BILWIDE LTD. v. CHUNG CHUN KWAI

IN THE COURT OF APPEAL

1992, No. 139
(Civil)

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J U D G M E N T

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Fuad, V.-P. (giving the judgment of the court):

1. This is a defendant's appeal from the order of Stock J. dated 17th July 1992 whereby he allowed an appeal by the plaintiff from the decision of Master Beeson giving the defendant unconditional leave to defend the plaintiff's action.

2. On 7th January 1993 we dismissed the appeal and now give our reasons.

3. The plaintiff, Bilwide Ltd., issued a writ, indorsed with a statement of claim, against the defendant, Mr. Chung Chun Kwai, on 11th October 1991. The plaintiff as the registered owner of three lots of land in Yuen Long, claimed vacant possession of the land, arrears of rent and mesne profits. It was pleaded that the plaintiff had become the owner of the land by virtue of an assignment dated 22nd October 1988 from the previous owner, Mr. Lim Kian Tek; that the land had been let by Mr. Lim to the defendant for agricultural purposes for the term 1st January 1987 to 30th September 1991 at an annual rent of $5,800, which tenancy had expired by effluxion of time; despite this, the defendant had ignored a notice of termination of the tenancy dated 26th April 1991 demanding vacant possession on the date of the expiry of the tenancy and had remained in occupation of the land as a trespasser.

4. The defendant filed a defence and counterclaim on 28th January 1992. It was averred that he had taken possession of the land on 1st January 1987 by virtue of a Chinese tenancy agreement dated 1st January 1986. With the consent of Mr. Lim, he had "reclaimed" the land and had constructed upon it a poultry house, a storeroom and a water tank. He had also dug a well and bought machinery for feeding poultry. The defendant referred to the terms of a tenancy agreement dated 1st September 1988 by which a new lease had been granted to him for the period 1st January 1990 to 30th September 1991, on terms precisely similar to those in the original lease dated 1st January 1986. The defendant relied upon clause 4 of the 1988 tenancy agreement, pleading that until he received the compensation from the plaintiff for which provision was made in that clause, he was entitled to remain in possession of the land. He counterclaimed for the compensation which had been demanded and not paid, or for damages for breach of contract.

5. It was common ground that Mr. Lim had sold and assigned the land to the plaintiff "subject to the existing lettings or tenancies thereof."

6. Exhibited to affirmations before the judge were official English translations of clause 4 made by two different public officers appointed under section 27(2) of the Evidence Ordinance. The first translation was in these terms:

"4. It is stipulated that upon expiration of this tenancy agreement, if Party A requires, Party B must return possession (of the said Lots) to Party A but Party A shall, according to the then compensation rate adopted by the Government in the resumption of land for development purpose, compensate Party B, for the loss incurred in raising poultry."

The second translation was as follows:

"4. At the expiry of the tenancy, if Party A requires, Party B must deliver up possession to Party A, but Party A should compensate Party B his loss of animal husbandry in accordance with the prevailing standard of compensation for demolition and resumption of land for development set down by the Hong Kong Government."

Miss Audrey Eu for the defendant, and Mr. Edward Chan, Q.C. (who did not appear in the court below) for the plaintiff, agreed that for the purposes of this appeal there was no significance in differences between these two versions.

7. Voluntary particulars of the counterclaim given by the defendant on 7th February 1992 (as amended on 10th March 1992) revealed that his case was that the three lots of land fell within "'Zone C' of the Zonal Plan for Calculation of Compensation Rates"; the Government's compensation rate as at 30th September 1991 was $76.60 per square foot; and, since the gross area of the land was 21,344.40 square feet, the compensation he was entitled to claim was $1,632,846.60.

8. On 24th February 1992 the plaintiff filed a reply and defence to the counterclaim. This was substantially amended on a date which does not appear in the appeal bundle. The plaintiff denied liability to pay the defendant any compensation on a number of grounds. In the alternative it was claimed that if compensation was due to the defendant he was not entitled, under the lease, to remain in possession of the land after the lease had expired. It was also pleaded that if compensation fell to be paid to the defendant it should be reduced for the reasons given.

9. On 9th March 1992 the plaintiff applied for summary judgment under RSC O.14 for vacant possession of the land and for arrears of rent and mesne profits. The plaintiff, by the same summons, sought to have the defendant's counterclaim struck out on all the grounds set out in O.18, r.19(1), and under the inherent jurisdiction.

10. On 10th April 1992 Master Beeson gave the defendant unconditional leave to defend and dismissed the summons to strike out his counterclaim. There was then the appeal to the Judge in Chambers. Stock J. heard the appeal over three days in May and July 1992 and gave his reserved judgment on 17th July. The judge allowed the plaintiff's appeal and gave summary judgment against the defendant under O.14 for vacant possession of the land. A stay of execution of this part of the judgment was ordered for 130 days - later extended to remain in force until the determination of this appeal. He dismissed the plaintiff's appeal against the refusal by the Master to strike out the defendant's counterclaim.

11. The judge made a number of other orders but counsel agreed that the issues on this appeal should be confined to those which relate to the order directed to the defendant to deliver up vacant possession of the land.

12. There is no respondent's notice or cross-appeal by the plaintiff regarding the Master's decision, upheld by the judge, not to strike out the counterclaim. It remains to be heard. We were not, therefore, concerned with the question whether or not the covenant contained in clause 4 of the tenancy agreement "touched and concerned the land" so that the plaintiff, as an assignee, was bound by the liability to pay compensation. Thus, the only issue we were called upon to determine was whether the judge had erred in his conclusion that the defendant, for the purposes of O.14, had failed to show an arguable defence to the plaintiff's claim for vacant possession of the land.

13. The defendant's case all along had been that on the true construction of clause 4, the two events mentioned (the delivery up of possession by the tenant, and the payment of compensation by the landlord) were concurrent and dependent terms - or alternatively, the payment of compensation was a condition precedent to the obligation to deliver up possession.

14. Miss Eu, in her full and helpful submissions, referred us to the treatment of the subject of covenants and their construction in Woodfall's Law of Landlord and Tenant (1990) paragraphs 11.001 to 11.018. She contended that the defendant's interpretation was the true one because the whole of clause 4 was contained in a single sentence, and the word "but" occurred in it between the respective obligations of "Party A and Party B" rather than there being no conjunction or the word "and". This, she suggested, emphasised that the requirement for the payment of compensation was a concurrent condition (or a pre-condition) to the requirement for delivery up of possession. Moreover, she submitted, the conjunction "but" read in the context of the entire clause made it clear that delivery up of possession had not automatically to be given upon the expiry of the term - it was only if Party A so required, but such a request had to be accompanied by payment of compensation.

15. Miss Eu also submitted that the construction of clause 4 contended for by the defendant was supported by the factual matrix and the background:

(i) the promise to pay compensation had obviously encouraged and induced the tenant to invest in and improve the land;

(ii) considerable hardship to the tenant was inevitable if he could be required to give up possession of the land on which he and his family depended for their accommodation and livelihood without the landlord being required concurrently to pay compensation for the family's relocation;

(iii) of the two conditions were not concurrent, the tenant might have to give up possession without knowing when compensation would be paid - and there was the risk that the landlord might sell the land and disappear before compensation was paid;

(iv) the delivery up of possession of the improved land constituted the substance (if not the whole) of the consideration for the payment of compensation;

(v) the calculation of compensation depended on the user and the extent (or the area) of the use and this should normally be ascertained while the tenant remained on the land; and

(vi) the tenancy agreement was drawn up without professional advice and the wording used should be interpreted accordingly.

16. It was also submitted on behalf of the defendant that since it was arguable that the plaintiff was in breach of his obligations under clause 4, it was also arguable that the plaintiff could not insist on delivery of possession while the breach persisted.

17. Miss Eu contended that there was no need to imply a term because the meaning of clause 4 was plain and unambiguous and that the judge had been wrong to approach the case in the way he did.

18. In his judgment, the judge, after setting out the background, correctly directed himself upon the burden placed upon an applicant for summary judgment under O.14. He then went on to summarise Miss Eu's submissions. The judge then observed:

" It is not for me to look to the actual intentions of the parties, but rather to their presumed intentions as ascertained from the words used and the factual setting. This approach is acceptable as an aid to the construction of the words used, but not to that which has been omitted.

The words used seem to me to be perfectly clear, that on the one hand the tenant must give up possession at the end of the term if the landlord requires him to do so, but that if the landlord does require him to do so the landlord must pay him compensation. I perceive no ambiguity which requires clarification. 'The cardinal presumption is that the parties have intended what they have in fact said, so that their words must be construed as they stand. That is to say, the meaning of the document or a particular part of it is to be sought in the document itself ... However, no contract is made in a vacuum. In construing the document the court may resolve an ambiguity by looking at its commercial purpose and the factual background against which it was made'. (Chitty on Contracts, 26th Edition, Vol.1, para.809)."

This seems to us to be a correct statement of the general principles applicable.

19. Nor do we think that the judge can be legitimately criticised about the way he dealt with the argument being raised by counsel then appearing for the plaintiff (that, in effect, what the defendant was asking the court to do was to imply a term that the payment of compensation was a condition precedent to the recovery of possession).

20. One of the cases cited to us by Miss Eu was Kidner v. Stimpson (1918) 35 TLR 63. That was a case in which Lush J. held that mutual covenants as to draining land by adjoining owners were dependent on each other and were not independent promises. In our judgment, Lush J. was applying well-established principles which can be broadly stated thus - the question whether covenants are to be construed as dependent or independent falls to be decided in accordance with the intention of the parties collected from the instrument as a whole, and the surrounding circumstances.

21. We agree with the judge that the words used in clause 4 are perfectly clear. In our view, if it transpires that the present landlord, the plaintiff, is liable to pay compensation to the defendant under that clause (because the covenant "touches and concerns the land") on its true construction, the clause does not entitle the defendant to remain in possession of the land once the tenancy has expired and the landlord has required possession to be given, until compensation has been paid. The two obligations are independent of each other; the obligation to pay compensation is not a condition precedent to the right to recover possession.

22. It was for these reasons that we dismissed the appeal. When we announced our decision on 7th January 1993, the plaintiff, through its solicitors, gave an undertaking that it would not execute the order for vacant possession of the land before the end of January 1993.