KWOK HEI FAI v. SINGH JASPAL

HCB 8741/2016 &
HCB 4521/2017

[2018] HKCFI 42

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 8741 OF 2016

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4521 OF 2017

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(Heard together)

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J U D G M E N T

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Introduction

1.  These 2 bankruptcy petitions are heard together as the background and issues of law are the same.

2.  The petitioner (“Ms Kwok”) and both respondents (both “Mr Singh”) were previously landlord and tenants respectively.  Ms Kwok obtained a judgment in the Lands Tribunal against both Mr Singh for vacant possession of the property and payment of rent/mesne profits.  Both Mr Singh did not pay. Ms Kwok served a statutory demand on each of them.  The statutory demands were not satisfied.  Ms Kwok issued petitions for the bankruptcy of each Mr Singh. 

3.  Both Mr Singh claim to have paid the judgment debts in full, having taken into account the deposit held by Ms Kwok.

4.  The core issue in the present case is whether or not they were entitled to set off the deposit against the outstanding payments.

Background

5.  By a judgment dated 29 November 2016, the Lands Tribunal ordered both Mr Singh jointly to pay Ms Kwok arrears of rent/mesne profits at the rate of $21,800 per month from 1 August 2016 until the delivery up of vacant possession.  In addition, both Mr Singh had to pay Ms Kwok a total of $800 for costs. 

6.  Both Mr Singh paid a sum of $53,542 into the Lands Tribunal on 13 December 2016 and sent back the keys to Ms Kwok at her home on the same day. For the purpose of this judgment, I treat that date as the date of delivery of vacant possession.

7.  As of 13 December 2016, both Mr Singh owed Ms Kwok:

Table 1

1.	Arrears of rent/mesne profits from 1.8.2016 to 13.12.2016 $21,800 x 4 + $21,800 x 13/31	$96,341.94
2.	Costs	$800.00
3.	Interests for item 1 up to 13.12.2016 8% x  $96,341.94 x 135/365 days	$2,850.66
	Total	$99,992.60
	Less: amount received from Lands Tribunal	($53,542.00)
4.	Due from Mr Singh as at 13.12.2016	$46,450.60 + interest that has continued to accrue at 8% per annum

8.   Till this date, both Mr Singh had not paid the outstanding amount under Table 1.

Can the deposit be used to set off the amount due?

9.   There is dispute as to the amount of deposit held by Ms Kwok.  Ms Kwok says it is $4,000.  Both Mr Singh say it is $43,600.  It is not necessary to resolve the dispute in these proceedings.  It will make no difference to the outcome even if it is assumed in favour of both Mr Singh that it is $43,600.

10.   According to clause 7 of the tenancy agreement dated 31 March 2016, the deposit was for the due observance and performance of the terms of the tenancy agreement.  “Provided that there is no antecedent breach of any of the terms and conditions herein contained, the Landlord shall refund the Security Deposit to the Tenant without interest within 7 days from the date of delivery of vacant possession of the Premises to the Landlord or settlement of any outstanding payment owed by the Tenant to the Landlord, whichever is later.”  Under this clause, Ms Kwok may, but is not obliged to, apply the deposit to offset outstanding payments.

11.   There is no dispute that rent had fallen into arrears since 1 August 2016 and there are still outstanding payments to this date. Ms Kwok has no obligation to return the deposit or apply it to offset the outstanding payments.  In fact, Ms Kwok has instituted an action in the District Court to sue both Mr Singh for damages for breach of contract and loss arising out of early termination of the tenancy agreement. 

12.   The statutory demands were served on 10 December 2016.  The petition in HCB 8741/2016 was originally issued (wrongly) against both Mr Singh on 12 December 2016.  The amount due under Table 1 was sufficient to support that bankruptcy petition.

13.   That petition was amended in June 2017 and another petition was issued in July 2017 so that a separate petition applies to each Mr Singh. 

Conclusion

14.   As the deposit could not be used to set off the outstanding amount, both Mr Singh have no defence to the petitions on the merits. I therefore issue a bankruptcy order against each of them. 

15.   Costs of the petition and the Official Receiver’s costs shall be paid out of the estate of the respective bankrupt.