AU KIN FAN v. WONG BIK HAR

HCMP 104 /2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 104 OF 2011

(ON AN INTENDED APPEAL FROM DCCJ NO. 3929 OF 2008)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Hartmann JA (giving the Reasons for Judgment of the Court):

Introduction

1.  In June 2006, the plaintiff, as the landlord, and the defendant, as the tenant, entered into an agreement to lease an apartment in a block of flats in Shatin for a period of two years.

2.  The apartment contained certain fittings, more particularly a gas stove in the kitchen and an air conditioner in the main bedroom. The tenancy agreement stipulated that no part of the rental to be paid covered these fittings but that, in the event of damage or breakage, the parties would negotiate as to how best to deal with the problem.

3.  In June 2007, a year into the lease, the defendant gave notice to the plaintiff of her intention to terminate the lease at the end of that current month. The reason given was the landlord’s apparent refusal to discuss necessary repairs to the gas stove and the air conditioner. A few days after giving the notice the defendant vacated the property.

4.  The plaintiff replied to the effect that the termination of the lease by the defendant amounted to a wrongful repudiation. He said that at an earlier meeting the defendant and her husband had made clear that they no longer wished to continue with the lease and that was their true reason for terminating it not any substantive issue as to the malfunctioning of the gas stove or the air conditioner.

5.  In the result, although the plaintiff put the property into the hands of several reputable estate agents for the purposes of finding a new tenant, he was only able to lease it to a third party some 10 months later.

6.  In a judgment dated 6 December 2010, District Judge Simon Leung found for the plaintiff, awarding him damages in the sum of $137,829.50 with interest. The greatest portion of that sum was made up of lost rental for the 10 month period when the property had remained empty.

7.  The judge found that the defendant had failed to demonstrate that there was any damage to either the gas stove or the air conditioner of sufficient substance to warrant her action in terminating the lease. He concluded that it was the defendant who wrongfully repudiated the lease agreement by seeking to terminate it early.

8.  In a decision dated 14 January 2011, the judge refused the defendant leave to appeal. The defendant renewed her application before a single judge of this Court. In a judgment dated 25 February 2011, that judge, Yeung JA, dismissed the application.

9.  In the result, the defendant renewed her application for leave to appeal before us. Having heard submissions, we dismissed the application with costs, saying that we would give our reasons later. We do so now.

The grounds of appeal

10.  Before us, Mr. Paul Leung, for the defendant, advanced two grounds of appeal.

11.  First, it was submitted that the judge had erred in rejecting the defendant's evidence that the gas stove had been malfunctioning to the extent that it constituted a danger to the occupants of the apartment.

12.  Second, it was submitted that the judge had erred in failing to hold that the plaintiff had failed to mitigate his loss of rental and associated income. It was submitted that the plaintiff’s failure to mitigate lay in the fact that, having placed the apartment in the hands of three albeit reputable estate agents, he had then effectively priced himself out of the market by demanding too high a rental.

The issue of the gas store

13.  Concerning the gas stove, it was initially pleaded on behalf of the defendant that both the manufacturer of the stove and the supplier of gas had inspected the stove, reporting that it could not be repaired and had to be replaced. The defendant, however, had no written report from either company. When approached, both the manufacturer of the stove and the supplier of gas denied that they had inspected the stove or made any such report.

14.  Thereafter the defendant amended her pleadings to say that it was some other repairmen who had inspected the stove, advising her that the spare parts to repair the stove were no longer available.  There was no report from these persons either.

15.  When the defendant testified, she changed her evidence again, saying that it was a technician from the housing estate who had inspected the stove and advised her that it was malfunctioning. Again, no report was produced into evidence.

16.  It is understandable that the judge was unimpressed with the defendant’s evidence as to the state of the gas stove, more especially when it was put to the plaintiff in cross-examination that only one head on the stove had leaked gas while the defendant, when she testified, asserted that all four heads had done so.

17.  It was the plaintiff’s testimony that, when he retook possession of the apartment, he discovered that the only fault to the gas stove was the erratic working of the igniter which meant that the stove had to be ignited manually. There was no gas leakage. He advised the defendant of this in a letter dated 3 July 2007, that being just a few days after she had vacated the apartment. There appears to have been no response at that time. As it was, the stove was then repaired by replacing the igniter at a cost of $400.

18.  In July 2010, the defendant's legal representatives suggested that the gas stove should be subject to inspection. This was some three years after the defendant had vacated the apartment and after a new tenant had been using the unit for some two years. Understandably, the judge found that an inspection in such circumstances would serve no purpose

19.  It was Mr. Leung’s submission that, in rejecting the defendant's evidence, describing it as ‘unreliable’, the judge had failed to consider the inherent probabilities and improbabilities of the evidence. Inherent in his submission was the question: why would the defendant wish to incorrectly describe the nature and extent of the malfunctioning of the gas stove? This ignores the fact that it was always the plaintiff's case that the true reason why the defendant vacated the apartment was because both she and husband wished to terminate the lease early, the alleged malfunctioning of the air conditioner and the gas stove being the pretence by which they sought to do so without financial loss. It also ignores the fact that the burden lay on the defendant, she being the one who had terminated the lease, to demonstrate on the balance of probabilities that the gas stove was malfunctioning in such a way as to cause a danger. This manifestly she failed to do. If the gas stove had presented a danger it would have been a simple enough matter to have obtained a written report and to have presented that report to the plaintiff. Nothing of that kind was done.

20.  In light of the evidence before him, the findings of the judge concerning the gas stove could not be criticised. 

The alleged failure to mitigate

21.  Mr. Leung’s second ground of appeal asserted that the judge had failed to recognise that there had been a failure on the part of the plaintiff to mitigate his damages by ensuring that, when he placed the apartment in the hands of estate agents, he instructed them to seek a reasonable rental rather than demanding, as he did, an unrealistically high rental. It was Mr. Leung’s submission that, if he had sought a reasonable rental rather than an artificially elevated rental, the plaintiff could have re-let the premises within three months, avoiding the loss of a further seven months rental.

22.  The judge was aware of the standard placed on the plaintiff to act reasonably in mitigating his damages, acknowledging that he was under no obligation to do anything other than in the ordinary course of business. He was satisfied on the evidence that the plaintiff had duly discharged the burden placed on him. In this regard, he said:

“Ms. Ng [defendant’s counsel] questioned the asking rental of $20,000 for re-letting the property which was higher than the rent the defendant paid under the tenancy agreement. This, in my view, is not per se unreasonable. Au [the plaintiff] explained that the asking amount was negotiable. The fact was that the property was successfully re-let at $18,500 (all inclusive) which was $3500 higher than the rental due under the tenancy agreement.”

23.  It is implicit that, in making the asking rental negotiable, the plaintiff was prepared to consider lower offers, perhaps significantly so if the right tenant presented himself. This is a common and acceptable practice in Hong Kong as it is in many other jurisdictions; in short, it is a tactic often employed in the ordinary course of business, one that indicates a willingness to be flexible.

24.  As to the submission made by defendant's counsel that three months would have been a reasonable time in which to locate a tenant for the premises, the judge recorded the fact that he was being asked to make this finding even though counsel had failed to provide relevant evidence to support her submission: evidence, that is, of the actual market situation at the relevant time.

25.  In the circumstances, we do not see how it could be said that the judge was plainly wrong in coming to a finding of fact that the plaintiff had taken reasonable steps to mitigate his damages.

Conclusion

26.  For the reasons given, we had no doubt that the defendant had fallen well short of demonstrating an arguable case that carried with it a reasonable prospect of success.  For that reason the application for leave to appeal was dismissed.