KAM WING PROPERTY INVESTMENTS LTD v. KONCORD LTD

HCA 1543/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1543 OF 2003

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D E C I S I O N

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Background

1.  This is the Defendant’s appeal against the order of Master Woolley dated 31 July 2003 entering judgment in favour of the Plaintiff under Order 14 rule 3 of the Rules of the High Court.  The Plaintiff is the landlord of a number of shop spaces on the ground floor of Carnarvon Plaza (the “Premises”).  The Premises were let to the Defendant for business purpose for a term of about twenty-seven months from 1 October 1999 to 8 January 2002 at a monthly rental of $300,000, exclusive of Government rates, Government rent, management fee and air-conditioning charges.  The tenancy expired on 8 January 2002 and since then the Defendant continued occupying the Premises on a monthly basis at a reduced rental of $230,000 per month.  On 1 October 2002, the Plaintiff’s agent, Man Wah Property Management Limited (“Man Wah”) served a notice to quit on the Defendant pursuant to section 122 of Part V of the Landlord and Tenant (Consolidation) Ordinance (the “Ordinance”) to terminate the Defendant’s tenancy of the Premises as at 30 April 2003.  The Defendant failed to quit and deliver up vacant possession of the Premises at the expiration of the notice.  On 2 May 2003, the Plaintiff issued a writ of summons against the Defendant claiming possession of the Premises, mesne profit, air-conditioning and management charges, Government rates and Government rent.  On 31 July 2003, Master Woolley entered judgment against the Defendant.  On 13 August 2003, Master Woolley granted a stay of execution on the order for possession of the Premises pending this appeal on condition that the Defendant pays all arrears of mesne profit within seven days and future payments as and when they fall due.

2.  The Defendant relied on two grounds of appeal: firstly, that the notice to quit issued by the Plaintiff was defective and secondly that the Plaintiff has waived its right to enforce the notice.

Whether the notice to quit was defective

3.  Mr Lo’s submission on behalf of the Defendant is as follows.  The Defendant’s contractual tenancy expired on 8 January 2002 and since then the Defendant continued occupation of the Premises as a monthly periodic tenant with each period commencing on the 9^th day of a particular month and ending on the 8^th day of the succeeding month.  He argues that if at least six months notice is to be given by the Plaintiff to the Defendant, the Notice to quit must expire on 8 April 2003 and not later.  Hence, he submits that as the Notice to quit was stated to expire on 30 April 2003, it was defective and ineffective to terminate the periodic monthly tenancy.

4.  In support of his submission, Mr Lo cited para 6.055 of Woodfall’s Law of Landlord And Tenant where the learned authors, quoting Hammersmith and Fulham LBC v Monk (1990) 61 P & CR 414,  wrote:

“ ‘At common law, while it is open to the parties to make such arrangements as they please, the length of notice must, in the absence of agreement to the contrary, in the case of a weekly tenancy be not less than the length of the tenancy and the notice must purport to terminate the tenancy at the end of the current period.’  Similarly, in the case of a monthly tenancy the length of the notice must be one month. …..

The notice must expire either on the last day of an expiring period of on the day when, but for the notice, a new period would commence.”

5.  Mr Lo also referred to Precious v Reddie [1924] 2 KB 149 at 151, where Bilhache J said:

“My own view accords with that of the Court in the Queen’s Club Gardens Estate Case – namely, that in a monthly as in a weekly tenancy, the period of notice to quit must correspond with the length of the tenancy and must determine at the end of a periodic month from the commencement of the tenancy.  Here the notice which reached the tenant on September 5 was obviously invalid. It is not a question of reasonable notice, but of a month’s notice terminating on a particular day.  ….. A notice to quit is always strictly construed, and cannot be afterwards amended by the party who serves it.”

6.  With respect, Mr Lo was clearly wrong.  The learned authors of Woodfall’s were describing the position at common law.   Precious v Reddie was also decided on the basis of the notice required to terminate a tenancy at common law.  Whatever was the position of the common law, the tenancy between the Plaintiff and the Defendant is governed by Part V of the Ordinance.  Section 122 of Part V of the Ordinance prescribes a period of six months as the minimum length of notice required by a landlord to terminate a tenancy to which that part applies.   Part V applies practically to all tenancies other than those excepted from section 121(2) and (3).  It is common ground that Part V of the Ordinance is applicable to the Defendant’s tenancy. 

7.  Section 122(1)(b) provides:

“The notice shall be served by the landlord, not less than 6 months, or by the tenant, not less than 1 month, before the day on which it is to take effect.”

The wording of the section is very simple.  The operative and crucial words are “before the day on which [the notice] is to take effect”.  Thus on a plain reading of this section, the notice shall take effect on the date it is intended to take effect by the person giving the notice, provided it is not less than six months, if given by the landlord, or not less than one month if given by the tenant.  These words could admit of no other interpretation than that the notice to be served by the landlord shall be not less than six months whatever may have been the position at common law.  It admits of no interpretation as urged on me by Mr Lo that the date on which the notice takes effect must coincide with the end of any tenancy period. 

8.  The section provides a much longer minimum period of notice to be given to the tenant than that required to be given to the landlord to terminate the tenancy.  Clearly, the purpose of Part V is to give the tenant additional security of tenure if the tenant has, for any reason including lack of bargaining power, failed to protect himself by seeking a longer period of notice. Section 122 gives limited security to the tenant by extending the tenant’s lawful possession beyond his contractual right by several months so as to give him more time to negotiate with the landlord for a new lease or to make arrangements to relocate himself elsewhere.  That protection is not given to the landlord in the case of termination by the tenant.  At common law, a periodic tenancy renews itself from period to period until determined by the appropriate notice to quit.  Thus, in the absence of agreement to the contrary, the notice required to terminate a periodic tenancy at common law shall be not less than the length of the tenancy period and in the case of a monthly tenancy be not less than one month ending on the last day of the tenancy period.  The parties are at liberty to agree to a longer period of notice.  Clearly, the intention of the legislature is that the common law rule shall be displaced to the extent where it provides a period of notice less than that provided for in section 122.  Thus the concept of tenancy period clearly has no place in section 122.  If it were the intention of the legislature that the notice shall also fall on the last day of the tenancy period, such words could have been easily included in the section but they are not.  In my view, it cannot be read into the section words to the effect that the notice must coincide with the end of a tenancy period.  Mr Lo’s submission that the notice to quit would have been valid if it was to take effect on 8 April 2003, but one with a longer period of notice to take effect on 30 April 2003 was not effective is clearly unmeritorious and defies common sense. Accordingly, I find that the notice to quit is effective to terminate the tenancy.

Waiver

9.  The alterative ground of appeal is based on waiver.  Mr Lo submitted that a notice to quit may be withdrawn or abandoned or the right to enforce it may be waived and has indeed been so waived by the Plaintiff.  He submits that there are genuine disputes on facts whether the Plaintiff has waived or abandoned the notice to quit and hence Order 14 procedure was inappropriate.  He quoted the following passage from paragraph 2384 of Hill and Redman’s Law of Landlord and Tenant in support of his proposition:

“A notice to quit may be withdrawn or abandoned during its currency; or the right to enforce it may be waived, either expressly or by implication, before it has expired;”

10.  With respect to counsel, I do not think that represents a complete statement of the law as presented by the authors of Hill and Redman’s Law of Landlord and Tenant.  Indeed, the authors continue as follows:

“but no withdrawal, abandonment, or waiver is effectual without the consent of the party to whom the notice is given.

It has been held that a withdrawal of the notice by consent during its currency does not nullify the notice, but operates as evidence of an agreement for a new tenancy to take effect on the determination of the old.  Where the notice has expired, it is technically wrong to speak of a waiver, though this convenient expression is commonly used.  If the relationship of landlord and tenant continues thereafter it is by agreement between the parties constituting a new tenancy, since the old tenancy is already at an end.”

11.  There is also a statement to similar effect in paragraph 17.200 in Woodfall’s Law of Landlord And Tenant where the learned authors wrote:

“It is implicit in the nature of a periodic tenancy that it may, apart from any special terms agreed, be brought to an end by the unilateral act of either party.  Thus, once a valid notice to quit has been served, the tenancy will automatically come to an end on the expiry of the notice, even though the party giving it has purported to waive or withdraw it.  The parties may, by a new contract, create a new tenancy which is what is sometimes meant by “waiving” a notice to quit, but the old tenancy no longer exits.  Unless a fresh tenancy is subsequently created, the landlord cannot distrain for subsequent rent, even though the tenant continues in possession for a year or more after the expiry of the notice.  The remedy in such case is by action for use and occupation, or for double value or double rent.”

12.  Thus the authors of both Hill and Redman’s Law of Landlord and Tenant and Woodfall’s Law of Landlord And Tenant are of the view that once a notice to quit has been served, it is beyond recall.  The tenancy is terminated upon expiration of the notice, just as night follows day.  Once a notice to quit is served it unilaterally terminates the current tenancy.  The party to whom the notice is given is entitled to insist upon it and it cannot be waived unilaterally by the party giving the notice.  It may be withdrawn only with the consent of both parties to the tenancy agreement.  The effect of such a consent is to create a new tenancy at the expiration of the old one and not that the current tenancy continued as if no notice had been given: see Tayleur v Wildin (1868) LR 3 Ex 303.  In that case, Kelly CB said at 305:

“The question is, whether … if the notice to quit was a notice that could be withdrawn and done away with at the option of the party giving it, and it was in fact so withdrawn, whilst the tenancy subsisted, the tenancy would not have been determined.  But it is clear that, whether the notice to quit is given by the landlord or the tenant, the party to whom it is given is entitled to insist upon it, and it cannot be withdrawn without the consent of both.  If that is so, then the consent of the parties makes a new agreement, and if there is a new agreement there is a new tenancy created to take effect at the expiration of the old tenancy.”

Thus, if a tenant remains in possession after the notice to quit took effect without the consent of the landlord, he becomes a trespasser.  If he remains in possession with the consent of the landlord, then he does so under a new tenancy, the old tenancy having been terminated upon expiry of the notice to quit. 

13.  Technically, a notice to quit, once given, cannot be waived unilaterally by the party giving it.  Even according to the evidence of the Defendant, the Plaintiff never expressly waived the notice to quit in the sense that it withdrew the notice.  Instead, the documentary evidence consistently shows that the Plaintiff insisted on the notice.  To the extent that “waiver” is used as a convenient misnomer, it requires the consensual agreement of the parties that the tenant remains in possession.  As with any agreement in respect of disposition of interest in land, four certainties apply, namely certainty of parties, property, term and price. Even on the evidence of the Defendant there was no agreement as to the term of the new tenancy and the rental.  The so called defence of “waiver” does not even get off the ground.

14.  The evidence of the Defendant is that since the issue of the notice, the parties entered into negotiation for a new tenancy and the Plaintiff’s agent assured the Defendant that the notice to quit would not be enforced.  To the extent that this evidence suggests that the Plaintiff is thus estopped from enforcing the notice to quit, I shall consider the question of estoppel, though it was not so argued by Mr Lo.  To raise an estoppel, the Defendant has to prove that it acted on the Plaintiff’s representation and as a result suffered detriment.  The Defendant’s case is that shortly after receipt of the notice to quit, Miss Wong of Man Wah telephoned him and invited the Defendant to negotiate for a new tenancy for the Premises.  During the conversation, Miss Wong told him that the Plaintiff would not rely on the notice to quit for regaining possession of the Premises.  Thereafter, he continued the negotiation with Mr Choi of Man Wah on two separate occasions about reduction of rent and the new tenancy.  Mr Choi told him that the Plaintiff would decide whether to make a reduction after considering the prevailing market rent.  Mr Choi re-assured him that the notice to quit was only a mere formality and told him not to worry about the effect of the notice.  Then suddenly, the Plaintiff’s solicitors, Messrs YT Chan & Co (“YTC”) issued a letter to the Defendant’s then solicitors, Messrs Edmund Cheung & Co (“ EC”) on 28 February 2003 saying that the Plaintiff did not intend to renew the tenancy and on 2 May 2003 the Plaintiff issued the writ of summons.  He was never told by Choi that the negotiation of a new tenancy had broken down.

15.  The Plaintiff does not dispute that Mr Lam had discussed with Miss Wong about negotiation for a new tenancy but denied that Miss Wong had told the Defendant that the Plaintiff would not rely on the notice to quit for regaining possession of the Premises.  It is common ground that Mr Choi had several telephone conversations with Mr Lam during which Mr Lam asked for reduction in rent.  According to Mr Choi, he told Mr Lam that before the Plaintiff could reply to his request, the Defendant had to give the Plaintiff its proposed terms.  Mr Choi denied having said that the Defendant should not worry about the effect of the notice to quit.  Several months lapsed without any response from the Defendant.  Then the Plaintiff instructed YTC to issue the letter dated 28 February 2003 that it does not intend to renew the tenancy with the Defendant.

16.  It is trite law that the mere assertion in an affidavit of a given situation does not ipso facto, provide the defendant leave to defend.  The defendant must show that he has a fair or reasonable probability of showing a real or bona fide defence, i.e. that his evidence is reasonably capable of belief.  In Re Safe Rich Industries Limited, CACV 81 of 1994, unreported, 3/11/1994, the Court of Appeal stated the test to be adopted at the summary stage as follows:

“The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable.  But it must be recognized – because failure to recognize it would create a debt-dodger’s charter – that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.”

17.  While it is not open to me in proceedings of this kind to conduct a mini trial by affidavit, I am entitled to test the Defendant’s case against incontrovertible evidence and contemporaneous documents.  In the covering letter dated 1 October 2002 to the Defendant enclosing the notice to quit, Man Wah wrote as follows:

“In order to protect the interest of the Landlord, it is necessary for us to serve upon you the enclosed Notice of Termination of Tenancy.  You will appreciate that this action is a protective measure only.

Entirely on a without prejudice basis and subject to contract, please advise us as to whether you are prepared to renew the existing Tenancy with the Landlord in writing within 14 days from the date of this letter hereof.”

EC replied within 14 days on 12 November 2002 that the Defendant intended to renew the tenancy and asked for the proposed rental form the Plaintiff.  YTC replied on 13 November 2002 that the Plaintiff was considering the Defendant’s request.  All these tallied with the Defendant’s case to the extent that the Plaintiff was desirous of negotiating with the Defendant for a new lease and that notice to quit was a protective formality only.  The only dispute is whether Miss Wong had told the Plaintiff would not rely on the notice to quit for regaining possession of the Premises.

18.  After YTC’s letter of 13 November 2002, there was a total lack of documentary exchange between the parties until three and half months later when YTC wrote on 28 February 2003 that the Plaintiff was not going to renew the tenancy with the Defendant.  There was no dispute that during this period Mr Lam had two conversations in which Mr Lam requested a rental reduction.  According to Mr Lam, he asked for rental reduction because of poor business and Mr Choi said the Plaintiff would decide whether to make any reduction and he did not follow up further or make any specific offer as to the reduced rental.  On the other hand, according to Mr Choi, he told Mr Lam that before the Plaintiff could reply to his request, the Defendant had to give the Plaintiff its proposed terms; but the Defendant did not come up with any proposed rental.  Mr Choi denied having said that the Defendant should not worry about the effect of the Notice to quit.  I do not consider Mr Lam’s account credible.  If someone is seriously requesting a rental reduction in the face of a threat to terminate the tenancy when it expires, he would have made a firm offer quoting the amount of rental instead of waiting for the landlord’s decision whether to reduce the rental without any specific the amount of rental being considered.  On the other hand, as the Plaintiff had decided to terminate a monthly tenancy but was nevertheless willing to negotiate a formal tenancy, it is not unreasonable for it to wait for an offer from the tenant.  The Defendant’s case that it was waiting for the Plaintiff’s reply whether to negotiate a new tenancy at a reduced rental to be agreed is not credible.

19.  What is more telling against the Defendant is that after the receipt of YTC’s letter of 28 February 2003, it made no protest that it was waiting for the Plaintiff’s reply of whether to negotiate a new tenancy at a reduced rental and made no complaint of Mr Choi’s promise that the Plaintiff would not use the notice to quit for repossessing the Premises.  Mr Lam said that after receipt of the said letter, he contacted Mr Choi and was again assured that the letter of 28 February 2003 was only for record purpose and there was still much room for negotiation.  As the notice to quit is due to expire, a prudent tenant in the circumstances would have made a protest by referring the landlord to his promise not to enforce the notice to quit, or urged the landlord to expedite the negotiation or offered the amount of rental for the new tenancy.  The Defendant’s silence is not consistent with any on-going negotiation or with any such promise having been made.  On the other hand, the issue of the letter of 28 February 2003 by the Plaintiff is consistent with the Plaintiff’s case that no negotiation took place due to the Defendant’s failure to respond with proposed terms.

20.  Furthermore, the Defendant kept silent for another one and half months.  Then just two weeks before the notice to quit took effect, its current solicitors, Messrs Cheng Wong & Partners (“CWP”), wrote to the Plaintiff asking for a three month short term licence.  CWP wrote as follows:

“We are instructed that the tenancy of the Premises is due to expire on 30^th April 2003.  As the business of our client is undergoing relocation, our client shall be grateful if your client would grant a short term licence to ours for a period of 3 months starting from 1^st May 2003 to 31^st July 2003 at a monthly licence fee of HK$200,000.  Other terms and conditions under the existing tenancy shall remain unchanged.”

In this letter, the Defendant acknowledged that the tenancy would terminate on 30 April 2003.  It made no mention of any on-going negotiation for a new tenancy or Mr Choi’s promise that the notice to quit would not be enforced.  It unequivocally accepted the notice to quit was valid and expressed a clear intention to quit as it is already undergoing relocation.  Against such background, Mr Lam’s assertion that this letter was to impart on the Plaintiff the fact that the Defendant might consider relocating their business so as to urge the Plaintiff to speed up the negotiation is simply incredible.

21.  In response to CWP’s letter, YTC replied promptly on 22 April 2003 reminding the Defendant to deliver up vacant possession of the Premises on 30 April 2003.  Again, that letter was met with no protest from the Defendant that they were engaged in an on-going negotiation for a new lease and that Mr Choi had promised that the notice to quit would not be enforced.

22.  Despite that the Plaintiff was desirous to enter into a new tenancy with the Defendant and on the face of YTC’s letter dated 13 November 2002 that the Plaintiff was considering the Defendant’s request for a new lease, the Defendant’s allegation that it was waiting for the Plaintiff’s reply for three and half months is incredible.  The Defendant’s failure to give any indication of the amount of rental it was prepared to pay is inconsistent with the conduct of someone negotiating for a new lease.  The Defendant’s failure to complain about Mr Choi’s promise not to enforce the notice to quit or mention of any on-going negotiation are late allegations which bear all the hallmarks of an afterthought.  I consider the defence of waiver is merely moonshine and not a bona fide defence.

23.  Even if the Plaintiff had promised that the notice to quit would not be enforced, there is no evidence that the Defendant suffered any detriment.  In any event, by its letter of 28 February 2003 the Plaintiff terminated any expectation of a new lease. 

Conclusion

24.  I come to the conclusion that the notice to quit was valid and effectively terminated the tenancy with effect from 30 April 2003.  The parties have not entered into any new lease.  The Defendant’s case that the parties were negotiating the terms of the new tenancy and the Plaintiff promised that the notice to quit would not be enforced is incredible.  Even if it were true, the Plaintiff is not estopped from enforcing the notice to quit as no detriment has been suffered by the Defendant.  The Defendant has no credible defence.  Accordingly, the Defendant’s appeal must be dismissed with costs.