SUPREMACY TRADING CO LTD v. ASIAN PROPERTY INVESTMENTS LTD

HCSA 56 & 57/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 56 OF 2014

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL
CLAIM NO 16911 OF 2014)

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 57 OF 2014

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL
CLAIM NO 22437 OF 2014)

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J U D G M E N T
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1.  This is an appeal by the claimant against the decision of the Small Claims Tribunal (‘the Tribunal”) dismissing 2 claims for refund of tenancy deposits and ordering the claimant to pay damages for loss of rental of the defendants.

FACTUAL BACKGROUND

2.  The claimant was the tenant and the defendants were respective landlords of two adjacent properties (“the properties”). 

3.  The original tenancies between the claimant and the defendants were for the term of 4 April 2011 to 3 April 2013.

4.  In or about May 2013, the claimant signed new agreements to extend the lease of the properties for another 2 years from 4 April 2013 to 3 April 2015 (“the new agreements”).  The rents were increased. All other terms were the same save that the claimant could only give notice of termination after 12 months from commencement of the new lease, ie on 4 April 2014.  The claimant passed the new agreements to the defendants for signature. In the meantime, it had been paying the new rents.

5.  Since July 2013, the claimant had repeatedly requested the defendants for copies of the signed new agreements and rental receipts. The defendants required the claimant to first pay the additional deposits (representing the original and new rents) but the claimant refused.

6.  The new agreements were dated 20 June 2013.  On 19 July 2013 they were stamped. 

7.  In November 2013, the claimant asked for the new agreements and rental receipts to be given to it by 6 November.

8.  However, on 4 November 2013, the defendants informed the claimant that the new agreements had not been signed or stamped.

(a) By apps message:

“Hello can you settle the deposit difference so that we can sign and send you the [new] Tenancy Agreement. Our accountant promised that the receipt will be sent this week.”

The apps message showed that the new agreements have not been unsigned by the defendants.

(b) By email:

“Sorry for the delay, as I said in the whatsapp earlier, please make the deposit difference of 6k to [the defendants] respectively as we are still waiting for the [defendants] to sign that part. We cannot sign until we received the money. We will sign and stamp the TA once we received the deposit and have it delivered to you as soon as we receive the money.”

9.  On 5 November 2013, the claimant issued a formal notice to terminate the tenancy on 4 December 2013 (“the notice”), specifically relying on the defendants’ failure to sign the new agreements. 

10.  On the same day, the defendants replied,

“I sincerely apologize for the delay, but our accountant [is] already working on it. Can you give us this week [to] rectify the issue? The Tenancy Agreement and Receipts from 2011 will be stamped and signed and be sent within 2 working days. Is that okay with you?”

It was rejected by the claimant on the same day.

11.  On 6 November 2013, the defendants suddenly emailed the claimant stating that the new agreements had been signed and stamped. 

“I think we have a bit of misunderstanding. Your Tenancy Agreement (attached below) is signed and stamped by us [on] 20/06/2013 and also been stamped and approved by the Stamp Duty Department, please see the receipt. Stamp Duty Office will ONLY accept if both parties [have] SIGNED the agreement which we both have.

After we have clarified what has caused the delay of the Tenancy Agreement to be delivered to you was NOT because we had not signed the agreement but was due to the fact that we hadn’t received the difference in deposit amount which in the Tenancy Agreement shall be received when signing of the Tenancy Agreement, hence our previous employee (Maria Lau) did not send you the copy. …”

12.  On the following day, the defendants delivered the signed new agreements and the receipts for payment of stamp duty to the claimant but the claimant declined to accept it.

13.  The claimant delivered vacant possession on 4 December 2013. 

14.  The claimant sued for refund of the deposits. It claimed that the tenancy became one at will after the original tenancy had expired.  The tenancy was validly terminated and the new agreements were not binding.

15.  The defendants relied on the new agreements and claimed that the earliest date on which the claimant could have issued the notice of termination was 3 April 2014.  As the claimant’s notice was pre-mature, the defendants set off the deposits against the unpaid rent and counterclaimed for 4 months’ loss of rental from 5 December 2013 (so as not to exceed the jurisdictional limit of the Tribunal).

16.  The learned Adjudicator found that there was a valid and legally binding agreement by reason of the fact that the parties had signed the new agreements and paid the stamp duties. 

17.  She found that the defendants’ mistake in telling the claimant that the new agreements were not signed was corrected before 6 November 2013.  She held that even though the mistake was that of the defendants’ employee, that had not altered the binding effect of the new agreements.  She considered the claimant’s termination of the tenancy before its self-imposed deadline of 6 November was unreasonable and invalid. 

18.  The learned Adjudicator found that the defendants had tried to mitigate their loss by trying to lease or sell the properties after the claimant had delivered vacant possession, and they had sold the properties on 28 May 2014 for $10,500,000.

THE GROUNDS OF APPEAL

19.  The claimant appeals on the grounds that the learned Adjudicator erred in law in:

A. Failing to consider or adequately consider the question of acceptance of the new agreements; and

B. Failing to consider or adequately consider the failure of the defendant to mitigate the loss.

Ground A: failure to consider the question of acceptance of the new agreements

20.  Acceptance has no legal effect until it is communicated to the offeror. Accordingly, there is no contract where a person writes an acceptance on a piece of paper which he simply keeps.  The main reason for the rule is that it could cause hardship to the offeror to be bound without knowing that his offer had been accepted.  Chitty on Contracts (31 ed) vol 1, §2-045.

21.  An offer which requires the acceptance to be expressed or communicated in a specified way can generally be accepted only in that way.  Thus the offeror will not be bound by an oral acceptance if he has asked for one to be in expressed in writing.  Chitty on Contracts (31 ed) vol 1, §2-065.

22.  Accordingly, the finding of the learned Adjudicator that the new agreements were signed and stamped was insufficient to constitute legally binding contracts in the absence of communication of the acceptance to the claimant.

23.  Not only had the defendants failed to communicate their acceptance, but they had twice stated to the contrary, ie that they had not yet signed the new agreements. 

24.  Further, the defendants’ stance at that time was clear – they would not accept without receiving the additional deposits.

25.  In finding the claimant to be unreasonable in terminating the tenancy before its self-imposed deadline of 6 November, the learned Adjudicator clearly overlooked the matters in paragraphs 23 and 24. She also overlooked the fact that even after receiving the notice, the defendants were still asking the claimant for indulgence to sign and stamp the new agreement (paragraph 10 above).

26.  Accordingly, at the time when the notice was served, no binding new agreements were entered into.  Any offer that the claimant had made was validly revoked. The defendants’ correction of the mistake came too late.  The tenancy had validly come to an end on 4 December 2013.  The claimant was entitled to refund of the deposits.

27.  Mr Wong, counsel for the defendants, have fairly conceded that the learned Adjudicator had misdirected herself on a point of law in not addressing the issue of whether acceptance had been communicated before the claimant withdrew the offer. 

28.  However, he relies on Order 55, rule 7(7) of the Rules of the High Court to contend that “the Court shall not be bound to allow the appeal on the ground merely of misdirection … unless in the opinion of the Court substantial wrong or miscarriage has been thereby occasioned.”

29.  In Wong Yin Fong& ors v ISS Hong Kong Services Ltd [2005] 2 HKLRD 648,  Lam J (as he then was), in explaining this rule, adopted the test formulated by Sir John Donaldson MR in Dobie v Burns International Security Services [1985] 1 WLR 43:

“Once you detect that there has been a misdirection, and particularly that there has been an express misdirection of law, the next question to be asked is not whether the conclusion of the Tribunal is plainly wrong, but whether it is plainly and unarguably right notwithstanding that misdirection. It is only if it is plainly and unarguably right notwithstanding the misdirection that the decision can stand. If the conclusion was wrong or might have been wrong, then it is for an appellate Tribunal to remit the case to the only Tribunal which is charged with making findings of fact. [The appellant] did not have to go to the length of saying that the Tribunal’s findings were perverse, and the majority [of the EAT] were wrong in thinking that they were prevented from sending the matter back on the basis that another Tribunal, to wit themselves, would have reached a different conclusion. All three of them were obliged, in my judgment, to remit the matter to the Tribunal notwithstanding that this is a very stale case …” (at §74)

(Emphasis added)

30.  In that case, the Labour Tribunal had erred in law in withholding the inspection of documents from the claimants. Notwithstanding that, Lam J did not think that the claimants could establish the employer’s breach of duties to sustain a case of constructive dismissal even if they could cross-examine the defendant’s representatives on the withheld documents (at §§78 and 79).

31.  Mr Wong submitted that the conclusion that there were binding tenancy agreements made between the parties was plainly and unarguably right notwithstanding the misdirection for 3 reasons:

(a) The new tenancies were for 2 years and could have been granted orally.  No formality was required.

(b) Valid and binding tenancy agreements had been concluded as early as May 2013.

(c) Alternative to (b), the new tenancies were accepted by the defendants on 4 November 2013 before the claimant’s withdrawal.

32.  With respect to Mr Wong, reason (a) was unsustainable.  It was not the defendants’ case before the Tribunal that there was an oral tenancy.  There was no such evidence anyway.  In any case, on the defendants’ own case, it was they who had prepared the new agreements and prescribed the formality of having written contracts. It in fact was the common intention of the parties as well.

33.  With regard to reason (b), Mr Wong submits that it was the defendants who made the offer of new leases and the claimant accepted them by signing and mailing them back to the defendants in May 2013. This was further supported by the fact that the claimant had paid the new rental for a few months.

34.  With respect to Mr Wong, this submission could not be correct. The new agreements could not be complete with only the claimant’s signature and, on the defendants’ position, without the additional deposits.

35.  The payment of new rental was consistent with a tenancy at will. Given the dispute as to whether or not the claimant had to pay the additional deposits, it could not be said that the claimant had already accepted the terms of the new agreements.

36.  With regard to reason (c), the so-called acceptance by the defendants were the apps message and e-mail both dated 4 November 2013. I am unable to agree that the landlords were there expressing acceptance when they were still asking for the additional deposits and expressing a willingness to sign only in the future.

37.  None of the reasons advanced are sustainable. The misdirection of the learned Adjudicator was not a mere procedural error. It was a substantial wrong and miscarriage of justice to hold the claimant to contracts that have not been validly formed and deprive it of deposits upon rightful termination of the tenancies. 

38.  Mr Wong further submits that even if there had been a substantial wrong or miscarriage of justice, this court should remit the matter to the Tribunal for trial. Otherwise this court will be reversing the finding of fact that there were binding new agreements.

39.  With respect, the parties do not dispute that the primary facts as found and relied on by the learned Adjudicator were correct. It was the legal inference drawn by her therefrom that fell into error. Remittal to the Tribunal will not bring about additional facts that will help in resolving this case.  This court has the power to draw inferences of fact from the evidence pursuant to section 29(2) of the Small Claims Tribunal Ordinance, Cap 338.

40.  I hold that Ground A is substantiated.

Ground B: failure to consider the failure of the defendant to mitigate the loss

41.  In view of my holding under Ground A, Ground B becomes academic.  I just deal with it for completeness sake.

42.  Mr Chow, counsel for the claimant, points out that the asking rental was an aggregate of $32,000 for both properties (14% above what the claimant had to pay had the new agreements been effective).  He submits that the defendants would have had trouble selling the properties had a tenant been in occupation.  It was also unclear whether the defendants were all along more interested in selling than leasing the properties.  The award on the counterclaim gave the defendants the best of both worlds.

43.  As a matter of law, it is for a defendant to raise the issue of mitigation in his defence: Hong Kong Civil Procedure 2015, Vol 1, para 18/8/17AA.  This requirement is not relaxed merely because the proceedings are conducted before a tribunal. This is because resolution of the question of mitigation requires evidence and the plaintiff has to be forewarned in order to prepare the evidence.  

44.  Where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, he will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial: Flywin Co Ltd v Strong & AssociatesLtd (2002) 5 HKCFAR 356, at §38, Mr Justice Bokhary PJ.

45.  Admittedly, the claimant has not raised the issue of mitigation before the Tribunal. Had the claimant raised the issue, the parties might have to produce evidence on the market rental at the material time.   Equally, if, as the claimant now says, by selling the properties, the defendants had suffered no loss, the parties might have to produce evidence of the market value of the properties with and without sitting tenants.  It is too late for the claimant to raise the issue of mitigation on appeal.

46.  The learned Adjudicator had considered all the evidence relevant to the issue of mitigation, namely, that the defendants had put up the properties for both sale or lease to mitigate loss.  The defendants could have sought damages for 5 months but only asked for 4.  I am of the view that the learned Adjudicator had not failed in her duty to investigate this issue.

CONCLUSION

47.  In respect of Ground A, I find that the learned Adjudicator had erred in law in finding that there were binding new agreements.  The appeal of the claimant is allowed.

48.  In view of the claimant’s success, it is not necessary to decide Ground B.  In any case, the learned Adjudicator had not erred in law in failing to investigate the issue on mitigation which has not been raised.

49.  Costs should, as a matter of principle, follow the event and be to the appellant to be summarily assessed at $150,000.

50.  I order as follows:

(1) The appeal of the claimant is allowed.  The orders of the Tribunal are set aside.  There be judgment in favour of the claimant in the sum of $3,642.26 in respect of HCSA 16911/2014 and $8,000 in respect of HCSA 22437/14.

(2) On a nisi basis, costs of the appeal should be to the claimant, summarily assessed at $75,000 in respect of each appeal.

(3) The monies in court held as security for costs together with interest accrued thereon shall be refunded to the claimant 14 days after handing down of this judgment, unless any party applies for variation of the costs order nisi in the meantime.

51.  I thank counsel for their assistance.