CATHAY PACIFIC AIRWAYS LTD. v. TIPCAT INVESTMENT LTD.

DCCJ10036/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 10036 OF 2001

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Judgment

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1. The plaintiff's claim is for $86,000 and interest, being the refund of rental deposit paid to the defendant under a tenancy agreement dated 23rd July 1998.

2. The defendant counter claimed for $86,432.50 and interest, as loss and expenses arising out of the plaintiff's unlawful early termination of the tenancy.

Facts of the case

3. The following facts are not in dispute, and are found as facts of the case.

4. The defendant is the landlord of premise known as Flat A, 2nd Floor, No. 32 Discovery Bay Road, Coastline Villa, Peninsula Village, Discovery Bay City, Lantau Island, New Territories (the premises).

5. On 23rd July 1997, the plaintiff entered into a tenancy agreement for 2 years, from 1st July 1997 to 30th June 1999, at a monthly rent of $43,000, inclusive of rates and management fees.

6. The plaintiff paid $86,000 as rental deposit to the defendant, under Clause 4(c) of the tenancy agreement, which reads as follows :-

"(c) To secure the due performance and observance of the terms and conditions herein contained the Tenant shall on the signing hereof pay to the Landlord by way of deposit the sum of Hong Kong Dollars EIGHTY SIX THOUSAND ONLY (HK$86,000.00) Hong Kong Currency. After the determination of the tenancy and provided that the said rent hereby stipulated shall have been duly paid on due dates and all other terms and conditions herein contained shall have been duly performed and observed by the Tenant then within the period of 15 days after the Tenant shall have delivered up vacant possession of the said premises to the Landlord the Landlord shall return to the Tenant the said deposit money without any interest, and if there shall be any breach of the said agreements or any of them the Landlord shall pay or apply the said deposit of such part thereof towards remedying such breach (in so far as this may be possible) and shall only refund the balance (if any) of the deposit to the Tenant."

The tenancy agreement provided for a break clause under Clause 4(g).

7. The plaintiff sent a letter dated 15th June 1998, by registered post, to the defendant, giving notice to terminate the tenancy on 31st August 1998.

8. The plaintiff sent a letter to the defendant, dated 30th June 1998, by fax on the same day, at 18:12 hours, giving notice to terminate the tenancy on 31st August 1998.

9. The same letter was sent by registered post to the defendant on 1st July 1998.

10. On 31st August 1998, the plaintiff delivered vacant possession to the defendant.

11. On 31st August 1998, the defendant confirmed, by a memorandum, that the premises were returned to the defendant in acceptable condition.

12. The defendant has not refunded the rental deposit of $86,000 to the plaintiff.

13. The quantum of the defendant's counter claim is agreed at $86,432.50.

Issues

14. The defendant took issues with the plaintiff in that under Clause 4(g) of the tenancy agreement the plaintiff was only entitled to give notice of termination after 30th June 1998; that none of the plaintiff's notices of termination were valid; and that the defendant had suffered loss and damage because of the plaintiff's breach of the tenancy agreement.

The evidence

15. The plaintiff and the defendant each called one witness. The plaintiff's witness is the plaintiff's Housing Services Manager. His evidence was that the premises were rented as accommodation for one of the plaintiff's employee. He signed the lease on behalf of the plaintiff and also the notices of termination dated 15th June 1998 and 30th June 1998.

16. While the plaintiff's witness did not agree with the defendant's response that the plaintiff's notice dated 15th June 1998 was pre-mature, in order to save argument, a second notice was issued on 30th June 1998, and sent to the defendant by fax. It was also sent by registered post on 1st July 1998.

17. The plaintiff's witness was of the opinion that the plaintiff had acted in accordance with Clause 4(g) of the tenancy agreement when giving notice to the defendant. He understood that clause to mean that the plaintiff could not terminate the tenancy within the first year, but could serve notice of termination of not less than 2 month, at any time.

18. The plaintiff's witness made all efforts to notify the defendant that the plaintiff intended to terminate the tenancy on 31st August 1998.

19. The plaintiff's witness agreed that the clause represented an option, exercisable by the plaintiff only, to terminate the tenancy agreement before the expiration of 24 months. The plaintiff could terminate the tenancy agreement after the date of 30th June 1998.

20. The defendant's witness is one of defendant's directors. His evidence was that Clause 4(g) was drafted by the plaintiff and he made no amendment to it.

21. His understanding of Clause 4(g) was that the plaintiff could only give the defendant notice of termination of not less than 2 months, after 30th June 1998.

22. He confirmed that the defendant received the notices of termination, but considered them to be in breach of Clause 4(g), and therefore invalid.

23. In order to mitigate its losses, the defendant secured another tenant at $31,000 per month. The defendant also incurred expenses for estate agency fee, stamp duty and re-painting of the premises to do so. The premises were vacant for the month of September. The defendant received no rent for that month.

Interpretation of Clause 4(g) of the tenancy agreement

24. The clause reads as follows :-

"(g) Notwithstanding anything hereinbefore mentioned IT IS HEREBY AGREED that if any time after the first 12 months of the said term of TWO years, that is after the 30TH day of JUNE, 1998, then the Tenant may determine this Agreement by giving to the Landlord not less than TWO months' notice in writing in which event upon the expiration of such notice, this Agreement shall cease and determine and the provisions of Clause 4(c) hereof shall come into operation, as if the said term had expired, but without prejudice to any rights and claims of either party against the other in respect of any breaches hereof up to the expiration of the said notice."

25. The case turns on the interpretation of this clause, Counsel for the parties referred to various cases.

26. On the reading of the clause, it is clear that the tenant may not determine the agreement within the first 12 months of the tenancy term. It can only be done after 30th June 1998.

27. The notice was required to be in writing, and for a period of not less than 2 months.

28. There was no stipulation that the notice could only be given after 30th June 1998. If notice could only be given after 30th June 1998, the tenant's option to determine the tenancy agreement could only be exercised after the first 14 months; and not after the first 12 months as stated.

29. If it was the landlord's intention to bind the tenant for the first 14 months, than the landlord should have amended Clause 4(g) to state that the tenant may not give notice to terminate before 30th June 1998. The landlord would have been entitled to do so, to make its position clear. Instead, the landlord had allowed Clause 4(g) to stand as it was drafted by the plaintiff.

Finding

30. The plaintiff's notice of termination dated 15th June 1998 was a valid notice to terminate the tenancy agreement on 31st August 1998.

Order

31. There is Judgment for the plaintiff in the sum of $86,000, with interest at judgement rate from 26th June 2001 to the date of payment.

32. The defendant's counterclaim is dismissed.

33. Costs to the plaintiff on party and party basis.