PLOTIO DEVELOPMENT (HK) LTD. AND ANOTHER v. RALPH SPRENGER

LDPD963 of 2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

New Tenancy Application No. 963 of 2002

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JUDGMENT

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Background

1. The Applicants were the landlord and the Respondent the tenant of the suit premises known as 1st Floor and Roof, together with a Car Parking Space in the Garden, 11A Peony Road, Yau Yat Chuen, Kowloon ("the Premises"). The Applicants filed an application to the Tribunal on 12 April 2002 (as amended on 19 April March 2002), applying for (1) possession of the Premises; (2) arrears of rent in the sum of $264,000; (3) mesne profits at the rate of $33,000 per month from 1 May 20002 until possession of the Premises is delivered up by the Respondent to the Applicants; (4) further rates at the rate of $3,600 per quarter from 1 July 2002 until possession of the Premises is delivered up by the Respondent to the Applicants; (5) interest on the said arrears of rent, the said further rates, and the said mesne profits at the rate of 8.14% per annum from the date of this Notice of Application to the date of judgment and thereafter at the judgment rate until payment; (6) costs; and (7) further and/or other relief.

2. The Respondent filed a notice of opposition on 2 May 2002 opposing the application. In the first paragraph of the said notice of opposition, the Respondent admitted that he had omitted to pay rent as specified in the Applicants' Application. In the second paragraph of the said notice of opposition, the Respondent cited a clause of the Tenancy Agreement of the Premises in which the Applicants agreed inter alia "to keep the outside main wall, the main structure, the main drains and pipes of the said messuage and building in proper and tenantable repair and condition as from to time required." Therefore, the Respondent pleaded in paragraphs 3 and 4 of the said notice of opposition that

"(i) in breach of the said Tenancy Agreement the 1st and 2nd Applicants failed to keep the main structure, in particular the roof of the premises in good repair, so that by the month of July 2001, the roof leaked badly causing cement to fall from the ceiling. In a letter dated 3rd July 2001, the Respondent informed Messrs. Hastings & Company, agent of the 1st and 2nd Applicants of this state of affairs and requested them to carry out the necessary repairs. Despite numerous subsequent requests by the Respondent during the months of September and December 2001, the 1st and 2nd Applicants have failed to carry out any repairs at all. (ii) As a result of the 1st and 2nd Applicants' failure to repair the roof of the Premises, it has deteriorated and is becoming dangerous for the Respondent to use. In or about October 2001, the Respondent obtained a quotation from Sincere Decoration and Furniture Co. in respect of the costs of repairs and the costs of repairs was estimated to be approximately HK$47,000 at that time."

3. In the Counterclaim of the said notice of opposition, the Respondent repeated paragraphs 1 to 4 of his Grounds of Opposition. The parties in a hearing before H.H. Judge Yung argued over the issues of set off of damages from the outstanding rents and counter-claim. It was decided that the Tribunal had the jurisdiction to deal with the former issue but not the latter issue.

Evidence of the parties

4. Although the hearing of the evidence and the submission of this case lasted for one whole day, there was little difference between the parties on the basic facts behind the litigation. Both were represented by lawyers. The Applicants called for the evidence of Mr. Chan Ting Kwok Terrence, the 2nd Applicant whilst the Respondent gave evidence himself.

5. It was agreed that the Premises was part of a 2-storey house with fenced private garden. It comprised the first floor flat with a living area with front balcony, a dining area with rear balcony, a master bedroom with a bathroom, 2 other bedrooms, 2nd bathroom and a kitchen. The floor area was about 173.8 sq.m. (or 1,870.8 sq.ft.). The Respondent said that the house was built in 1945. There was an open top roof above the flat, which formed part of the Premises under the Tenancy Agreement. There was also a car parking space on the ground floor.

Evidence of the Applicants

6. Mr. Chan Ting Kwok Terrence ("Mr. Chan") gave evidence that following the receipt of the Respondent's complaint letter by the Applicants' lawyer, the Applicants had tried to deal with the matter. Since the 1st Applicant was a limited company, it did take sometime for the two Applicants to reach any decision. Mr. Chan said that he had called for two quotations but found that they were unacceptable as the quotations, according to the Applicants, proposed unnecessary works.

7. Mr. Chan denied that the Applicants had not dealt with the complaint and the request for repair promptly. He denied any delay in handling the matter. To counter the criticism from the Respondent of not making any progress since July 2001, Mr. Chan said that "with a view to amicably settling the Respondent's allegation, the Applicants through Messrs. Hastings & Co. wrote to the Respondent's solicitors on 16 May 2002his solicitor wrote to the Respondent's solicitors on 16 May 2002 and 24 May 2002, requesting for a copy of the Quotation from the Respondent's nominated contractor Messrs. Sincere Decoration & Furniture Co. ("Contractor"). Those requests were ignored. Mr. Chan said that it was not until after 5 weeks that the Respondent provided the Applicants with the requested Quotation, a document which had been in existence since October last year.

8. In addition, Mr. Chan said that although his solicitors wrote to the Respondent's solicitors on 3 July 2002 asking for a site inspection of the Premises with the Contractor for the purposes of carrying out repair, if necessary. However, it was not until 20 July 2002 that the Applicants together with the Contractor did inspect the Premises on 20 July 2002.

9. Mr. Chan therefore said that the Applicants had not been delaying in dealing with the matter of repairing the alleged leakage from the ceiling. On the contrary, the Respondent did not appear to have responded reasonably to requests made by the Applicants in connection with the proposed repair works.

10. Also, Mr. Chan said that on 26 July 2002, the Contractor put forward a revised quotation to his solicitors. Although he understood that only the first 3 items of the quotation related to the Respondent's alleged water leakage from the ceiling of the Premises while the other items related to the building as a whole and had nothing to do with the Respondent's complaint of leakage from the ceiling. However, considering those charges reasonable, the Applicants agreed to carry out those extra items of works as well in order to save the trouble of attending those matters in the future. He produced as Exhibit "A-2" a revised, itemized quotation from the Contractor dated 26 July, 2002, with the total sum of quotation to be $50,000.

11. Moreover, Mr. Chan said that after starting the works on 1 August 2002, the Contractor was not allowed to finish the remainder of the works on the ground that the Contractor could not be given access to the bedrooms. He produced as Exhibit "A-3" a letter from the Contractor dated 3 October 2002, which stated, "Having received your deposit, we started works on 1st August, 02, and on 23rd August, 02, we finished the works of the item No. 1-8 of our quotation No. 0353, with the exception of item No. 3. It is because Mr. Sprenger did not let us in his bedrooms to work. So far, we have been waiting for his permission. If we are allowed to carry on the work in his bedrooms, we will move the small furniture out to the living room, and will put them back after the work is finished. As for the fixed or large furniture, we will put the sheeting to cover them. The work of items No. 3 will be completed in 5 days."

Evidence of the Respondent

12. The Respondent admitted the details of non-payment of rents, etc. as alleged by the Applicants in the Application. Basically, the Respondent said that the roof of the Premises was leaking but the Applicants had neglected to keep the main structure and the main drain and pipes in proper and tenantable repair and condition, and took no action to repair even after receiving written notice of the leaking problems from the Respondent in July 2001. As a result, the Respondent decided to stop paying rent in order to exert pressure onto the Applicants.

13. The Respondent said that since it was never his intention to avoid payment of rent, he paid into Court outstanding rents when ordered by the Court in the hearings held to hear the interlocutory applications made by the parties. He would continue to pay into Court all the rents and rates due. The Respondent said that the Applicants should be responsible for the damages he suffered and that he should be able to set off the damages from the rents payable.

14. The Respondent produced photo prints showing the extents of the leakage of the ceiling. He said it affected large areas in the Premises, including the kitchen, bedrooms and living room. The plasters kept on falling down, and there were dark colour mouldings at the affected ceiling areas, which were very unsightly. The photographs were taken in September 2002. The situation was particularly serious during rainy days. He said that he had a severe feeling of frustration and anger. He believed that the Applicants were delaying in dealing with the matters as they did not wish to spend money in the repairs. Therefore, after the Applicants had received quotations from two different contractors, they still did not consider it necessary to instruct the contractors to do the work.

15. The Respondent during the hearing gave evidence that since the leakage was affecting large areas of ceiling, he estimated that he was suffering a loss, equivalent to a rent reduction of about $12,000 per month. He was seeking such loss of damage from the Applicants and would like to set off the sums from the rents payable.

16. Regarding the Respondent's refusal to allow the Contractor to get inside the bedrooms to complete the repairing works, the Respondent explained that arrangements would have to be made for temporary accommodation for an estimated 5 days of repair and protection of furniture and interior contents before the contractors could begin repairs to the interior of the Premises. The Respondent produced as Exhibit "R3" a copy of a letter dated 30 September 2002 from his solicitors to the Applicants' solicitors. In the letter, the Applicants were asked to reply as to whether they agreed with the proposed arrangement for temporary accommodation for the Respondents.

Cause of the leakage of the roof

17. It was common that there was water leakage from the roof of the Premises; however, there was a dispute on the cause of the leakage. In this case, the Applicants submitted that the "Respondent's failure to clear the drains on the roof from rubbish during rains is clearly the cause of the water leakage and is itself a breach of Tenancy Agreement on his part."

18. The Tribunal does not accept this submission because apparently, it was based on the following statement made by Mr. Patrick Lai in his report, "It should be very likely that at times of heavy rainfall and when the drains on the roof was blocked by rubbish, water would be stored on the roof areas above the affected areas on the First Floor. If the water proofing on the roof had been inadequate, water would find its way down to the ceiling below...Based on the analysis, I (the expert) consider the water stains and the damages to the ceiling areas inside the Master Bedroom and the water stains on the ceiling areas inside the Another Bedroom were caused by water leaking from the drains areas of the Roof."

19. Apart from the above quoted statement from Mr. Lai, who did not give evidence in person in this case, the Applicants did not have any other evidence that the blockage of drains by rubbish was the sole or main reason of the leakage. We note that Mr. Lai was not a qualified building surveyor specializing in repairs of buildings and that he had only come to his conclusions by observation, without carrying out any test. Since the real cause of leakage is generally a difficult question, the Tribunal cannot simply accept the observation of Mr. Lai as providing sufficient evidence for his conclusion. In addition, there was no evidence that the Respondent had neglected to clear the drains of the rubbish. On the contrary, the Respondent gave evidence himself that he had instructed his maid to clear the drains of the rubbish from time to time, and especially during rainy days. It would also be logical to believe this evidence from the Respondent since there was nothing to gain by not removing the rubbish, thus causing water leakage.

20. Therefore, contrary to what the Applicants had suggested, we do not have clear evidence as to the cause of the water leakage in the roof of the Premises. This is not uncommon because in most instances, it is not easy to determine the cause of any water leakage. Fortunately, however, the Tribunal does not consider it necessary to find out the real cause of the water leakage in this case.

Set off of Damages

21. The Applicants accepted with the Respondent that the latter had the right to set off against outstanding rents if he had suffered damages arising from the Applicants' breach of Tenancy Agreement of the Premises, subject to the Respondent's duty to mitigate his loss.

22. Apart from alleging that the Respondent had caused the leakage himself by not clearing the drains, the Applicants did not deny the Applicants' obligation as the landlords, under the provisions of the Tenancy Agreement of the Premises, "to keep the outside main wall, the main structure, the main drains and pipes ... in proper and tenantable repair and condition."

23. The 2nd Applicant's evidence was that he had been calling for quotations from maintenance contractors since receiving the Respondent's written complaint of the leakage. Therefore, the Applicants submitted that it was unreasonable for the Respondent to stop paying the monthly rents that were due whilst the Applicants were looking for a solution to the leakage problem.

24. Furthermore, the Applicants submitted that it would be necessary for the Respondent to prove that such breach of the Applicants had caused the Respondent to suffer any loss, and that the Respondent had quantified his loss, notified the Applicants' such loss before the Respondent was entitled to set off such loss against outstanding rents in the first place. The Applicants further argued that since the Respondents did not notify the Applicants that he had suffered loss as a result of the Applicants' breach of Tenancy Agreement, or he did notify the Applicant that he had been suffering but failed to quantify the loss, and or he failed to notify the Applicants the quantum of loss with justification, the Respondent was not entitled to set off such loss against outstanding rents. Consequently, the Applicants submitted that they were entitled to file an application to the Lands Tribunal for recovery of possession and outstanding rents, and costs, as what the Applicants had done.

25. It was undisputed that the Respondent had not considered the Premises to be uninhabitable since he continued to reside in the same Premises ever since he made written complaint for want of repair in July 2001, about 2 months before he ceased paying the Applicants rents from September 2001.

26. Also, it was not disputed that the Respondent did not set out the damages, notwithstanding (a) Tribunal's Orders dated 25 June 2002 and 2 August 2002 regarding mutual exchange of witness statement and expert report , (b) repeated requests from the Applicants, until 25 September 2002 when he served his Witness Statement. In the said Witness Statement dated 23 September 2002 (pages 84 to 87 of Exhibit R-2, the Respondent said,

"The Applicants are now finally taking steps to repair the Premises but I would ask this Honourable Court for compensation for the damage and nuisance my family suffered from the date of my notice given to the Applicants' solicitors, being July 2001, until repair of the Premises is finished. Although the Applicants were were aware of the need for repairs and despite being a good tenant since 1989 they simply ignored all of my requests for repair and have let this damage and nuisance go on for over one year. In the circumstances I am seeking a reduction in rent which is fair and which I estimate to be an amount of HK$12,000 per month."

27. In response to the above statement, the Applicants submitted that the Respondent had accordingly failed to quantify and prove the said loss, to be effected by a reduction of rent in the sum of $12,000 per month, from the date of the Respondent's written notice to the Applicants' solicitor (i.e. July 2001) to the date the repair of the Premises was finished.

28. In addition, the Applicants submitted that since water leakage only occurred when there was heavy rain, the "damages, if any, should not be awarded when there was no heavy rain." As a matter of reference, the Applicants produced the Record of Rainstorm Warnings from the Hong Kong Observatory, which show that, for the period from July 2001 to September 2002, there were only 41 days when rainstorm warnings (of all colours) were hoisted.

29. Finally, the Applicants submitted that "Even if, which is denied, the Applicants are liable to Respondent for want of repair, the damages estimated and claimed are out of proportion with the costs of repair and size of the affected areas.

Tribunal's findings and determination

30. The Tribunal agrees with the Applicants' submission that in order to establish the Respondent's right to set-off his damages against outstanding rents, the Respondent had to prove all of the following, subject to the Respondent's duty to mitigate his loss:

(a) Applicants have been in breach of Tenancy Agreement;

(b) Such breach has caused the Respondent to suffer the loss; and The Respondent has to quantify his loss.

31. The Tribunal finds that it is clear that the Applicants had to be responsible, under the Tenancy Agreement, for the repairs of the leaking ceiling. The repairing works did not start until 1st August 2002 although a formal written complaint was lodged with the Applicants' solicitor in early July 2001. It took far too long for the Applicants to deal with the matter of complaint. The Respondent did mitigate the loss by promptly informing the Applicants the disrepair.

32. The Respondent did not notify the Applicants his quantum of loss until during the hearing. Therefore, the Applicants were right in starting the proceedings with this Tribunal for recovery of possession and recovering of rents, rates, mesne profits and costs. For the same reason, the Applicants were entitled costs of the proceedings of this case.

33. Regarding the quantum of loss suffered by the Respondents, the evidence before the Tribunal was not much. There were the photographs showing the damages to the ceiling. Apart from that, the Tribunal heard evidence of the Respondent regarding his estimate of the loss, and the Applicants' submission that the loss be made with reference to relationship between the area of the Premises and the areas so affected by the leakage. There was, for example, no valuation regarding the reduction of full rental value of the Premises as a result of the leakage. In the circumstances, the Tribunal decides, in light of the evidence available, that the loss to the Respondent should be in the order of 10% of the existing rent of the Premises, or $3,300 per month.

34. In addition, the Tribunal decides that it is not correct to calculate the loss based on the number of days that the Hong Kong Observatory hoisted a raining warning signal. The real problem of the leakage was that the ceiling plaster kept peeling off and falling down and the affected areas were very unsightly. These persisted throughout the period before the repairing works were completed.

35. Also, the period affected for the calculation of the total loss should be from the date the Respondent notified the Applicants the defects and the date of completing the repairing works. The Tribunal finds that it was unreasonable for the Respondent to deny access of the Contractor to the bedrooms for completing the remainder of the repairing works. Therefore, the period of loss to be set off by the Respondent should be from July 2001 to August 2002, both months inclusive. Applying the estimated monthly rate of $3,300, this equates to a sum of loss of $46,200.

36. Since the Respondent has paid into the Court several sums of money as rents, etc., they will be set off against payments of rents, rates, etc.

Orders

1. The Respondent shall deliver vacant possession of the suit Premises to the Applicants;

2. The Respondent shall pay the Applicants the following:

(i) arrears of rents from 1 September 2001 to 30 April 2002 in the sum of $33,000 per month, totaling $264,000;

(ii) interest on the said sum of $264,000 at the judgment rate from 12 April 2002 until the date of the Order, and thereafter at the judgment rate until payment;

(iii) outstanding rates for the quarter July to September 2002 and the quarter October to December 2002 in the sum of $3,600 per quarter, totaling $7,200;

(iv) mesne profits from 1 May 2002 to 31 October 2002 in the sum of $33,000 per month, totaling $198,000;

(v) further mesne profits from 1 November 2002 to the date of delivery of vacant possession at the rate of $33,000 per month; and

(vi) credit is to be given to the interim payments made by the Respondent to the Tribunal in the respective sums of $205,000 and $21,000, $21,000, $21,000 and $21,000, totaling $268,000.

(vii) Credit is to be given to the loss suffered by the Respondent as assessed by the Tribunal in the sum of $46,200.

3. The Respondent shall pay the Applicants' costs of this Application, to be taxed on the District Court scale if not agreed.

4. Upon the Respondent paying to the Applicants the sums in paragraphs 2 and 3 above within 4 weeks from the date hereof, the Respondent be relieved from forfeiture under Section 21F of the High Court Ordinance, and that the Respondent may hold the suit Premises according to the Tenancy Agreement in question without any new tenancy agreement, and that all further proceedings in this Application be stayed;

5. In default of the Respondent paying to the Applicants the sums in paragraphs 2 and 3 hereinbefore mentioned within 4 weeks from the date hereof, the orders in paragraphs 1 to 3 herein may be enforced forthwith and the Respondent shall be barred from all relief;

6. Payment out to the Applicants upon payment in by the Respondent, if any.