HAR SIO YING ALSO KNOWN AS LAW HAR SIO YING v. CHUNG YAU CHEUNG

1986 No. A2370

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

___________

JUDGMENT

____________

1. In this action the plaintiff Madam Har is claiming possession of a portion of some land in Yuet Lun Street, Lai Chi Kok. She has conducted her case in person as she is entitled to do. She has done so with skill and moderation. But she knows very little law. Indeed in the course of her cross examination of Mr Chung, the defendant, she put it to him` that: "You and I know no law. " - a proposition to which he readily assented. The trouble with this case is that it gives rise to two difficult questions of law. Mr Leong for the defendant has been scrupulous in his conduct of the case, having regard to the fact the plaintiff was in person. But he alone cannot possibly supply me with the benefit of argument from counsel on both sides. Therefore I have had to do my best to arrive at a solution without that assistance.

2. The land in question was first let to the plaintiff by a Crown Lease dated 13th August 1976. This Lease demised an area of about 2,800 sq.ft. in Yuet Lun Street for 1 year certain from 13th July 1976, and thereafter quarterly at a rent of $2,100 a quarter. The permitted user was "open and covered storage purposes only". It would seem that at that time the land was substantially undeveloped. The plaintiff herself erected a covered storage area covering most or all of the site. She asserted that this cost her over $100,000. I have little doubt that it was this event which brought about the supplemental agreement of 17th July 1978, whereby with effect from July of that year the rental was increased to $33,800.

3. For present purposes the material provisions in the agreement of August 1976 are first Clause 2(g) whereby the plaintiff covenanted "not to assign, underlet, part with possession or otherwise dispose of the said premises or any part thereof or any interest therein or enter into any agreement so to do". Clause 4(b) "that any purported assignment, underletting, demise parting with possession or other disposal of the said premises or any part thereof or any attempt thereat by the tenant, shall, without prejudice, to any right of the landlord, be absolutely void and of no effect whatsoever. " And Clause 4(f) "that if the tenancy hereby created shall be for a term of three months or longer (which this was) then the landlord shall have full power to terminate this agreement and resume, re-enter into and retake possession of all or any of the said premises if the same shall be required for the improvement of the said Colony of any other public purpose whatsoever on giving to the tenant one calendar month's notice in writing to that effect to expire at any time. "

4. It would seem that having constructed this building, the plaintiff herself only wanted to use about two-thirds of it. She wanted to make some money out of the remaining third, and from the person who might use that third to obtain a contribution to the cost of construction. She wanted $26,000 down and $1,000 a month for the use of this third portion. She advertised to this effect, and thereby met the defendant. They discussed the proposition, and she drafted the Chinese agreement that was eventually signed.

5. Two points particularly emerged in the course of the discussions between the parties. The first was that in her agreement the plaintiff used a Chinese word which more properly means 'borrow' rather than 'let'. She explained this to the defendant by telling him, correctly, that the property was leased to her by Government, but she herself was not allowed to let it on to anyone else. That was why she was using the word 'borrow'. The defendant was happy about that, because as he told me he was not doing anything he regarded as illegal, and he thought he derived some protection from the fact that there was a stamp on the document. So that from the outset both parties were well aware that their proposed arrangement was a breach of Clause 2(g) which I have already read.

6. Secondly, there was a discussion about the duration of the arrangement. The plaintiff told the defendant that she could not agree to this for any fixed period because she did not know how long Government would allow her to remain. She might be given three month's notice by Government at any time in the future. This risk, what the parties in the document talk about as "resumption", was discussed between them. I am satisfied that they were not using the word "resumption" in the narrower sense only of a possible termination under Clause 4(f). They were considering also the risk of the Government at anytime simply giving a quarter's notice to terminate after the expiry of the first year of the term. Indeed the contrary was not argued. What was to happen in such circumstances was discussed and spelt out in the Chinese agreement. But I am also satisfied that this was not the only circumstances of which the plaintiff spoke which might give rise to a termination of the arrangement.

7. In those circumstances the first question which I have to consider is the effect of the Chinese agreement dated 18th November 1976 which both parties signed. Did it create a lease or only a licence? My first problem there is that I have two authenticated translations of the document. Neither translator has given evidence. The translation produced by the plaintiff speaks of a borrowing. The translation produced by the defendant speaks about letting. I am satisfied from the evidence of the parties themselves that the word "borrowing" is the more accurate rendering of the original Chinese, which was also the view taken by the Court Interpreter. So in that particular respect I adopt, what I shall call the plaintiff's translation. That is the translation I shall use principally in the course of this judgment. But there are other differences between the two versions which I have no means of adjudicating upon. I think I must simply accept that the original document can be read by responsible interpreters in two different ways, and that the two versions mark, perhaps, the limits of the various breadths of meaning possible.

8. With that preamble I turn to the question of 'lease' or 'licence'? The first point to note there is that the document appears to grant exclusive possession. This seems to be the apparent effect of Clauses 1, 3 and 6. Indeed, in the plaintiff's translation, the phrase "to exercise her right of re-entry and recover possession of the said structures" appears in Clause 3. It is also common ground as a matter of fact, that the part occupied by the defendant was self-contained and afforded no access to the plaintiff. Secondly, the agreement required the payment of HK$1,000 every month, and the language of the document may generally be said to savour more of a lease than a licence.

9. The governing principles in this context have recently been considered by the House of Lords in Street v. Mountford⁽¹⁾ where Lord Templeman delivered the opinion of the House. He says on page 818: -

"To constitute a tenancy the occupier must be granted exclusive possession, for a fixed or periodic term certain, in consideration of a premium or periodical payments. "

Those three matters "exclusive possession", "term certain" and "consideration e.g. periodical payments" he repeatedly treats as being the hallmarks of a tenancy. Referring to the facts of that case at page 826 he says:-

"In addition to the hallmark of exclusive occupation of residential accommodation, there were the hallmarks of weekly payments for a periodical term. Unless, these three hallmarks are decisive it really becomes impossible to distinguish a contractual term from a contractual licence save by reference to the professed intention of the parties or by the Judge awarding marks for drafting. "

He goes on to cite with approval from the judgment of Windeyer, J. in the High Court of Australia in Radaich v. Smith⁽²⁾ where the decisive question is suggested to be "whether the grantee was given a legal right of exclusive possession of the land for a term or from the year to year or for a life or lives". Whilst emphasizing these three hallmarks Lord Templeman, by no means, excludes the possibility of there being a sufficient manifestation of intention from the parties which he said "would or might negative the grant of an estate or interest in the land", p. 827. There are a number of decisions of the Court of Appeal in England to that effect which were not overruled. Perhaps more significantly in this jurisdiction there is the decision of the Privy Council to such effect in Isaac v. Hotel de Paris Ltd.⁽³⁾

10. So the problem here seems to me to be this; given the existence of two of the three hallmarks here namely "exclusive possession" and "periodical payments", and assuming the existence of the third namely "certainty of term" to which I shall have to return later, are they decisive in this instance or can the parties here be said to have demonstrated a sufficient contrary intention? First it seems to me that the plaintiff had a lease and therefore she had an interest in land. This in itself distinguishes her case from those cases concerning Requisitioning Authorities in England, because such authorities had "no interest in the land out of which to carve any interest. " in the words of Lord Denning in Lewisham Borough Council v. Roberts⁽⁴⁾ cited in Ministry of Agriculture v: Matthews^(5).

11. The only direct authority bearing upon the position of the sub-tenant who takes a sub-tenancy in breach of covenant of which I know, and which is referred to in both the leading text books on Landlord & Tenant (Woodfall & Hill & Redman) is the case of Parker v. Jones⁽⁶⁾. I confess I find that a difficult decision in more than one aspect, but the judgment of Bucknill, J. at page 38 contains the firm conclusion that a covenant not to underlet without licence does not make an underletting in breach of that covenant illegal. It merely gives the lessor a right to re-enter.  In other words, as between lessor and sub-lessor an effective estate in land is created, defeasible only by the owner. That is the conclusion contended for here by the defendant. Since that decision the impact of the Rent Acts and -the use of the phrase there "lawful sub-tenancy" has perhaps altered the language and to some extent clouded one's thinking. In Parker v. Jones⁽⁶⁾ there was no question of the sub-lease being granted knowingly in breach of covenant. I note that the knowledge of the tenant was regarded as of some significance in the Privy Council case of Isaac⁽³⁾.

12. It, therefore, seems to me that the real question here is whether the terms of this Crown Lease, and I include in that reference both 2(g) and 4(b), coupled with the knowledge of the parties, deprivedthis plaintiff of the power to create an effective estate in land or in Windeyer, J.'s words "to grant a legal right of exclusive possession", or do they have no greater effect than that described by Bucknill, J. This is a matter upon which my mind has fluctuated a good deal. If it was essential to decide the point, I think I would incline to the view that this document only created a licence and not an estate in land, because both parties knew that nothing more could validly be done having regard to the terms of the Crown Lease, and that the plaintiff could do no more than give a somewhat precarious possession to this defendant. But I accept that it is a very nice balance here indeed. I am, therefore, prepared to assume that this tentative view is wrong, and that the language the parties used in the document is, in fact, decisive to the creation of a lease.

13. I therefore turn to the construction of the document, which I am now going to refer to as the lease, and in particular to the problem of duration. When defining the essentials of a tenancy, Lord Templeman, as I have read, used the phrase "fixed or periodic term certain". I am minded to think that he used those words, having in mind the principles of Re Midland Railway Company's Agreement Clay v. the British Railway Board⁽⁷⁾ where Russell, L. J. giving the judgment to the Court of Appeal at page 731 said: -

"It has been quite clearly and for long established that if a term of years is to be validly created the maximum duration must be ascertained before the term takes effect. ”

But the court held that in the context of a periodic tenancy this principle was not directly applicable to the fullest extent. That same principle was also considered by Whitford, J. in Centreploy v. Matlodge⁽⁸⁾. With that background I turn to consider this question of construction.

14. The first contention advanced by the defendant is that there is only one event capable of bringing this lease to an end, and that is resumption of the land by Government. Resumption it is said means the giving by Government of one quarter's notice to terminate the plaintiff's lease. In. support of that argument, reliance is placed upon the first sentence in Clause 2; Clause 3 which speaks of the sum, which I now call rent, being payable every month until resumption; and Clause 4 which deals with a promise to give up possession on resumption. It is said those parts of this agreement show clearly that the parties only had one terminating event in mind. I accept that this is a very powerful argument having regard to the words use in those clauses. But it seems to me that there are two formidable difficulties about it. The first is that if this is a lease which is to run until resumption of the said land by Government, it is not a term certain. It is a term which is quite uncertain and runs foul of the principle in Re Midland Railway. It is no better than the lease for the duration of the war which was rejected in one of the cases. Secondly, and this is really acknowledged by Mr Leong, this construction gives no meaning, no content to the second sentence in Clause 2. This in one translation reads "Party A shall not revoke this lending without cause", and in the other reads "Party A cannot terminate the letting without reasons". It seems to me that those two difficulties must necessarily lead to the rejection of this first proposition.

15. The next question that arises is what meaning is to be given to the second sentence in Clause 2. There are two possibilities which were canvassed in argument. The first is that which is advanced on behalf of the defendant, which really founds upon the plaintiff's translation "without cause". "Without cause", it is suggested, means that these words can only operate where there has been something akin to a breach of contract by the defendant. The defendant agrees to do certain things and not to do other things in that document. Only if he commits a breach of one of those clauses, would there be a "cause" within Clause 2. In other words the clause almost operates as a sort of proviso for forfeiture in the event of breach, there being no other proviso in the agreement. The other construction which was canvassed in argument with counsel as a possibility because the plaintiff herself could not advance it, is really the reason which she advances on the documents and founds upon the other translation. It is sufficient, I think she would have wanted to say, if she has some bona fide genuine reason for wanting to recover possession. She says here: "I have a genuine bona fide reason. I want to use this particular third for storage purposes, for a business or businesses with which I am connected and save paying rent elsewhere". That is the decisive issue, as it seems tome, which arises by way of construction of Clause 2.

16. Again to put the matter in the context, I think it should be noted that this is a tenancy which seems to fall within Part V of the Landlord and Tenant Consolidation Ordinance, Cap. 5, and therefore to be within section 122. This, in effect, says that in general no tenancy shall cease or be determined without written notice of termination being given. It provides for 6 months'. notice by the landlord and one month's notice by the tenant. But there is a proviso that nothing in the section shall be construed as permitting any tenancy to be determined earlier than would otherwise have been the case. So that this section gives one the ultimate fall back of certainty, if this is a periodic tenancy, sufficient to satisfy the Railway case principle. The question really is what restriction, if any, is imposed upon the giving of notice: Is it the restriction imposed by the narrow reading of the second sentence or the restriction imposed by the broader reading?

17. Again I have not found this at all an easy question to answer. But it seems to me that looking at the matter in its context and as a whole I should prefer the broader meaning. First, the narrow reading seems to me to be not a little unreal when one looks at the context in which this agreement was being made. It was an agreement being made by parties trying expressly to create a licence (but I am assuming that they fail in that purpose); a licence to give what could in law be no more than a precarious possession to the defendant because the whole thing was being done in breach of covenant and of the strict term of the Crown Lease. Secondly, I know from the two translations that I have, that two different meanings can apparently legitimately be given to the characters used by the parties. Within that range of "without cause" or "without reasons" it seems to me very difficult to extract the narrower, the more technical reading of without cause, which I might have been much more ready to do if the document have been written in those terms in English or drawn in those terms by a solicitor. Thirdly, I have considerable doubts as to whether the narrower reading in fact is valid in law or whether it may not be repugnant to the concept of a periodic tenancy which has to be the foundation of this lease. There is a wealth of difference between termination for bream or forfeiture and simple termination. A clog on the power to terminate which the landlord can himself by his own conduct deal with is one thing, and is not objectionable as the Midland Railway case shows. But a clog which is within the tenant's power only to deal with, because by avoiding any breach of covenant you end up with a lease which is simply not terminable by the lessor at all, I doubt is something known to the law.

18. So for those reasons individually and collectively, I have come to the conclusion that on the proper construction of this difficult document, this is a case where notice can be given by the plaintiff if she has a prima facie and genuine reason for wanting possession. Such notice has to be of three months' duration. I arrive at the figure of three months by the combined effect of section 122 and section 127(B) of the Landlord and Tenant Ordinance, coupled with the fact that only three months' notice had to be given by the Crown to the plaintiff. The effect of the saving section 127(B) is not to give the defendant any greater protection than that. So that on my view, is the true construction of this document.

19. I revert to the facts which are not seriously in issue. This Chinese agreement having entered into, the defendant went into possession somewhat over ten years ago. In 1984 the plaintiff made an attempt to recover possession for alleged non-payment of rent and an action was launched in support of that. The action was not pursued and was discontinued on terms on 18th October 1985. The terms included the payment by the defendant of the rent (as I shall call it for the purposes of this judgment) of $1,000 a month for the twelve months that has not been paid plus an ex gratia payment of $6,000. This is because the plaintiff had been trying to increase the rent from $1,000 - $1,500. In the following month $1,500 was in fact paid by the defendant. This has been brought about by the parties' conduct rather than by any other means. I do not think that this, in circumstances of this case, has any bearing upon the question of duration.

20. That month's rent having been paid, the plaintiff then started again, and on the 11th December gave notice to Mr Chung. In the first paragraph of this she purported to revoke in effect the licence which she said she granted, on the 15th January, and she explained that the reason for the revocation was that she required the structure "for my own use for storing goods. " Then in the third paragraph the letter goes on:-

"After the 15th day of January, 1986, you are allowed to remain at the portion of the said structure as permittee free of borrowing fee or licence fee until the 15th day of April, 1986, and you have to quit and deliver up vacant possession of the portion of the said structure to me on or before the 15th day of April, 1986. "

This was drafted by her. She had been advised by solicitors earlier in that year in the other action but she had fallen out with them. I strongly suspect that the form of this document echoes some of that advice because it bears striking similarity to the principle of Ministry of Health v. Belotti⁽⁹⁾. What she was seeking to do by that notice, I think was this: Treating the underlying instrument as a licence, (1) to give one month's notice to terminate the licence and (2) then to give a further three months to the defendant as a reasonable time for him to vacant the premises.

21. The question now is what is the effect of that document in the light of my construction of the lease which requires three months notice. There are two views here. The first is that the effective paragraph, as the defendant alleges, is the first and everything else is surplusage, and that the effect of the first paragraph was to give one month's notice not three. The other view is that the effect of this letter as a whole is to give four months' notice because the operative words are "you have to quit and deliver up vacant possession by, on or before 15th April", and that was four months' as from 11th December. I should add that the letting commenced on the 16th of the month. I believe that the latter view is correct. I do not think this can be construed as being any adequate notice in the circumstances when it is split up in this way; when the total effect is to give the defendant four months, and when in my judgment only three was the minimum necessary.

22. In this difficult case, therefore I have come to the conclusion that as from the 16th April of this year the defendant was a trespasser in this premises; that the plaintiff is accordingly entitled to an order for possession in some period of time which I will consider having heard the parties; and that she is also entitled to damages for trespass which on the evidence that I have heard would run at the rate of $1,500 a month until possession is given.

(1) (1985) 1 A.C. 809

(2) (1959) 101 C.L.R. 209, 222

(3) [1960] 1 W.L.R. 239

(4) [1949] 2 K.B. 608, 622

(5) [1950] 1 K.B. 148 at 151

(6) [1910] 2 K.B. 32

(6) [1910] 2 K.B. 32

(3) [1960] 1 W.L.R. 239

(7) [1971] Ch.725

(8) [1974] Ch. at page 1

(9) [1944] K.B. 298