Ying Tak Fong v. Owusu-Brinfour, James Yaw

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 14643 OF 2000

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J U D G M E N T

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1. This is an action by the plaintiff landlord for arrears of rent in the sum of $56,000 and for the remainder of the rent due up to the expiry of a two-year tenancy on 11 May 2001. The plaintiff therefore seeks a money judgment in the sum of $154,000.

2. The matter comes about in this way. The plaintiff is the owner of a three-bedroom flat: Flat B, 7th Floor, Block 1, Prosperous Garden, 3 Public Square Street, Yau Ma Tei ("the premises"). He had purchased the premises as an investment in order that he might let them. By April 1999, they had been empty for about two years.

3. He instructed estate agents, D & P Property Agency, to find a tenant for him. Their Mr Jason Yuen dealt with the matter. Although, as will become apparent presently, his evidence would have been decisive in the trial, neither party has chosen to call him.

4. The defendant comes from Ghana. He and his family have lived in Hong Kong for seven years. He trained as an accountant and he owns his own freight forwarding company with offices in Central. In April 1999, he had been renting a property at Tsuen Wan. He wished to move closer to Hong Kong Island. A friend of his, who was already living in another block at Prosperous Garden, introduced him to Mr Yuen as a person who might be able to find a flat for him in the same development. Mr Yuen showed the defendant these premises. They were suitable. The asking rent was $16,000 a month which was more than the defendant was willing to pay. After speaking to the plaintiff, Mr Yuen informed him that the plaintiff would accept $14,000.

5. The defendant's account is that he told Mr Yuen that he required a two-year lease which is what was being offered, but that he also wished to have a break clause after one year so that he might move on if he found something more to his liking. That was a term of the lease of his then current flat at Tsuen Wan and of previous properties that he had rented. According to the defendant, Mr Yuen told him that this would be all right. Having been given that assurance, he agreed to return to the estate agent's offices on 21 April 1999 in order to sign the provisional tenancy agreement. That agreement in Chinese is at page 1 of the Bundle of Documents, translated at page 2.

6. In terms of the important issues in this trial, the significant term is at clause 3 which describes the tenancy as one for two years commencing on 12 May 1999 and expiring on 11 May 2001. There is no mention of a break clause in the tenancy after 12 months.

7. On 1 May 1999, the defendant returned to the agent's offices where he signed a standard form of lease, again in Chinese, thereby becoming the tenant of the premises for a fixed two-year term. The agreement in its original form appears at pages 4 and 5 of the Document Bundle and in translation from pages 6 to 9. Suffice it to say that it does not contain a break clause after 12 months. The defendant's case is that he assumed that it did because that was what Mr Yuen had told him and that is why he signed it.

8. The next significant matter that occurred was in May the following year. The defendant discovered that rental values had softened since he had entered into the tenancy. He approached Mr Yuen and told him that he was prepared to see out the second year of the tenancy but for a reduced rental. According to the defendant, Mr Yuen told him that the plaintiff was not prepared to agree to such a reduction. Mr Yuen proposed to him that he could give the landlord two month's notice and the rent could be set-off from the two months deposit and in the meantime Mr Yuen would find him another cheaper flat, which he subsequently did, in another block at Prosperous Garden. This new tenancy contained a break clause after one year.

9. On 11 August 2000, the defendant delivered possession of the keys to the agents. His case is that the agent told him that he had inspected the premises and that they were in good order and that the keys had been returned to the plaintiff.

10. The plaintiff's case differs on almost every count. Firstly, he says that the tenancy had no break clause, which of course is correct, and that he gave Mr Yuen no instructions to negotiate anything different or represent anything different. The only negotiation related to the rent which he agrees was reduced by $2,000 down to $14,000. As to the purported offer to surrender, his case is that he refused to accept the surrender and insisted on the defendant completing the whole term of the tenancy.

11. There is agreement that the parties met at the agent's offices in August when Mr Yuen was present to see if they could resolve their differences. Mr Yuen had to interpret because he speaks no meaningful English and of course the defendant has no Cantonese. The plaintiff says that he proposed to the defendant that he would accept the surrender provided that the defendant agreed to forfeit the $28,000 deposit and paid up the arrears of rent which at that stage were for two months. The defendant agrees that this meeting took place but that the plaintiff required him to pay up to six months rent, which he did not have, and so any prospect of an amicable settlement fell through.

12. The plaintiff instructed solicitors to pursue the matter on his behalf. Those solicitors first sent a letter dated 7 August, after which the parties held the meeting which I have just described. That letter is Exhibit P3. It served to remind the defendant that he must comply with all of the terms of the lease by paying the monthly rent on time and that he could not surrender the tenancy prematurely and that his deposit could not be used to pay off arrears of rent because it represented security for the landlord until the end of the lease.

13. The next letter is Exhibit P4 and is dated 18 September. By that time, the defendant had given up possession and moved into new premises. Its terms, which are of important, are as follows:

"We refer to our letter dated 7 August 2000, a copy is sent herewith. For the reasons that our client has refused your surrender of the tenancy and therefore you cannot terminate the tenancy of the above property unilaterally and without our client's consent, accordingly you must comply with the terms and conditions as set forth in the tenancy agreement herein dated 1 May 1999 by effecting payment of rentals of $14,000 a month until the end of the tenancy at 11 May 2001. Under the said circumstances, you are now in arrears of rental for the months of July, August and September 2000, for the total of $42,000. Hence, we are instructed to give you notice which we hereby do to pay the said arrears of rental in the sum of $42,000 to us and/or to our client within the next five days, failing which legal proceedings shall be instituted against you for recovery of the said arrears and possession of the above property without notice."

The final sentence may have a bearing on the issue of surrender which I shall make further reference to presently.

14. The plaintiff says, and I accept this, that he did not accept the return of the keys by the defendant. He left them at the agent's offices and did not collect them until after 12 May this year when the lease expired. Nor did he enter the premises following the defendant's departure in August last year.

15. These, therefore, are the relevant facts. Firstly, I must determine what are the legal issues that require resolution by me. There are two distinct phases to be considered. The first relates to the signing of the tenancy. The defendant says that he was induced to sign an agreement in Chinese which he cannot read or understand on the basis of Mr Yuen's representation that the lease contained what in Hong Kong is a fairly common break clause after one year.

16. The plaintiff says, and I accept, that he never gave Mr Yuen any instructions to say such a thing, nor to offer such a lease. He was only interested in a lease for two years certain. As I have indicated, neither party has chosen to call Mr Yuen, but I find it entirely improbable that this estate agent would have run to trickery of this sort to induce a prospective tenant into signing a lease, even though he knew that the tenant would have been none the wiser. He would have been stirring up trouble for himself from both landlord and tenant once the matter, almost inevitably, would have been discovered after the end of the first year of the tenancy.

17. The defendant bears the burden of showing this in the face of his having signed a lease with no such term. On the most basic level, I am content to say that he has not carried that burden on a balance of probabilities but beyond that, looked at from the point of view of the inherent probabilities, I am satisfied that no such representation was made to him by Mr Yuen.

18. On fact, therefore, I am satisfied that the defendant realised that he was signing a two-year term with no break clause. Even if I am wrong in coming to that conclusion on the evidence, his plea of non est factum, for this is what it amounts to, must fail as a matter of law. The law is contained in the House of Lords decision in Saunders v Anglia Building Society [1971] A.C. 1004. It is to be stressed that the defence of non est factum is not lightly to be allowed where a person of full age and capacity has signed a written document embodying contractual terms but it was held, nevertheless, that in exceptional circumstances the plea was available so long as the person signing the document had made a fundamental mistake as the character or effect of the document. The House of Lords concentrated on the disparity between the effect of the document actually signed and the document as it was believed to be, stressing that the disparity must be "radical", "essential", "fundamental" or "very substantial". (see Chitty Volume I, 5-057). Further, a person who signs a document may not be permitted to raise the defence of non est factum where he has been guilty of negligence in appending his signature, this based on the principle that no man can take advantage of his own wrong.

19. In my judgment, the defendant fails on both limbs. Plainly he realised that he was signing a two-year lease at a monthly rent of $14,000 which was the case. The only difference on his case is that it contained a break clause after 12 months. This disparity, in my judgment, does not fall to be described as "radical", "essential", "fundamental" or "very substantial", as contemplated by the House of Lords in Saunders v Anglia Building Society supra.

20. Secondly, he was guilty of negligence in signing a lease in Chinese. It was negligent to have acted on Mr Yuen's representations. That is taking the plaintiff's case at face value. He should have taken a copy and had it explained to him by a solicitor or other trustworthy, disinterested person who could competently do the translating for him. Accordingly, the plea of non est factum fails.

21. The next phase concerns the events of August 2000. The defendant says that his purported surrender was accepted, firstly on the basis that Mr Yuen told him that the landlord had agreed to it, provided that the security deposit could be used as rent to cover two month's notice. Having regard to the landlord's reaction to his departure, I am satisfied that no such thing occurred. The defendant agrees that the parties met in August to try and resolve the matter. Had the landlord accepted the surrender, there would have been no need for such a meeting. On the contrary, his stance was to ensure full compliance with the lease (see the letter of 7 August, Exhibit P3). I am also satisfied that it is inherently improbable that Mr Yuen would have so fundamentally misrepresented the landlord's position to the defendant.

22. In my judgment, what really happened was that the defendant saw that rents had come down between May 1999 and August 2000 and having failed to get any reduction from the plaintiff, he decided to leave the flat and hope that the plaintiff would merely accept the position, perhaps keep the two months deposit and hopefully find another tenant. He had not counted on a determined landlord who would demand full compliance with the terms of the lease.

23. Therefore, I find as a fact that subject to the effect of the letter of 18 September (Exhibit P4), the plaintiff did not accept the defendant's offer to surrender the lease.

24. This then leaves over two further points of law. Does the letter of 18 September amount to an acceptance of the surrender where it contains the threat to recover arrears of rent and possession without notice? In fact, of course no proceedings for possession were ever instituted, the landlord preferring to stand on his rights and sue for the whole of the rent under the lease.

25. When I first saw the letter in the course of the evidence, I felt that perhaps the letter had been unwise, certainly as to the latter part of its last sentence, but Mr Kwan for the plaintiff has persuaded me that this mere threat to recover possession comes nowhere near to an act showing acceptance of the purported surrender. The matter is discussed extensively in Woodfall at Chapter 17.18 to Chapter 17.23. It is perfectly clear that the conduct of the parties must unequivocally amount to acceptance that the tenancy has ended. In this regard, the examples cited at Chapter 17.21 are helpful.

26. Further, I have already found that at no time did the plaintiff accept the return of the keys, which might be capable of signifying acceptance of the surrender. This landlord decided to sit the term out and now claims rent for the entire period.

27. This then brings me to the final point. Is the landlord entitled to do this, or is he obliged to mitigate his damage by attempting to let to another tenant and sue only for the consequent loss of rent, particularly in a falling rental market as was the case in 2000? Again, the position is clearly set out in Woodfall at Chapter 17.314 and 315. The landlord has a choice. He can accept the repudiation, attempt to re-let and sue for damages or, he may sit on his rights and claim the entire rent under the lease, which this landlord has elected to do.

28. Accordingly, the plaintiff must succeed in his claim for the entire amount of $154,000, being all the rent due under the lease. He retains the security deposit which, strictly speaking, is not to be used for payment of rent, but now that the lease has determined by effluxion of time, I shall say that he may keep the sum of $28,000 on account of the $154,000.

29. Consequently, judgment will be in the sum of $126,000, together with interest on that amount at half the judgment rate on the arrears of rent from the date when the rent became due until today and thereafter at the judgment rate on the sum of $126,000 until payment of this amount.

30. So there will be judgment to the plaintiff in the sum of $126,000 and interest as appears in the judgment.

31. I am afraid, Mr Owusu-Brinfour, the costs of the action must follow the event, so costs to the plaintiff to be taxed on a party and party basis with certificate for counsel.