ARDIS INTERNATIONAL KINDERGARTEN LTD v. TANG KAI MING, KENNETH AND OTHERS

DCCJ 4649/2015

[2018] HKDC 531

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4649 OF 2015

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D E C I S I O N

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Background

1.  The plaintiff took out the summons for leave to appeal against my judgment dated 17 November 2017 on 14 December 2017, and on 19 March 2018, the plaintiff took out another summons to amend the draft notice of appeal attached to the first summons.  The defendants do not oppose to the amendment. Therefore, I granted leave to the plaintiff to amend the draft notice of appeal annexed to her summons filed on 14 December 2017 as per the revised draft annexed to the plaintiff’s second summons.  

2.  One of the original grounds of appeal is about the pre‑judgment interest.  Before the hearing of the leave application today, parties had reached agreement as to such ground of appeal about pre‑judgment interest.  Upon the defendants’ undertaking to enforce pre‑judgment interest only at the rate of 1% above prime rate from 6 February 2016 until judgment, the plaintiff undertakes not to pursue on such application for leave to appeal on such ground.  Therefore, I make no order as to such ground of appeal in relation to pre‑judgment interest.

3.  There are two remaining broad grounds of appeal on liability issue:

(i) my finding on the covenant for quiet enjoyment (Ground A);

(ii) the covenant of non-derogation from grant (Ground B).  Ground B is subdivided into three grounds as follows:

(B1) agreed purpose ground;

(B2) implied term ground; and

(B3) act and omission ground.   

The Judgment

4.  Before I deal with the individual ground of appeal, I recap my judgment.  In gist, I dismissed the plaintiff’s claim against the defendants and entered judgment for the defendants on the counterclaim with interest and costs. 

5.  Although the plaintiff has made separate grounds A and B, it is common ground that there is a substantial degree of overlap between the covenant of quiet enjoyment and covenant of non-derogation from grant as stated in the authority Platt & Others v London Underground Limited [2001] 2 EGLR 121.

6.  I find that the crux of the issue is whether the defendants were under a duty to install, connect and/or provide independent electricity supply at the commencement date under the covenant for quiet enjoyment or the covenant of non-derogation from grant. 

7.  In paragraphs 21 and 22 of my judgment, I cited the summary of the legal principles as stipulated in Platt.  From paragraph 28 onwards, I analyse whether the landlords have breached the covenant by omission. 

8.  I have also dealt with authorities relied on and cited by the plaintiff at the trial. In paragraphs 48 to 52 of my judgment, I analysed whether the defendants had any duty to install, connect and/or provide independent electricity supply for the properties.  Having considered the circumstances, I came to the conclusion that it would be too onerous to impose such correlative obligation on the landlords.  The fair, reasonable or equitable implied duty would only be a duty to facilitate the connection of electricity but not to provide, install or connect electricity by the commencement date of the tenancy as stated in paragraph 51 of my judgment.

9.  In paragraphs 53 and 54 of my judgment, I find that there is no breach of either the quiet enjoyment and the non-derogation-from-grant covenant.  Therefore, the plaintiff’s claim was dismissed.

Ground A: Express Covenant for Quiet Enjoyment

10.  This ground is found in paragraph 2 of the plaintiff’s revised draft notice of appeal:

“The learned judge misdirected himself on the covenant of quiet enjoyment. In particular, he erred in treating the defendants’ express covenant of quiet enjoyment (clause 3.1(b) of the Tenancy Agreements) as an implied covenant [§§12 and 20] and in holding that the plaintiff did not complain about any breach of express terms [§47]. As a result of the misdirection, the learned judge did not consider or construe clause 3.1(b) of the Tenancy Agreements. Instead, the learned judge focused exclusively on whether an obligation should be implied [§48+]. The learned judge ought to have held that by failing to install independent electricity supply and/or provision of temporary, low amperes and shared electricity supply, the defendants were in breach of their express covenant of quiet enjoyment.”

11.  First of all, whether the covenant of quiet enjoyment is an express term is not in dispute.  It has never been an issue at the trial, and the construction of clause 3.1(b) of the Tenancy Agreements is never an issue at the trial. The issue is whether the defendants have been in breach of the covenant for quiet enjoyment and not whether it is an express or implied term.  Therefore, I find that this ground of appeal is simply irrelevant and it makes no difference to my finding no matter it is an express or implied term.  Therefore, ground A fails.

Ground B1: Agreed Purpose Ground

12.  Paragraphs 1(1) and 1(2) of the revised draft notice of appeal provide that:

“1. The learned judge was wrong in holding that the defendants had no duty to install, connect and/or provide independent electricity supply for the properties as of the commencement date [§51]. The learned judge ought to have held that the defendants had such duty and were in breach thereof:

(1) While the learned judge recognised that (a) it is necessary to identify the nature and extent of the grant [§22] and (b) the exercise of determining the extent of the implied obligation not to derogate from grant involves identifying what obligations on the part of the grantor can fairly be regarded as necessarily implicit, having regard to the particular purpose of the transaction when considered in the light of the circumstances subsisting at the time the transaction was entered into [§21]. He did not have any or any sufficient regard to the particular purpose of the transaction, namely, to ‘use the said premises for the purpose of education and relevant business’ starting from the commencement date as expressly provided under clause 2.1(q) of the tenancy agreements.

(2) The learned judge further recognised that when assessing what the parties to a contract actually or must have contemplated, one should focus upon facts known to both parties and statements and communications between them [§21].  However, the learned judge did not have any or any sufficient regard to the statements and communications between the defendants (through Mr Chan) and the plaintiff (through Ms Lee) at the material time prior to the signing of the Tenancy Agreements.”  

13.  Mr Lau for the plaintiff conceded that a trial judge is not required to spell out everything he has considered in the judgment but only the important matters.  Therefore, it is impossible to spell out every detail of matters that I have considered in my judgment. 

14.  As stated in the above, I have summarised the legal principles stipulated in the case Platt and also the background of the case leading to the contract in paragraph 4 of my judgment.  I do not agree with the plaintiff’s allegation that failure to spell out every detail of the pre‑contractual discussion of the parties means that such matters had not been considered by this court.  As I have stated the reasons for finding the defendants having no duty to install, connect and/or provide independent electricity supply at the commencement date of the tenancy as stated in paragraphs 48 onwards of my judgment and thus there is no breach of either quiet enjoyment or non-derogation covenants on the part of the defendants.   

15.  I have also spelt out the factors which were regarded as important in reaching such decision.  Mr Lau seems to have misconceived my judgment and speculates that I have not considered the alleged matters.  Having considered Mr Lau’s submissions, I do not think that ground B1 has any reasonable prospect of success.

Ground B2: Implied Term Ground

16.  This ground is stated in paragraphs 1(3), (4) and (5) of the revised draft notice of appeal:

“(3) The learned judge erred in concluding that despite the plaintiff’s reimbursement of the defendants’ payment of deposits to CLP [§5] and/or the plaintiff’s other obligations under clause 2.1 of the Tenancy Agreements, the defendants had no implied correlative obligations to have independent electricity supply installed, connected and provided.”

“(4) The learned judge should have adopted a much broader approach to the implication of terms. The question for the court should have been whether the implied term would spell out what the Tenancy Agreements made against the relevant background would reasonably be understood to mean.”

“(5) The learned judge erred in finding that the defendants had no control over CLP’s installation of electricity supply [§50] and that all the defendants had to do was to make an application to CLP [§52]. The finding was inconsistent with the defendants’ evidence that CLP would connect electricity after the defendants’ completion of renovation of the buildings, and the renovation was ongoing in September 2015. In any event, the fact that the CLP carried out work and would supply electricity [§§48, 50] and the defendants’ duty of having electricity installed, connected and provided (as contended by the plaintiff) are not mutually exclusive. The learned judge erred in taking into account an irrelevant consideration that the plaintiff would be ‘an independent user of CLP’ [§49] and not taking into account relevant considerations that only the 1^st defendant was a customer of CLP and the plaintiff was not privy to the electricity supply contract.”

17.  Mr Ho for the defendants highlighted that the payment of the electricity deposit by the plaintiff to the defendants was one-off payment and not covenant of recurring payment for decoration cost every three years as in the examples given in Woodfall, paragraph 13.007.2, and submitted that the authority cited by the plaintiff is distinguishable.

18.  I agree with Mr Ho that it is too far-fetching to allege that by being reimbursed with the deposit payment, the defendants would have impliedly agree to carry out the duty of ensuring the supply of electricity at the commencement date. This duty was not necessary to give the contract business efficacy and there is no compelling reason for such duty to be implied. 

19.  As for the point on control over CLP’s installation of electricity supply, I refer to paragraphs 48 to 52 of my judgment which I am not prepared to repeat.  It suffices to say that having considered this ground of appeal, my judgment and submissions by the parties, I do not see any reasonable prospect of success in this ground.

Ground B3: Act & Omission Ground

20.  This ground could be found in paragraph 1(6) of the revised draft notice of appeal which says:

“The learned judge’s act/omission dichotomy [§28] is inappropriate in the circumstances. The failure to install independent electricity supply before the commencement of the tenancy agreements should not be considered in an isolated matter. The learned judge ought to have held that the landlords’ provision of temporary low amperes and shared electricity supply during the term of the tenancy caused the Properties to become unfit or substantially less fit than the purpose for which they were let.”

21.  To start with, I recite paragraph 15 of the statement of claim:

“By failing to install, connect and/or provide independent electricity supply for the Properties as of the Commencement Date, the 1^st, 2^nd and 3^rd Defendants acted in repudiatory breach of the 157-159 Agreement and the 4^th Defendant acted in repudiatory breach of the 161-163 agreement in particular:

15.1. In breach of the Quiet Enjoyment Covenant, the Defendants’ omission caused substantial and material interference and disturbance to the Plaintiff’s full benefit and enjoyment of the Properties.

15.2 In breach of the Non-derogation Covenant, the Defendants’ omission rendered the Properties unfit or substantially less fit for the purpose for which they were let to the Plaintiff (ie for running a kindergarten), thereby depriving the Plaintiff of the enjoyment of the benefit of the Tenancy Agreements.”

22.  In paragraph 15 of the statement of claim, the plaintiff only pleaded the breach of quiet enjoyment covenant and breach of non-derogation covenant by the defendants’ omission but not any overt act of the defendants.  Now, the plaintiff seems to add the provision of low-current electricity supply as a ground for breach of both covenants in this ground.  The justification of the plaintiff is that the defendant has pleaded such matters in paragraph 13 of their defence and counterclaim which was pleaded as follows:

“By reason of the matters pleaded herein above, paragraph 15 of the Statement of Claim is denied. The Defendants further aver that as of 1 September 2015, electricity supply of a low current was provided by CLP for the use in the building on a sharing basis.”

23.  Counsel for the plaintiff submitted that by paragraph 12 of the plaintiff’s reply and defence to counterclaim, the plaintiff has included such ground of breach of the covenants.  Paragraph 12 of the reply and defence to counterclaim provides that:

“Save as pleaded in paragraph 8.2 above, paragraph 13 is denied”.

24.  Whereas paragraph 8.2 of the reply and defence to counterclaim provides that:

“As the Defendants well know at all material times, with a low current shared electricity supply, the Plaintiff as tenant of the Properties would not be able to even turn on and/or use electrical appliances such as air‑conditioners and lightings at the Properties. The prolonged use of such electrical appliances would lead to the blowing of fuses and tripping of circuit breakers.”

25.  In fact, paragraph 8 of the reply and defence to counterclaim was pleaded in reply to paragraphs 6(a), (b) and (c) of the defence and counterclaim which I am not prepared to repeat but parties agree that paragraph 6 of the defence and counterclaim is about the defendants’ averment of their version of some pre-contractual communication of the parties. 

26.  Although the provision of a low-current electricity by CLP has been pleaded by the defendants in paragraph 13 of the defence and counterclaim, by pleading the matters in paragraph 8.2 of the reply and defence to counterclaim and by denying paragraph 13 of the defence and counterclaim, the plaintiff could not be regarded as adding in her pleadings the act of providing a low-current electricity as a repudiatory breach of either the quiet-enjoyment or non-derogation covenants.

27.  Besides, the plaintiff has not applied for amendment of paragraph 15 of the statement of claim to include the alleged breach of both covenants by the act of provision of low-current electricity when the plaintiff took out the summons for adducing the supplemental witness statements of the defence witness, Miss Allison Lee.  The plaintiff’s failure to apply for amending the statement of claim shows that the additional ground of repudiation is only an afterthought of the plaintiff’s counsel who put in such ground at the closing-submission stage.  It is trite law that pleadings define the issues.  I do not think that the plaintiff could now rely on such unpleaded ground. 

28.  Even if I were wrong in the above analysis on the pleading point, as I have found that the landlords owed no duty to the tenant to provide, install or connect electricity by the commencement date of the tenancy agreement, any act of provision of low-current electricity could not be regarded as a breach by the landlords.  In the circumstances, this ground also fails.

Conclusion

29.  In view of the above, I refuse the plaintiff’s application for leave to appeal against my judgment dated 17 November 2017 with costs of both summonses dated 14 December 2017 and 19 March 2018 be to the defendants, agreed at HK$45,000.