LEE LAN HING v. LEE SUK YEE

DCCJ4816/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4816 OF 2004

J U D G M E N T

1.  The plaintiff claims against the defendant for arrears of rental and damages for the defendant’s early termination of a two-year tenancy under a tenancy agreement dated 15 February 2003.

2.  The premises were let by the plaintiff’s son, Mr Cheung Kam-fai, to the defendant, Miss Lee Suk-yee.  The address of the premises is Room B, Unit 9 on the 17th Floor of Vanta Industrial Centre at 21-23 Tai Lin Pai Road, Kwai Chung, New Territories (hereinafter referred to as “the suit premises”).  The term of the tenancy was for a period of two years from 1 March 2003 to 28 February 2005, at a monthly rental of $8,200.

3.  Mr Cheung’s mother, the plaintiff, passed away in December 2004.  Mr Cheung was joined as a party acting as the personal representative of the deceased plaintiff under the order of Master Ko on 20 April 2005.  Up to now, the date of the trial, the plaintiff failed to amend the writ or the statement of claim to reflect this order.

Mr Cheung as agent of the Plaintiff

4.  It is the evidence of Mr Cheung that he had an authorisation letter from his mother in 2002 to handle the leasing matters of the suit premises.  This authorisation was produced by Mr Cheung as proof.  It is Mr Cheung’s evidence that right from the beginning, when the defendant viewed the suit premises, and when he first met the defendant Miss Lee in January 2003, he had informed her that the owner of the suit premises was his mother.  He claimed that he told Miss Lee he was acting as the attorney of his mother, Lee Lan-hing, when he executed and signed the temporary tenancy agreement on 14 January 2003 and when they later executed the so-called formal tenancy agreement.

5.  I say it is the “so-called formal tenancy agreement” because it is a form that you can obtain at a stationery shop in the main street of Hong Kong in Chinese.  It is not a tenancy agreement drafted by a solicitor, or like the preliminary temporary tenancy agreement drafted by Mr Cheung himself.

6.  It was Mr Cheung’s evidence that he had inserted the word “attorney” in Chinese, “授權人”, on his own copy of the tenancy agreement, which can be seen on pages 53 to 54 of the bundle, and the original copy held by Mr Cheung is exhibited as P1.

7.  However, according to Mr Cheung, he had neglected to do the same at the time of execution on the defendant’s copy of the tenancy agreement, and therefore, when the defendant was given a Xerox copy of the defendant’s copy of the tenancy agreement, the word “授權人” was left uninserted, and the Xerox copy produced by the defendant in the defendant’s bundle on pages 5 and 6 showed the defendant’s copy had no such endorsement.

8.  Mr Cheung then took the two copies of the tenancy agreement for stamping a few days later, after stamping, he gave the defendant’s copy to Miss Lee.  This has been exhibited by the defendant as Exhibit D1.

9.  It was Miss Lee’s evidence that when she received back her own copy she noticed the stamped copy to be different from her own photocopy given to her after the execution of the tenancy agreement, in that the word “attorney” in Chinese, “授權人”, had been inserted in the first line of the agreement and also under the column “Landlord”, next to the name of Mr Cheung at the end of the agreement.  This can be seen from Exhibit D1, above the signature of Mr Cheung.  It is Miss Lee’s evidence that she did not confront or make inquiries from Mr Cheung about this insertion, in spite of her discovery.

10.  It is the plaintiff’s case that Mr Cheung had acted as an attorney or agent of the plaintiff when he executed the tenancy agreement, and that he had informed the defendant of this fact before and during the execution of the tenancy agreement.

11.  So far as Mr Cheung is concerned, because he had a letter of authorisation from his mother he believed he had the plaintiff’s authorisation to enter into the tenancy agreement.

12.  Under these circumstances, and under the law, Mr Cheung plainly was purportedly acting as an agent of the plaintiff when he executed the tenancy agreement.  The authorisation letter may not be a power of attorney in the strict sense.  It is, nevertheless, evidence that Mr Cheung believed he had an authorisation from his mother to handle the leasing matter of the suit premises.

13.  I am, therefore, satisfied that even if Miss Lee had no knowledge of Mr Cheung acting as the agent of the landlord at the time the tenancy agreement was entered into, she accepted the tenancy by not raising the matter with Mr Cheung and not confronting Mr Cheung over the matter as to the insertion of the words “授權人” against Mr Cheung’s name in the returned copy of the tenancy agreement after stamping.

Oral Agreement for Early Termination

14.  The defendant Miss Lee alleged that she had telephoned Mr Cheung in early March 2004 and requested an early termination of the two-year lease due to her financial difficulties.  She asked Mr Cheung to apply the rent deposit as settlement of the rental for March and April 2004,  thereby further releasing her from the tenancy agreement for the balance of the term.  She alleged that Mr Cheung acceded to her request and that Mr Cheung had asked her to put her request in writing, and she duly complied and sent a letter dated 16 March 2004 by post to Mr Cheung.

15.  According to Miss Lee, she again wrote to Mr Cheung on 13 April 2004 and requested Mr Cheung to make arrangements for handing over of possession of the suit premises, informing him that she would be vacating the suit premises on 15 April 2004.  She claimed she sent this letter by fax.  Mr Cheung, however, said he had never received this letter by fax or in the post.  This letter can be seen on page 92 of the bundle and it goes like this:

“致恆暉香港企業張先生，傳真2480 6772，終止宏達1709B室租約事宜，茲通知貴方有關上述單位退租日期，本公司於2004年4月15日遷離上址及同時交還單位所屬鎖匙，請安排與本公司交收事宜，此致張錦輝先生，勵誠貿易有限公司謹啟，2004年4月13日”

whereas the letter of 16 March 2004, posted to Mr Cheung, on page 66 of the bundle goes like this:

“致張先生，fax 2480 6772，有關宏達1709B室租約事宜，茲因本公司財務出現問題，無法承接沉重租金，而本公司打算於4月中遷離上址，對於所有引致不便之處，敬希見諒，請安排與本公司交收事項，此致張錦輝先生，勵誠貿易有限公司謹啟，2004年3月16日”

16.  According to Mr Cheung, he let the premises to Miss Lee.  He had no knowledge of the tenant being a company called Luxer Trading Company Limited - “勵誠貿易有限公司” in Chinese - and since the 16 March 2004 letter was written in the name of “勵誠貿易有限公司” - Luxer Trading Company Limited - he did not regard that letter as being a letter from Miss Lee.

17.  Mr Cheung was cross-examined on the demand notes for rental and utilities issued by him through his company, Hang Fine Hong Kong Enterprises, to the defendant.  The documents in particular can be found on pages 67 and 69 of the bundle, whereby the demand note from Mr Cheung’s Hang Fine Hong Kong Enterprises is addressed for the attention of Miss Lee, described as Luxer Trading Company, Room 1709B, 17th Floor, Vanta Industrial Centre, 21 Tai Lin Pai Road, Kwai Chung, NT.  The same appears on both pages 67 and 69, demanding rental and the previous month’s electricity charges.  These two documents clearly showed that Mr Cheung - or at least Mr Cheung’s office and his accountant - knew the existence of Luxer Trading Company and that Miss Lee worked or traded in this Luxer Trading Company Limited.

18.  It is the defendant’s case that she eventually contacted Mr Cheung over the telephone and she was told by Mr Cheung to hand over possession of the premises by means of handing over the keys to one Mr Eddom Tsang of Centaline Property Agency, who would be able to pick up the keys from her.  She claimed that she was not able to contact Mr Tsang for a number of days and eventually handover only took place on 19 April 2004.  She produced a receipt issued by Mr Tsang, which can be found on page 95 of the bundle, which stated, with a Xerox copy of the keys:

“茲本人Eddom Tsang收到有關宏達工業中心1707B室門匙共八條及已已測試單位內之水塔冷氣已妥當，2004年4月19日”

19.  Mr Cheung, on the other hand, claimed that he had rejected Miss Lee’s proposal and informed her in no uncertain terms that he would not accept an early termination of the lease.  However, Miss Lee told him that she was going ahead anyway.  As he had also been trying to let out the next door unit, he believed that Miss Lee must have contacted Centaline Properties, who were handling the letting of the next-door unit on his behalf, and she had left the keys with someone at Centaline.  He disputed there was no acceptance of the early termination of the lease.

The Surrender

20.  The plaintiff, Mr Cheung, denied that he consented to the early termination.  He claimed in his evidence in court that he received no benefits from consenting to the early termination arrangement proposed.  He further added that in the past he had let properties out as soon as the  tenant vacated the premises and, under those circumstances, if the tenant had left the rental deposit with him unclaimed, he would not take action.

21.  But in the present case, he knew he would not be able to let the suit premises out at the same rent, for the property market in 2004 was poor and he would only be able to let it out at most for $7,200 to $7,300 per month.  He based his opinion on his mother’s next-door unit which had been placed on the market for a few months and had remained unlet and vacant.  There was no reason, therefore, for him to accept the defendant’s early termination and for him to agree to release the defendant from her liability under the tenancy agreement, and he claimed that his acceptance of the keys was reluctant and his re-letting it in August was not out of his choice.

The Law on Surrender

22.  I was referred to Mr Malcolm Merry’s “Hong Kong Tenancy Law” 4th edition, pages 152 to 154, and I quote:

“Express Surrender:  Where the parties mutually wish to end their lease they may do so by express agreement, which will usually be in writing.....”

“Generally, no special form or words are necessary.  The surrender could, for instance, be in a letter.  Being an agreement for the disposition of an interest in land, the surrender document must record all the agreed terms and be signed in order to be enforceable. 

An express oral surrender may be difficult to prove if one of the parties changes his mind and refuses to concede that he agreed to the surrender and the oral surrender for value evidence in writing or supported by a sufficient act of part performance would be regarded in equity as a contract to surrender enforceable by specific performance.”

Surrender by Operation of Law:  This occurs where the parties act in an unequivocal way which is inconsistent with the continuation of the tenancy and therefore implies that the tenancy has been surrendered.  Since this type of surrender covers many circumstances, it is best illustrated by examples. 

The simplest example is where the tenant gives up possession of the premises and the landlord accepts this - for instance by accepting the keys from the tenant and re-letting.  A unilateral abandonment is not enough.  This is illustrated by World Reality v Kwan Ngar Yin [1986] HKCFI 317, where the tenant of a shop, exasperated that the air-conditioning supplied by her landlord continually emitted foul air, abandoned the premises and left the keys on the table outside the caretaker’s office.  This was interpreted by the judge as an offer to surrender, holding that the landlord had accepted the offer by not returning the keys to the tenant, not asking her for rent arrears and not making any entry in its rent records after the date of the offer.  The Court of Appeal, however, found that these acts were not sufficient to constitute an unequivocal acceptance, especially since the landlord had written to the tenant before she moved out stating that the surrender would not be accepted.  What was required for an acceptance was something more certain, such as the landlord’s attempting to re-let the premises or removing the tenant’s name from the premises.”

23.  The author went on to say at the end of page 153, the last paragraph, and I quote:

“There is, however, no surrender where there is no consent by the landlord to the tenant’s delivery of possession, though  that consent may be implied subsequent to the delivery up, (e.g. where the landlord re-lets the premises), it is not implied where the landlord’s actions were equivocal or made without knowledge.  Consent is not shown, for instance, if the tenant merely gives the keys to the landlord’s employee without informing the landlord.  Even where the landlord accepts the keys, that alone cannot prove consent since the situation is forced upon him: until he re-lets the premises, the surrender is not complete.  It has been held that there is no surrender even where the landlord attempts unsuccessfully to re-let; where he enters to carry out repairs, where he changes the locks; and where he occasionally uses the premises himself.  Each of those actions, however, may complete the surrender if done with the intention that possession shall be transferred.  The landlord may change locks, for instance, to keep the premises secure (in which case there is no surrender) or he may change them to keep the tenant out (in which case there is a surrender). 

Although a landlord’s actions may not go so far as to indicate unconditional consent to the tenant’s abandonment of the premises so as to consummate the surrender, his actions may amount to an acceptance of the tenant’s repudiation of the lease.  If so, the landlord is entitled to damages for the breach, which will almost inevitably include some lost rent.  He must, however, litigate his loss by trying to find a substitute tenant.”

Findings

24.  Based on the aforesaid authority, under the law, the plaintiff, or Mr Cheung in the present action, did not indicate his consent by a consent to the early termination and acceptance of the surrender in writing.  Neither can it be said that the oral surrender was for value and supported by a sufficient act of part performance such as positive acts of keeping the tenant out.

25.  Consequently, on the balance of probabilities, the landlord cannot be said to have accepted the surrender until the day the landlord re-let the premises in late August to a new tenant.  It might have been different had the defendant been able to adduce further evidence, such as from Mr Eddom Tsang, as to whether he was authorised by Mr Cheung to accept the surrender of the lease by Miss Lee.  Of course, it depends on what Mr Tsang would say in his evidence, even if he was called.

26.  It follows, therefore, that the defendant must be liable to the landlord for rent until the landlord accepted the surrender in late August, when the suit premises was re-let to a new tenant, and thereafter damages for the defendant’s breach of contract.

27.  The arrears of rental amount to $51,118 - that is, between 1 March 1004 to 31 August 2004, at $49,200 - and from 1 September to 7 September 2004, the sum of $1,9118.  In total, $51,118.  The rent-free period for the new tenant from 25 August 2004 to 7 September 2004 would not be a rent-free period had the defendant not terminated the tenancy prematurely.  As to the difference in rental after 8 September 2004, the defendant adduced no evidence on the open market rental of the suit premises in 2004 September.  There being no other evidence to contradict the evidence of the plaintiff, I find I have to accept the plaintiff’s evidence of the difference in rental of $1,200 per month as damages suffered by the plaintiff due to the breach of contract by the defendant. 

28.  I find further for the plaintiff that the $6,920 claimed under this head is the proper sum to be compensated.  I further give credit for the rent deposit of $16,400, because the defendant had paid up all the utility expenses and the sum of arrears of rental and the difference in rental as damages amounted to a total sum of $41,638.

29.  I further give interest from the date of writ to the date of judgment on the sum of $41,638, at half judgment rate and thereafter at judgment rate.

Costs

30.  There has been an argument from defence  counsel, Mr Lau, that the plaintiff was able only to recover $41,000-odd, which is below the District Court jurisdiction.  It was submitted that the matter should have been brought in the Small Claims Tribunal and therefore Small Claims Tribunal costs should apply.  On the other hand, the original claim of the plaintiff was, in total, $58,000-odd.  The plaintiff would not have been able to go to the Small Claims Tribunal unless the plaintiff waived the sum of $8,000-odd, and there is no reason for the plaintiff to waive any sum above $50,000 just to go to the Small Claims Tribunal.

31.  Although it is argued by the defendant that credit should be given for the rent deposit, however, it is not incumbent on the plaintiff to take into account that credit should be given for the $16,400 rent deposit before he took out an action against the defendant.

32.  It is for this reason I award costs to the plaintiff on the District Court scale, to be taxed if not agreed.