Mr. Cody Linton Cain v. Smart Century Industrial Ltd.

DCCJ12221/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 12221 OF 2001

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JUDGMENT

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1. By a tenancy agreement dated 7 October 1999 (the tenancy agreement), the Defendant as the landlord agreed to lease to the Gray Peak Technologies HK Ltd. as the tenant (the tenant) premises at the House No. 13 Headland Drive, Headland Village, Discovery Bay, Lantau Island (the premises).

2. The tenancy was for a period of 2 years from 8 October 1999 to 7 October 2001, at the rent of $55,000 per month, inclusive of management fee, government rent and rates.

3. The Plaintiff signed the tenancy agreement on behalf of the tenant Gray Peak Technologies HK Ltd. Under the terms of the tenancy agreement, the tenant was required to pay a deposit of $110,000. The Plaintiff issued a cheque, drawn on the Plaintiff's own bank account, in the sum of $110,000, in favour of the Defendant for the deposit.

4. The tenancy agreement contained a break clause, whereby after the first twelve months of the tenancy, the tenant could be released from the tenancy agreement, by giving the Defendant two months notice of termination, or two months rent in lieu of notice.

5. The parties are not in dispute on these facts. They are found as facts of the case.

6. On 19 March 2001, the Plaintiff gave written notice of termination to Defendant.

7. On 21 May 2001, the Plaintiff delivered vacant possession to Defendant.

8. The Plaintiff admitted that rent of $16,774, for 13 days from 9 May 2001 to 21 May 2001 was outstanding, and did not dispute electricity charges at $3,089.

The Plaintiff's Claim

9. The Plaintiff claimed for the refund of the balance of the deposit, and expenses paid for purchase and maintenance of household appliances at $2,800, at a total of $96,026.

The Defendant's Counterclaim

10. The Defendant counterclaimed an amount of $115,089.

11. The amount comprised arrears of rent at $112,000 and unpaid electricity charges at $3,089.

The Plaintiff's Case

12. The Plaintiff's case was that at the time of the signing of the tenancy agreement, the Plaintiff was an employee of Gray Peak Technologies HK Ltd. Because the Defendant would only agree to lease the premises to a company, and not a private person, the Plaintiff sought Gray Peak Technologies HK Ltd.'s agreement for Gray Peak Technologies HK Ltd. to be the nominal tenant, on condition that the Plaintiff should pay the deposit out of the Plaintiff's own funds.

13. The Plaintiff paid the deposit using his personal cheque.

14. The Plaintiff later requested the Defendant to transfer the lease to the Plaintiff's name, but the Defendant declined to do so. The Plaintiff continued in occupation.

15. In November 2000, the Plaintiff gave verbal notice of termination to the Defendant, as the Plaintiff had found alternative accommodation at a lower rent of $40,000 per month.

16. The Defendant offered to reduce the rent to meet that sum, the Plaintiff decided to remain in occupation and accepted the offer. The Plaintiff paid rent of $40,000 thereafter, until March 2001.

17. In March 2001, when the Defendant's representative complained to the Plaintiff about the Defendant's representative's financial situation, the Plaintiff decided to make an one-off additional payment of $5,000. On 19 March 2001, the Plaintiff gave written notice of termination to the Defendant.

18. In April 2000, the Plaintiff continued to pay $40,000 under the verbal variation of the terms.

19. The Plaintiff asked the Defendant to refund the deposit, after rent for May was deducted. The Defendant refused to pay the Plaintiff, as the Plaintiff was not the tenant.

20. A letter, directing that the refund be made to the Plaintiff, was issued to the Defendant, from March First Corporation (March First). This was the name of the company which had acquired Gray Peak Technologies HK Ltd. The letter was signed by the Plaintiff's second witness (PW2), who was then an officer of March First Corporation.

21. Letters of demands were also issued by the Plaintiff's solicitors and the Plaintiff himself.

22. The Defendant did not make any refund to the Plaintiff.

23. The Plaintiff took out the present action for the balance of the refund.

24. In January 2000, the Plaintiff paid $1,500 for a second hand washing machine to replace the one supplied by the Defendant, which had broken down. In April 2001, the Plaintiff paid $1,300 for maintenance of the air-conditioning. The payments were made on the Defendant's behalf, and with the Defendant's representative's agreement to reimburse the Plaintiff.

25. The Plaintiff demanded the sum of $2,800 for these items.

The Defendant's Case

26. The Defendant entered into the tenancy agreement with Gray Peak Technologies HK Ltd., a limited company. The Plaintiff was an employee of Gray Peak Technologies HK Ltd. at the time of the signing of the tenancy agreement, the Plaintiff signed on Gray Peak Technologies HK Ltd.'s behalf. The tenancy was between the Defendant and Gray Peak Technologies HK Ltd.

27. The deposit was paid under the terms of the tenancy agreement. It was paid on behalf of Gray Peak Technologies HK Ltd., the tenant.

28. The Defendant was not satisfied that the Plaintiff was entitled to demand refund of the deposit. The Plaintiff was merely the occupier allowed into occupation by the tenant, and had no standing as a tenant under the tenancy agreement.

29. Five months into the tenancy, cheques for the monthly rent were no longer issued by Gray Peak Technologies HK Ltd., but by the Plaintiff in his personal capacity.

30. The Defendant's representative was concerned, especially when the Plaintiff asked for the lease to be transferred to the Plaintiff's name.

31. The Defendant's representative refused, as it was the Defendant's policy only to lease out to limited companies as tenants. The Defendant's representative was told that Gray Peak Technologies HK Ltd. was no longer in existence.

32. The Defendant's representative considered that Gray Peak Technologies HK Ltd. was in breach of the tenancy agreement, since Gray Peak Technologies HK Ltd. no longer issued the cheques for rent, and the Plaintiff had asked for a transfer to the Plaintiff's name.

33. The Defendant's representative then considered that, since the Plaintiff was personally paying the rent, and the Plaintiff was in occupation, the Defendant's representative would allow the Plaintiff to remain on a temporary month to month, oral tenancy. The Plaintiff paid the full rent until November 2000.

34. Because of changes in the Plaintiff's circumstances, the Defendant's representative agreed to hold back demand for part of the rent for the time being, accepting $40,000 per month. The amount so held back should be repaid by the Plaintiff in due course.

35. Pursuant to the new arrangement, the Plaintiff paid $40,000 per month in December 2000, and for January and February 2001. In March 2001, the Plaintiff paid a total of $45,000.

36. However, the Plaintiff gave notice to terminate on 19 March 2001. The Plaintiff only paid $40,000 for April and made no payment thereafter.

37. With the amount held over, and the unpaid rent for the period of May when the Plaintiff was in occupation, the Plaintiff should pay the Defendant the sum of $112,000.

38. There was also an electricity bill for $3,089, which the Plaintiff had not paid. The total outstanding was therefore $115,089.

Decision

The Claim

39. The fact that the Plaintiff issued a personal cheque for payment of the deposit, which the Plaintiff signed on behalf of Gray Peak Technologies HK Ltd. the tenant, did not confer on the Plaintiff the right to demand a refund of the deposit.

40. The payment was made under the tenancy agreement, on behalf of the tenant. Any refund would have to be made to the tenant.

41. The Plaintiff alleged that the tenant Gray Peak Technologies HK Ltd. had merged with another company, and was known as March First Corporation. The Plaintiff referred to press releases of the New York Times and Form 10K, returns filed with the Securities and Exchange Commission USA, to establish this.

42. The Plaintiff relied on the evidence of PW2, who was said to be the vice president and Chief Financial Officer of March First Corporation before the company was wound up.

43. PW2's evidence was that March First Corporation was aware that the Plaintiff paid the deposit out of his own funds, and that he was prepared to direct the Defendant to refund the deposit to the Defendant. PW2's evidence was that the company was wound up. PW2 was unable to produce any evidence in support of the alleged authorization from the tenant, that the deposit should be paid to the Plaintiff.

44. The tenant was, at the time of the signing of the tenancy agreement, a limited company registered in Hong Kong. None of the documents one would expect to see, relating to change of name, resolutions of the board of directors, appointment of receivers etc. were available.

45. PW2's evidence was that the tenant's solicitors exercised a lien over the company's papers for unpaid fees.

46. Any single director or officer of a limited company, without the authorization of the board of directors, cannot direct that money paid on the company's behalf, be refunded to another.

47. There is no evidence that any of the directors had been so authorized by the board of directors.

48. There is no evidence that the board of directors had agreed to assign the right to the refund to the Plaintiff.

49. If the tenant company had been wound up, it would be for the receivers to call in the company's debt. None of the directors should be in the position to intermeddle in the company's affairs any further.

50. The Plaintiff had failed to prove his case for the refund of the deposit.

51. As for the purchase of a second hand washing machine, and repairs to the air-conditioner, two receipts were set out in the Plaintiff's bundle.

52. PW4, the Plaintiff's wife gave evidence that she contacted the Defendant's representative, and was permitted to effect the purchase and repairs. The Defendant's representative agreed to reimburse PW4.

53. The Defendant's representative denied that, but agreed he had offered an extra washing machine to PW4 at one time.

54. There is no dispute that the Defendant as the landlord was required to provide household appliances under the tenancy agreement. The Defendant's representative did not deny there had been such a purchase and repairs, but that the Defendant's representative was not informed, and so did not give his permission.

55. There is no evidence that the washing machine and air-conditioner had been removed from the premises by the Plaintiff. The Defendant as the landlord derived benefit from the purchase and repairs.

56. The Plaintiff should be reimbursed for these two items.

The Counterclaim

57. The Defendant's case was that the Plaintiff was allowed to remain at the premises on a temporary month to month basis. The Plaintiff and the Defendant agreed that monthly payment amount was varied to $40,000 in November 2000. This is accepted as a fact of the case. The Plaintiff's evidence was that it was a reduction. The Defendant's evidence was that it was a temporary holding over.

58. There was no evidence in writing as to whether the variation was a long term reduction or a temporary holding over, to be repaid at a later stage.

59. The note signed by the Plaintiff and the Defendant's representative on the Plaintiff's vacating the premises was too vague to be of any assistance.

60. The Plaintiff's evidence was that an additional $5,000 paid in March 2001 was an one-off payment to assist the Defendant's representative in his financial hardship, the Defendant considered that to be a step taken in re-payment of the rent held-over.

61. The evidence is such that the Defendant had not been able to prove its case on this point on the balance of probability.

62. The Plaintiff admitted owing rent of $16,774 and electricity charges of $3,089.

Judgment

63. There is judgment for the Plaintiff against the Defendant in the sum of $2,800.

64. There is judgment for the Defendant against the Plaintiff, on the Plaintiff's own admission, in the sum of $19,863.

65. There is no order as to costs.