LAU YAN KIN v. PERFECTION (GLOBAL) LTD

LDPD 2697/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPD 2697 OF 2014

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J U D G M E N T

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1.  By a Notice of Application taken out on 9 December 2014, the Applicant asked for possession of a property known as “Flat B2, 7/F, Chung King Mansion, 36-44 Nathan Road, Kowloon” (“the Suit Premises”) and mesne profit until vacant possession is delivered.

2.  Having acquired the Suit Premises from his predecessor-in-title in about September 2014, the Applicant became the owner thereof as from 23 October 2014.  The acquisition was subject to a tenancy agreement executed on 1 January 2012 between the Respondent and the Applicant’s predecessor-in-title (“the Tenancy Agreement”).

3.  What led to the Application was allegedly breach of terms of the Tenancy Agreement.  It was said that paragraph 1 of Schedule II provides that the Suit Premises may only be used for “residential” purposes, as opposed to “commercial/office/shop or industrial” (“the User Clause”).  Under Clause 3 subletting is prohibited (“the No Subletting Clause”).  Under Clause 13, the parties agreed to be bound by the terms contained in Schedule II.

4.  It is the Applicant’s case that the Respondent had sublet the Suit Premises to a subtenant to run a guesthouse, it was in breach of the No Subletting Clause and the User Clause.  Pursuant to Clause 7 the Applicant sought to exercise the right to forfeiture upon breach of the two terms mentioned.  Subletting was no longer pursued when the Application was amended in May 2015.  It is to be noted that the Respondent had argued that there was no subletting but Mr Fan was assigned the right to operate a guesthouse.  As subletting[1] was no longer a live issue, it was not argued at the trial.  

5.  Further, it is the Applicant’s case that on or about 20 November 2014, the Applicant sent a notice by post to the Respondent asking the latter to remedy the breach (“the November Notice”).  Allegedly, in the absence of response from the Respondent, the Applicant commenced the present action on 9 December 2014.

The Respondent’s Opposition

6.  The Respondent opposed to the Application.  It was contended that there was no breach of the Tenancy Agreement because guesthouse falls within use for domestic/residential purposes.  Alternatively, if there was such breach, the Applicant’s predecessor-in-title and/or the Applicant had waived the right to enforce the breach by accepting rent upon knowing of the same.

7.  It was also said that the Applicant’s predecessor-in-title had authorized the Respondent to operate a guesthouse at the Suit Premises and the Applicant is therefore estopped from now saying that there was breach of the Tenancy Agreement by the Respondent’s running of a hotel thereat.

8.  Further the Respondent avers that the November Notice was never received and therefore no valid notice had been issued under section 58(1) of the Conveyancing and Property Ordinance (Cap. 219) to demand the Respondent to remedy the breach prior to commencement of these proceedings.

9.  Lastly, the Respondent said that if the Applicant is entitled to forfeiture, which is denied, the Respondent seeks relief from forfeiture.

Authorization of Applicant’s Predecessor-in-Title

10.  As mentioned, the Respondent alleged that the Applicant’s predecessor-in-title had authorized the operation of a guesthouse.  It relied on a document called “An Appendix to the Tenancy Agreement” (“the Appendix”)[2] in support of its case (page 107).

11.  The content of the Appendix is this:

“正式[3][臨時][4]租約附件     No 2354

物業地址： FLAT B2 ON 7^th FLOOR CHUNGKING MANSION, 36-44 NATHAN RD, KLN

業主： HSU JOANNE     I.D. NO. K 8xxxxx[5](2)

租客： PERFECTION (GLOBAL) LIMITED BR No. 60192203

業主已知悉租客用作[經營持牌][6]賓館用途]，簽正式租約第二天計[起租期為2012年10月1日起][7]三個月裝修期為免租期，如該單位收到政府或發展商之收購通知，業主可提早6個月通知租客解除租約而不作任何賠償。

租客： [Signature and company chop]

見證： 富立地產[company chop]

業主： [Signature] 龍臻國際有限公司

日期: 24-9-2012”

12.  It is however not disputed that the Appendix was not part of the Tenancy Agreement submitted for assessment of stamp duty and more importantly it was not registered in the Lands Registry.  The Applicant said that she had no notice of the Appendix and should not be bound by the terms therein.

13.  The Applicant further said that the Appendix might have been a collateral contract or personal contract between Applicant’s predecessor-in-title and the Respondent and is therefore unenforceable as against the Applicant.  In any event since it is a contract concerning land, in the absence of registration, it would not be enforceable against the Applicant who is bona fide purchaser for value without notice.

Discussion

Whether the Appendix Binding on the Applicant

14.  As to whether the Appendix is binding on the Applicant, the undisputed legal principle is that any unregistered agreement is governed by section 3(2) of the Land Registration Ordinance (Cap 128) as being “null and void to all intents and purposes” as against a bona fide purchaser for value without notice.

15.  From the facts quoted above, I do not think the Respondent could argue otherwise on the interpretation and application of section 3(2) of Cap 128 in the present case.  There was no evidence produced by either party to show that the Applicant did have actual notice or knowledge of the Appendix from any other source before the acquisition.  Even if she had actual knowledge, as the Appendix was not registered, it is still null and void.

User of the Suit Premises under the Tenancy Agreement

16.  Schedule II in the Tenancy Agreement:

1. User

The Tenant shall not use or permit to be used the Premises or any part thereof for any purpose other than for residential[8] purpose only.[P.S. – Please select one item: e.g. residential[9] / commercial / office / shop / industrial]. (“the User Clause”)”

17.  It was submitted on behalf of the Applicant that on a true interpretation of the User Clauses, the Suit Premises could only be used for residential purpose and subletting is not allowed.  Mr Wong for and on behalf of the Applicant relied on Mutualbest Limited v Ngai Wah Kit (unrep., LDPD 1548/2013, 23 December 2013) in which the contractual provision under consideration is identical to the User Clause.  The holding of Deputy Judge Kot on user as stated in §44 of the judgment is as follows:

“Clause 1 Schedule II required the Suit Premises to be used for residential purposes.  This means use as the residence of the tenant.  The running of a guesthouse or youth hostel involved the leasing out of rooms or bed spaces for value and this is apparently for a commercial purpose and can hardly be qualified as a residential use.”

18.  I do not think Mutualbest should be applied straightly to these proceedings.  Nor has it established any general principle on whether “residential” includes “guesthouse”.  Deputy Judge Kot was invited to make a finding in the light of a document called “A Layman’s Guide to License Application under the Hotel & Guesthouse Accommodation Ordinance” issued by the Office of Licensing Authority of the Home Affairs Department.  The parties herein did not refer me to the Laymen’s Guide and I do not have to consider the content thereof.  What I could say is that Deputy Judge Kot rejected the contention that guesthouse being within residential use after reading the Laymen’s Guide (“see paragraph 43 of the Judgment”).

19.  The Tenancy Agreement was reached between two parties who are laymen.  The word “residential” was not defined within the Tenancy Agreement.  There was no reference to any ordinances within the instrument.  Parties did not invite me to read any ordinance or otherwise to assist in the interpretation by a purposive approach at trial.  

20.  The Respondent contended that this Tribunal should refer to the Appendix when interpreting the stated user “residential” and the only conclusion this Tribunal could come to would be that guesthouse and hotels are within residential use as stipulated in the User Clause.  I do not agree.  I am of the view that this is an instrument which the parties to the Tenancy Agreement did not make any effort to disclose such as by having it registered and for this reason it became null and void.  Secondly I agree with the Applicant that when there was an Appendix expressly stating that the Respondent was permitted to use the Suit Premises as guesthouse “作賓館用途”, it must have been a deliberate choice of word when parties to the Tenancy Agreement chose to put down “residential” instead of “guesthouse” as the permitted user.  With a deliberate choice of word for the user, the intention of the parties was that the Tenancy Agreement should be taken as to be for residential use in its ordinary meaning.

21.  The ordinary meaning of residence and guesthouse as could be seen from the Shorter Oxford English Dictionary are as follows:

(i) Residence: the circumstance or fact of having one’s permanent or usual abode in or at a certain place.

(ii) Guesthouse: a house where strangers are accommodated; now usu., a (superior) boarding house, esp. one catering for holiday-makers.

22.  From the above, the ordinary meanings of residence and guesthouse are quite different.  I find that when “residential” was put down as the user of the premises under the Tenancy Agreement, it could not have intended to mean guesthouse.  It is my finding that using the Suit Premises as guesthouse is a breach to the User Clause under the Tenancy Agreement.

Promissory Estoppel

23.  The Respondent had also contended that it had entered into the Tenancy Agreement on the strength of the promise that the Suit Premises could be used as a guesthouse before or at the time the Tenancy Agreement was signed.  It is the Applicant’s case that the Respondent’s assertion under this line of defence could not hold water.

24.  It was submitted for the Applicant that this is part of the consideration for the Respondent to agree to sign the Tenancy Agreement.  This is consistent with a collateral contract, rather than a promise not to enforce some existing rights (as required in a promissory estoppel).  Legally, no existing rights under Tenancy Agreement existed prior to the signing of the same.

25.  Mr Wong for the Applicant further submitted that promissory estoppel arising between the Applicant’s predecessor-in-title and the Respondent is an equity in personam (rather than in rem).  In any event, rights acquired under any estoppel are equitable in nature and the equitable interest will be defeated by a bona fide purchase for value without notice (i.e. an equity’s darling).  He referred the Tribunal to: Pilcher v Rawlins (1872) 7 LR Ch App 259, at 268; Megarry & Wade, The Law of Real Property (8th Ed), 8-005.

26.  It was further submitted that there is nothing on the Tenancy Agreement capable of putting the Applicant on notice of any equitable rights acquired there under.  The Respondent’s contention on promissory estoppels therefore must fail.

27.  I have read the authority and the passage in Megarry & Wade.  I find the latter helpful in the present case.  At paragraph 8-005 it is said that:

“It is a fundamental rule that a purchaser of a legal estate for estate for value without notice is “an absolute, unqualified, unanswerable defence against the claims of any prior equitable owner or incumbrancer.”

28.  I agree with Mr Wong on his line of argument.  I am also of the view that such promise in the form of the Appendix or otherwise would not be binding on the Applicant as he was given no notice of such agreement on user under Cap 219.

Waiver by Demanding or Receiving Rent

29.  The Respondent’s case is that even if there was a breach under the User Clause, such breach had been waived by the Applicant’s accepting rent on 3 December 2014 upon knowing such breach.

30.  This is the issue where parties gave different accounts on facts.  Madam Lau, the mother of the Applicant, was called as his first witness.  She acquired the Suit Premises as a gift for the Applicant and naturally was the person responsible for the sale and purchase.  The other witness Ms So is the sister of Madam Lau, who happened to be an estate agent at the relevant time and had been involved in the sale and purchase as well as certain correspondence with the Respondent thereafter.  Ms Chan gave evidence as witness for the Respondent.

31.  Much had been said on when and how rent was demanded and eventually received.  Much had been said as to whether Madam Lau and Ms So were aware of the breach when rent was demanded.  It is the submission of Mr Wong that the issue could be resolved without going into the evidence.  In my judgment that it is only appropriate to deal with the dispute on facts first.

When the Alleged Breaches were Discovered

32.  The first thing to determine is when the alleged breaches were discovered by the Applicant.  Madam Lau had stated in her Witness Statement that she had telephoned Ms Chan of the Respondent and demanded the Respondent to pay rent for November (see paragraph 12 at page 37) after she found that she could not receive the rent for November.  Failing that she went to the Suit Premises on 18 November and saw that the Suit Premises were divided into 7 rooms.  She then informed Ms So of this.

33.  On this topic, Ms So’s evidence in the Supplemental Witness Statement was that upon learning the complaints from Madam Lau, she attempted to talk to Ms Chan but to no avail except there were heated arguments between the two.  She was however able to confirm the breaches by speaking to Mr Fan shortly after 18 November 2014 and before 20 November 2014 (It was because she said she sent out the November Notice after speaking to Mr Fan on 20 November 2014, validity of which subject to discussion below).

34.  Since it was the Applicant’s case that the breaches were confirmed to the Applicant after Ms So’s speaking to Mr Fan, and there was no other assertion on this given by the Respondent, in my judgment the Applicant knew about the breaches through his representatives at a time which should be after the alleged phone calls to Ms Chan on 18 November but not later than 20 November according to the case of the Applicant.

Any Demand for Rent Made after the Alleged Breaches were Discovered

Whether Demand Made on 18 November

35.  Both witnesses for the Applicant changed their evidence from their witness statements and denied having made any demand for rent on 18 November.  Much had been said about the credibility of Madam Lau and Ms So by Mr Lam.  The point is however, Ms Chan, witness for the Respondent, also denied having received any phone calls from the Applicant or his representatives on that day.  In the circumstances, I could not find there was demand of rent on 18 November and I am of the view that even if there were requests for arrears via those telephone calls on 18 November, that would not have amounted to a waiver because at that time, the breach had not been confirmed.  

Whether Demand Made after 20 November

36.  The next question to ask is whether there were demands made after 20 November.

37.  Madam Lau said that Ms Chan called by end November and suggested that she should come out to collect cheques for rental payment.  She refused because she was busy going between Hong Kong and China and it had appeared to her that there should be arrangement for auto-transfer payment for that purpose.  Madam Lau said there was demand for November rent only before December and no demand had ever been made for December rent in December or at anytime.

38.  Ms Chan’s evidence was this.  Since end November she received telephone calls from Madam Lau claiming to be the new landlord and Ms So claiming to be agent.  On 1 December Ms So called again and demanded rent for November and December.  In reply Ms Chan said rent had been paid to former landlord and asked Ms So to prove ownership of new landlord.  Later on the same day she sent out a message by whatsapp to Ms So with record proving payment of November rent to the former landlord and suggested that documents on proof of ownership be produced by the Applicant for rental payment to be arranged.  Before she could get a reply from the Applicant she carried out some investigation with the former property agent on 2 December who confirmed about the assignment of the Suit Premises.  Then she received another call from Ms So on 3 December demanding for rent or action would be taken for forfeiture and possession.  She therefore deposited two cheques into the bank account of the Applicant.

39.  Madam Lau denied having called in early December for rent.  Ms So did not mention this in her witness statement and was not cross-examined in this regard.

40.  As there was acceptance of rent, I find this sub-issue academic.  Based on evidence before me however, I prefer the version of Ms Chan on balance that there were still demands made by Madam Lau and Ms So by end of November and early December.  Her evidence was supported by the whatsapp message and the deposit of cheques into the bank account.  I understand Ms So said she had not received the whatsapp message on 1 December, I however accept that it was sent out by Ms Chan.  The fact that it was sent out on 1 December supported the version of the Ms Chan.  She sent the message out in the circumstances she testified.

When was Rent Accepted

41.  It is not disputed that 2 cheques had been deposited into the bank account on 3 December which were normally cleared 1 day thereafter.  It was not contended that money had been returned to the Respondent.  Ms Chan said she called Madam Lau on or about 5 December 2015 and informed her of that.  It was also the submission of Mr Lam that when the Application was filed on 9 December 2014 it contained no claim for arrears of rent.  This tends to show that Madam Lau was aware of this no later than 9 December 2014 and before the Application was taken out in any event.

42.  On this matter, Madam Lau gave three versions in total:

(i) The printed item of claim for arrears on the Form 22 was deleted because she knew payment had been made before 9 December 2014 (under cross-examination).

(ii) When she printed the bank passbook on 24 December 2014, she learned about the payment of rent (paragraph 16 of her witness statement).

(iii) She learned about payment of rent on 19 January 2015 when she came to court (under cross-examination).

43.  Madam Lau further explained that although there was non-payment of rent for November and December she did not claim for it because she had not thought about whether money had been owed to her and in any event she claimed mense profit.

44.  I have read the Notice of Application dated 9 December 2014, the Applicant did not ask for arrears of rent but mense profit until delivery of vacant possession.  There was an application made on 27 December 2014 for default judgment under Rule 15. In that application the Applicant did not mention arrears of rent but asked for mense profit from 1 January 2015 until delivery of vacant possession.  The two applications were consistent with each other that the Applicant did not mention any claim for arrears of rent for November and December which fell due on the first day of the month.  Moreover, the Rule 15 Application made on 27 December 2014 which specifically asked for mense profit from January 2015 must have dispelled Madam Lau’s saying that she learned about the payment at the Tribunal on 19 January 2015.  I do not accept Madam Lau’s evidence on this.

45.  I accept Ms Chan’s evidence that she had called Madam Lau on or about 5 December 2014 and informed her of the payment.

46.  Having considered the above, I find that there was acceptance of rent when the Applicant knew about it on 5 December 2014 or in any event by 9 December 2014 the latest.

Whether Acceptance of Rent a Once-And-For-All Waiver to the Breach until End of Lease

47.  On legal principles, it was submitted on behalf of the Applicant that in the case of Chinachem Investment Co Ltd v Chung Wah Weaving and Dyeing Factory Ltd (unrep., CACV 40/1977, 24 January 1978) although the court held that there had been a waiver of a breach it was of the opinion that the receipt of rent in itself is insufficient to find a waiver for continuous breach.  It was said that something more is required to allow this Tribunal to “infer” that the landlord has waived the continuous breach once and for all.  At paragraph 7 Pickering JA said that:

“In my view the judge was right to conclude that Mr. Fok knew after the second visit (if not after the first) that the reserved space was being used for industrial purposes other than the parking, loading and unloading of motor vehicles.  The acceptance of rent thereafter clearly constituted a waiver of the past breach.  I think also that the judge was right to hold that there was such acquiescence as amounted to waiver of the covenant itself for the duration of the tenancy.  It was not so much that Mr. Fok watched the installation of the machines and the completion of an office in the reserved space and said nothing but that, as the judge said, Mr. Fok gave active assistance in the installation of the offending obstructions.” (emphasis added by this Tribunal)

48.  Mr Wong further referred this Tribunal to Huggins JA’s citing similar principles stated by Morris LJ in Lloyds Bank Ltd v Jones:-

“… On the admitted facts I cannot see that any implication arises that the landlords agreed that they would never again insist on full performance of clause 15.  It may well be that if they accepted rent with knowledge they waived the breach from time to time, but I can see no reason why they should be prevented from demanding proper compliance as from the date they required it. There may be conduct from which can be implied that waiver or abandonment of a right.  I do not think that the landlords so conducted themselves that they could not assert that clause 15 should be honoured.” (emphasis added by this Tribunal)

49.  Mr Wong went on to say that even if in some cases, an inference can be drawn against the landlord, it will not be lightly drawn as it effectively deprived the landlord of a legal right and therefore require some unconscionable acts.  Huggins JA further stated:-

“That such an inference will not be lightly drawn appears from the words of Buckley LJ in Shaw v Applegate 1977 1 WLR 970, 977H when he was reviewing the well-known passage in the judgment of Fry J in Wilmott v Barber (1880) 15 Ch.D. 96, 105:

‘As I understand that passage, what the judge is there saying is that where a man has got a legal right – as the plaintiffs have in the present case, being legal assignees of the benefit of the covenant binding the defendants – acquiescence on their part will not deprive them of that legal right unless it is of such a nature and in such circumstances that it would really be dishonest or unconscionable of the plaintiffs to set up that right after what has occurred.’”

50.  Mr Wong further pointed out that in the present case, the burden to prove an allegation of waiver for continuous breach falls on the Respondent.  The Respondent however did not run any case that the Applicant did something unconscionable which should allow this Tribunal to draw the inference that the Applicant had waived the continuous breach.  There is no evidence of any conduct (apart from acceptance of rent which is good enough to waive the breach in the past) that the Respondent could say had amounted to waiver for a continuous breach for the remaining term of the lease.

51.  Mr Lam argued that the breach not only being continuous, the nature of which is one which must persist to the end of the lease and the waiver should be held to last until the end.  He relied on Griffin v Tomkins (1880) 42 L.T. 359 where part of a residential unit was converted into a shop.  It was held that in the absence of evidence, it was to be presumed that the plumber had a tenancy from year to year, and Graffin had waived the forfeiture by receipt of rent.

52.  For this purpose, Mr Lam said that the Suit Premises was renovated to suit the purpose of a guesthouse.  He also referred this Tribunal to a receipt which showed that $700,000 had been spent on renovating the Suit Premises.  I accept that the renovation was to make the Suit Premises suitable to be a guesthouse.

53.  To answer the question as to whether the acceptance of rent for November and December on 4 December constituted a waiver for continuous breach upto the end of the lease, I am entitled to consider the whole of the circumstances.  From evidence before me, there was acceptance of rent on one occasion only although there was no return of rent, the period covered was from 1 November to 31 December 2014.  There was no long suffering of the breach and action was taken out without delay.

54.  There was no conduct which would allow the Respondent to say that it was unconscionable for the Applicant now seeks forfeiture; for example conduct said to be acquiescence and had amounted to a waiver as in the case of Chinachem.  

55.  Further I do not think Mr Lam can apply the holding in Graffin in the present case.  In Griffin, Cookburn C.J held that (at page 362) :

“…there has been here a twofold waiver, a waiver by the receipt of rent and a waiver by the calling on the lessee to do repair after a full knowledge of the breach. ”

56.  Here in the present case, there was only one waiver and that was the acceptance of rent. There was no evidence on other conduct akin to the conduct in Gaffin.  There was no evidence in the present case of lying by or consenting to the breach on the part of the Applicant.  There was evidence of the period of sub-letting to Mr Fan for him to run a guesthouse.  That went up to 28 February 2015, slightly less than 3 months from the date the Application was taken out.  This was not a period up to end of the head lease granted to the Respondent.  In the circumstances, it could not be presumed as in the case of Graffin that the breach would continue upto the end of the head lease.  I do not think Mr Lam’s argument could stand.

Notice to be Given after Waiver

57.  Mr Lam criticized the Applicant for not allowing reasonable time for the Respondent to remedy the breach if there was any.  Mr Lam relied on a passage of Mr Malcome Merry in his book Hong Kong Tenancy Law, 5^th Edn. At page 78:-

“It follows that a landlord who discovers a continuing breach and does not object to it may still forfeit the lease by later refusing to accept rent and warning the tenant that, unless the breach is remedied, he will seek possession.  To protect the tenant from capricious action by the landlord, a waiver of a continuing breach will operate for a limited time at least.  A landlord cannot accept rent with knowledge of the breach, then immediately start forfeiture proceedings on the basis that the breach has continued for an instant after the waiver.  The waiver operates for the period during which the landlord knows the breach is likely to continue – in most cases, that will be for a reasonable time after the tenant was warned to desist.” (“emphasis added by this Tribunal”)

58.  Mr Lam submitted that first there was no written notice.  Even taking that rent was accepted on 3 December 2014 when the cheques were deposited the Application was taken out on 9 December 2014, 6 days in between could not have been reasonable time.

59.  I agree with Mr Wong that the breach complained of, breach of use, is continuing breach.  According to Mr Malcolm Merry, he is of the opinion that continuing breaches incur the risk of forfeiture in respect of their extension beyond the act of waiver[10].  From evidence before me and by applying the relevant legal principles stated above, I find that by accepting rent for November and December the Applicant had waived his right to enforce the breach in the past or at best upto the time the rent covered i.e. 31 December 2014.

60.  On the other hand I agree with Mr Lam that warning or notice of forfeiture must be given to indicate clearly to the Respondent that the Applicant would enforce his right against the continuing breach regardless of acceptance of rent.  The only notice now relied on by the Respondent is the November Notice as Mr Wong had made it clear that the Applicant would not rely on the 5 December Notice and the 10 December Notice.  From the above there was no warning given after acceptance of rent and before action taken out.  This is exactly the situation warned against by Mr Malcome Merry as cited in paragraph 56 above.

61.  Mr Wong said the time between acceptance of rent and the issue of the Notice of Application on 9 December was sufficient to be reasonable time allowed for the Respondent to remedy the situation because there had been complaints made to the Respondents all along.  In my view, when there was no written notice, time does not even start to run.

62.  The next question is should the November Notice which was issued prior to the acceptance of rent be counted?

Whether the November Notice Sufficient

63.  In Greenwich LBC v Discreet Selling Estate Limited (1991) 61 P & CR 405, it was held that a fresh notice is not required after acceptance of rent if one had been issued prior thereto if there was no remedy or improvement.  The Applicant’s case was that Ms So had sent out the November Notice prior to acceptance of rent.  The Respondent said that it was not received.  It is time to consider the dispute as to whether the November Notice had actually been sent out.

64.  The burden must be on the Applicant to prove.  The Applicant’s case was that it was sent out by Ms So.  There was no documentary proof that the November Notice was sent out.  This is not fatal if Ms So’s evidence is of good quality and be accepted by this Tribunal.  Unfortunately, she changed her testimony several times.  Her evidence was to say the least confusing and could not be relied on.

65.  In fact on 19 January 2015 parties attended a hearing for an application taken out by the Applicant for default judgment and a summons taken out by the Respondent to file a Notice of Opposition out of time.  They had no legal representation.  In the course of understanding the Application and the intended opposition, I asked Ms So whether notices of forfeiture had been served on the Respondent.  Ms So answered in the affirmative.  Ms Chan who appeared for the Respondent immediately said that the Respondent had never received any notices as mentioned by Ms So.  Naturally I asked Ms So to state how many notices had been issued and to produce those notices for me to see as nothing had been mentioned in the Notice of Application.  She said without hesitation that there were two.  She further clarified that one of them was the one filed on 9 December 2015 together with the Notice of Application (“the 5 December Notice”); the other one dated the 10 December 2014 was handed over to me for sight at the hearing (“the 10 December Notice”).  She never mentioned the November Notice nor any other notice served prior to the two December Notices.

66.  After viewing the documents before me I found that the Applicant’s case could not stand on its own for a default judgment as the documents produced could not deal with the complexity of issues arising.  The application for default judgment was dismissed.  I gave directions for the Respondent to file Notice of Opposition out of time.  I also made an order for the Applicant to file and serve the 5 December Notice and the 9 December Notice which had been produced for sight in court to facilitate the Respondent to file its Notice of Opposition out of time.

67.  By an affirmation dated 19 January 2015 which was filed several hours after the hearing on the same day, Ms So exhibited two notices, they were the November Notice and the 10 December Notice but not the 5^th December.  That was the first time the November Notice came to light.  The Notice of Application was amended on 22 May 2015 and the November Notice was included as a statutory notice.  The Respondent denied having received the same in its Re-Amended Notice of Opposition.  Content of the November Notice is this:

“根據本單位之租約條款，你只能用該單位作住宅用途，而你卻用作經營無牌賓館，為免日後矛盾，本人請你盡快將單位復原，一切按租約行使。

業主: 劉恩建

2014年11月20日

68.  Ms So’s evidence in this regard as mentioned above had driven me to doubt her credibility or at least her reliability.  Yet, there were two versions of November Notice produced by her and eventually they were placed in the Trial Bundle at pages 32 and 101 respectively.  As mentioned one was produced as exhibit of her affirmation dated 19 January 2015, that was page 32 in the Trial Bundle.  The other was produced as document attached to her Supplemental Witness Statement dated 12 May 2015, that was page 101 in the Trial Bundle.  Content of the two is the same but one can easily tell that they are of two different versions and not a photocopy of one another.

69.  Ms So’s explanation as to why there were two versions was convoluted.  Under cross examination, she was adamant that she had produced only two copies of hand-written November Notice.  She had written out the November Notice at home and then made a copy of it by hand for her own record as she did not want to go out to have it photo-copied.  So there were two hand-written copies of the November Notice. She said she put one in an envelope and sent it out to the Respondent.  As to the other one she had kept it at home as a record.  She said she did not make any photocopies of the November Notice.  She repeated a few times that she had made two hand-written copies only.  Then she said this explained why there were two November Notices produced.  It was because she made two.  When asked why then she could produce two versions if one had been sent out on 20 November, she said she could not explain.

70.  Then in re-examination she came up with another answer.  She said she had sent out one hand-written copy to the Respondent on 20 November and at the same time kept another copy for herself for back-up.  When she was to produce the November Notice to this Tribunal on 19 January 2015, she made another hand-written copy from the back-up copy she kept at home, that is page 32 in the Trial Bundle.  Later on she gave all documents including the back-up copy to her solicitors for preparation of the trial, the back-up copy was produced as a document attached to her Supplemental Witness Statement and eventually became page 101 in the Trial Bundle.  So according to her, there were altogether three hand-written copies in total.

71.  It is the submission of Mr Wong that Ms So’s evidence could be accepted as she had clarified herself during re-examination.  I am of the view that Ms So’s evidence on this topic must be taken in its entirety taking into consideration the quality of the same.  She did not give direct and straight forward answer to questions.  She was firm under cross examination when saying that there were two hand-written copies but then in re-examination, her account showed that there were three. 

72.  Further according to her, the November Notice was the first notice issued.  It was however never mentioned or produced together with the Notice of Application dated 9 December 2014.  This is strange because she said she came to the Tribunal a few days before 9 December to find out how a notice of application should be filed.  She said she was given to understand by counter staff that she had to include notices served on the Respondent.  She said she then produced the 5 December Notice together with the Application on 9 December.  When asked why she did not produce the November Notice on 9 December she gave several answers.  She said it was issued long time ago she did not bring it with her; she did not know this Tribunal would take an old notice; she did not know that the November Notice was important and it took so much trouble to take out legal proceedings and yet another answer was that the counter staff of the Lands Tribunal did not tell her that she had to bring the November Notice.

73.  To summarise the situation, in her evidence she gave two accounts as to why she had more than one hand-written copy in her possession and she had two answers as to how many hand-written copies there were.  More importantly, her credibility was undermined by her failure to produce any version of the November Notice at an earlier opportunity and she could not come up with a good reason.  Moreover, I could not accept her saying that the reason why the November Notice was not mentioned or produced to the Tribunal earlier together with the other December Notices was because she was of the view that it was too old to be good.  Such an idea or belief held by a property agent is unacceptable.

74.  On the totality of her evidence, I find on balance that Ms So is not a reliable witness in this regard and her evidence should not be accepted.  In the circumstances, the Applicant has failed to prove that the November Notice had been sent out.  The effect is twofold.  First, there was no notice given to revoke a waiver of continuous breach and secondly, there was no notice given to satisfy the requirement section 58(1) Cap 219.  

75.  Further, on the first day of trial, when I was trying to clarify the content of the November Notice with her.  She said that the purpose of the November Notice was to write a letter hoping that the Respondent would contact the Applicant for a discussion. She further said that she did not know the legal effect of the November Notice. She reiterated the same evidence during re-examination.  In fact, most of the time, she called the November Notice “the letter”.  From her testimony, there must be doubt as to whether the November Notice was intended to be a notice of forfeiture.  If that was not her intention, the Applicant could not now rely on the November Notice as a notice in its true sense.  In any event I have already made a finding against the Applicant in paragraph 73.

Relief against Forfeiture

76.  Since I find that there was no valid notice to satisfy section 58(1) Cap 219 or otherwise, the Applicant should not be allowed to exercise his right to forfeiture.  I therefore do not have to consider the issue of relief against forfeiture.

Conclusion

77.  From evidence before me I find that the Appendix is not binding on the Applicant as it was not registered under Cap 219.  The Tenancy Agreement is therefore the only document binding on the Applicant.  Under Clauses 3 the restricted user is residential which in my judgment does not include operation of a guesthouse.

78.  Since the breach of use is continuing breach, the conduct of accepting rent amounted to waiver only for breach in the past or at most for the period covered by the rent received.  Such waiver could be revoked unless something unconscionable had been done by the landlord.  I do not find any unconscionable conduct done on the part of the Applicant.

79.  As I have already found that the waiver would operate upto end of the period covered by the rent received, i.e. 31 December 2014, the Application taken out on 9 December was clearly pre-mature especially as I have found that there was no notice served to revoke the waiver.

80.  If I were wrong on the above holding, the Application must fail for want of notice required under s.58(1) Cap 219 since it is my finding on balance that the November Notice had not been sent out and/or that it was not intended to be a notice of forfeiture.

81.  The Application is therefore dismissed.

Costs

82.  Although the Application is dismissed, I find that there was breach on the part of the Respondent.  I order that there be no order as to costs.  This is an order nisi to become absolute if no application is taken out to vary the same within 14 days.

[1] In this judgment, for convenience, subletting or subtenant would be used to describe the relationship between Mr Fan and the Respondent, it does not mean that it is my judgment that there was subletting.  I am not required to make a judgment on this.

[2] It was an appendix to the provisional agreement and was edited to become an appendix to the Tenancy Agreement. The date had not been edited and remained to be the date of the provisional agreement. The appendix to the provisional agreement was exhibited at page 107 of Trial Bundle.

[3] The words “正式” were added with the phrase臨時crossed out.

[4] two initials were put against the addition and deletion

[5] Not to be disclosed in this judgment for it being personal data which is not relevant to these proceedings

[6] With one initial seems to be from the landlord

[7] With one initial seems to be from the landlord

[8] There was a blank for parties to fill in. The word “residential” was written down by hand

[9] The work “residential” was circled by hand

[10] Malcolm Merry Hong Kong Tenancy Law, 5^th Edn. At page 78