PC FORTUNE COMPANY LTD AND ANOTHER v. MASTERMIND ASSET MANAGEMENT LTD

CACV 89/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 89 OF 2014

(ON APPEAL FROM DCCJ NO 4479 OF 2010)

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J U D G M E N T

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Hon Poon J (giving the Judgment of the Court) :

APPEAL

1. By a judgment dated 9 October 2013, HH Judge Chow :

(a) allowed the 1^st plaintiff’s claim of damages of HK$18,849.00 and return of rental deposit of HK$5,000.00;

(b) allowed the 2^nd plaintiff’s claim for loss of use of the Shop (as defined below) in the sum of HK$159,800.00 (“Paragraph (b)”);

(c) dismissed the 2^nd plaintiff’s claim for libel; and

(d) dismissed the defendant’s counterclaim against the 1^st plaintiff for delivery of vacant possession of the Shop and mesne profit (“Paragraph (d)”).

2. Pursuant to the leave granted by this Court (Lam VP and Kwan JA) on 14 April 2014, the defendant now appeals against Paragraphs (b) and (d) of the Judge’s judgment on the following grounds :

“ 1. The learned Judge was wrong in law in holding that the Tenancy Agreement (as defined below) was binding on the Defendant on the basis that the Tenancy Agreement was one of 6-year fixed term and not one of 3-year fixed term plus an option to renew for another 3 years. The learned Judge ought to have held that regardless of whether the Tenancy Agreement was one of 6-year fixed term or one of 3-year fixed term plus an option to renew for another 3 years, it was absolutely null and void against the Defendant under s 3(2) of the Land Registration Ordinance, Cap 128 (the ‘Ordinance’).

2.  The learned Judge failed to consider whether the 6-year fixed term Tenancy Agreement that is not registered under s 3 of the Ordinance, Cap 128, is null and void against the Defendant.”

3. The facts relevant to this appeal may be summarized as follows.

FACTS

4. By a Chinese tenancy agreement dated 24 September 2007 (“the Tenancy Agreement”), the defendant’s predecessor-in-title (“Madam Fu”) rented the suit premises at Shop No.9, Ground Floor, Golden Jade Heights, Nos.482-492, Un Chau Street, Kowloon (“the Shop”) to the 1^st plaintiff at the monthly rent of HK$2,500 for a term described as :

“ 6年由2007年10月15日至2010年10月14日

三年梗約三年生約後加三百元即2,800.00元”[1]

5. It is common ground that the Tenancy Agreement was not registered in the Land Registry.

6. On 15 March 2010, Madam Fu assigned the Shop to the defendant.  The assignment was subject to the Tenancy Agreement.  After receiving notice that the defendant was now the new owner of the Shop, the 1^st plaintiff transferred the rental deposit of HK$5,000.00 to the defendant.  The 1^st plaintiff had since paid the monthly rent to the defendant’s estate agent up to and for the month of September 2010.  Then the defendant’s estate agent did not ask the 1^st plaintiff to pay the rent for October 2010.

7. By a letter dated 25 October 2010, the defendant’s solicitors gave notice to the 1^st plaintiff to terminate the tenancy and asked for delivery of vacant possession of the Shop on 3 November 2010, which the 1^st plaintiff did not comply with.

8. On 21 November 2010, as found by the Judge, the defendant through its agent 棠記五金仔 forcibly re-entered the Shop and removed the 1^st plaintiff’s properties stored there valued at HK$18,849.00.

THE JUDGE’S JUDGMENT

9. At the trial below, it was argued that the Tenancy Agreement was vis-à-vis the defendant null and void for non-registration under section 3(2) of the Ordinance.  The Judge rejected that argument :

“ 13. 被告人謂租約至2010年10月14日結束，而租客只擁有一個重租的行使權，由於該行使權沒有在田土廳註冊，該行使權不能制約第一原告人，因此租約至2010年10月14 日已結束，而被告人有權收舖。被告人這論點並不能成立，因為租約的條文並無賦予租客一個續租的行使權；它清楚屆定租期的時間。它並無任何涉及運用續租權的條文。”[2]

10. The Judge also accepted the 1^st plaintiff had suffered loss and damage arising from the defendant’s re-entry in the monthly sum of HK$4,700.00 for 34 months, which is the remainder of the tenancy from 15 December 2010 to 14 October 2013, totaling HK$159,800.00.  On that basis, the Judge entered judgment as per Paragraph (b).

11. The Judge further found that since 21 November 2010, the defendant had already regained possession of the Shop by force.  He therefore considered the claim for vacant possession of the Shop unreasonable. The Judge then dismissed the defendant’s counterclaim as per Paragraph (d).

DISCUSSION

12. Section 3(2) of the Ordinance provides :

“ All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser … for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes:

Provided the nothing herein contained shall extend to bona fide leases at rack rent for any term not exceeding 3 years.”

13. The Tenancy Agreement was clearly a registrable instrument and it had not been registered.  Section 3(2) is engaged if :

(a) The defendant was a bona fide purchaser for valuable consideration; and

(b) the proviso does not apply.

14. On condition (a), the unchallenged evidence of the defendant is that it was only upon completion of the assignment on 15 March 2010 that a copy of the unstamped Tenancy Agreement was provided to it.  In other words, it was at all material times a bona fide purchaser within the meaning of section 3(2).

15. On condition (b), it is the defendant’s case that the initial term of the tenancy under the Tenancy Agreement was 3 years and it gave the 1^st plaintiff as tenant an option to renew for a further 3 years.  On the other hand, the 1^st plaintiff’s case is that the term of the Tenancy Agreement was 6 years expiring on 15 October 2010 with an option to renew.  However, as rightly submitted by Mr Ko, counsel for the defendant, the difference in the parties’ case on the term of the Tenancy Agreement is of little moment for present purposes.

16. Take the defendant’s case first.  If the defendant is correct, the option to renew is an instrument in writing.  If it is not registered then it will be null and void against the defendant under section 3(2).  The proviso of section 3(2) does not apply.  As explained by Lord Templeman in Markfaith Investment Ltd v Chiap Hua Flashlights Ltd [1990] 2 HKLR 84 at p.87D-F :

“ The proviso to s. 3(2) applies to a ‘lease’ and not to an ‘instrument in writing’ and is only apt to protect a bare lease for a term not exceeding three years. The proviso is not apt to protect a further term which will only be granted if the tenant exercises an option created by the instrument which also created the lease. The original term is saved because it is a lease for a term not exceeding three years. The option will not take effect as against a bona fide purchaser of the reversion for valuable consideration because in the absence of registration the instrument which creates the option is null and void. The proviso to s 3(2) applies to an instrument insofar as that instrument creates a lease at a rack rent for a term not exceeding three years. The proviso does not apply to an instrument insofar as the instrument creates an option.”

17. Next take the plaintiff’s case.  The proviso to section 3(2) clearly does not apply to a tenancy agreement for a fixed term of 6 years.  In the absence of registration, the Tenancy Agreement is null and void against the defendant, a bona fide purchaser for valuable consideration.

18. With respect to the Judge, he erred in rejecting the defendant’s argument that the Tenancy Agreement was null and void against it under section 3(2) of the Ordinance in the absence of registration.  The plaintiff could not rely on the Tenancy Agreement to resist the defendant’s recovery of possession of the Shop.  The Judge therefore erred when he allowed the 1^st plaintiff’s claim for loss and damage arising from the defendant’s re‑entry of the Shop on 21 November 2010 and dismissed the defendant’s counterclaim on the basis that the Tenancy Agreement had been wrongfully terminated by the defendant when it regained possession of the Shop.

CONCLUSION

19. For the above reasons, we allow the appeal and set aside Paragraphs (b) and (d) of the Judge’s judgment.

20. On the defendant’s counterclaim, as the defendant had already regained possession of the Shop on 21 November 2010, the claim for delivery of vacant possession is otiose.  We will not make any order in that regard.  The 1^st plaintiff ceased to pay rent for the month of October 2010, which means that it is liable for mesne profit for the period between 15 October 2010 and 21 November 2010 when the defendant re-entered.  The duration was 36 days.  Mr Ko proposed and we agree to take the monthly rental of HK$2,500.00 under the Tenancy Agreement as the basis for assessing the mesne profit.  The figure is HK$2,500.00 x 36/31 = HK$2,903.22, which we round up to HK$2,903.00.  We enter judgment against the 1^st plaintiff for the defendant’s claim for mesne profit in the sum of HK$2,903.00.

21. In light of how we dispose of the appeal, we also set aside the costs order below and substitute it with an order that there shall be no order as to costs (as accepted by the defendant).  For the costs of the appeal, it should follow the event.  We order the 1^st plaintiff to pay the defendant costs of the appeal, to be taxed if not agreed.