BESTGUARD INVESTMENT LTD v. HON KWOK CHING

HCA 1165/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1165 OF 2009

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J U D G M E N T

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1.  This is a simple tenancy dispute concerning the obligation to maintain an air-conditioner (“the Air-Conditioner”) provided as part of the fixtures of the premises in question, namely, Office C, 17/F, 235 Wing Lok Street Trade Centre, No.235 Wing Lok St., Sheung Wan, Hong Kong (“the Premises”). At the material times, the Premises were used to run an estate agent business by the Defendant.

2.  There is no real dispute over the essential facts of this case.  The controversy rests with the Counterclaim. 

3.  By reason of an unusual feature which will become apparent below, I need to set out the facts from the inception of the contractual relationship between the Plaintiff (“the Landlord”) and the Defendant (“the Tenant”).  Save where indicated otherwise, the facts set out below are the facts which I accept as proved in this case. 

4.  The Landlord was and is the owner of the Premises.  On 6 March 2003, the Landlord, acting via an agent called Henderson Property Agency Ltd (“Henderson Property”), entered into a tenancy agreement with the Tenant.  There were two contractual documents – a Confirmation of Tenancy dated 6 March 2003 and a Tenancy Agreement dated 3 April 2003.  This tenancy lasted for two years from 10 March 2003 to 9 March 2005 (“the 1^st Tenancy”). 

5.  Upon the expiration of the 1^st Tenancy, the parties entered into another tenancy agreement.  A Confirmation of Tenancy (Renewal of Tenancy) dated 15April 2005 was signed by them.  Part E of that document provided, inter alia, as follows:

“租客需於起租日 [即10/03/2005] 或之前親臨上述律師樓簽署業主之標準租約 [一式兩份] 包含本確定書之條款，其他並未有刊載於本確定書的條款則符合隨附之標準租約樣本。”

6.  However, no Tenancy Agreement was in fact signed by the parties.  On the other hand, on 23 February 2005 a copy of the Pro Forma Tenancy Agreement (“the PFTA”) was given to the Tenant by one of Henderson Property’s staff.  The receipt by the Tenant of this document was acknowledged on the first page of that document in the following terms:

“本人/本公司現向 貴公司確認，本人/本公司於23/02/2005收到此標準租約樣本一份。本人/本公司明白於起租日或之前所簽署之標準租約將以此標準租約樣本之內容及條款為準。貴公司亦已提醒本人／本公司若有任何疑問，可先諮詢獨立法律意見。”

7.  Given the fact that (i) the PFTA was given to the Tenant prior to the signing of the Confirmation of Tenancy (Renewal of Tenancy) and (ii) the Tenant had never expressed any disagreement with the PFTA, I have no difficulty in accepting the Landlord’s case that the PFTA was adopted by the parties by virtue of their conduct.  On this occasion, the tenancy was for one year – from 10 March 2005 to 9 March 2006 (“the 2^nd Tenancy”).

8.  On 11 March 2006, the parties signed another Confirmation of Tenancy (Renewal of Tenancy).  Clause 12 under Part C provided as follows:

“除非與本確定書（續租）內所載的條款和條件有抵觸，否則續租租約的所有內容及條款均須與現有租約相同，但續租權及免租期（如有的話）則除外。”.

9.  Similar to the Confirmation of Tenancy (Renewal of Tenancy) dated 15 April 2005, the Tenant was required to attend the office of the Landlord’s solicitors to execute a formal Tenancy Agreement.  However, like the case of the 2^nd Tenancy, no such document was in fact executed.  Despite the absence of a fresh Tenancy Agreement, I accept the Landlord’s case that by virtue of Clause 12 the PFTA continued to govern the new tenancy.  This was also a one year tenancy – from 10 March 2006 to 9 March 2007 (“the 3^rd Tenancy”).

10.  On 11 April 2007, the parties signed another Confirmation of Tenancy (Renewal of Tenancy) to extend the tenancy.  Although the Landlord’s agent had changed to Henderson Sunlight Property Management Ltd (“Henderson Sunlight”), the contents of that document were similar to the earlier ones.  In particular, (i) this latest Confirmation of Tenancy (Renewal of Tenancy) contained the same Clause 12 (see para. 8 above) and (ii) there was a similar provision for the signing of a formal Tenancy Agreement.  Again, no such agreement was in fact signed.  However, I take the view that by virtue of Clause 12 the PFTA continued to apply to this renewal (“the 4^th Tenancy”).

11.  The controversy between the parties concerns the 4^th Tenancy.  It was a one year tenancy – from 10 March 2007 to 9 March 2008.  The Premises were let at an exclusive rent of HK$5,320 per month. Rates and management fees were to be paid by the Tenant.  The attachment page to the Confirmation of Tenancy (Renewal of Tenancy) contained an important clause (“Clause I”) which governed the obligations towards the maintenance and operation of the Air-Conditioner as follows:

“租客明白此單位內已安裝了壹部分體式冷氣機連盤管風機（如附圖橙色所示），而有關之散熱器則安裝於大廈外牆處（如附圖綠色所示），租客亦明白及同意：

(i) 有關之分體式冷氣機、盤管風機及散熱器是連同單位一併租予租客的；

(ii) 租客須於租約期內自行及自費定時清洗、維修及保養該分體式冷氣機、盤管風機及散熱器，及於租約期滿時在業主滿意情況下交還業主；

(iii) 租客必須對該分體式冷氣機、盤管風機及散熱器之保安及運作情況負上全部責任。而租客亦明白及同意冷氣機系統在任何情況下被盜竊、損毀及／或引致他人損傷，租客必須負上全部責任。租客亦需為上述責任購買第三者保險一份，業主須為其一受益人。”

12.  The PFTA is a long document.  It contains many of the usual provisions.  Of particular relevance are:

Clause 4

“The Tenant hereby agrees with the Landlord as follows : -”

Clause 4.2.12

“To secure the due performance and observance by the Tenant of the provisions contained in Clauses 4.2, 4.4 and 4.5, the Tenant shall pay to the Landlord a premises damage and reinstatement deposit in the sum set out in Part 5 of the Schedule upon execution of this Agreement as security for the due performance and observance of the Tenant’s obligation under this Agreement in respect of the decoration, including any alteration modification and fitting out of the Premises at the commencement of or at any time during the subsistence of this tenancy created by this Agreement and reinstatement of the Premises at the expiration or sooner determination of this Agreement. Without prejudice to any other remedy that may be available to the Landlord, the Landlord may deduct from the premises damage and reinstatement deposit the amount of all losses and damages sustained or incurred by the Landlord as a result of any breach or non-performance or non-observance by the Tenant of any provision contained in Clauses 4.2, 4.4 and 4.5. If the premises damage and reinstatement deposit shall be insufficient to cover all such losses and damages sustained or incurred by the Landlord and without prejudice to any other remedy that may be available to the Landlord, the amount of such deficit shall be a debt due to the Landlord and be recoverable from the Tenant. The premises damage and reinstatement deposit or balance thereof will be refunded to the Tenant without any interest within 30 days after the expiration or sooner determination of this Agreement upon delivery of vacant possession of the Premises in its original state to the Landlord’s full satisfaction.”

Clause 6

“IT IS HEREBY FURTHER EXPRESSLY AGREED AND DECLARED that the Landlord shall not under any circumstances whatsoever be liable to the Tenant or any other person whomsoever :‑”

Clause 6.1

“in respect of any injury loss damage or loss of business or profit whatsoever which may be suffered or sustained by the Tenant or any other person or to any property whatsoever and whomsoever belonging caused by or through or in any way owing to any defect in or failure malfunction breakdown variation interruption or suspension (whether as a result of routine maintenance and upkeep or otherwise) of the lifts escalators travelators fire prevention and fighting system air-conditioning system or electricity or water supply or any other service or facilities provided in the Building, or ”

13.  On 29June 2007, the Air-Conditioner broke down.  A complaint was made by the Tenant to the management office. Pursuant to the complaint, a contractor was sent by Henderson Sunlight to examine the Air-Conditioner.  Eventually, repair to the same was carried out and things were back to normal on 21 July 2007.  The cost of the repair was paid by the Landlord.

14.  The Tenant was understandably unhappy about the loss of air-conditioning during the summer. I have no difficulty in accepting the Tenant’s evidence that, without air-conditioning, the average temperature inside the Premises was at least 30∘C.   Regrettably, the Tenant then decided not to honour his obligation to pay rent.  He might have felt that he was entitled to do so given the breakdown of the Air-Conditioner. The non-payment of rent resulted in two distraint proceedings.  I do not need to go into the details because the quantum of the Landlord’s claim is not disputed. 

15.  However, the distraint proceedings did not result in any yield, i.e., what was recovered was insufficient to cover the costs and expenses incurred.  The Tenant continued to default on the payment of rent, rates and management fees.  Eventually, the 4^th Tenancy was forfeited by the Landlord pursuant to the issuance of the writ herein dated 26 February 2008 and the possession of the Premises was obtained by it with the aid of a court order on 1 September 2008. 

16.  The Landlord’s claim has been set out in an Appendix I produced by Ms Lau (“Appendix I”), who appears on its behalf.  The total sum claimed, exclusive of interest, is HK$89,339.60.  It is made up of outstanding (after deduction of rental and reinstatement deposits and what was recovered under the distraint proceedings) rent, mesne profits, rates, management fees, costs and expenses of the distraint proceedings and the cost of reinstating the Premises. 

17.  Appendix I has been verified by Mr Lui, one of the witnesses of the Landlord.  When it was put to the Tenant in cross-examination, he said that he had no objection to it. 

18.  Before I deal with the Tenant’s case, I should say that I accept the evidence of the three witnesses called by the Landlord.  Their evidence is largely uncontroversial and consistent with the documents before me. 

19.  However, there are two points which have been emphatically made by the Tenant in attacking the evidence of the Landlord. Firstly, one of the witnesses (Mr Ngai) had, as he admitted in his witness statement, made a mistake in his previous affirmations when he deposed that the Tenant had borrowed a fan from the management office during the period when the Air-Conditioner malfunctioned.  Secondly, both Mr Ngai and Mr Lui were wrong when they referred to Henderson Sunlight as being the Landlord’s agent prior to 2006 (Henderson Sunlight was only established in 2006).  The Tenant takes a very serious view of these inaccuracies and he submitted that they amounted to criminal activities designed to deprive him of his rights.

20.  I am unable to see any merit in these points.  I accept Mr Ngai’s explanation that his faulty recollection was the cause of the inaccuracies in his affirmations.  I can see no reason for him to knowingly put forward false evidence.  As regards the second point, they were innocent mistakes.  The relevant documents are before this court.  The identity of the Landlord’s agent can clearly be seen on the same.  It appears to me that the Tenant may be harbouring a belief that if he is able to find any fault in the Landlord’s evidence he would be able to escape liability in this case.  Such a belief is ill-founded.

21.  Turning to the Tenant’s case.  He maintains that the obligation to keep the Air-Conditioner in proper repair rested with the Landlord.  Further, the lack of air-conditioning for 22 days had resulted in loss of business and reputation which has been quantified as being in excess of HK$10 million. 

22.  The responsibility for the maintenance of the Air-Conditioner is a matter governed by the contact between Landlord and the Tenant.  There can be no doubt that such responsibility rested with the Tenant by virtue of Clause I.  In cross-examination, the Tenant agreed that he knew about the terms of the PFTA and the Confirmation of Tenancy.  The only disagreement he had raised in respect of the same concerned a certain obligation to take out third party insurance. 

23.  I reject the Tenant’s submission that the responsibility for the Air-Conditioner was that of the Landlord because it was maintained by its contractor at its cost.  I do not believe that the generosity of the Landlord changed the legal obligation.  Any variation of a contract must, as a matter of law, be support by consideration.  In short, there is no merit in either the Defence or the Counterclaim.

24.  For completeness, aside from the lack of any proper proof, the absurdity of the Counterclaim is self-evident.  I am unable to see how any serious client of the Tenant would be deterred from using his services simply because the Premises were too hot.  Commonsense dictates that alternative arrangements could have been made for meetings with clients and the like.  Further, Ms Lau is clearly right to maintain that the Tenant was under a duty to mitigate his loss.  He could have put in place electric fan(s) and/or portable air-conditioner(s) to alleviate the soaring temperature in the Premises.  The suggestion that his business was simply forced to shut down by the lack of air-conditioning is rejected. 

25.  Last but not least, some of the accusations made against this court in the Tenant’s final submissions are astounding in their falsity.  I have dealt with them at the time when they were made and I do not repeat them in this judgment. 

26.  For these reasons, I give judgment for the Landlord in the sum of HK$89,339.60 with interest at half judgment rate from the date of the writ herein to the date of judgment and at judgment rate thereafter until payment.  The Counterclaim is dismissed.  I make an order nisi that the costs of action and Counterclaim be to the Landlord to be taxed if not agreed.   Such costs are to be taxable at the High Court scale after the transfer of this case to the High Court.