LEUNG WAI LING ISEWESG v. SUCCESS BASE ENGINEERING LTD

HCA 2/2019

[2020] HKCFI 163

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2 OF 2019

______________________

______________________

____________

J U D G M E N T

____________

1.  This is the plaintiff landlord’s appeal from a decision of Master Queenie Lau on 5 September 2019 giving the defendant tenant conditional leave to defend.  The plaintiff argues that summary judgment should be given.

2.  The basic facts are not in dispute.  The plaintiff is the owner of the 6th Floor, Well Industrial Building, Lam Tin Street, Kwai Chung, New Territories. According to the affirmation of its project manager, the defendant is an interior decorations contractor.  In early 2018, it wanted space to store fitting out materials, and agents were employed to find that space.  Around March to April 2018, they went to see the plaintiff’s property and decided to go ahead with it. 

3.  By a tenancy agreement dated 25 April 2018 in the Chinese language, the 6th floor was let to the defendant for a term of 36 months from 27 April 2018 to 26 April 2021 at a monthly rent of $44,500 payable in advance on the 27th day of each month.  On signing, the defendant was to, and did, pay a rental deposit of $133,500 which was equivalent to three months’ rent.  On 27 April 2018, the defendant took possession of the premises and began using them for storing construction materials.

4.  It seems that not long after that, the incorporated owners of the Well Industrial Building (which I will refer to as “the IO”) received complaints from other owners of the building concerning transportation and loading of the materials through the common paths.  The gist of the complaints appears to have been that the defendant was causing a nuisance, and the loading weight of its construction materials posed safety concerns for the building and its occupiers.  The defendant’s case is that these complaints and concerns were not justified.

5.  However, on 5 July 2018, the IO held a meeting of the owners of the building.  The result was the passing of a resolution stating that the weight for the loading and storing of goods on the premises should not exceed 400 kilogrammes per square metre and that for safety reasons the parties should refrain from storing construction materials in excess of this, failing which the IO would consider taking further enforcement action. 

6.  The parties were notified of the restriction by way of a notice dated 5 July 2018. The plaintiff sent the defendant a WhatsApp message, one of several which is in the evidence which is before the court, demanding compliance.  The defendant then engaged a structural engineer who inspected the property on 3 September 2018.  He reported, among other things, that water seepage had left structural elements of the 6th floor in an unsatisfactory condition.  The plaintiffs say, in effect, that this was just an excuse to get out of the tenancy agreement and that no complaint about water leakage had been made before.  To this extent, however, this is a factual dispute that cannot be determined on a summary judgment application.  The defendant then moved out of the building and no rent was paid for the period after 27 September 2018.  The defendant returned the keys to the premises and although the plaintiff refused to accept them, that was the effective end of the relationship between them.

7.  The defendant’s case has been that the IO’s notice taken with the leakage and alleged structural defects constituted a repudiatory breach of the tenancy agreement which the defendant accepted as putting an end to it.  The plaintiff’s case is that failure to pay the rent was a repudiatory breach which it accepted by the issue of proceedings.  She claims 3 months’ rent to the end of 2018 and the forfeiture of the 3-month deposit.

8.  Mr Louie Chan, who argued the case for the defendant, does not argue that there was any express warranty given or term agreed by the plaintiff as to the state of the premises.  He was right not to do that because the evidence does not support any.  So the starting point is the general rule that, in the absence of express agreement, a tenant takes the property subject to any defects existing at the time of letting and to any events that subsequently affect its value (see Golden Sunrise Ltd v Lee Kwok Hung [2005] 1 HKC 466, Chu J as she then was, at paragraph 37).

9.  The defendant raises a number of arguments in support of its case: (1) It submits that the tenancy agreement contained a number of implied conditions.  These were that the plaintiff should not derogate from her grant and should give quiet enjoyment of the premises, and that she should be responsible for the repairs/maintenance of the structural part of the premises; (2) that the IO notice interfered with the defendant’s rights and that the defendant was not obliged to abide by it; (3) that the plaintiff should have protested or taken action against the IO as regards the notice but failed to do so; (4) that water leakage and structural defects/deterioration issues place the plaintiff in breach of what it is submitted was an implied covenant to repair; and (5) by way of conclusion, the above constituted a repudiatory breach of the tenancy agreement.  The defendant also counterclaims for a refund of the deposit and seeks damages in the sum of $93,796 for various expenses including agency fees, fees for leasing a new warehouse, transportation, structural assessment, etc.

10.  In oral submissions for the defendant, Mr Chan emphasised that the IO and owners were responsible for the maintenance of the building, which as he pointed out is a 48-year-old building, and, he submitted, should have maintained it to the original load bearing capacity of 782 kilogrammes per square metre.  The IO notice to the contrary was invalid he argued.  Although there was no express term as to repairs, there was an implied term in this case, and indeed otherwise there would have been a total failure of consideration given what the defendant intended to use the property for.  This he characterised as a common intent of the parties.  There are factual issues which should go to trial, he argued, and the court should uphold the Master’s order.  I should add that the defendant applies to amend its defence and counterclaim and that I have taken the proposed amendments into account in my consideration of the case.  All these points were contested by Mr Justin Ismail for the plaintiff who contended that there are no triable issues of law or fact and that summary judgment should be granted.

11.  I remind myself first of the principles applicable to summary judgment applications which are not in dispute.  For a recent decision of the Court of Appeal, reference may be made to Time Rich 08 Ltd v DBE (HK) Ltd [2018] HKCA 404.  The question is whether there is a triable issue or an arguable defence.  An appeal from the decision of the Master is by way of a re-hearing. I should however note that the transcript of the Master’s reasons shows that the triable issue she identified was as to the defendant’s case as to derogation from grant albeit unpleaded, she noted, at that stage at least in the way in which it was being argued.  This particular aspect of the case was not greatly expanded upon by Mr Chan in his oral submissions on the appeal though it is set out in his written submissions.

12.  I will begin with the case as to the proposed implied term as to structural repairs. The defendant points to Woodfall’s Law of Landlord and Tenant, Volume 1, 2018, paragraph 13.007:

“In principle, it is submitted that a lease or tenancy agreement is like any other contract for the purpose of determining whether terms ought to be implied into it. Where the lease is an apparently complete bargain or sets out an apparently complete code for dealing with and allocating responsibilities as to repair, it will be difficult to imply any further terms. Where, however, the lease is on its face an incomplete bargain, the implication of terms is easier.”

13.  Here, it is submitted, there is no identification of responsibility for repairs in the tenancy agreement and so a duty of structural repair on the landlord should be implied. 

14.  However, in my opinion the following further passage from Woodfall quoted in Fortune Global Development Ltd v Shung Cheong Food Trading Ltd [2002] 2 HKLRD 447 at paragraph 65 makes the position clear.

“In general, there is no implied covenant by the lessor of an unfurnished house or flat, that it is or shall be reasonably fit for habitation, occupation or cultivation, or for any purpose for which it is let. No covenant is implied that the lessor will do any repairs whatsoever. Nor is there an implied obligation that the house will endure the term, even though fair wear and tear is excepted from the tenant’s covenant to repair. A landlord is not liable in his capacity as landlord to his tenant for defects in the premises demised rendering them dangerous or unfit for occupation, nor for personal injury to the tenant caused by such defects, even though the landlord is aware of their existence. He is under no duty to warn the tenant of such defects. At common law a landlord who lets a house in a dangerous state is not liable to the tenant, or to the sub-tenant, or to the tenant’s customers or guests.”

Deputy Judge Fung (as he then was) was quoting from the 2001 edition of Woodfall at paragraph 13.001.

15.  Of course, the circumstances may be such as to give rise to such an implication.  This is just the general rule. However, it is important that a proper factual basis should be laid for such an implication.  I agree with Mr Ismail that even accepting all the defendant’s evidence at face value, this being a summary judgment application, there is no factual foundation whatever for implication of such a fundamental term as to structural repair in the present case.  This contention in my view has no merit.

16.  Turning to the defendant’s case as to derogation from grant, which was the point that found favour with the Master, I have had the benefit of much fuller argument on this point.  The defendant’s case proposes that the IO notice was invalid and that the plaintiff should have opposed it.  Reliance is placed on a number of authorities dealing with limits placed on the keeping of pets in leased properties.  However, limits placed on load bearing for safety purposes are clearly in a different category. 

17.  I accept of course that that the defendant was naturally aggrieved by the IO notice, particularly coming so early in the tenancy.  This is not a case in which there is any real criticism to be levelled at the defendant.  Equally, there is no suggestion that the plaintiff influenced the IO to reach its conclusion.  In what are fairly described as somewhat unfortunate circumstances, the legal position as between the parties has simply to be determined in accordance with the law. 

18.  The position in law is that the tenancy agreement was subject to the Deed of Mutual Covenant entered into in 1973.  This makes provision in clause 15 for meetings of the co-owners, which are necessary to make the co-ownership work.  That was the position as regards the tenancy agreement into which the defendant entered.  The principles applicable to derogation from grant were summarised by Neuberger J in Platt v London Underground [2001] 2 EGLR 121 at page 122:

“21. In Platt v London Underground Ltd [2001] 2 EGLR 121 at 122, Neuberger J (as he then was) summarized the principles as thus :

1. It is well established that a landlord, like any grantor, cannot derogate from his grant. To put it in more normal language, as has been said in a number of cases, a landlord cannot take away with one hand that which he has given with the other: see, for instance per Younger LJ in Harmer v Jumbil (Nigeria) Tin Areas Ltd (1921) 1 Ch 200 at pp 225‑226 and Lord Denning MR in Molton Builders Ltd v Westminster City Council (1975) 30 P&CR 182 at p186.

2. In order to determine whether a specific act or omission on the part of the landlord constitutes derogation from grant, it is self‑evidently necessary to establish the nature and extent of the grant: see Leech v Schweder (1874) 9 App Cas 463 at p467, per Mellish LJ.

3.  The exercise of determining the extent of the implied obligation not to derogate from grant involves identifying what obligations, if any, on the part of the grantor can fairly be regarded as necessarily implicit, having regard to the particular purpose of the transaction when considered in the light of the circumstances subsisting at the time the transaction was entered into: per Sir Donald Nicholls V-C in Johnston & Sons Ltd v Holland [1988] 1 EGLR 264 at p267M. […]”

19.  In considering such a question, it is necessary to establish the nature and extent of the grant and have regard to the particular purpose of the transaction as entered into. The purpose of this transaction was to effect a 3-year lease of the 6th floor of the premises.  The points made earlier as to the lack of any express agreement as to the use to which the lessees proposed to put the 6th floor apply equally here.  The defendant’s intent as to the use of the 6th floor, even if Mr Chan was correct to characterise as a joint intention, cannot extend to loading the floor in a way likely to pose a nuisance or safety hazard to the building.  There was no implied obligation to maintain the building in accordance with the original load specifications going back to 1973.  There was consequently, in my view, no arguable derogation from grant or breach of the covenant of quiet enjoyment in this case.  However, there was a breach by the defendant of its covenant to pay rent.  Taken with the return of the keys, this was an ample repudiatory breach entitling the plaintiff to forfeit the tenancy and the deposit.

20.  As I have said, the matter was much more fully argued in front me than the Master and I must respectfully disagree with the outcome.  In my view, the plaintiff is entitled to summary judgment.