FORTUNE GLOBAL DEVELOPMENT LTD. v. SHUNG CHEONG FOOD TRADING LTD.

HCA1786/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1786 OF 1999

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J U D G M E N T

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1. The plaintiff is the principal tenant of the premises known as Unit B, G/F, Kin Liong Mansion, 16-30 North Street, Kennedy Town, Hong Kong ("Unit B" and "the Building"). The defendant was the sub-tenant of Unit B. On 30 January 1999, the plaintiff commenced the present proceedings to recover vacant possession of Unit B and arrears of rent and/or menses profits from 1 October 1998 to the date of deliver up vacant possession.

2. On 21 December 1999, the defendant delivered up vacant possession of Unit B to the plaintiff. At the commencement of the trial, the Statement of Claim was amended to delete the claim for vacant possession. The plaintiff's claim was for rent and/or menses profits of 14 months and 21 days less the rental deposit of two months.

3. The defendant denied that it was liable to the plaintiff for any rent and/or menses profits at all. In short, the defendant alleged that towards the end of the decoration, Unit B was flooded with sewage and was never put to use by the defendant whereby the plaintiff orally agreed to suspend the payment of rent until the sewage problem was permanently solved. The defendant also counterclaimed a declaration that the Tenancy Agreement had been rescinded by the defendant by the delivering up of vacant possession or alternatively rescission on the ground of fraudulent misrepresentation, as well as repudiatory breach of the implied term of repair, the implied term of quiet enjoyment and the implied term of not to derogate from the grant, and to set off by way of defence damages thereof, and return of the rental deposit.

Background

4. The following facts are agreed between the parties :

(a) The plaintiff is the principal tenant of 11 units on the ground floor the Building under a lease dated 30 September 1996 with the landlord Kin Yick Liong Company Limited for a terms of eight years from 1 November 1996 to 31 October 2004 ("the Head Lease"). The terms of the Head Lease are not in dispute.

(b) A Deed of Mutual Covenant dated 3 September 1970 ("DMC") was registered with the Land Registry in respect of the Building. The terms of the DMC are not in dispute.

(c) Inside Unit B, there is a light well or hollow space ("Hollow Space") enclosing the sewage pipe ("Sewage Pipe") and a covered manhole ("Manhole"). The Hollow Space, Sewage Pipe and Manhole are not part of Unit B but are common parts of the Building. The only access to the Hollow Space is through Unit B.

(d) In December 1996 or January 1997, the plaintiff discovered overflow of sewage from the Manhole into Unit B. The overflow was caused by blockage of the Sewage Pipe.

(e) In January 1997, at the request of the plaintiff, the Incorporated Owners of the Building ("IO") sent workers into Unit B to clear the blockage of the Sewage Pipe.

(f) Thereafter, in order to prevent further overflow of sewage, the IO continued to send worker into Unit B once a week to inspect, and if necessary, clear the Manhole and Sewage Pipe.

(g) By a Chinese Tenancy Agreement dated 28 July 1998 ("Tenancy Agreement"), Unit B was sub-let to the defendant for a term of five years from 1 September 1998 at the rent of $28,000 per month. The terms of the Tenancy Agreement are not in dispute.

(h) The Landlord and Tenant (Consolidation) Ordinance (Cap.7) is not applicable to the tenancy.

(i) The defendant had paid the rental deposit of $56,000 and the plaintiff agreed to give credit thereof.

(j) There was a rent free period in respect of the month of September 1998.

(k) At the time the defendant inspected Unit B prior to the signing of the Tenancy and at the time when the defendant took possession of Unit B, there was no seepage from the Sewage Pipe and the Manhole in the Hollow Space.

(l) In about mid-September 1998, the plaintiff received a complaint from the defendant that there was seepage of sewage into Unit B.

(m) Since 1 October 1998, the defendant has failed to pay rent.

(n) On 30 January 1999, the plaintiff issued the Writ of Summons herein and forfeited the tenancy. The Writ was served on the defendant on 1 February 1999.

(o) In February 1999, Unit B was flooded with sewage.

(p) On 8 February 1999, GAB Robins Hong Kong Limited, Loss Adjusters engaged by the defendant inspected Unit B ("the 1st Survey"). The following were observed:

(i) Unit B was flooded by sewage of two to three inches;

(ii) two sewage pipes and a covered manhole were found inside a concrete enclosure (i.e. the Hollow Space);

(iii) sewage continued to flow out from the Hollow Space;

(iv) a terrible bad smell was emitted from the sewage;

(v) there were some boxes of bottles and construction materials inside Unit B and the bottom part had been stained by sewage;

(vi) the surveyors were of the opinion that the premises should be thoroughly dried and sterilized in order for use as a warehouse;

(vii) photographs taken are in pp.32 to 35 in the Defendant Bundle of Witness Statement.

(q) On 16 March 1999, the plaintiff applied for summary judgment. On 28 July 1999, the defendant was given unconditional leave to defend.

(r) On 17 September 1999, GAB Robins Hong Kong Limited inspected Unit B again ("the 2nd Survey"). The following were observed :

(i) a sewage pipe, a water pipe and a rainwater pipe were found inside the Hollow Space;

(ii) a new plastic pipe had been installed;

(iii) the pool of sewage found during the inspection in February 1999 had been cleared;

(iv) accumulation of water existed near the Hollow Space;

(v) water also accumulated near the rear of the unit;

(vi) water marks appeared on the floor;

(vii) no evidence of bursting of pipes was noted while viewing the area close to the Hollow Space;

(viii) a foul smell was still noted;

(ix) the surveyors were of the opinion that the premises could no longer be used as a warehouse for snacks.

(s) The defendant remained in possession of Unit B until 21 December 1999 when vacant possession was surrendered to the plaintiff.

5. Under clause 4 of the DMC :

"4. Each owner shall be bound and shall observe the following covenants provisions and restrictions:-

...

(c) It shall be the duty of the Manager to manage and provide services in respect of the said building and in particular the Manager shall arrange refuge disposal from each unit in the said building and from the common parts thereof and for the lighting ventilation of the common parts and repairing renewing maintaining and cleansing of the common parts services and facilities.

...

(l) The Manager shall have power and authority to do all or any of the following acts and things namely:-

...

(v) To repair renew maintain service clean and paint the said building or any of the common areas and common facilities thereof ...

...

(q) The common parts services and facilities referred to in this deed shall include the following:-

....

(ii) The sewers, gutters drains, watercourses cable, wells, pipes, pumps, tanks, wires, sanitary fitting ... used or installed for the benefit of the said building as part of the amenities thereof and not by any individual owner for his own use or purposes."

Plaintiff's case

6. Mr Chung Wai Cheung ("Chung") is a director of the plaintiff. He said the plaintiff rented a total of 7,000 square feet on the ground floor from the landlord and sub-divided into a number of units. The entrance of Unit B abutted Rock Hill Street (see Floor Plan (pink area), Bundle of Plaintiff's Documents ("BPD") p.58). Unit B was below street level and there were concrete steps at the entrance leading down to the premises. There was also a rear entrance. Unit B was never leased out since the plaintiff signed the Head Lease.

7. Chung said in about mid-July 1998, he inspected Unit B with Mr Cheng Wai Man ("Cheng") of the defendant. Cheng had probably told him Unit B was intended to be used for the storage of foodstuff. The inspection was at 3 to 4 p.m. The lighting in Unit B was switched on and there was also natural light. It was not bright but one could see. During the inspection, Chung saw the gate to the rear entrance was damaged and offered to repair it. He also agreed to level the flooring, repair some windows and relocate the toilet at the expense of the plaintiff.

8. Chung said Cheng opened the grey door to the Hollow Space (see photograph (b) in BPD p.59A) and saw the Sewage Pipe and Manhole. He explained to Cheng that they were common parts of the Building. In chief, Chung said he could not remember whether he mentioned the weekly inspection to Cheng. During cross-examination, Chung said during the inspection, he told Cheng there was overflowing of sewage in Unit B before and the IO would send worker to inspect the Sewage Pipe and Manhole weekly. He said Cheng did not find any problem and consented to the entry for inspection.

9. Mr Hui Hoi Ping ("Hui") is the cleaning worker employed by the IO. Every Monday, he would enter Unit B to inspect the Manhole and the Sewage Pipe. The Sewage Pipe served the whole Building and the blockage was caused by sanitary napkins flushed down from the toilets upstairs. The Manhole had a herb of 80 cm and could collect some sewage before overflowing. He would check if there were any blockage, and if so, clear it and clean the Hollow Space. The inspection would take two to three minutes, and clearing of the blockage about 15 to 20 minutes.

10. Before Unit B was leased out, a key to the rear entrance was left at the management office. Hui used the key to enter at the rear door.

11. After Unit B was leased to the defendant, Hui continued with the weekly inspection for about six to eight times during the decoration period. He entered through the front entrance with permission of the decoration worker. Hui met Cheng two to three times in Unit B. Cheng introduced himself as Mr Cheng and the person in charge. Towards the end of the decoration works, Hui asked Cheng when the shop would be open and Cheng said not until later. Hui told Cheng that if the shop was not open for business, Cheng should send someone to open the door for him to continue with the weekly inspection and clearing work. Hui warned Cheng that if the inspection were not continued, there would be a blockage of the Sewage Pipe and that would be a big problem. Cheng agreed to open the door for Hui every week.

12. After the decoration period, a staff member of the defendant opened Unit B for Hui twice, but thereafter, no one opened the door. There was no key at the management office and Hui could not enter Unit B. The weekly inspection stopped. Hui reported the matter to Mrs Chan of the Management Committee of the IO.

13. Leung Kun Hoi was a member of the Management Committee of the IO. She was commonly known as Mrs Chan ("Mrs Chan"). Mrs Chan said sewage overflowed in Unit B at the end of 1996 or early 1997 but it was not too serious. Thereafter, the plaintiff left a key to the rear door of Unit B at the management office for the weekly inspection and clearing work. It was not feasible to change the Sewage Pipe as it was laid deep underground. After Unit B was leased to the defendant, the key was taken back from the management office.

14. In late September or early October 1998, Mrs Chan received complaints of bad smell from Unit B by other occupants. Hui told her that he could not enter Unit B. In late October and early November, the bad smell became worse. As far as she knew, no one could enter Unit B to deal with the problem.

15. On 13 November 1998, Messrs Poon, Yeung & Li ("PYL") solicitors for the plaintiff sent a letter before action to the defendant demanding the rent for October and November in the sum of $56,000 within seven days, failing which the plaintiff would take recovery action without further notice.

16. On 23 November 1998, Messrs Tai, Tang & Chong ("TTC"), former solicitors for the defendant wrote to PYL complaining the bursting of sewage pipe and spreading of sewage inside Unit B during decoration work, causing intolerable odour and serious hygiene problem. The letter stated that Cheng and a representative of the plaintiff Ah Joe inspected Unit B on several occasions but the plaintiff did not repair the sewage pipe. The defendant contended there was a breach of the implied condition of fitness for use of Unit B (through no fault of the defendant), and rent should be suspended until Unit B was rendered fit for use. Further, as the plaintiff did not tell the defendant a faulty sewage pipe existed which led the defendant into believing Unit B were in a tenantable condition, all rent should be suspended until the plaintiff had repaired the sewage leakage problem and Unit B was rendered fit for use. And the defendant reserved the right to rescind the Tenancy Agreement, to claim for the return of the rental deposit and damages.

17. On 15 December 1998, PYL wrote to TTC alleging that Unit B was locked up and the weekly clearing work could not be carried out. On 23 December 1998, TTC wrote to PYL denying the defendant refused to cooperate with the plaintiff, but accepted the temporary measure suggested by the plaintiff to clear the Manhole in the meantime while the plaintiff would liaise with the management of the Building for the repair of the faulty pipe. The defendant did send its staff with the keys and waited at Unit B on two occasions but the contractor failed to turn up. The letter also stated that Unit B could no longer be used for food storage because of the spreading of sewage, and the defendant had rented alternative premises in November, and the defendant would hold the plaintiff responsible for the wasted decoration costs of $189,380.

18. On 30 January 1999, the plaintiff commenced the proceedings herein and forfeited the Tenancy Agreement.

19. In February 1999, the smell from Unit B became intolerable. Mrs Chan complained to the Urban Services Department. The Health Inspector told her that Cheng had been contacted. On 12 February 1999, the defendant sent a staff member to open the door for Mrs Chan and Hui to enter Unit B. The whole place was flooded with sewage (see photographs in BPD pp.59A & B). Hui said it was the most serious flooding and there was nothing like it before. Hui cleared the blockage and cleaned the place up. Over the phone, Mrs Chan requested Cheng to leave a key to Unit B at the management office so that the weekly inspection could be resumed. Cheng agreed to give the key to her because he trusted her as the representative of the IO. Mrs Chan instructed the management company to issue an acknowledgement of receipt of the key (Bundle of Defendant's Documents (BDD) p.34). Thereafter, Hui continued with the weekly inspection and there was no more overflowing of sewage.

20. On 5 May 1999, PLY wrote to TTC suggesting that without admitting the defendant's allegation that Unit B had never been put to use and the defendant had rented other storage, and without prejudice to the respective parties' position and, the defendant should surrender vacant possession of Unit B in order to mitigate its loss.

21. On 28 June 1999, TTC wrote to the IO, alleging that as the Sewage Pipe was a common part of the Building, it was the responsibility of the IO for its repair under Clause 4(q)(ii) of the DMC. The letter stated that on or about 12 February 1999, the defendant had tendered a set of keys to Unit B for the IO to enter Unit B to clear the Manhole, but there was still no proposal to repair the faulty Sewage Pipe. As a result of the IO's failure to repair the faulty Sewage Pipe, the defendant had suffered serious loss and damage and unless the defendant received a confirmation from the IO within five days to indemnify the defendant of all loss and damage suffered by the defendant and the all claims made against the defendant by the plaintiff, the defendant would issue third party proceedings or separate proceedings against the IO without further notice.

Defendant's case

22. Cheng is a director of the defendant. He said that during the inspection of Unit B, there was no electricity and that it was not very bright inside and he did not see the Hollow Space, the Manhole and the Sewage Pipe. Chung never told him about those common parts nor the possible blockage nor the weekly inspection. Cheng said had he known about the problem, he would not have entered into the Tenancy Agreement. Unit B was intended to be used as a warehouse only and the defendant would not deploy any staff therein. It would be too inconvenient to send someone to open the door for the cleaning worker every week.

23. On 28 July 1998, Cheng received the key to the front door of Unit B after signing the Tenancy Agreement. Cheng said at all material times, he had never received the key to the rear door. Later, he was told that the items of repair to be carried out by the plaintiff were done and he sent in his decoration workers.

24. The defendant's contractor applied for an electricity meter. An area of about 300 sq ft in the entrance portion of Unit B was raised to street level, covering the original concrete steps, and a new metal staircase was constructed (see photograph (d) in BPD p.59A).

25. Cheng said he had never met Hui and was never informed of the weekly inspection and the clearing work.

26. About 20 days after decoration work had commenced and was almost completed, Cheng was informed by the contractor that a sewage pipe in the hollow space had burst. He went to Unit B and saw sewage overflow and flood the entire area of Unit B. He sent five workers to clean up the place. Afterwards, decoration work continued.

27. Cheng complained to Chung and they inspected Unit B. Chung told him that the Sewage Pipe served the whole Building and he would liaise with the IO.

28. Towards the end of September 1998, Cheng met with a representative of the plaintiff Kwong Yui Cho ("Ah Joe") to deal with the sewage problem. Cheng complained to Ah Joe that the defendant had spent money on decoration of Unit B but was not able to use the premises. Ah Joe said the IO would need to hold a meeting to raise fund to repair the Sewage Pipe. Ah Joe orally agreed with Cheng to suspend the payment of rent until the Sewage Pipe was repaired. Ah Joe suggested the defendant to deposit the keys to Unit B with the plaintiff so that the plaintiff could arrange for workers to clear the Manhole in the meantime. Cheng refused as there were expensive air-conditioning system inside Unit B, but agreed to send someone to open Unit B for the cleaning worker. Cheng said he made clear to Ah Joe that this was only a temporary measure and the plaintiff should arrange for the repair of the Sewage Pipe as soon as possible.

29. Cheng said that on two occasions in November 1998, he made appointment with the plaintiff to open the door for the cleaning worker but no one ever turned up.

30. Cheng said in reliance of the oral agreement with the plaintiff, the defendant was induced to wait for the repair of the Sewage Pipe. After the defendant received the letter dated 13 November 1998 from the plaintiff's solicitors demanding the payment of rent, Cheng tried to contact the plaintiff for an explanation but no one was willing to talk to him. Since then, there was no more contact between the plaintiff and the defendant except through their respective solicitors.

31. Apart from the decoration work, the defendant had never used Unit B for the storage of foodstuff. In November 1998, the defendant rented alternative premises for the storage of foodstuff.

32. Cheng said for several months sewage continued to burst from the Sewage Pipe. In February 1999, he agreed to deposit with keys to Unit B with the management office because he was concerned that the sewage problem would cause serious hygiene and pollution problem to the other occupants of the Building and by then Unit B could not be used for the storage of food stuff.

33. Cheng said he waited for the IO to change the Sewage Pipe for the whole Building so that the weekly inspection could be dispensed with but the matter dragged on with no proposal of repair from the IO. On 21 December 1999, seeing the plaintiff and/or the IO had no intention to repair the Sewage Pipe, the defendant surrendered possession of Unit B to the plaintiff upon. There was no duty to pay rent in the mean time as the Sewage Pipe was never repaired. Cheng said he did not know about the condition of Unit B after the cleansing on 12 February 1999 as he had never entered it again himself.

34. The quantum of damages was measured by the wasted decoration costs of $159,380 and rental for alternative storage from 8 December 1998 to 21 December 1999 of $132,310.08 including the rental deposit on the alternative premises. The Amended Defence and Counterclaim also pleaded loss of profits and moving expenses, but Cheng did not give evidence to substantiate them.

Assessment of evidence

35. I find both Chung and Cheng very unsatisfactory witnesses.

36. Chung mentioned for the first time he had told Cheng about the sewage problem and the weekly inspection under cross-examination. That was contrary to his evidence in chief that he could not recall whether telling Cheng so. Disclosure was never pleaded and counsel for the plaintiff said it was not relied on before evidence was given. I reject Chung's evidence of such disclosure before the contract.

37. On the other hand, the alleged oral agreement of suspension of rent was not supported by the contemporaneous documents. Cheng said the oral agreement was reached with Ah Joe about the end of September. In the letter dated 23 November 1998 by TTC in reply to the plaintiff's letter before action, it was contended that rent should be suspended by reason of the breach of the implied condition of fitness for use and non-disclosure of the sewage problem. There was no mention of the oral agreement. In the next letter by TTC dated 23 December 1998, the defendant claimed damages for the wasted decoration costs. Again, there was no mention of the oral agreement. The oral agreement was raised for the first time when O.14 proceedings were issued in March 1999. Under cross-examination, Cheng added that after Ah Joe agreed to the suspension of rent, he told Cheng that he still had to discuss it with the shareholders.

38. The plaintiff relied on the hearsay notice in respect of the Affirmation of Ah Joe filed in the O.14 proceedings to rebut the oral agreement. Counsel for the defendant did not dispute admissibility but wished to cross-examine Ah Joe. Ah Joe could no longer be located.

39. Apart from the lack of support in contemporaneous correspondence, the alleged oral agreement seems wholly unrealistic. It was not in the hands of the plaintiff to repair or procure the IO to repair the Sewage Pipe. After all, the weekly inspection was the course agreed upon after the seepage in 1996/97. I fail to see why the plaintiff would agree to an open ended suspension of rent upon something which was so uncertain. Even without relying on the Affirmation of Ah Joe, I have no hesitation in rejecting Cheng's evidence on the alleged oral agreement.

40. Both Chung and Cheng are not reliable on whether there was electricity in Unit B at the inspection. In his witness statement and Affirmation for the O.14 proceedings, Cheng said he inspected Unit B in total darkness, but in evidence he admitted there was natural light. As such, I do not find it necessary to decide on whether there is electricity. I find the defendant has not discharged the burden of proving total darkness.

41. Cheng said Unit B was intended to be used as a warehouse only and no staff would be deployed there so as to open the door for the cleaning worker. Cheng denied that the front part of Unit B was intended to be used as a display room. That was in direct contradiction with his witness statement and Affirmation that part of Unit B was to be used as a display room. From the photographs (BPD p59(c) & BDD p39(b)), it is clear that the front part was fitted out as a display room. I find that part of Unit B was intended to be used as a display room and Cheng was merely trying to exaggerate the difficulty of allowing access to the cleaning worker.

42. The evidence of Cheng was fraught with other inconsistencies and exaggerations :

(a) Cheng said apart from two months' rental deposit of $56,000, he had also paid one month's rent in advance, and had issued a cheque for $70,000 odd. This month's rent paid in advance was never pleaded nor relied on by counsel for the defendant, and in any case, the total amount should be $84,000 as opposed to $70,000 odd.

(b) In chief, Cheng said Chung did not tell him to contact Ah Joe, but Miss Gu, another director of the plaintiff did so. Under cross-examination, he said Chung told him to contact Ah Joe. Eventually, he said both had told him so.

(c) In his witness statement, Cheng said the defendant had rented one floor of warehouse as alternative storage, and had produced one tenancy agreement as proof, but in evidence, he insisted that the defendant had rented two floors of warehouse.

(d) Cheng claimed that the defendant had spent $159,380 in decoration of Unit B, but could only produce receipts of about $100,000.

(e) In re-examination, Cheng said that Ah Joe asked him to deposit the key to Unit B so that a sewage pipe from a restaurant next door operated by the plaintiff could be cleansed every night.

43. I also find Cheng evasive and intransigent when being questioned about the above inconsistencies. I reject his evidence and in particular as to the alleged oral agreement and denial of meeting Hui.

44. I find both Hui and Mrs Chan to be straight forward and credible witnesses. I bear in mind that they are related to the IO which was responsible for the repair of the common parts under the DMC and the defendant had threatened proceedings against the IO. Nonetheless, I accept their evidence. Hui had been carrying out the weekly inspection and clearing work regularly and I can see no reason why he would cease doing so unless he was denied access into Unit B. I also accept the evidence of Mrs Chan that from around November 1998 to February 1999, no one could gain access to Unit B in order to deal with the bad smell. Insofar as Ah Joe mentioned in his Affirmation that in around December 1998 he had accompanied the contractor to enter Unit B to clear the Manhole and saw the defendant's goods being placed inside, I accept the evidence to the contrary of Mrs Chan.

45. It is somewhat bizarre that the defendant had remained in possession of Unit B without paying rent in the hope that the IO would replace the Sewage Pipe of the Building notwithstanding action had been commenced against it. But having seen the performance of Cheng in the box, it is not difficult to come to the conclusion that the incident has been caused by his steadfast unwillingness to see fact in its face.

Finding of facts

46. From the accepted evidence, I make the following findings :

(a) The plaintiff never informed the defendant there were the common parts of Hollow Space, Sewage Pipe and Manhole inside Unit B before signing the Tenancy Agreement.

(b) The plaintiff never informed the defendant that sewage had escaped from the Manhole and overflowed into Unit B in December 1996 or January 1997.

(c) The plaintiff never informed the defendant the IO would send a worker to enter Unit B to inspect, and if necessary, clear the Manhole and Sewage Pipe every week.

(d) Cheng inspected Unit B before signing the Tenancy Agreement not in total darkness but there was natural light.

(e) The defendant intended to use part of Unit B as a display room.

(f) Before any seepage of sewage had occurred, Hui did inform Cheng that he needed to enter Unit B to inspect, and if necessary, clear the Manhole and Sewage Pipe every week.

(g) Hui warned Cheng that if the inspection were not continued, there would be a blockage of the Sewage Pipe and that would be a big problem.

(h) Cheng agreed to send someone to open the door for Hui and did so for two weeks whereupon it ceased.

(i) Seepage of sewage only occurred after Hui could not enter Unit B to inspect, and if necessary, clear the Manhole and Sewage Pipe.

(j) Ah Joe never orally agreed with Cheng that the payment of rent would be suspended until the IO had repaired the Sewage Pipe and the weekly inspection was no longer necessary.

(k) The seepage which led to the flooding in February 1999 was caused by the failure by the defendant to allow Hui to carry out the weekly inspection and clearing work.

Quiet enjoyment

47. The covenant for quiet enjoyment is implied from the mere relationship of landlord and tenant. It entitles the tenant to enjoy his lease against the lawful entry, eviction or interruption by the landlord or persons claiming under the landlord. The covenant is broken if the landlord or persons claiming under him do anything that substantially interferes with the tenant's title or possession of the demised premises or with his lawful enjoyment of them. It is a question of fact whether there is a breach (see Woodfall on Landlord and Tenant, 2001, paras.11.266 to 11.285).

48. Counsel for the defendant submitted that the weekly inspection and clearing work constituted a breach of quiet enjoyment, or even a breach of the right to exclusive possession enjoyed by the defendant which went to the root of the contract and was repudiatory.

49. Under clause 3(e) of the DMC :

"3. Each owner shall hold his part of the said Building and the said premises subject to and with the benefit of the following rights privileges and obligations namely:-

...

(e) Full right and privilege for the Manager (as defined in Clause 4(a) hereof) of the said building with or without surveyors workmen and others at all reasonable times on notice (except in case of emergency) to enter into and upon each part of the said building for the purpose of rebuilding, repairing, renewing, maintaining, cleansing, painting or decorating the said building or any part or parts thereof or any sewers, drains, watercourse, cable, pipes, pumps, tanks, wires or services therein or any other apparatus and equipment used or installed for the benefit of the said premises and building or any part thereof as part of the amenities thereof and not by any individual owner for his own purposes or enjoyment."

50. Under section 39(1) of Conveyancing and Property Ordinance (Cap.219) :

"(1) A covenant relating to any land of a covenantee shall be deemed, unless the contrary intention is expressed, to be made with the covenantee and his successors in title and persons deriving title under or through him or them."

51. Under section 40(1) of Cap.219 :

"(1) A covenant relating to any land of a covenantor or capable of being bound by him, shall be deemed, unless the contrary intention is expressed, to be made by the covenantor on behalf of himself, his successors in title and persons deriving title under or through him or them."

52. And under section 41 of Cap.219 :

"(3) Notwithstanding any rule of law or equity but subject to subsection (5), a covenant shall run with the land and, in addition to being enforceable between the parties, shall be enforceable against the occupiers of the land and the covenantor and his successors in title and persons deriving title under or through him or them by the covenantee and his successors in title and persons deriving title under or through him or them.

(4) ...

(5) A positive covenant shall not, by virtue only of this section, be enforceable against-

(a) a lessee from the covenantor or from a successor in title of the covenantor or from any person deriving title under or through the covenantor or a successor in title of the covenantor; or

(b) any person deriving title under or through such a lessee; or

(c) any person merely because he is an occupier of land.

(6) A positive covenant is a covenant to expend money, do something or which is otherwise positive in nature."

53. Clause 3(e) of the DMC is a restrictive covenant and is binding on the occupier of Unit B.

54. Further, under section 40(1) of the Building Management Ordinance (Cap.344) :

"(1) A member of a management committee and any other person authorized in that behalf by the management committee may, on reasonable notice to the owner or occupier thereof, enter a flat at any reasonable time for the purpose of -

(a) inspecting, repairing, maintaining or renewing -

(i) any common parts in the flat; or

(ii) any other property in the flat the condition of which does or may affect adversely the common parts or other owners;

(b) abating any hazard or nuisance which does or may adversely affect the common parts or other owners."

55. Hence, under the DMC and the Building Management Ordinance, the IO is empowered to enter Unit B to inspect and effect repairs to the Sewage Pipe. Granted there was an arrangement between the plaintiff and the IO as to the weekly inspection and clearing work, but it ceased to have effect when the key was taken back from the management office. The IO was not claiming under or through the plaintiff. Hence, the plaintiff was not in breach of the implied covenant for quiet enjoyment.

56. At any rate, the weekly inspection takes only two to three minutes, and clearing of the blockage, if necessary, takes 15 to 20 minutes. The defendant did intend to use part of Unit B as a display room and there must be staff there some time. Moreover, the staff of the defendant would go to Unit B to take goods out for delivery from time to time. It should not be so inconvenient to allow access to the cleaning worker. It cannot amount to deprivation of exclusive possession or repudiatory breach of quiet enjoyment entitling the defendant to rescind. It is not even a breach of warranty entitling the defendant to damages only.

57. Counsel for the defendant also submitted that the request by Ah Joe to deposit the key to Unit B to facilitate the weekly inspection and clearing work amounted to breach of exclusive possession. I do not agree. Firstly, it is only a suggestion made for the sake of convenience. The defendant could have chosen to open the door for the cleaning worker. Further, the key is deposited for a limited purpose : the weekly inspection and clearing work. Any use beyond that limited scope would otherwise amount to trespass. In any case, the defendant did consent to deposit the key to the IO in February 1999. Hence, I find there is neither repudiatory breach nor breach of warranty of quiet enjoyment.

Non-derogation from grant

58. The principle of the implied obligation of non-derogation from grant is set out in Woodfall, op. cit. para.11.083 :

" If one man agrees to confer a particular benefit on another, he must not do anything which substantially deprives the other of the enjoyment of that benefit : because that would be to take away with one hand what is given with the other. This is the principle of non-derogation from grant. It is a principle which merely embodies in a legal maxim a rule of common honesty ..."

59. Further, at para.11.301 :

"... This implied obligation will co-exist with the covenant for quiet enjoyment, express or implied. The two obligations are complementary and to some extent overlapping. The true distinction between them would seem to be that the obligation not to derogate from the grant is concerned with use of the retained part which makes the demised premises less fit for the purpose for which they were let whereas the covenant for quiet enjoyment is concerned with the enjoyment of the premises. Assuming that particular circumstances are capable in law of coming within both obligations it is a question of fact whether they come within both, one of them or neither. However, it has been said that there is little, if any, distinction between the two."

60. In the present case, the Sewage Pipe was the common part of the Building instead of on retained land of the plaintiff. Further, the flooding was caused by the defendant's default in denying access to Hui for the weekly inspection and clearing. Hence, there was no breach on the part of the plaintiff entitling the defendant to rescission or damages.

Fitness for purpose

61. Counsel for the defendant submitted that according to the surveyor, Unit B was no longer fit for the use of a warehouse for snacks at the time of the 2nd Survey.

62. In law, there is no implied warranty that the premises are fit for the purpose for which they are let (Elder v. Auerbach [1950] 1 KB 359).

Implied term for repair

63. The Tenancy Agreement makes no provision for repair as between the plaintiff or the defendant.

64. In the Amended Defence and Counterclaim, it was alleged that a duty should be implied on the plaintiff to repair or procure the repair of the Hollow Space, Sewage Pipe and Manhole within reasonable time. The defendant relied, inter alia, on the duty to repair on the part of the plaintiff under clause 5 the Head Lease :

"5. The Lessee to the intent that the hereunder shall continue throughout the term hereby agrees with the Lessor as follows :-

(e)(i) ... to constantly keep all the interior non-structural parts of the premises including the flooring and interior finishes and renderings to walls, floors, ... in good clean tenantable substantial and proper repair and condition and properly preserved, ... or otherwise repaired and made good when from time to time required and to so maintained the same at the expense of the Lessee and deliver up to the Lessor at the expiration or sooner determination of the term the premises in a state consistent with the due performance of the lessee's obligations under the lease."

65. The general rule as to implied covenant to repair is stated in Woodfall, ob. cit. para. 13.001 :

"In general, there is no implied covenant by the lessor of an unfurnished house or flat, that it is or shall be reasonably fit for habitation, occupation or cultivation, or for any other purpose for which it is let. No covenant is implied that the lessor will do any repairs whatsoever. Nor is there an implied obligation that the house will endure the term, even though fair wear and tear is excepted from the tenant's covenant to repair. A landlord is not liable in his capacity as landlord to his tenant for defects in the premises demised rendering them dangerous or unfit for occupation, nor for personal injury to the tenant caused by such defects, even though the landlord is aware of their existence. He is under no duty to warn the tenant of such defects. At common law a landlord who lets a house in a dangerous state is not liable to the tenant, or to sub-tenant, or to the tenant's customers or guests."

66. In Liverpool City Council v. Irwin [1977] AC 239, the House of Lords had to consider the nature and extent of the obligations of landlords of a building in multiple occupation to repair certain essential means of access. In the Court of Appeal [1976] QB 319 Lord Denning MR had suggested that the court had power to imply a term if it was reasonable to do, and held that the landlords were under an implied obligation to repair accordingly. The majority (Roskill and Ormrod LJJ) came to a contrary conclusion. Roskill LJ said at 337 :

"But I am afraid, with profound respect, I cannot agree with his view that it open to us in the court in the present day to imply a term because subjectively or objectively we as individual judges think it will be reasonable so to do. It must be necessary in order to make the contract work as well as reasonable to do so, before the court can write into a contract as a matter of implication some term which the parties have themselves, assumedly deliberately, omitted to do."

67. The House of Lords unequivocally rejected the suggestion of Lord Denning MR that the courts have power to introduce terms into contracts merely because they think them reasonable.

68. Under section 18(1) of the Building Management Ordinance :

"(1) The corporation shall-

(a) maintain the common parts and the property of the corporation in a state of good and serviceable repair and clean condition;"

69. And under section 16 of the Building Management Ordinance :

"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 ..."

70. Counsel for the defendant accepted that it was the duty of the IO to maintain the common parts of the Hollow Space, Sewage Pipe and Manhole to the exclusion of the owners. Had Hui been allowed to carry on the weekly inspection and clearing work, there would not have been any flooding. I hold that it is neither necessary nor reasonable to imply a duty on the plaintiff to repair or procure the repair of the Hollow Space, Sewage Pipe and Manhole as common parts of the Building.

71. On a separate point, had Hui not informed Cheng about the sewage problem and the flooding occurred due to no fault on the part of the defendant, there may arguably be an implied duty on the part of the plaintiff to maintain the interior of Unit B as distinct from the duty to repair the common parts of the Building. However, as I have found the flooding was caused by the failure of the defendant to allow the weekly inspection and clearing work by Hui, it is not necessary to consider the point.

Misrepresentation by non-disclosure

72. Counsel for the defendant accepted that in general, there is no duty on the parties to a contract to disclose material facts to each other, however dishonest such non-disclosure may be in particular circumstances, and in the absence of special circumstances, mere non-disclosure does not constitute misrepresentation. However, counsel for the defendant submitted that there were special circumstances in the present case such that the plaintiff was under a duty to disclose to the defendant the sewage problem before the signing of the Tenancy Agreement. Counsel for the defendant submitted that the exception for a vendor in a sale of land to disclose defects in title was applicable to the present case.

73. Counsel for the defendant referred to Nottingham Patent Brick and Tile Co. v. Butler (1885) 15 QBD 261, per Wills J at 271 :

"In honesty and in law alike [the vendor] was bound to give the purchaser full and fair information what it was that he had for sale, and was inviting him to buy, and having failed to do so, [the vendor] cannot insist upon the bargain procured by the suppression of material matters affecting the nature of the subject of sale."

74. Counsel for the defendant also referred to Chi Kit Co. Ltd & Anr v. Lucky Health International Enterprise Ltd [2000] 2 HKLRD 503 where the Court of Final Appeal held that the liability of a unit owner to meet a contribution towards a judgment entered against the incorporated owners in the sum of $25.7 million was a liability which went to the ownership of the unit and bound successful owners so long as the contribution remained unpaid. In the judgment of Bokhary PJ and Mason NPJ at 516, it was held that :

"Such a liability, if it were so extraordinary having regard to matters such as its nature or magnitude as to be wholly outside the contemplation of a reasonable purchaser, would constitute a defect in title."

75. The special circumstances referred to by counsel for the defendant are :

(a) The Hollow Space, Sewage Pipe and Manhole are common parts of the Building.

(b) The only access to the Hollow Space is through Unit B.

(c) There was seepage of sewage from the Hollow Space in December 1996 or January 1997.

(d) There was an arrangement between the IO and the plaintiff for the weekly inspection and clearing of the Manhole and Sewage Pipe.

(e) Failure to inspect or clear the Manhole would lead to seepage of sewage and flooding of Unit B.

(f) The defendant intended to use Unit B for storage of foodstuff.

(g) All the above were known to the plaintiff at the time of the Tenancy Agreement.

76. Counsel submitted that the special circumstances were of such nature or magnitude as to be wholly outside the contemplation of the defendant such that the plaintiff was under a duty to disclose them to the defendant.

77. According to Derry v. Peek [1889] 14 AC 337, per Lord Herschell at 374 :

"... fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in it truth; or (3) recklessly, careless whether it is true or false."

78. Counsel for the defendant further submitted that by reason of Chung lying in evidence that he had made disclosure to Cheng at the inspection which showed that he was conscious of the duty to disclose, an adverse inference should be drawn that the non-disclosure was deliberate and fraudulent.

79. Counsel for the plaintiff submitted that the duty to disclose in contract only arises in a limited number of cases. According to Turner & Sutton, Actionable Non-disclosure (2nd Ed., 1990) paras.1.04 to 1.12, there are four classes of transactions and relations where disclosure is required :

(a) Contracts uberrimae fidei;

(b) Duty to disclose to court, tribunal or state agency;

(c) Fiduciary relationship or relations of confidence;

(d) Relations of influence or advantage.

80. Contracts for the sale of land are contracts uberrimae fidei which constitute an exception to the general rule of no duty to disclose. None of the authorities cover the case of tenancy.

81. Counsel for the plaintiff referred to Halsbury's Law of England (4th Ed. Reissue) Vol. 27(1) para.336 :

"There is in general no implied warranty on the part of a landlord that the demised premises are fit for the purpose for which they are taken; and therefore, on the letting of an unfurnished dwelling house or flat there is no implied warranty on the part of the landlord that it is in a reasonably fit state for habitation, or that it may be lawfully used for the purpose for which it was let. The intending tenant is presumed to make his own enquiries as to its condition, and, in the absence of a special stipulation, he takes the house as it stands. This is so notwithstanding that the house is, to the landlord's knowledge, required for immediate occupation. If the house is, in fact uninhabitable, then, after accepting the lease, the tenant is without remedy except where he has obtained a warranty of fitness, or where he has been induced to take the lease by misrepresentation on the part of the landlord, in which case the tenant may be entitled to rescission or damages. The mere omission of the landlord to disclose defects is not such misrepresentation. If, however, the contract is still executory, it will not be enforced if the condition of the house is such that it is dangerous to health or otherwise uninhabitable. A warranty of fitness will probably be implied where the tenancy agreement or the lease is entered into before the completion of the house by the landlord."

82. In the Amended Defence and Counterclaim, it was alleged that the plaintiff had concealed the sewage problem by procuring the weekly inspection and clearing work and/or failing to provide any artificial lighting so that Cheng had to inspect Unit B in total darkness. I have found against the defendant on total darkness. Counsel for the defendant had abandoned the point on concealment and relied only on non-disclosure. In any case, I find that the weekly inspection and clearing work did not amount to concealment.

83. There is a fundamental difference between a vendor in a sale of land and a landlord in a tenancy. The landlord does not undertake to deliver an abstract of his title nor that he has good title to the land.

84. In the premises, I hold that the principle relating to disclosure of defects in title in sale of land is not applicable to a tenancy. The rule of caveat emptor does apply. The plaintiff is under no duty to disclose to the defendant the sewage problem. The defendant has to rely on its own inspection.

Rescission

85. I have found against any repudiatory breach of the Tenancy Agreement or misrepresentation by the plaintiff entitling the defendant to rescission.

86. In any case, counsel for the plaintiff submitted that even if the defendant were entitled to rescind the Tenancy Agreement, it had nevertheless elected to affirm the contract :

(a) The defendant had allowed Hui to continue with the weekly inspection and clearing work upon first being informed of the sewage problem.

(b) The defendant had remained in possession after the plaintiff had issued proceedings for recovery of possession.

(c) The defendant had deposited the key to Unit B with the IO after the clearing work in February 1999.

(d) After the letter dated 5 May 1999 by PYL to TTC requesting surrender of Unit B, TTC still wrote to the IO demanding the repair of the Sewage Pipe.

87. Counsel for the defendant submitted that the defendant had not elected to affirm the tenancy agreement and was entitled to rescind the contract when it surrendered possession on 21 December 1999. Counsel referred to Peyman v. Lanjani [1985] 1 Ch 457, where it was held at 458 :

" Where a party to a contract was faced with a choice whether to affirm or rescind the contract, in order to render his election irrevocable he had to have knowledge not only of the facts which gave rise to the election but also of the right of election itself; that a person could not be treated as having elected to affirm a contract unless he had unequivocally demonstrated to the other party that he intended to proceed with it; that the issue of election was a question of fact to be decided on the evidence, and since the plaintiff went into possession of the restaurant before he knew of the defect in the first defendant's title and since by the terms of the contract such action did not amount to irrevocable affirmation, he had done nothing which amounted to unequivocal affirmation of the contract and he was entitled to rescind the contract because of the first defendant's irremovable defect in title."

88. Counsel for the defendant submitted that the defendant's conduct was not unequivocal by reason of the following :

(a) The defendant remained in possession in reliance on the oral agreement with the plaintiff for suspension of rent until the Sewage Pipe was repaired by the IO.

(b) The deposit of the key to the IO in February 1999 was under protest as Cheng had demanded an acknowledgment of receipt from the IO.

(c) The defendant did not know that the IO had no intention to repair the Sewage Pipe and the weekly inspection and clearing work was to be permanent until it so realized when no action was taken by the IO.

(d) The defendant did not know of all the facts in the special circumstances referred to above until the plaintiff had admitted them in the Reply and Defence to Counterclaim filed on 7 October 1999.

89. I have found against the alleged oral agreement. Hence, the defendant's hope that the IO would repair the Sewage Pipe had nothing to do with the plaintiff.

90. The defendant has known all the special circumstances except the plaintiff's knowledge of the seepage in December 1996 or January 1997 by October 1998. In fact, in the letter dated 23 November 1998 by TTC to PYL, the rights of the defendant to rescind the Tenancy Agreement and to claim for the return of the rental deposit and further damages were expressly reserved. There is no evidence that the deposit of the key to Unit B to the IO in February 1999 was under protest and there is every indication that it was an unequivocal act of affirmation of the tenancy. By March 1999, the plaintiff's knowledge of the seepage in 1996/97 was also disclosed to the defendant in the Affidavit of Miss Gu filed in the O.14 proceedings. I find that the defendant had affirmed the tenancy agreement well before it surrendered possession of Unit B in December 1999.

Damages

91. I have held that the weekly inspection and clearing work did not amount to breach of any of the implied covenants entitling the defendant to damages. I have also held against any misrepresentation on the part of the plaintiff. As to the flooding, it was caused by the defendant's default in denying access to Hui for the weekly inspection and clearing work. Hence, the defendant was not entitled to any damages.

Conclusion

92. I hold that the plaintiff is entitled to recover the rent from October to December 1998 at $28,000 per month against the defendant. The plaintiff is also entitled to menses profits from January to 21 December 1999 at $28,000 per month. The total amount is $410,967.74. The plaintiff shall give credit for the rental deposit of $56,000 paid by the defendant.

93. The defendant's counterclaim must also fail and is herby dismissed.

Interest

94. The plaintiff is entitled to interest at judgment rate from the date of the writ to judgement, thereafter at judgment rate until payment.

Costs

95. Counsel for the defendant submitted that in the event the plaintiff do succeed, any costs order made should be based on the District Court scale.

96. The plaintiff regained possession in December 1999. The plaintiff's monetary claim was within the jurisdiction of the District Court as from 1 September 2000.

97. The defendant counterclaimed damages for loss of profits to be assessed, wasted decoration expenditure, costs of alternative storage, return of rental deposit, costs of survey report, and loss of security of tenure. The claims of wasted decoration expenditure, costs of alternative storage and return of rental deposit have been particularized and the amount does not exceed $600,000. The other claims have not been particularized. Counsel for the plaintiff submitted that there was no indication whether the entire counterclaim may or may not exceed $600,000.

98. In the premises, I hold that costs should not be assessed on the District Court scale.

99. I shall make an order nisi for costs in favour of the plaintiff to be made absolute after 21 days.