Lai Kin on Jacky and Another v. Sajjad-haider Trading As New Kashmir Restaurant

DCCJ 5148/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5148 OF 2004

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BETWEEN

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Coram:  Deputy District Judge Mimmie Chan in Court

Dates of Hearing:  10^th, 11^th & 19^th April 2006

Date of Handing Down Judgment:  27^th April 2006

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JUDGMENT

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1.This is the Plaintiffs' claim for the total sum of HK$43,141.19, representing 5 months of rent due and unpaid under a Tenancy Agreement dated 25 July 2002 ("Agreement") made between the Plaintiffs as landlords and the Defendant as tenant, and reimbursement of water charges, electricity charges, rates and other charges payable by the Defendant under the Agreement.  The Defendant does not dispute that these sums were payable, but seeks a set-off against the total sum claimed by the Plaintiffs for damages which the Defendant claims he sustained as a result of the landlords' breach of the Agreement.  By way of defence and counterclaim, the Defendant counterclaims for damages of HK$278,000, which he particularised in his Statement dated 2 June 2005 as including HK$160,000 for loss of profits for 8 months from October 2003 to May 2004 at the rate of HK$20,000 per month, and salary and other electricity and utility charges of HK$116,000 paid between October 2003 to May 2004 when the Defendant had to close his restaurant as a result of the landlords' alleged breach of the Agreement.

2.It is not disputed between the parties that under the Agreement, the premises at Flat A on the Ground Floor of No. 34 Whampoa Street in Hung Hom ("Premises") were let to the Defendant as tenant at a monthly rental of HK$6,000, exclusive of water, gas and electricity charges.  Notwithstanding Clause 5 of the Agreement which provides that the tenant is to use the Premises as residence for himself or his family, it is not in dispute that the Premises were actually let to the Defendant for the purposes of the Defendant’s operation there of a restaurant known as "New Kashmir Restaurant".  The operation of the restaurant at the Premises was known and consented to by the Plaintiffs as landlords.

3.In the Counterclaim, the Defendant claims that the Plaintiffs as landlords were in breach of the Agreement in failing to maintain or adequately repair the Premises, with the result that there was water leakage from the ceiling of the Premises, and toilet water dripped into the restaurant from the ceiling and the premises above.  The other particulars of alleged breach, defects and lack of repair and maintenance, such as the landlords' failure to arrange for garbage disposal for the building, failing to provide a hygienic environment for the Premises, and cutting off the water supply of the Defendant, were not pursued at the trial since no evidence whatsoever was adduced in relation to these alleged breaches.  The Defendant’s evidence at the trial focused on the problem of water leakage and alleged toilet water dripping from the floor above through the ceiling to the restaurant at the Premises.

4.The tenant has drawn my attention specifically to Clauses 7, 12 and 14 of the Agreement.  Clause 7 provides that the tenant will not make or permit to be made any alterations in or additions to the Premises without having first obtained the written licence and consent of the landlords, or cut, maim or injure any doors, windows, walls, beams or wirings of the Premises.  Clause 12 provides that the tenant will permit the landlords at all reasonable times to enter upon the Premises and to view the condition of the Premises and to carry out any repairs to the Premises which the landlords consider necessary or proper to be done.  Clause 14 provides that the tenant "is solely responsible for the repair of doors, windows, kitchen and bathroom fittings, pipings, drains, etc" during the continuance of the tenancy.

5.The landlords rely on Clause 11 of the Agreement.  This provides that the tenant will "himself cover insurance for his own belongings against typhoon, depression storm, flood, fire, theft and accidents in relation to this tenancy.  The landlords shall not be responsible for any damage or loss under all circumstances." 

6.I agree with the observations made by the Honourable Burrell, J in the case of Tat Ming Trading Company Limited v Alpino Limited, unreported, HCA 1659/2004, 24 February 2006, that Clause 14 of the Agreement (which is identical to the Clause 14 in the case before Burrell, J) is vague and uncertain and should be construed narrowly against a landlord relying on it.  The Plaintiffs cannot rely on Clause 14 to say that the Defendant should solely be responsible for the repair and maintenance of the ceiling as a result of damage caused by water seepage or leakage from the ceiling of the Premises.  Nor does Clause 11 of the Agreement assist the landlords as it should be confined to any damage or loss sustained as a result of typhoon, storms, flood, fire, theft or accidents contemplated by Clause 11.  The generality and vagueness of the second half of Clause 11 should likewise be construed against the landlords.

7.Nevertheless, the Agreement does not contain any express covenant on the part of the landlords to maintain or to repair the ceiling or any other part of the Premises.  In law, there is no implied covenant by the landlord of an unfurnished flat that it is or shall be reasonably fit for habitation, occupation, or for any other purpose for which it is let.  No covenant is implied that the landlord will do any repairs whatsoever.  Nor is there an implied obligation that the flat will endure the term of the tenancy, and a landlord is not liable to his tenant for defects in the premises rendering them dangerous or unfit for occupation, even though the landlord is aware of their existence.  This is recognised by the House of Lords in Liverpool City Council v. Irwin [1977] AC 239 which was considered by the Court of First Instance in Hong Kong in the case of Fortune Global Development Ltd v Sung Cheong Food Trading Ltd, unreported, HCA 1786/1999, 18 March 2002.  The law is therefore clear that landlords are not under any implied obligation to repair, and the Courts have no power to introduce such an implied term even if or merely because the Court considers such term to be reasonable.

8.The Defendant did plead (in paragraph 3 of the Defence and Counterclaim) that it is a fundamental term of the Agreement that the tenant should have the right to use the Premises without any interference and that the Premises should be useable for the purposes of the tenant.  In law, there is no implied warranty that the Premises let are fit for the purposes for which they are let.  As for the covenant of quiet enjoyment which is implied into the relationship of landlord and tenant, it entitles the tenant to enjoy his lease against the lawful entry, eviction or interruption by the landlord or persons claiming under the landlord.  The covenant is breached if the landlord or persons claiming under him do anything that substantially interferes with the tenant’s title or possession of the Premises let, or with the tenant's lawful enjoyment of the Premises let.  The cases are clear that the alleged interference must go beyond mere inconvenience, and it is a question of fact whether or not there is a breach. 

9.In the Hong Kong Court of First Instance decision in Tat Ming Trading Company Limited v. Alpino Ltd, Burrell, J considered the question of water leakage and seepage which occurred in premises let, and damage sustained by the tenant as a result of such water seepage.  In that case, water escaped from the area of the shower cubicle in the master en-suite bathroom, causing extensive damage to the landing area at the top of the stairs in the flat, as a result of which the floor boards became wet, the floor bulged and buckled, electricity supply within the property was badly affected, a young visitor to the house fell over the buckled flooring, the shower was put out of use for a substantial period, and because of the electricity problems the tenant's family had to sleep in one room for many months.  The Court held on the facts of that case that the damage rendered parts of the premises unusable, and that by failing even to investigate the complaints, there was an omission (a failure to investigate and/or a failure to repair) which rendered the premises substantially less fit for the purpose for which they were let, constituting a breach of the landlord's implied covenant not to derogate from his grant.  The Court also found that it was arguable, but with less force, that the facts constitute a breach of the landlord's implied covenant for quiet enjoyment.  Accepting that it was not within the usual type of quiet enjoyment cases, Burrell, J found that it was arguable that by his omission, the landlord had caused an interference or disturbance to the tenant's full benefit and enjoyment of his possession of the premises and that it was arguably actual disturbance and not more than mere inconvenience. 

10.As Burrell, J also pointed out, a mere act of omission on the part of landlord can constitute a breach of covenant for quiet enjoyment if but only if there is a duty to do something on the part of the landlord.  The Plaintiffs in this case have no contractual obligation to effect repairs to the ceiling or any other part of the Premises.  The Plaintiff had let the Premises to the Defendant since 1991, and on the Defendant's evidence, he only complained about the water seepage and leakage problems some 5 or 6 months before the Plaintiffs sold the Premises (which on the Plaintiffs' case was in May 2004), by which time the water seepage and leakage problems had became serious.  The leakage seemed to emanate from the flat above, which had been left vacant by its owner.  There is nothing to suggest that the problem or defects existed at the time of the commencement of the lease or the last renewal in July 2002. 

11.The mere omission on the part of the Plaintiffs to effect repairs to the ceiling and to rectify the water leakage problems identified by the Defendant does not, on the evidence, constitute any breach of the covenant for quiet enjoyment or the implied covenant not to derogate from grant.  There is no such breach unless there is some very substantial and actual interference of the tenant's possession or enjoyment of the Premises.  At the trial, since the parties were not legally represented, I endeavoured to ascertain from the parties and the Defendant in particular whether there was any actual interference with the tenant's title or possession of the Premises or with the tenant's lawful enjoyment of the Premises, and whether such interference was sufficiently substantial.  The Defendant's evidence is that at the beginning, the leakage was just a problem of water dripping.  After he signed the new tenancy agreement (he cannot remember when), by which he meant the last renewal when the Agreement was signed in 2002, the leakage became more serious.  He said this was about 5 to 6 months before the Plaintiffs sold the premises in May 2004, i.e. in early 2004/late 2003.  In the beginning, he thought it was just leakage of water from the air-conditioner.  When the matter became more serious, the Defendant informed the 1^st Plaintiff and the 1^st Plaintiff kept saying he would get it repaired, either the next day, or a few days later.  When the Plaintiffs did not eventually repair the leakage, the Defendant stopped paying the rent.  The Defendant said that business was not affected by the leakage at the beginning, but later, the leakage "became too much" and the Defendant started to lose more business.  The Defendant claimed that he had waited about 5 to 6 months from the time when the leakage became "too much" until he stopped paying the rent.

12.According to the Defendant, the water leakage from the ceiling or from the premises above came down drop by drop at the beginning.  Then there was a bigger flow, but there was never a flood or downpour.  It was just a case of dropping water as if there was heavy rain.  There were big drops of water, and according to the Defendant, it was serious because the water was dirty and smelly.  He suspected that the water was from the toilet above the Premises.  According to the Defendant, the worst scenario in relation to the water leakage problem was that within the area of 500 sq. ft. of the restaurant, there were 5 spots in the dinning area where drops of water leaked from the ceiling.  The Defendant described the water as brownish in colour for most of the time, and sometimes black.  In each location where water leaked, when the situation was at its worst, a one foot deep, medium-sized plastic bucket would be placed under the leaking spot, and such a bucket would fill up in about one and a half hour.  According to the Defendant, there was a stage when the buckets would fill up in less than an hour.  The Defendant did not adduce any photographs taken at the material time of the alleged leakage, nor were there any photographs taken at a time when the buckets had to be used. 

13.The Defendant's evidence is that when the leakage had first occurred, he had called the 1^st Plaintiff and showed him the leakage.  At that time, the 1^st Plaintiff promised to have the leakage repaired.  According to the Defendant, the 1^st Plaintiff came and put some coal tar where the leakage occurred, and the leakage stopped for a time.  However, according to the Defendant, after about 10 days, the leakage started again and very quickly got worse.  It was at this stage that the leakage could fill one bucket in less than an hour's time.  That state continued, and it was the worst stage the leakage ever got to.  The ceiling got spoiled, and part of the electricity wiring got spoiled.  Some small lights used on the ceiling for decoration could not be used as a result of the spoiling of the wiring on the ceiling.  Some fittings were damaged, but the Defendant could still use the rice cooker, the refrigerator and the other electrical appliances, and the premises remained lit.  According to the Defendant, the ambience of the restaurant was certainly affected, and of course customers either stayed away or complained about the water leakage.  The Defendant had to empty the buckets now and again, and if customers came into the restaurant to eat at all, they had to be seated away from the leakage.  The Defendant complained that this state of affairs turned customers away from his restaurant, so that there was very little business towards the end of 2003 and in early 2004.  Some customers complained when they came for a meal and saw that there was dirty water falling from the ceiling.  The affected customers refused to pay, the spoiled food had to be thrown out, and the Defendant claimed that on about 10 occasions, he had to pay disgruntled customers HK$100 to HK$160 each by way of compensation or to dissuade them from making any complaint to the authorities.

14.The Defendant put up with the leakage problem for about 5 to 6 months after he had brought the matter to the attention of the 1^st Plaintiff and waited for the Plaintiffs to take action to rectify the defects.  When nothing was done by the Plaintiffs, the Defendant stopped paying rent.  He could not remember when he stopped, but he admitted that the had stopped paying 5 months of rent.

15.When asked by me as to whether he could continue his restaurant business at the Premises as a result of the leakage, the Defendant said that he could do so at the beginning when the leakage was not serious, although business was not so good then, but when the leakage became serious, he could not do any business at all.  Finally, when the Plaintiffs sold the Premises together with the tenancy in May 2004, the Defendant told the new owner of the water leakage problems and asked for a reduction of the rent if the defect could not be rectified.  The new owner eventually told the Defendant that he could vacate the Premises and give up the tenancy.  The Defendant then gave up the Premises to the new owner and closed down the restaurant business.  The evidence is not clear as when the Defendant moved out of the Premises and closed his restaurant business.  The Defenant said he could not remember, but seemed to suggest that it was in May 2004.  The Plaintiffs suggested that the business did not cease until 2005, as evidenced by the records at the Business Registration Office.

16.The 1^st Plaintiff, who gave evidence and conducted the case on his behalf and on behalf of the 2^nd Plaintiff, denied that the condition of the water leakage was as bad as that described by the Defendant.  The 1^st Plaintiff claimed that he constantly visited the Defendant's restaurant to collect and to chase for payment of rent which was habitually late.  The 1^st Plaintiff therefore had to make several visits to collect each month's rental, which the Defendant very often paid by partial instalments.  The 1^st Plaintiff claimed that on none of these occasions when he visited the Premises did he ever see the 5 buckets which the Defendant claimed had to be put in the restaurant to catch the leaking water.  According to the evidence of the 1^st Plaintiff, the Defendant had only complained about the water leakage on 1 or 2 occasions.  He did investigate the complaint but he could not see any serious leakage or defect as the Defendant now complains of in the proceedings.  The 1^st Plaintiff claimed that he could only see some water droplets on the wall which he suspected was due to the air conditioning unit.  The 1^st Plaintiff also pointed out that if the condition had been as bad as that described by the Defendant, the lady who eventually bought the Premises from the Plaintiffs in about May 2004, and who had visited the restaurant on many occasions prior to her entering into the agreement for the purchase of the Premises, would have seen the 5 buckets and would not have bought the Premises, or would have questioned the Plaintiffs about it but had not in fact done so.

17.On being cross-examined by the 1^st Plaintiff, the Defendant said that it was possible that when the potential purchaser/new landlady visited the restaurant to look at the Premises, there were no buckets on the Premises because they had been put away.  On being further questioned, the Defendant explained that whenever there was leakage, they would take the buckets out and keep them there but if there was no leakage, they would obviously put away the buckets so as not to create a bad impression to customers and potential customers.  That is certainly understandable, but this evidence also suggests that the leakage was not a continuous problem as the Defendant had tried to make it out to be.  It was likely not to be a continuous problem because there was evidence that the property above the Premises had been vacant and unused for some time since the owner was in receivership. 

18.In totality, I find that although the Defendant was in a condition which deserved sympathy, he had exaggerated the situation of the water seepage and leakage when he gave evidence.  Evidenced by the fact that (as the Defendant admitted in his evidence) the Defendant had waited 5 to 6 months from the time when the leakage became "too much" and too serious before he stopped paying rent in 2004, I cannot find on the parties' evidence that there had been a very substantial interference with the Defendant's possession or enjoyment of the Premises.  As the 1^st Plaintiff emphasized, although the Defendant claimed he had complained about the water leakage by October or November 2003, the last time the Defendant made payment of rent was actually in May 2004.  Although the Defendant claimed in his Statement that he stopped paying rent in January 2004, in fact, he kept making payment of rent from January to May 2004, although it was late payment covering the months of August to December 2003.  Further, despite the leakage problems, the Defendant on his own evidence only closed his restaurant business in about May 2004 after he failed to negotiate a reduction of rent from the new owner upon her purchase of the Premises from the Plaintiffs.  In totality, the situation of the leakage in the Premises was not so serious or intolerable that the Defendant immediately refused as a result to tender further payments of rent, nor were the Premises totally unusable as a restaurant as a result, since the Defendant on his own case continued his business until May 2004, although business was slow and bad as he claimed.  Any decline in business may be due substantially to the effect of SARS in 2003, the bad economy thereafter, or other reasons not solely or entirely attributable to the leakage problem of which the Defendant complains.  In fact, according to the Plaintiffs' evidence, the Defendant's restaurant business continued on the Premises until some time in 2005.

19.To conclude, after hearing the evidence, I find that the landlords' failure to maintain or effect repairs and otherwise to rectify the water leakage and seepage problem of which the Defendant complains is not substantial or serious enough to constitute a breach of the landlords' implied covenants of quiet enjoyment and non derogation from grant. 

20.Some time was spent at trial in considering the Defendant's evidence on his claim of alleged profits.  The only evidence which the Defendant produced in this respect to prove his loss of profits are the unaudited accounts for New Kashmir Restaurant for the period from 1 April 2002 to 31 May 2004 which were lodged with the Inland Revenue Department in December 2005.  These are disputed by the Plaintiffs, shown to be inaccurate in many respects, and the figures are unsupported by documents.  They do not go to prove the Defendant's alleged claim of average profits of HK$20,000 per month derived from the business carried on at the Premises.  In any event, I have found that there is no breach of the Agreement on the part of the landlords. 

21.Accordingly, I dismiss the Defendant's counterclaim.  On the Plaintiffs' original claim, I give judgment for the sum of HK$43,141.19 claimed.  On the question of whether the Plaintiffs have to give credit to the Defendant for the 2 months' rental deposit paid by the Defendant under the Agreement, the 1^st Plaintiff explained that the Premises were sold in May 2004 to the new owner together with the benefit of the tenancy under the Agreement.  From the Defendant's evidence, it would appear that the new owner already gave him credit for the 2 months deposit in their dealings in relation to the rent due and payable by the Defendant and the surrender of the tenancy to the new landlady.  Interest on the sum of HK$43,141.19 is allowed at judgment rate from 26 July 2004, the date of the commencement of the proceedings in the Small Claims Tribunal (which were transferred to the District Court on 23 September 2004), to the date of payment.  The Defendant should pay the Plaintiffs’ costs of this action, including the costs of the counterclaim, on the District Court scale, to be taxed if not agreed.  

1^st Plaintiff (who conducted the case on his behalf and that of 2^nd Plaintiff) and 2^nd Plaintiff acting in person

Defendant acting in person