WONG WAN LEUNG AND OTHERS v. FU SAU PAN

CACV 107/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 107 OF 2000

(ON APPEAL FROM DCCJ 20291/1999)

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J U D G M E N T

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Hon Godfrey VP :

Introduction

1. This is an appeal by a defendant from the dismissal by His Honour Judge Wilson on 1 March 2000 of the defendant's application to strike out the particulars of the plaintiffs' claim in their action against the defendant in the District Court. The defendant had applied for such relief pursuant to rule 38A of the District Court Civil Procedure (General) Rules, which entitles a judge in the District Court to strike out the particulars of a plaintiff's claim in that court if it appears to the judge that the plaintiff's claim does not adequately disclose a cause of action. The judge having dismissed the defendant's application, the defendant now appeals.

Background

2. By a sub-lease dated 23 November 1994, the plaintiffs let some premises in Cheung Chau to the defendant for a term of 5 years from 7 November 1994 at an annual rent (after 1 July 1997) as therein specified.

3. On 8 September 1995, the Block Crown Lease (Cheung Chau) Ordinance, Cap. 488 ("the Ordinance") came into operation.

4. The purpose of the Ordinance was to provide for the termination of the Block Crown Lease of Cheung Chau granted to Wong Wai Tsak Tong (of which the plaintiffs are the managers) and for sub-lessees under the Block Crown Lease to hold directly from the Crown (now the Government).

5. This purpose was achieved, by sections 3, 4(1) and 5(1) of the Ordinance, for some sub-lessees immediately, but not, in the first instance, for all sub-lessees. An exception was made by section 9(1) for sub-lessees under sub-leases granted for a period extending beyond 9 November 1994 under which an agreed rent was payable after 30 June 1997; and the sub-lease with which we are concerned here came within that exception.

6. In the case of premises subject to such sub-leases, section 6(1) provides that a separate Government lease is deemed to have been granted to the Tong for the residue of the term of the Block Crown Lease; and section 9(2) provides that the Tong is deemed to have granted the sub-lessee a new sub-lease on the same terms and conditions as the original sub-lease.

7. Under section 5, such sub-leases, when they expire, are extended to 30 June 2047; and under section 6(2), from the date of such expiry, the Tong is deemed to have surrendered its interest in the premises to the Government and the sub-lease is deemed to be a direct lease from the Government to the sub-lessee.

8. The Tong is entitled, under section 10 of the Ordinance, to claim compensation from the Government for the determination of the Block Crown Lease in respect of land by reason of the Ordinance deemed to be held by sub-lessees directly of the Government, and also for the deemed surrender of land under section 6(2).

The problem

9. In the present case, the defendant sub-lessee defaulted in payment of rent in July 1998; and this faced the plaintiffs with a problem in connection with their claim for compensation. They could, and did, while the Tong was still the defendant's landlord, claim possession of the premises the subject of the defendant's sub-lease from the defendant. But before they could obtain an order for possession, the 5-year term originally created in favour of the defendant had expired.

The plaintiff's case

10. The plaintiffs say that by issuing and serving their proceedings on the defendant as they did before the expiry of the term granted by the sub-lease of 23 November 1994, the plaintiffs evinced their intention to forfeit, and did forfeit, the defendant's sub-lease. The Government (say the plaintiffs) has indicated to the plaintiffs that if the plaintiffs can produce to the Government an order of the court evidencing this, the Government will treat the plaintiffs as entitled to compensation under section 10 of the Ordinance in respect of these premises. In the light of what they say is the Government's stance they are anxious to proceed with this action in order to obtain an order for possession or failing that some appropriate declaration. From the plaintiffs' point of view, obtaining such a declaration here would be of real practical utility.

The defendant's case

11. The defendant says that no order for possession can now be made in favour of the plaintiffs; that no declaratory relief obtained by the plaintiffs against the defendant in these proceedings will bind the Government; that the plaintiffs are now entitled, in these proceedings, only to a judgment for arrears of rent (arrears of so small an amount that they could and should be the subject of a claim in the Small Claims Tribunal); and that there is no ground on which the court could or would grant the declaratory relief now sought by the plaintiffs against the defendant in place of their original claim for possession.

(The defendant also takes a pleading point; that the plaintiffs' claim to be "entitled" to forfeit the sub-lease is not a sufficient averment of their intention to do so; but I am satisfied that this is a bad point.)

Conclusion

12. At the conclusion of the argument, I was inclined to think that the plaintiffs' case was not so incontestably bad as to justify the court in striking out its particulars of claim. But I have since had the advantage of reading in draft the judgment prepared by Keith JA, in which he demonstrates that the defendant's original sub-lease must be treated as having been still subsisting and capable of taking effect on 7 November 1999 (no order for possession or declaration of forfeiture having at that date been made) so that thereafter the Government became the defendant's landlord under the direct Government lease which, by virtue of section 5(2) of the Ordinance, is to be deemed to have replaced the defendant's original sub-lease from the plaintiffs. In those circumstances, after 7 November 1999, no order for possession, or declaration of forfeiture, could have been or can now be made in favour of the plaintiffs in these proceedings. If the plaintiffs wish to pursue their claim for compensation from the Government under section 10 they must pursue it in proceedings against the Government, not against the defendant.

13. I, too, would therefore allow the appeal, with the consequences indicated in Keith JA's judgment.

Hon Keith JA :

Introduction

14. Wong Wai Tsak Tong ("the Tong") was the lessee of land on Cheung Chau under a Block Crown Lease. That Lease was renewed under the New Territories (Renewable Government Leases) Ordinance (Cap. 152) and extended to 30 June 2047 under the New Territories Leases (Extension) Ordinance (Cap. 150). The Tong granted a number of sub-leases in respect of the land to which the Block Crown Lease related. The Defendant was one such sub-lessee, pursuant to a sub-lease dated 23 November 1994 granted to her by the Plaintiffs, who are the managers of the Tong.

15. The rights of the Tong and its sub-lessees are now governed by the Block Crown Lease (Cheung Chau) Ordinance (Cap. 488) ("the Ordinance"). The Ordinance provides a particular regime for what it calls "special" sub-leases. The features which distinguish such sub-leases from other sub-leases are described in section 9(1) of the Ordinance, and it is common ground that the Defendant's sub-lease is such a sub-lease. The regime which applies to special sub-leases is set out in a haphazard way in the Ordinance, but the relevant sections - in the order in which they apply - are sections 6(1), 9(2), 5(2) and 6(2).

The relevant statutory provisions

16. By section 6(1) of the Ordinance, a Government lease of all land sub-leased by the Tong under special sub-leases was deemed to have been granted to the Tong on 8 September 1995 (which was the date on which the Ordinance took effect) for the remainder of the extended term of the Block Crown Lease. By section 9(2) of the Ordinance, the sub-lessee under a special sub-lease was deemed to have been granted by the Tong on 8 September 1995 a sub-lease of the premises to which the previous sub-lease related on the same terms and conditions as the previous sub-lease. Since the Defendant's previous sub-lease was for 5 years from 7 November 1994, she was deemed to have been granted a new sub-lease of the premises to which the previous sub-lease related ("the premises") by the Tong on 8 September 1995 which would have expired on 6 November 1999. From now on in this judgment, all references to the Defendant's sub-lease are references to the sub-lease which the Defendant was deemed to have been granted on 8 September 1995 rather than the previous sub-lease granted by the sub-lease dated 23 November 1994.

17. The other relevant provisions of the Ordinance deal with what would happen immediately after the expiry of the new sub-lease. Section 5(2) of the Ordinance provides:

"As from the date immediately after the expiry of the current term of a new sub-lease deemed to be granted under section 9(2), the new sub-lease is deemed to be a direct lease from the Government as if a lease had been granted by the Government to the sub-lessee as from that date until the expiry of 30 June 2047 in place of the new sub-lease .........."

That direct lease was deemed to contain the same terms as the Government lease deemed to have been granted under section 6(1) of the Ordinance, with minor modifications to reflect the fact that the sub-lessee would from then on be the direct lessee of the Government. The impact of that provision on the Government lease deemed to have been granted under section 6(1) was dealt with in section 6(2) of the Ordinance, which provides that on the date when the sub-lease would be deemed to be a direct lease from the Government, the Government lease which the Tong was deemed to have been granted under section 6(1) of the Ordinance would be deemed to have been surrendered to the Government. Thus, if the Defendant's sub-lease had not been prematurely brought to an end prior to 7 November 1999,

(a) the Defendant's sub-lease on that date would have been deemed to have been converted into a direct Government lease with the Defendant as the Government lessee, and

(b) the Tong's Government lease would on that date have been deemed to have been surrendered to the Government.

For that deemed surrender, the Tong would have been entitled to compensation under section 10 of the Ordinance.

The Defendant's breach of covenant

18. The problem which has arisen is that the Defendant did not pay the annual rent due on 1 July 1998 and 1 July 1999. The Tong therefore commenced the current proceedings claiming possession of the premises. These proceedings were commenced on 21 October 1999, i.e. before the sub-lease was due to expire on 6 November 1999. Since the proceedings had been commenced so soon before the sub-lease was due to expire, it is not surprising that no order for possession had been made by the date when the sub-lease would otherwise have expired by effluxion of time.

The Tong's primary case

19. On these facts, the Tong's primary case is that by commencing the proceedings prior to the expiry of the Defendant's sub-lease, the Tong evinced its intention to forfeit, and did indeed forfeit, the Defendant's sub-lease. That is because any order for forfeiture by the court relates back to the date on which the proceedings were commenced. Since the Tong was still the Defendant's lessor on the date when the proceedings were commenced, the deemed conversion of the Defendant's sub-lease from the Tong to a direct lease from the Government on 7 November 1999 had not yet taken place. Accordingly, the Tong is entitled to an order for possession of the premises.

20. The Defendant's response to the Tong's primary case is twofold. First, the technical point is taken that the Particulars of Claim were drafted in such a way as not to amount to a sufficient indication that the Tong intended to forfeit the Defendant's sub-lease. This argument cannot succeed. The assertion in the Particulars of Claim that the Tong is "entitled" to forfeit the sub-lease, and the claim in the Particulars of Claim for possession of the premises, are, when taken together, on any view a sufficient indication that the Tong intended to forfeit the Defendant's sub-lease.

21. The Defendant's second response to the Tong's primary case is more substantial. Mr Benjamin Chain on her behalf accepted that any order for forfeiture by a court relates back to the date on which the proceedings were commenced. However, he contended that until such an order was made, the Defendant's sub-lease continued to exist. Thus, it continued to exist on 7 November 1999, with the result that the deemed conversion of the Defendant's sub-lease from the Tong to a direct Government lease on 7 November 1999 took place. Accordingly, the Tong is not entitled to an order for possession of the premises. This is a compelling argument. It depends upon whether the Defendant's sub-lease had already been forfeited by 7 November 1999. If it had not been, section 5(2) applies according to its terms.

22. In my view, Mr Chain's argument is correct. The critical point is that the question whether the Defendant's sub-lease had already been forfeited by 7 November 1999 has to be looked at as if one was looking at the question on 7 November 1999. Otherwise, the Ordinance would be unworkable. One would not know until the claim for possession came to court whether the sub-lease had still been subsisting on 7 November 1999 or whether it had already been forfeited by then. If on 7 November 1999 the sub-lease had not yet been forfeited, because the claim for possession had not yet come to court, the fact that a subsequent order for forfeiture would have related back to 21 October 1999 does not mean that on 7 November 1999 the sub-lease was not then subsisting.

23. This reasoning is entirely in line with what was said in a previous action involving the Tong - Wong Wan Leung & ors. v. The Secretary for Transport [2000] 1 HKLRD 562. In that case, the court had to decide whether the registration of a sub-lease granted by the Tong was still subsisting when the Ordinance came into effect. At that time, proceedings for the forfeiture of the sub-lease had been commenced but an order for the forfeiture of the sub-lease had not yet been made. At pp. 566J-567B, Godfrey V-P said that on the date when the Ordinance came into effect

".... the registration of the sub-lease was still subsisting, even if the term created thereby was liable to forfeiture, and even if it had, in fact, been forfeited. In our opinion, the Ordinance does not require any investigation into such, often difficult, questions as to whether, and, if so, when a forfeiture of a sub-lease took place or may have taken place. Either the registration had been expunged or it had not. In fact, here it had not."

24. I appreciate that rule 38A(1)(a)(ii) of the District Court Civil Procedure (General) Rules is the District Court equivalent of Ord. 18 r. 19(1)(a) of the Rules of the High Court. A plaintiff's claim should therefore only be struck out in plain and obvious cases. But the issue which the Tong's primary case raises is, in my opinion, a crisp one which is susceptible to a mature and informed conclusion even on a summary procedure of this kind. Subject to the Tong's alternative case, therefore, I would have struck out that part of the particulars of the Tong's claim in which the Tong claimed an order for possession of the premises. That would simply leave that part of the claim which relates to arrears of rent and interest, and I shall return to that later.

The Tong's alternative case

25. I turn to the Tong's alternative case, which proceeds on the assumption that its primary case fails, i.e. that the Defendant's sub-lease is deemed to have been converted into a direct Government lease on 7 November 1999. On that supposition, the Tong is deemed to have surrendered its Government lease to the Government on that date, and it would be entitled to compensation under section 10 of the Ordinance. However, Ms. Winnie Chan for the Tong told us that in other cases the Government had denied the Tong compensation under section 10 on the basis that the Tong had not "sued for judgment". The Tong therefore sought a declaratory judgment to further its application for compensation from the Government.

26. No declaratory relief was sought in the Particulars of Claim as an alternative to the Tong's primary case that an order for possession should be made. Accordingly, the claim for declaratory relief can only be allowed to proceed if an application for leave to amend the Particulars of Claim to add a claim for declaratory relief would be granted. In my opinion, no basis exists for adding a claim for declaratory relief. The declarations which would be sought, I suppose, are declarations to the effect that

(i) on the date on which the Tong commenced its proceedings, the Tong had a cause of action against the Defendant for the forfeiture of the sub-lease as a result of her arrears of rent, and

(ii) the only reason why the Tong will not have been able to obtain an order for possession is because section 5(2) of the Ordinance intervened in the meantime to prevent the Tong from continuing to be the Defendant's lessor, and therefore to prevent the Tong from obtaining an order for possession against her.

But these declarations, if made, would add nothing to what by this judgment I have ruled the law to be. The effect of this judgment is that, by virtue of section 5(2) of the Ordinance, the sub-lease is deemed to have become a direct lease from the Government on 7 November 1999, and by virtue of section 6(2) of the Ordinance, the Tong is deemed to have surrendered to the Government the lease which was deemed to have been granted to it on 8 September 1995 under section 6(1) of the Ordinance.

27. In any event, I would not have thought it appropriate for the current proceedings to have been used as a sidewind to enhance the Tong's claim for compensation. If a claim for compensation was to be made, and the Government was to reject it, the Tong should be required to issue proceedings in the Lands Tribunal of the kind contemplated by section 10(4) of the Ordinance, rather than to claim declaratory relief in the current proceedings. Those proceedings would be the proper forum in which the underlying facts could be examined to determine whether the claim for compensation had been made out. As it has turned out, though, such proceedings are not going to be necessary, because in deciding whether the Tong's claim in these proceedings for an order for possession should be struck out, I have to all intents and purposes ruled that the Tong's entitlement to compensation under section 10(1) of the Ordinance has been triggered, subject (of course) to the other provisions of section 10.

Conclusion

28. For these reasons, I would allow the appeal, I would set aside the order of the judge, and I would order that the Tong's claim for an order for possession of the premises be struck out. That simply leaves the Tong's claim for arrears of rent. These arrears with interest up to 6 November 1999 when the Tong ceased to be the Defendant's lessor are pleaded as amounting to $3,261.38. Such a claim comes within the exclusive jurisdiction of the Small Claims Tribunal, and I would therefore direct that this action be transferred from the District Court to the Small Claims Tribunal. At present, I see no reason why the costs should not follow the principal event, and the order nisi which I would make as to costs is that the Tong must pay to the Defendant her costs of and occasioned by her summons to strike out the Particulars of Claim and of the appeal, to be taxed if not agreed.