WONG TAK HANG v. GOLD CHECK LTD t/a KONDO LOUNGE

1988, No. A151

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. The plaintiff is the owner of a ground floor flat in Tai Hang Road (the Flat). In February 1987 she let it to the defendant under a common printed form of Chinese lease for a period of 2 years from 8th March 1987 to 7th March 1989. The lease provided for a monthly rent of $13,500 and a deposit equivalent to 3 months rent i.e. $40,500.

2. The plaintiff is an interior decorator and she says she spent about $200,000 on decorating the flat. However, that may be, it was newly and well decorated when the defendant took up the lease. Miss Kim, one of the directors of the defendant, testified that she agreed to pay a deposit of 3 months' rent instead of the 2 months rent originally sought because of that.

3. Thereafter Miss Kim and her husband Mr. Kurwana, the other director of the defendant, moved into occupation of the Flat. However, it was on the ground floor and, according to Miss Kim noisy because it was also on the main road. By about July or August 1987 she had decided to move out and about early October had found a new flat in Kingston Road.

4. She then instructed Miss Lee, her accountant and secretary, to contact the plaintiff about terminating the lease. At this point a curious feature of the lease must be mentioned. The agreed English tranlsation of the Chinese text of clause one of the lease not only specifies the Flat, the term and the rent, but goes oh to provide that:

"It is agreed that during the term of the tenancy if the tenant wish to vacate (from the premises), the tenant shall give one month written notice in advance, otherwise the rental deposit will be forfeited as compensation."

The plaintiff testified that neither she nor the defendant were aware of that provision and that she would not have agreed to it had she known; having spent so much on decoration she wanted a tenancy of at least 2 years. On the other side, it was Miss Kim, who like her husband is Korean and knows very little Cantonese and not all that much English, who herself negotiated and signed the lease. She testified that the lease was explained to her by the estate agent employed by the plaintiff and also by the plaintiff, and that she knew of the provision for one month's notice though she decided not to use it for reasons she gave, and to which I shall come.

5. I return then to the sequence of events. Miss Lee, whose employment with the defendant commenced after the Flat was occupied by the defendant, says she did not know of the provision for month's notice (although Miss Kim thought she did). On being so instructed by Miss Kim, she telephoned the plaintiff who initially refused to agree to early termination. She asked instead that the defendant arrange for a substitute and remain responsible for the rent. The defendant attempted to do so but was not able to find anyone. So Miss Kim says, she agreed to let the plaintiff forfeit the deposit of 3 months' rent because, nothwithstanding her right to terminate on one month's notice, she felt sorry she was not able to find another tenant and the discussions had dragged on for a couple of months. The $40,500 in her view would cover whatever money was due including repairs and vacating after 7th December.

6. The negotiations with the plaintiff were, however, conducted by Miss Lee because she and the plaintiff were able to communicate in Cantonese. Around October/November they reached agreement for premature termination and for the Flat to be surrendered originally in mid December, but later Miss Lee was able to firm up that date to no later than 10th December.

7. In December she telephoned the plaintiff and arranged with her to be at the Flat on the 10th of that month between 3 and 4 p.m. to check it and to take the keys. There is some minor conflict of evidence as to what happened on that afternoon and when Mr. Kurwana arrived, but it is not of significance. The plaintiff complained of some scratches on a leather sofa and asked for $1,000 for repairs. Also she produced a document in Chinese (the Chinese document) to be signed on behalf of the defendant. It was in the following terms:

Regarding Flat B, Ground floor, No. 16 Tai Hang Road (whereas) WONG TAK HANG (as) Landlord (and) KONDO LOUNGE (as) Tenant (and) the monthly rental (in the sum of) Thirteen Thousand Five Hundred only. Originally (the same) commenced from the 8th day of march, 1987 to the 7th day of March, 1989. Now, at the request of the Tenant, the agreement will be rescinded on the 10th day of December, 1987 and (the Tenant) is willing to indemnify (the Landlord) with the 3 moths' deposit as the compensation for the Landlord in respect of the rescission in advance. The Landlord will accept the Tenant's proposal. Thereafter, the said premises can be sold (or) let to anybody (and) the Tenant could not raise any objections (thereto). This is to certify.

Landlord: (sd.) WONG TAK HANG

Tenant : (chop) For and on behalf of KONDO LOUNGE.

(sd.) Illegible

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Director signature

8. Mr. Kurwana took the document away to the defendant's new premises for Miss Kim to sign. Miss Lee who remained behind says shortly after she tried to give the keys to the plaintiff who refused to accept them, saying she was entitled to get the Chinese document back before she accepted the keys. Miss Lee then returned to the defendant's new premises. There she talked about the matter with Miss Kim and Mr. Kurwana and Miss Kim signed the Chinese document. Miss Lee then phoned the plaintiff saying that the defendant should not be held liable for the scratches. The plaintiff became angry and she, and Miss Lee were not able to carry on the conversation.

9. The plaintiff's evidence is somewhat different. She says that the agreement was not only that the defendant would forfeit the 3 months' deposit as compensation for early termination but that the defendant was to deliver up vacant possession by returning the keys and punctually paying the rent until delivery up. She denies that the keys were offered to her by Miss Lee and also claims she was not given the rent outstanding which she was promised. Miss Lee, she says, in the course of the negoaitions, had agreed that in addition to the forfeiture of the deposit rent would be paid for the period 8th November to 7th December 1989. The latter being the date on which she had originally agreed to deliver up vacant possession, but that later Miss Lee asked for that date to be deferred till the 10th December. The plaintiff says she agreed that with Miss Lee subject to the defendant paying $450 for each day beyond 7th December. Returning to the 10th, Miss Lee, she says, went off saying she would telephone her about the cheque for the rent due and the Chinese document, but although she waited Miss Lee did not do so. As a result later that evening she reported to the police that the document was not returned, and next day caused her solicitors to write to the defendant demanding the rent due and the Chinese document. A police record of report and the solicitors' letter were put in evidence and not disputed.

10. On the 5th January 1988, the defendants solicitors sent the keys to the plaintiff's solicitors who on the plaintiff's instructions refused to accept them. On 8th January 1988 the plaintiff filed her writ. On 6th July 1988 she accepted the keys.

11. The primary issues for determination as defined by Mr. Ramanathan for the plaintiff which I accept and which are issues of fact, are first, what were the terms of the surrender agreement (in particular was forfeiture of the deposit to be in satisfaction also of any rent due); and second whether the defendant did deliver up possession on 10th December, 1987.

12. Significantly, neither party contend or suggest that the surrender agreement was not made. The material dispute is whether it required the defendant to pay arrears of rent as the plaintiff contends or whether the forfeiture of the 3 months' deposit was all-in compensation. The plaintiff was positive that Miss Lee had agreed to pay arrears of rent. Miss Kim denied that she had agreed and clearly Miss Lee took her instruction from Miss Kim. Miss Lee did not attempt to pitch her version too strongly in contrast to the plaintiff and also to some extent to Miss Kim in respect of her claim to be aware of the provision for one month's notice in the lease.

13. Miss Lee's evidence seem to me to be far more credible than that of the plaintiff, and for that matter, that of Miss Kim although the latters was to a similar general effect. I remain of that view notwithstanding that Miss Lee originally stumbled in her evidence before confirming that the forfeiture of the deposit was to satisfy the outstanding month's rent (as opposed to being in addition to it). I observed the demeanour of all 3 witness very carefully and as carefully considered the content of their evidence and the submissions of counsel. Also it seems to me significant (and not only in the present context) that the Chinese document prepared by the plaintiff makes no mention of payment of any arrears of rent, notwithstanding that on the morning of 11th December 1988, the plaintiff instructed her solicitors to claim such arrears. Even if it were to be assumed that it was genuinely in the mind of the plaintiff to insist upon payment of the rent in arrears, I would remain unsatisfied that it was mutually agreed in the context of the surrender agreement that arrears of rent were to be paid by the defendant in addition to the deposit being forfeited. On the contrary, the probability on all the evidence is that there was no mutual agreement that arrears of rent were to be paid. Besides, it is the plaintiff who so contends and upon whom the onus of proving that must accordingly lie.

14. I turn then to the second issue i.e. whether the defendant did deliver up vacant possession on the 10th December 1987. Mr. Ramanathan submits that the keys were not offered by Miss Lee nor the premises, delivered up on that day because the defendant was not in a position to do so. He presumably has in mind the decoration and the fitting out of the defendant's new premises that had to be carried out. But there is not a shred of evidence to support that contention. On the contrary, the tiding up of the Flat on the 10th suggests that the defendant was in a position to deliver up and fully intended to do so. The plaintiff's evidence, the Chinese document and her solicitors' letter of 11th, December all show the defendant's anxiety to have that document signed on the defendant's behalf and returned. That would adequately explain the plaintiff not accepting the keys which, on the probabilities, I accept Miss Lee did attempt to hand over. In my judgment in the context of the surrender agreement, that constituted delivery up of the Flat. That the Flat was vacant is not disputed. Having been executed in writing by both parties, the Chinese document in my judgment is a written instrument that has been acted upon and amounts to a surrender by act and operation of the law (see para. 1 - 1847 p.822 Woodfall's Law of Landlord and Tenant 28th Ed.). Furthermore, under the surrender agreement it seems to me to be implicit that no arrears of rent are to be paid. Neither the signing of the Chinese document or its return was a term of that agreement, nor did either go to the root of the agreement. Therefore, the plaintiff not entitled to refuse to accept the keys or delivery up.

15. For all the foregoing resons the plaintiff's claim fails and is dismissed.

16. As to the defendant's counterclaim, I can see no necessity for ordering specific performance of the surrender agreement or for making a declaration that vacant possession has been delivered up; nor indeed does either seem to me to be appropriate. Dismissal of the plaintiff's claim seems to me to be all that is necessary. Mr. Ho, if I understood him rightly, did not in the event press the counterclaim. I accordingly make no order upon it.

17. It seems to me that costs should follow the event in the normal way, and unless counsel wish to be heard I will order that costs be to the defendant.