XCHRX PROFITEX DEVELOPMENT LTD. v. TARXEN PROMOTION CO. LTD.

HCA 13267/98

Headnote

Breach of tenancy agreement by tenant who failed or refused to pay rent. Landlord instituted proceedings for vacant possession, arrears of rent, mesne profits alternatively, damages to be assessed. Held, a final election of a landlord forfeit a tenancy is irrevocably made when the proceedings are served on the tenant. In such circumstances, the landlord cannot claim consequential damages from the tenant for the unexpired term of the tenancy. The tenant is liable to pay rent up to the service of the proceedings and mesne profits thereafter until delivery of vacant possession.

HCA 13267/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13267 OF 1998

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J U D G M E N T

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1. This is an appeal by the Defendant from the order of Mr. Registrar Betts made on 17th November 1998 whereby he ordered that the Defendant do pay the Plaintiff the sum of $98,456.00 and damages to be assessed.

2. The Plaintiff was the landlord of premises known as Flats 1-3 & 5, 32/F, Comweb Plaza, No. 12 Cheung Yue Street, Cheung Sha Wan, Kowloon ("the premises"). By a tenancy agreement dated 22nd February 1997, the premises were let by the Plaintiff to the Defendant for 2 years from 1st April 1997 to 31st March 1999 at a rent of $46,359.00 per month, exclusive of rates, payable in advance from the first day of each month. The Defendant as the tenant was in breach of the tenancy agreement and failed or refused to pay rent as from 1st July 1998. The sum of $98,456.00 is made up of the sum of $92,718.00 being rent at $46,359.00 per month from 1st July 1998 to 31st August 1998, and rates in the sum of $5,738.00 for the period from 1st July 1998 to 30th September 1998. This is pleaded in para.9 of the Amended Statement of Claim.

3. The Plaintiff's claim as set out in the Amended Statement of Claim sets out clearly that the Plaintiff's case is that the said tenancy was forfeited to the Plaintiff by the issue of the writ. The Plaintiff claimed possession of the premises, the said sum of $98,456.00, mesne profits at $46,359.00 per month from 1st September 1998 until delivery of vacant possession alternatively, damages to be assessed and costs. The Plaintiff applied for judgment under O.14 Rules of the High Court and the matter was heard and determined by Mr. Registrar Betts on 17th November 1998. It is common ground that vacant possession of the premises had been delivered up by the Defendant on 27th October 1998 prior to that hearing.

4. Mr. Mo, counsel for the Defendant, submits that Mr. Registrar Betts should not have ordered that damages be assessed. It was argued before him that the Plaintiff was not entitled to claim consequential damages as the tenancy had been forfeited. The Defendant was, however, obliged to pay arrears of rent and mesne profits but not consequential damages.

5. In my judgment, para.10 of the Amended Statement of Claim clearly pleaded, inter alia, that the tenancy of the premises was forfeited to the Plaintiff by the issue of the writ. It is trite law that a final election of a landlord to forfeit a tenancy is irrevocably made when the proceedings are served on the tenant. (Colgan Co. Ltd. v. Ethitrade Ltd. [1983-85] CPR 87; Po Wai Ching & Anor v. Pfeifer [1983] 1 HKC 204). The Plaintiff has, in my judgment, plainly elected to forfeit the tenancy and such tenancy was forfeited upon service of the proceedings on the Defendant which took place on 8th August 1998. The tenancy thus came to an end upon the election of the Plaintiff. This was an irrevocable election on the part of the Plaintiff. The Plaintiff cannot, in my judgment, claim consequential damages for the unexpired term of the tenancy. (Hop Woo Cheung Enterprises Ltd. v. Intergroup Industries Ltd. [1982] HKC 436; Colgan Co. Ltd. v. Ethitrade Ltd. [1983-85] CPR 87). The Defendant is, however, liable to pay rent up to the service of the proceedings and mesne profits thereafter until delivery of vacant possession of the premises. Colgan Co. Ltd. v. Ethitrade Ltd (supra).

6. Mr. Ng for the Plaintiff submits that the matter should be left to an assessment of damages and relies on SC Chow & Associates Ltd. v. Chow Kit Ming (t/a Modern World Printing Design Co.) [1997] 2 HKC 96. That case is, however, in my view, clearly distinguishable and does not assist the Plaintiff. There was no forfeiture of a tenancy in that case. The master was only concerned with the quantum of damages after a judgment under O.14 had been obtained against the Defendant for loss of rental income, arrears in management fees and other charges arising out of the Defendant's early termination of the lease.

7. There is no plea in the Amended Statement of Claim that the Plaintiff is entitled to mesne profits at a rate higher than the contractual rent. I observe that in the Amended Statement of Claim the monthly amount for mesne profits claimed was the same as the contractual rent, namely $46,359.00.

8. I have considered the submissions made on behalf of the Plaintiff and the Defendant. I do not see any point in ordering an assessment of damages in this case. I agree with counsel for the Defendant that the question of mesne profits payable by the Defendant is simply a matter of calculation in this case.

9. Another matter which is of concern to the Defendant is the question of the rental deposit in the sum of $92,718.00 paid under the tenancy agreement. The Amended Statement of Claim pleaded that the deposit is forfeited. This is in para.10. The material facts in support of this plea have not been set out. There is no claim for a declaration that the deposit has been forfeited. The deposit was paid under Clause 5 of the tenancy agreement. Clause 5 makes it plain that when the Defendant moves out of the premises, the Plaintiff shall return the said sum to the Defendant without interest and that in case the Defendant has not yet settled the rent or any other miscellaneous payments, the Plaintiff is entitled to deduct the same from the said rental deposit. This entitles the Plaintiff to appropriate the deposit towards payment of arrears of rent or other sums to be paid by the Defendant. It does not, however, entitle the Plaintiff to forfeit the deposit. The Plaintiff has not sought to justify its assertion in the pleading that the rental deposit has been forfeited. Instead, Mr. Ho Chung Yuen of the Plaintiff in his affirmation affirmed on 24th April 1999 now confirms that the Defendant may set off the said deposit in the sum of $92,718.00 against damages payable by the Defendant to the Plaintiff.

10. I have been told by the solicitors for the Plaintiff that all other outgoings have been paid by the Defendant.

11. The appeal is allowed and the order of Mr. Registrar Betts is set aside. I make an order as sought by the Defendant as follows:

(1) that the Defendant do pay to the Plaintiff the sum of $56,827.16 being arrears of rent in respect of the period from 1st July 1998 to 7th August 1998.

(2) that the Defendant do pay to the Plaintiff the sum of $122,627.03 being mesne profits for the period from 8th August 1998 to 27th October 1998.

(3) that the Defendant do pay to the Plaintiff the sum of $5,738.00 being the rates in respect of the period from 1st July 1998 to 30th September 1998.

The Plaintiff is to have judgment for those sums. I also make an order that the said sums be set off against the deposit of $92,718.00.

[After hearing submissions]

12. The order for costs I make is as follows:

(1) Costs of and occasioned by the adjournment on 23rd April 1999. The Plaintiff is to have these costs which are to be borne by the Defendant.

(2) The costs of the appeal, in my view, should follow the event. The Defendant is to have the costs of the appeal which are to be borne by the Plaintiff.

(3) As far as the costs made in the court below, the order made by Mr. Registrar Betts was that the costs of this action to be paid by the Defendant to the Plaintiff, such costs to be taxed. I have been referred to certain correspondence marked "without prejudice save as to costs". However, in my view, the "without prejudice" letters are no substitute for a payment into court. The Defendant did not make an effective payment into court. In the circumstances, I do not think I should interfere with the order made in the court below and that order remains, namely, the Defendant do pay the Plaintiff the costs of the action to be taxed.