CHOW KAN CHOY v. TSUI KING TSAN

1995 No. A 6717

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an action for breach of a tenancy agreement. The principal issue, however, is whether or not there was an oral agreement between the parties that the tenant, the Defendant, be allowed to surrender the tenancy.

2. The tenancy agreement in question is dated 22nd June 1994, and was for a period of three years from 1st November 1994. This was the second three year agreement between the parties, the first being from 15th October 1991. The premises are a shop on the ground floor of Jumbo Building, Pau Cheung Square, Yuen Long, where the Defendant carried on a business under the name of Hang Wing Shoes and Bags. The premises also included a cockloft with a separate entrance rented under an oral agreement for the same term, but these proceedings only concern the shop. The rent for the shop was $22500 a month and $2500 a month for the cockloft, a total of $25000.

3. In mid-February 1995, the Defendant, finding that his business was suffering a drop in income, and having financial difficulties, negotiated with the Plaintiff a reduction in rent, to which the Plaintiff said he reluctantly agreed. From 1st March, it was agreed, the rent would be a total of $24000 a month. The Plaintiff also added in his evidence that the Defendant promised to continue the tenancy. I am not satisfied that this was said, even if it were relevant to these proceedings. The Plaintiff's present case is based on the fact that the Defendant was obliged to continue the tenancy to the end of the agreement, so it adds nothing to his case to say that there was a separate agreement that he should do so.

4. In any event, the new rent was paid when the Plaintiff called at the shop as usual at the beginning of March to collect it.

5. The next thing to happen was that the Plaintiff called at the shop again a day or two later, initially for the purpose of discussing what he thought he would have to pay to the Inland Revenue as a result of the reduction on rent, a sum he believed would be a few hundred dollars. Why this sum should be payable, or when, was never explained. Be that as it may, both parties agreed that this was the purpose of the visit. The Plaintiff says that he was just telling the Defendant that the sum was payable, but that he would pay it himself. The Defendant, on the other hand, says that the Plaintiff required him to pay it, and he agreed. In so far as this is relevant to these proceedings, I prefer the version given by the Defendant. It seems to me for more likely that the Plaintiff would call to collect a sum he believed he had to pay, rather than just to tell the Defendant how generous he was being by not asking him to pay, particularly in view of the evidence as to the rest of this meeting, and the obvious ill-feeling which accompanied it.

6. The Defendant says that he took the opportunity to ask the Plaintiff again for a further reduction in rent, as his business was still not doing well, but the Plaintiff became angry and said that, if he did not want to rent the shop, there were plenty of people who did and the Defendant could leave. The Defendant, who was clearly also angry, and possibly without thinking, replied that he agreed to that and would move out, and he says the Plaintiff told him to move out as soon as possible. The Plaintiff denies that that conversation ever took place. He says that after the discussion about the sum payable to the Inland Revenue, the Defendant said that he did not want to rent the shop any more, but he gives no explanation as to how the conversation reached this point. Neither does he say that he made any strenuous objections to the suggestion, but merely seems to have accepted it. I find this account unlikely in the extreme, and where the Defendant's version of the events of that day vary from the Plaintiff's, I prefer the former.

7. The Defendant's account is further supported by the evidence of his then employee, Mr. Leung Kin Hau, who was in the shop at the time of the conversation, and was able to hear some, if not all, of it. He says that he heard the discussion about a further reduction in rent, and the Plaintiff saying words to the effect of "You can choose not to rent my place"; the Defendant saying "All right", and the Plaintiff replying "Then you move out as soon as possible". I accept Mr. Leung's evidence, and the fact that the conversation took the course he and the Defendant say that it did. The Plaintiff, clearly irritated by the Defendant's repeated attempts to reduce the rent, and thinking that he could easily relet, offered to terminate the tenancy, and the Defendant accepted.

8. This in itself is sufficient to operate as an agreement to surrender the tenancy, but to see whether there was a surrender by operation of law, I will go on to look at the conduct of the parties after this.

9. The next event of note was that the Defendant wrote to the Plaintiff on 11th March 1995 referring to his difficulties, and saying that he would quit and surrender the shop to the Plaintiff "when the rental deposit is used up". The deposit was one month's rent together with $2000 electricity deposit, so, having paid the reduced rent for March, this would cover the rent to the end of April. It is true that he does not mention any agreement in his letter, a point which Mr. Kong for the Plaintiff relies on, but I have to bear in mind that the Defendant is not an educated man, with no knowledge of the law, and was merely putting into writing his position as he saw it, and as to when he would leave. In view of my findings as to the rest of the evidence, I place no weight on his failure to refer to what I am satisfied was an agreement to surrender.

10. What I do find significant is the fact that nothing was done by the Plaintiff, or his solicitors, to whom he says he showed the letter, to require the Defendant to continue with his tenancy in accordance with the terms of the tenancy agreement. Indeed, the Defendant's evidence is that the Plaintiff came to see him after he received the letter, and said that he only had one month's rental deposit so he could use the shop until the end of April. The Plaintiff says that his solicitors told him to wait and see whether the Defendant did give up the tenancy on 30th April and thereby breach the agreement. But this cannot be the case. The Plaintiff went to see the Defendant in early April, the only time he says he spoke to the Defendant until 30th April, and was paid the rates for that month only pro rata in cash. Not only did the Plaintiff say that he made no objection to this, and did not demand the rates for the next three months in accordance with the rates demand note, but neither did he demand the rent for that month. The rental deposit is security for the performance of the terms of the tenancy agreement, not a payment in advance of rent. By not paying the rent for April, the Defendant would, in the absence of an agreement such as he has described, be already in breach of the tenancy. Yet neither the Plaintiff nor his solicitors demanded that rent or suggested that the Defendant was in breach. The behaviour of the Plaintiff throughout was that of a landlord who had agreed that the tenancy should end. Indeed, even after the Defendant left at the end of April, no demand was made by the Plaintiff for rent for that month or for May, and he was a landlord who had always collected rent in person, and the Defendant was by this time renting the shop next door and was accordingly easily contacted. It was not until 22nd May that the Plaintiff's solicitors wrote to the Defendant claiming a breach of the tenancy agreement.

11. The Defendant meanwhile, in early March, once he knew that he was leaving the Plaintiff's shop, and needing to find premises to continue his business, negotiated a new tenancy with the owner of the shop next door which had been vacant for about a year, of similar size to the Plaintiff's, for $20000 a month, and about the time of his letter to the Plaintiff, paid the first month's rent and a deposit to the new landlord.

12. As I have noted, there was no further action by the Plaintiff until 30th April 1995, when, in the morning of that day, he and his wife called at the shop and reminded the Defendant that this was his last day and he had to move out. The Defendant said that he would, and he had in fact started to do so, by moving some of his stock and possessions to the shop next door. Although the Plaintiff denies this visit, I again prefer the Defendant's evidence, which is supported to some extent by Mr. Leung, who saw the Plaintiff that morning. Again, there is no suggestion from the Plaintiff that the Defendant is doing anything wrong by moving out, but rather ensuring that he is abiding by the terms of the agreement to surrender the premises on that date. That evening the Plaintiff, his wife and son all returned to the shop while the Defendant and Mr. Leung were in the course of moving, and gave instructions as to clearing up the premises, and what was to be removed.

13. There is an allegation by the Plaintiff that his wife told the Defendant that he would be sued for breach of agreement. However, this is denied by the Defendant and was not heard by Mr. Leung, and not mentioned by the Plaintiff's son in his witness statement, and I prefer the evidence of the Defendant as to this as well. The keys to the cockloft were handed to the Plaintiff, who left then with his wife, and the keys to the shop were given to the Plaintiff's son about midnight. I accept on the evidence that the handing over of the keys was unconditional and in accordance with the agreement to surrender. The tenancy therefore came to an end at that moment.

14. It follows from the above that I accept that the exchange of words in early March 1995, albeit informal, were sufficient to amount to an agreement to surrender the tenancy. That agreement was followed by conduct on the part of both parties amounting to an unequivocal acceptance that the tenancy had ended, and the acceptance by the Plaintiff of the keys on 30th April was part of the agreement that the tenancy shall cease, and that it did cease on that date.

15. I accordingly give judgment for the Defendant with costs to be taxed.

16. For the sake of completeness, and in the event of any appeal, I will go on to deal with the question of quantum, had I found for the Plaintiff.

17. The Plaintiff claims rent for the residue of the term under the tenancy agreement at $22500 a month and rates for the same period, less the sum of $137985 being rental and rates that the Plaintiff will receive from a new tenant under an agreement dating from 1st February 1997 at a monthly rental of $14500.

18. However, the Plaintiff admits that, although he offered the premises for rental in 1995 at $20000, and would have accepted that, he was offered a tenancy at $15000 a month in July or August, but considered it too low. In October 1995, he was offered $14000 a month. Again he did not take it as he thought he could get more.

19. It is apparent that he badly misjudged the market. He admitted in evidence that he was optimistic about it and thought he could relet easily, which may well have been why he so readily agreed to allow the Defendant to surrender the tenancy, but the reality must have been apparent as soon as he put the shop in the hands of estate agents. He should perhaps also have been put on notice by the fact that the shop next door, which the Defendant rented, had been vacant for a year. The fact remains that he could have relet the shop within four months of the Defendant leaving at a rent of $15000, and should have mitigated his loss by taking that offer. There is no reason why a Defendant should be penalised by an error of judgement by a Plaintiff.

20. Had I found for the Plaintiff, therefore, I would have awarded damages to the extent of the full loss of rent and rates for four months, and thereafter loss of rent only, any new tenant being responsible for the rates, at $7500 a month, to the end of the period of the tenancy agreement.