Tsoi Hak Kong Herbert v. Kok Wai Chun and Another

HCA 4/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4 OF 2006

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Before:  Hon Chung J in Court

Dates of Hearing:  22, 23 and 29 April 2009

Date of Handing Down Judgment:  6 May 2009

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J U D G M E N T

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Introduction

1.The plaintiff landlord commenced this action in January 2006 claiming arrears of rent from the former tenants.  The tenant defendants deny the claim and counterclaim for the return of the balance of rental deposit.  The defendants also commenced a third party claim for the third party’s breach of warranty of authority and misrepresentation.

Issues

2.The main dispute concerns an alleged verbal agreement reached between the defendants and the third party in April 2003 for the reduction of rent from $220,000 to $160,000 per month for two years.

3.The plaintiff further contends that, even if the court is to find in the defendants’ favour regarding the alleged agreement, as a matter of law, that agreement (which was only reached between the defendants and the third party) cannot have any binding effect as against the plaintiff.

Background

4.The following background is undisputed.

5.The suit property is a ground floor shop located at Po Wing Building, Percival Street, Causeway Bay (“the suit property”).

6.Pursuant to an order dated 19 June 2003, the plaintiff was appointed to be the administration pendente lite of the estate of one Mr Chu Yee (or Yu) Junk (or Tsang) (“Chu”), who passed away on 25 October 1999.

7.The third party is Chu’s lawfully wedded wife.  Apart from the third party, Chu left behind 9 children.  The natural mother of those children was a Madam Wong.

8.Since October 1993, the suit property was let to a business known as “Sun Chiu Kee”.  Since February 2000, that business became a partnership of the defendants.  The lease was one to expire by October 2002.  The rent payable per month was $220,000.

Witnesses’ Credibility and Findings of Fact

9.Because the dispute concerns the existence of an alleged verbal agreement, its resolution necessitates an assessment of the witnesses’ credibility.  Three witnesses testified at trial: the plaintiff, the third party and the second-named defendant (“the defence witness”).

10.Some of the events since Chu’s death may have an impact on credibility.  They are summarized below.

11.After Chu passed away, the third party desired to apply for letters of administration.  However, two of Chu’s children made the application in October 2001.  The third party commenced an action against them in May 2002 seeking the court’s order to name her as the administratrix of Chu’s estate instead.  The parties to that litigation agreed in December 2002 to appoint the plaintiff to be the administrator pendente lite.  An order to that effect was granted on 19 June 2003.

12.Chu and the third party emigrated to Canada in the 1980’s, but they came back to Hong Kong every year.  It is common ground that in April 2003 the third party went to the suit property to visit the defence witness.  But what happened during the visit is in dispute.

13.According to the third party, the defendants (through the defence witness) told her their business was not good due to the effect of avian influenza.  They asked for a rent reduction to $160,000.  In view of the payment record of the defendants and the market condition, the third party considered the reduction acceptable to her.  She told the defendants words to the effect she was agreeable in principle to the proposed reduction, but because she did not have the power to deal with the matter any more, she told them they should contact the plaintiff to discuss the matter.

14.On the other hand, the defence witness testified that he was never made aware of the third party’s lack of authority.  In fact, all along he considered her to be able to represent Chu, the owner.  According to his testimony, the third party considered his proposal and subsequently informed him she agreed to so reduce the rent for two years.

15.The defence submits that the third party’s testimony is unbelievable because of the following reasons:-

(a) the third party admits she considered the defendants’ rent reduction proposal for about a week before giving a reply to them.  If she in fact thought that she had no authority at all, she would not have sought time for consideration;

(b)    the third party explained during cross-examination she needed time to consider if the reduced amount was something which she would be able to shoulder up.  This indicates the third party considered herself to have power;

(c) the third party treated the suit property as hers, for example, she issued rental receipts to the defendants from October 1999 to May 2001, and withdrew money from the joint bank account from time to time from November 1999 to December 2002;

(d)    the third party failed to respond to the plaintiff’s enquiry in August and October 2003 as to (among other things) the particulars of rent for Chu’s properties, including that for the suit property;

(e) the third party made a mistake as regards when she met the plaintiff to discuss the defendants’ proposal to reduce rent;

(f) the letter dated 9 August 2003 from the third party’s then solicitors shows that she was in effect treated as the administratrix of Chu’s estate.

These will be discussed below.

16.I do not consider para. 15(a) above to be a valid ground for doubting the third party’s credibility.  It is apparent from her testimony she considered the defendants to be good tenants and, for that reason, was prepared to help them as much as she could.  In fact, it is undisputed Chu has had a similar view of the defendants before he passed away.  The fact of the third party having considered the proposal for a while is equally consistent with her testimony that she would try to help the defendants as much as she could, including persuading the plaintiff to accept the proposed rent reduction (which she did: see para. 33, the plaintiff’s witness statement).

17.As regards para. 15(b) above, I consider that part of her testimony to be more a spontaneous response to the line of questioning advanced at that time.  Little weight should be attached to this.  In reaching this conclusion, I bear in mind it is not either party’s case (especially the defendants’) that the third party agreed to take up personal responsibility for the difference between the original rent ($220,000) and the proposed rent ($160,000).

18.There is little merit in the argument summarized at para. 15(c) above.  While before May 2002 the third party apparently considered she was in a position to deal with Chu’s properties, by May 2002 (and definitely by December 2002) she must have known that her entitlement to those properties was under challenge.  I note that the date of the last withdrawal (24 December 2002) coincided with the date when the plaintiff was agreed to be appointed as the administrator (see para. 34, the plaintiff’s witness statement).

19.In this connection, the third party appears to have no hesitation in telling the defendants matters of a personal nature.  The following was stated in the witness statement of the defence witness:-

“[The third party] came back to Hong Kong in or about April 2003. … I learnt from [the third party] at that time that [the suit property] was used by [Chu] and her as a roasted meat shop for many years and [the suit property] was purchased with money through her hardwork with [Chu] … The business of roasted meat stopped as a result of fire occurred at [the suit property] which was due to the negligence of the last son of [Chu] who is a son between [Chu] and a woman … who died in 1967 … ” (para. 15 thereof).

It is conceivable conversations of the kind described above could lead on to topics such as the third party’s predicament with regard to Chu’s estate.  It is worth pointing out the defence witness denied during cross-examination the above information came from the third party; he alleged it came from a decoration contractor or worker.

20.As regards para. 15(d) above, the defendants also failed to respond to the plaintiff’s enquiry as to whether there was any written agreement for rent reduction to $160,000, and to provide a copy of any such agreement (see the plaintiff’s letter dated 28 August 2004).  I consider the failure by both parties to respond to have little weight.  In this regard, it is pertinent to note:-

(1) as discussed below, the third party’s age appears to be much more advanced than that of the defence witness;

(2) the third party has been residing in Canada.

21.Para. 15(e) above has to be looked at with the following in mind.  One, in the statement of claim filed in the third party’s probate action (dated 9 May 2002), the third party was described as 70 years old.  If that description is correct, she is now about 77 years of age.  Her appearance when she testified at trial was consistent with the description.  In view of her age, the mistake regarding the time of her meeting with the plaintiff is not surprising.  Two, in any event, the mistake should have no bearing on credibility, though it may need to be taken into account when considering her reliability.

22.As regards para. 15(f) above, the letter must have been drafted by the third party’s then solicitor.  They must have been aware of the third party’s probate action (they were the solicitors on record therein).  There is no evidence to indicate the language used in the said letter was a result of the third party’s specific instruction.

23.By reason of the matters set out above, I find the third party to be a truthful and reliable witness in relation to the alleged agreement to reduce rent for 2 years.

24.I do not find the defence witness to be truthful:-

(a) the alleged agreement to reduce rent is inherently implausible in view of the litigation already pending between the third party and Chu’s two sons;

(b)    he cannot explain why the defendants failed to pay the former rent of $220,000 after the expiration of the alleged 2-year rent-reduction period.  Further, the letter dated 19 May 2005 from the defendants’ solicitors failed to refer to the rent reduction being only for a period of 2 years;

(c) he cannot explain why the defendants did not ask the third party to refund part of the rental deposit which should become repayable if in fact there was a rent reduction agreement;

(d)    his denial that matters of a personal nature were disclosed to him by the third party is incredible in light of what he said about this in his witness statement (see para. 19 above).

When assessing the credibility of the defence witness, I have already taken into account the defendants’ arguments regarding the above points (see below for details).

25.In relation to para. 24(a) above, the defendants made the following submissions.  The third party must have considered the challenge of Chu’s two sons to her entitlement was a mere piece of nuisance without merits.  (But as the plaintiff points out, it is important that the third party was the party which commenced the action against Chu’s two sons.)  She must also have thought the rent reduction would be to the estate’s benefit because it would help retain a good tenant.  The third party also testified that the plaintiff had not yet been formally appointed by April 2003.  She was still treating the money in the joint account as her own as late as December 2002 (but see the discussion at para. 15(c) and 18 above in relation to the defendants’ last submissions).

26.In relation to para. 24(b) above, the defendants contend that they continued to pay the reduced rent after the 2-year period because they wanted to take undue advantage of the earlier verbal agreement.  There is however no evidence to support this contention.

27.In relation to para. 24(c) above, it is undisputed that, when the rent was reduced by Chu in about October 1999 from $237,500 to $220,000, the defendants did not obtain a partial refund of the rental deposit either.  This is a point in the defendants’ favour and less weight is placed on para. 24(c) above when assessing the credibility of the defence witness.

28.In relation to para. 24(d) above, it could be the result of the defence witness becoming more focused in his recollection of the incidents in April 2003 at the time of trial than when the witness statement was prepared.

29.I also find the plaintiff to be a truthful and reliable witness.

30.Taking into account my assessment of the witnesses’ credibility, the following findings of fact are made:-

(1) the third party did not reach any rent-reduction agreement with the defendants;

(2) the third party did not represent to the defendant she was the administratrix of Chu’s estate or was in any way empowered to deal with the suit property;

(3) on the contrary, the third party made clear to the defendants she did not have such power and they should contact the plaintiff to discuss the rent;

(4) since 25 October 2002, the defendants’ tenancy was a monthly tenancy at the monthly rent of $220,000 until its termination on 24 May 2005 (the nature of the tenancy being a monthly tenancy since 25 October 2002 is undisputed).

The Plaintiff’s Claim

31.There is no basis (whether evidential or legal) to support the defendants’ case that the plaintiff has (whether by himself or through the third party) agreed to reduce the rent payable.

32.Quantum of loss is undisputed.  The amount of rent in arrears is $2,000,000 ($340,000 + 1,440,000 + 220,000).  The amount of rental deposit to be set off is $712,500.

33.Accordingly, Judgment is entered against the defendants in the plaintiff’s favour in the sum of $1,287,500 ($2,000,000 – 712,500).

The Third Party Claim

34.Because I have rejected the testimony of the defence witness, there is no evidence to support the allegations of breach of warranty of authority or misrepresentation.

35.The third party claim is therefore dismissed.

Costs Order

36.The parties agree the usual rule that costs should follow the event is applicable.  There will accordingly be a costs order that the costs of this action (including any reserved costs) be paid by the defendants to the plaintiff to be taxed if not agreed.  Further, the costs of the third party claim (including any reserved costs) be paid by the defendants to the third party to be taxed if not agree.

37.The plaintiff indicates there may be dispute as to the basis of the taxation between him and the defendants.  Any such dispute will have to be resolved after the parties have submitted their written submission on the basis of taxation.  Whether a hearing for such purpose is also necessary will have to be decided after I have sight of the written submissions.

Mr Jeremy S K Chan, instructed by Messrs Herbert Tsoi & Partners, for the Plaintiff

Mr Kenneth C L Chan & Ms Eunice H Y Yung, instructed by Messrs Hau, Lau, Li & Yeung, for the Defendants

Mr Frederick H F Chan, instructed by Messrs Cheng Wong Lam & Partners, for the Third Party