TOP BRIGHT PROPERTIES CONSULTANTS LTD v. NAEEM AKHTER AND ANOTHER

LDPE 1051/2020

[2020] HKLdT 51

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1051 OF 2020

_________________

BETWEEN

_________________

_________________

J U D G M E N T

_________________

Background

1.  By a tenancy agreement dated 20 January 2020 (“the Tenancy Agreement”), the applicant let to the 1^st respondent and 2^nd respondent (hereinafter collectively referred to as “the respondents”) the Premises known as Shop B, G/F, 17 Tsun Fu Street, Sheung Shui, New Territories for a term of 2 years from 1 February 2020 to 31 January 2022 at a rental of $12,000 per month (inclusive of government rent, rates and management fee). In addition, in the Remark column of the Tenancy Agreement, the respondents were required to pay $100 per month for cleaning the toilet. Two months’ rental deposit in the sum of $24,000 was paid by the respondents.

2.  Clause 1 of Schedule II to the Tenancy Agreement specifies that the Premises shall be used or permitted to be used for commercial purpose only. Clause 4 of Schedule II provides for a break clause whereby either party shall be entitled to terminate the Tenancy Agreement earlier by serving not less than 1 month’s written notice or by paying 1 month’s rent in lieu to the other party provided that the Tenancy Agreement shall not be terminated earlier than a date which shall be 11 months from the commencement date of the term (ie the Tenant shall rent the Premises for at least 12 months.

3.  On 2 September 2020, the applicant applied to the Tribunal for recovery of possession of the Premises on the ground that the respondents have failed to pay rent since 1 August 2020.

4.  On 15 September 2020, the 1^st respondent filed a Notice of Opposition stating that because of Covid-19, the respondents could not make money from their business. On 31 July 2020, the respondents talked with the estate agent, Lung Fung Estate Agency (“Lung Fung”) which is situated at Shop A next door[1], saying that either Lung Fung (ie on behalf of the applicant) reduce the rent or the respondents will have to close the business. In this Notice of Opposition, it stated that “(t)he lady owner of LUNG FUNG ESTATE AGENCY verbally agreed with us to let us stay for 1 month without pay and that she would deduct the rent from our deposit. And we would hand over the key in September.” Attached to this Notice of Opposition was a photocopy of a name card of An Da, Anna (“Ms An”) of Lung Fung.

Hearing on 30 September 2020

5.  In the hearing on 30 September 2020, Mr Khan, Mohammad Saleem (“Mr Khan”[2]) appeared on behalf of the respondents. In gist, Mr Khan repeated that in the end of July 2020, the applicant agreed the respondents could leave the Premises and the rental for August could be set-off by 1 month’s deposit and the applicant could retain the further 1 month’s deposit[3].

6.  Ms Chan Ka Yan (“Ms Chan”) on behalf of the applicant denied anybody on her side agreed to what Mr Khan said. Indeed, when the applicant learned from the respondents that they had difficulties in running their business, the applicant agreed to reduce the rental by $2,000 per month from May 2020. Ms Chan queried, on the one hand, the respondents complained that they could not run their business but on the other hand, they rented Shop C next door in May 2020.

7.  Ms Chan admitted that the respondents had handed over the keys to the Premises on 9 September 2020 but owing to the fact that the Tenancy Agreement had not ended, the applicant or its staff had not even entered the Premises. The applicant had no choice of not taking the keys back or the keys would be left on the ground.

8.  In response, Mr Khan submitted that Shop C had double the size of the Premises but at $10,000 per month only. The business that was conducted at Shop C was completely different from that at the Premises. The latter business at the Premises was adversely affected by Covid-19 when it was opened in February 2020. Mr Khan insisted that the lady in charge of Lung Fung had verbally agreed to the surrender of the Premises or she would not be able to get the keys to the Premises.

9.  When Ms Chan asked the name of the lady to whom Mr Khan referred. Mr Khan insisted she was the owner of Lung Fung but then referred to the name on the name card attached to the Notice of Opposition[4]. Ms Chan explained that that name, Ms An, was only a salesperson but not the owner of Lung Fung.

10.  In any event, I fixed this case for trial on 3 November 2020 and the parties should file and served to the other side their witness(es) statement(s) on or before 27 October 2020.

Witness Statements

11.  Ms An filed her witness statement on 16 October 2020, denying she had any conversation with the respondents or Mr Khan.

12.  Mr Khan on the other hand filed his witness statement on 12 October 2020. He said he visited the 1^st respondent, his friend, regularly and was there at the Premises on the day of the verbal conversation between his friend and the lady owner of Lung Fung.

13.  Mr Khan stated that the lady owner of Lung Fung came to the Premises that day and discussed about their rental situation. “So, my friend explained that due to Covid-19 he hasn’t been making enough income and was losing money, so the Lady owner and my friend agreed upon that he would leave the shop within September and the owner can cut the rent for August from the deposit and keep the remaining deposit. And 9^th of September my friend NAEEM AKHTER handed over the key to the lady owner next door.”

14.  In addition, a Mr Khan Abdul Shakoor (“Mr Khan 2^nd”) also filed a witness statement on behalf of the respondents on 12 October 2020. The contents of his witness statement were nearly the same as that of Mr Khan above.

Trial on 3 November 2020

15.  When the hearing started on 3 November 2020, Mr Khan realised that Ms An was not the lady owner of Lung Fung that he was referring to. Ms An was not cross-examined.

16.  Mr Khan firstly called Mr Khan 2^nd as witness. Basically Mr Khan 2^nd repeated what he stated in his witness statement. He had no idea of the name of the lady owner of Lung Fung but only referred her as a fat lady. Also, Mr Khan 2^nd could only vaguely described what happened on that particular day when the lady owner of Lung Fung came to the Premises and the respondents told they were not having business and were going to close the shop. He was a bystander then inside the Premises[5]. He spoke no good English anyway.

17.  When Mr Khan himself gave evidence, he explained that his friend’s business at the Premises was no good and he from time to time from May 2020 onwards kept discussing the rent paying problem and intimated to the lady owner (whom they called 亞姐) of Lung Fung that he was going to close his business. On 30 July 2020, his friend told the lady owner of Lung Fung that the respondents had to close the business in August and would hand over the key to her the following month. His friend said he would try his best that month for business and if business started running, he would keep it. If not, the lady owner of Lung Fung should help by deducting one month’s rent from the deposit and his friend would leave. Mr Khan conceded, for the first time, that the lady owner of Lung Fung did not agree initially.[6] On one occasion, she agreed on condition that the respondents paid her some $8,000 more but Mr Khan’s friend, ie the 1^st respondent, declined because he had no money; the latter would like to talk to somebody from the applicant direct so that they might reach a new agreement on lower rental. But the lady owner of Lung Fung did not provide any particulars of the applicant. Mr Khan said on 9 September 2020 his friend went to Lung Fung intending to return the keys to the Premises[7]. The lady owner’s daughter then opened the door of the Premises, checked the conditions and kept the keys; Mr Khan confirmed that she did not utter anything in particular[8].

Discussion

18.  Ms Chan admitted that the applicant and Lung Fung are related. It is a pity that Ms Chan did not call “the lady owner of Lung Fung” as witness by mistake or otherwise. As submitted by Mr Khan, Ms Chan should know who that “the lady owner of Lung Fung” was but the respondents did create the confusion by referring to the name on the name card attached to the Notice of Opposition on 30 September 2020[9].

19.  Notwithstanding the above, I am hesitant to draw any adverse inference against the applicant. The relevant principles for drawing adverse inference were considered by the Court of Appeal in Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd, CACV 90, 91, 93, 94, 95 and 96/2012 (unreported, dated 17 September 2013). At §111 of the judgment, Kwan JA (as she then was) of the Court of Appeal confirmed that “There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to produce a particular witness.”

20.  And in the present case, it is the respondents’ case that the lady owner of Lung Fung accepted their surrender of the Premises. Thus where an allegation (or document), whether affirmative or negative, forms an essential part of a party’s case, the burden of proof rests on that party to prove that the allegation or document is genuine: Pacific Electric Wire & Cable Co Ltd, supra at §§60 & 61.

21.  Whether the returning of the keys to the applicant took effect as a surrender of the Tenancy Agreement by operation of law? Such an issue was considered in Oastler v Henderson (1877) 2 QBD 575, Artworld Financial Corp v Safaryan [2009] EWCA Civ 303 and more recently in Padwick Properties Limited v Punj Lloyd Limited [2016] EWHC 502 (Ch) and Levett-Dunn & Others v NHS Property Services Limited [2016] EWHC 943 (Ch) where a number of propositions were enunciated:

(1) Accepting back the keys without more will always be equivocal. As a matter of practicality and common sense, one party has to hold the keys to prevent an absurd situation in which they are passed back and forth because neither party wants to risk it being suggested that it has made an admission by holding them.

(2) Any act of the landlord which is consistent with its rights under the lease, such as entering the premises to inspect or to repair them, will not in itself give rise to a surrender because, by definition, it is not inconsistent with the lease continuing.

(3) Any further act of the landlord which amounts to protecting or preserving the property, such as taking security measures or doing necessary repairs, will not in itself give rise to a surrender because such self-help, necessary to preserve the landlord's interest in the value of his property, is a reasonable response to the tenant's evinced intention not to perform the obligations of the tenancy.

(4) Any further act of the landlord referable to the landlord's seeking to re-let the premises will not necessarily give rise to a surrender by operation of law, as it is no more than what the landlord might reasonably be expected to do in the circumstance for the potential benefit of all parties. The landlord must be entitled to seek to mitigate the damage caused in reality (even if not yet technically in law so long as the lease remains extant) by the tenant's abandoning the lease, by seeking to obtain another tenant, without thereby losing his rights against the original tenant if he is unable to do so.

22.  The applicant had filed for claiming vacant possession of the Premises and the unpaid rental in August on 2 September 2020 and been continuing the proceedings even on 30 September 2020. This is not consistent with the respondents’ or Mr Khan’s allegation that the lady owner of Lung Fung had agreed to their surrender proposal. By reference to the evidence of Mr Khan as elaborated above in §17 above, the proposal by the respondents to surrender the Premises was unilateral.

23.  I appreciate that the respondents had suffered a lot owing to the spread of Covid-19 starting at the end of January 2020 and perhaps the subsequent government’s measures to control the spread but this was not the fault of the applicant in insisting on the Tenancy Agreement which is a binding contract.

24.  In Canary Wharf (BP$) T1 Ltd v European Medicines Agency [2019] EWHC 335 (CH), [2019] EGLR 17, the tenant, an agency of the European Union (“EU”), held a lease granted in 2014 of part of premises in Canary Wharf, London, for a term of 25 years. The agreement for lease had been entered into in August 2011. But in 2017, the United Kingdom (“UK”) decided to withdraw from the EU. The tenant contended that the UK’s withdrawal from the EU would frustrate the lease on the grounds that, inter alia, the tenant could no longer lawfully exercise the rights conferred on it by the lease. It followed that the tenant would have no power to meet its future obligations under the lease, including the obligation to pay rent. The English court held, inter alia, the UK withdrawal from the EU was not relevantly foreseeable in August 2011. There was no mutual contemplation that if the lease could not provide a permanent headquarters for the tenant for the next 25 years, the common purpose of the lease had failed. The tenant who agreed to enter into a lease had assumed the risk of change in that time, including that it might involuntarily have to close its business at the premises. The financial implications of the lease would have been subject to intense and carefully scrutiny by the tenant. The nature of the supervening event might affect adversely the tenant’s right under the lease but that did not render its occupation of the premises impossible and did not render the tenant’s performance under the lease something “radically different”.

25.  Similarly, in the present case, the respondents’ failure to make money by occupying the Premises in the midst of the pandemic cannot be an excuse of avoiding the Tenancy Agreement. They have no right to demand a reduced rental payable or a new agreement at lower rental. Although Mr Khan submitted that the respondents, or one of them, rented the Shop C next door on more bargaining terms, this should not be a ground for frustrating the Tenancy Agreement. The unassailable point in law is that the rental as reserved in the Tenancy Agreement has to be paid.

26.  Whilst the applicant had agreed to accept lower rent of $10,000 per month from May 2020, this was not supported by any consideration. In Central London Property Trust Limited v High Trees House Limited [1947] KB 130, [1956] 1 All ER 256, it was held that the promise to accept lower rent by the landlords, being intended to be legally binding and to be acted on, and having been acted on by the tenants, was binding on the landlords to the extent that they would not be allowed to act inconsistently with it. In that case, however, there was no express agreement as to how long the reduction of rent was to last. The English court held that it could last until the landlords revoked their gratuitous promise by giving notice that the full rent has to be paid in due course.

Conclusion

27.  I find the respondents had not proved that the applicant had accepted the surrender of the Tenancy Agreement; rather, the respondents are liable to pay rent as reserved together with damages resulting from the early repudiation of the Tenancy Agreement.

28.  I make the order as follows:

(1) The respondents do deliver vacant possession of the Premises to the applicant;

(2) The respondents do pay the applicant arrears of rent/mesne profits at the rate of $12,000 per month from 1 August 2020 until 31 January 2021, ie the earliest date when either party can terminate the Tenancy Agreement.

Costs

29.  As costs follow the event, I also order the respondent do pay the applicant's costs of this application which is summarily assessed at HK$800.