CHUN SUE KWAN v. SKY HARVEST LTD AND ANOTHER

DCCJ 6027/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.6027 OF 2004

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J U D G M E N T

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Introduction

This is an application for summary judgment for vacant possession, arrears of rent and mesne profits. The subject property is a shop situate at the ground floor of a commercial building (“the Property”). The ground of forfeiture was non-payment of rent.

By the time of this hearing P had already recovered possession of the Property and therefore, P’s claim for vacant possession had only the significance on the issue of costs. 

The Plaintiff (“P”) also applied for interim payment should summary judgment not being granted.

The 1^st Defendant (“D1”) counterclaimed damages for breach of collateral contract and misrepresentation.

Background

1. The subject tenancy was concluded between P and D1 through a single estate agent as what was usually the case in Hong Kong.  It was a 3-year lease commencing from 13^th June 2004 and expiring on 12^th June 2007 at the rent of HK$17,000 per calendar month payable in advance on the 13^th day of each month.  The rent included government rent and rates and management fee but not utilities and outgoings.

2. D1 operated a medical clinic at the Property.  The 2^nd Defendant (“D2”) was a medical practitioner practicing there who was joined as a party on P’s application for being an occupier therein.

3. It was P’s case that D1 failed to pay rent since 13^th September 2004 and a demand letter for arrears of rent was sent to D1 on 14^th October 2004.  Since D1 refused to settle the arrears of rent, a writ of summons was issued on 16^th November 2004 against D1.  It was later on ascertained that D2 was occupying the Property for his medical practice and therefore he was joined as a party.

4. D1 alleged that, on inspection of the Property before entering into the tenancy, D1’s representative (“Liu”) and D2 spotted some defects on the ceiling of the cockloft in the Property with water seepage. The estate agent Ms. Ching (“Ching”) promised them that P would fix the defects before D1 moved in.  Liu had also informed Ching that toilet facilities were necessary for operation of a clinic and Ching told Liu and D2 that there were toilets situated on the ground floor of the building for their use.

5. According to D1, it was upon these representations that D1 agreed to enter into the tenancy agreement. 

6. It was later on found out that the toilet referred to by Ching was out of function and the owners of the building had no intention to repair it for use.  It turned out that the staff and customers of D1 had either to use the toilet of a restaurant upstairs or the one situated at a park in 10 minutes’ walking distance.

7. D1 also alleged that P had failed to properly fix the defects on the ceiling of the cockloft and serious water seepage problem carried on occurring in the Property.  These problems affected seriously the business of D1.

8. D1 then tried to work out a solution with P but according to D1, P had not been cooperative.  As D1 had difficulties in contacting P, D1 decided to require P to collect the rent in person at the Property instead of paying rent by electronic transfer.  There had been correspondences between the solicitors of the parties and D1 subsequently recinded the tenancy by a letter dated 4^th November 2004.

9. Although D1 had recinded the tenancy, it chose not move out immediately in order to mitigate the loss pending the search of another venue to continue the business.  D1 finally moved out at the end of February and started operating the clinic at another location.

10. D1 counterclaimed for damages including, inter alia, loss of businesses, removal expenses and decoration expenses.

The Defence

11. Mr. Leung, counsel for D1 and D2, submitted that there are 3 limbs of D1’s defence.

12. The first limb is that Ching, acting as an agent of P, together with P herself, had misrepresented to D1 that there is a toilet available in the vicinity of the Property upon which D1 relied and entered into the tenancy agreement.  D1 was therefore entitled to recind the tenancy agreement and P is liable to compensate D1 for damages.

13. The second limb is that P was in breach of a collateral contract with D1 that P would properly repair the defective ceiling of the cockloft and thereby D1 is entitled to sue P for damages.

14. The third limb is that under clause 3 of the tenancy agreement it is necessary for P to post up a notice demanding payment of outstanding rent before P is entitled to forfeiture and P failed to do so.

15. Mr. Leung admitted that D1 should account for the rental value for the period D1 occupied the Property after the alleged recission.  It was however argued that only a reasonable amount should be allowed and such amount is liable to be set off by the damages P is liable to D1.

16. Miss Ho, representing P, stressed that this is a simple arrears of rent case and D1’s allegation is not credible.   

Discussion

17. In determining a summary judgment application, the court must not embark on a mini trial on affidavits and the test is whether the defence is credible. Hong Kong Civil Procedure 2006 (para. 14/4/9)

18. Liu had given a detailed and particularized sequence of events relating to the alleged misrepresentations in her affirmations.  Her evidence is on the whole consistent with existing facts and there is nothing in it being inherently improbable.  The fact that Ching’s evidence is not obtained does not affect the strength of Liu’s evidence because one would reasonably expect that Ching is to give evidence for P if misrepresentation is to be denied. 

19. According to Liu, P had all along been personally involved in dealing with the problems of availability of toilets and water seepage, it is very likely that these were live issues between parties since the negotiation of the tenancy.

20. I do not agree with Miss Ho that this is a simple case of delaying payment of rent without cause.

21. Although a substantial part of Liu’s evidence is under dispute, there is no apparent reason as revealed from the existing evidence to suggest that P’s evidence is to be preferred against Liu’s.  It would be difficult for the court to accept either version of facts without a proper trial.

22. I find that there exist triable issues as to whether there had been a misrepresentation and breach of collateral contract.

23. As to the third limb of D1’s defence, I am of the view that the proper interpretation of the relevant clause of the tenancy agreemnt does not favour D1’s argument.  However, in view of the above findings, the less I comment on it at this stage will be the better.

24. As regard D2, it is a matter of facts as to whether D2 was occupying the Property at the material times.  Besides, the defences of D1 as mentioned above are also available to D2 for the question of whether P had the right to recover possession.  I find that there is a triable issue as such.

Conclusion

25. I note that D1 shall at least be liable for the outstanding rents before recission and the value for occupation thereafter until vacation.

26. However, taking into account the deposits (HK$34,000) held by P and the amount of D1’s proposed counterclaim, I would also leave this issue until after final determination of the action.

27. It is therefore ordered that unconditional leave to defend be granted to D1 and D2.

Interim Payment

28. P asked for interim payment under Order 29 Rule 12(b) of the Rules of District Court.  As D1 and D2 are not occupying the Property and there will not be further damages suffered, I do not think that an order for interim payment is appropriate in view of the matters as set out under paragraphs 25 and 26 hereinabove.

29. I make an order nisi that costs of this application for summary judgment, including the Order 29 application, be costs in the cause, to be absolute 14 days after.  With certificate for counsel.