YU WING KEI v. CHAN TAK KWONG

HCSA 21/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 21 OF 2009

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM NO. 4149 OF 2009)

____________

BETWEEN

____________

_____________

D E C I S I O N

_____________

Introduction

1.  These are two applications brought pursuant to s. 28(1)(a), Small Claims Tribunal Ordinance (Cap. 338):-

“Any party who is aggrieved by a decision of the tribunal ... on any ground involving a question of law alone ... may apply to the Court of First Instance for leave to appeal and the Court of First Instance may grant such leave if it thinks fit” (emphasis supplied).

2.  The applicant in these two applications was the defendant in the two Small Claims Tribunal Claims SCTC 58619/2008 (“Claim 58619”) and 4149/2009 (“Claim 4149”).

3.  The said two claims were (and hence these two applications are) concerned with a tenancy agreement entered into between the claimant (as landlord) and the applicant (as tenant) in February 2008.

4.  In brief, the claimant let a residential unit to the applicant for 2 years from 10 February 2008 to 9 February 2010 both inclusive. According to the tenancy agreement:-

(a)  the monthly rent (payable in advance) was $17,000 (clause 1 and Schedule I);

(b)  the security deposit was $34,000 (clause 7 and Schedule I);

(c)  if the rent was not paid after 7 days from the due date, legal action might be instituted for its recovery (clause 1);

(d)  further, the tenancy might be determined and the security deposit might be “deducted for the amount of expenses payable to the Landlord” if “a breach of any of the terms and conditions” was committed (clause 7).

(For completeness, clauses 1 and 7 are reproduced in the Annex below.)

5.  The claimant alleged that the applicant defaulted in paying the rent from 10 December 2008 to 9 January 2009 (Claim 58619) and from 10 January to 9 February 2009 (Claim 4149). The total sum claimed was $34,000.

6.  The applicant denied liability for the amount and counterclaimed for $7,000 ($34,000 – 27,000). That sum was allegedly the difference between the security deposit and the market rent ($13,500) for the period from 10 December 2008 to 9 February 2009.

7.  The Small Claims Tribunal (“the Tribunal”) in effect made a total award of $34,000 in the claimant’s favour and dismissed the counterclaim.

8.  Two clauses in the tenancy agreement are important to the determination of the claims, and these applications, namely, clause 7 (summarized in para. 4(b) and (d) above) and clause 4 in Schedule II. The last-mentioned clause reads:-

“4.  Break clause 退租權

The Landlord and the Tenant of this Agreement shall have the right to terminate this Agreement on or after the first __ months of the Term by giving to the other party of this Agreement not less than __ month’s written notice of its intention to do so.  (The tenant must complete above tenancy for the first months.  Any advance termination before the fixed __ months should be compensated by the tenant to the total remaining sum of the rent to the Landlord.)

業主及租客有權於首12個月之租期完結時或完結後以壹個月之書面通知，通知對方取消此合約。（租戶在首12個月之租用期內不得退租，否則按照12個月所餘租期之時間計算租金。）”(“the break clause”).

The blanks in the English version of the break clause were not filled in but those in its Chinese version were filled in by hand.

9.  Further, clause 13 of the tenancy agreement provided:-

“If there is any conflict between the English version and the Chinese version in the this [sic] agreement; the English version shall prevail.

中文文本存有差異的，將以英文文本為準。”

10.  At the hearing before the Tribunal:-

(1)  there was no dispute the applicant has not paid the rent claimed in the two claims;

(2)  the applicant asserted he delivered vacant possession of the suit property on 10 February 2009;

(3)  although he was liable for the rents, he argued the security deposit should be applied to off-set the outstanding sums;

(4)  the claims should accordingly be dismissed as frivolous or vexatious.

11.  The Tribunal further recorded in the reasons for decision the claimant also sued the applicant for physical damage caused to the suit property (SCTC 13362/2009 (“Claim 13362”)). After deducting the security deposit, the sum claimed was about $7,900. On the other hand, the applicant has also sued the claimant for the return of the security deposit (this ultimately became the counterclaim in Claim 13362). The Tribunal considered it appropriate for those matters to be resolved therein. With the claimant’s agreement, the sums awarded in Claim 58619 and Claim 4149 were kept by the Tribunal pending the conclusion of Claim 13362.

12.  These applications (and the above claims and counterclaim referred in para. 5 to 7 above) revolve around a notice served by the applicant on 10 December 2008 (after the end of a 10-month period from 10 February 2008) (“the Notice”). The Notice was purportedly served in accordance with clause 18 of the preliminary tenancy agreement and it purported to give 2months’ notice to terminate the tenancy (to take effect on 10 February 2009).

13.  The Tribunal’s reasons for decision also recorded the applicant’s defence as follows:-

(a)  the Notice was valid at law;

(b)  after the Notice was sent, the claimant committed anticipatory breach by informing him one-month’s rent would be deducted from the security deposit if the applicant should move out of the suit property on 10 February 2009 (12 months from 10 February 2008);

(c)  the applicant has accepted the said breach by not paying the rents for 2 months (10 December 2008 to 9 February 2009).

14.  For the purpose of these applications, the applicant’s contentions at para. 13 (especially that at para. 13(a)) above are premised on, first, an ambiguity in the meaning of the break clause, and, consequently, a need to ascertain its true meaning by considering clause 18 of the preliminary tenancy agreement.

15.  A 42-page long written submission has been lodged by the applicant. About 15 pages are spent on the above topic. According to the applicant, clause 18 of the preliminary tenancy agreement (which must have merged with, or was overtaken by, the tenancy agreement) reads:-

“<首年死約，次年生約>雙方同意租客有權於首10個月以後，以不少於兩個月書面通知業主退租。(即租客租賃不少於12個月)”.

16.  There are at least 3 reasons why the preliminary tenancy agreement cannot assist the applicant:-

(1)  despite the applicant’s contention, the language of the break clause is clear and does not create any doubt as regards when he could give the Notice to terminate the tenancy.  That the Chinese version of the break clause was filled in (and the English version was left blank) shows that the parties must have intended the Chinese version to be binding (despite clause 13);

(2)  the terms of clause 18 of the preliminary tenancy agreement are quite different from the break clause.  Considering the two together can only create, instead of remove, ambiguity;

(3)  because the contention was not made in the Tribunal, no evidence has been adduced relating to the circumstances surrounding the preliminary tenancy agreement and the tenancy agreement.

17.  By reason of the mattes aforesaid, I agree with the Tribunal’s conclusion that the Notice was not given in accordance with the terms of the tenancy agreement.

18.  Another 15 pages of the applicant’s written submission are spent on whether he was entitled to accept the claimant’s breach of the tenancy agreement. Because of the conclusion that the notice of termination was legally invalid, the claimant’s threat to deduct the security deposit cannot be regarded as a repudiatory breach.

19.  In fact, leaving aside the validity of the Notice, I doubt if a threat like that can be treated as such a breach. The claimant’s primary obligation under the tenancy agreement was to enable the applicant to enjoy exclusive possession of the suit property. He has not interfered with that possession.

20.  Further, even according to the applicant’s case (viz., the Notice was validly given), the right to the refund of the security deposit did not accrue until 10 February 2009 at the earliest. His purported acceptance of the claimant’s threat not to refund the security deposit (which is not a repudiatory breach) by refusing to pay rent was premature, and possibly itself repudiatory.

21.  The complaint relating to set-off is also misconceived. Set-off is essentially a discretionary remedy (at common law it is a procedural defence; in equity, it is discretionary): Derham: The Law of Set-off (2003) 3^rd Ed., para. 2.33, 2.48, 2.94, 4.13, 4.44; Wood: English & International Set-Off (1989) para. 4-43 to 4-50. As stated above, the Tribunal has decided to resolve that matter in the context of Claim 13362. In view of the language used by clause 7, namely, the security deposit might be:-

“deducted for the amount of expenses payable to the Landlord”

by reason of the tenant’s breach, the Tribunal cannot be faulted for so deciding.

Conclusion

22.  To conclude, this application has no merits and is refused.

Annex

1. The Tenant shall pay the Rent in advance on the 10^th day of each and every calendar month during the Term of Tenancy. If the Tenant shall fail to pay the Rent after 7days from the due date, the Landlord shall have right to institute appropriate action to recover the rent and all costs, expenses and other outgoing so incurred by the Landlord in relation to such action shall be a debt owed by the Tenant to the Landlord and shall be recoverable in full by the Landlord.

租客須在租期內每個月份第十天上期繳付指定的租金，倘租客於應繳租金之日七天後仍未清付該租金，則業主有權採取適當行動追討租客所欠的租金同而由此而引起的一切費用及開支將構成租客所欠業主的債項，業主將有權向租客一併追討所欠款項全數。

7. The Tenant shall pay to the Landlord the Security Deposit set out in the Schedule I for the due observance and performance of the terms and conditions therein contained and on his part to be observed and performed. Provided that there is no antecedent breach of any of the terms and conditions herein contained, the Landlord shall refund the Security Deposit to the Tenant without interest within 15 days from the date of delivery of vacant possession of the Premises to the Landlord or settlement of any outstanding payment owed by the Tenant to the Landlord, whichever is later. If the Tenant shall commit a breach of any of the terms and conditions herein contained, this Agreement shall absolutely determine and the Security Deposit paid under this clause shall be deducted for the amount of expenses payable to the Landlord, and the rights and remedies given to the Landlord by this clause shall not prejudice any other right of auction or any remedy of the Landlord in respect of such breach by the Tenant.

租客須交與業主保証金(金額如附表一所列)作為保証租客遵守及履行此租約上租客所需遵守及履行的條款的按金。若租客在租期內並無干犯此合約內任何條款，則業主須於收回交吉的物業或一切租客欠款後(以較遲者作準)十五天內無息退還該保証金與租客。但若租客違反此合約內任何條款，則此租約立被終止；且業主可有權從保証金扣取租客所有應付而未付之費用。業主扣除保証金的權利將不會影響業主採取任何其他合法行動追討一切因租客違約所引致的損失的權利。