WEST COAST INTERNATIONAL (PARKING) LTD. v. SECRETARY FOR JUSTICE

CACV 998/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 998 OF 2000

(ON APPEAL FROM HCA 13458/1999)

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J U D G M E N T

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Hon. Rogers VP:

1. This is an appeal from a judgment of Deputy Judge Woolley given on 23 November 2000. The Judge below was hearing an appeal from the Master on an Order 14A application.

2. The matter arises in this way: on 23 July 1996, a short-term Tenancy Agreement was entered into between the plaintiff and the Governor of Hong Kong, which expression was said to include the Chief Executive of the Hong Kong Special Administrative Region after 30 June 1997. The tenancy was in respect of what was to be a carpark area. The rent was $2,672,226.50 for the period from 5 July 1996 to 31 March 1997. It was then to be $902,000 per quarter, payable in advance on 1 January, 1 April, 1 July and 1 October in each year for the period from 1 April 1997 up to 4 July 1998. Thereafter the rent was to be in accordance with the terms of clause 4(g) of the Tenancy Agreement, to which I shall come in a moment.

3. The period of the tenancy was to be two years certain, commencing on 5 July 1996, and thereafter quarterly until such time as the tenancy would be determined, with the landlord having the right to terminate the tenancy for Tin Shui Wai Areas 25 or 25B, or both, at any time within or outside the two-year term by six calendar months' notice. Then Special Condition 1, which is contained in the second schedule of the Tenancy Agreement, provided that, subject to Special Condition 2, the tenancy may be terminated at the expiration of two years by either party giving to the other at least three calendar months' notice in writing to that effect, to expire at the expiration of the second year. In the event of no such notice being given, the tenancy might be terminated by either party giving to the other at least three calendar months' notice in writing to that effect, to expire at any time.

4. Reference should then be had to two further matters. The first is clause 4(g) which provided:

"That in the event of the tenancy hereby created not being terminated within three years from its commencement the rent hereby reserved may be increased by the Landlord at his sole discretion on or after the expiry of every third year of the tenancy upon the Landlord giving to the tenant not less than three calendar months' prior notice to that effect. Upon the expiry of such notice such increase shall take effect whereupon the increased rent shall be deemed to be substituted for the rent previously in force under this Agreement PROVIDED that no such revision shall take effect within three years of the immediately preceding revision and PROVIDED FURTHER that the parties hereto expressly agree that nothing herein contained shall imply an intention on the part of either party that the tenancy shall not be terminated in accordance with the provisions of this Agreement."

5. The final matter to which I should refer is clause 6 of the Special Conditions contained in the second schedule. I do not propose to recite that but simply to say that the deposit which was required under the agreement was $1,804,000. It is not disputed there is no provision in clause 6, or anywhere else in the agreement, for an increase in the deposit.

6. The plaintiff duly occupied the three lots and apparently used them as a carpark. On 23 March 1999, the officer acting on behalf of the District Lands Officer, Yuen Long, sent the following letter upon which this case turns, and I will set it out in full because it is upon this letter as well as upon the agreement which the plaintiff seeks to found its case. It is headed "Short Term Tenancy No. 1388 in Tin Shui Wai Areas 25, 25B & 27, Yuen Long":

"I refer to your tenancy of the above Government land which commenced on the 5th day of July 1996 by a Tenancy Agreement dated July 23, 1996.

I am prepared to allow your tenancy to continue on the terms and conditions contained in the said Tenancy Agreement subject however to a revision of the rent. The revised rent will be HK$1,286,625.00 per quarter commencing on the 5th day of July 1999 ("the effective date") and will be payable until further notice. This letter is formal notice to you of an increase of the rent with effect from that date.

I would further advise that in connection with the aforesaid revised rent, the deposit deposited with the Landlord in accordance with the terms and conditions of the said Tenancy Agreement is revised to HK$2,573,250.00 with effect from the effective date and shall remain deposited with the Landlord throughout the term of the tenancy. In this connection, you are required to pay to the Landlord the sum of HK$769,250.00, being the difference between the existing deposit and the revised deposit on or before 5th day of July 1999. Upon your delivering up vacant possession of the above Government land to the Landlord and your duly observing and performing your obligations under the said Tenancy Agreement, the deposit will be refunded to you without interest.

If you wish your tenancy to continue and are prepared to pay the revised rent and deposit as indicated above, please sign the enclosed copy of this letter where indicated in the presence of a witness and return it to me within 28 days from the date of this letter. Government reserves the right to charge interest on the new rent from the effective date until the date of payment at the rate of 2% per annum above the prevailing Best Lending Rate of The Hongkong & Shanghai Banking Corporation Limited in the event of the same not being paid on the effective date.

In the event that I do not receive from you the signed copy indicating your agreement to the revised rent and deposit, such action as is deemed appropriate in relation to your tenancy will be taken.

If you are in any doubt about the contents of this letter, please contact the undersigned on telephone ..."

and the telephone number is given.

7. Attached to that letter was obviously a form which was returned, dated 12 April 1999, which read:

"I hereby acknowledge receipt of the original of this letter and agree to pay the revised rent and deposit from the date mentioned above, the other terms and conditions of the tenancy remaining the same as before."

8. There then followed shortly afterwards, perhaps prompted by interest shown by other parties in respect of the property, and also prompted apparently by a desire to use part of the premises as a sitting-out area, a letter dated 24 May 1999, again from the Director of Lands Office, Yuen Long, which referred to the Tenancy Agreement and said:

"I wish to inform you that areas marked "Area 25, Area 25B and Area 27", ("the sites") on the plan annexed to the said Tenancy Agreement, will be required shortly for Area 25, an open space development at Area 25 by District Officer/Yuen Long, and Area 25B and Area 27, public tender.

In this connection, I enclose herewith a formal notice to you to quit and deliver up to me possession of the sites on 30th September 1999.

You are required to hand over the sites in vacant possession to my satisfaction on 30th September 1999 in accordance with clauses 2(f) and (h), and Special conditions No. 42 in the Second Schedule of the Tenancy Agreement."

9. This letter did not appeal to the plaintiff who was unwilling to deliver up possession. Indeed, on 19 August 1999, the plaintiff issued a writ claiming a declaration that, "on the true construction of the Tenancy Agreement as renewed, the tenancy has been renewed on the terms and conditions of the Tenancy Agreement for another term of 2 years certain commencing on 5th July 1999 and thereafter quarterly subject to, with effect from 5th July 1999, a revised rent of HK$1,286,625 per quarter, and a revised deposit of HK$2,573,250" and, secondly, a declaration that the notice to quit of 24 May 1999 was invalid and of no effect.

10. A defence and counterclaim claiming possession was filed on 30 September 1999 and amended on 25 October. The Order 14A summons in this application was issued on 10 April. The summons sought a determination that "the said letter constituted an agreement to continue the existing quarterly tenancy at a revised rental and with a revised deposit which quarter tenancy was terminable on notice, or alternatively created a new fixed term tenancy of two years certain (or renewed the existing tenancy for another term of two years certain) on and from 5 July 1999; and if the said question be answered in the first alternative," the summons prayed for the relief appropriate for claiming possession.

11. The issue in this case turns on a remarkably small compass. The way the matter has been put is that, on a true and proper construction both of the Tenancy Agreement and the letter of 23 March, the consideration for the deposit was a grant of a new tenancy. In my view that argument is simply untenable in view of the terms of the letter of 23 March. The letter is quite clear that it is a continuation of the existing tenancy. The only matter to which attention can be drawn which is in any way remiss was the reference in that letter to the demand for the increase in the amount of the deposit. However, the terms of the letter make it clear that the writer of the letter was under the impression that the terms and conditions of the Tenancy Agreement enabled the defendant to ask for the increase in the deposit. In those circumstances, given the other wording of that letter, I see no possibility at all of that letter constituting an agreement for a new tenancy as opposed to a continuation of the existing tenancy under terms of increased rent and an increase in the amount of the deposit.

12. In any event, it was open to the parties to increase the amount of the deposit. There is nothing, by itself, in an increase in the amount of a deposit under a tenancy agreement which would dictate that there was a new tenancy agreement as opposed to the continuation of an existing tenancy agreement. Our attention has been drawn to the case of Friends' Provident Life Office v. British Railways Board (1996) 1 All ER at 336, but in my view this makes the position abundantly clear. Beldam LJ, having considered the authorities and, in particular, the judgment of Russell LJ in the case of Jenkin R Lewis & Son Limited v. Kerman (1970) 3 All ER 414 said, at page 345:

"I would hold Mr Neuberger's submission to be correct. In the absence of an increase in the extent of the premises demised or of the term for which they are to be held, both of which would change the legal estate, I can see no reason why the lessor and assignee could not achieve the changes they desired in the terms of the lease without the law implying its surrender and a regrant for the remainder of the term of the lease."

13. Even taking all the factors into consideration, I do not consider that the plaintiff's argument can prevail in this case. There was simply, at the highest, a variation in two terms in the Tenancy Agreement and there was no necessity or requirement for the law to imply that there should be a new grant.

14. In my view this appeal must be dismissed.

Hon. Keith JA:

15. I agree. It is common ground that in the letter of 23 March 1999, the tenant was asked to consent to the increased rent (even though its consent was unnecessary) and the landlord demanded an increase in the tenant's deposit (even though the tenant was entitled to refuse that demand). But I do not think that those two features of the letter militate in any way against according to the letter, and the acceptance of its terms by the tenant, its plain and obvious meaning, namely, that the landlord and the tenant were simply agreeing that the existing tenancy, which had by then become a quarterly tenancy, would continue at the new rent with the increased deposit. Thus, the landlord was entitled, pursuant to the second sentence of para. 1 of Sch. 2 to the tenancy agreement, to terminate the tenancy by giving to the tenant three months' notice in writing to that effect. Since that is what the landlord did, the tenancy came to an end on 30 September 1999 when the notice terminating the tenancy expired.

Hon. Hartmann J:

16. I agree with the judgment of my two brothers.