CHEUNG LING YU AND ANOTHER v. CHUNG SIU YUNG

DCCJ 18511/1999

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 18511 OF 1999

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JUDGMENT

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1. This is an application by the Defendant to set aside the judgment obtained by the Plaintiffs on 23rd November 1999 pursuant to an application under Rule 27 of the then District Court Civil Procedure (General) Rules. The Defendant did not appear in the hearing of the said application, and judgment was therefore obtained by the Plaintiffs in default.

2. There is no question that the judgment obtained by the Plaintiffs is a regular one. As the Plaintiffs' claim was a mixed claim and the Defendant had not filed any defence, it was proper for the Plaintiffs to obtain judgment under the said Rule 27 (see: United Merchants Finance Ltd. V. Ngai Chor Yin trading as Take Hing Trading Co. Civil Appeal Nos. 172 & 174 of 1984, unreported (decision of the Court of Appeal on 21st December 1984) and AG v. Miao Wing Lee KCJ No. 13865 of 1986, unreported (decision of HH. Judge W. Wong on 6th April 1990). The Defendant therefore asks the Court to exercise the discretion to set aside the judgment on the ground that she has a meritorious defence.

3. The Defendant's case can be summarised as follows. The Defendant had been a tenant of the Plaintiffs in respect of a property known as Ground Floor, Block E, Kai Fai Yuen, New Territories (Section C of Lot. No. 66 in Demarcation District No. 223) ("the Premises") since 1994. According to the Defendant, the tenancy covered a garden outside the Premises. Shortly after the commencement of the tenancy, the Defendant received a notice from the Lands Department advising that the garden was on Government land. The Defendant then made a complaint to the Plaintiffs, who admitted that the garden was indeed on Government land. The Plaintiffs promised to the Defendant that they would lease the garden from the Government for use by the Defendant.

4. The said tenancy was renewed some time in 1996. Prior to the said renewal, the Plaintiff again promised to the Defendant that they would apply to the Government to incorporate the garden into the Premises. During the term of the second tenancy agreement, the Defendant had not received any letter or notice from the Government.

5. The tenancy was renewed the second time in October 1997 for a term of 2 years. Prior to this renewal, the Plaintiffs told the Defendant that they had already leased the garden from the Government.

6. On 30th December 1997, the Defendant received a notice of demolition from the Lands Department. The Defendant then demanded the Plaintiffs for an explanation. In reply, the Plaintiffs insisted that they had already paid the premium to the Government for the lease of the garden. The Plaintiffs also advised the Defendant to ignore the said notice and to erect a fence at the Plaintiffs' own costs. The Defendant did so accordingly.

7. On 10th February 1998, the Defendant received another notice of demolition from the Lands Department. The Defendant again complained to the Plaintiffs, who reiterated that the Defendant did have the right to use the garden. The Defendant apparently did not take any action after that. She paid the rent of the Premises for the months of February and March, and she continued to occupy the Premises.

8. According to the Defendant, she was tired of the disturbance caused by the Lands Department and so she decided to terminate the tenancy agreement. Thinking that she could use the 2 months' rental deposit to set-off the rent, the Defendant did not pay the rent for the period after 22nd April 1998. On 11th June 1998, the Defendant received a writ of summons of a High Court action taken out by the Plaintiffs to claim for unpaid rent. Later on 28th June 1998, the Defendant sent a fax message to the Plaintiffs' solicitors, advising them that she had surrendered the Premises to the Plaintiffs on 26th June 1998.

9. The Plaintiffs deny that the Defendant did not have the right to use the garden. According to the assignment produced by the Plaintiffs, the garden was included as part of the Premises. The Plaintiffs therefore deny that they had ever admitted to the Defendant that the garden was on Government land.

10. The Plaintiffs' claim is for damages caused by the Defendant's early termination of the tenancy agreement. To justify her act of early termination, the Defendant can rely on the following two grounds of defence:

(i) there was a misrepresentation made by the Plaintiffs prior to the renewal of the latest tenancy agreement that they had already leased the garden from the Government;

(ii) the Plaintiffs were in breach of the covenant to provide quiet enjoyment for the use of the Premises.

11. However, even assuming that all the facts alleged by the Defendant were indeed the truth, I am of the view that she still fails to establish a meritorious defence in the present case. In law, an "innocent" party in the position of the Defendant does have the right to set aside an agreement if there was an actionable misrepresentation. He also has the right to terminate the agreement if he accepts the repudiation on the part of the other party in default. But in either case, the "innocent" party must exercise the right to terminate the agreement within a reasonable period of time, and he must not do anything which has the effect of affirming the agreement, otherwise he would lose the right to terminate agreement, and the only remedy available to him is a claim for damages.

12. In the present case, the Defendant had known about the dispute relating to the ownership of the garden for a number of years, and yet she continued to occupy the Premises, presumably because of the assurances given by the Plaintiffs. After the receipt of the second demolition notice, the Defendant alleges that she was tired of the disturbance, and indeed, the Plaintiffs did not tell her that they would take any further action in relation to the ownership of the garden. However under such circumstances, the Defendant did not do anything to inform the Plaintiffs that she would exercise the right to terminate the agreement, either because of the misrepresentation or the breach of the covenant of quiet enjoyment on the part of the Plaintiffs. On the other hand, she continued to pay the rent for the months of February and March 1998, and continued to occupy the Premises for 4 to 5 months. In such circumstances, the Defendant had lost the right to terminate or set aside the tenancy agreement, as she had affirmed the agreement and waived her right to treat the contract as repudiated.

13. In his submission, Mr. Leung for the Defendant tried to argue that the Defendant had communicated her acceptance of the repudiation by refusing to pay the rent starting from 22nd April 1998. However, acceptance of a repudiation must be clear and unequivocal, and I do not accept that refusal to pay rent for 2 months amounts to a clear act of acceptance of repudiation. Indeed, I doubt whether this was the real reason for the Defendant not paying the rent. With a 2 months' rental deposit kept by the Plaintiffs, the Defendant must have been planning to vacate the Premises in June 1998 when she refused to pay the rent in April of the same year. In such circumstances, and in view of the fact that she continued to occupy the Premises after the previous disputes relating to the ownership of the garden, why did she not communicate her plan to vacate the Premises to the Plaintiffs in April 1998 to avoid any argument? Hence I doubt whether it was indeed the real reason why the Defendant did not pay the rent in April and May 1998.

14. As the Defendant had lost the right to terminate the tenancy agreement, she was not entitled to vacate the Premises in the end of June 1998. The Defendant may have a claim for damages. However as there is no evidence to show that the Defendant did not use the garden after the receipt of the second demolition notice, or that she has suffered any actual loss arising from the loss of use of the garden, the Defendant fails to establish any loss relating to such counterclaim. Hence in my judgment, the Defendant has failed to establish a defence which has a real prospect of success.

15. Further there is also another reason why I should exercise my discretion not to set aside the judgment in the present case. The Defendant did have notice about the present proceedings, but she simply chose to ignore it. Indeed, the Defendant had all together been served with the following documents:

(i) the Writ of Summons;

(ii) the summons to enter judgment pursuant to Rule 27 of the District Court Civil Procedure (General) Rules returnable on 23rd November 1999; and

(iii) the summons for directions for the assessment of damages returnable on 6th July 2000.

There was simply no excuse for the Defendant to ignore all these important court documents in the present case, and in my judgment, it would not be fair for her to set aside the judgment properly obtained by the Plaintiffs.

16. Based on the reasons given above, I dismiss the Defendant's summons. I now listen to the parties' submission on costs.