IP CHOI PING v. HUANG CHUN HUA

DCCJ 6141/ 2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6141 OF 2003

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REASONS FOR DECISION

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The plaintiff's claim

1. The plaintiff was the landlord of a suit premises.  The defendant was her tenant.  The tenancy was for a fixed terms of 2 years.  In breach of the tenancy agreement, the defendant delivered up vacant possession to the plaintiff before its expiry.  After several months and at a lower rent, the plaintiff got a new tenant.  The plaintiff claims loss and damage arising from the defendant’s breach of the tenancy agreement. 

The defendant's defence

2. The plaintiff agreed to a surrender of the tenancy without compensation. 

The plaintiff's reply

3. The plaintiff never agreed to a surrender of the tenancy without compensation. 

The issues to be determined

4. This Court has to determine:

(1)  The credibility of the witnesses;

(2)  Whether the plaintiff had agreed to a surrender of the tenancy without compensation;

(3)  If not, the plaintiff’s loss and damage. 

The evidence from the plaintiff’s side

5. The plaintiff’s side has 1 witness: Chi Shu Chung (“ Chi”).  His witness statements are admitted into evidence. 

6. The plaintiff was the registered owner of Flat C, 28^th floor, Seymour Place, 60 Robinson Road, Hong Kong (“the Premises”).  The defendant was the tenant by virtue of:

(1)  A tenancy agreement in the English text, dated 25 Aug. 1997, for the 2-year fixed term of 1 Sep. 1997 – 31 Aug. 1999 at $33,800.00 per month;

(2)  A supplemental tenancy agreement in the English text, dated 28 March 1998, for the period of 1 Jun. 1998 – 31 May 2000 at $33,800.00 per month;

(3)  A tenancy agreement in the English text, dated 14 May 2000, for the 2-year fixed term of 1 Jun. 2000 – 31 May 2002 at $28,000.00 per month;

(4)  The Tenancy Agreement in the English text (“Tenancy Agreement”) dated 8 February 2002 [p. 81 – 83] for the 2-year fixed term of 1 Jun. 2002 – 31 May 2004 at $26,000.00 per month.

7. The Tenancy Agreement did not provide for a surrender of the tenancy.  There was an accompanying Chinese text.  Clause 19 provided that in case of a different interpretation, the English text would prevail.

8.  At all material times, the plaintiff acted through her husband, Chi, whereas the defendant’s wife, Tong Xiao Huan (“Madam Tong”) acted on the defendant’s behalf.

9.  On 18 June 2002, Madam Tong phoned to inform Chi that the defendant had just been relocated by his company to Shanghai (“Relocation”).  Their family would move to reside in Shanghai by the end of July 2002.  She asked for a surrender of the tenancy with effect from 20 July 2002.  She faxed him a letter to the same effect [p. 84].  In his mind, several years ago they had lied about migrating to Canada but it transpired to be a pretense for a rent reduction.  He was on his guard this time.  He asked her for official proof of the Relocation.  Meanwhile he took time to consider what to do.

10.  On 24 June 2002, he faxed a proposal [“Proposal Fax”, p. 85] to the defendant’s usual fax number, the only fax number known to him, as follows:

(1)  The defendant could sub-let the Premises for the remaining period;

(2)  The plaintiff and the defendant should seek a new tenant and then compute the loss due to the defendant’s termination. 

11. Afterwards, he phoned the defendant.  Madam Tong said that the defendant was not at home.  She would discuss with the defendant and give a reply later. 

12.  On 27 June 2002, Chi received a fax from the defendant [p. 86].  It was a letter from a Compass Pacific Holdings Limited (“Compass Pacific”).  It stated that the defendant had been transferred to its Shanghai office from 1 June 2002.

13.  Afterwards, Mr. Chi phoned Madam Tong several times.  Each time Madam Tong repeated that the defendant had not yet considered the Proposal Fax. 

14.  Shortly before 23 July 2002, Madam Tong phoned Chi.  She said that they would surrender the Premises on 23 July 2002.  She would discuss how to resolve the matter on that date.  She asked Chi to be present.  Otherwise, the defendant would not be responsible for the consequences.

15.  On 23 July 2002, Chi and Madam Tong met up at the vacant Premises.  She said she decided to surrender there and then.  He could not find his washing machine and refrigerator there.  Madam Tong said that the defendant had removed them because they were not his but bought by the defendant.  Chi was not sure if Madam Tong was correct.  In any event, he used her pen with blue ink to write, in Chinese, on the backsheet of her Tenancy Agreement as follows:

Keys returned to Landlord but tenant has removed one refrigerator and the washing machine in the flat (Tenant re-states that they were bought by himself)      

16. With the keys in hand, she said that at the moment she handed back the keys to him, the Tenancy Agreement would be surrendered without compensation.  He did not agree with her.  He wanted to reserve all his rights, including the surrender, washing machine and the refrigerator.  He took out his own pen with black ink to write, in Chinese, as follows:

     Landlord reserves all legal rights to claim

He signed after the words. 

17. She did not agree with him.  She used her pen with blue ink to write, in Chinese, as follows:

       if tenant returns to home country, landlord will not claim for rights in law

18. He did not agree with her, either.  He refused to sign underneath her words.  They had a quarrel.  Suddenly, Madam Tong left the Premises without handing back the keys.  After she slammed the door, he found the keys in the door lock.

19.  In the subsequent months he failed to contact Madam Tong or the defendant.  He only had the defendant’s home phone number for the Premises.  It transpired that the defendant had changed it after moving out.  Based on Compass Pacific’s letterhead, he phoned the defendant’s office phone number.  The defendant was either not in the office or not returning his calls.  Later, his daughter and niece told him that the defendant’s daughter was still in the same primary school as they were.  He instructed solicitors to search for the defendant’s data.  It transpired that the defendant had purchased a flat.

Particulars

Flat D on the 25^th Floor, Two Robinson Place, No. 70, Robinson Road, Hong Kong

(“Robinson Place Flat”)

Owners: [the defendant and Madam Tong] as joint tenants

Consideration: $6,700,00.00 with mortgage

Date of Instrument	Instrument
17 Jun. 2002	Provisional s & P
2 Jul. 2002	S & P Agreement
17 Jul. 2002	Assignment

20. On 20 December 2002, the plaintiff and a new tenant entered into a tenancy agreement for a 2-year term of 2 Jan. 2003 – 1 Jan. 2005 at $16,500.00 per month [p. 89 – 91].  It was the best deal the plaintiff could get since the defendant left on 23 July 2002.

21. On 27 October 2003, the plaintiff took out the present action for:

(1)   Damages to be assessed;

(2)   Interest;

(3)  Costs.

The evidence from the defendant's side

22. The defendant’s side has 2 witnesses: the defendant himself, and Madam Tong.  Their witness statements are admitted into evidence. 

       The defendant’s and Madam Tong’s evidence

23. The defendant was a senior officer of a public listed company in Hong Kong.  Madam Tong was a violinist and housewife, with little practical exposure to the local community.  They had 2 daughters, aged 2 and 11 years respectively at that time.  Madam Tong dealt with most aspects of the tenancy except the signing of the Tenancy Agreement.  Since 2000, he began to work in Compass Pacific.  He had frequent business trips abroad.  When not around, he could only act upon the information supplied by Madam Tong.  On tenancy matters, he was the decision-maker whereas Madam Tong only implemented his decisions.   

24. In about May 2002, Compass Pacific formally transferred him to its Shanghai office.  He thought the Relocation would last a couple of years.  He started to consider a surrender of the tenancy.  Being in Shanghai and without the Tenancy Agreement in hand, he asked Madam Tong to check the terms of the Tenancy Agreement in Chinese, as she could not read the English text signed by the parties.  She told him that according to Clause 21 they could surrender it without compensation upon giving 1 month’s advance notice.  He told her to ascertain Chi’s view.

25. In late May 2002, over the phone, Madam Tong told Chi of the Relocation and the intention to surrender the tenancy.  She and Chi immediately agreed (“the Phone-Agreement”) as follows:

(1)   The defendant could surrender the tenancy in July 2002, the precise date to be notified later;

(2)   The defendant would live rent-free for the 2 months, of June and July 2002;

(3)   The plaintiff would keep the 2-month rental deposit (of $52,000.00);

(4)   The plaintiff would seek no compensation for the surrender. 

26. On 17 June 2002, the defendant and Madam Tong entered into a provisional sale and purchase agreement to buy the Robinson Place Flat for the main purpose of safe-keeping their belongings.  It did not mean a lot of money to the defendant.   

27. On 18 June 2002, Chi phoned Madam Tong for a written confirmation of the request for the surrender and the precise date to take effect.  The defendant faxed a letter [p. 84] accordingly.  It would take effect on 20 July 2002.  Chi suddenly requested for an extra month’s rent as compensation for the surrender because he might not have a new tenant in time.  She acceded to his request.

28. As a result, on 19 June 2002, she paid him an extra month’s rent by bank transfer.

29. On 23 June 2002, they got a letter dated 24 June 2002from Compass Pacific’s Chief Executive Officer [p. 86] to be faxed to the plaintiff.  

30. Whether on 24 June 2002 or otherwise, he or Madam Tong had never received Chi’s Proposal Fax dated 24 June 2002 [p. 85].

31. Pursuant to the Phone-Agreement, the defendant did not pay the rent for July 2002 due on 1 July 2002.

32. On 18 July 2002, the Robinson Place Flat was assigned to the defendant and Madam Tong.  The defendant wrote a letter dated the same to appoint 20 July 2002 for the surrender.   

33. On 20 July 2002, somehow the surrender did not take place as appointed.  Madam Tong phoned Chi to re-appoint 23 July 2002 for the surrender.

34. On 23 July 2002, Chi and Madam Tong met up at the vacant Premises.  She handed him all the keys.  He did not mention any compensation for the surrender.  He only expressed his concern of her removal of his washing machine and refrigerator.  She insisted that they were not his property but hers.  He was not sure if she was correct.  He wrote down on the backsheet of her Tenancy Agreement to reserve all his rights and signed underneath.  She wrote down his promise not to pursue his rights if the defendant returned to his home country.         

35. In the aftermath, the defendant continued to travel abroad on business.  Madam Tong and their 2 daughters moved into, and continued to reside in, the Robinson Place Flat.  In October 2002, the defendant was transferred to America.  The entire family soon migrated to America. 

36. On 29 April 2005, the Robinson Place was sold.   

This Court’s findings

The credibility and reliability of the defendant’s and Madam Tong’s evidence

37. I have considered counsel’s submissions and the evidence. 

38.  On 17 June 2002, he signed the provisional sale and purchase agreement for the Robinson Place Flat at $6,700,000.00 with a 15-year mortgage to secure $4,000,000.00 for his family and himself.  The completion would take place on 18 July 2002.  The next day, on 18 June 2002, he wrote a letter to Chi informing Chi of the Relocation.  He had to surrender the Premises because they would move to reside Shanghai.  In his mind, the Relocation would last a couple of years and the surrender had nothing to do with the purchase.  I find it obvious that they knew they would still need a flat in Hong Kong despite the Relocation and after the surrender.  They surrendered the Premises not because of the Relocation, but because they had bought a flat and wanted to dump the Tenancy Agreement.  It was just a pretense.   

39.  He knew all along that Madam Tong could not read English.  He asked her to peruse the Chinese text of the Tenancy Agreement for the terms on surrender.  He did not bother to check up the particular clause, Clause 21, in the English text.  He says he took it for granted that the English and the Chinese texts were the same.  He did not ask Madam Tong to fax or read the particular clause to him whilst in Shanghai.  I do not find such part of their evidence credible.

40.  According to the Phone-Agreement, in late May 2002, the surrender as permitted by the Chinese text would be without compensation because 1 month’s advance notice would be given.  However, on 18 June 2002, when she talked to Chi about the date of the surrender, Chi demanded an extra month’s rent as compensation.  With her reliance on the Chinese text, this would have been an unreasonable and wrongful demand.  I see no reason for them to accede to such a demand.  I do not find such part of their evidence credible.

41. I do not find either the defendant or Madam Tong credible witnesses. 

The credibility and reliability of Chi’s evidence

42. I have considered counsel’s submissions and the evidence.

43.  Defence counsel submits [in para. 8 – 9] that Chi agreed to the

surrender because of the attraction of an extra month’s rent, goodwill arising out of the 5-year tenancy relationship, and Clause 21 in the Chinese text of the Tenancy Agreement.  I do not agree with this submission. 

44.  First, an extra month’s rent was no match for a loss of 22 months’ rent.  When they surrendered the tenancy, there was not yet any substitute tenant.  The defendant actually wished the plaintiff “the best luck in finding new tenants” [in fax letter, dated 18 June 2002, p. 84].  I do not accept the argument that in such circumstances Chi would enter into the Phone-Agreement or any agreement at all to dump the Tenancy Agreement in hand with still 22 months to complete (worth $572,000.00, being $26,000 x 22 months) for 1 month’s rent (being $26,000.00).

45. Second, Chi had not found them honest when they put on the pretense of migrating to Canada.  They had not regarded Chi as a nice man, either.  Chi was a seasoned landlord and experienced businessman as suggested by defence counsel [in para. 5 – 7 of Closing Submissions].  The defendant even says that Chi was most money-minded, sometimes phoning them every day to dun for rent when they were slightly late.  This relationship was not conducive to any positive and valuable goodwill.

46. Third, Chi had no problem with the English text, the binding agreement.  He would not bother with the Chinese text, which would only benefit the defendant and had no legal effect.     

47. Defence counsel submits [in para. 11 – 12 of Closing Submissioins] that it was plainly incredible that before making the Phone-Agreement, Chi, as the landlord, did not discuss the terms of the Tenancy Agreement with Madam Tong.  I do not agree with this submission.  If Chi had so discussed with her, he would have instantly referred her to the English text and asked for compensation for surrender.  Immediately after the phone conversation, she would have told the defendant of the same.  She would then have negotiated, if ever, on a different footing. 

48. Defence counsel submits [in para. 13 – 14 of Closing Submissions] that Chi had a disposition to reduce every matter advantageous to him, such as the amendment to the previous tenancy agreement [p. 77], in writing.  As the surrender was not advantageous to him, he did not bother to put it in writing.  I do not agree with this submission.  First, one single instance does not constitute a disposition.  Second, this argument has to base on the premise that the Phone-Agreement actually existed.  If it had never existed, we cannot expect Chi to have made a record of its non-existence. 

49.  Defence counsel submits [in para. 16 – 19 of Closing Submissions] that on 18 June 2002 he wanted proof of the Relocation for acceding to the surrender.  On 24 June 2002 he had already sent out the Proposal Fax [p. 85] to the defendant.  On 28 June 2002 Compass Pacific’s letter as the proof of Relocation arrived.  Therefore it showed that he had already agreed to the surrender before the proof of Relocation.  I do not agree with this submission.  The Proposal Fax had squarely and expressly refused any surrender without compensation.

50.  Defence counsel submits [in para. 20 – 22 of Closing Submissions] that it was unbelievable that the Proposal Fax had ever been sent because he did not follow up on it, despite the lack of any positive feedback from the defendant’s side.  I do not agree with this submission.  The Tenancy Agreement had provided for both parties’ rights and obligations.  If the defendant wanted to surrender in breach of the Tenancy Agreement, he could sue the defendant.  If the defendant did not want to surrender, the tenancy would continue as usual.  I see no reason for him to worry about the lack of any positive feedback.

51.  Defence counsel submits [in para. 21 of Closing Submissions] that if there had been such a Proposal Fax, his solicitors’ letter dated 28 January 2004 [p. 340] would have mentioned it.  I do not agree with this submission.  The solicitors’ letter was just a concise demand letter.  I see no reason for its inclusion of any prior talks, such as the Proposal Fax.

52.  Defence counsel submits [in para. 23 – 27, 32 of Closing Submissions] that he had not specifically reserved his rights to claim on the surrender in writing on the backsheet of her Tenancy Agreement [p. 159] before acknowledging receipt of the keys.  Nor had he crossed out the acknowledgment of the receipt of the keys.  I do not agree with this submission.  He had written to reserve “all” rights.  Besides, his acknowledgment of receipt of the keys had been accompanied by an unequivocal oral protest.  I see no point for Chi to hassle further.  He had done what he could have in the circumstances. 

53.  Defence counsel submits [in para. 28 – 31 of Closing Submissions] that Chi had agreed what Madam Tong had finally written down, namely that he would not pursue his rights “if the tenant was returning to his home country”.  I do not agree with this submission.  He had expressly reserved “all” his rights.  The word “all” necessarily included all rights relating to the surrender, the washing machine and the refrigerator, and what not.  His stance was unequivocal.  I do not see what more he could have done.

54.  Defence counsel submits [in para. 28 – 31 of Closing Submissions] that there was a conditional surrender recorded on the backsheet of Madam Tong’s Tenancy Agreement.  If the defendant returned to home country, the plaintiff’s rights would be waived.  I do not agree with this submission.  First, I see no reason for Chi to take any serious interest in where the tenant was going to work as long as the tenancy was rewarding.  Second, this condition of the defendant’s Relocation was Madam Tong’s own creation on paper without acknowledgment by Chi.  It had no legal effect.

55.  Defence counsel submits [in para. 43 – 47 of Closing Submissions] that Chi’s solicitors’ letter [dated 28 January 2003, p. 340] had not claimed the rent for July 2002 or given credit to the 2 months’ rental deposit [of $52,000.00].  This reflected the existence of the Phone-Agreement.  Chi’s explanation wasthat at the time he gave instructions to the solicitors he got confused and just let the solicitors handle the matter.  This is not credible.  The letter indicated the existence of the Phone-Agreement.  I am aware that the mistake had been corrected in the Statement of Claim [dated 27 October 2003, p. 4].  I accept Chi’s explanation.

56.  I find Chi a credible and reliable witness. 

Whether the plaintiff had agreed to the surrender without compensation

57.  I accept Chi’s evidence, and reject the defendant’s and Madam Tong’s evidence, on all facts in dispute.  I accept Chi’s evidence, in particular, that he had never agreed to the surrender and waive all rights, and that he had faxed the Proposal Fax to Madam Tong.  The defendant is therefore liable for all loss and damage arising from the surrender. 

The plaintiff’s loss and damage

58.  The surrender was in breach of the Tenancy Agreement.  The plaintiff accepted the repudiation and treated herself as discharged from performance.  She then took steps to mitigate loss.  Originally she would stand to lose the total rent of $598,000.00 for the period of 1 July 2002 – 31 May 2004 (being $26,000.00 x 23 months) but for a new tenancy.  On 20 December 2002, she entered into a new tenancy agreement for the 2-year term of 2 Jan. 2003 – 1 Jan. 2005 at $16,500.00 per month [p. 89 – 91].  There is no evidence to suggest the contrary, and I accept, that it was a reasonable deal in mitigation of loss.  She would stand to receive the total rent of $279,967.74 [for the period of 2 January 2003 – 31 May 2004, being $16,500.00 x 16 months and 30/31of a month].   She would suffer a loss of $318,032.26 [being $598,000.00 – $279,967.74]. 

59.  Defence counsel does not submit on the issue of forfeiture of the rental deposit.  The plaintiff’s counsel submits [in para. 32 of Closing Submissions] that the landlord can forfeit the tenancy if the lease so allowed for a breach, however serious or trivial.  Where the breach is repudiatory, the landlord can also invoke common law remedies, such as damages for the unexpired term [Well Century Holdings Ltd. v Leung Kam Yu [2003] 2 HKLRD 653].  In our present case, the plaintiff pleads forfeiture [para. 7 of Amended Statement of Claim, p. 5].  The defendant denies it [para. 7A of Re-re-re-Amended Defence, p. 33].  I understand that Clause 2 of the Tenancy Agreement [p. 82] provided for forfeiture of the rental deposit for breach of certain terms and conditions.  The default in payment rent was one of them.  The plaintiff was therefore entitled to forfeit the defendant’s rental deposit of $52,000.00 and not to offset it against the loss and damage. 

60.  Further, the plaintiff had to pay commission to the property agent for $8,250.00 and stamp duty for the new tenancy agreement for $497.50.

61.  The total loss and damage is therefore $326,779.76 [being $318,032.26 + $8,250.00 + $497.50]. 

Conclusion 

62. I give judgment to the plaintiff in the sum of $326,779.76, with interest at judgment rate from the date the Writ of Summons was filed, namely 27 October 2003.  There is no apparent reason why costs should not follow the event.  I order costs nisi to the plaintiff with certificate for counsel.  The order shall become absolute after 14 days from today.

Dated this 14 March 2006