TAT MING TRADING CO LTD v. ALPINO LTD

HCA1659/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1659 OF 2004

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J U D G M E N T

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1. This is a landlord and tenant dispute.  The plaintiff is a family company trading in batteries.  In late 2002, the company made its first investment into property by buying a residential property in Tai Po for a very reasonable price after a mortgage foreclosure.  The company has three directors, the father and his two sons.  The elder son, Cheung Hok Wah, was the only witness of fact for the plaintiff.

2. The defendant is also a small company with two Japanese directors.  One of the directors, Mr Takateru Iwasa and his family reside in the property.  The lease commenced in May 2003.  It was a lease of furnished premises to which Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap.7 applies.  From May 2003 to November 2005, the defendant has paid approximately 93% of the rent due under the tenancy agreement.  The shortfall of 7% amounts to $45,000.  Between January and July 2004, Mr Iwasa did not pay the full amount ($21,000) each month.  He paid a lesser sum.  By July 2004, the arrears amounted to $45,000.  Since then he has reverted to paying the full amount.

3. Because of the arrears, the plaintiff issued a High Court writ claiming $45,000 and possession of the property.  The litigation should not have been brought in the High Court, neither should it have remained there.  Both sides are at fault for not transferring it to the District Court.  Be that as it may, the arrears of $45,000 have resulted in a 3-day trial in the Court of First Instance, expert witnesses giving evidence on both sides, two surveyors reports, six witness statements, several hundred photographs and a 30-minute video.

4. The dispute concerns damage to the property caused by water seepage.  The parties disagree about the cause of the water seepage and where the responsibility lies to repair it.

The property

5. The property was built in 1995.  In 1997 it was sold for over $13 million.  The plaintiff purchased it in December 2002 for $4.13 million.  It is a duplex house with a gross area of about 2,000 square feet and a usable internal area of about 1,400 square feet.  There are three bedrooms upstairs.  In the master bedroom, there is an en-suite bathroom.  One wall of this bathroom divided it from an area at the top of the stairs which has been variously described as a play area, a storage area and a living area (“the landing”).

6. Although both experts’ reports are inconclusive, it is common ground that, in the early part of the tenancy, water escaped from the area of the shower cubicle in the en-suite bathroom and caused extensive damage to the landing.  As a result floor boards became wet, the floor bulged and buckled, the electricity supply within the property was badly affected, a young visitor to the house fell over the buckled flooring and injured himself, the shower was put out of use for a substantial period and because of the electricity problems the family had to sleep all in one room for many months.

7. From the outset, the plaintiff refused to accept responsibility for repairs.  Mr Cheung, the elder son, admitted that between May 2003 and May 2005, no one from the plaintiff company visited the premises in response to Mr Iwasa’s many phone calls and complaints.  The plaintiff’s position always was and remains that they were under no obligation to do anything about the problem.

8. Nonetheless they did send “a contractor” to effect repairs in April 2004.  They paid the contractor’s invoice of $8,000.  The problem however persisted as the photographic evidence proves.  Mr Iwasa’s evidence, which I accept, was that there was darkening and staining to the wooden floor of the landing when the tenancy commenced.  Thereafter, throughout 2004, both before and after the April repairs, the area was unusable due to wetness and buckled floor boards.  The numerous photographs taken at various times throughout 2004 give a graphic picture of the condition of the floor.

The tenancy

9. The tenancy agreement is a two-page document in English.  There is a Chinese version which is unsigned.  The English version contains 22 clauses, 17 of which impose specific obligations on the tenant.  None of the clauses impose any specific obligations on the landlord.  Several record the landlord’s rights, none record the tenant’s rights.  This does not mean that the landlord has no obligations and the tenant has no rights.  The impression I got from Mr Cheung’s evidence for the plaintiff was that he thought that was the situation.

10. The plaintiff, through Mr Cheung, specifically relied on Clause 14 which stated :

“

14.

The tenant is solely responsible for the repair of doors, windows, kitchen and bathroom fittings, pipings, drains etc. during the continuence of this Tenancy.”

11. I make the following observations on this clause :

(a)	The use of the word “etc.” gives the entire clause an air of vagueness and uncertainty.
(b)	Because of this uncertainty, the clause should be construed narrowly against the landlord.
(c)	The responsibility to “repair … during the continuence of the tenancy” imposes on the tenant an obligation to repair certain things which become broken during the tenancy.
(d)	It does not dilute the landlord’s common law obligation to provide premises in a good and tenantable and habitable condition.
(e)	The “repairs” envisaged are those of an obvious and superficial nature such as doors coming off hinges, windows getting broken, towel rails becoming detached and internal drains getting blocked.  It does not cover structural defects.
(f)	It does not remove from the landlord, the obligation to investigate and repair defects which existed or probably existed at the time of the commencement of the lease.

Findings

12. Having heard the evidence, counsel’s submissions thereon and considered the relevant documentation and correspondence, the following matters are either not in dispute or proved.

(1)	Discolouration or staining of the floor of the landing was present at the time of the signing of the lease.
(2)	The above pre-existing condition worsened from the start of the tenancy.  The photographs taken by Mr Iwasa during 2003/4 give true and accurate images of the condition of the floor, the wallpaper and also depict the problems concerning the electricity supply.
(3)	Mr Cheung Hok Wah and his father declined all invitations and requests to visit the premises to investigate the problem.  Mr Cheung confirmed, in cross-examination, the contents of his witness statement which was to the effect that, from the outset, the plaintiff’s position was that the problem was not their responsibility and they were under no obligation to respond.
(4)	The problem was caused by water coming from the area of the shower cubicle in the master bedroom’s en-suite bathroom.  The marble floor and walls of the cubicle were not part of the original design but had been installed later by a previous owner.
(5)	In February 2004, the plaintiff sent a contractor to attempt repairs.  These cost $8,000 but the problem persisted throughout the rest of 2004.
(6)	The water problem was the direct cause of the electricity problems which included failure of lighting in the children’s bedrooms, a failure of electricity supply to the television and washing machine and damage to the circuit breakers.  The landlord also initially refused to investigate the electricity problems.
(7)	Mr Iwasa commenced paying a reduced monthly rent in January 2004 in an attempt to get a response from his landlord.  The decision was borne out of frustration.  Mr Iwasa and his family were worried about the state of the floor, the failure to solve the problem and its effect on the electricity supply.
(8)	In June 2004, the plaintiff sent an electrician to the property.  The electrician identified wet wiring as the cause of the faults in the circuit breakers.  He ran wiring from other sockets in an attempt to solve the problem.  This was the electrician’s solution, not Mr Iwasa’s.  The faulty electric connections continued into 2005.
(9)	Mr Iwasa and his family did not, as speculated by the plaintiff’s expert witness, use the bathroom negligently by, for example, consistently leaving the shower door open when in use or by leaving taps on which caused floods.
(10)	The damage rendered part of the property unusable.  I cannot quantify this in percentage terms.  Suffice it to say that the damage to the landing, the shower being put out of use and the electricity problems (from mid 2003 and throughout 2004 at least) taken together constituted a small but significant derogation from the usable area.
(11)	In April 2005, a young friend of Mr Iwasa’s son tripped over the bulging floor boards and had to be taken to hospital for treatment.
(12)	Between October 2003 and June 2004, Mr Iwasa made ten recorded visits to the management office of the property to make complaints about those matters already referred.  Mr Wan, of the management office, attempted to contact the landlord but was met by the same response.

Expert evidence

13. Mr William Poon gave evidence in support of his written report for the plaintiff.  He was a Chartered Building Surveyor with a degree in Surveying and Building Engineering.  Mr Chris Tang gave evidence in support of his written report for the defendant.  He was also a qualified surveyor and had the additional qualification of a “Qualified Water Seepage Inspector” with a professional certificate in water seepage and water proofing.

14. Mr Poon carried out an investigation in May 2005, Mr Tang’s site visits were in March 2005.

15. Neither expert could make a conclusive finding.  Mr Poon carried out an infra-red thermographic scanning survey which showed that in May 2005 there was no seepage and that the premises were dry.  Mr Tang carried a “Colour Dye Test” diagnosis which gave an inconclusive result.

16. In examination-in-chief, Mr Poon summarized his findings by saying “we believe the bathroom might not have been used properly”.  He discounted “seepage” as a cause and suggested that leaving the shower door open was a more likely scenario.  I found this explanation difficult to rely on in view of the extent of the damage caused as described by Mr Iwasa and as shown in the photographs.

17. Mr Tang’s conclusion was :

“

… we were of the opinion that the seepage was highly likely to have been caused from defective damp proof course at the shower place inside the bathroom of the master’s bedroom together, possibly, with a burst of the internal wall drainage pipe thereat.  This was probably caused as a result of the negligence in disrepair of the drainage pipes ….”

18. Although inconclusive, I preferred Mr Tang’s evidence.  It helped me conclude that the tenant was not in breach of Clause 14 of the lease.

Decision

19. Ultimately, there was one issue in this case.  Was the defendant entitled to pay a reduced rent from January 2004 to July 2004 resulting in a total shortfall of $45,000?  This represents a shortfall of 35% for the period between January and July 2004 but only 7% if taken over the total period of occupation.  For the following reasons, I am satisfied that the answer to the one issue is — yes.

(a)	Clause 1 of the tenancy has certain words crossed out as follows :
	“	… at the monthly rent of Hong Kong Dollars TWENTY ONE THOUSAND ONLY inclusive of rates and Service charges $____ payable in advance on the first day of each and every calendar month without deduction the first of such payments being rent for the period from/month of _____ to be made upon the signing of this Agreement.  RENT AND MANAGEMENT FEE.”
	The fact that “without deduction” is crossed out implies that circumstances may arise in which “deductions” are permissible.
(b)	The defendant has pleaded the $45,000 shortfall as a “set-off”.  I think it is better described as a deduction.  A “set-off” against rent can be permissible but it would more usually be a claim in relation to money spent rather than reduced rent.
(c)	By failing even to investigate the complaints, the plaintiff cannot claim that it was a problem for which he was not responsible.  How did he know?  The result is that there was an omission (a failure to investigate and/or a failure to repair) which rendered the premises substantially less fit for the purpose for which they were let.  This constitutes a breach of the landlord’s implied covenant not to derogate from his grant.
(d)	It is arguable also, but with less force, that the facts, as found, constitute a breach of the landlord’s implied covenant for quiet enjoyment.  Although, the seepage may have pre-existed the commencement of the lease, the severe consequence did not emerge until after Mr Iwasa took up occupation.  Although I accept that it is not within the usual type of “quiet enjoyment” cases, it is nonetheless arguable, that by his omission the landlord caused an interference or disturbance to the tenant’s full benefit and enjoyment of his possession of the premises.  It was, arguably, actual disturbance and was more than mere inconvenience.
	Slade LJ in Duke of Westminster v. Guild [1984] 3 All ER at p.154 said :
	“	… a mere act of omission on the part of a landlord is capable of constituting a breach of the covenant for quiet enjoyment, if, but only if, there is a duty to do something. …”
	In our case, the plaintiff turned its back on any duty imposed on it (presumably on the unmeritorious basis that the written agreement contained no such duties).
(e)	I consider it unnecessary and academic to enter into the debate as to what the $45,000 shortfall constitutes in law.  Whether it is “arrears” of rent which the landlord cannot claim because of his breaches or whether it is withheld rent which the tenant need not repay because of the landlord’s breaches or whether it represents a figure for damages due to the tenant which he may set-off against arrears, is neither here nor there.  On any view the landlord is in breach of implied covenants at common law and as a result the admitted “arrears” are irrecoverable.

Quantum

20. The defendant’s pleaded case and evidence on quantum is deficient.  The low water mark of their case is as follows and which, in my judgment, is the only reasonable way to resolve the differences between the parties :

(a)	The minimum “damages” to which the defendant is entitled on its counterclaim is $45,000.  It has already had the benefit of such a sum, plus interest, by the deductions made in 2004.
(b)	The defendant has not paid the rent for December 2005 and January 2006 (a total of $42,000).  The plaintiff will be entitled to keep the $42,000 deposit paid in May 2003 in substitution.
(c)	The defendant remains liable to pay rent at $21,000 a month from February 2006 onwards until he vacates the property.  As yet no notice to quit nor any “transitional termination notice”, pursuant to the Landlord and Tenant (Consolidation) (Amendment) Ordinance 2004 (16 of 2004) has been served.  The consequence of this judgment is that the landlord’s right of forfeiture for non-payment of rent never arose.  The tenant therefore remains in lawful occupation.

21. However, Mr Iwasa stated in his evidence that the only reason, or at least the main reason, that he and his family have remained in occupation was because he wanted to remain “on site” pending the outcome of the proceedings against him.  I accept his evidence on this matter and regard it as understandable.

22. Now that the case has been heard however, he has expressed a desire to relinquish the tenancy as soon as reasonably practicable.  For all concerned, the sooner the better.

23. I therefore dismiss the plaintiff’s claim, I allow the defendant’s counterclaim to the limited extent as outlined in paragraph 20(a) above.  I make no order as to interest.  I award the defendant costs on a nisi basis on the District Court scale.  Both sides should have ensured that this case was heard either in the District Court or the Lands Tribunal.  I do not think High Court costs are merited whatever the outcome.