Hi HK1_10,
I had a similar experience with the V in CWB that they held part of the deposit, in my case for an unjustified amount of money for damages. I went to the Small Claim Tribunal and got my money back.
In your case the V is in breach of contract because it is part of the contract that the V is a non-smoking service appartment which is stated in the house rules and which was one of the major points for you choose the V (wasn't it ? ). Since they did not adhere to the house rules which are part of the contract, they are in breach of contract.
Go the the Small Claim Tribunal, claim the refund of the held deposit plus interest plus cost. It costs you less than HK 100, is heard within a month and lawyers are not allowed which makes easy and convenient.
Good Luck