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Property and Building Management Law Alert - May 2017
Submitted by // K Bowers, Partner / Solicitor Advocate
25 May 2017


A tenant does not always get to walk away

Introduction

This case concerned a water overflow incident. The Plaintiffs were the registered joint-tenant owners and occupiers of a flat (Flat 16A) in a residential building. The 1st Defendant was the registered owner and landlord of the flat above the Plaintiffs' flat (Flat 17A) ("Landlord"), while the 2nd Defendant was the tenant of Flat 17A ("Tenant"). The case examined the liability of the Tenant to the Landlord in respect of the water overflow incident which arose out of the fault of the Tenant.

Background

The Plaintiffs commenced the action against both the Landlord and the Tenant claiming loss in the sum of HK$588,251 and general damages for discomfort, anxiety, distress and inconvenience, caused by water overflowing from Flat 17A into the Plaintiffs' flat ("Incident"). The Landlord issued a Third Party Notice against its Insurer under a policy covering certain risks in relation to the flat. It also issued a Contribution Notice against the Tenant.

The Third Party Action against the Insurer was settled before trial. The Plaintiffs and the Landlord also settled the action between them ("Settlement") by the Landlord paying the Plaintiffs HK$200,000 (inclusive of interest) ("Settlement Sum") and the Plaintiffs' costs of this action, upon which the liability of both the Landlord and the Tenant as against the Plaintiffs would be discharged. The remaining issue was the Landlord’s claim against the Tenant.

Landlord's claim against the Tenant

The Court accepted the Landlord's evidence that the Incident was caused by the water tap in the kitchen of Flat 17A not being turned off properly or at all on the day in question, resulting in water damage to the Plaintiffs' flat.

Regarding the acts or omissions by other occupants of the Tenant's flat, the Court found that it did not matter that there was "no direct proof" to show it was the Tenant who personally failed to turn off the water tap in the kitchen, and found the Landlord's claim against the Tenant proved. It was held that the Tenant owed a duty of care to the Plaintiffs and the Landlord, and was "negligent in not having turned off, or caused to be turned off, the water tap, properly or at all".

The Landlord claimed that the Tenant had also breached clauses 2(g) & (m) of the Tenancy Agreement, pursuant to which the Tenant agreed "…not to do or permit to be done in or upon the said premises or any part thereof anything which may be or become a nuisance annoyance damage or disturbances to the Landlord or the tenants or occupiers of other property in the neighbourhood or anywise against the law or regulations of Hong Kong" and "..not to contravene any of the terms, covenants and conditions contained in the ... Deed of Mutual Covenant ...". The Court had no difficulty in ruling that the Tenant had breached these 2 clauses of the Tenancy Agreement and held that it was therefore "just and equitable" to order the Tenant to indemnify the Landlord to the full extent of the Plaintiffs' claim.

The Court then moved on to consider the relief claimed by the Landlord in respect of its claim against the Tenant, which included the settlement sum and legal costs.

Settlement Sum

The Court was satisfied that HK$200,000 would "likely be, or less than the amount that would likely be, awarded to the plaintiff" and was ''reasonable'', and therefore ordered the Tenant to indemnify the Landlord in respect of the Settlement Sum.

Legal Costs

The Landlord claimed the following two sets of costs:-

1. the Plaintiffs' costs of the action agreed to be paid by the Landlord to the Plaintiffs under the Settlement ("Plaintiffs' costs"); and

2. the Landlord's own costs in defending the Plaintiffs' action / reaching the Settlement ("Landlord's costs").

The Court accepted that the Plaintiffs' costs and the Landlord's costs were ''reasonably foreseeable from, and were the natural consequences of, the 2nd defendant [Tenant]'s breach, and were not too remote'', and did not find it unreasonable for the Landlord to defend the Plaintiffs' action because of reasons including the following:-

1. the Plaintiffs' claim was all along quite exorbitant; and

2. the Tenant, as the party at fault, refused to admit liability and had been absent in the proceedings.

The Court ruled that the Landlord was ''quite innocent'' and held that the Tenant was liable to indemnify the Landlord in respect of both the Plaintiffs' costs and Landlord's costs.

Conclusion

This case shows that a tenant owes a duty of care to its landlord and could be held liable to compensate its landlord for losses suffered by the landlord as a result of its own fault. The Court, in determining whether or not to order a tenant to contribute to the losses suffered by its landlord in respect of legal proceedings instigated due to a tenant's fault, should consider factors including the tenant's negligence, the breach of the Tenancy Agreement by the tenant, the reasonableness of the settlement amount, and the tenant's conduct in the proceedings. The case also demonstrates the use of Contribution Notices and Third Party Proceedings in situations where the ultimate liability of a Defendant may be attributable to another party.

 

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