MIXWELL PROPERTIES LTD v. LEE WAN YUEN

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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REASONS FOR DECISION

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1. This is an application by the Defendant Lee Wan Yuen to set aside a judgment for possession in default of notice of intention to defend entered on 11 December 1996 by the Plaintiff. After hearing. After hearing counsel, the application was dismissed with costs. The reasons appear below.

The Facts

2. On 1 November 1996, the Plaintiff issued a writ claiming, inter alia, vacant possession of the premises, arrears of rent for the period from 18 June 1996 to 31 October 1996, interest and administration charges pursuant to provisions in the Tenancy Agreement totalling over $1.3 million and mesne profits. Judgment was obtained in default of notice of intention to defend on 11 December 1996. It is common ground that on 22 November 1996, the Plaintiff accepted a cashier order in the sum of $520,000 in partial settlement of the amounts overdue under the Tenancy Agreement. There is an issue of fact as to whether or not the tenant received a fax dated 20 November 1996 from the landlord's solicitors setting up the basis upon which the cashier order of $520,000 would be accepted by the Plaintiff if tendered. For the purposes of the present application, the Plaintiff was prepared to proceed on the basis that the fax did not reach the Defendant.

3. On 2 January 1997, a cheque for $780,000 was tendered to the Plaintiff "for partial payment of rent". On 3 January, the Plaintiff's solicitors sought clarification of the basis of the payment, stating in clear terms the basis upon which the Plaintiff would be prepared to accept the payment. No written response was given by the Defendant and the cheque was returned by the Plaintiff on 20 January.

4. On 5 February 1997, the Plaintiff issued the present summons to set aside the judgment. On 30 January 1997, the bailiffs entered the premises for a review and on 10 February 1997 executed the writ of possession.

Waiver

5. The short question of law which arises is whether the judgment was irregularly obtained and ought to be set aside on the ground that the landlord had waived its right to forfeiture or re-entry by acceptance of the payment of the sum of $520,000. The Defendant also sought to contend that the Plaintiff had "accepted" the cheque for $780,000 because it had kept it for over 2 weeks. The evidence does not justify such a conclusion. Be that as it may, as will become apparent, it makes no difference to the result.

6. Counsel for the Defendant relied on the well known statement of the law by Parker J, in Matthews v. Smallwood [1910] 1 Ch. 777, 786, cited with approval by Lord Denning MR in Central Estates v. Woolgar (No. 2) [1972] 1 WLR 1049 at 1052 B-D:-

"It is not open to a lessor who has knowledge of the breach to 'I will treat the tenancy as existing, and I will receive the rent, or I will take advantage of my power as landlord to distrain; but I tell you that all I shall do will be without prejudice to my right to re-enter, which I intend to reserve' That is a position which he is not entitled to take up. If, knowing of the breach, he does distrain, or does receive the rent, then by law he waives the breach, and nothing which he can say by way of protest against the law will avail him anything. Logically, therefore, a person who relies upon waiver ought to shew, first, an act unequivocally recognizing the subsistence of the lease, and, secondly, knowledge of the circumstances from which the right of re-entry arises at the time when that act is performed."

7. In Central Estates, Buckley L. J. stated (at page 1054E) :-

"It has long been accepted as law that a landlord cannot prevent accepting a payment of rent from operating as a waiver merely by stating at the time of payment that he accepts it without prejudice to his right to forfeit : see Matthews v Smallwood [1910] 1Ch.777, per Parker J. at p. 786."

He went on to hold (at page 1054H) that:-

"If at the time of the act he had a right to elect whether to forfeit the lease or tenancy or to affirm it, his act will unequivocally demonstrate that he has decided to affirm it. He cannot contradict this by saying that his act was without prejudice to his right of election continuing or any thing to that effect. In this respect his act speaks louder than his words, because that is unequivocal: it can only be explained on the basis that he has exercised his right to elect. The motive or intention of the landlord, on the one hand, and the understanding of the tenant, on the other, are equally irrelevant to the quality of the act."

8. Mr Chan submitted that in any event the receipt of the $520,000 thus operated as a waiver by the Plaintiff.

9. Counsel for the Plaintiff submitted that the principles stated in Central Estates are accurate statements of the law but that there was no waiver in the present case because of two well-settled principles.

10. First, acceptance of rent by the landlord after proceedings for possession have already been issued does not in law constitute waiver on the part of the landlord. This principle is supported by a long line of authority starting with Doe d. Morescraft v. Meux (1825) 1 C & P 346. In Civil Service Co-Operative Society v. McGrigor's Trustee [1923] 2 Ch. 347 after posing the question whether the issue and service of a writ in ejectment is such a final election by the landlord to determine the tenancy that a subsequent receipt of rent is no waiver of the forfeiture, Russell J. held:-

"In my opinion the authorities establish that this is so. In Jones v. Carter parke B. held that after ejectment brought, there being no evidence of actual re-entry by the landlord, the landlord could not sue for rent; and he cites with approval a decision of Lord Tenterden that the receipt of rent after ejectment brought for a forfeiture was no waiver of such forfeiture; Doe v. Meux, To the same effect is the case of Grimwood v. Moss where it is definitely stated that the bringing of an ejectment action is an irrevocable election to determine the tenancy: see also Rex v. Paulson: and Evans v. Enever when he says: ' There is a series of cases which establish that if an action is brought for recovery of possession for breaches of covenants in the lease that is an irrevocable election to determine the lease, and that no subsequent acts of the plaintiff can be relied on as qualifying that position.'"

11. Thus, the service of a writ containing an unequivocal claim for possession operates as a final election to determine a lease. So, if a landlord brings proceedings for forfeiture and afterwards accepts rent, there is no waiver. See Woodfall on Landlord and Tenant Volume 1, para. 17.100 and Hill and Redman's Law of Landlord and Tenant para.2226.

12. The writ issued on 1 November 1996 unequivocally sought to forfeit the lease and claim vacant possession of the premises. Acceptance of the $520,000 occurred some three weeks after proceedings had commenced. Since on the authorities cited the issuance of those proceedings operated as a final election to determine the Tenancy Agreement, acceptance of that sum does not constitute waiver as a matter of law.

13. Second, there can be no waiver by the acceptance of rent which had already accrued prior to the forfeiture: waiver is only relevant where there has been acceptance of rent which accrued due after the date on which the right to forfeit arose. See Woodfall at para. 17.098. A clear statement of this principle is to be found in the judgment of Martin, B in Price v. Worwood (1859) 4 H & N 512 at 516 :-

"A receipt of rent, to operate as a waiver of a forfeiture, must be a receipt of rent due on a day after the forfeiture was incurred. The mere receipt of the money, the rent having become due previously, is of no consequence, and for the very plain reason that the entry for a condition broken does not at all affect the right to receive payment of a pre-existing debt."

14. By the time the landlord exercised its right to forfeit on 1 November 1996, the arrears of rent, interest, etc. accrued due under the terms of the Tenancy Agreement were in excess of $1.3 million and, therefore, on any view, exceeding the sum accepted by the Plaintiff even supposing there was any merit in the Defendant's contention that the cheque of $780,000 had been "accepted" by the Plaintiff.

15. Counsel for the Defendant had no answer to these submissions which, in my judgment, are well-founded.

16. It follows that the Defendant has failed to establish waiver. His application to set aside the default judgment must be dismissed with costs. In the circumstances, the further question of relief from forfeiture does not arise.