CHAN NUEN HEUNG AND OTHERS v. FOREVER BRILLIANT LTD

HCA 722/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 722 OF 2007

_________________________

______________________

______________________

D E C I S I O N

______________________

Application

1. This is an application for summary judgment.

Background

2. On 13 April 2007, the Plaintiff commenced the present proceedings.  The Plaintiff said that, by a tenancy agreement dated 14 July 2006 (“the Tenancy Agreement”), it let to the Defendant the premises of Shops B and C, G/F, Rialto Mansion (“the Premises”) for 3 years from 1 July 2006 at $150,000, $160,000 and $170,000 respectively for each of one-thirds of the term.  However, the Defendant failed to pay rent from 1 March 2007 and as such, the Plaintiff claimed for possession of the Premises, outstanding rent, mesne profits, interest and costs.

3. The Defendant defended the action and further counterclaimed against the Plaintiff.  It was averred that:

“	(a)	Towards the end of the year 2006, it happened that the soil pipe (installed within the Building and) situated at the rear part of the said premises (“the soil pipe”) and serving the same, burst or was damaged.  As a result, excrement and urine from the soil pipe were discharged into the kitchen and the front part of the premises causing serious disruption and inconvenience to the Business and the said premises to be temporarily unfit for the purposes and use of the Business in its ordinary manner and condition.
	(b)	Thereafter, Mr. Yip Ching Sun (“Mr. Yip”), a director of the Defendant orally informed Ms. Chan Nuen Heung (“Ms. Chan”) the 1st-named Plaintiff of the said incident and matters referred to in sub-paragraph (a) above (“the said incident”) and the Plaintiffs through Ms. Chan orally assured the Defendant through Mr. Yip, that the Plaintiffs would cause immediate repairs and remedial work to or replacement of the soil pipe.
	(c)	However, no repairs and remedial work to or replacement of the soil pipe was made by the Plaintiffs despite the said assurance, and despite oral reminders given by the Defendant through Mr. Yip to Ms. Chan.
	(d)	Thereafter, during the period between January and April 2007, the said incident recurred often, again causing serious disruption and inconvenience to the Business and the said premises to be temporarily unfit for the purposes and use of the Business in its ordinary manner and condition.
	(e)	At or about the end of February 2007, Mr. Yip had a telephone conversation with Ms. Chan during which he made further complaints to Ms. Chan of the recurrence of the said incident and the said disruption to the Business and after further discussion, it was orally agreed between the Plaintiffs through Ms. Chan and the Defendant through Mr. Yip that:
		(1)	Remedial works and replacement of the defective soil pipe would be carried out an completed by the Plaintiff within three months thereafter;
		(2)	The Defendant would be allowed to pay for the monthly rent of February 2007 by the end of March 2007;
		(3)	There would be suspension or waiver by the Plaintiffs of payment of the monthly rent for 3 months, i.e. March, April and May 2007 until completion of the said remedial works and replacement of the soil pipes of the said Premises, whichever would be the later;
	(f)	Pursuant to the oral agreement stated in sub-paragraph (e) above, the Defendant made payment to the Plaintiff of the monthly rent of the said premises for the month February 2007 on or about 27 March 2007.”
(Paragraph 7 of the Defence and Counterclaim filed on 11 May 2007)

4. Further or alternatively, the Defendant said that there was an implied term in the Tenancy Agreement for the Plaintiff to keep the soil pipe in proper order.  The Plaintiff failed to do so and the burst of the soil pipe had also caused the Premises temporarily unfit for business.  As such, the Defendant suffered losses and particulars thereof would be furnished after discovery.

5. The Plaintiff issued the present application for summary judgment on 7 May 2007.  I heard the same on 10 August 2007.  Mr. Yeung Sai Man of Messrs. Waller Ma Huang & Yeung acted for the Plaintiff and Mr. Anthony Cheung of Counsel represented the Defendant.  At the hearing, both parties applied to introduce further affidavit evidence.  They were not opposed.  I therefore allowed them with costs in the cause of the O.14 summons.

Ruling and reasons

6. Upon consideration of the evidence authorities and submissions from the parties, I have decided to allow the Plaintiff’s application because the Defendant has failed to show triable issue or some other reason to be a trial.

7. Regarding the alleged oral assurance made by Ms. Chan to repair at the time of the entering of the Tenancy Agreement and the subsequent oral agreement by Ms. Chan to repair within 3 months as well as suspension or waiver of rent, I find them both unbelievable in the circumstances, having regard to commercial reality and contemporaneous documents.

(a)	Based on the evidence of the Defendant, the problem is not as serious as pleaded.  There was no burst, but blockage of pipe requiring clearance and cleaning only.
	“	本公司自2006年5月至今為香港北角英皇道179-181號地下新源昌餐廳提供通渠服務其中包括：2006年5月份以高壓水車通渠一次，2006年7月份以人手通渠一次，由2006年9月至2007年4月平均每月塞渠一次。
		因跟進新源昌餐廳塞渠問題。本公司亦發現去水渠及糞渠位多次出現嚴重瘀塞情況，尤其是2006年12月尾，一次因去水渠及糞渠出現嚴重瘀塞及倒流到廳面。”
		(letter of S.K.K. Drainage Engineering Co.)
(b)	There is no contemporaneous evidence recording complaints having made to the Plaintiff.  There is also no written record of the “oral assurance” made by Ms. Chan.  Worse still, the Tenancy Agreement went further to exclude the liability of the Plaintiff for damages caused by overflow of water and unfitness of the Premises for the business of the Defendant.
(c)	The Defendant’s case is even more unbelievable when one observes that the Defendant still accepted Ms. Chan’s “oral agreement” in February 2007 despite the former “oral assurance” having been broken.
(d)	The “terms” of the “oral agreement” are so uncertain that makes it unbelievable.  The pleaded case of the Defendant is that a “suspension” or “waiver” of payment of 3 months’ rent.  “Suspension of payment” is clearly different from “waiver” of the same.
(e)	It is also the Defendant’s case that Ms. Chan agreed to repair the pipe within 3 months and the payment of the rent was suspended or waived for 3 months or completion of the remedial works.  In my view, it is incredible that Ms. Chan would agree to it because the landlord is not obliged to do so, and, indeed, out of their control at all.  There is undisputed evidence before me that the Incorporated Owners (“IO”) of the Building (“the Building”), wherein the Premises are situated, contracted with one Leung Yau Building Limited to carry out large scale revocation of the Building for $4.778m in 2003.  However, dispute arose as to payment of retention money of $428,000.00.  IO complained that certain sewage pipes could not or had not been replaced.  It led to DCCJ 1599/2006.  There is evidence from the Defendant that:
	“	…主要因利都樓大厦外牆維修工程及沒有更換新源昌餐廳後面天井部份之殘破污水渠及糞渠所致。令原有4組去水渠只有2組可去水，情況至今仍未解決。”
		(letter of S.K.K. Drainage Engineering Co.)
(f)	Hence, given a pending litigation between IO and its contractor over the sewage pipes, it is unbelievable that the Plaintiff will agree with the Defendant to fix the problem.
(g)	Finally, facing the demand letter issued by the Plaintiff’s solicitor, the Defendant paid the Plaintiff $150,000 without mentioning anything about the agreements to repair, suspension or waiver of the rent.  From the evidence before this Court, the argument of oral promise/agreement to repair only raised from the filing of the Defence and Counterclaim.

8. In going through the above exercise, I warn myself that a mini-trial on affidavit evidence should never be embarked.  However, at the same time, this Court should never shy away from analysis the credibility of the Defence raised in light of the undisputed or indisputable evidence.

9. I now move to the plead of implied term to repair and set-off/counterclaim by the Defendant.  In this respect, Mr. Yeung did not dispute that there was evidence of pipe blockage and overflow.  However, he argued that there could not be any implied term to repair.  Further, as a matter of law, it did not give raise to a defence for non-payment of rent.  I respectfully agree.

10. Mr. Yeung relied upon the Judgment of the Hon Chu J. in Golden Sunrise Limited v Lee Kwok Hung and another, HCA 4133/2003, dated 25 January 2005 to support that his case

“	33.	… In Halsbury’s Laws of England (Fourth Edition Reissue) vol. 27(1) para. 328, it is said that:
		“	In the absence of express stipulation, or of an obligation imposed by statute, the landlord is generally under no liability towards the tenant to put the demised premises into repair at the commencement of the tenancy, or to do repairs during the continuance of the tenancy.
			…
			The general rule is, however, subject to the following exceptions:
			…
			(5)	where the implication of a term that the landlord will undertake certain repairs is necessary to give business efficacy to the transaction or to complete the terms of the tenancy such a term may be implied, …”
	34.	It is therefore not as a matter of course that a landlord is under an implied obligation to repair and maintain the leased premises.  It is therefore incumbent upon the 2nd defendant to condescend upon particulars and to identify the grounds and circumstances that allegedly give rise to the implied term.  The 2nd defendant has simply failed to discharge the burden in this regard.  It is to be noted that if the 2nd defendant’s case is he had taken over the 1st defendant’s tenancy for the remainder of the term, then under clauses 19 and 20, the landlord has disclaimed any warranty as to the conditions of the Shop and its suitability for commercial purpose.  The business efficacy exception would have no application.
	35.	Further, the implied term contended by the 2nd defendant is not an implied term to repair and maintain the subject matter of the tenancy.  The 2nd defendant’s case is that the implied obligation extends to the common part of the building in which the Shop is situated.  It is difficult to see how such a term can be implied in a tenancy agreement.  No authority has been cited to support this contention.  There is also nothing in the 2nd defendant’s case to justify such a term being implied in his tenancy.  In the circumstances, the 2nd defendant’s assertion that it is an implied term of his tenancy agreement that the landlord is under a duty to maintain and inspect the canopy at the front of the Shop is, putting the matter at its highest, doubtful.”

11. Mr. Cheung, on the other hand, tried to argue that the implied term to repair is necessary to give business efficacy.  However, I am unable to be satisfied of the same, especially in light of the exemption clause in the Tenancy Agreement.

“	NO WARRANTY ON USER
	12.	The Landlord shall give no warranty that the said Premises are fit for the purposes for which they are let or for any other purposes whatsoever intended to be used by the Tenant and shall not be responsible or liable to the Tenant for any damages or loss in respect thereof.”

12. Finally, as to the set-off or counterclaim, it can be dealt with by the following extracts in the said Judgment of the Hon Chu J.

“	36.	Even assuming that such a term can be implied into the 2nd defendant’s tenancy agreement, the 2nd defendant must still show that the breach of it will entitle him to withhold payment of rent and rates.
	37.	In the absence of express agreement, the common law does not imply into a lease a condition or term that the property is fit for the purpose for which it is let.  Accordingly, a tenant takes the property subject to any defects existing at the time of the letting, and to any events that subsequent affect its value.  Accordingly, even where the property has become useless to the tenant by reason of the landlord’s neglect of an obligation to repair, the rent continues to be payable: see Halsbury’s Laws of England (Fourth Edition Reissue) para. 243.
	38.	Further, in the absence of express agreement to the contrary, 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 and Others [1885] 16 QB 117, see also Taylor v Webb [1937] 2 KB 283.
	39.	It follows that under the law, the 2nd defendant cannot claim to be released from the obligation to pay rent on the basis that the landlord is in breach of an implied term to maintain and repair the common part of the building in which the Shop is situated.
	40.	It is further not the 2nd defendant’s case that the Shop has become uninhabitable or that business cannot be carried on at the Shop.  Quite the contrary, the evidence shows that the hair and beauty salon business has continued throughout the time after 30 June 2003 ……”

13. Further, as pointed out by Mr. Yeung, in his skeleton:

“	36.	The Defendant alleged that it has a right of set-off such that it is not a breach of the tenancy agreement to withhold payment of the rent.  The set-off that the Defendant relies on is an unliquidated claim for damages on account of a breach of the implied term to repair.  As such, it is in the nature of an equitable set-off and legal set-off is clearly not available.
	37.	……
	39.	Even if the alleged breach by the Plaintiffs is in exercise, it has not denied the Defendant of the use and enjoyment of the said Premises, which is the subject matter of the tenancy.  It may be possible for the Defendant’s counterclaim to operate as a set-off against the claim for rent and rates, it is not an arguable defence to the claim for possession on account of non-payment of rent and rates.  The Plaintiffs, in the circumstance, are therefore entitled to enter summary judgment against the Defendant for vacant possession of the said Premises.
	40.	As it has been set out above the Defendant’s covenant to pay rent is independent of the Plaintiffs’ covenant to repair (assuming there is such obligation implied).  Hence, the Defendant’s counterclaim for damages for the Plaintiffs’ breach of the implied covenant to repair vis-à-vis the Plaintiffs’ claim for the Defendant’s breach of the covenant to pay rent are insufficiently connected such that the doctrine of equitable set-off did not apply.
	41.	As for the claim for unpaid rent and rates and mesne profits, it is to be observed that the Defendant has given no particulars for the counterclaim in the pleading.  In his affirmations, he said that the business was suspended for 2-3 days (he is not even sure 2 or 3 days) and the Defendant’s loss is estimated to be over HK$500,000.00.  On this basis, he counterclaims the sum around HK$500,000.00.  No documents, such as the books and accounts or the tax returns of the Company, have been produced to support any of these assertions.  It is on its own an unbelievable assertion.”

Conclusion

14. In the circumstances, I order judgment for the Plaintiff against the Defendant for:

(1)	Delivery of vacant possession of Shops B and C on the Ground Floor of Rialto Mansion, Nos.177-181, 185-191 and 191A King’s Road, Nos. 7 and 9 Fuk Yuen Street, Hong Kong.
(2)	Payment of the sum of HK$300,000.00 being rent from 1st March 2007 to 30th April 2007.
(3)	Further payment of mesne profits at the rate of HK$150,000.00 per month from 1st May 2007 to the date when vacant possession of the said premises is delivered up to the Plaintiff.
(4)	Interest on the said sum of HK$300,000.00 judgment rate from the date of the Writ herein until payment.
(5)	If the Defendant should within 7 days from today pay to the Plaintiff the said sum of HK$300,000 and all mense profits at the rate of $150,000 per month from 1st May 2007 up to the date hereof together with provisional costs in the sum of $30,000, it be relieved from the forfeiture incurred herein and the tenancy referred to herein be reinstated and that all further proceedings be stayed until further directions of this Court.

Costs

15. There will be also an order nisi that the Defendant shall bear costs of the proceedings as well as the costs of the application, including all costs reserved and hearing on 10 August 2007, to be taxed if not agreed.