Wong Kam Kong v Intercontinent Mercantile Co (A Firm)

IN THE SUPREME COURT OF HONG KONG

APPELLATE JURISDICTION

CIVIL APPEAL NO.14 OF 1968

(On Appeal from K.D.C., C.J. Action No.7711 of 1967)

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JUDGMENT

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1. This is an appeal from the District Court concerning a deposit of $4,800 paid under the terms of a tenancy agreement dated the 17th February, 1965. The agreement was for the lease of a flat on the second floor of No.36, Wing Hong Street, Kowloon, for a term of 4 years commencing from the 1st March, 1965. The flat was used for business purposes.

2. There is little, if any, dispute as to the relevant facts of the case, which shortly are as follows. The plaintiff entered into the agreement as landlord and the defendant firm as tenants, and the defendants duly entered into possession of the premises and started to pay the rent therefor. However, on the 23rd July, 1967, a fire occurred in the building containing the premises causing some damage, but the trial judge found, and from this finding there has been no appeal, that the demised premises were not destroyed by the fire or rendered unsafe for human habitation thereby, and that what had occurred did not entitle the defendants to terminate the agreement under a particular clause thereof. The trial judge also found that the defendants' decision to move out of the premises was prompted by the stoppage of electricity, and by damage to the lifts and staircase of the building. The defendants moved out of the premises in question on the 25th or 26th July, 1967, moving out furniture and utensils, although they still continued to visit the premises regularly until about the 15th August, 1967, and last did so on the 10th September, 1967. It appears that the lifts were in operation again by the end of August, 1967, and that electricity was re-connected to the floor in question in September, 1967. The electricity supply was cut off by the Electricity Company immediately after the fire, and it is admitted by the defence that it would have been for the defendants to apply to have the electricity re-connected and that the defendants did not do so. On the 25th July, 1967, the defendants moved into other premises, namely the Lai Cheong Building, No.479, Castle Peak Road, which they had apparently acquired on the 23rd July, 1967, at first renting these new premises for 2 months only, but where the defendants thereafter have continued to carry on business. It is clear in the circumstances that the defendants abandoned the premises the subject matter of the tenancy agreement in question. On the 21st or 22nd August, 1967, the defendants saw the plaintiff and asked to be allowed to surrender the tenancy on account of the fire, but the plaintiff refused because he considered that the defendants were not telling the truth, because according to a notice which the defendants had put up they had removed their business to the Lai Cheong Building, opposite the building in question, and also because the plaintiff considered that the defendants should perform the terms of the tenancy agreement with the plaintiff. On the 15th September, 1967, the plaintiff distrained for rent upon the premises, but nothing but a pile of rubbish was found there, and the same day the plaintiff under the terms of the agreement exercised his power of re-entry of the premises by entering into possession thereof. The writ in the action was issued on the 22nd September, 1967.

3. In his statement of claim endorsed on the writ of summons the plaintiff claimed $4,800 being three months' arrears of rent at the rate of $1,600 per month for the period from 1st July, 1967, to the 30th September, 1967, $750 for maintenance and electricity charges for the same period at the rate of $250 per month, and $300 being garbage removal charges for the same period at the rate of $100 per month, making a total of $5,850. In their defence the defendants admitted the plaintiff's claim, but inter alia sought to set off the deposit of $4,800 which the defendants had paid to the plaintiff under the terms of the tenancy agreement. In his reply the plaintiff states in effect that the deposit was paid by the defendants to the plaintiff to secure the due performance and observance of the terms and conditions of the agreement, and was only returnable to the defendants if those terms and conditions were duly performed and observed, but otherwise the deposit was forfeitable to the plaintiff, and that in the events which had occurred, namely the failure to pay the rent, the re-entry and the consequent earlier-termination of the term, the plaintiff was entitled to and had forfeited the deposit, and that therefore the deposit could not be set off against the claim.

4. The learned trial judge found that the deposit was liquidated damages and not a penalty, and he also came to the conclusion that the plaintiff's loss was the actual amount claimed by the plaintiff in his writ, and he was unable to say that the intention of the parties as expressed by the tenancy agreement was to give to the plaintiff the sum claimed as well as the deposit, and he therefore allowed the amount of the deposit to be set off against the plaintiff's claim.

5. The plaintiff appealed against the trial judge's decision whereby it was adjudged that the deposit of $4,800 should be set off against the plaintiff's claim of $5,850.

6. Under the terms of the agreement the rent for the premises was payable in advance on the first day of each calendar month.

7. The deposit was payable under Clause (2) (a) of the tenancy agreement which is as follows:-

"(2) The Tenant to the intent that the obligations may continue throughout the term hereby created hereby agrees with the Landlord in the manner following. THAT IS TO SAY:-

(a) To pay to the Landlord upon the signing hereof by way of deposit the sum of HK$4,800.00 to secure the due performance and observance of the terms and conditions herein contained."

8. The return and the forfeiture of the deposit are dealt with in clause (3)(c) of the agreement which states:-

"(3) The Landlord hereby agrees with the Tenant as following:-

XXXX XXXX XXXX

(c) To return the Tenant the said deposit money without interest within the period of thirty days after the expiration or other sooner determination of the term hereby created, provided that the said rent hereby stipulated shall have been duly paid on due dates and all other terms and conditions hereby contained shall have been duly performed and and (sic) observed by the Tenant, but the said deposit money shall be absolutely forfeited to the Landlord if the Tenant shall fail to perform or. observe any of the terms and conditions herein."

9. Clause (4)(a) of the agreement gives the landlord the added power of re-entry either for non-payment of rent or for failure to perform or observe any of the terms and conditions of the agreement, and the clause expressly states that any such determination shall be without prejudice to any right of action of the landlord in respect of any breach of the Tenant's term (sic) and conditions therein contained.

10. On the hearing of the appeal counsel for the plaintiff contended that the learned trial judge had erred in law in holding that the sum of $4,800, the deposit, could be set off against the plaintiff's claim of $5,850, and that he had erred in not holding that the plaintiff was entitled to and had forfeited the deposit, and that he had also erred in treating the claim for three months arrears of rent and charges as a claim for damages from which the sum representing the deposit could be properly deducted. Counsel submitted that it was clear that the defendants did not intend to go on with the lease, and had used the fire as an excuse to move out of the premises in question; that the defendants had failed to perform the terms and conditions of the agreement in that they had failed to pay the rent on due dates, and had abandoned their obligations under the agreement for the rest of the term of the agreement, and there was therefore a breach of their obligation under the agreement to hold the premises for the full term of four years. Counsel for the plaintiff agreed that, if the plaintiff's claim had been for damages, the deposit could have been set off against such a claim because a deposit is in lieu of damages for breaches, and a tenant should not have to pay damages for the same thing twice, but in the present case there was no claim for damages, only for arrears of rent and charges; the deposit was in...