CHONG LAP FU GEORGE v. HYDRA SHIPPING SERVICES LTD AND OTHERS

DCCJ 1319 / 2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.1319 OF 2009

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D E C I S I O N

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A.      Introduction

1.  This is the Plaintiff’s application against the Defendants for summary judgment in the sum of HK$198,000.00 as arrears for rent, and an interlocutory judgment with damages to be assessed.

B.      Background

2.  Under a tenancy agreement dated 2 May 2008 (“the Tenancy Agreement”), the Plaintiff as landlord leased to the 1^stDefendant as tenant Flat A on the 3^rdFloor and Car Parking Space No 10 on Basement Floor of Pine Court, No 5, Old Peak Road (“the Premises”) for a term of 2 years commencing on 16 May 2008 at the monthly rent of HK$99,000.00.   

3.  Pursuant to the Tenancy Agreement, 2 months’ rental in the sum of HK$198,000.00 was paid by the 1^stDefendant as deposit. 

4.  The 3^rd Defendant is the sole director of the 1^st Defendant, and is the husband of the 3^rd Defendant.  The 2^nd and 3^rd Defendants were the actual occupiers of the Premises under the Tenancy Agreement.   They have separately entered into a letter of guarantee (“the Guarantee”) to guarantee the 1^st Defendant’s performance of the Tenancy Agreement.

5.  On 23 October 2008, Pine Court’s management office issued a notice to all residents that decoration works would be carried out at Flat A of the 6^th Floor (“Flat 6A”) for the period between 3 November 2008 and 28 February 2009.  The notice also warned the residents that there would be heavy drilling works to be carried out between 3 November and 3 December 2008.

6.  The decoration works at Flat 6A were then carried out.

7.  On 10 November 2008, the 1^stDefendant sought to terminate the Tenancy Agreement by a letter on the basis that its peaceful and quiet enjoyment of the Premises had been seriously disrupted by reason of those various and continuous decoration works.  It was stated in the letter that it would vacate the Premises by 15 December 2008 and asked the Plaintiff to deduct the forthcoming rental from the deposit. 

8.  It is the Defendants’ case the decoration works had created the following problems which seriously disrupted the living environment at Pine Court, and in particular their peaceful and quiet enjoyment of the Premises^[1]:

(1)  There was non-stop heavy drilling, incredible noise and large amounts of dirt and dust coming into the Premises.

(2)  The sole elevator, which provided access to the Premises, was constantly blocked and not able to be used.

(3)  There were many large trucks and construction vehicles constantly entering and exiting the only road into the apartment block. This had rendered the access to the Defendants’ car park often blocked and parking a constant nightmare.  It had also made the 2^nd and 3^rd Defendants’ walking into and out of the building an often-dangerous exercise.

(4)  Water supply was cut off to the Premises occasionally.

(5)  The 2^ndand 3^rd Defendants were unable to utilize the outdoor barbeque and eating area as there was scaffolding erected around the Premises and its balcony making it impossible to use the outdoor area.

(6)  Large objects were constantly being lifted past and overhead the Premises’ balcony by large vehicular cranes contributing to the impossibility of using the balcony or allowing the balcony doors to remain open. 

9.  Eventually, on 16 January 2009, the 1^stDefendant returned to the Plaintiff the keys to the Premises as a means of delivering vacant possession of the Premises.    The 1^stDefendant has not paid for the rents for the period between 16 November 2008 and 15 January 2009, and it sought to rely on the deposit for deduction.

10.  The 1^stDefendant further says by reason of the disruption of quiet enjoyment of the Premises, it has suffered loss and damage in the sum of some HK$220,000.00. These damage and losses are:

(1)  The cost of relocating the 2^ndand 3^rd Defendants to another premises.

(2)  The cost of removing all of the 2^ndand 3^rd Defendants possession from the Premises.

(3)  The cost of boarding the 2^ndand 3^rd Defendants’ pets in kennels.

(4)  The cost of hotel accommodation for members of the 2^nd and 3^rdDefendants family when they came to visit over the Christmas period, but could not stay in the Premises as originally planned.

(5)  The expenses of the window fittings made for the Premises.

(6)  The expenses of the designer fans which were installed in the Premises.

(7)  The expenses of the kitchen appliances and other items bought for the Premises and left there when the 1^stDefendant terminated the Tenancy Agreement.

11.  The Plaintiff accepted the keys and brought the present action against the 1^st Defendant for wrongful termination of the Tenancy Agreement, and the 2^nd and 3^rdDefendants for liability under the Guarantee.

12.  The Court was informed at the hearing that the Premises have since been leased out again, but at a lower rent than the HK$99,000.00 under the Tenancy Agreement.

C.      The Defences

13.   It is common ground that under an O.14 application, it is for the Defendants to raise a triable defence whether in law or on the facts.  The Defendants should also condescend on the particulars of the defences raised.  See:  Hong Kong Civil Procedure 2009, paras 14/4/2 – 14/4/4.

14.  The defences raised in the present case can be summarized as follows:

(1)  The Plaintiff should deduct from the deposit the outstanding rents, and it is not entitled to recover the same in the claim. 

(2)  The Defendants are entitled to set off the claim for rental by reason of their counterclaim for damages in the sum of HK$220,000.00. 

(3)  The 1^stDefendant was entitled to terminate the Tenancy Agreement as the Plaintiff as landlord was in breach of the covenant for quiet enjoyment under the Tenancy Agreement as he had authorised or consented to the decoration works to be carried out at Flat 6A.

(4)  The IO of Pine Court was in breach of its duties to allow the common areas and facilities, such as the lift, the barbeque site and outdoor areas, to be rendered unusable and inaccessible by reason of the decoration works.  The Plaintiff was thus in breach of its obligation to give quiet enjoyment since the IO was a person claiming under or in trust for the Plaintiff in carrying out its duty to manage the common areas and facilities.

(5)  The Defendants are entitled to a defence of set-off with the counterclaim against the claim for damages.

15.  I now will deal with each of these defences in greater detail below.

D.      Discussion

D1.    Disruption of enjoyment of the premises

16.  The covenant for quiet enjoyment in a lease is to warrant freedom from disturbance by adverse claimants to the property or any substantial interference with the ordinary and lawful enjoyment of the land by the tenant.   Such interference could be, but need not be, direct or physical.  However, it is well established that a transient or temporary interference or inconvenience or disorderly conduct on adjoining premises may be not regarded as sufficient to show that quiet enjoyment is interrupted.  It is a matter of degree and extent:  Southhawk London Borough Council v Mills [2001] 1 AC 1, 22G-23E per Lord Millet; The Wing On Properties and Securities Co Ltd v Create Wealth Development Ltd (unrep., HCA 632/2004, Yam J, 5 July 2005) at para 16; Manchester Sheffield and Lincolnshire Railway Co v Anderson (1898) 2 Ch 394 (CA), 401  per Lindley MR.

17.  For the present application and for the purpose of considering the merits of the defences, I am prepared to accept that it is triable on the evidence as to whether the interruptions created by the decoration works had affected the 1^st Defendant’s quiet enjoyment of the Premises. 

18.  Notwithstanding this, given the contentions raised by the parties, it is still necessary for me to go on to consider whether the Defendants have raised any triable defence against the Plaintiff’s claims in showing that the Plaintiff is arguably thus in breach of the Tenancy Agreement and liable for such interruptions of quiet enjoyment (if proved at trial). 

19.  This is what I would do now.

D2.    The defence of the deposit

20.  Clause 2(a) of the Tenancy Agreement provided that the 1^st Defendant’s obligation to pay rent was unconditional and not subject to any right or claim to legal or equitable set-off.  It stated as follows:

“2.   The Tenant to the intent that the obligations hereunder shall continue throughout the said term of tenancy hereby agrees with the Landlord as follows:

(a)   To pay the said rent on the days and in the manner hereinbefore provided for payment thereof and in banknotes if so demanded and not to exercise any right or claim to withhold rent or other payments or any right or claim to legal or equitable set-off.”

21.  Further, clause 7(a) of the Tenancy Agreement provided as follows:

“7.     (a)     The Tenant shall on the signing hereof deposit and maintain with the Landlord the sum of HK$198,000.00 (‘the Deposit’) to secure the due observance and performance by the Tenant of the covenants agreements stipulations and conditions herein contained and on the Tenant's part to be observed and performed.  The Deposit shall be retained by the Landlord throughout the said term free of any interest to the Tenant and in the event of any breach or non-observances or non-performance by the Tenant of any of the said agreements stipulations or conditions aforesaid, the Landlord shall be entitled to terminate this Agreement and to forfeit the Deposit by way of liquidated damages without prejudice to the Landlord's right to claim against the Tenant for further damages suffered by the Landlord as a result of the Tenant's breach of this Agreement.  Notwithstanding the foregoing, the Landlord may in any such event at its option elect not to terminate this Agreement and forfeit the Deposit but to deduct therefrom the amount of any monetary loss incurred by the Landlord in consequence of the breach non-observance or non-performance by the Tenant (including all the legal costs and expenses to be incurred (on a solicitor-and-own-client basis) for the enforcement of this Agreement) in which event the Tenant shall as a condition precedent to the continuation of the tenancy deposit with the Landlord the amount so deducted and if the Tenant shall fail so to do, the Landlord shall forthwith be entitled to re-enter the said premises and to determine this Agreement and forfeit the Deposit as hereinbefore provided.”

22.  This clause thus provided that the Plaintiff as the landlord had the option to forfeit the deposit as liquidated damages in relation to the 1^st Defendant’s breach of the terms of the Tenancy Agreement upon its termination, or to deduct the deposit the amount of any monetary loss or non-performance of the 1^st Defendant if the Plaintiff did not terminate the Tenancy Agreement notwithstanding the tenant’s breach.  It however did not provide the 1^st Defendant as tenant any right to demand that the deposit be deducted for any outstanding rent.  

23.  Reading the above two clauses together, I am satisfied that the 1^st Defendant (as tenant) is not legally entitled (contractually or otherwise) to insist on or demand the Plaintiff to deduct the outstanding rents from the deposit.

24.  In the premises, the Defendants have failed to raise any triable defence under this ground for the claim of HK$198,000.00 as arrears of rent. 

D3.    The defence of set-off against Counterclaim

25.  I am also not satisfied that the Defendant has raised a triable defence of set-off against the rental arrears. 

26.  I accept the submissions by Ms Leung (for the Plaintiff) that:

(1)  Clause 2(a) of the Tenancy Agreement contractually excludes the 1^st Defendant’s right or claim for set-off of any damages it said to have suffered against the outstanding rents.

(2)  Under common law, the covenant to pay rent is regarded as independent of the other covenants or obligations under lease, including the covenant to provide quiet enjoyment:  Halsbury’s Laws of England (4^th ed., 2006 issue), para 510; Edge v Boileau (1885) 16 QBD 117, 120 per Pollock B; Charmway Development Ltd v Long China Engineering Ltd [2001] 3 HKC 515 at 519E-H per Chu J.

D4.    The defence of the Plaintiff’s breach of the covenant for quiet enjoyment

27.  I am also not satisfied that the Defendants have raised a triable defence under this ground. 

28.  Clause 3(b) of the Tenancy Agreement expressly set out the Plaintiff’s obligation to give quiet enjoyment as follows:

“3.    The Landlord hereby agrees with the Tenant as follows:

(a)  …

(b)   That the Tenant paying the rent hereby agreed to be paid on the days and in manner herein provided for payment of the same and observing and performing the covenants agreements stipulations and conditions herein contained and on the Tenant’s part to be observed and performed shall peacefully hold and enjoy [the Premises] during the said term without any interruption by the Landlord or any person lawfully claiming under or in trust for the Landlord.”  (emphasis added)

29.  This qualified covenant for quiet enjoyment does not extend to acts of a stranger, even if that person purports to claim under the landlord.   As the learned editors of  Halsbury’s Laws of England(4^th ed., 2006 issue) stated at para 509 as follows:

“The covenant usually provides for quiet enjoyment ‘without interruption by the landlord or any persons rightfully claiming under or in trust for him’ or ‘without any lawful interruption by the landlord or any persons claiming under or in trust for him’.  Whichever of these forms is used, the covenant protects only against the acts of persons claiming under the landlord so far as they are successors in title to the landlord, or actually have the authority from him to do the acts; and the effect is the same even if the words ‘rightfully’ or ‘lawful’ are not inserted.  The covenant does not extend to acts of a stranger, notwithstanding that he purports to claim under the landlord.  It does, however, extend to all acts of the landlord himself which interrupt the enjoyment whether they are lawful or not.  An act may constitute a breach of the covenant even where, apart from the covenant, the landlord has the right to do the act complained of.”  (emphasis added)

30.  It is common ground that the registered owner of Flat 6A is a person unrelated to the Plaintiff.  In the circumstances, the complained decorative works, even if they amounted to any interruption of the 1^stDefendant’s quiet enjoyment of the Premises, represented interferences made by a stranger but not the Plaintiff himself. 

31.  There is thus no question of the Plaintiff himself being in breach of the covenant for quiet enjoyment.

32.  The Defendants however further contend that the decoration works were authorized or consented by the Plaintiff as a member of the Incorporated Owners (“the IO”) of Pine Court.  As such, these interruptions could be regarded as ones authorized and made by the Plaintiffs.

33.  I similarly reject this argument: 

(1)  There is no provision in the Deed of Mutual Covenant (“the DMC”) of the Pine Court requiring any approval of renovation works to be carried out within the individual premises of the building.    There is therefore also no question of getting authorization or approval by the IO under the DMC for the owner of Flat 6A to carry out its renovation works.

(2)  In any event, as a matter of law, the IO is an entirely separate and distinct person from the individual owners although it was formed by statute to represent the interests of the owners in the building.  In my judgment, unless otherwise provided by the statute, there is thus also no issue of the IO’s act being regarded as an act of the individual owners (including the Plaintiff).  See: Kou Mei Juan trading as Mei Fook Jade & Jewellery Co v The Incorporated Owners of Pak Cheung Building (Blocks C &D) Tung Choi Street (unrep., CACV 24/1985,  Huggins VP, Cons & Fuad JJA, 9 April 1985), at page 3 per  Huggins VP; Incorporated Owners of Block F1-F7 Pearl Island Holiday Flats v Incorporated Owners of Pearl Island Garden [1997] 4 HKC 424 (CA), 427C-G per Godfrey JA, 428B-H per Liu JA^[2]. 

34.  For these reasons, no triable defence is raised under this ground.

D5.    The IO was claiming under or in trust for the Plaintiff in relation to its failure to provide the 1^st Defendant access to the common areas and facilities

35.  Clause 1 of the Tenancy Agreement concerned with the Plaintiff’s obligation to let to the 1^stDefendants the right to use some of the common areas and facilities of Pine Court as follows:

“The Landlord shall let and the Tenant shall take [the Premises] Together with the use in common with the Landlord and all others having the like right of the entrance staircase landings passages and lavatories (if any) in [Pine Court] in so far as the same are necessary for the proper use and enjoyment of [the Premises] And Together Also with the use in common as aforesaid of the lifts (if any) whenever the same shall be operating for such term at such rent and in such manner as is more particularly described and set out in the Third Schedule hereto.”

36.  The Defendants argue that because of the decoration works, the 1^st Defendant as tenant was unable to use substantially the sole lift and some common access ways and outdoor areas of Pine Court.  Although accepting that these were managed by the IO, it is the Defendant’s case that the IO managed these common areas and facilities “under or in trust” for the Plaintiff as provided under s. 16 of the Building Management Ordinance (Cap 344) (“the BMO”).    In the premises, (the Defendants further argue) the Plaintiff was in breach of the covenant for quiet enjoyment as provided under clauses 1 and 3(b) of the Tenancy Agreement.

37.  Section 16 of the BMO provides as follows:

“When the owners of a building have been incorporated under section 8, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by, and the liabilities of the owners in relation to the common parts of the building shall, subject to the provisions of this Ordinance, be enforceable against, the corporation to the exclusion of the owners, and accordingly –

(a)   any notice, order or other document which relates to any of the common parts of the building may be served upon the corporation at its registered office; and

(b)   any proceeding sin the tribunal in respect of any of the common parts of the building may be brought and pursued by or against the corporation.”

38.  The Defendants contend that, since the “powers, privileges and duties of” the Plaintiff in relation to the common parts of Pine Court shall be exercised and performed by the IO, the IO’s management of (and its failure to properly manage)the complained common areas and facilities of Pine Court were acts carried out “under or in trust” for the Plaintiff. 

39.  In law, for the purpose of considering whether there is a breach of the covenant for quiet enjoyment, a person will be regarded as one claiming under or in trust for the landlord if he is a successor in title to the landlord, or he has actual authority from the landlord to carry out the acts (complained of).  See:  Halsbury Laws of England, supra, para 509,  as quoted above.   

40.  In my view, for this particular purpose, to fall within the requirement of someone actually having authority from the landlord, the authority must come from the landlord himself voluntarily or by an act done by him to confer the subject matter authority on that person.   It is the landlord’s own conferment of such authority which renders him liable for breach of the contractual covenant by the acts of someone else.  This is underlined by the fact that we are considering the landlord’s contractual obligations to provide quiet enjoyment.   Thus, a tenant under a prior lease to which a landlord of the lease in question was not party does not claim under him (Re Griffiths, Griffiths v Riggs(1917) 61 So Jo 268), or an assignee of the reversion, who becomes owner of adjoining land by an independent title, does not claim under the landlord as to such adjoining land so as to be restricted in the use of it by the covenant (Davis v Town Properties Investment Corp Ltd [1903] 1 Ch 797 (CA)). 

41.  However, what section 16 of the BMO provides is a statutory conferment of authority and power on the IO to exercise the owners’ rights in relation to the common parts of a building.  In other words, the IO’s authority to exercise such powers and rights in relation to the common parts is derived from the BMO instead of the owners’ own authorization or consent.  

42.  When considered as such, I am not persuaded that it is even arguable that the effect of section 16 of the BMO renders the IO’s acts as ones which are carried out “under or in trust” for the Plaintiff as provided under a covenant for quiet enjoyment.

43.  I therefore also reject the Defendants’ submissions and do not find that a triable defence is raised under this ground.

D6.    Defence of set-off against the Counterclaim

44.  Since I am not satisfied that the Defendants have raised any triable defence that the Plaintiff was in breach of the Tenancy Agreement as explained above, I also do not see any triable merits of the Counterclaim (which is premised on the establishment of the Plaintiff’s breach of the Tenancy Agreement).   I therefore reject that the Defendants have raised a triable defence on set-off with the 1^st Defendant’s proposed Counterclaim.

E.      Conclusion

45.  For the above reasons, the Defendants have failed to show any triable defences in relation to the claim for the 2 months arrear of rent and an interlocutory judgment for damages.

46.  I therefore grant summary judgment against the Defendants for HK$198,000.00 and interlocutory judgment against the Defendants for damages for breach of the Tenancy Agreement in wrongfully terminating it on 16 January 2009, with damages to be assessed. 

47.  The Defendants are of course free to pursue their proposed counterclaim and also to seek set off against the judgment sum with the deposit.

48.  I further make an order nisi that costs of this application be to the Plaintiff with certificate for counsel, to be taxed if not agreed.  The order nisi shall be made absolute 14 days from today unless any of the parties applies to vary the same by Summons.

[1] This is supported by and set out the affirmation of Sally Leigh Taylor (the 3^rd Defendant) dated 2 March 2009.

[2] In this case, the Court of Appeal concluded that s. 18(2)(g) of the Building Management Ordinance (Cap 344) which provided that “[a] Corporation may, in its discretion – act on behalf of the owners in respect of any matter in which the owners have a common interest” did not introduce the relationship of an agency between the incorporated owners and the individual owners.