ARTTOP LTD v. PANG MUN YEE

LDPE 1255/2010

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1255 OF 2010

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J U D G M E N T

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Undisputed Background

1. This case involved a tenancy dispute concerning the premises known as Shop 1, Front Portion, Ground Floor, No. 158 Aberdeen Main Road, Hong Kong (“the Suit Premises”). 

2. The Suit Premises is owned by the late Mr Chow Sai Leung (“Mr Chow”) who was the director and shareholder of the applicant before March 2010.  Mr Chow was residing at 2/F above the Suit Premises (“2/F Premises”).

3. By a written lease dated 29 December 1997 (page 447-460 Bundle) between Mr Chow and the applicant, the Suit Premises was being leased to the applicant for the period from 1 December 1997 to 30 April 2003. 

4. By a tenancy agreement in writing dated 27 March 2001 (page 407-436 Bundle) between the applicant and the respondent (“the T/A”), the Suit Premises was sub-let to the respondent for a term of 2 years from 1 May 2001 to 30 April 2003 at a monthly rental of $23,000.  A sum of $104,000 was being paid to the applicant as rental deposit (“the Deposit”).  The T/A was a Part V tenancy covered by s.122 of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 (“Cap. 7”).

5. So, the applicant is the principal tenant of the Suit Premises whilst the respondent is the sub-tenant.  Being the sub-tenant, the respondent had all along been dealing with Mr Chow concerning the tenancy matter who was the one who signed the T/A for and on behalf of the applicant. The Suit Premises was being used by the respondent for the business called Fook Hing Goldsmith which is changed to Fook Hing Goldsmith Limited incorporated on 13 August 2005 (page 625 Bundle) (“Fook Hing Ltd”).  A branch of Fook Hing Ltd commenced business on 15 November 2007 at Tung Shing Road, Aberdeen (“Tung Shing Road Shop”).

6. Mr Chow was found dead inside the 2/F Premises on 21 April 2003.  Letters of Administration in respect of the estates of Mr Chow was being granted to Madam Chow Yuk Juen (“Mrs Tung”), the sister of Mr Chow on 27 October 2008 (page 648-654 Bundle).

7. Upon the expiry of the T/A on 30 April 2003, the respondent stayed on but had not paid any rent since that day.

8. On 3 October 2005, the respondent received a letter from Y H Tsang & Co, certified public accountants of the applicant, asking for a confirmation of the sum due from and to the respondent (page 524 Bundle).  The respondent then conducted company search (page 517-523 Bundle) and discovered that Mrs Tung and her husband Mr Tung (“Mr Tung”) were the directors of the applicant since 7 July 2005.

9. On 4 January 2006, a letter issued by the solicitors of the applicant was sent for and on behalf of the applicant to the respondent (page 525 Bundle) demanding for the outstanding rent from 1 May 2003.

10. Mr and Mrs Tung (“the Tungs”) instructed solicitors to take out legal action against the respondent in the name of the applicant and a claim had been lodged with the Lands Tribunal on 15 March 2006 (LDPE 301/2006 refers) (“the 2006 Proceedings”).

11. A letter dated 21 March 2006 was being sent by the respondent to the Tungs (page 437 Bundle) asking the Tungs to liaise with her directly instead of communicating between solicitors.  In reply, the Tungs maintained their position that the respondent should approach their solicitors for discussion.

12. The 2006 Proceedings was being struck out on 28 June 2006 on the application of the respondent on the ground that the Tungs were not validly appointed as directors and have no locus to sue (page 540-542 Bundle).

13. After resolving the issue of locus standi by seeking a court order for an Extraordinary General Meeting of the applicant to be held and the Tungs were formally appointed as directors, demand letter was sent by the solicitors for the applicant to the respondent again on 20 April 2010 (“420 Letter”) (page 438-440 Bundle) asking for the arrears of rent since 1 May 2003.

14. The respondent by herself, sent a reply dated 26 April 2010 (“426 Letter”) (page 610 Bundle) asking for a copy of the High Court order mentioned in the 420 Letter and had also instructed a solicitor to send a reply letter dated 27 April 2010 (“R’s 427 Letter”) (page 443 Bundle).  In the R’s 427 Letter, it is stated that :

“Kindly note that we are now taking our client’s instructions on your client’s alleged claim. We will let you have our client’s reply to your client’s allegation in due course. In the meantime, please withhold issuing any legal proceedings against our client.”

15. Since the respondent failed to pay any outstanding amount, a written notice of termination of tenancy was issued to the respondent on 27 April 2010 (“A’s 427 Letter”) (page 441-442 Bundle) requiring the respondent to quit and deliver up vacant possession of the Suit Premises on 31 May 2010.

16. Since the respondent had failed to deliver up vacant possession of the Suit Premises to the applicant as requested, the applicant filed the Notice of Application in this case on 1 December 2010 asking for a possession order on the ground of termination of the T/A and for the arrears of rent since 1 May 2003 with interests.

17. A default judgment was being entered against the respondent on 27 January 2011 (page 24-26 Bundle) (“the Default Judgment”) as follows :

(1)   the respondent do deliver up vacant possession of the Suit Premises known as Shop 1, Front Portion, Ground Floor, 158 Aberdeen Main Road, Hong Kong , to the applicant; 

(2)   the respondent do pay the applicant arrears of rent or mesne profit at the rate of $23,000 per month from 1 May 2003 until deliver up of vacant possession of the Suit Premises with interest on the overdue rent from 1 May 2003 to 31 December 2010 in the sum of HK$724,959.96, and thereafter at the rate of 3 per cent per annum above the prime rate from time to time quoted by the Hong Kong and Shanghai Bank Corporation Limited until full payment;

(3)   The respondent do pay the applicant costs of this case to be taxed if not agreed at District Court level without counsel’s certificate. 

18. In execution of the Default Judgment with the bailiff’s assistance, the applicant obtained possession of the Suit Premises on 19 April 2011 and the bailiff had prepared an inventory for the goods and chattels found inside the Suit Premises (page 444 Bundle) (“the Inventory”).

19. A Statutory Demand dated 30 September 2011 was served on the respondent on 17 January 2012 and the applicant issued a petition for bankruptcy against the respondent on 8 June 2012 (page 754-819 Bundle).

20. The respondent filed an application to set aside the Default Judgment on 16 October 2012 asking for §(2) and (3) of the Default Judgment concerning arrears of rent or mesne profits together with interests and costs be set aside.  Upon hearing the parties, it is ordered that §(2) and (3) of the Default Judgment be set aside on condition that the respondent do pay the applicant a sum of $1 million as interim payment (page 32-34 Bundle) (“the Interim Payment”).  The respondent did pay the Interim Payment as ordered.

21. This is the trial on the quantum of the arrears of rent or mesne profits and interest. 

22. It is the respondent’s case that she had served a notice to quit (“NTQ”) on Mr Chow on 31 March 2003 and she became a trespasser on the expiry of the T/A, ie since 1 May 2003.  And she had vacated from the Suit Premises on 5 April 2010 by leaving the key of the same inside the Suit Premises.

23. The applicant denied ever received the NTQ and also challenge the validity of the same.  The applicant contends that the T/A continued by operation of law and vacant possession was only obtained on 19 April 2011 upon execution of the possession order.

24. At trial, it is agreed that the issues to be determined are as follows :

(a)   Whether the respondent had served the NTQ on Mr Chow on 31 March 2003 and whether this is a valid NTQ;

(b)   When did the occupation of the Suit Premises by respondent cease, ie 19 April 2011 alleged by the applicant or 5 April 2010 according to the respondent;

(c)   What is the quantum of the arrears of rent and/or mesne profits (“the Arrears”);

(d)   Whether the respondent is entitled to set off the Deposit against the Arrears; and

(e)   Whether the applicant is entitled to have interest on the Arrears, if so, at what rate and for how long interest is to accrue.

25. The applicant conceded that Arrears from 1 May 2003 to 30 November 2004 are time-barred under the Limitation Ordinance so the applicant is only entitled to claim the Arrears running from 1 December 2004.

26. It is agreed at the end of the trial that should the court find against the respondent on Issue (a) above, the T/A should have continued by operation of law under s.122(4) of Cap. 7 and the respondent is entitled to have the Deposit being set off against the Arrears.  Otherwise, the respondent is time-barred to claim the Deposit.

27. The quantum of the Arrears is also agreed as follows (depending on the findings on Issue (a) and (b)) :

(a)   If the court finds the T/A continued by operation of law, the Arrears should run from 1 December 2004 to 19 April 2011 in the sum of $1,810,416.67; or

(b)   If the court finds the respondent became a trespasser from 1 May 2003 onwards, the Arrears run from 1 December 2004 to 19 April 2011 should be in the sum of $1,835,316.67; or

(c)   If the court finds the respondent became a trespasser from 1 May 2003 onwards, the Arrears run from 1 December 2004 to 5 April 2010 should be in the sum of $1,492,483.33.

NTQ Served by the Respondent on 31 March 2003

28. It is the evidence of the respondent that after attempts being made to get into contact with Mr Chow to negotiate for a new tenancy but failed, she had served the NTQ (page 515 Bundle) on Mr Chow on 31 March 2003 by inserting the same into the letter box of the 2/F Premises which is the registered office of the applicant and such NTQ had caused the T/A between the parties to be terminated upon its expiry on 30 April 2003.  Yet the respondent stayed on after 30 April 2003 to wait for the new landlord to negotiate for a new tenancy and also for the refund of the Deposit should the negotiation turn out to be a failure.

29. Mr Tung testified that after the death of Mr Chow, he and Mrs Tung are responsible for managing the estate of Mr Chow.  They did not see the NTQ allegedly sent by the respondent inside the 2/F Premises or amongst the possessions of Mr Chow.  Yet, Mr Tung also agreed that he did not know if anyone had ever entered the 2/F Premises after the discovery of Mr Chow’s dead body by police or in any way deal with the letter box which is not even locked.  But the 2/F Premises was sealed off by police since 21 April 2003 until it was being handed over to the Tungs after 3 months’ time.

30. This is a factual dispute as to whether the NTQ had in fact been sent by the respondent.

31. It is also the submission of Mr Ngai for the applicant that even if the NTQ was being sent by the respondent, it is not a valid notice in the sense that :

(a)   service by inserting into the letter box is not a valid service as stipulated under Clause 6.6 of the T/A (which according to Mr Ngai, is not applicable in this case in any event);

(b)   service by inserting into the letter box is not a valid service as stipulated under s.62 of the Conveyancing and Property Ordinance, Cap. 219 (“Cap. 219”); and

(c)   the contents of the NTQ is not clear and certain enough since the respondent failed to state the date she was quitting.

Factual Dispute

32. Having considered the evidence of the parties and on a balance of probabilities, I do not accept the respondent’s evidence that she had in fact served the NTQ on Mr Chow as alleged.  The respondent’s conduct in answer to the Tungs’ action since January 2006 in going after her for the arrears of rent is inconsistent with the fact that the NTQ had been served by her.

33. The first time the respondent had let the applicant known of the alleged NTQ was in her affirmation dated 16 October 2012 filed in support of the setting aside application.  Had it been the fact that the respondent had already served the NTQ as early as 31 March 2003, why didn’t the respondent inform the Tungs of this in their exchanges between 2006 and 2012.

34. It is admitted by the respondent in her affirmation (page 160 Bundle) that she had received the letter dated 4 January 2006 (page 525 Bundle) as well as the papers of the 2006 Proceedings from the Tungs’ solicitors.  In response, the respondent had sent a letter dated 21 March 2006 to the Tungs (page 437 Bundle).  In this reply letter, the respondent had never mentioned about the NTQ and the fact that the T/A between the applicant and the respondent had already been terminated by the NTQ.  Nor had the respondent raised with Mr Tung about the possibility of a new tenancy agreement or the refund or set off of the Deposit, which, according to the respondent, was the sole purpose of the respondent’s staying at the Suit Premises.

35. And it is also not in dispute that the respondent did receive the 420 Letter from the Tungs’ solicitors (page 438-440 Bundle) in which it is specifically mentioned that “(T)he Lease being a Part V tenancy, a notice to quit is required to be served for the Lease to be determined.  We are instructed that no such notice has been served by either party.  In the circumstances, the Lease does not cease and continues to run as a month to month tenancy at the same rent” (page 439 Bundle). 

36. The respondent, apart from sending a letter of her own asking for the mentioned court order showing the locus of the Tungs and a letter from her then solicitors asking the applicant to withhold any legal action pending instructions being taken from the respondent, there was no response to the allegation in the 420 Letter concerning “no such notice (to quit) has been served by either party”.  Even though the respondent may not have the financial means to engage the solicitors after the reply letter, there is nothing preventing the respondent sending letters of her own to put things right.  The reaction of the respondent not making a reply by stating the fact that the NTQ had been served when the specific issue had been raised by the applicant in the letter is utterly incredible and inconsistent with her allegation about the service of the NTQ.

37. Having considered the evidence and on a balance of probabilities, I found that no NTQ had ever been served by the respondent on the applicant.

38. In view of the factual findings, it is not necessary for me to deal with the issue as to the validity of the NTQ.  But in case I am wrong on the factual findings, I shall briefly deal with the legal argument on validity of service as well as the ambiguity of the NTQ raised by Mr Ngai.

Validity of Service

39. The service of the NTQ was by way of inserting into the letter box of the 2/F Premises which is the registered address of the applicant.  The argument turns on whether the insertion into letter box is a valid service.

40. Ms Chung for the respondent submitted that Clause 6.6 of the T/A as well as s.44 of Cap 7 should be applicable and both provided that a service by post is a valid service.  And it is the submission of Ms Chung that service by post should include inserting the notice into the letter box.

41. Mr Ngai, in reply submitted that s.44 of Cap 7 is only applicable to Part II Tenancy and not Part V Tenancy which the T/A in this case belonged.  Clause 6.6 of the T/A catered for “any notice required to be served under this Agreement” and any notice to quit is required under the ordinance and not the T/A.  Hence, both provisions are not applicable in this case.  Instead, service of the NTQ should be governed by s.62 of Cap 219 which does not include the means of inserting into a letter box.  And a service by post should not include an insertion into the letter box otherwise there need not be a specific provision about insertion into letter box in the Rules of High Court, Rules of District Court as well as the Lands Tribunal Rules about service of proceedings.

42. I accept the submission of Mr Ngai and found that the NTQ served on Mr Chow by the respondent is not in line with the requirement under Cap. 219 and is not a valid service.

Ambiguity of the NTQ

43. Quoting the Hong Kong Tenancy Law which stated that “(T)he notice must be reasonably clear and certain.  It should be addressed to the right person, properly describe the premises to which it refers, expire at the correct time and be unambiguous as to the date for quitting” (at page 162), it is the submission of Mr Ngai that the contents of the NTQ is not clear and certain enough in the sense that the NTQ does not state the date the respondent was quitting.

44. Even though no specific date had been named in the NTQ, it is stated therein that the respondent had decided not to renew the tenancy. Given the fact that the original tenancy is a fixed term contract due to expire on 30 April 2003, an indication by the respondent that she was not going to renew the tenancy must mean that she will quit on the expiry of the existing term.  There is no uncertainty in it, though no date had been mentioned.

Conclusion

45. I found no NTQ had been served by the respondent on the applicant or Mr Chow and the T/A between the parties had not been terminated as required under s.122 of Cap. 7.  The contractual T/A though expired on 30 April 2003, continued by operation of law and the respondent remained in occupation of the Suit Premises as a monthly periodic tenant with each period commencing on the 1^st day of a particular month and ending on the last day of the same month unless and until a notice was being served by either party to terminate it. 

When did Occupation of the Suit Premises cease?

46. Parties agreed that this issue is only relevant if this court found the T/A had already been terminated by the NTQ served by the respondent and upon expiry of the notice period, the respondent became a trespasser.  Hence, the date the occupation ceased is relevant in the determination of the damages, ie mesne profits.

47. In view of the finding above that there was no NTQ served and there remained a tenancy relationship between the parties by operation of law and the parties also agreed on the quantum of Arrears (at §27 above), this issue became academic.  But for completeness, I shall deal with this point as well.

48. The respondent’s case is that she had already ceased to run the business at the Suit Premises since 5 April 2010 by leaving the key to the side door inside the premises.  As for the electric operated gate at the main entrance of the Suit Premises, it is the evidence of the respondent that it can no longer be operated electrically and can just be opened manually.  In support of her case, the respondent had adduced the following documentary evidence to show that Fook Hing Goldsmith is no longer operating at the Suit Premises :

(a)   Remittance Statement of Mandatory Profident Fund (page 578-581 Bundle) (“MPF Statement”) for the staff of Fook Hing Ltd which showed that the staff ceased employment with Fook Hing Goldsmith Limited on 5 April 2010; and

(b)   Letter dated 20 November 2013 from the Hong Kong Electric Company Limited (page 587 Bundle) (“HKE Letter”) confirming that the account under the name of Fook Hing Goldsmith at the Suit Premises was closed on 20 May 2010.

49. The applicant had challenged the respondent’s case based on the following documentary evidence :

(a)   the Inventory prepared by the bailiff which showed that upon execution of the possession order, no key was found inside the Suit Premises;

(b)   Annual Return filed by Fook Hing Goldsmith Limited dated 13 August 2010 (page 591-598) showing the registered office of the company remained to be the Suit Premises; and

(c)   Business registration particulars for Fook Hing Goldsmith Limited kept by the Inland Revenue Department (page 625-627 Bundle) which showed that the business address of the company remained to be the Suit Premises until 11 September 2012;

(d)   Business registration particulars for Fook Hing Goldsmith Limited kept by the Inland Revenue Department (page 628-630 Bundle) which showed the Tung Shing Road Shop had ceased business on 1 January 2010; and

(e)   Land search of the property of the Tung Shing Road Shop only showed a lease from 2006 to 2009 and no registration of another lease after 2009 and this is consistent with the fact stated at §(d) above.

50. The respondent denied any knowledge as to why the address of the Suit Premises was still shown on the Annual Return and the Business Registration document since these were prepared by a professional secretarial service company.  She had also mentioned under cross-examination that the business of Fook Hing Ltd was taken over by one 福興實業有限公司 in 2010 and the Tung Shing Road Shop had in fact not ceased business but ceased to be a branch office with the main shop at the Suit Premises being closed down upon vacating the Suit Premises.

51. Having heard the evidence, I do not accept the respondent’s case that she had left the key of the Suit Premises behind.  If the respondent had left the key inside the Suit Premises, such should be found by the bailiff and should be an item included in the Inventory.  The bailiff is duty bound to take note of all properties left behind inside the premises on the execution of a writ of possession.  It is unlikely for the bailiff to have missed out the key.  The fact that no key was included in the Inventory, the only reasonable conclusion is that no such key was left inside the Suit Premises by the respondent.

52. And I also do not accept the respondent’s evidence that she had vacated the Suit Premises on 5 April 2010.  It is the evidence of the respondent under cross-examination that she knew and understood the effect of the 420 Letter was that she was asked to pay the arrears of rent and to leave the Suit Premises.  If she had already vacated from the Suit Premises on 5 April 2010, why didn’t she tell the applicant’s solicitors such fact in her reply and also told them about the key inside the Suit Premises?

53. And the public documents like the Annual Return and the business registration documents are inconsistent with the respondent’s evidence.  Had the business at the Suit Premises ceased on 5 April 2010, why would such fact not reflected in these public documents?  The respondent’s denial of knowledge of the making of these public documents does not avail her any reasonable explanation to this question.

54. And if the respondent had only vacated from the Suit Premises on 5 April 2010 and according to the respondent, this should be the time the Tung Shing Road Shop ceased to be a branch, why the business registration document for the Tung Shing Road Shop showed a much earlier date for such fact. 

55. I found the respondent’s evidence are inconsistent with the documentary evidence and are incredible.

56. As for the MPF Statement and the HKE Letter, I found these document do not assist the respondent in view of the fact that it is the respondent’s own evidence that the company business had in fact been transferred to be run by 福興實業有限公司 in 2010.  With a change of operating company, it is not surprising to see the need for the cessation of the MPF for staff of Fook Hing Ltd as well as the change of electricity user in 2010.  This cannot be conclusive evidence that the respondent had in fact vacated from the Suit Premises.

57. I do not accept that the respondent had vacated from the Suit Premises on 5 April 2010.  On a balance of probabilities, I accept the evidence of the applicant instead, ie the occupation by the respondent of the Suit Premises only ceased on 19 April 2011.

Interest

58. The applicant is asking for interest to be charged against the Arrears.  According to Clause 3.1 of the T/A which stipulated the Tenant’s Covenant, the respondent is required, “(in addition to the Landlord’s other remedies under this Agreement) to pay to the Landlord on demand interest on any sum payable under this Agreement at the Prescribed Rate from the due date until payment” under sub-paragraph (f) (page 484 Bundle).

59. Prescribed Rate is defined in Clause 1.1 of the T/A as “three per centum per annum above the Prime Rate from time to time quoted by the Hong Kong and Shanghai Banking Corporation Limited” (page 481 Bundle) (“Prescribed Rate”).

60. As stated in the final submission of the respondent, it is accepted by the respondent that if the Court found that the T/A continues, the respondent will be liable to pay the interest for the amount of rent in arrears from 1 December 2004 till 31 May 2010 at the Prescribed Rate (§59).

61. The respondent objects to interests being levied on the mesne profits from 1 June 2010 on 2 grounds :

(a)   The market rental value of the land has already reflected the inflation rate of the property and awarding interest on top of the increasing rent value as assessed by the expert would be unfairly benefiting the applicant; and

(b)   Since the applicant had avoided to discuss with the respondent regarding the tenancy matter, not to visit the Suit Premises or to pursue his right as a tenant over the years, it shall be unjust to award interest for the applicant’s claim.

62. I found the 2 grounds raised by the respondent are misconceived.  It is trite that “interest should be awarded to the plaintiff not as compensation for the damage done but for being kept out of money which ought to have been paid to him” (§6/L/10 of Hong Kong Civil Procedure 2015).  The market value of the Suit Premises is something the applicant is entitled to charge in line with inflation.  Since the applicant had been denied the Arrears all these years, there is no reason why the applicant should not be entitled to interest.

63. The respondent, under cross-examination, had admitted that she was aware of the fact that she had to pay the applicant for the occupation of the Suit Premises.  The Arrears are amendable to expenses the respondent ought to have made good.  The respondent chose to take a course that turn out to be unlawful, she must therefore bear the consequences. 

64. And I see no reason why the respondent could rely on its own wrong to argue that the applicant should have sued for recovery of possession much earlier.  There is no legal duty on the part of the landlord to take initiative to issue claim for possession.  There is nothing to stop the respondent from stopping the damages by returning the key to the applicant at any time between April 2010 and April 2011.  For whatever reason, the respondent did not seize upon those occasions to return the key and it cannot blame others for the consequences.

65. As for the rate of interest, I see no justification for deviating from the rate stipulated in the T/A given the fact that the mesne profits stemmed from the continued occupation of the Suit Premises upon termination of the T/A and I see no reason to differentiate between rent and mesne profits in the consideration of interest.

Conclusion

66. The respondent is liable to pay the applicant the Arrears from 1 December 2004 to 19 April 2011 which amounts to $1,810,416.67.  The Interim Payment of $1 million as well as the Deposit of $104,000 should be set off against the Arrears.  The Arrears should be awarded interest at the Prescribed Rate stipulated under the T/A.

Order

67. It is ordered that:

(a)   The respondent do pay the applicant balance of arrears of rent/mesne profits from 1 December 2004 to 19 April 2011 in the sum of $706,416.67;

(b)   Interests for rent/mesne profits from 1 December 2004 to 19 April 2011 in the sum of $1,810,416.67 be levied at the rate of 3% per annum above the prime rate from time to time quoted by the Hong Kong and Shanghai Banking Corporation Limited till payment; and

(c)   Costs of this application be to the applicant, to be taxed if not agreed at the District Court scale, with certificate for counsel.  This is a costs order nisi.  Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.