SURF WIDE INVESTMENTS LTD v. LAM KIT YUK NOEL

  DCCJ 3878/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3878 OF 2009

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BETWEEN

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DECISION

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Background

1.    The Plaintiff ("Surf") seeks summary judgment against the  Defendant ("Lam") for outstanding rent and other sums claimed to be due under a Tenancy Agreement made between the parties on 8 April 2008 ("Agreement"). On 23 December 2009, Master Lai granted Lam leave to defend the claim on condition that the sum of $11,000 is paid into court. Surf appeals against this decision.

2.  The Agreement was made between Surf and Lam on 8 April 2008, whereby Flat A on 18th floor of Regal Court, 12 - 18 Wing Fung Street in Wanchai ("Property") was let to Lam for a term of 2 years from 16 March 2008 to 15 March 2010, at the rent of $11,000 per month.

3.  Clause 1 of the Agreement provides as follows :

"The Tenant shall pay to the Landlord the Rent in advance on the first day of each and every calendar month during the Term. If the Tenant shall fail to pay the Rent within 7 days from the due date, the Landlord shall have the right to institute appropriate action to recover the Rent and all costs, expenses and other outgoings so incurred by the Landlord in relation to such action shall be a debt owed by the Tenant to the Landlord and shall be recoverable in full by the Landlord."

4.  Clause 7 of the Agreement provides as follows :

"The Tenant shall pay to the Landlord the Security Deposit set out in Schedule I for the due observance and performance of the terms and conditions herein contained and on his part to be observed and performed. 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 30 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. If the Rent and/or any charges payable by the Tenant hereunder or any part thereof shall be unpaid for seven (7) days after the same shall become payable (whether legally demanded or not) or if the Tenant shall commit a breach of any of the terms and conditions herein contained, it shall be lawful for the Landlord at any time thereafter to re-enter the Premises whereupon this Agreement shall absolutely determine and the Landlord may deduct any loss or damage suffered by the Landlord as a result of the Tenant's breach from the Security Deposit without prejudice to any other right of action or any remedy of the Landlord in respect of such breach of the Tenant."

5.  The Security Deposit referred to in Clause 7 is defined in Schedule I of the Agreement as a sum of $22,000 ("Deposit"), which was paid by Lam to Surf upon the signing of the Agreement.

6.   Clause 4 of Schedule II of the Agreement contains a clause entitled "Break Clause", which reads as follows:

"Notwithstanding anything to the contrary hereinbefore contained, either party shall be entitled to terminate this Agreement earlier than as herein provided by serving not less than 2 months' written notice or by paying 2 months' Rent in lieu to the other party provided that the said written notice shall not be served before the expiration of the 12 month of the Term of Tenancy."

7.  According to the Statement of Claim, Lam failed to make payment of the rent due for the months of April to July 2009. Surf also claims that Lam was in breach of the Agreement in quitting the Property and purporting to deliver the keys of the Property to Surf on 30 July 2009. Surf's case is that it accepted Lam's wrongful repudiation of the Agreement by a letter dated 12 August 2009. Accordingly, Surf claims from Lam:

(1) rent for the months of April 2009 to August 2009, in the total sum of $55,000;

(2) damages for Lam's breach of the Agreement, in the sum of $22,000 representing 2 additional months' rent in lieu of notice;

(3) $8,000 as a debt pursuant to Clause 1 of the Agreement, representing Surf's costs and expenses.

8.  Surf concedes through Counsel at the hearing that the claim for rent due for August should only be for the period from 1 August 2009 to 12 August 2009 (the date of Surf's acceptance of Lam's repudiation), in the sum of $4,258, thus reducing the total amount of the rent claimed to $48,258. 

9.  On 14 September 2009, Surf applied for summary judgment to be entered against Lam in respect of all its claims.

10.  A Defence was filed on behalf of Lam on 30 September 2009.   Lam also filed an affirmation in opposition to Surf's application for summary judgment, essentially repeating the matters raised in the Defence filed. In essence, Lam's defence to Surf's claims can be summarized as follows:

(1) Lam claims that Surf did not issue any invoices for the outstanding rent, but that she had made payment of the rent for March to May 2009 by cheque, and had instructed Surf's agent, Miss Chan ("Chan"), to apply half of the Deposit as rent payable for January 2009, and the remaining half of the Deposit for payment of the rent payable for February 2009.

(2) Lam claims that Surf is in breach of the Agreement by virtue of its failure to include the name of Mr. Blum, Lam's husband, in the Agreement and by virtue of the presence of defects in the Property, namely, slow running water in the bathroom and kitchen, clogged sink and noisy air-conditioning system.

(3) Lam and Blum had informed Surf's agent, Chan, since December 2008 that they wished to vacate the Property and to change to another apartment in the same building, but that Chan refused to collect the keys to the Property.

(4) Lam and Blum had, by verbal notice since December 2008 and by written notice on 13 April 2009, notified Surf that they would vacate the Property and terminate the Agreement on 30 May 2009.

(5) Chan had collected the keys to the Property on 23 July 2009 or 30 July 2009 (as acknowledged by Blum in his e-mail of 7 August 2009).

The issue

11.  The issue for determination on this appeal is whether Surf is entitled to summary judgment for the sums claimed, or whether Lam has an arguable defence to Surf's claims.

Legal principles for Order 14

12.    The principles applicable to applications for summary judgment are clear.  To resist an Order 14 application, the defendant must show that there are triable issues.  A concise statement of the standard approach in an application for summary judgment is to be found in the dicta of Ma J, as he then was, in Schindler Lifts (Hong Kong) Ltd. v. Ocean Joy Investments Ltd. [2003] 1 HKC 438.  The court has to determine two questions: firstly, whether what the defendant says is believable as opposed to whether its version of events is to be believed; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law. In determining the first question, the court should not embark on a mini trial of the action on affidavit evidence.  The burden of proof is not a heavy one.  It is not the function of the court at this stage to assess if a defence will succeed at trial.  Insofar as the second question is concerned, summary judgment will not be granted if there are arguable defences or serious disputes of law.

13.  It is also trite that in opposing an application for summary judgment, a defendant must condescend to particulars.  This is clear from the judgment of Megarry V.C. in Lady Anne Tennant v. Associated Newspapers Group Ltd. [1979] F.S.R. 298 :

"A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff.  You do not get leave to defend by putting forward a case that is all surmise and Micawberism."

Whether there are triable issues

14.  It cannot be disputed that on Lam's own case, she stayed at the Property until 30 May 2009, but between January 2009 and 30 May 2009, she only made payment of 3 months' rent by 3 cheques respectively dated 1 March 2009, 26 March 2009 and 28 April 2009, for the total sum of $33,000. On Lam’s case, she had appropriated the 3 payments to settlement of the rent due for March, April and May 2009.

15.  There is nothing in the Agreement which requires Surf to issue an invoice for rent before it is payable by Lam.  The law is also clear that a deposit for rent is security for the tenant's performance of its obligations, and a tenant has no right to apply the deposit for payment of rent due, or to instruct the landlord so to do. (See, for example, the decisions in Pendex Industries Ltd. v. Wong Wan Chu HCA 1194/2000, 28 November 2001 and HSBC Trustee (Hong Kong) Ltd. v. Chiu Koon Shou HCA 1858/2006, 15 February 2007.)

16.  I therefore fail to see any triable issue or any arguable defence in relation to Surf's claim for rent due for 2 months before 30 May 2009.

17.   In relation to the claims made by Lam with regard to the alleged defects in the Property, I also fail to see how the noisy air-conditioning can constitute a breach of Surf's obligations under the Agreement. Its repair covenant under Clause 9 only extends to keeping and maintaining "the structural parts" of the Property, including the main drains and pipes in proper state of repair provided that written notice of any defects or want of repair has been given by the tenant to Surf. There is no evidence of any written notice having been served during the term of the Agreement in relation to any want of repair of the main drains and pipes.

18.  Importantly, even if there was any breach of Clause 9 on Surf's part, Lam's covenant and obligation to pay rent is independent of the landlord's covenant to repair on Surf's part and Surf's obligations under the Agreement (Charmway Development Ltd. v. Long China Engineering Ltd., unreported, HCA 54/2001). Nor has Lam made any claim in respect of any loss or damage she sustained as a result of any breach on Surf's part. There is no valid defence to Surf's claim for rent under the Agreement.

19.  I fail to see how Lam could have sustained any damage even if there was a breach by Surf in failing to name Blum as a party to the Agreement. Nor does it affect her obligation under the Agreement to pay rent, or alleviate her liability for any breach under the Agreement.

20.  In relation to Lam's defence to Surf's claim for rent after 30 May 2009, I am satisfied that neither the written notice of 13 April 2009 nor that of 30 April 2009 constitutes a valid notice of termination under Clause 4 of Schedule II of the Agreement. Clause 4 requires the service of not less than 2 months' written notice, or the payment of 2 months' rent in lieu of notice. Neither of the letters from Blum purports to give 2 months' notice. The letter of 13 April 2009 does not specify termination of the Agreement on any date at all. It only seeks to notify Chan that Lam and Blum wished to exchange the Property with another apartment in the building, without further particulars and without specifying any date. To the extent that the letter of 30 April 2009 can be relied upon by Lam as notice of termination, it can only purport to terminate the Agreement "as of 1 June 2009", as it seeks to notify Chan that Lam and Blum will vacate the Property "as of 1 June 2009". The 30 April 2009 letter still falls short of the requisite 2 months' notice.

21.  Nowhere in the letters of 13 April 2009 or 30 April 2009 can it be seen that Lam is prepared or seeking to make payment of any rent in lieu of notice as required under Clause 4 of the Agreement. I agree with Counsel for Surf that adopting the test of an objective construction of the purported notice of termination, as used in Mannai Investment Co Ltd. v. Eagle Star Life Assurance Co Ltd. [1997] AC 749 and in Tat Ming Investment Company Ltd. v. Yui Kimura, unreported, DCCJ 3508/2006, neither the letter of 13 April 2009 nor that of 30 April 2009 would objectively make it obvious to a reasonable landlord familiar with the lease that notice of termination of the tenancy was being given, and importantly, when such notice was to operate, with or without payment of rent in lieu of notice.

22.  However, as to whether Lam is liable for rent after 30 May 2009  (the date of her purported termination of the Agreement), I consider that from the evidence filed on behalf of Lam, there are triable issues as to whether agreement had been reached between Lam and Blum and those acting as agents for Surf for exchanging the Property with another apartment in the building owned by Surf or its parent or associated company, as evidenced by Lam moving into flat 20B of the building.

23.  It is true that the assertions made by Lam and Blum, as made in the correspondence between the parties in April and July 2009, in Lam's affirmations and as pleaded in the Defence, are not always consistent.  Leaving aside the purported termination under Clause 4 (which I have rejected), the Defence, which was prepared by solicitors then acting for Lam, only refers to requests made by Lam and Blum for an exchange of apartments being ignored or refused by Chan. However, the correspondence and Lam's affirmation do refer to meetings with Chan and other representatives of the owner of the building, and the claims made by Lam and Blum with regard to agreement having been reached to exchange the Property with another apartment in the building cannot be said to be totally incredible, and if credible, such claims may constitute an arguable defence to Surf's claims. There is nothing in Chan's affidavits which refutes or deals with Lam's assertions with regard to the agreement to exchange the Property for another flat owned by Surf or its parent or associated company in the building. Overall, I am satisfied that there are triable issues in this respect and that there should be a trial on such arguable defence.

24.    Further, in relation to Surf's claim for 2 months' payment of rent as damages, this is made in reliance on Clause 4 of Schedule II of the Agreement. Counsel argues that the break clause should constitute a liquidated damages clause, the 2 months’ rent being an estimate of the landlord's loss in the event of the tenant exercising the option to terminate the tenancy after the first 12 months of the term. In my view, whether Clause 4 does have the effect of a liquidated damages clause upon Lam’s wrongful breach and termination of the Agreement, as Surf contends, is arguable and Lam is further entitled to leave to defend Surf's claim for damages for breach of the Agreement.

25.  With regard to Surf’s claim for the costs of taking action for recovery of the rent due from Lam, even if the costs provided for in Clause 1 of the Agreement can include the legal costs incurred before the commencement of proceedings, in view of my findings at this stage that Lam has an arguable defence to the claim for damages, and possibly for part of the rent claimed after 30 May 2009, it is arguable whether the entire amount of the costs of $8,000 are recoverable under Clause 1.

Conclusion

26.  I will only grant summary judgment to Surf for $22,000, being the 2 months’ rent outstanding prior to Lam's vacating the Property on 30 May 2009.  Execution on the judgment for this amount is stayed pending the outcome of the trial, in view of the fact that Surf is still retaining the Deposit.

27.  I will grant Lam leave to defend the remainder of the claims made by Surf, but in view of the reservations I expressed in paragraph 23 above, such leave is conditional upon Lam's payment of a sum of $28,000 into Court within 14 days from the date of the handing down of this Decision. Credit will be given to Lam in respect of the sum already paid into court pursuant to the Order of Master Lai.  In default of Lam’s payment into court within 14 days as aforesaid, Surf may enter judgment against Lam for the sum of $26,258 due for the rent claimed up to 12 August 2009, with interest at judgment rate from the date of service of the Writ until payment, and further for damages to be assessed.

28.  I will make an order nisi, to be made absolute in 14 days, that if the condition for leave to defend is complied with, the costs of the Order 14 application including this appeal be in the cause; and if the condition is not complied with, the costs of the action and of the Order 14 application and the appeal be to Surf, with certificate for Counsel.

29.  The parties shall comply with Order 25 rule 1 within 14 days from the handing down of this Decision, and seek further directions from the Master for further case management, including the need to amend or file further pleadings.