PRIME WIN ENTERPRISES LTD v. NOVA MANAGEMENT CONSULTANTS LTD

HCSA 60/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 60 OF 2003

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM
NO. SCTC 9530/2003)

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REASONS FOR JUDGMENT

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1. At the hearing of this appeal on 8 March 2004, I allowed the appeal to the extent of $2,400 and substituted the award of the Tribunal made on 1 August 2003 with an award of $17,600 in favour of the Claimant. In essence, I upheld Ground (b) set out in Paragraph 1 of my Decision dated 19 November 2003 but rejected Ground (a) and other grounds advanced on behalf of the Defendant by Mr Chong in the appeal. I now give reasons for that judgment. I wrote this Reasons for Judgment in English because both parties were legally represented in the appeal and the arguments revolved around some English case law. I find it more convenient to discuss the cases in English.

2. Ground (b) was conceded by Mr Ng, counsel for the Claimant at the outset of the appeal. It was also agreed by counsel as a result of that, a sum of $2,400 should be deducted from the award. Having considered the material before me, I am of the view that the concession was properly made and the award should accordingly be reduced by $2,400 to reflect the position that mesne profit should only be calculated up to the date of delivery of possession, viz 12 November 2002.

3. As regards, Ground (a), Mr Chong accepted that he could not contend that the rejection of the offer by the Claimant at the hearing on 25 July 2002 was unreasonable. That being the case, Ground (a) could not be sustained.

4. Instead, Mr Chong advanced some other grounds to seek further reduction in the award. Since they are not within the scope of the grounds that I have granted leave on 19 November 2003, Mr Chong has to apply for leave to rely on those grounds pursuant to Rule 9(2) of the Small Claims Tribunal (General) Rules.

5. Having heard submissions from counsel, I refused leave in respect of two grounds but granted leave for two other grounds. I gave oral reasons for that Ruling at the hearing. In a nutshell, I rejected two of the grounds (viz those set out in Paragraphs 9 and 10 of the Skeleton Submissions of Mr Chong) because they stem from the premise that a landlord has a duty to take initiative to seek recovery of possession of the property when a tenant defaulted in delivering vacant possession upon the determination of the tenancy. I have already held that this is unarguable in my Decision on 19 November 2003.

6. As regards two other grounds (viz those set out in Paragraphs 12 and 13 of the Skeleton Submissions of Mr Chong), I granted leave because they raised new points which I have not considered in the Decision of 19 November 2003 and bearing in mind that the skeleton submissions had been served 10 days in advance, Mr Ng was not taken by surprise and no prejudice was suffered by the Claimant were leave to be granted (and Mr Ng did not contend otherwise).

7. The first additional point of Mr Chong (Paragraph 12 of his Skeleton Submission) is that since the tenancy was terminated by the Defendant's exercise of its right to terminate by notice under a break clause in the Tenancy Agreement of 17 February 2001, the retention of the keys by the Defendant in the circumstances of the present case did not constitute continuous use and occupation of the Property by the Defendant. He cited an old English case to support his argument: Gray v Bompas (1862) 11 CB (NS) 520. Mr Chong submitted that in this respect there is a distinction between termination of tenancy by surrender and determination by exercise of right to terminate under a break clause.

8. The material facts relied on by Mr Chong are as follows. It was common ground that both parties agreed that the tenancy was determined pursuant to the break clause on 30 April 2002. There were two inspections of the Property by the Claimant landlord on 1 and 2 May 2002. There is no dispute that the Defendant did not leave anything in the Property after 30 April 2002 and the Defendant was in a position to deliver vacant possession to the Claimant by 3 May 2002.

9. Mr Chong also submitted that the Defendant did not intend to remain in possession of the Property after 30 April 2002. As a matter of fact, the Defendant did not occupy nor use the Property after that date.

10. What went wrong, however, was that instead of returning the keys to the Claimant, the Defendant handed the same to the management office of the building on 3 May 2002. The Defendant did not inform the Claimant about the same and it was only disclosed in the course of the hearing in the Small Claims Tribunal on 25 June 2002.

11. Without the transcript of the hearing of 25 June 2002, I cannot tell what exactly happened during that hearing. Judging from the transcript of the hearing of 25 July 2002, the Claimant had made an offer (the contents of which were unknown to me) on 25 June 2002 which was rejected by the Defendant.

12. It is also not clear to me as to the reasons why the Defendant handed the keys to the management office instead of the Claimant. Mr Ng invited this court to infer that the Defendant had imposed a condition for the release of the key to the Claimant on the management office, viz that the Claimant had to return the one month's deposit before the keys could be released.

13. From the transcript of the hearing of 25 July 2002, the Defendant did ask for the return of the deposit as a condition for the return of the keys to the Claimant at that hearing. It was in fact due to the imposition of such a condition that the settlement efforts failed at that hearing.

14. I hesitated to infer from that similar condition has been imposed upon the management office. However, it is not necessary for me to reach a conclusion on this point. The fact remains that there is no material before me to justify a finding that had the Claimant went to the management office to get the keys, the management office was at liberty to release the same to the Claimant. Nor has Mr Chong directed my attention to any material that suggests otherwise. In the judgment of the Tribunal on 12 November 2002 in the three earlier cases (SCTC 28536, 30906 and 24304 of 2002), the Adjudicator held that the deposit of the keys with the management office did not constitute the delivery of vacant possession by the Defendant to the Claimant. It is necessarily implied in such a holding that the management office was at all material time holding the keys as agent for the Defendant. Hence, the Defendant was able to get back the keys from the management office and handed the same to the Claimant in November 2002. As mentioned in Paragraph 5 of my Decision of 19 November 2003, there is no appeal by the Defendant against that judgment and it is therefore binding as between the Defendant and the Claimant.

15. In other words, the Defendant retained control over the Property through the keeping of the keys by its agent, the management office. It does not matter that the Defendant had actually moved all its articles out of the Property and had not remained in physical occupation since 1 May 2002. The important point is that the Defendant was still in a position to keep the Claimant out of the Property by failing to return the keys. Therefore the position was that up to 12 November 2002, the Defendant had not delivered vacant possession of the Property to the Claimant.

16. It is trite law that upon the termination of a tenancy, a tenant is under a duty to deliver vacant possession of the property to the landlord. It does not matter that the tenancy is determined by virtue of the exercise of a right of termination under a break clause. Mr Chong cannot and did not dispute these principles of law.

17. Neither does it matter that the property was not physically occupied by the tenant, see Woodfall's Law of Landlord & Tenant, Vol. 1, Para. 19.011; Mutual Luck Investment v Yeung Chi Kuen (No. 1) [2003] 1 HKC 47 at p. 88 Para. 137. Nor does it matter that the tenant had actually vacated from the property and the landlord knew about it through inspection. So long as a tenant still retained control over the property (by keeping the keys, whether by himself or through his agent), he had not yet performed his duty to deliver vacant possession to the landlord.

18. Gray v Bompas (1862) 11 CB (NS) 520 cannot assist the Defendant. In that case, the landlord tried to argue that because of the tenant's failure to deliver the key to the landlord on the expiry of the lease on a Saturday, notwithstanding that the tenant had sent the key on the subsequent Monday (which was rejected by the landlord), the tenant was stuck with a new term of the yearly tenancy. Not surprisingly, the argument was rejected by the court. In my judgment, this case is authority for the proposition that a landlord cannot impose a renewal of a periodic tenancy on the tenant by unreasonably rejecting the delivery of possession by a return of the key.

19. But the case is not an authority for the proposition that a tenant who had moved out from the leased premises did not have any obligation to deliver vacant possession by returning the key to the landlord.

20. In the present case, the Defendant had not returned the key to the Claimant until November 2002. Hence, it is not a case where the landlord unreasonably refused to accept the key.

21. There might be cases where a tenant could have effectively delivered vacant possession without returning the keys. One example I can think of is the situation where the tenant has lost the keys and the landlord can be satisfied that the tenant did not retain control over the premises, say, by changing the locks immediately. However, the present case does not fall within that category.

22. The first additional point of Mr Chong therefore failed.

23. The second additional point of Mr Chong (Paragraph 13 of his Skeleton Submissions) is that in any event, the court should approach the matter from the standpoint of the broad justice of the case. He submitted that it is unfair that the Claimant should have waited for so long without taking positive steps to recover possession, e.g. by issuing proceedings in the Lands Tribunal. He cited two cases in support: Cheer City Properties Ltd v Lung Tin International Ltd [1998] 4 HKC 182 and Royal Bank of Trinidad and Tobago v Bobby Vashista Persad, unreported, Privy Council Appeal No. 62 of 2001, 17 March 2003.

24. Even assuming for a moment that the court can somehow have a discretion in assessing the mesne profit payable by a tenant who fails to deliver vacant possession after the termination of the tenancy by reference to the notion of broad justice, I do not see why it would be unjust to require the Defendant to pay mesne profit up to the date when it performed its legal obligation to deliver vacant possession. I have studied the transcripts of the proceedings at the Small Claims Tribunal placed before me carefully. In summary, the dispute between the parties was whether the Defendant was entitled to hold onto the key as security until the Claimant returned the deposit to it. The Tribunal held in the previous case (SCTC 28536 of 2002) on 12 November 2002 that the Defendant's claim for return of deposit could not exonerate its obligation to deliver vacant possession of the Property. There is no appeal against that decision. In the circumstances, the proper analysis of the matter is that the Defendant chose to take a course that turn out to be unlawful. It must therefore bear the consequence.

25. There is nothing inherently unfair to the Defendant. I see no reason why it could rely on its own wrong to argue that the Claimant should have sued for recovery of possession much earlier. As said, there is no legal duty on the part of the landlord to take initiative to issue claim for possession. In any event, there is nothing to stop the Defendant from stopping the damages by returning the keys to the Claimant at any time between May and November 2002. The Tribunal had tried to mediate between the parties at the several hearings leading up to the one in November 2002. For good or bad reasons, the Defendant did not seize upon those occasions to return the keys and it cannot blame others for the consequence.

26. The facts of the two cases cited by Mr Chong are wholly different from those in the present case. In Cheer City, the landlord chose to negotiate with a subtenant and the court held it had taken an unreasonably long period and therefore reduced the liability of the principal tenant on account of failure to mitigate.

27. Royal Bank of Trinidad and Tobago is not a landlord and tenant case. It was a fight between two parties each claimed to be the rightful owner of the property. Hence, it was a dispute on titles. After reciting that the losing party had changed the locks and thereby excluded the successful party from possession even after the former actually had gone out of possession (and the property was vandalized whilst it was unoccupied), the Privy Council considered whether the successful party should have mesne profit up to the time the losing party withdrew his claim to be entitled to possession. In Paragraph 28 of the judgment of the Privy Council, Lord Millett said,

"Nevertheless, their Lordships are not satisfied that this would meet the broad justice of the case. Mr Persad [the successful party] knew that he was the owner and that his case was a strong one. In 1985 he discovered that the property was vacant and had been vandalized. Yet he did nothing about it. His proceedings were already on foot. He could have made an application to the court to be allowed into possession and to do the works pending the trial, and thereby forced the issue. Moreover, he had the carriage of the action, and their Lordships are not impressed by the way he let it drag on for more than a decade while the costs or repair and his claim to mesne profits continued to increase day by day."

The Privy Council was of the view that the question is nicely balanced and decided that there was no justification for disturbing the decision of the trial judge in awarding mesne profit less than the full period.

28. Whilst I can see that there are some similarities between the factors taken into account by their Lordship in that paragraph under the notion of broad justice and the points taken by Mr Chong in the present case, one must also bear in mind the differences. I have already explained above why the Defendant cannot succeed even applying the notion of broad justice. There is no direct authority on whether as a matter of law this notion of broad justice has any application in the context of a claim by the landlord regarding the duty of a tenant to deliver vacant possession and if applicable, what are its limits. The Privy Council did not elaborate on the jurisprudential basis of this notion. I prefer not to express a final conclusion in this case.

29. For these reasons, the second additional point of Mr Chong also failed.