SMARTONE MOBILE COMMUNICATIONS LTD v. EVERMOST (HONG KONG) LTD

DCCJ2272/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2272 OF 2004

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JUDGMENT

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1.  This is a claim by the plaintiff for the return of rental deposit in the sum of $34,000.  The defendant counterclaims damages resulting from the plaintiff’s failure to reinstate the premises to its original state.

THE PLAINTIFF’S CASE

2.  It is not disputed that on 1 October 1996, the parties entered into a written tenancy agreement whereby the defendant, as landlord, rented a property situate at 3rd Floor, No. 27 Lee Garden Road, Causeway Bay, Hong Kong (“the premises”) to the plaintiff as tenant.

3.  The premises were rented by the plaintiff as a transmission station to install, inter alia, antennae at the external wall outside the premises.  The term of the tenancy, being two years, commenced from 10 October 1996 to 9 October 1998.  The plaintiff duly paid the defendant the deposit in the sum of $34,000 to be refunded at the termination of the lease.  The tenancy under the agreement terminated after 9 October 1996 by effluxion of time.  The plaintiff has delivered vacant possession of the premises to the defendant on 16 October 1998.  The defendant has not refunded the deposit.

4.  The plaintiff in the hearing amends its claim and agrees to pay the defendant for the charges of replacing door and lock and 7 days rental, totalling $4,708.17.  The plaintiff denies the defendant’s allegations that the premises were not in good and tenantable repair and condition or that the premises had not been reinstated.  Moreover, the electricity wiring of the premises had not been disturbed by the plaintiff. 

5.  Mr Lam Wun-lai gives evidence for the plaintiff.  Mr Lam is a mechanical engineer working for the plaintiff.  He was previously the senior project supervisor and assistant manager until April 2001.  His job was to supervise the plaintiff’s contractors to install and remove its antenna.

6.  In May 2002, he noticed from the plaintiff’s record, that the defendant had not returned the rental deposit.  The matter relating to the delivery of the possession of the premises was dealt with by their staff, Mr Alan Wong, who left the plaintiff in about April 1999.  The matter regarding the deposit was hence followed up.  Because of the failure of the defendant to refund the deposit, the plaintiff started proceedings in the Small Claims Tribunal.  Since the defendant counterclaimed for a sum exceeding the jurisdiction of the Small Claims Tribunal, their claim and counterclaim were therefore transferred to the District Court. 

7.  Mr Lam says, generally, whenever the plaintiff’s antenna is installed, the existing electricity wiring of a property will not be disturbed.  The premises in question were a mini-site.  The additional electricity wiring would not disturb the original wiring at the premises.  He says it would be very unusual that when the plaintiff’s antenna was removed, the antenna stands and screws would not be removed by the plaintiff or its contractor.

THE DEFENDANT’S CASE

8.  The defendant’s case is that when vacant possession was delivered on 16 October 1998, there were wooden partitions and rubber stains on the floor left at the premises.  Moreover, the electricity supply had been disconnected.  Because of the interference with the electricity wiring by the plaintiff at the premises, the defendant failed to reconnect electricity supply until it had rewired the electricity wiring in about April 1999.  As a result the defendant lost the rental income for 5½ months. 

9.  In April 2004, as a result of complaints by the new tenant that there was water seepage through the outer wall of the premises when it rained, the defendant employed a surveyor to inspect the premises.  It was found that the plaintiff had left an antenna stand, together with a number of groups of four bolt studs anchored and remaining at either the upper column or the lower column of the external wall of the premises.  The defendant had to employ a contractor to remove the antenna stand and screws to reinstate the outer wall to stop the water seepage.

10.  The defendant has called four witnesses.  Mr Chan Kwai-ching is the director of the defendant.  He says around 10 August 1998, Mr Alan Wong of the plaintiff informed him that the plaintiff would not renew the tenancy and would deliver up vacant possession of the premises very shortly.  However, the plaintiff would need seven days to remove all its equipment.  Mr Wong offered, and it was agreed, that the defendant could deduct the occupation fee from the rental deposit for the period until vacant possession.  Mr Wong also agreed to pay the expenses to replace the locks of doors, iron gate and letter-box by deducting the same from the rental deposit.

11.  On the date of repossession of the premises, Mr Chan found that the plaintiff had not restored the premises to its original state.  He called Mr Wong, who promised that he would follow up the matter.  Since then, however, despite various voice-mails being left at Mr Wong’s mobile phone, Mr Wong did not give Mr Chan any reply.  Since the defendant wanted to re-let the premises to another tenant as soon as possible, Mr Chan applied to the Hong Kong Electricity Company Limited for reconnection of electricity supply.  Around 31 March 1999, a representative of the electricity company said he found defects in the electricity wiring and could not supply electricity until the defects had been rectified.  The correction works were completed in April 1999 and the electricity was restored on 16 April 1999. 

12.  Mr Chan says, around 8 April 2004, the defendant received complaints from the new tenant that there was water seepage at the premises.  He attended the premises with a surveyor and found that an antenna stand, together with screws, used by the plaintiff to affix the antenna, had not been removed.  Mr Chan says before the premises were let to the defendant, on his inspection of the outer wall, the antenna stand and all the screws did not exist.

13.  Mr Tsun Wai-chung was the estate agent who introduced a new tenant to the defendant.  He says, in November 1998, Mr Chan offered the premises for renting.  He and Mr Chan then visited the premises.  Mr Tsun found most parts of the flooring was overlaid with some adhesive tar material and there were narrow-width partitions set up alongside the window walls. 

14.  Mr Kwan Sik-yuen, Felix, is the electrician who fit the electricity rewiring for the defendant.  He says Mr Chan called him in about January 1999 inquiring about electrical works at the premises.  Since it was near the Chinese New Year, and he was busy, Mr Kwan said he could only visit the premises after Chinese New Year.  In February 1999, Mr Chan called again and Mr Kwan gave advice for applying the reconnection of the electricity supply.  At the end of March 1999, Mr Chan gave him a list of defects for work to be done. The rewiring work was then finished in about two to three days.  On 16 April 1999 he attended the inspection with the electricity company staff and successfully reconnected the electricity supply.  The price for his work was $4,198.50.

15.  Miss Lau Ying-ling is the new tenant.  She says she found the water marks in about May 2003.  With consent from the landlord for reimbursement she employed a contractor to fix it up at a cost of $700.  In mid-2004 she found the water seepage again.  She paid $400 for painting work, which is not claimed in this case.  After the summer in 2004 she found the water seepage became more severe.  The landlord appointed a contractor to perform remedial works on both the exterior and internal walls.  After the improvement works she did not observe water seepage anymore.

MAJOR  FACTUAL DISPUTES

The condition of the premises on re-possession.

16.  It is not disputed that vacant possession was delivered up on 16 October 1998 (seven days after expiration of the original lease).  There is no documentary proof from either party as to the condition of the premises.  Normally, if possession of the premises is satisfactorily delivered up, a tenant would have asked for a refund of the deposit as soon as possible.  But the plaintiff only asked for the refund, even in their case, in May 2002. 

17.  On the other hand, the defendant faxed a letter to the defendant on 2 November 1998 in respect of the premises.  The fax referred to the charges for door lock replacement and seven days’ rent only.  No complaint was recorded as to the condition of the premises.  One would expect that if the defendant was not satisfied with the condition of the premises, the defects should be mentioned in the fax.  Mr Chan explained the fax only dealt with the money matter, not contractual liability to reinstate.  Such explanation is, in my view, unsatisfactory.  Yet the claim regarding the wooden partitions and stains on the floor is supported by DW2, Mr Tsun.  While Mr Tsun has previously earned his agency commission from the defendant, I have no reason not to accept his evidence.  On balance I find that there were wooden partitions with adhesive stains on the floor of the premises.

18.  As to the allegation that the original electricity wiring was not restored, I find this claim unsubstantiated by evidence.  Mr Chan bought the premises in 1996.  He had never lived in the premises before it was rented to the plaintiff in October 1996.  Mr Chan would not have paid any attention to the wiring system of the premises before it was rented to the plaintiff.  Mr Kwan’s evidence cannot lend any support to this claim.

19.    On balance I find the system of electricity wiring of the premises had not been tampered with by the plaintiff and the premises were delivered up with the original system of electricity wiring.  The plaintiff is not liable to pay the expenses for the rewiring work. 

The bolt studs at the external wall

20.  It seems that Mr Lam of the plaintiff does not dispute that the plaintiff had installed antenna on the external wall of the premises.  Indeed, I find it must be the case as the purpose for the plaintiff to rent the premises was to install antenna, using the premises as a transmission station.  The evidence of Mr Lam is that from his experience, not his personal knowledge, it would be very unusual that the antenna stands and screws would not be removed by the plaintiff or its contractor.  Yet there is no documentary evidence, either of the plaintiff or its contractor, at all to support this proposition.

21.  From the photo of the plaintiff (page 23 of the bundle of pleadings), an antenna needs to be affixed on a stand with four screws.  From the photos taken by the defendant and its surveyor (at page 46 and page 47 of the bundle of documents), it is clear that there were similar studs in groups of four in rectangular shape, though with small variance of distance of screws.  On balance, I find the bolt studs, referred to in paragraph 1(b) of the defendant’s surveyor’s report (at page 44 of the bundle of documents), had been affixed and were not removed by the plaintiff. 

Was water seepage caused by the bolt studs? 

22.  I find no reason not to accept the evidence of Miss Lau, who is now the tenant of the defendant, and she has no interest in the case. I accept the defendant’s surveyor’s report as an impartial and reliable report.  I find that water seepage occurred on the window walls of the premises in 2003 and 2004.  After improvement works were done on both the external and internal walls of the premises in September 2004, there was no more water seepage.  However, I find the evidence insufficient to prove a causation between the water seepage and the bolt studs left by the plaintiff.

23.  The premises were situate in a building built in 1961 (page 65 of the bundle of documents).  Water seepage from external wall of the building would not be unusual.  The survey report (at page 44 of the bundle of documents), only concludes that, “based on our best of knowledge and judgment, we have reason to believe that the aquatic contamination (paragraph 1(c)) was caused by water penetration in the course of rains passing through porosity of the damaged concrete at the external wall (paragraph 1(a)).”

24.  The results of findings were that:-

two small areas of concrete damage by chiselling at the upper column of the external wall facing Lee Garden Road;

numbers of groups of four bolt studs anchored and remained at either the upper column or the lower column of the external wall facing the Lee Garden Road and the Russell Street end; and

aquatic contamination widely distributed over the upper column and the lower column just behind the external wall inside the premises. 

25.  There is no evidence that the bolt studs had rusted, or evidence that rainwater would pass through the bolt studs.  The photograph at page 54 of the bundle of documents also shows different kinds of bolt studs on the external wall, which would suggest that there were other studs affixed on the external wall by people other than the plaintiff.  On balance, I find the defendant fails to prove the causation between the bolt studs left by the plaintiff and the water seepage.

LEGAL ISSUES

The contractual issue

26.  Clause 4(c)(iii) of the Tenancy Agreement provides:

“(That the Tenant may) make any alterations or additions to the premises or any part thereof PROVIDED THAT upon termination of this Agreement, the Tenant shall make good to the reasonable satisfaction of the Landlord, all damage(s) caused to the Premises to a like condition as at the Commencement Date (fair wear and tear, structural inherent and latent defects excepted).”

27.  I have found the plaintiff failed to remove the wooden partitions and the adhesive stains on the floor.  I find it a breach of this clause.  Mr Fang, counsel for the defendant, argues that by failing to remove the bolt studs on the external wall, the plaintiff was in breach of the terms of the lease, i.e. clause 3(c), (d), (g), (h) and clause 4(c)(iii). 

28.  In my judgment, all these clauses refer to damages, alterations or additions to “the premises”.  The premises under the lease, as defined at the schedule to the lease, refers to the 3rd Floor,  27 Lee Garden Road, Causeway Bay, Hong Kong, without reference to the external wall.  There is no evidence that the defendant also owned the external wall of the premises and had the right to lease the external wall to the plaintiff.  Indeed, the lease provides definition for “the site”, which refers to “that part of the external wall/roof of the building as set out in (7) of the schedule.”  On the construction of the contract, it is clear that the subject matter of the lease did not cover the external wall.  Therefore, the obligation on the part of the plaintiff under clauses 3 and 4 does not cover the external wall, which should be regarded as the common part of the building.  I find there is no breach of contractual duty on the part of the plaintiff by failing to remove the bolt studs.

Negligence

29.  While the defendant pleads negligence in their defence and counterclaim, Mr Fang does not argue this issue in his written submission.  It appears to me that both parties only focus on the contractual issue.  For the sake of completeness, I would simply say that, as a result of my finding of lack of causation between the water seepage and the bolt studs left by the plaintiff, the defendant fails to prove that the plaintiff was in breach of their duty of care. 

30.  The plaintiff is therefore not liable to pay the expenses for the work in relation to the removal of bolt studs and water seepage remedial work.

Forfeiture

31.  Clause 3(j) of the Tenancy Agreement provides that,

“upon the execution of this Agreement to pay to the landlord the deposit for the performance and observance of the agreements on the part of the tenant herein contained.  At the expiration or sooner determination of this Agreement, and if there shall be no breach of any of the agreements on the tenant’s part to be observed and performed, the landlord shall return the deposit to the tenant without any interest thereon within 14 days after delivery of vacant possession of the premises to the landlord and after full settlement of all outstanding payments in respect of the premises payable by the tenant.”

32.  Mr Fang argues that since the plaintiff was in breach of their obligation to reinstate, no matter how serious or minor are the breaches, the defendant was entitled to forfeit the deposit.  He relies on three cases: Wong Kam Hong v Intercontinent Mercantile Company; McDonnell v Bak Ling Enterprises Ltd; and Orient Bright International Ltd v Hiang Kie Hong Kong Ltd.  Mr Kwong, counsel for the plaintiff, argues that the relevant clause in these three cases are different from the relevant clause in the present case.  Moreover, all three cases were about non-payment of rent or termination by breach, which are serious breaches and do not appear in the present case.  In any event, it would be unconscionable to forfeit the deposit.

33.  I accept the argument of Mr Fang that the absence of the word “forfeiture” is of no consequence if otherwise the meaning and effect of the clause is plain from the words used.  Clause 3(j) of the lease is such a case.  However, having considered the whole background and relationship between the parties, I find the breaches on the part of the plaintiff trivial and technical. 

34.  It is common ground that at the material time the plaintiff was in a transition period of about one year for a change of ownership.  Mr Alan Wong was the person who was responsible for the delivery up of possession of the premises.  He left the premises in or about early 1999.  I accept Mr Chan’s evidence that he failed to contact Mr Wong for two weeks after repossession of the premises.  However, if he indeed wanted to contact the plaintiff he could have contacted any people in the plaintiff.  The plaintiff was one of the major mobile phone service providers in Hong Kong with a number of easily accessible branches.  Moreover, Mr Chan could also telephone and fax to the plaintiff, as he did with his fax to the plaintiff, addressed as “SmarTone”, on 2 November 1998.  However, he just sat back.  He did not pursue with the plaintiff about the removal of the wooden partitions and stains on the floor.  I think the reason for that is apparent - no one from the plaintiff pursued the deposit with him and he wanted to keep it.

35.  Mr Chan says he paid cash for the expenses of removing the wooden partitions and stains on the floor.  His explanation in court about the absence of receipts, in my observation, was evasive.  From the outset until the present proceedings, he has handled the matter in a serious manner.  He keeps the receipts and documents for the major works, such as electricity rewiring and external wall remedial work.  He also keeps receipts and documents relating to minor and trivial things, such as the expenses for the change of door lock, the fax to the plaintiff for such charges and the receipt for minor painting works on the premises.  Moreover, the employment of contractor for this job was not mentioned in his witness statement. 

36.  His explanation for the absence of receipts for the total expenses of $7,000 is, in my judgment, unconvincing and I reject it.  I find that the defendant has failed to prove the employment of a contractor for the removal of the wooden partitions and the stains on the floor.  However, I would assess a reasonable cost for such work at $2,000.  On this basis, the breach by the plaintiff is trivial and immaterial in the relationship between the parties. 

37.  Moreover, given the plaintiff was in a transition period to change its entity, the departure of Mr Alan Wong, and the absence of demand from the defendant for reinstatement work, the failure on the part of the plaintiff to reinstate can be easily understood.  The plaintiff simply did not know about it.  They did not even know the deposit had not been refunded.  I find that forfeiting the deposit, in all the circumstances, would be wholly unconscionable.  I refuse the enforcement of the forfeiture clause.  I do not agree with Mr Fang that the court is prevented from giving this remedy merely because the relief is not expressly pleaded.  In any event, this issue has been raised and fully argued in court.

Loss of rent

38.  I have found that the plaintiff had not interfered with the electricity wiring of the defendant.  I will also find that the rewiring for the electricity supply, as required by the electricity company for reconnection of electricity supply, has nothing to do with the plaintiff.  I accept that when the premises were repossessed, there was no electricity supply.  However, I do not think there was obligation on the plaintiff to keep the electricity supply for the defendant after termination of the lease.  There is simply no evidence of arrangements relating to the supply of electricity between the parties.

39.  Even if there was such obligation on the plaintiff, and even if there was interference by the plaintiff with the system of electricity wiring, I would have found that the defendant has no right to claim any loss of rental income.  The defendant has a duty to mitigate.  They failed to do so.  The evidence is that the defendant had removed the wooden partitions and stains on the floor in November 1998.  Mr Chan only approached Mr Kwan for quotation of rewiring work in January 1999.  I cannot accept his explanation that it was difficult to find someone to do the work because it was towards the end of the Chinese New Year.  Moreover, he only applied for reconnection of the electricity supply on 23 March 1999.  Under cross-examination Mr Chan said it was because he was too busy.

40.  From the Provisional Tenancy Agreement, at page 34 of the bundle of documents, one can see the date of the Provisional Tenancy Agreement being 1 April 1999 and the issue of reconnection of electricity supply was specifically mentioned.  It is apparent that the application for reconnection of electricity supply was most likely prompted by the fact that a potential tenant had been found.  I find that the delay in reconnection of electricity supply has nothing to do with the difficulty to employ an electrician for the work.  It is only because of the defendant’s own delay.  Accordingly, the defendant is not entitled to any loss of rent or mesne profit, except for the seven (7) days’ occupation by the plaintiff after termination of lease, which is agreed by the plaintiff, in the sum of $3,967.

JUDGMENT 

41.  I therefore enter judgment for the plaintiff as claimed in the sum of $29,283, which has given allowance for the concessions made by the plaintiff.  I enter judgment for the defendant in the counterclaim only for the expenses for removal of wooden partitions and stains on the floor, in the sum of $2,000.  The amount is to be set off from the claim awarded to the plaintiff.  I order the defendant to pay the plaintiff the sum of $27,283.  I order interest on this sum at judgment rate to accrue from the date of filing of claim in the Small Claims Tribunal.

(Submissions on costs)

42.  I order the costs of this action and the counterclaim be paid by the defendant to the plaintiff.  I also order certificate for counsel.