter dated 15th April 2003 had they ever told or otherwise made known to the Defendant that they did not consent to the early termination of the tenancy, or that they regarded redelivery of the premises before the end of the contractual term to be a breach of the Tenancy Agreement, or that they would hold her liable for any loss and damage that they might suffer. Against this factual background, I apply the objective test to ascertain whether the parties had reached, or were presumed to have reached, a mutual agreement for early termination or surrender of the tenancy. My analysis is as follows. 87.When the Defendant asked the landlords, through DW2, not to rent the premises anymore, she was making an offer to return possession of the premises to the Plaintiffs in exchange for the Plaintiffs releasing her from the liability to pay rent for the remaining contract term. There can be no doubt that she offered to surrender the tenancy. 88.The 2nd Plaintiff received that offer. While she did not accept it right away and no agreement was reached in the first telephone conversation with DW2, she never rejected it but kept it alive by saying that she would discuss with the 1st Plaintiff and give a reply a few days later. Within that time frame when the offer was still very much alive and while the Defendant and DW2 were waiting for a reply from the landlords, the 1st Plaintiff contacted DW2 by telephone. He confirmed with DW2 whether the Defendant would no longer rent the premises. In other words, he was ascertaining whether the Defendant was still offering to give up possession of the premises. He got an affirmative answer from DW2. At that point of time, he was at liberty to reject or simply ignore the Defendant’s offer and hold her to the full contractual liabilities under the Tenancy Agreement. He did not do so. Instead, he asked DW2 for the time when keys of the premises would be returned, and eventually arranged with DW2 that the handover should take place either on 20th September 2002 (according to the 1st Plaintiff) or on a date to be agreed in the middle of that month (according to DW2). From what was said and done by the 1st Plaintiff, he was making a clear and unequivocal representation to the Defendant, both for himself and on behalf of the 2nd Plaintiff, that they would accept possession of the premises so tendered by the Defendant. This was not only the conclusion of the Defendant, DW2 and any reasonable man apprised of all material facts, but also the subjective state of mind of the Plaintiffs. In fact, both Plaintiffs had said in their witness statements that they “agreed to take up possession of the premise”. Hence, there was without doubt a meeting of the minds here, i.e. the Defendant offered to redeliver possession of the premises and the Plaintiffs agreed to accept the possession so tendered. This was sufficient to constitute a valid and binding mutual agreement for early termination or surrender of the tenancy. 89.What the Plaintiffs say now is that while they agreed to take up possession of the premises, they did not consent to early termination of the Tenancy Agreement. There are two answers to this contention. First, it was not possible or permissible for the Plaintiffs to separate their agreement to take up possession of the premises from their consent to early termination of the Tenancy Agreement because they would not be entitled to regain possession of the premises before the end of the contractual term without a corresponding termination of the Tenancy Agreement. Second, the more accurate way of expressing the Plaintiffs’ state of mind, which is the only reasonable inference to be drawn from the facts of this case, is that they did consent to the termination of the Tenancy Agreement, but they would seek to recover from the Defendant any loss of rental that they might suffer as a result of the early termination of the tenancy. However, this was a qualification or reservation that had never been expressed or otherwise made known to the Defendant, and a reasonable man apprised of all the material facts would not be aware of its existence, especially when redelivery of possession of the premises to the Plaintiffs constituted a benefit to them. In light of the principles stated above, the Plaintiffs’ contention must fail. 90.In my view, when the 1st Plaintiff asked DW2 for the time and made arrangement with DW2 for handover of the keys and hence possession of the premises during their first telephone conversation, the Plaintiffs and the Defendant had already reached, or had to be presumed to have reached, a valid and binding agreement for an early termination or surrender of the tenancy. 91.Furthermore, even leaving aside the first telephone conversation between the 1st Plaintiff and DW2, all other events that had occurred subsequent to the Defendant’s request for early termination of the tenancy, viewing objectively, showed that the Plaintiffs had been conducting themselves in an unequivocal way which was inconsistent with the continuation of the tenancy. Such facts included instructing estate agents to re-let the premises, asking DW2 for permission to allow estate agents either in general or in particular a Miss Chan to bring prospective tenants or purchasers to view the premises, discussing with DW2 whether the premises could be let to DW2’s friend, chasing up DW2 for return of the premises and keys when they were not so returned by 20th September 2002, attending the premises personally to recover possession of the premises, ensuring all outstanding matters relating to the tenancy had been dealt with before the handover (including satisfying themselves that the rooms, air-conditioners, oven, water heater, and massage bathtub to be handed back were in proper conditions, asking for return of the missing mattresses and desks, and collecting outstanding utilities charges), expressing no disagreement or dissatisfaction over the early return of the premises, and accepting possession and keys of the premises personally from the Defendant at the time and place appointed for the handover. Viewing all these facts objectively, the conduct of the Plaintiffs could indicate one and only one conclusion, i.e. they agreed to accept possession of the premises offered to be redelivered by the Defendant before the end of the contractual term of the tenancy. In my view, if the parties had not yet reached an agreement for early termination or surrender of the tenancy during the first telephone conversation between the 1st Plaintiff and DW2, that agreement was definitely made, or presumed to be made, at the latest by the time when the Plaintiffs took back possession of the premises. 92.Pursuant to this agreement for early termination or surrender of the tenancy, the Defendant duly redelivered the keys and possession of the premises on the Plaintiffs on 22nd September 2002. The Tenancy Agreement came to an end by mutual consent, or presumed mutual consent, at that point of time. I find that the tenancy had been surrendered by consent and/or by operation of law, that the Defendant had not unilaterally repudiated the Tenancy Agreement, and that the Plaintiffs had no right to claim any damages against her. 93.In arriving at these findings, it is not even necessary for me to resort to the security deposit proposal put forward by the Defendant. As I have said earlier, redelivery and acceptance of possession of the premises between the parties were sufficient to constitute a binding agreement for surrender of the tenancy. But I would add that on the facts of this case, as stated in paragraphs 61 to 63, I find that the Defendant through DW2 had put forward the security deposit proposal to the Plaintiffs in the telephone conversation between DW2 and the 2nd Plaintiff. I further find, from the Plaintiffs’ conduct subsequent to this proposal, using the objective test and ignoring the Plaintiffs’ unexpressed reservation or qualification, that they had accepted, or presumed to have accepted, the security deposit proposal together with their agreement to accept possession of the premises offered to be redelivered by the Defendant before the end of the contractual term. This agreement relating to the security deposit proposal provided further and sufficient consideration for supporting a valid and binding agreement between the parties for early termination or surrender of the tenancy. 94.Pursuant to the agreement relating to the security deposit proposal, the Defendant discharged her liability to pay the arrears of rent. It was noted that in the security deposit proposal, the Defendant was offering to use half of the security deposit equivalent to one month’s rent as compensation to the Plaintiffs for early termination of the tenancy. Of course, the Defendant only vacated from the premises on 22nd September 2002 when she had to pay arrears of 5 weeks’ rent. It means that after deducting the arrears of rent, the money available for compensation to the Plaintiffs was less than one month’s rent. However, in my view, this did not affect the validity of the surrender of the tenancy. First, change of possession of the premises per se already provided sufficient consideration for the agreement to terminate or surrender the tenancy. Second, the Plaintiffs had already benefited from the agreement since they had kept the balance of the security deposit as compensation. Third, the Plaintiffs’ recourse was to enforce the agreement in respect of the security deposit proposal by asking the Defendant to pay the shortfall in the amount of the compensation, but that is not their claim in this action. 95.The Defendant also says that the Plaintiffs are estopped by their conduct from denying that they had accepted her surrender of the tenancy. Mr. Hon argues that there was no estoppel because the Defendant has failed to prove that the Plaintiffs had not represented that they would waive their right to claim damages, and there was no reliance by the Defendant on any representation because when she and DW2 informed the Plaintiffs of their intention to surrender the tenancy, they had already signed the provisional tenancy agreement and paid the preliminary deposit for renting the new flat. Mr. Hon submits that their decision to move to the new flat was not influenced by the subsequent conduct of the Plaintiffs. 96.The law is clear. A surrender of tenancy by operation of law is founded upon the principle of estoppel in that the parties have acted towards each other in a way which is inconsistent with the continuation of the tenancy and they cannot subsequently go back to asserting the continued existence of that tenancy: Hill & Redman’s Law of Landlord and Tenant, paragraph 7989. Since I have found that there had been a surrender of the tenancy by consent and/or by operation of law, it must follow that the Defendant must also succeed in this ground of defence. 97.Furthermore, it is clear from the facts of this case that the Defendant was asking for the Plaintiffs for their consent to an early termination of the tenancy because of their financial difficulties. I accept her evidence that but for her financial difficulties that she would not have moved out of the premises because of the comfort and tranquility that the premises could bring to her father-in-law. The Plaintiffs were clearly informed by DW2 of the Defendant’s financial difficulties. They might not accept what they said and took the view that they just wanted to take the benefit of a low property market to rent a cheaper flat elsewhere. However, it still means that they were fully aware that the Defendant was moving out for financial reason. Notwithstanding that knowledge, they agreed or at least raised no objection to the Defendant’s request for early termination of the tenancy and took back the premises. In my view, whenever a landlord recovers possession of the demised premises from his tenant before the end of the contractual term, the representation naturally arising from his conduct is that he will release his tenant from his obligation to pay rent for the remaining term of the tenancy, and if the landlord has a different intention, he has to make it known to the tenant. I find this to be the representation made by the Plaintiffs to the Defendant, and they had done nothing to change the outward appearance of that representation by telling the Defendant that she would be held liable to compensate the Plaintiffs for any loss of rent for the remaining period of the contractual term. In my view, the Defendant had clearly relied upon the Plaintiffs’ representation and suffered detriment. To say the least, she had given up the use and enjoyment of the premises for the remaining term of the tenancy, not to mention that she could have taken or refrained from taking the action as stated in paragraph 44 above. It must follow that it is inequitable for the Plaintiffs to insist upon their strict rights now. I find that the defence of estoppel has also been made out. 98.Accordingly, I hold that the Defendant has succeeded in establishing every ground of her defence. The Defendant’s liability to pay arrears of rent has been satisfied by the deduction from the security deposit pursuant to the agreement made between the parties, and in any event, the Plaintiffs has indicated that they will allow set-off from the security deposit as stated in the Statement of Claim. Furthermore, I find that the Defendant had not repudiated the Tenancy Agreement, and hence there is no ground for holding her liable to pay damages to the Plaintiffs. I therefore find that the Defendant is not liable to the Plaintiffs as claimed. Duty to mitigate and quantum of damages 99.In view of my finding in respect of liability, I shall not deal in detail whether the Plaintiffs had failed to mitigate their loss and arrive at the quantum of damages. In my view, had the Plaintiffs succeeded in establishing liability, they would have been entitled to recover their claim in full as I do not find them to have failed in their duty to mitigate their loss and damage. Conclusion 100.The Plaintiffs’ claim against the Defendant is dismissed. Costs 101.There is no reason why costs should not follow the event. 102.There shall be an order nisi that the Plaintiffs shall pay Defendant costs of this action, including all costs that have been reserved, to the Defendant, to be taxed if not agreed, with certificate for counsel.
Mr. Wayne Hon, instructed by Messrs. Christopher Li & Co., for the Plaintiffs. Miss Sue Myint, instructed by Messrs. Oldham, Li & Nie & Co., for the Defendant. |
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