SKYLAND PRESS (HK) LTD v. SKIVA PRINTING & BINDING CO LTD

HCSA37/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL No. 37 OF 2009

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM NO. 66062 OF 2007)

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DECISION

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1.  This is the claimant’s application for leave to appeal against the award and order of the Deputy Adjudicator dated 19 December 2008.  By the award, which was made after trial, the Adjudicator entered judgment for the claimant in the sum of $8,699.90 with interest and costs.  Upon the defendant’s application made immediately upon the pronouncement of judgment, the Deputy Adjudicator reviewed his award and reduced the judgment sum to $4,321.61 to take account of outstanding rent and utility expenses due from the claimant to the defendant. 

2.  The claimant’s through solicitors made an application for extension of time to apply for leave to appeal.  On 21 August 2009, Master Hui granted an extension of time to the applicant up to 4 September 2009. 

3.  On 14 October 2009, one day before the first hearing of the application, the claimant applied for leave to be represented by its director, Mr Lee Ting Wah.  The application was unsuccessful as the board resolution in authorizing Mr Lee to act was defective.  At the first hearing, the applicant’s solicitors, who had filed a Notice to Act and who has remained so on the Court’s record, did not appear.  Although Mr Lee was present at the hearing, he could not be heard, as he was not given leave to represent the claimant to argue the application. The application was adjourned to enable the claimant to resolve the question of representation.  Subsequently, the claimant renewed the application for leave to be represented by its director and leave was granted on 16 October 2009. 

The claim

4.  The claimant’s claim in the Small Claims Tribunal is for the return of the balance of a rental deposit and overpaid rent in the total amount of $15,797.20.

5.  It is common ground that by a Chinese tenancy agreement dated 17 May 2007, the claimant rented from the defendant part of the premises at Block C, 17/F, Wah Ha Industrial Building, 8 Shipyard Lane, Quarry Bay, Hong Kong.  The tenancy was for a fixed term of two years commencing from 16 June 2005 and ending on 15 June 2007.  The monthly rental was $9,700, exclusive of water and electricity charges.    Pursuant to the tenancy agreement, the claimant paid to the defendant a deposit for two months’ rent in the sum of $19,400. 

6.  Under clause (1) of the tenancy agreement, it was agreed that upon the expiry of the two-year fixed term, the parties could let or rent the premises for another two years from 16 June 2007 to 15 June 2009.  The term used was “生約”, which denotes that the further two-year term had yet to become fixed or binding on the parties.  Clause (2) provided that one month before the expiration of the tenancy agreement, the claimant shall give written notice of its intention to renew or terminate the tenancy; and in the case of a renewal, it shall only take effect upon the making of a new tenancy agreement.  In addition, clause (16) also provided that when vacating the premises, the tenant was obliged to reinstate the premises to its original condition.

7.  There is no dispute that upon the expiration of the two-year fixed term, the claimant did not move out of the premises and continued to occupy the premises until 31 October 2008 when the keys to the premises were returned. 

8.  It is also not in dispute that when the claimant delivered up the premises, part of the air-conditioning unit, cooling tower, ventilation duct and wooden partition previously installed by it (“the claimant’s installations”) had not been dismantled and the premises were not reinstated to its original position.   

9.  The main issues at the trial in the Small Claims Tribunal were:

(1)  Whether the monthly rent for the period after the end of the two-year fixed term (i.e. 16 June 2007) until 31 October 2007 should be at $9,700 (being the same rate as the rent for the fixed term) or $11,500 (as orally agreed between Mr Lee of the claimant and Mr Lau of the defendant).

(2)  Depending on (1):

(a)   Whether the claimant is liable to pay to the defendant the difference in rent for the period from 16 August to 15 October 2007 (i.e. 2 months x ($11,500 - $9,700) = $3,600), or, alternatively, whether the defendant is liable to refund to the claimant overpaid rent for the period from 16 June to 15 August 2007 (i.e. 2 months x ($11,500 - $9,700) = $3,600); and

(b)   What should be the amount of rent payable by the claimant for the period of 16 to 31 October 2007.

(3)  Whether the claimant is liable to compensate the defendant for the costs incurred in removing the claimant’s installations and reinstating the premises, and if so, the quantum of it.

Decision of the Deputy Adjudicator

10.  The Deputy Adjudicator found as a fact that the evidence given by the claimant’s only witness, Mr Lee, in relation to the negotiations and arrangement for the claimant’s continued occupation of the premises and the renewal of the tenancy was unreliable and incredible.  He concluded that where his evidence conflicted with that adduced by the defendant, he would prefer the latter. 

11.  The Deputy Adjudicator also made the following findings of fact:

(1)  Despite the provision in clause (2) of the tenancy agreement, the parties had by conduct agreed to the further letting of the premises after the end of the two-year fixed term, and further agreed to dispense with the need of executing a new tenancy agreement.

(2)  The discussions between Mr Lee and Mr Lau for the new tenancy only touched upon the amount of rental; there was no discussion on the variation or addition of other terms of the tenancy agreement.

(3)  It had been orally agreed between Mr Lee and Mr Lau that the monthly rent for the new tenancy was to be $11,500.

(4)  It was a term of the tenancy agreement that the claimant had to deliver up vacant possession and to reinstate the premises when moving out of the premises.   

12.  The Deputy Adjudicator rejected Mr Lee’s evidence that, subsequent to the oral agreement referred to paragraph 11(3) above, he had another oral agreement with Mr Lau for the letting of the premises for two years on the same terms as those for the two-year fixed term (including the amount of monthly rental).  In coming to this conclusion, the Deputy Adjudicator had regard to the fact that such allegation was never raised in Mr Lee’s witness statements and that the claimant had paid $11,500 rent for two months.

13.  On the basis of the above findings of fact, the Deputy Adjudicator held that the parties had agreed to a new tenancy to commence after the end of the two-year fixed term at the monthly rent of $11,500 and for a period of two years, and otherwise subject to the same terms as those under the two-year fixed term tenancy.

14.  On these factual findings, the Adjudicator held that for the entire period after the expiration of the two-year term until 31 October 2007, the monthly rent that the claimant should pay to the defendant is $11,500.

15.  The Deputy Adjudicator further held that the claimant is obliged under clause (16) of the tenancy agreement, which had become a term of the new tenancy, to reinstate the premises.  In so holding, he rejected Mr Lee’s evidence that when the keys were returned, the defendant raised no complaint about the claimant’s installations and did not request for their removal.  The Deputy Adjudicator further held that the acceptance of the keys by the defendant, without more, did not amount to waiver of its contractual rights or acceptance of the conditions in which the premises were returned, citing in support the case of Chan Tung Man v. Kamshan Holdings Ltd [1999] 4 HKC 303.

16.  On these findings, the Deputy Adjudicator held that the claimant was liable to compensate the defendant for the costs incurred in removing the claimant’s installations, which he found to be $3,500.

17.  The Deputy Adjudicator further held that the amount of outstanding water and electricity charges, agreed at $2,042.91, should also be deducted from the rental deposit held by the defendant. 

18.  In conclusion, the Adjudicator held that the defendant should return to the claimant the balance of the rental deposit in the sum of $4,321.61 made up as follows:

Rental deposit	$19,400.00
Less :
Water & electricity charges	$ 2,042.91
Underpaid rent (16.8.2007 to 15.10.2007)	$ 3,600.00
Unpaid rent (16 to 31.10.2007)	$ 5,935.48
Reinstatement costs	$ 3,500.00
Balance	$ 4,321.61

Grounds of appeal

19.  Under section 28(1) of the Small Claims Tribunal Ordinance, cap. 338, leave to appeal against an award or order of the Tribunal will only be granted where the award or order is erroneous in point of law or is outside the jurisdiction of the Tribunal.

20.  In applying for leave to make the present leave application out of time, the claimant by its solicitors, advanced two grounds of appeal as follows:

(1)  The Deputy Adjudicator failed to take into account the applicant’s contention that there was a subsequent oral agreement for the rent to be at $9,700 per month.

(2)  The Deputy Adjudicator failed to have regard to the fact that clause (16) in the tenancy agreement could have been overridden by subsequent conduct of the parties, namely, the defendant had accepted the return of the keys to the premises without protest and had not asked the claimant to reinstate.

21.  At the hearing of this leave application, Mr Lee further advanced two arguments on behalf of the claimant as follows:

(1)  The oral agreement between the parties for the new rent of $11,500 per month (as found by the Deputy Adjudicator and referred to in paragraph 11(3) above) should cease to be binding since the defendant hadresiled from it and did not agree to let the premises to the claimant on the basis that it could share the use and occupation with third parties.

(2)  The defendant acted unreasonably in that it did not request the claimant to reinstate, that it did not consult or seek the agreement of the claimant before incurring the costs of the reinstatement and that it only rendered a bill for the costs upon being sued in the Small Claims Tribunal. 

Reasons for decision

22.  The threshold burden for an applicant in an application for leave to appeal against an award or order of the Small Claims Tribunal is to show that: (1) the proposed appeal involves point(s) of law; and (2) the point(s) of law is/are arguable.

23.  The four grounds advanced by the claimant through solicitors or its director relate to two aspects of the Deputy Adjudicator’s decision.  The first is the conclusion that the claimant is liable to pay rent at $11,500 per month for the period from 16 June to 31 October 2007.  The second is that the claimant is liable for the costs of reinstating the premises.   I shall deal with the four proposed grounds of appeal under these two headings.

(1)  The rent for 16 June to 31 October 2007

24.  Ground (1) advanced by the claimant’s former solicitors and Argument (1) advanced by Mr Lee both relate to the finding on the rent for the occupation after the expiration of the two-year fixed term.  In respect of the ground advanced by the claimant’s former, it is misconceived.  Contrary to the claimant’s contention, the Deputy Adjudicator did take into account, and further made specific finding on, the claimant’s assertion of a subsequent oral agreement for the monthly rent to be reverted back to $9,700.  This assertion was disputed by the defendant.  The Deputy Adjudicator found against the claimant on the credibility of Mr Lee and rejected his evidence where it differed from that of the defendant.  This must necessarily include a rejection of this allegation of a subsequent oral agreement.  The Deputy Adjudicator’s findings on credibility and on whether there was this subsequent oral agreement are findings of fact.   This proposed ground of appeal does not involve any point of law and is not a ground on which leave to appeal can be given.

25.  As to the argument advanced by Me Lee at the hearing, even if the Court were to accept that the defendant had resiled from the agreement as alleged by the claimant, it does not as matter of law lead to the conclusion that the rent should remain at or revert back to $9,700.  Firstly, the oral agreement for another two-year tenancy at $11,500 per month (as found and accepted by the Deputy Adjudicator) was valid and binding on the parties until it had been terminated.  This is so irrespective of whether the termination was by consent or due to the breach of one party.  Hence, even if it were a case of the defendant retracting from the oral agreement, it would only cease to be binding upon the point of termination.  It would not have a retrospective effect and would not lead to the result that in the period from 16 June to 31 October 2007, there was no agreement for rent to be $11,500 per month. 

26.  Secondly, even if the Court were to accept further that there was no agreement between the parties as regard the monthly rent to be paid after the end of the two-year fixed term, the amount of rent or fees that the claimant had to pay for the occupation and use of the premises would, as a matter of law, fall to be determined by the market rent.  The evidence in the Small Claims Tribunal, and as accepted by the Deputy Adjudicator, is that the parties had orally agreed that the monthly rent for the further two-year term to be $11,500.  In the absence of other evidence, this will afford the best evidence as to the market rent for the premises.  Hence, as a matter of law, the Deputy Adjudicator would be bound to use $11,500 as the amount of rent or fees payable by the claimant for its occupation and use of the premises for 16 June to 31 October 2007, even if Mr Lee’s argument were to be accepted.

27.  Thus analyzed, the first argument advanced by Mr Lee at the hearing cannot meet the threshold for granting leave to appeal.

(2)  Liability for the costs of reinstating the premises

28.  Ground (2) advanced by the claimant’s former solicitors and Argument (2) advanced by Mr Lee concern the claimant’s liability for the costs incurred by the defendant to reinstate the premises.

29.  The ground advanced by the claimant’s former solicitors is in truth a challenge to findings of fact made by the Deputy Adjudicator.  As noted above, the Deputy Adjudicator had rejected the claimant’s case and evidence that the defendant had accepted the keys to the premises without protest or without requesting the claimant to make reinstatement.  Further, it is not said that the Deputy Adjudicator had erred on the law with regard to his conclusion that mere acceptance of the return of keys does not amount to waiver of the contractual right to have the premises reinstated or acceptance of the return of the premises in the state as it was.  No point of law is involved in this proposed ground of appeal.

30.  So far as the argument put forward by Mr Lee, it is also in substance challenging the Deputy Adjudicator’s rejection of the claimant’s case that the defendant accepted the return of the keys with no protest or never requested a reinstatement.  Mr Lee also suggested that the claimant’s installation that had not been removed would bring benefit to the defendant and/or the succeeding tenant.  But the evidence in the Tribunal and the facts as found by the Deputy Tribunal is that the defendant did incur costs to dismantle and remove the claimant’s installations. 

31.  In terms of legal principles, the claimant was under a contractual obligation to reinstate the premises when it moved out of the premises.  The defendant had no corresponding duty under the tenancy agreement or under the general law to remind the claimant of its contractual duty or to request it to do so.  The reinstatement by the claimant was to be completed by the time it vacated the premises. Thus, Mr Lee’s suggestion that it was not possible or convenient to return to the premises to undergo instatement work is irrelevant.  

32.  Upon the claimant did not fulfil its obligation to carry out reinstatement, the defendant was entitled to proceed to effect the reinstatement and deduct the costs involved from the rental deposit it held.  In this regard, the defendant was not obliged under the law to consult or seek the claimant’s agreement on the quantum of costs.  It is only that if it had not done so, it would have to prove that the amount was reasonable whereas if it had consulted the claimant and obtained its prior agreement, the claimant would not be able to challenge the amount of the reinstatement costs.

33.  The argument advanced by Mr Lee on the liability for the reinstatement costs does not involve any arguable point of law.

Conclusion

34.  For the above reasons, the claimant has not made out a case for granting leave to appeal.  The application is accordingly dismissed.