KOON WAH MIRROR HOLDINGS LTD v. TSANG HU HUNG HUMPHRY

HCA 2125/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2125 OF 2003

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J U D G M E N T

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Background

1.  The plaintiff and the defendant entered into a tenancy agreement dated 19^th June, 2000 in respect of shops G7, G8 and G9 on the Ground Floor of Mirror Tower, 61 Mody Road, Tsimshatsui East, Kowloon.  The term was for three years from 3rd June, 2000 to 2^nd June, 2003 and at a monthly rental of HK$70,000 payable in advance on the 1^st day of each calendar month. 

2.  The defendant failed to pay rent since 1^st November, 2002 and the plaintiff through its solicitors served the defendant with a demand letter on 3^rd April, 2003.  The defendant did not respond to the demand positively and the plaintiff instituted this action on 10^th June, 2003 to forfeit the tenancy, seek vacant possession of the premises and payment of arrears of rent, management fees (or service charges) and rates. 

Defence

3.  The defendant in his defence dated 7th July, 2003 set off the deposit of HK$370,000.  He also pleaded that because of the outbreak of SARS, he should receive certain deductions from rental and be given a rent-free period.  He further complained that there had been no air-conditioning or management service for the months of April to June, 2003.  He also pleaded that there was an agreement between him and the plaintiff on 5^th June, 2003 that he would be given a grace period of at least three months for him to look for someone to take over his business in the premises. 

Application for summary judgment

4.  On 17^th July, 2003, the plaintiff issued a summons for summary judgment which was supported by an affirmation of one Lam Gary Hay.  Mr. Lam in his affirmation verified the facts pleaded in the statement of claim. 

5.  On 29^th July, 2003, the defendant filed an affirmation to oppose the application.  He just repeated his defence in the affirmation.  Master Ho on 4^th August, 2003 adjourned the application for argument.  He also gave the defendant leave to file a further affirmation within 14 days and the plaintiff to file a reply affirmation within 14 days thereafter.

6.  On 13^th August, 2003, the defendant filed a further affirmation which repeated the allegations in his defence.  The plaintiff filed on 1st September, 2003 an affirmation by one Wan Kam Chi in reply.  Wan opposed the set-off of deposit as referred to in the defence.  He also denied that there had been no air-conditioning or management service from April to June, 2003 as alleged by the defendant.  He agreed that there had been a meeting between the parties on 5th June, 2003 at the Mirror Tower management office.  He said in the meeting he had demanded the return of keys and vacant possession of premises from the defendant, but the defendant requested for a three-month grace period free of rent, management fee and rates so that he could find a new tenant to replace the defendant.  Wan said that this request was rejected because the defendant was already indebted to the plaintiff.  Furthermore, such a proposal could leave the plaintiff with no choice as to the intended new tenant and the business to be operated at the premises.  Wan also agreed that the defendant had made requests for reduction of rent as a result of SARS or poor business, but all such requests were rejected by the plaintiff. 

Counterclaim

7.  The defendant filed a counterclaim for HK$613,500 on 20th October 2003 without leave of the court.  The detail of this counterclaim, which is for loss and damage relating to an execution of a warrant of distress by the bailiff, is referred to below.  On 27th October, 2003, he was given leave by a Master to amend his defence and counterclaim. 

8.  On 7^th November, 2003, he sought leave to further amend his defence and counterclaim in terms of another version of amended defence and counterclaim.  This proposed (amended) defence and counterclaim is more extensive. 

9.  In the proposed amended defence, he maintained that the plaintiff had allowed him to use the deposit to offset the rental that was due. 

10.  He also pleaded to a visit by the bailiff with a distraint warrant on 24th March 2003.  He said the bailiff had broken into his lounge, seized all the cash from his cashier and told him not to do business until he had settled the arrears of rent.  He also said that the air-conditioning, water and electricity supplies had been cut-off at the same time.  The water and electricity supplies resumed after he had threatened to call the police, but the air-conditioning was still off.  The bailiff withdrew after a week on the plaintiff's instructions, but the air-conditioning was not resumed until the filing of the defence.  That week was most damaging to him as he had lost his regular customers and had to lay off the staff and the band.  He had also lost all his credit with the wine merchants and could not do any business.  He therefore made a counterclaim and quantified it at HK$613,500. 

11.  To make things worse, his potential investor came twice during that week and then told him that the investment would be withheld for the time being.  He therefore said that his million-dollar went straight down the drain and his bright future, which should have begun from April 2003, also vanished. 

12.  He then pleaded that the management service was so bad that he should be entitled to the refund of the management fee (or service charges) paid so far.  He thus proposed to make a further counterclaim for this at the total sum of HK$650,232.  He also pleaded that he had made many complaints about the management services but to no avail.  He explained that he had refrained from making serious accusations because he had been told by the management staff that any move as such mightcost them their jobs.

13.  On top of the counterclaim for which leave was granted on 27^th October and the counterclaim proposed on 7^th November as above mentioned, the defendant also pleaded four intended counterclaims, namely:

(i)	the million-dollar investor;
(ii)	his goodwill;
(iii)	compensation from KCR; and
(iv)	Barman overtime pay for three years.

14.  He then elaborated the proposed counterclaims.  He said the plaintiff had misrepresented to him that the ducts and pipes at the ceiling of the premises were air ducts and clean water pipes when in fact they were sewage and toilet pipes.  He then had to spend an extra HK$45,000 to deal with them in order to comply with government regulations. 

15.  He also complained that the plaintiff had failed to procure the cleaning of the air-conditioning units once every three months as promised.  This resulted in water dripping down the premises which upset the customers.  He also complained that the plaintiff had never kept the outside glass area clean, necessitating his staff doing the cleaning of that area everyday.

16.  He also said that the plaintiff's main drain did not drain efficiently. In order to avoid flooding the bar, his staff had to wash the glasses and dishes slowly.  That resulted in overtime for the staff and loss to him.

17.  He also referred to the Indian restaurant business next door and said that every evening from 6 p.m. onwards, the restaurant would putout greasy and strong odour rubbish.  When they washed their kitchen later in the evening, dirty and smelly water would pass through his entrance on the way to the pavement drain.  His complaints to the plaintiff led to no result and he had to open a new entrance to avoid the problem.  This cost him over HK$100,000 and other expenditure. 

18.  This HK$100,000 for the new entrance, the HK$45,000 in relation to the ducts and pipes and the refund of management fees at HK$650,232constitute the proposed counterclaim of HK$795,232 put in on 7^th November, 2003.  There was also the counterclaim for which leave was given on 27^th October for loss of regular customers, laying off staff and the bandand the loss of credit with the wine merchants altogether quantified at HK$613,500.

19.  Finally, he said 50% of the areas next to the premises had been blocked off and closed by the KCR for the construction of the railway extension.  But the plaintiff refused to claim any compensation for him from the KCR and the KCR would only entertain his claim if the plaintiff had authorized it.  He thus suffered loss again.

Response to the counterclaim

20.  Mr. Wan Kam Chi made a 3^rd affirmation to respond to the defendant’s draft amended defence and counterclaim.  He denied that the air-conditioning, water and electricity supplies had been cut off since 24thMarch 2003.  He also said that the withdrawal of the bailiff  from the defendant’s premises on the plaintiff’s instructions was because of the desire to save time and costs and also for commercial reason which he did not elaborate.  He also denied that there was any formal complaint from the defendant about the quality of the management service prior to the institution of the action.  He also maintained that the management service was proper and there was no basis for any refund of the management fees paid. 

21.  On the counterclaim and proposed counterclaims, he denied that there was any representation by the plaintiff on the ducts and pipes at the ceiling of the premises.  He also said that the defendant had inspected the premises before signing the lease and he had not brought up the question of the pipes. 

22.  On the air-conditioning units, he said they had been cleaned and checked before the premises were handed over to the defendant but admitted that there had been three occasions of water dripping from the units, though the problem was solved on each occasion.  The source of the problem was a blockage in the water drain hole in the water receiving tank under the unit.  He denied that there was any agreement that the plaintiff would clean such units once every three months.

23.  On the window glass area, he denied that the external side had not beencleaned by the plaintiff's cleaning contractor.  He also said that the defendant had never complainedabout this before.  On the sink, he also said that there hadnever been any complaint from the defendant and that the defendant had fitted new sinks without prior approval from the plaintiff.

24.  On the new entrance to the premises, Mr. Wan said that two new doors were open by the plaintiff upon agreement with the defendant.  Furthermore, the defendant had never complained about odour or dirty smelly water.  In fact, the Indian restaurant existed prior to the leasing of the premises to the defendant.  The rubbish from the Indian restaurant was placed about 40 feet away from the defendant’s rear door and was cleared away everyday.

25.  Finally, Mr. Wan also said that none of the plaintiff's tenants had asked the plaintiff to seek compensation for themfrom the KCRthough the plaintiff was prepared to assist its tenants.

Summary judgment

26.  Summary judgment on the plaintiff's claim was granted by Mr. Registrar Chan on 3rd November 2003.  The application for stay of execution made on 7th November 2003 was dismissed also by the Registrar on 12th November 2003.  The application for leave to amend the defence and counterclaim was not allowed on 7^th November.

Appeal

27.  The defendant then lodged an appeal against the decision of the Registrar.  The part of his appeal against the order for delivery up of vacant possession of the premises had been dismissed by A. Cheung, J. on 22nd December, 2003.  The remaining part of the appeal only relates to the monetary matters as above-mentioned. 

28.  In the course of the hearing of the appeal, the defendant accepted that he was in the wrong when he failed to pay rent at the beginning of 2003 and thus the plaintiff was not in the wrong when they procured the execution of the warrant of distress by the bailiff, though he thought that the plaintiff would have informed him about this first.  Therefore, no counterclaim can arise from the visit by the bailiff or the withdrawal of the potential investor who had come to the premises during the week when the bailiff was there. 

29.  Next is the disputed issue of whether the air-conditioning had been stopped since 24^th March, 2003.  The defendant has been making this point since the filing of his defence on 7^th July, 2003.  He argued that he should not be required to pay air-conditioning and management fees (or service charges) at HK$19,704 per month for the months of April to June, 2004 as there was no air-conditioning and management service during those months.  In addition to the defendant’s assertion, there was a letter dated 5^th February, 2003 and issued by the defendant to the plaintiff in which the defendant sought reduction of rent from the plaintiff.  On the copy of this letter exhibited by Mr. Wan in his 3rd affirmation filed on 9^th June, 2004, there were some Chinese characters written at the top right hand corner saying that air-conditioning had been stopped.  The defendant denied that these words were written by him.  I do not know if these words were written by a member of the plaintiff’s staff simply to record a matter of fact or for whatever reason.  In any case, I do not think it right for me to accept the plaintiff’s denial to this assertion at this stage.  I think the defendant should be given the chance to ventilate this issue at the trial if he so wishes.  I also note that in the latest version of draft amended defence and counterclaim, the defendant has claimed that air-conditioning had in fact not be resumed up to the filing of that document.

30.  However, even if the defendant might not be liable to pay the part of the service charges attributable to the air-conditioning charges, it does not necessarily mean that he can mount a counterclaim against the plaintiff for cessation of air-conditioning since 24^th March, 2003.  Clause 6.1 of the tenancy agreement provided as follows:

“……  Notwithstanding anything herein contained in the event of default in payment of the Service Charges on the date on which the same falls due for payment or any interest thereon the Landlord shall in addition to its other rights under the terms of this Agreement be entitled to disconnect the supplied of air-conditioning to the Premises until the amount in arrears shall have been fully paid by the Tenant without incurring any liability to the Tenant for any loss or damages suffered by the Tenant as a result thereof.”

31.  Thus, it is plain that the plaintiff was entitled to stop the air-conditioning supply in the event of default in payment of the service charges by the defendant and the plaintiff could do so without attracting any liability to the defendant.  The defendant does not deny that he had not paid the service charges since November, 2002.  This counterclaim is therefore untenable.  I therefore do not think the application for summary judgment should be affected by it as the defendant has no defence to the plaintiff’s claim by way of set-off based on this counterclaim. 

32.  Regarding the other allegations like poor management service (which included the failure to clean the air-conditioning units once every 3 monthsand the failure to clean the outside glass areas), the alleged misrepresentation as to the ducts and pipes at the ceiling of the premises which led to an extra expenditure of HK$45,000, the alleged inefficient main drain of the building, the alleged problems from the Indian restaurant next door which allegedly resulted in the need for a new entrance at the cost of HK$100,000 and the alleged failure of the plaintiff to assist the defendant to claim compensation from the KCR, they are all unsupported by any contemporaneous documentation. 

33.  The allegations of poor management serviceare also over trivial matters that no particular of damages has been given.  There is likewise no particular of damages that the defendant had suffered because of the alleged inefficiency of the drain.  I also find it unbelievable that the defendant would have failed to complain to the plaintiff any misrepresentation that had caused him loss if such was a misrepresentation worth pursuing.  On the new entrance, the plaintiff has in fact produced a letter of request by the defendant for opening the new entrance.  There was no complaint or any mention of odour or dirty and smelly water in the letter.  Finally, on the claim for compensation from KCR, I fail to see why the KCR would have refused any claim for compensation from the defendant simply because there was no authorization by the plaintiff for the same to be made.  In any case, there is no evidence or any correspondence to show that the defendant had sought the help of the plaintiff to pursue such claim or that the plaintiff had declined to assist.  There is in fact not even any evidence that such a claim had been contemplated by the defendant. 

34.  I also remind myself the important guideline in Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155 at 158 that:

“It will in future be sufficient for the court to ask itself the simple question: ‘Is what the defence says credible?’  If so, he must have leave to defend.  If not, the Plaintiff is entitled to summary judgment.  The issue is not whether the defendant’s assertions are to be believed: it is whether those assertions are believable.”

35.  For the reasons given above, I do not accept that these other allegations in support of the remaining items of counterclaim are believable.  I therefore reject them. 

36.  On the management fees or service charges, I must give unconditional leave to the defendant to defend the same from the months of April, 2003 onwards as it was possible that the supply of air-conditioning had been stopped since 24^th March, 2003.  I appreciate that only part of the service charges was for the supply of air-conditioning.  There is however no evidence before me to permit an exercise of apportionment.  I will thus leave it to the plaintiff to prove how such charges should be apportioned for the air-conditioning on the one hand and other management services on the other.  I would therefore revise the judgment sum of HK$597,149.20 to HK$538,037.12 by taking off the management fees for the months of April to June, 2003.  I also delete from the judgment the item of management fees at HK$19,704 from 1st July, 2003 to delivery up of vacant possession.  I grant the defendant unconditional leave to defend these two items.  I dismiss the rest of the appeal. 

37.  Since the defendant has only succeeded to a limited extent in the appeal, I would order that he should pay the plaintiff 75% of the costs of the appeal and that the order of costs below shall remain.