PRIME ASPECT LTD v. CHAN WAN CHUNG

LDPD 3147/2010

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No. LDPD 3147 of 2010

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JUDGMENT

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The Background

1.  The Applicant is the registered owner of Flat C, 5^th Floor (including Roof), Block 8, Jasper Court, No. 39 Ma Fung Ling Road, Yuen Long, New Territories, Hong Kong and Car Parking Space No. 128 on Ground Floor (“the Property”). By a tenancy agreement dated 15 June 2009 (in both English and Chinese), a Madam Kong Lai Na agreed to let the Property to the Respondent for a term of 2 years commencing from 15 June 2009 to 14 June 2011 for a monthly rent of $6,000 (inclusive of management fee and rates) (“the Tenancy”). By an assignment dated 28 August 2009, the Applicant acquired the Property from Madam Kong Lai Na subject to the Tenancy and became the landlord of the Respondent.

2.  By way of a District Court action, DCCJ 1191 of 2010 (“the District Court Action”), the Applicant forfeited the Tenancy on the ground of non-payment of rent by serving the writ of summons on the Respondent on 12 March 2010. The Respondent intended to contest the District Court Action and therefore filed a defence on 17 May 2010. The proceedings are now still ongoing.

3.  I was informed that there were also other 2 related proceedings, namely another District Court action, DCCJ 891 of 2010 and a District Court Distrain of Rent action, DCCT 1396 of 2010. However, after perusal of the relevant documents adduced by the parties, I am of the view that these 2 proceedings are not relevant to the present application before me and I shall therefore say no more about them.

4.  It was not in dispute that the Applicant, after commencement of the District Court Action, served a one-month notice (“the Notice”) on the Respondent on 27 October 2010 purporting to terminate the Tenancy according to Clause 4 of Schedule II of it.

5.  Clause 4 of Schedule II of the Tenancy provides that :-

“Notwithstanding anything to the contrary hereinbefore contained, the Landlord / Tenant / either party shall be entitled to terminate this Agreement earlier than as herein provided by serving not less than _______ months’ notice or by paying _________ months’ Rent in lieu to the Landlord/ Tenant / other party provided that the said written notice shall not be served before the expiration of the [ ] month of the Term of Tenancy.

儘管與前文不符，業主 / 租客 / 任何一方可給予業主/ 租客 / 另一方不少於1個月的書面通知或1個月租金作代通知金提早解除此租約；唯該書面通知不得早於由租期計起之【11】月內發出”

6.  The spaces in the English version of Clause 4 of Schedule II of the Tenancy were deliberately left blank. Since no issue has been taken by either party, I assume that the Applicant is relying on the Chinese version of this clause. It was not in dispute that if the Notice was duly served pursuant to Clause 4 of Schedule II of the Tenancy, the Tenancy would then come to an end when the Notice expired on 1December 2010. However, the issue turns on whether or not the Applicant, after forfeited the Tenancy by duly serving the writ of summons, was still entitled to terminate the Tenancy by serving the Notice in question?

The Applicant’s Application for Vacant Possession and the Respondent’s Striking Out Application.

7.  The Applicant’s application (“this Application”) is simple and straightforward. By reason of serving the Notice, it is the Applicant’s case that the Respondent was liable to deliver up vacant possession to the Applicant on 1December 2010 when the Notice expired and to pay mesne profits thereafter when the Respondent was still in possession. Since no possession was delivered on 1 December 2010, the Applicant commenced this Application.

8.  However, given the undisputed background mentioned hereinabove, the Respondent is of the view that this Application ought to be struck out because it disclosed no reasonable cause of action or, alternatively it was an abuse of process. For these reasons, the Respondent took out an Interlocutory Application on 27 January 2011 to strike out this Application.

9.  At the beginning of the hearing, for the purpose of case management, I have indicated that since I did not see any other valid grounds of opposition, if I do not accept the Respondent’s argument at all, there is no point adjourning the matter for trial. For saving costs and time, I should forthwith grand this Application in favour of the Applicant for vacant possession and mesne profits with costs. But if I were to accept the Respondent’s argument, I suggested that instead of striking out this Application, I should just dismiss this Application entirely with costs. Parties responded positively to my suggestion and I shall deal with this Application as suggested and not as an interlocutory matter. In other words, I shall not deal with any argument in relation to the suitability of making the striking out application.

The Respondent’s Submissions

10.  Mr. Joe Chan, Counsel for the Respondent, in relying on the English Court of Appeal authority Canas Property Co. Ltd. v. K. L. Television Services Ltd. [1970] 2 Q.B. 433 at 442 submitted that:-

“where a tenant has been guilty of a breach which has not been waived, then, in order to effect a forfeiture, the lessor must actually re-enter, or do what is equivalent to re-entry, namely issue and serve a writ for possession on the lessee or assignee, as the case may be ……The lease is determined as from the date on which the writ is served. The rent is payable up to the date of service. Mesne profits are payable after the date of service …”

(per Denning M.R.)

11.  Canas Property was accepted by the Hong Kong Court of Appeal in Po Wai Ching & Others v. Pfeifer [1983] 1 HKC 204. The Court, in rejecting a claim from a landlord for damages for breach of a tenancy agreement arising after it was forfeited, held that it was trite law that once a landlord has elected to terminate or to forfeit the tenancy by serving a writ of summons, he was no longer entitled to terminate the same tenancy again by accepting an act of repudiation of the tenant and claim for damages. Mr. Chan submitted that this was similar to what the Applicant has done in this case and therefore this should not be allowed in law. This Application is simply misconceived and should be dismissed with costs.

The Applicant’s Submissions

12.  Mr. Vincent Lam, Counsel for the Applicant disagreed with the Respondent’s submissions. He mainly relies on the commentaries in Woodfall’s Law of Landlord and Tenant 2010 Vol. 1 that:-

“During the pendency of an action for forfeiture, the landlord cannot rely on the covenants in the lease so as to make a claim for an interlocutory injunction. Nor may he recover damages for dilapidations which have accrued after service of proceedings. The reason for this is that the landlord has elected to treat the lease as an end. But the landlord is not precluded from attempting to determine the tenancy in other ways (e.g. by the service of a notice under section 25 of the Landlord and Tenant Act 1954).”

(at Paragraph 17.091.1)

13.  Mr. Lam submitted that the above commentaries were supported by an English authority Baglarbasi & another v. Deedmethod Ltd. [1991] 2 EGLR 71, in which, the learned judge held that:-

“I would put it this way: that the landlord is not entitled to do anything which is inconsistent with his intention to put an end to the lease and, accordingly, if another ground for determining it becomes available he can rely on it, for that is not inconsistent with his intention. If the lease ends before the forfeiture action is determined, then it would seem to me that the landlord can seek possession without bringing his forfeiture proceedings to judgment, simply on the basis that the lease has determined by effluxion of time. Similarly, as it seems to me, the purposes of the landlord’s notice under section 25 is to determine the lease. When he comes within the time when he can serve a section 25 notice, then he can serve the notice and determine the lease that way. That is not inconsistent with his seeking to determine it by forfeiture. It is not that he has elected to treat the lease as dead; he has elected to procure the determination of the lease.”

(per Judge Paul Baker Q.C.)

14.  Mr. Lam, therefore, argued that the Applicant, in serving the Notice, was not inconsistent with its election to determine the Tenancy by serving the writ of summons. If the Notice was duly served pursuant to the Tenancy, there was no reason why the Respondent should refuse to deliver up vacant possession to the Applicant on 1^st December 2010. The Applicant therefore asked for possession.

15.  Mr. Lam distinguishes the Canas Property and Po Wai Ching from the present case. He emphasised that the factual matrix was different. In both authorities, no issue turned on the entitlement for serving notice of termination subsequent to the commencement of the forfeiture proceedings. Mr. Lam has no dispute with the Respondent’s submissions that a landlord could not claim for damages for breach of tenancy nor could enforce any covenant after the election for forfeiture. However, he submitted that, termination of the tenancy by some other ways is not inconsistent with the landlord’s position.

The Respondent’s Reply

16.  Mr. Chan, in respond to the Applicant’s submissions, argued that Baglarbasi v. Deedmethod was not good law. He relied on the House of Lords’ decision in Billson v. Residential Apartments Ltd. [1992] 1 AC 494 which was subsequently applied in a decision of the Chancery Division G.S. Fashions Ltd. v. B & Q plc & others [1995] WLR 1088 where it was held that:-

“In Billson v. Residential Apartments Ltd. [1992] 1 AC 494, 534D-F, 535G Lord Templeman stated that the legal effect of [peaceably re-enter in accordance with the proviso for re-entry, take possession and thereby forfeit the lease] and [issue and serve a writ seeking relief solely on the footing that the lease has come to an end, electing immediately and unequivocally to forfeit and claim possession] are exactly the same, namely determination of the lease and not merely an equivocal election to determine. (The view to the contrary relied on by the landlord expressed in Baglarbasi v Deedmethod Ltd. [1991] 2 EGLR 71, 73B cannot stand. Service of the writ constitutes a notional re-entry…)”

(per Lightman J)

17.  Mr. Chan urged this Tribunal not to accept the Applicant’s submissions that Baglarbasi v. Deedmethod is good law. He also submitted that even if I find against his submissions and accept that it is good law, the authority is certainly distinguishable as it only deals with statutory notices but not contractual notices of termination as in the present case. I do intend to deal with the argument until I decide that I should accept the argument of the Applicant that Baglarbasi v. Deedmethod applies for the present case, although provisionally I would tend to disagree that there should be any distinction between statutory notices and contractual notices of termination in these circumstances,

The Law

18.  In my judgment, there are obviously 2 lines of authorities. However the starting point must be that, which is not in dispute by parities, once a landlord has elected to terminate or to forfeit the tenancy by serving a writ of summons on the tenant, like the present case, he could no longer seek any remedies (including, but not limited to, damages and injunction) which arise from any breach of covenants subsequent to service of the writ. The real question therefore is why would the Applicant, then, be allowed to rely on a covenant to terminate a tenancy when the Applicant is even not entitled, in law, to have any remedies of any covenants (or breach of which) against the Respondent at all?  The answer therefore must be obvious. The Applicant has no right to rely on any covenants against the Respondent at all after the service of the writ. After the service, the Tenancy was duly forfeited and the Respondent became a trespasser. It is therefore wrong, in law, to allow the Applicant to serve the Notice on the Respondent to bring the Tenancy to an end again when the Tenancy had in fact came to an end already.

19.  I also accept Mr. Chan’s submissions that the Court of Appeal decision in Po Wai Ching & Others is binding on this Tribunal and Canas Property and Billson v. Residential Apartments Ltd which was applied in G.S. Fashions Ltd. v. B & Q plc & others represent the law. I also find that, with respect, Baglarbasi v. Deedmethod and the relevant commentaries in Woodfall’s are no longer good law and should not be followed. I do not accept the submissions that the service of a notice of termination under a lease is not inconsistent with the landlord seeking to determine it by forfeiture on the ground of non-payment of rent. Once a tenancy is forfeited, it is inconsistent for a landlord to continue to rely on the covenants of the tenancy after the forfeiture. In fact, the decision in G.S. Fashions Ltd. v. B & Q plc & others expressly disapproved Baglarbasi v. Deedmethod. Although the House of Lords in Billson v. Residential Apartments Ltd. did not expressly refer to Baglarbasi v. Deedmethod, the failure of doing so does not suggest otherwise.

20.  Mr. Lam submitted that it would be unfair if the Applicant is disallowed to exercise his right under the Tenancy to terminate the same only because it has commenced an action for forfeiture but pending for determination. He said that there is a possibility that the forfeiture action may not succeed or relief against forfeiture may be granted after the possession order is made. Further, Mr. Lam argued that the Applicant would be left in a situation of no alternative remedies but to wait for the result of the forfeiture action. In my judgment, this is entirely a matter for the Applicant to decide what is the most favourable course for it and there is nothing unfair about it. On the contrary, if a landlord were allowed to exercise its right to terminate a tenancy even after commencing a forfeiture action, this would certainly encourage multiplicity of legal proceedings in relation to similar issues (in both this Application and the District Court Action, the issue is the same, namely a claim for delivery of vacant possession) which, in my judgment, the law should strive against.

21.  By reasons of the above, I therefore find that after the Applicant forfeited the Tenancy by serving the writ of summons of the District Court Action on the Respondent on 12 March 2010, the Applicant was not entitled to rely Clause 4 of Schedule II of Tenancy to terminate the same. The Notice was therefore invalid and this Application should be dismissed.

Costs

22.  Costs should normally follow the event and therefore the Respondent is entitled to costs of this Application in District Court Scale with Certificate for Counsel.

23.  It remains for me to thank Counsel for their thorough research and most valuable assistance.

The Orders

24.  I therefore hereby grant orders in the following terms:-

(1) The application for possession and mesne profits of the Applicant is dismissed; and

(2) The Applicant do pay costs of the Respondent, to be taxed if not agreed, in District Court Scale, with Certificate for Counsel.