YEUNG & YOUNG MEDICARE CENTRE LTD v. 潘贊生

HCSA 55/2017

[2018] HKCFI 272

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 55 OF 2017

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM

NO SCTC 35412 OF 2016)

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JUDGMENT

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Introduction

1.  The defendant (“D”) was the landlord and the claimant (“C”) was the tenant of Flat F including utility platform and balcony pertaining thereto on 29^th floor of Warrenwoods, No 23 Warren Street, Hong Kong (“Premises”).

2.  By a written tenancy agreement dated 17 June 2015 made between D as landlord and C as tenant (“Agreement”), D let the Premises to C for a term of 2 years from 27 June 2015 to 26 June 2017 at a monthly rent of $23,500.

3.  Clauses 6 and 7 of the Agreement (“Clause 6” and “Clause 7”) provide as follows:

“6. The Tenant shall during the Term of the Tenancy keep the interior of the Premises in good and tenantable repair and condition (fair wear and tear and damage caused by inherent defect excepted) and shall deliver up vacant possession of the Premises in the same repair and condition on the expiration or sooner determination of this tenancy.

7. The Tenant shall pay to the Landlord the Security Deposit set out in the Schedule 1 for the due observance and performance of the terms and conditions therein 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 Tenant shall commit a breach of any of the terms and conditions herein contained, this Agreement shall absolutely determine and the Security Deposit paid under this clause shall be absolutely forfeited to the Landlord as and for liquidated damages (but not as penalty) and the rights and remedies given to the Landlord by this clause shall not prejudice any other right of action or any remedy of the Landlord in respect of such breach by the Tenant.” (my emphasis)

4.  By the Agreement, D signed to acknowledge receipt of the Security Deposit in the sum of $47,000 (equivalent to 2 months’ rent).

5.  Clause 4 of Schedule II of the Agreement gave C and D the right to determine the Agreement on or after the first 12 months of the Term by giving to the other party 1 month’s notice of his intention to do so.

6.  On 20 June 2016, C notified D of its intention to determine the Agreement. The Agreement came to an end on 26 July 2017, and C delivered vacant possession of the Premises to D on that day. D did not return to the Security Deposit to C.

7.  On 22 September 2016, C commenced SCTC35412/2016 (“SCTC Case”) in the Small Claims Tribunal (“Tribunal”) against D to claim for return of the Security Deposit. On 27 October 2016, D filed his Defence. D alleged C was in breach of Clause 6 by failing to maintain the Premises in good and tenantable repair and condition during the term of the tenancy and/or to deliver up vacant possession of the Premises in repair and condition on the determination of the Agreement, and consequently D was entitled to absolutely forfeit the Security Deposit as and for liquidated damages in accordance with Clause 7. By way of Counterclaim filed on 30 November 2016, D essentially sought a declaration that he was entitled to absolutely forfeit the Security Deposit in accordance with Clause 7.

8.  On 29 September 2017, the SCTC Case was tried before Deputy Presiding Officer Patrick Siu (“DPO”). On 4 October 2017, the DPO dismissed C’s claim, upheld the Counterclaim and awarded costs and interest in favour of D against C (“Judgment”). On the same day, the DPO gave oral reasons for the Judgment. On 17 November 2017, the DPO handed down written reasons for the Judgment (“Written Reasons”).

9.  On 9 November 2017, C applied to the Court of First Instance for leave to appeal against the Judgment on point of law. On 3 January 2018, CLY Lawyers filed Notice to Act for C. On 31 January 2018, C lodged perfected grounds for leave to appeal (“Perfected Grounds”). The hearing of C’s application for leave to appeal came before me on 2 February 2018 (“Hearing”). At the Hearing, Ms Chan, counsel for C, confirmed that C would not rely on the grounds of appeal stated in the Application for Leave to Appeal on Point of Law filed on 9 November 2017, and would only rely on the Perfected Grounds.

Findings by the DPO

10.  D alleged C was in breach of Clause 6 on the following grounds: (a) “大門、廁所門和睡房門的門身或門框有破損”, (b) “睡房門鎖及門柄有破損”, (c) “露台鐵框一條金屬邊翹起”, (d) “客廳牆腳線以及對上的牆角撞崩”, (e) “木地坂有多處損毀及刮花”, and (f) “牆身和天花有多處因鑽孔而引致的損毀，包括睡房的一邊牆身被鑽了兩口螺絲，近天花位置有三個鑽孔，而大廳牆身多處留有被鑽孔後的修補痕跡”. Upon assessment of the evidence, the DPO concluded (a) and (c) above were caused by normal wear and tear, and (b) above was caused by emergency break-in handled by firemen and not by C. The DPO found (d)-(f) above, which had not been remedied when vacant possession of the Premises was returned to D upon termination of the Agreement, amounted to C’s breach of Clause 6.

11.  The DPO referred to the principles set out by the Court of Appeal in Orient Bright International Ltd v Hiang Kie Hong Kong Ltd,[1] which principles were considered by the Lands Tribunal in Power Plus Ltd v Fruit Design & Build Ltd.[2] The DPO considered the relevant clause in the tenancy agreement in Power Plus Ltd to be similar to Clause 7, and came to the view that Clause 7 was enforceable. The DPO concluded as follows in the Written Reasons:

“38. 本席認為，土地審裁處的分析適用於本案。 本席考慮到, 若果申索人作為租客違反租約，業主若要採取法律行動，可能要花幾個月的時間，期間租金可能有損失。而若果單位有破損，亦可能不能完全修復，除了復收的費用之外，之後的租金收入也可能有負面影響。因此，業主以兩個月租金金額，定為一個對由租客不遵守租約而引起的損失的預算評估, 並非不合理。

39. 因此，本席認為本案租約第7條，是作為一個因租客毀約而導致業主損失的事前真誠估算，並非一個懲罰條款，有法律效力，可被執行。本席亦看不到容許被告人沒收保証金有不合情理的地方，畢竟被告人已確認不會再另行向申索人追討損失。”

Intended grounds of appeal

12.  According to the Perfected Grounds, C claimed the DPO erred on point of law as follows:

(a) the DPO erred in construing Clause 7 to be a genuine pre‑estimate of damages and not a penalty;

(b) the DPO failed to consider D had waived his right under Clause 7; and

(c) the DPO misinterpreted Clause 6.

Legal principles

13.  Section 28(1) of the Small Claims Tribunal Ordinance Cap 338 provides that leave to appeal may be granted where the proposed ground of appeal involves a question of law alone or is on the ground that the claim was outside the jurisdiction of the Tribunal.  The threshold onus of an applicant is to show that the intended appeal has arguable grounds of appeal.

14.  Further, it is trite that findings of fact by the Tribunal are generally immune from challenge as they involve no error of law unless such is perverse or irrational or where there is no evidence to support the decision or where the decision was made by reference to irrelevant factors or without regard to relevant factors.[3]

15.  In Potential Optical Media Ltd v Upplan Holdings Ltd,[4] To J in dealing with appeal on point of law against the Tribunal’s findings of fact said:

“Bokhary PJ specified three points which the appellate court must bear in mind when dealing with this kind of appeal. First, the appellate court must bear in mind what scope the circumstances of the case provide for reasonable minds to differ as to the conclusion to be drawn from the primary facts. If the lower court’s conclusion is reasonable, i.e. within the scope for reasonable minds to differ, then even if the appellate court does not agree with that conclusion, it cannot substitute its own conclusion for that of the lower court. However, if the appellate court regards the contrary conclusion as the true and only reasonable one, in other words, the lower court’s conclusion is not within the scope for reasonable minds to differ, the appellate court is obliged to substitute the contrary conclusion for the lower court’s conclusion. In my view, the said legal principles are also applicable to appeals from the [Tribunal].”

16.  But even if the Tribunal has erred on a point of law, it falls on the appellate court to consider whether it has some material bearing or impact on the outcome of the case, otherwise there is little point in considering any possible retrial.[5]

Discussion

(a) Ground 1 – penalty vs genuine pre-estimate of damages

17.  Ms Chan submitted that since (a) Clause 7 allowed D as landlord to forfeit the entire Security Deposit upon any breach of the Agreement (which might include trivial delay of, say, one day in the payment of monthly rent that would not cause any actual loss or damage to the landlord), and (b) the quantum of the Security Deposit had no bearing to any loss or damage that D as landlord might suffer from any breach of the Agreement, the following proposition by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd[6] cited in Chitty on Contracts[7] was applicable:

“To assist this task of construction various tests have been suggested which, if applicable to the case under consideration, may prove helpful or even conclusive. Such are:-

……

(c)  There is a presumption (but no more) that it is a penalty when ‘a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage.’

……”

18.  Ms Chan agreed that the mere fact the same amount is made payable upon the breach of several undertakings of various importance is by no means conclusive, but she argued this can only represent a genuine attempt at an agreed estimate of real damage if “the amount is not disproportionate to the least important of these undertakings”.[8] Ms Chan submitted that forfeiture of the Security Deposit in the sum of $47,000 “for one of the least important breaches of the Agreement (for example for a one-day late payment of rent) is disproportionate”, so Clause 7 was a penalty and therefore unenforceable, and the DPO erred in law in concluding otherwise.

19.  Ms Chan next argued that the DPO in concluding the Security Deposit was a genuine pre-estimate of loss failed to take into account the inherent circumstances of the Agreement. For this proposition, Ms Chan drew attention to Ip Ming Kin v Wong Siu Lan in which Kwan JA said as follows:[9]

“27. Before I examine the cases, it is appropriate to mention the relevant evidence on the inherent circumstances of the tenancy agreement, as Lord Dunedin made clear in the Dunlop case, supra at 87, that although the issue is one of construction of the contract, the court is not confined to the terms of the agreement and may look at the ‘inherent circumstances of each particular contract, judged of as at the time of the contract, not as at the time of the breach’.

28. In Murray v Leisureplay Plc [2005] IRLR 946, which is an important decision of the English Court of Appeal re‑examining the whole issue of liquidated damages and penalties but was not cited to us, it was said by Arden LJ at para 52 that the inherent circumstances to which the court may have regard ‘extend beyond those which may be adduced in evidence for the purposes of determining the true interpretation of the agreement under the well known test in the Investors’ Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896’. The purpose of adducing that evidence ‘is not so that the parties can demonstrate that they agreed to opt out of the remedies regime provided by the common law but rather that the reasons that they had for doing so constitute adequate justification for the discrepancy between the contractual measure of damages and that provided by the common law’.

29. Here, according to the tenant’s evidence, which was accepted by the judge, apparently not much was said by the parties in their negotiation when they agreed on the provision for compensation, nor was there much questioning of the parties at the trial as to their reasons for doing so. But the sparse nature of the evidence does not mean that the court should be handicapped in approaching this task. I quote again from the judgment of Arden LJ at para 55:

‘What happens if there is no evidence about the reasons for the clause? There would in my judgment be no reason why the court could not draw inferences of fact as to the reasons and as to the genuineness of those reasons. What if it appears from the evidence that is given (or from the inferences that the court makes from the facts) that the decision to include the damages clause was included on the basis of a mistaken belief that the damages at common law would be assessed on a materially more generous basis than in fact would occur? … In my judgment, the good faith belief of the parties is not the deciding factor here. The court would look at the result and (bearing in mind that the onus is on the party challenging the clause to establish that it is a penalty) ask whether it is satisfied that the parties could not, if they had had the proper information or considerations in front of them, genuinely have considered that the damages payable under the contractual provision were a realistic pre-estimate of the damages payable on breach at common law. In other words, in the context of Lord Dunedin’s speech, the test of genuineness is objective. A pre‑estimate is genuine if it is not unreasonable in all the circumstances of the case.’”

20.  Ms Chan submitted that in applying the aforesaid principles and looking at the matter objectively, “if C had the proper information (for example, drilling holes on the wall would lead to forfeiture of HK$47,000 security deposit), C would not have considered the amount payable under Clause 7 was a realistic pre-estimate”, hence forfeiture of the Security Deposit for C’s 3 items of breach under Clause 6 as found by the DPO was disproportionate and unreasonable.

21.  As seen in the discussion in paragraphs 25-31 below, I am not convinced that penalty rules apply to deposits. But even on the penalty rules, I am not persuaded there was any arguable ground of appeal. Since Ms Chan premised the 1^st intended ground of appeal on the penalty rules, I shall first deal with this point.

22.  In my view, the starting point is that the courts should not be astute to descry a clause in a contract which stipulates a sum to be payable by a party in breach, lest they impinge on the parties’ freedom to settle for themselves the rights and liabilities following a breach of contract. Because the rule about penalties is an anomaly within the law of contract, the courts are pre-disposed, where possible, to upholding contractual terms which setthe level of damages for breach, especially in commercial contracts made between parties of comparable bargaining power.[10] As held in paragraph 38 in Ip Man Kin, the onus rested on the party being sued upon (ie the party who has to make payment upon breach) to show that the provision is a penalty.

23.  Of Lord Dunedin’s various tests that assist in determining whether a provision is a valid liquidated damages clause or a penalty, Ms Chan focused on the presumption referred to in paragraph 17 above. However, as Kwan JA pointed out in paragraph 42 of Ip Man Kin, such proposition is a presumption only and may be rebutted, and she reminded of the danger inherent in arguments based on hypothetical situations where it is said that the loss might be less than the sum specified as payable as liquidated damages. The proper question under the penalty rules is whether the provision is a genuine pre-estimate of what the loss is likely to be rather than whether there are possible circumstances where a lesser loss would be suffered.

24.  I am afraid Ms Chan’s submissions that focused on the possibility of a trivial one-day delay in payment of monthly rent rather than on the true question as explained above ran afoul of such danger. In any event, it is not a good example because of the long history of equitable relief against forfeiture of leasehold interests, ie where a clause in the lease entitled the landlord to repossess the premises if the tenant failed to pay an instalment of rent.[11] Likewise, in suggesting that if C knew, say, drilling holes on the wall could result in forfeiture of the Security Deposit C would not have thought Clause 7 was a provision for genuine pre-estimate of damages, this argument again tried to apply an ex post facto breach to the terms of the contract, which was not the correct approach. As Lord Woolf explained in Philips Hong Kong Limited v The Attorney General of Hong Kong,[12]

“…… it will normally be insufficient to establish that a provision is objectionably penal to identify situations where the application of the provision could result in a larger sum being recovered by the injured party than his actual loss. Even in such situations so long as the sum payable in the event of non-compliance with the contract is not extravagant, having regard to the range of losses that it could reasonably be anticipated it would have to cover at the time the contract was made, it can still be a genuine pre-estimate of the loss that would be suffered and so a perfectly valid liquidated damage provision. The use in argument of unlikely illustrations should therefore not assist a party to defeat a provision as to liquidated damages. ……”

25.  Thus, even on the penalty principles and also bearing in mind the DPO’s reasons in paragraphs 38-39 of the Written Reasons (see paragraph 11 above), I am not persuaded Ms Chan’s submissions made out an arguable case that the provision in Clause 7 was a penalty. But more importantly, I cannot see how the penalty principles apply to the Security Deposit, which did not concern any sum to be payable by the party in breach. In my view, whether to classify a specified sum of money payable by the contract-breaker in the event of breach under a contractual provision as a penalty or liquidated damages turns on the penalty principles, ie whether it is a genuine pre-estimate of the loss the claimant would be likely to suffer from a breach of the obligation in question. But a contract may, instead of fixing a sum to be paid uponbreach, provide that a sum already paid shall be forfeited upon breach by the party who paid it, or alternatively a sum may be paid as a deposit, in which case the sum is forfeited if the payer breaks the contract (as in the case of rental deposit paid by a tenant to the landlord). The courts have been reluctant to allow recovery of deposit, and Chitty on Contracts states as follows:[13]

“If the contract provides for one party to pay a deposit, or to forfeit sums already paid, and a breach of contract by the payor leads the payee justifiably to terminate the contract, then subject to …… what is said in the following paragraphs the payee may retain the deposit or retain the sums paid without having to show that the amount is a genuine pre-estimate of the loss. English courts have always treated such a forfeiture clause and deposits as different from a sum payable upon breach. …… modern English courts do not appear to apply the penalty rules to deposits or clauses providing for the forfeiture of sums paid.”

26.  This is echoed in Wong Kam-kong v Intercontinent Mercantile Co[14] where pursuant to a written tenancy agreement the tenant paid to the landlord a deposit which was to be forfeited in the event of any breach of the lease but was otherwise recoverable. The tenant subsequently abandoned the tenancy and ceased to pay rent and other charges under the lease. After discussing the authorities, the Full Court held that at common law the landlord has the right to forfeit the deposit, and as it was not recoverable the deposit could not be used as a set-off against the claim for arrears of rent and charges unless upon some equitable principle, but no such equitable principle applied in that case. The Full Court said at pp 343-344 that:

“…… if in a case such as that now before us the setting is such that the deposit is treated as a penalty, and if there is any jurisdiction in equity to grant relief against forfeiture of such a deposit, relief is restricted to the case where the agreement providing for forfeiture, or possibly the act of forfeiture, is unconscionable. In the present case there is nothing unconscionable in the clause permitting forfeiture. Such clauses are a common feature of tenancy agreements in Hong Kong. And there is nothing unconscionable in the conduct of the plaintiff landlord in forfeiting the deposit. He could have refrained from re-entry and continued to force the defendants to pay rent as it accrued due under the tenancy agreement. On re-entry he was obliged to re-let the premises at a considerably lesser rent. Loss has fallen on him, not on the defendant tenants. The agreement was for the forfeiture of the deposit in the event of the defendants committing a breach of any of the terms or conditions of the agreement. The defendants expressly bound themselves to the forfeiture and made the deposit at the outset. ……” (my emphasis)

27.  These principles were affirmed by the Court of Appeal in Orient Bright International Ltd. In that case, the tenancy agreement provided as follows in relation to the rental and management fee deposit:

“… The said 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-observance 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 said deposit absolutely but without prejudice to the Landlord’s right to claim from the Tenant damages or monetary loss which the landlord may incur as a result of such non-observance or non-performance by the Tenant …”

28.  The Court of Appeal held that such clause was clear: the deposit was to be forfeited in the event of any breach or non-observance or non-performance by the tenant of its obligations under the lease. Le Pichon JA recognised the court has power to grant relief against forfeiture should the circumstances so warrant, ie “if either the agreement providing for forfeiture or, possibly, the act of a forfeiture itself is unconscionable”.[15] The learned judge went on to say at p 670:

“…… in the present case, as in the Wong Kam Kong and McConnell cases, there was nothing unconscionable in the clause permitting forfeiture. A deposit representing three months’ rental and management fees is not out of the ordinary, particularly having regard to the length of the term, which in the present case is four years. The question which arises is whether there was anything unconscionable in the conduct of the plaintiff in forfeiting the deposit …… [discussion on the facts of the case] …… For my part, I can see no circumstances that warrant any equitable relief.”

29.  The DPO referred to the recent Lands Tribunal case of Power Plus Ltd which dealt with the question of whether or not the landlord was entitled to forfeit the $150,000 deposit paid by the tenant without giving credit for it before enforcing a judgment against the tenant for payment of arrears of rent. The DPO noted the relevant forfeiture clause in the tenancy agreement in that case closely resembled Clause 7:

“…… If the Tenant shall commit a breach of any of the terms and conditions herein contained, this Agreement shall immediately be terminated and the Security Deposit paid under this clause shall be absolutely forfeited to the Landlord as and for liquidated damages (but not as penalty) and the rights and remedies given to the Landlord by this clause shall not prejudice any other right of action or any remedy of the Landlord in respect of such breach by the Tenant.”

30.  Judge Wong King Wah held as follows at pp 711-712:

“19. …… It has been stipulated here …… that the deposit is forfeited ‘as and for liquidated damages’ (Emphasis added). Although the word ‘absolutely’ is also used in the present case, the purpose for which the forfeited deposit is put to has nevertheless been qualified by the phrase ‘as and for liquidated damages’ which is absent in Orient Bright.

20. As a matter of construction, it is obvious that the deposit, though forfeited absolutely, is intended to be a genuine pre-estimate of the landlord’s likely losses and damages in the event of the tenant’s breach of any provisions and/or stipulations of the tenancy. The word ‘absolutely’ in the context of the present case, simply means, in the Tribunal’s judgment, ‘entirely’, ‘completely’ or ‘unquestionably’. The insertion of these words “but not as a penalty” is an added precaution of the drafter to avoid this clause from being struck down because the forfeiture may be argued unenforceable on the ground it amounts to a penalty. Accordingly, the manifested intention is clear – it is meant to be an enforceable term to represent the parties’ genuine pre-estimate of the damages likely to be suffered by the landlord in case the tenant commits a breach of the tenancy.

21. It is noted that the deposit is not merely a security for due payment of rents. It is a deposit to secure the due performance of all terms and provisions of the tenancy. Accordingly, in case of breach by the respondent, the forfeited deposit serves to cover unpaid rent/mesne profits until delivery of vacant possession, loss of rent if the premises have been left vacant for some time, and the diminution in rent if the new tenancy attracts a lower rental. It represents the parties’ pre-estimate of the applicant’s damages in case of the respondent’s breach. The judgment sum, being part and parcel of the applicant’s damages arising out of the respondent’s present breach, is obviously covered by the forfeited deposit. On a proper construction of the forfeiture clause, it simply does not entitle the applicant to forfeit the deposit absolutely without giving credit to any loss it may have suffered.”

31.  In the present context, in light of the aforesaid legal principles and authorities, I am not persuaded the penalty principles applied to the Security Deposit. Turning to the inherent circumstances of the Agreement, as explained in Wong Kam-kong, Orient Bright International Ltd and Power Plus Ltd, Clause 7 made clear that the Security Deposit was to be forfeited in the event of any breach or non-observance by C of its obligations under the Agreement (including its obligations under Clause 6). The manifested intention of both parties to the Agreement was clear. C expressly bound itself to the forfeiture, and paid the Security Deposit at the outset. There was also nothing unconscionable in Clause 7 allowing forfeiture of the Security Deposit. A deposit sum equivalent to 2 months’ rent is not out of ordinary. I also see nothing unconscionable in D’s conduct in forfeiting the Security Deposit. The DPO found there were breaches by C of its obligations under Clause 6. D was not involved in or contributed to C’s breaches, and when D recovered vacant possession of the Premises, D inspected the Premises at first opportunity and promptly informed C of such breaches. Although C claimed the breaches as found by the DPO were not significant, D had to incur time and trouble to remedy those breaches before the Premises could be re-let with risk of loss of potential tenant whilst remedial works were being done. I see nothing that could be said to be “unconscionable” on D’s part, and no error of law in the reasons given by the DPO in paragraphs 38-39 of the Written Reasons (see paragraph 11 above).

32.  The DPO had properly considered the legal principles and relevant authorities, and applied them correctly to the circumstances of the SCTC Case. Far from having erred in law, I find the DPO’s analysis and conclusion could not be faulted. There was no merit to this intended ground of appeal.

(b) Ground 2 – waiver of Clause 7?

33.  Ms Chan submitted the DPO ought to have found on the evidence that D had waived his right to enforce Clause 7 since (a) C’s breach of Clause 6 occurred during and in the course of the tenancy, (b) Clause 7 provided that the Agreement would automatically determine upon breach so the Security Deposit would also be automatically forfeited, (c) D could waive Clause 7 as it was a contractual right solely for his protection, and (d) since D did not exercise his contractual right under Clause 7 to determine the Agreement despite C’s breaches of Clause 6, and only purported to forfeit the Security Deposit after the tenancy came to an end, so he must have waived his right under Clause 7.

34.  I am not persuaded by such argument. The fact breaches occurred during the course of the tenancy and the tenancy continued until expiry or earlier termination is insufficient toestablish a case of waiver of contractual rights. As explained in Woodfall’s Law of Landlord and Tenant, [16]

“ ‘Waiver of a right of re-entry can only occur where the lessor, with knowledge of the facts upon which his right to re-enter arises, does some unequivocal act recognizing the continued existence of the lease.’ The act in question must be communicated to the tenant, otherwise it does not amount to an election. ‘If the landlord by word or deed manifests to the tenant by an unequivocal act a concluded decision to elect in a particular manner, he will be bound by such an election. If he chooses to do something such as demanding or receiving rent which can only be done consistently with the existence of a certain state of affairs, viz. the continued existence of the lease or tenancy in operation, he cannot thereafter he heard to say that that state of affairs did not then exist.’

There are, therefore, three essential ingredients in waiver of forfeiture:

(a)   the landlord’s knowledge;

(b)   the unequivocal recognition of the continued existence of the lease; and

(c)   communication of that recognition to the tenant.”

35.  Thus, there cannot be election/waiver unless there is knowledge of the right to elect, which generally means the person who is put to his election must have knowledge both of the facts giving rise to the right to elect and of the right to elect itself. In the case of the landlord, “the requisite knowledge is knowledge of ‘the basic facts that in law constitute a breach of covenant entitling him to forfeit the lease’. But it has also been held that what is necessary is knowledge of ‘the precise facts’.”[17] Further, the burden of proving the landlord has sufficient knowledge lies on the tenant.[18]

36.   Here, although Ms Chan submitted the 3 items of breach of Clause 6 as found by the DPO occurred during the term of the tenancy, there was no suggestion D was aware or had knowledge of such breaches as and when they occurred. After all, C and not D was in occupation of the Premises during the term of the tenancy. The only relevant finding was that “被告人於2016年7月26日收樓當天對單位進行檢驗，發覺以上的破損，亦已在當日即場拍照紀錄，並將照片傳送給代表申索人交吉的代表潘穎詩女士” (see paragraph 10 of the Written Reasons). Ms Chan was unable to identify any evidence/finding that D as landlord had requisite knowledge of the breaches to support any election and/or waiver to continue and not determine the tenancy. In the circumstances, the continuation of the tenancy and demand/acceptance of rent thereafter until termination of the Agreement could not amount to any unequivocal act of election and/or waiver. In my view, this intended ground of appeal is unarguable.

(c) Ground 3 – misinterpretation of Clause 6?

37.  Ms Chan submitted that the DPO erred in concluding C was in breach of Clause 6 (ie C failed to keep the Premises in good and tenantable repair and condition) on the basis of the 3 items of breach caused by C (see paragraph 10 above).

38.  I am not persuaded there was any merit in this intended ground of appeal. The DPO has heard the evidence and made findings of fact as to the extent and significance of the 3 items of breach as follows:

“26. 至於牆腳線和牆角的損壞，從被告人呈堂的相片可見，那些損毀相當明顯，牆腳線的一塊木板面飾破損並且翹起，對上的牆角也有破損，上面的油漆和批盪都剝落了。

27. 楊女士說不知道她搬進單位之前，那些破損是否已經存在，而林女士則清楚地說在楊女士搬進單位之前，單位並無這些破損。林女士並指出，在上一手租客退租時，被告人有仔細檢查過單位，並在確保單位狀況完好之後，才將保証金退回給上一手租客。

28. 在這方面，本席接納林女士的證供。那些破損相當明顯，破損程度並不輕微，而且位處近大門口位置，若果在楊女士遷入單位前已存在，楊女士在租住單位時應該會留意到並向被告人提出。另外，鑒於那些破損的程度和範圍，本席認為那不會是自然損耗。唯一的推論，是那些破損是由申索人造成的。

29. 另外，楊女士在作供時，也確認了在睡房的牆和天花位置共有8 個鑽孔，都是她搬入單位之後鑽上去的。而在大廳牆身也有幾個鑽孔，雖然經修補，但是鑽孔的痕跡仍然清晰可見，楊女士也確認這些鑽孔是由她鑽上去的。在鑽孔之前，楊女士並沒有先徵求被告人同意。基於鑽孔的數目不少，本席認為這些鑽孔的確對單位造成破損。

30. 總括而言，本席認為申索人無需為露台鐵框以及大門、廁所門和房門的破損負責。然而，申索人對單位的牆腳線、 牆角、牆身和天花的確造成破損，而且那些破損並不輕微， 在申索人將單位交吉時也未有修復這些破損。

31.   本席也考慮到單位位處一棟新的住宅大廈，據楊女士所講，大廈樓齡大概只有３年。一個合理的租客不會接受這些明顯破損。因此，本席認為申索人違反了租約第６條，即沒有保持物業內部的維修狀態良好。”

39.  These are findings of fact by the DPO, and on the evidence it was open for the DPO to come to such findings and conclusion. In light of the principles for appeal on point of law discussed in paragraphs 13-16 above, I am unable to see how the DPO could be faulted as a matter of law.

Conclusion

40.  In my view, the Perfected Grounds were not arguable. I therefore dismiss C’s application for leave to appeal on point of law with no order as to costs.