NG YIN NEI v. LEE CHICK CHOI

DCCJ 563/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 563 OF 2010

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BETWEEN

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JUDGMENT

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1.  By a Notice of Appeal dated 15 June 2010, the Defendant appealed against the Master’s decision on 15^th June 2010 giving summary judgment in favour of the Plaintiff for :

(1) An order for vacant possession of the Premises;

(2)HK$36,000 being the amount of two dishonoured cheques, each for HK$18,000, in respect of the payment of the rent for the Premises known as Flat F, 7^thFloor, Banyan Mansion, Taikoo Shing, Hong Kong (“the Premises”). The cheques were countermanded by the Defendant;

(3) HK$58,064.50, being the unpaid rent and/or mesne profit until 31 May 2010; and

(4) Costs of the summary judgment application summarily assessed at HK$40,250 in accordance with Order 62 Rule 9A.

2.  The Defendant also applied for a stay of the payment of the arrears of rent and/or mesne profit pending the determination of the counterclaim in the event that he failed in his appeal.

3.  All the correspondence sent by the Defendant to the Plaintiff in this matter as well as all the court documents filed by the Defendant were written in English.  However, at the hearing I allowed the Defendant to make his submissions in the Punti dialect of the Chinese language. The Defendant had no objection that apart from his submissions, the hearing would be conducted in English.

Background

4.  The Plaintiff is and was at all material times the owner and landlord of the Premises. By a tenancy agreement dated 10 June 2009 (“the Tenancy Agreement”) made between the Plaintiff as landlord and the Defendant as tenant, the Premises was let to the Defendant for residential purpose for a term of two years commencing on 25 June 2009 at the monthly rent of HK$18,000. The rent was payable in advance.

5.  It is provided under the Tenancy Agreement, amongst other things, that :

(1)        If the tenant shall fail to pay the rent within 7 days from the due date, the Plaintiff shall have the right to institute appropriate action to recover the rent and all costs, expenses and other outgoing so incurred by the Plaintiff in relation to such action shall be a debt owed by the Defendant to the Plaintiff and shall be recoverable in full by the Plaintiff (clause 1); and

(2)        If the rent and/or any charges payable by the Defendant or any part thereof shall be unpaid for 7 days after the same shall become payable (whether legally demanded or not) or if the Defendant shall commit a breach of any of the terms and conditions of the Tenancy Agreement, it shall be lawful for the Plaintiff at any time thereafter to re-enter the Premises whereupon the Tenancy Agreement shall absolutely determine and the Plaintiff may deduct any loss or damage suffered by her as a result of the Defendant’s breach from the security deposit (which was in the sum of HK$36,000) without prejudice to any other right of action or any remedy of the Plaintiff in respect of such breach of the Defendant (Clause 7).

6.  The Defendant’s case is that shortly after he had moved into the Premises, there was undulating floor problem at the Premises. As time went by, the Defendant alleged that the problem and the extent of it got worse. Numerous communications, both oral and in writing, were exchanged between the parties since around end of July 2009.

7.  Since late December 2009, the Defendant refused to pay rent and had countermanded all the post dated cheques that he had given to the Plaintiff when he rented the Premises for the payment of the rent. By the time this action was commenced, two cheques were countermanded and that form the basis of the Plaintiff’s claim for dishonoured cheques in the sum of HK$36,000.

8.  On 12 February 2010, the Plaintiff commenced the present action against the Defendant seeking possession of the Premises, the sum of HK$36,000, arrears of rent and/or mesne profit at HK$18,000 per month from the date of the action until recovery of the vacant possession of the Premises, as well as interests and costs.

9.  On 31 May 2010, the Defendant sought to hand over the keys and possession of the Premises to the Plaintiff’s solicitors but the Defendant alleged that the Plaintiff refused to accept the keys. It was not until 19 June 2010 that the parties made arrangement to hand over possession of the Premises to the Plaintiff. At the hearing before me, Mr. Lai has helpfully confirmed that the Plaintiff would consider that she had recovered vacant possession of the Premises on 31 May 2010;

10.  The Defendant, in his Defence and Counterclaim, alleged that he ceased payment of the rent due to the following reasons:

(1)        His family and him could not peacefully hold and enjoy the Premises during the term of the Tenancy Agreement without any interruption by the Plaintiff; and

(2)        The Plaintiff did not keep and maintain the structural parts of the Premises including the main drains and pipes despite many written notices of defect or want of repair given by the Defendant to the Plaintiff and the Plaintiff had failed to take reasonable steps to repair and remedy the same after the lapse of a reasonable time from the date of service of such notices;

11.  The Defendant therefore counterclaims against the Plaintiff the following sums:

(1)        HK$6,000 each month to be deducted from the rent from 25 June 2009 to 24 December 2009 totalling HK$36,000 for the defects of the floor which happened in the sitting room of the Premises;

(2)        HK$9,000 each month to be deducted from the rent from 25 December 2009 to the delivery of vacant possession of the Premises (in this case, 31 May 2010) totalling about HK$45,000;

(3)        HK$13,000, being the costs of the first surveyor’s report;

(4)        HK$13,000, being the costs of the second surveyor’s report;

(5)        HK$100, being the amount paid to his bank to stop all the post dated cheques;

(6)        HK$9,000 per month from 1 June 2010 to 24 June 2011 (about 13 months) totalling HK$117,000, being the difference in the rent between the Premises and a comparable premises that he had leased;

(7)       HK$10,000 as the expenses for  moving to the new premises;

(8)        About HK$13,500 as the agency fees for finding a new premises; and

(9)        Injury to feelings based on the defamatory allegations made by the Plaintiff and inconvenience suffered as a result of the undulating floor problem.  The sum claimed is about HK$250,000.

12.  On 15 June 2010, after hearing the parties’ submissions, the Master gave summary judgment in favour of the Plaintiff in the terms described in paragraph 1 above. The Master also adjourned the Plaintiff’s Summons dated 28 May 2010 to strike out the counterclaim of the Defendant and the Defendant’s Summons dated 14 June 2010 to another date for a case management conference. 

13.  The Defendant appealed against the order of summary judgment given on 15 June 2010 and the matter was heard before me on 21 June 2010.

The Appeal

14.  The Defendant has filed five Affirmations on the following dates and I shall name them consecutively according to the time when he filed those Affirmations:

1^st Affirmation of Defendant   7 May 2010

2^nd Affirmation of Defendant 20 May 2010

3^rd Affirmation of Defendant   14 June 2010

4^th Affirmation of Defendant   18 June 2010

5^th Affirmation of Defendant   21 June 2010

15.  At the hearing, the Defendant applied for leave to adduce his 3^rd, 4^thand 5^thAffirmations together with a second surveyor’s report and a valuation report both prepared by Kays International Property Consultants Co., Ltd (“Kays”) and filed on 14 June 2010. Having heard submissions of the parties, I allowed the Defendant to adduce his 3^rd Affirmation, the second surveyor’s report and the valuation report. However, I disallowed the Defendant’s application to adduce the 4^th and 5^th Affirmations.

16.  The Defendant’s complaint relates to the undulating floor at the Premises. I set out below some of the evidence in this case :

April 2009	New floors were laid at the Premises by the Plaintiff before she put up the Premises for lease in the market.
10 June 2009	Tenancy Agreement signed by the parties.
14 June 2009	The Plaintiff handed over possession of the Premises to the Defendant.
25 July 2009	The Plaintiff’s husband and contractor conducted site inspection and repair of wash basin and ventilation fan. However, the Defendant alleged that there was problem of undulating floor in the sitting room.
2 August 2009	The Plaintiff, her husband and two representatives of the estate agent inspected the Premises. Thereafter numerous correspondence was exchanged between the parties regarding the alleged undulating floor problem.
13 December 2009	The Plaintiff, her husband and their contractor attended site inspection at the Premises. Arrangement was made between the Plaintiff and the Defendant’s wife for the Plaintiff’s contractor to attend the Premises to carry out repair on 21 December 2009.
21 December 2009	When the Plaintiff, her husband and her contractors went to the Premises, the Defendant refused to allow them entry. The Defendant said that they were only going to do “make up” work on only some part of the floor rather than addressing the root of the problem. Accordingly, the Defendant decided that any repair work should be deferred until a surveyor’s report had been obtained and the reason for the problem identified.
23 December 2009	The Defendant instructed Kays to conduct site inspection at the Premises.
28 December 2009	Kays produced the first surveyor’s report which identified two areas which had undulating floor. Kays was of the opinion that the problem was caused by water seepage from the bathroom.
12 January 2010	First surveyor’s report was sent to the Plaintiff.
12 February 2010	The Plaintiff commenced the present action against the Defendant.
22 February 2010	The Plaintiff served the Writ of Summons on the Defendant
31 May 2010	The Defendant instructed Kays to conduct a second site inspection at the Premises.
31 May 2010	The Defendant sought to return the keys and possession of the Premises to the Plaintiff’s solicitors but the Plaintiff refused to accept the keys.
8 June 2010	Kays produced a valuation report of the market rental value of the Premises in view of the undulating floor problem.
11 June 2010	Kays produced the second surveyor’s report which identified two additional areas at the Premises with similar problem.

17.  Since the first surveyor’s report had been given to the Plaintiff, there were some discussions between the parties regarding the Plaintiff’s request to the Defendant to allow the Plaintiff’s contractor to enter the Premises to carry out repair but the discussions did not materialise into action. Afterwards, the Plaintiff alleged that since the Defendant had refused to resolve the matter with them as she had indicated in her solicitor’s letter dated 1 February 2010, they decided to commence the present proceedings against the Defendant. The Defendant, however, denied having received the letter.  Also, the Defendant saw no useful purpose in having further discussion with the Plaintiff as she had commenced the present action against him.  It was unfortunate that the parties were unable to resolve the matter amicably and they had to resort to litigation. 

18.  The Defendant accepted that since the Plaintiff was seeking vacant possession of the Premises in these proceedings, he decided on or about 25 February 2010 to find another comparable Premises. However, the monthly rent of the comparable premises that he eventually found was HK$27,000, which is HK$9,000 more than the rent payable under the Tenancy Agreement.

The Issues

19.  There is no dispute by the Defendant that he is under an obligation to pay rent under the Tenancy Agreement. The issue in this case is whether the Defendant can rely on legal or equitable set-off based on his counterclaim to resist the summary judgment application.

The law

20.  In relation to the issue of whether the Defendant could rely on set-off, Mr. Lai relied on a number of authorities : paragraphs 14/4/14 and 14/4/15, Hong Kong Civil Procedure 2010; Ridge Ltd v. Golden Castle Ltd. [2005] 3 HKC 592; Axel Johnson Petroleum AB v. MG Mineral Group AG [1992] 2 All ER 163; British Anzani (Felixstowe) Ltd. v. International Marine Management (UK) Ltd. [1980] QB 137; Owen v. Gadd & Ors [1956] 2 QB 99.

21.  In Ridge Ltd v. Golden Castle Ltd. [2005] 3 HKC 592, the plaintiff claimed against the defendant tenant for failure to pay rent and other outgoings in respect of commercial premises rented to the defendant. The defendant counterclaimed that it was entitled to legal or equitable

set-off of its loss of business as a result of the plaintiff’s renovations which amounted to a breach of covenant to quiet enjoyment. Deputy Judge Muttrie held that there was no dispute that the defendant’s failure to pay rent amounted to a breach of the tenant’s covenant to pay rent.  The defendant could only obtain leave to defend if it could be shown to have a legal or equitable set-off of its claim for breach of covenant that would extinguish the claim for rent and hence the right to forfeiture (paragraph 11 thereof).  The learned Deputy Judge accepted as settled law the following passage from the judgment of Chu J in Charmway Development Ltd v. Long China Engineering Ltd [2001] 3 HKC 515 at 519G : 

“Under common law, the covenant to pay rent has been regarded as independent of the other covenants or obligations under a lease, including for example, the covenant for quiet enjoyment: Edge v. Boileau & Ors (1885) 16 QB 117, see also Taylor v. Webb [1938] 2 KB 283. A tenant’s obligation to pay rent is not dependent upon the compliance by the landlord of its obligations under the lease.”

22.  Even though there could not be any legal set-off, where the defendant’s claim for damages is unliquidated, the unliquidated counterclaim may give rise to equitable set-off if the defendant’s equity impeached the title to the plaintiff’s legal demand for rent. There had to be a close connection so that it was only fair and just that equity should be treated as going to the very foundation of the plaintiff’s claim.

23.  In Ridge Ltd v. Golden Castle Ltd., there was no actual blockage of access to the defendant tenant’s premises. At most there was inconvenience to their customers who could not use the escalators andstairway within the department store during its renovation. However, the customers could get to the defendant’s premises via public staircases and the office lifts within the same building.  Accordingly, it could not be said that the defendant could not do business, or that its business was so substantially interfered with by the landlord that it should not have to pay rent. Deputy Judge Muttrie concluded that the counterclaim was not sufficiently closely connected to the claim, or that it would be manifestly unjust to allow the covenant for rent to be enforced without regard to the covenant for quiet enjoyment. Accordingly no set-off was allowed and the defendant had to pursue its counterclaim separately.

24.  In British Anzani (Felixstowe) Ltd. v. International Marine Management (UK) Ltd. [1980] QB 137, the plaintiffs brought an action against the defendants seeking possession, unpaid rents, mesne profits and interests. The defendants counterclaimed for damages for alleged breaches of express or implied obligations in two agreements and underleases concerning the condition of the floor of the subject warehouses. The defendants claimed that serious defects appeared in the concrete floor of one of the warehouses due to inadequate floor design, which caused them to evacuate the building from June 1975 to December 1976,  and thereafter only part of the floor of the warehouse could be used. It was alleged that similar defects were also found in the other warehouse.  At page 152E, Forbes J said that:

“While I am satisfied that it is proper in principle to allow that a cross-claim could be effective as an equitable set-off against a claim for rent, it by no means follows that such a defence is available in all circumstances. The important qualification is that the equity must impeach the title to the legal demand, or in other words go to the very foundation of the landlord’s claim. This seems to me to involve consideration of the proposition that the tenant’s cross-claim must at least arise under the lease itself, or directly from the relationship of landlord and tenant created by lease. The landlord’s covenant to repair contained in the lease, if broken, might found, as has been seen earlier, the ancient common law defence to a claim for rent if the tenant had been forced to pay for repairs to maintain the premises in a state fit for the purpose for which they were let. If instead of paying for the repairs, the tenant cross-claims for damages for breach of the covenant, there is no common law defence, but there must in my view, be an equitable right to set off the unliquidated damages.”

And at 155 G to 156A :

“Applying these principles in the light of what is fair dealing between the parties, I have come to the conclusion that despite the insistence on preserving the agreement as an entity separate from the underlease, there is nevertheless here that close connection between claim and cross-claim which equity requires. The agreement was inter alia an agreement to enter into the underlease, the terms of which were set out in the form annexed to the agreement. The special provisions relating to the floor were obviously as much in the minds of the parties were making the agreement as any of the other terms. It would in my view be manifestly unjust to allow the landlord to recover the rent without taking into account the damages which it is alleged the tenant has suffered through failure by the landlord to perform their part of the agreement. Not only is there in my view an adequate connection between the transactions giving rise to claim and cross-claim, there is also the fact that the breach by the landlord is said to render the premises unfit at least in part for the purpose for which they were let. For both these reasons, it seems to me that the defendant’s cross-claim can be said to impeach the title to the plaintiff’s legal demand.”

25.  Mr. Lai submitted that when one looks at the heads of the Defendant’s counterclaim, it is clear that it arises out of quite a separate and distinct transaction or is wholly foreign to the Plaintiff’s claim, and there is no close connection between the claim and the counterclaim.

26.  The Defendant, however, submitted that the counterclaim and the Plaintiff’s claim for rent has a close connection as they started with the Tenancy Agreement and the counterclaim arises out of the undulating floor problem at the Premises.

27.  Having considered all the evidence and circumstances of the case, although the alleged floor undulation relates to the subject premises under the Tenancy Agreement upon which the Plaintiff based her claim and that the problem might have affected the Defendant’s quiet enjoyment of the Premises, I am not satisfied that the equity has impeached the title to the Plaintiff’s demand for rent and that there is a close connection between the claim and the counterclaim that would make it manifestly unjust to allow the covenant for rent to be enforced without taking into account the counterclaim of the Defendant.

28.  In British Anzani (Felixstowe) Ltd. v. International Marine Management (UK) Ltd., the parties have agreed to special provisions relating to the floor where the landlord plaintiff agreed to make good at their own expense any defects in the floor within two years of completion of the building.  In the present case, there is only the usual quiet enjoyment clause. Furthermore, I note that in the photos taken by the Plaintiff during her inspection of the Premises on 2 August 2009, floor undulation was not noticeable (see the 3^rd Affirmation of the Plaintiff filed in these proceedings).  At least until late December 2009, the Defendant was content to pay the rent in full. In the Plaintiff’s letter dated 13 December 2009 to the Defendant, it was stated that the Defendant’s wife had told her that before 2 December 2009, “there was no raising of the wooden floor”.

29.  Under clause 9 of the Tenancy Agreement, it was provided that the Plaintiff shall keep and maintain the structural parts of the Premises including the main drains, pipes and cables as well as furniture and electric appliances supplied in proper state of repair.  However, it was further provided that the Plaintiff’s liability shall not be incurred unless and until written notice of any defect or want of repair has been given by the Defendant to the Plaintiff and the Plaintiff shall have failed to take reasonable steps to repair and remedy the same after the lapse of a reasonable time from the date of service of such notice.

30.  Mr. Lai submitted that the Plaintiff had been most helpful in dealing with the Defendant’s complaint and she was willing to carry out the repair. However, she and her contractor were not given access to the Premises by the Defendant.  Mr. Lai also submitted that had the Defendant allowed the Plaintiff’s contractors to investigate and carry out repair of the Premises on 21 December 2009, any problem with the floor would be resolved. In that case, it would not be necessary for the Defendant to instruct any surveyor to prepare the 1^st surveyor’s report on 23 December 2009.  There is no dispute that the Plaintiff was not allowed entry to the Premises on 21 December 2009 though the Defendant maintained that he had good reasons in doing so.   

31.  I have also consideredthe evidence regarding the quantum of the counterclaim and whether the counterclaim would extinguish the Plaintiff’s claim. 

32.  The Defendant has not adduced any evidence to substantiate the alleged deduction of rental of HK$6,000 per month for the first 6 months of the tenancy and then HK$9,000 per month for the following 5 months until 31 May 2010. According to the Defendant, those figures were his personal assessment of the damages. This has to be contrasted with the valuation report filed by the Defendant on 14 June 2010. In that report, Kays was of the opinion that the total sum in rental terms for loss of use of rental areas affected by the undulating floor area for the whole period from 24 July 2009 to 31 May 2010 was merely HK$16,676.74. The Defendant pointed out that the report went on to say that as at 31 May 2010, the market rental value of the Premises is minimal and approaching zero as it is regarded as unfit for human habitation under the normal circumstances and it is difficult if not impossible to assign any rental value for the Premises under such serious defective conditions. However, that was a value assigned to the Premises as at 31 May 2010, by then vacant possession of the Premises had been returned to the Plaintiff. The report went on to say that if all defects had been rectified, it considered that the market rental of the Premises would be HK$23,000.

33.  In relation to the renting of a new comparable premises at a higher rent, the evidence shows that the Defendant was only seeking to withhold the payment of the rent in view of the alleged breach by the Plaintiff.  In fact, the Defendant accepted that he decided to move when he learned that the Plaintiff had commenced the present proceedings against him for, amongst other things, vacant possession of the Premises. Regarding the claim for injury to feeling and for inconvenience, suffice for me to say that based on the evidence before me, I have reservation on the merit of such claim.

34.  I should add that part of the Plaintiff’s claim is for dishonoured cheque in the sum of HK$36,000.  I agree with Mr. Lai that no set-off can be established for a claim on dishonoured cheque in the present case (see Hong Kong Civil Procedure 2010 paragraph 14/4/15 and Nova (Jersey) Knit Ltd. v. Kammgarn Spinnerei GmbH [1977] 1 W.L.R. 713).

35.  In the circumstances, the Defendant’s appeal must fail and is dismissed accordingly.

36.  Although I have ruled against the Defendant, it is open to the Defendant to pursue his counterclaim against the Plaintiff.  I was informed at the hearing that the matter relating to the counterclaim had been adjourned for direction before the Master.

37.  There remains one last issue, apart from costs, that I have to deal with : the Defendant’s application for a stay now that I have dismissed his appeal against the summary judgment.  Order 14 Rule 3(2) of the Rules of the District Court provides that the Court may by order, and subject to such conditions, if any, as may be just, stay execution of any judgment given against a defendant under Order 14 until after the trial of any counterclaim made or raised by the defendant in the action. Under this rule, the Court has a discretion whether or not to grant a stay.

38.  The monetary part of the Plaintiff’s judgment is in the total sum of HK$94,064.50 plus costs.  The Plaintiff, however, has security deposit in the sum of HK$36,000.  In other words, the outstanding amount after taking into account the security deposit is in the sum of HK$58,064.50,which is not a substantial amount.  There is also no suggestion by the Plaintiff that the Defendant will not be able to pay the judgment sum.  The Plaintiff has already recovered possession of the Premises and   she could let it to other tenant.  Taking into account all the evidence and the circumstances of this case, I am inclined to agree with the Defendant that a stay should be given and I make an order to stay execution of the summary judgment until after the trial of the Defendant’s counterclaim in these proceedings.

39.  In relation to costs, it should follow the event. Accordingly, I order that the Defendant should pay the Plaintiff’s costs of appeal, such costs to be taxed if not agreed.