SASAKI AKEMI v. TANG HON TSAI

DCCJ3549/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3549 OF 2005

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Judgment

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1.  This is a claim for return of rental deposit by the Plaintiff (tenant) from the Defendant (landlord) after the Plaintiff removed from the demised Premises on 7 July 2005.

Undisputed Background

2.  At all material times, the Defendant was the owner of Flat A3, 4^th Floor, Block A and a car park of Wisdom Court, 5 Hatton Road, Hong Kong (“the Premises”).

3.  On 2 June 2003, the Plaintiff and the Defendant renewed a tenancy agreement (“the Tenancy Agreement”) whereby the Premises were let to the Plaintiff as tenant for domestic use at the rent of $30,000 per month, payable on 1^st day of each month, for a term of 2 years.

4.  The Tenancy Agreement contained, inter alia, the following relevant terms:-

4.1 the Plaintiff has a right to terminate the Tenancy after the first 12 months by giving 2 months’ written notice to the Defendant (Schedule 1);

4.2 the Plaintiff has to pay a rental deposit of HK$60,000.00 to the Defendant (“the Rental Deposit”) upon the execution of the Tenancy Agreement; and

4.3 the Defendant is obliged to return the Rental Deposit to the Plaintiff not later than 15 days after the Plaintiff has duly delivered vacant possession of the Premises to the Defendant at the expiration or sooner determination of the Tenancy Agreement.

5.  The Plaintiff has duly paid the rental deposit of $60,000 to the Defendant.

6.  At the commencement of the Tenancy Agreement, the Landlord and Tenant (Consolidation) Ordinance (the Old Ordinance) was in force.  The tenancy did not end upon its expiry unless it was terminated under the provisions of the Old Ordinance, i.e. by the landlord serving Form CR101 not more than 4 months nor less than 3 months before the date of termination, or by the tenant by serving Form CR102 1 month before the date of termination.

7.  On 9 July 2004, the Landlord & Tenant (Consolidation) (Amendment) Ordinance (“the New Ordinance”) came into force.  In essence, and insofar it is relevant to this case, the landlord must serve a Transitional Termination Notice (“TTN”) after the expiry of the fixed term tenancy giving the tenant 12 months notice to quit, whereas the tenant must serve a TTN giving the landlord 1 month notice to quit [section 6 (2)].

8.  Unless a TTN is served as aforesaid, the tenancy will continue on all existing terms [section 5 (7)].

9.  The requirement of TTN, however, does not apply if the landlord and tenant agreed on some other period for notice of termination on or after 9 July 2004 [section 5 (4)(a)] and the said requirement of TTN is without prejudice to any right of surrender or early determination conferred on the landlord or tenant by the tenancy agreement [section 5 (5)].

10.  On 6 May 2005, the Plaintiff sent by registered post a notice (“the Termination Notice”) to the Defendant to end the tenancy on 7 July 2005.  The Termination Notice states:-

“I would like to inform you that I move out from Wisdom Court A3 4/F, with 2 months advance notice from now.  Which is 7 July 2005. I would like to return you the keys on the day.”

11.  On 7 May 2005, the Defendant received the Termination Notice.

12.  On 7 July 2005, vacant possession of the Premises was delivered by the Plaintiff to and accepted by the Defendant.  However the Defendant, purporting to deduct $37,000.00 from the rental deposit (i.e. $60,000.00), refused to return to the Plaintiff the full rental deposit.

The Dispute

13.  The Plaintiff agrees that she needs to pay the rent for 1 July 2005 to 7 July 2005 i.e. 7/31 x $30,000 = $6,774.20.

14.  The Plaintiff claims for the return of the deposit i.e. $60,000 - $6,774.20 = $53,225.80.

15.  The Defendant argues that the Plaintiff overstayed after 30 June 2005 and had not served a 1 month TTN to the Plaintiff under the New Ordinance.  He is entitled to deduct $30,000.00 (being 1 month’s rent in lieu of TTN), and $7,000.000 (being 7 days’ rent) from the rental deposit and to return $23,000.00 only to the Plaintiff.

The Plaintiff’s Case

16.  The Plaintiff is a Japanese lady.  She can speak some English and has communicated with the Defendant in English.

17.  The Plaintiff says she first rented the Premises on or about 28 July 2001.  She renewed the Tenancy Agreement on 2 June 2003 for another 2 years.

18.  In her mind, she believed that she was entitled to give a 2 months’ notice to the Defendant to terminate the Tenancy Agreement.

19.  When she sent the Termination Notice on 6 May 2005, she mistakenly believed that the Tenancy Agreement was expiring on 31 July 2005.

20.  After posting the Termination Notice, she did not receive any reply from the Defendant.  On or about 13 May 2005, she phoned up the Defendant in order to confirm whether the Defendant had received it.  However she could not get him on the phone.  She therefore left a message in the Defendant’s voice box and asked him to return call.  The Defendant returned call on the same day.

21.  During the telephone conversation, the Plaintiff asked the Defendant whether he had received her Termination Notice and asked whether he agreed to it.  The Defendant replied that “it is OK”.  It was the Plaintiff’s understanding that the Defendant had agreed that she could terminate the Tenancy Agreement on 7 July 2005 and to return the keys of the Premises to him on that day (“the Verbal Agreement”).

22.  Relying on the Verbal Agreement, the Plaintiff started to look for a new flat, and eventually signed up another tenancy agreement for another flat.

23.  She moved out from the Premises on 27 June 2005.

24.  On 28 June 2005, the Plaintiff left a message in the Defendant’s voice box and the Defendant called her back.  She said she could return keys of the Premises at the end of June.  However the Defendant did not want to accept the Premises earlier.  He confirmed that the keys should be returned to him on 7 July 2005.

25.  On about 5 July 2005, the Plaintiff, failing to get the Defendant on the phone, left a message in the Defendant’s voice box and the Defendant called her back.  They arranged to meet at the Premises on 7 July 2005 for delivery of possession of the Premises.

26.  On 7 July 2005, the Plaintiff and the Defendant met at the Premises.  The Defendant was satisfied with the condition of the Premises and accepted the keys from the Defendant.

27.  The Defendant then handed a letter to the Plaintiff.  The letter stated that the Defendant was deducting $37,000 being 1 month and 7 days’ rent from the rental deposit.  He handed to her a cheque for $23,000, which the Defendant refused to accept.  The Defendant asked the Plaintiff for the reason.  The Defendant said it was because of the new law and gave her a government leaflet explaining the New Ordinance.  The Plaintiff refused to sign on the letter nor to take the cheque.

28.  The Plaintiff says she did not know about the change in the tenancy law.

The Defendant’s Case

29.  The Defendant says on 7 May 2005, he received the Plaintiff’s Termination Notice.  He found that it was not a notice of early termination because the termination date went beyond the expiry date of the Tenancy Agreement.  Hence he regarded it as invalid and bad notice but he was uncertain as to his position under the New Ordinance.  He therefore just waited to see what the Plaintiff would do as she had previously changed her mind after giving notice.

30.  In the latter part of June 2005, he managed to obtain a copy of the New Ordinance.  He consulted his solicitor, Mr. Ip who also represents the Defendant in this action, and was given legal advice that the Termination Notice given by the Plaintiff was not a valid notice.  He was also given the same advice by the Valuation & Rating Department.

31.  However, he did not inform the Plaintiff that her Termination Notice was an invalid one.

32.  On 3 July 2005, the Plaintiff left a message on his answering service.  He returned the Plaintiff’s earlier call.  During the conversation, they agreed to hand over the keys of the Premises on 7 July 2005.

33.  In early 2005, the Defendant says, he had been receiving nuisance telephone calls quite often.  He started to use a recording machine to record telephone calls from callers to his residential line.  He had recorded the conversation with the Plaintiff and he produced a transcript summary of the telephone conversation with the Plaintiff on 3 July 2005 (Agreed Bundle of Documents P. 041).

34.  By 6 July 2005, the Plaintiff had not yet vacated the Premises.

35.  On 7 July 2005, as requested by the Plaintiff, the Defendant went to the Premises and met the Plaintiff there.  After he received the keys of the Premises from the Plaintiff, he told the Plaintiff for the first time that her Termination Notice was a bad one.  He said he would accept the keys and possession of the Premises subject to his right to charge her 7 days’ rent and one month’s rent in lieu of a valid notice.  However the Defendant refused to accept the suggestion.

36.  The Defendant also secretly used a recorder to record the meeting on 7 July 2005 without knowledge of the Plaintiff.  A summary of the conversation is produced at Agreed Bundle of Documents P. 046.

37.  The Defendant denies there was any telephone conversation with the Plaintiff on 13 May 2005 and 28 June 2005.  He also denies that he gave any cheque to the Plaintiff on 7 July 2005.

38.  Under cross-examination, the Defendant says he did not tell the Plaintiff that her Termination Notice was a bad one.  He did not want to alert her because if she continued to pay the rent after 1 July 2005, she would become a protected tenant.

Issues

39.  There are 2 issues in this case:-

(i) The legal issue

Whether the Plaintiff’s Termination Notice dated 6 May 2005 was a valid notice to terminate the Tenancy Agreement on 7 July 2005, notwithstanding that the Termination Notice expired outside the 2-year term expiring on 30 June 2005?

(ii) The factual issue

Whether there was a verbal agreement to terminate the lease on 7 July 2005?

The Plaintiff’s Argument

40.  Mr. Wong, Solicitor for the Plaintiff, argues that the Plaintiff had the right to terminate the tenancy by giving 2 months’ notice under the First Schedule of the Tenancy Agreement.

41.  In any event, even if the Termination Notice is not a valid notice, the requirement of a TTN ceases to apply if, on or after 9 July 2004, the parties agree to some other period for notice of termination.  The Termination Notice given by the Plaintiff, further supported by the parties’ verbal agreement on the termination date, was valid to terminate the tenancy on 7 July 2005.

The Defendant’s Argument

42.  Mr. Ip, solicitor for the Defendant, argues that the Termination Notice was not a valid notice of early termination under the First Schedule of the Tenancy Agreement because the date of termination fell after the contractual expiry date.  At the expiry of the Tenancy Agreement, the Plaintiff’s tenancy continued to be a monthly tenancy under the New Ordinance.

43.  Further, under the New Ordinance, the Plaintiff’s tenancy may only be terminated by a TNN, which can only be given by the tenant not less than 1 month before the day on which it is to take effect, and it may not be served earlier than the last day of the term (i.e. 30 June 2005).

44.  In the absence of a valid TTN in this case, the Plaintiff has to give 1 month’s rent in lieu of notice on 7 July 2005.

45.  I would agree with the legal argument of Mr. Ip.

The Termination Notice is invalid

46.   In my judgment, the First Schedule of the Tenancy Agreement is only a “break clause”, giving the Plaintiff the right of early termination of the tenancy before the contractual expiry date.  The right may be exercised after the first year of the 2-year term by giving 2 months’ notice to take effect on a day within the 2-year term and before the contractual date of expiry on 30 June 2005.

47.  The Plaintiff’s Termination Notice to take effect on 7 July 2005 is therefore an invalid exercise of her right of early termination of the 2-year tenancy agreement.

The Verbal Agreement

48.  Without a valid notice of termination, the tenancy would have continued to be a monthly tenancy on the same terms of the original tenancy agreement under the New Ordinance.

49.  Pursuant to S. 5(2) of the New Ordinance, the Plaintiff’s tenancy, which was for a 2-year term under the Tenancy Agreement, may only be terminated by a TTN as provided for by S. 6.

50.  S. 5 (4) states that the requirement in S. 5 (2) for a TTN and any such notice that has been issued in respect of a tenancy ceases to apply if, on or after the commencement date, the parties to the tenancy agree to some other period for notice of termination.  A verbal agreement is, in my judgment, sufficient for the purpose of this section.

Evaluation of evidence

51.  The factual dispute between the Plaintiff and the Defendant is simple – whether there was a verbal agreement.  The Plaintiff says as she did not receive any response from the Defendant, she called the Defendant on 13 May 2005 to confirm whether the Defendant had received the Termination Notice.  When the Defendant returned a call to her, the Plaintiff asked the Defendant whether he had received the Termination Notice.   The Defendant confirmed receipt of it and said “it is O.K.”  Relying on this agreement, the Plaintiff looked for a new flat and signed a new tenancy agreement for another flat.

52.  On the 28 June 2005 telephone conversation, the Defendant confirmed again to hand over the keys on 7 July 2005.

53.  The Defendant simply says there was no telephone conversation between them on 13 May 2005 or 28 June 2005.

54.  I find that the Defendant’s version is incredible.

55.  The Plaintiff was looking for a new flat.  Her intention to quit the tenancy with the Defendant was very clear.  At that time, she thought she needed to give a 2-month notice to validly terminate the lease.  To avoid the risk of paying rent for two places, she called the Defendant to confirm that he did receive the Termination Notice.  This is in my view entirely reasonable for a prudent tenant in order to avoid paying double rent.  When the issue about the Termination Notice was raised, it is simply natural and reasonable that she would ask the Defendant whether the termination date was acceptable to the Defendant.

56.  On the other hand, the Defendant agreed that he had never raised objection to the proposed termination date.  His case is that there was no contact between each other in June 2005. 

57.  In my judgment it is highly unlikely that after the Defendant received a notice terminating the lease after the contractual expiry date that he did not try to contact the Plaintiff to confirm and clarify her position before the contractual expiry date.

58.  Mr Ip has suggested that the Plaintiff’s version of the Verbal Agreement is not supported by any evidence in writing and she did not refer to the verbal agreement in any later conversations with the Defendant.

59.  Mr Ip also criticised that the Plaintiff was not clear about the date of the telephone conversation purportedly taking place on 5 July 2005.

60.  In my view, these criticisms are unsustainable.  The Plaintiff was in the belief that the Termination Notice was a valid one, which was further confirmed by the Defendant’s verbal agreement.  There being no indication from the Defendant that there might be a legal dispute and that she should protect her position, it is only reasonable that she did not apply her mind to make or keep evidence to prove the agreement.  Therefore the fact that she did not make any note or writing of the verbal agreement or to refer to it in the conversations with the Defendant is nothing suspicious.

61.  Conversely on the part of the Defendant, he discreetly used a recorder to record his conversations with the Plaintiff.  Obviously he was doing this to achieve some purposes.  Ironically, there was no denial of an agreement to end the lease on 7 July 2005.

62.  The fact that she could not be sure whether the conversation on 5 July 2005 was in fact on that day or 3 July 2005 is in my judgment neither here nor there.

63.  The dispute as to whether the Defendant gave the Plaintiff a cheque for $23,000 is also immaterial.

64.  I find the evidence of the Plaintiff reasonable and credible.  I accept her evidence in its entirely as the facts of the case.

65.  Mr Ip further submits that even accepting the evidence of the Plaintiff, the Defendant was not “ad idem” with the Plaintiff.  I cannot accept this argument.  On the evidence of the Plaintiff, there was clearly an agreement for “some other period” for notice of termination under s.5(4)(a) of the New Ordinance.  The requirement for the TTN therefore became inapplicable.

Conclusion

66.  With my finding of fact that there was a verbal agreement between the parties to terminate the lease on 7 July 2005, the Defendant was not entitled to deduct from the rental deposit one month’s rent in lieu of notice.

67.  The Plaintiff agrees to pay rent for the period from 1 July to 7 July 2005.  The dispute of the parties is the rate to calculate it.  In my judgment, it should be 30,000 ÷ 31 (no. of days in July 2005) x 7 days = $6,774.20.

68.  I therefore enter judgment for the Plaintiff in the amount of $53,225.80, with interest at judgment rate from date of writ of this action.

Costs

69.  Costs should follow the event.  I make order nisi that the Defendant do pay costs of the action to the Plaintiff, to be taxed if not agreed.