LIU YING WAH AND OTHERS v. GREAT MACE TRADING COMPANY LIMITED

--------------

___________

JUDGMENT

___________

Cons, V.-P.:

1. This is an appeal from the judgment of Miss Fi Lan Chua, sitting as the Presiding Officer of the Land's Tribunal, whereby she granted an order for possession of certain premises and a car park in 'Pokfulam, and further ordered the payment of mesne profits until vacant possession thereof was delivered.

2. In 1979 the landlords of those premises, three individuals, granted a lease to the tenant, Great Mace Trading Co. Ltd., effective for 6 years from the 15th June. It contained the usual provision against subletting without the written permission of the landlords. However the grant of a two year sub lease in 1981 resulted in litigation, which the landlords lost, the learned District Judge concluding that the landlords had unreasonably withheld permission, and had moreover, waived their right to forfeiture.

3. The head lease expired in June 1985 but was continued under Part II of the Landlord and Tenant (Consolidation) Ordinance Cap. 7. The rent of $9,000 was collected as usual.

4. In December 1985 the landlords learned from the tenant that "the existing occupier is paying $16,000". However the landlords took no action. Rent was collected on the 15th January, and again on the 15th February.

5. Soon after that the landlords visited the premises, to find that the Italian Consulate was in possession, in the person of a member of their staff. Their right to possession was evidenced by a tenancy agreement for 2 years, expressed to be between the Italian Consulate on the one hand and a firm by the name of Taipan Management Company on the other. The proprietor of Taipan is a Mr. Thomas Young, who happens also to be a director of the tenant. This time the landlords did take action. On the 28th February they served a notice to terminate the tenancy under Part IV of the Ordinance. The notice purported to take effect on the 31st day of August 1986 or at the expiration of six months from the date of the notice whichever was the earlier. On the 10th March the landlords served another notice, this time a notice to quit, effective on the 14th April 1986 or at the expiration of the next complete rental month after service. Despite the two notices rent was again accepted on the 15th March. There was evidence too that one of the landlords demanded further rent on the 15th April. Finally, on the 5th May, the landlords filed a claim in the Lands Tribunal pursuant to Section 53(2)(h) of the Ordinance.

6. At the close of the landlords' case the learned Presiding Officer was satisfied that they had established a prima facie case of an apparent change of occupancy. By virtue of Section 53(3) the tenant was therefore deemed to have sublet the premises, that is until he satisfied the learned Presiding Officer to the contrary.

7. He sought to do that by evidence that on the 1st October the tenant had granted a licence to Taipan "to occupy and utilize" the premises until further notice. He supported his evidence by the production of a document to that effect, dated August 15th and signed by himself on behalf of the tenant. He argued that although Taipan had purported to grant a tenancy to the Consulate - and would be estopped as against the Consulate from denying the grant - it had in law created no tenancy effective as far as the tenant or the landlords were concerned. The learned Presiding Officer was not impressed. She referred to the transaction as a device to get round the statute and concluded "I believe this was a mere contrivance and the arrangement was a sham."

8. Mr. Merry who now appears for the tenant sought diligently to persuade us otherwise. With respect his task was hopeless from the outset.

9. He sought also to persuade us that the judge's finding of a subletting to the landlord through Taipan as an agent was wrong. He argued that there was no evidence of consent on the part of either the tenant or Taipan. For my part I would have thought the actions of the tenant and Taipan, (both of course performed by the same person), were in themselves sufficiently explicit to warrant such a finding. Nevertheless, even if not, the position is not altered. The learned Presiding Officer did not accept that a genuine licence had been created. The presumption under Section 53(3) remained thus unrebutted.

10. The question of waiver raises more serious issues. It is accepted that it was not until after the 15th February 1986 that the landlords acquired full knowledge of the facts upon which to found the claim for possession. That in itself disposes of one line of appeal, which suggested a waiver in June 1985 when the contractual lease expired. The landlords may well have suspected a subletting at the time, for they had learned from the earlier litigation that the tenant was in business for that purpose. However 'a propensity to sublet', as my Lord Clough J. A. termed it in argument, is not enough. It must in any event be shown that the landlords knew of an actual letting.

11. A further line of appeal rests on the receipt of rent on the 15th March, the demand for rent on the 15th April and the two notices to which I have already referred.

12. If this situation were governed by common law the appeal would be bound to succeed. The receipt of rent has long been established as an act of waiver. A simple demand for rent has the same effect: David Blackstone Ltd. v. Burnetts (West End) Ltd.⁽¹⁾, approved in Smith's Trustees v. Willson⁽²⁾.

13. But the position is not the same where statute has intervened, and although Part II of the Ordinance differs in many respects from legislation in England which tends towards the same end, so far as waiver is concerned there is in, my view no distinction. In Oak Property Co. Ltd. v. Chapman⁽³⁾ the Court of Appeal in England said -

And later -

"

Thus, we are strongly inclined to think that the strict common-law rule in regard to a qualified acceptance of rent is not applicable to a statutory tenancy, and that a qualified acceptance of rent from a statutory tenant is not necessarily fatal to the landlord's rights to seek an order for possession."

14. In Smith's Trustees v. Willson⁽²⁾ Slade L. J. observed that a comment in Carter v. Green⁽⁴⁾ on the above passages might have given the appearance of laying down a rule of law that acceptance with knowledge not accompanied by an express qualification must necessarily and in all cases be treated as an unequivocal affirmation of a statutory tenancy. He continued however -

"

But I do not think that this is a correct interpretation of this sentence. In my judgment all that it is intended to do, when read in its context, is to give broad guidance to judges of first instance when reaching their decisions on the facts. In the end, the question whether or not an acceptance of rent has operated as a waiver of the landlord's rights to recover possession in any given case of a statutory tenancy must, in my opinion, be a question of fact, as I think the passage of the judgment of the court in Oak Property Co. Ltd. v. Chapman [1947] K.B. 886, 900 clearly indicates. Support for this view is, I think, to be found in a short passage from the judgment of Lord Denning M.R. in Muspratt v. Johnston [1963] 2 Q.B. 383, 393 which I will cite, though it was not cited in argument in the present case:

 

15. I too would respectfully adopt the approach of Lord Denning and turn to consider the evidence in the present instance. The crucial conduct of the landlords is the service of the 6 months' notice on the 28th February 1986. That was their first indication to the tenant. There is nothing in the 10th March notice or in the subsequent receipt or demand for rent which in itself would change whatever indication was then given.

16. The notice is to be found on page 81 of the Appeal Bundle. It does not expressly rely upon the subletting as a reason for determination. It refers instead to Section 119(1) of the Ordinance. But it does advise the tenant that the landlords would oppose an application for the grant of a new tenancy on the ground that "the tenant has sublet the whole of the premises and does not occupy any part thereof as his dwelling".

17. In a technical sense of course the notice must be an affirmation of the tenancy, for otherwise the notice would have nothing on which to take effect. It is an affirmation however, that is in my view qualified. Taking the two parts together, as one must, the natural inference is not that the landlords are consenting to the subletting, but rather the reverse, that by reason thereof they are terminating the tenancy as soon as they, in their muddled way, think that the law permits them. The fact that neither that nor the subsequent notice could achieve the desired object is neither here nor there. Mistakes in themselves do not give rise to waiver. That follows, if it does at all, from the indication given by the mistaken conduct. The learned Presiding Officer, in a commendably clear judgment found the notices "indicative of the clear intention ..... to end the relationship". I would not disturb that conclusion and for my part would dismiss the appeal.

(1)    [1973] 1 W.L.R. 1487 at 1498

(2)    [1983] 1 Q.B. 316 at 331

(3)    [1947] 1 K.B. 886 at 898

(4)    [1950] 2 K.B. 76

Silke, J. A.:

18. I am in agreement with the judgment of my Lord Vice President which I have had the opportunity to read in draft.

19. The first half of this appeal was a hopeless one. Mr. Young's attempts to avoid the legislation - and the complexity, increased greatly by the manner of drafting, of the Landlord and Tenant Ordinance lends itself to such attempts - have in this instance signally failed. His arrangements were clearly, as the Deputy Judge rightly found, a sham.

20. The second half, which concentrates on the issue of waiver, arose from the demand for and the acceptance of rent by the landlords with knowledge that an unauthorised subletting had taken place and after they had evinced an intention to terminate the by then "statutory contractual tenancy", as it has been termed.

21. My Lord Vice President having reviewed the authorities came to the view that the trial judge when she found there existed a clear intention to end the relationship was correct.

22. With respect that is also my view. I would however wish to reserve, it not having been argued before us and its not being necessary to our decision, the question whether there can be such waiver at all in a statutory tenancy.

23. I, too, would dismiss the appeal.

Clough, J. A.:

24. I agree with the conclusions in both the judgments which have been delivered. I wish to add only my reasons for agreeing that the tenant did not establish before the Tribunal that the landlords had waived their right to obtain an order for possession of the suit premises under section 53(2)(h) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7).

25. Section 53(2)(h) provides for a landlord to recover possession of premises held under a tenancy which is being continued under section 52 of the Ordinance if

26. The provision is relatively new. It was introduced by section 15(b)(vi) of the Landlord and Tenant (Consolidation)(Amendment) Ordinance 1983 (No. 29 of 1983) and came into force on the 10th June 1983. It is significant that section 53(2)(h) makes no reference, as does section 53(2)(e), to a subletting in breach of the contractual tenancy. Nor does section 53(2)(h) refer to a subletting without the landlord's consent in writing, as did section 53(2)(e) before it was amended by section 36 of the Landlord and Tenant (Consolidation)(Amendment) (No. 2) Ordinance 1981 (No. 76 of 1981).

27. The intention behind section 53(2)(h) is clearly to deprive a tenant, who is not in occupation and has sublet the whole or any part of the tenanted premises, of the protection of the Ordinance, notwithstanding that the subletting may have been lawfully made. If the subletting has been effected without breach of the contractual tenancy section 53(6) confers a substantial measure of protection on the subtenant.

28. It is clearly arguable that the burden upon the tenant to establish the waiver of such a statutory ground for obtaining an order for possession is therefore heavier than in the case of the ground under section 53(2)(e). It seems to me to be also arguable that the general principles applicable to waiver as set out in Halsbury's Laws of England, 4th edition, at paragraph 1471 are applicable to such a ground and not the principles of waiver adapted with limitations from the common law rules relating to the relationship of landlord and tenant which have been applied by the English and Hong Kong courts where rent has been accepted by a landlord with knowledge of an unlawful subletting by a tenant whose tenancy is within the ambit of protective legislation.

29. Although touched upon by counsel for the landlords during the hearing of the appeal this question has not been argued and I therefore content myself with emphasizing that it remains open and has not been determined either way in this appeal in which counsel for the landlords cited and placed reliance upon Trustees of Henry Smith's Charity v. Willson⁽¹⁾.

30. That was a decision under the Rent Act 1977 and was concerned with an issue of waiver where a subletting of the tenanted premises by the tenant was held not to have been lawfully effected for the purposes of section 137(2) of the Act so as to constitute the subtenant a statutory tenant for the purposes of the Act. A single demand for rent made by the agents for the landlords with knowledge of the subletting in breach of the contractual terms of the original tenancy was held not to constitute a waiver of the unlawfulness of the subletting. One reason for the decision was that there was no evidence that the demand had ever been received by the tenant. However the first reason given for the decision turned on the provisions of section 3(3) of the Rent Act 1977 which provides:

"

Subject to section 5 of the Protection from Eviction Act 1977 (under which at least four weeks' notice to quit is required), a statutory tenant of a dwelling-house shall be entitled to give up possession of the dwelling-house if, and only if, he gives such notice as would have been required under the provisions of the original contract of tenancy, or, if no notice would have been so required, on giving not less than three months' notice."

31. The tenant had not served any notice on the landlord in compliance with this provision. In the leading judgment of the court Slade L.J. observed at P. 332 D:

"

the plaintiffs were entitled to demand this rent from the first defendant, whether or not the statutory tenancy had determined on June 6, 1980, because of section 3(3) of the Act of 1977. There was therefore, in my opinion, no necessary inconsistency between a single demand for the rent for that quarter and a subsequent claim that the statutory tenancy had determined on June 6, 1980. The case is plainly distinguishable on its facts from Carter v. Green [1950] 2 K.B. 76, if only because in that case the landlord had accepted rent with full knowledge of the subletting on about six separate occasions, before he attempted to claim that the subletting was unlawful, so that a waiver of the illegality was the obvious inference."

Ormrod L. J. had this to say at P. 334 C-D:

"

        Waiver is another common law concept which has a limited application to the statutory relationships created by the Rent Act 1977. At common law it refers, essentially, to waiver of the landlord's right of forfeiture, as evidenced by an act or acts consistent only with an election to treat the contractual relationship as continuing. In the statutory relationship the landlord has no right of forfeiture and no choice. The statutory tenancy continues until it is determined by notice by the tenant or by order of the court. The landlord is entitled to demand the rent so long as the statutory tenancy continues. A mere demand for rent, therefore, is not an act consistent only with an election to treat the subletting as lawful. At most in this context it is equivocal. Nor does it affect the landlord's claim for possession under Case 6 of Schedule 15 to the Act of 1977, which does not depend on proof of a breach of the tenancy agreement, although a breach might make the court marginally more inclined to hold that it was reasonable to make an order for possession."

32. In the course of his judgment Slade L.J. reviewed a number of the English cases applying limited common law principles of waiver in cases within the Rent Acts where a landlord has accepted rent with knowledge of an unlawful subletting by the tenant. One of those cases is Oak Property Company Limited v. Chapman⁽²⁾ which has been applied in Hong Kong in similar situations notwithstanding the differences between the relevant English and Hong Kong legislation: see Tam Man v. Tin Kwai Yin⁽³⁾; Chow Sau-po v. Chan Sau-min ⁽⁴⁾ and Chuk Yau-cheong v. Lee Miu-ying⁽⁵⁾

33. Commenting on the Oak Property Case in the Smith's Charity Case at p.330A, Slade L.J. made the observations referred to by my Lord Cons V.-P. in his judgment to the effect that Cohen L.J. was not to be understood in his judgment in Carter v. Green⁽⁶⁾ at p.84 as laying down an absolute rule of law that an acceptance of rent with knowledge of the relevant facts, which was not accompanied by an express qualification, necessarily and in all cases must be regarded as affirmance of a statutory tenancy.

34. I would respectfully follow this approach and I accept that the authorities establish that it is for the court to determine in each case, as a question of fact, whether the acceptance of rent by a tenant with knowledge of an unlawful subletting of protected premises amounts to waiver. However I consider that it to be inescapable that in Carter v. Green Cohen L.J. was making an impeccable analysis of the Oak Property Company Case when he indicated that he understood Lord Evershed (who had prepared the judgment of the court read by Somervell L.J. in the latter case) to have meant to infer, in the passage from his judgment quoted by Cohen L.J. in Carter v. Green at p.84 that a fair rule of guidance was:

"

that an unqualified acceptance of rent is as much an affirmance of the statutory tenancy as it would be in the case of a common-law tenancy, but that if the acceptance of rent is qualified it would be a question of fact for the bounty court judge to determine whether that qualified acceptance must be treated in all the circumstances as an unequivocal act of affirmance of the tenancy."

35. This is implicit from Cohen L. J. 's following comment at p.85 where he stated that his view, expressed in the passage cited above, is suggested by what Lord Evershed indicated in the Oak Property Company Case as being "a fair rule to guide the county court judge in reaching his conclusion on the facts". Lord Evershed had laid down "the fair rule" in the following passage at p.899 in the Oak Property Company Case which had been cited by Cohen L.J. in Carter v. Green at p.84:

"

        As at present advised, we think that the fair rule is that a landlord who has acquired full knowledge of a non-continuing breach of covenant by a statutory tenant entitling him to invoke the court's jurisdiction should be entitled thereafter to receive rent and should not, by reason of such receipt, be held to have waived the breach, provided that he makes it clear to the tenant at the time of, or before, the receipt that his receipt is without prejudice to his right to go to the court, and provided that he issues his summons for possession within such time as, having regard to all the circumstances of the case, the court hearing the summons regards as reasonable."

36. It was that "fair rule" or principle which Cohen L. J. indicated at p.85 that the court would apply in Carter v. Green and the same principle seems to have been applied to the facts in the Oak Property Company Case. Judgments are not of course to be interpreted as if they were statutory provisions, but, whilst accepting that the principle laid down as a fair rule and applied in the above two cases by the Court of Appeal is not absolute rule, I regard it as an adequate general guide in cases where a landlord of protected premises has received rent with knowledge of an unlawful subletting made in breach of the terms of the tenancy.

37. It may well be, as I have suggested earlier, that such a principle or fair rule is inappropriate to the circumstances of the present case where no reliance is placed on an unlawful subletting but, for the reasons given below, I consider that, even if this fair rule is applied, the tenant has not established a waiver by the landlord and the Tribunal made the right decision.

38. The only effective ground of appeal on the waiver issue is based on the fact that the landlords had full knowledge of the relevant subletting (which was in fact made on the 31st October 1985 in breach of the contractual terms of the tenancy) on the 15th or the 22nd February 1986 and thereafter they did the following sets:-

39. There was no finding on the point by the Tribunal, but there was evidence of Mr. Young on the record to the effect that on the 15th April 1986 the first applicant landlord had come to demand rent from him. A cheque for the amount of the rent due on the 15th April 1986 was given or sent to the landlords but it was returned by a registered letter dated the 22nd April 1986 from the landlords' solicitors. In that letter the landlords' solicitors reserved their right to future rent and to apply for an order for interim payments. They also explained that the cheque was being returned to show the landlords' intention to terminate the tenancy and to avoid any future dispute about waiver resulting from acceptance of rent.

40. As regards the Notice of Termination and the subsequent notice to quit, these were the manifestations of confusion in the minds of the landlords' lawyers. It is abundantly clear from the notices themselves, from paragraph 4 of the pleading in the landlords' Grounds and Particulars in the Notice of Application, from paragraph 5 of the affidavit of the first applicant landlord and from the submissions of the landlords' counsel at the hearing, that the landlords had been advised that when the contractual term of the tenancy expired there arose a contractual monthly tenancy by virtue of the fact that the tenant remained in possession and continued to pay rent. It was contemplated that there would not be a continuing tenancy under section 52(1) of the Ordinance until the landlords had served notice to quit and thereby terminated the contractual tenancy to the extent that was legally possible.

41. The record shows that Mr. Young, who had not admitted the alleged monthly tenancy in the tenant's Notice of Opposition, submitted to the Tribunal that there was no agreement creating a monthly tenancy, that from the date of the expiration of the contractual term on the 14th June 1985 the tenancy had been continued under section 52(1), and that therefore the notice to quit had been unnecessary and "surplus". He relied on the decision of another division of this court in Wong Chor wan v. Yuen Yan⁽⁷⁾ in which these propositions were upheld, albeit after a concession.

42. The Tribunal rightly accepted Mr. Young's submissions on this aspect of the case and no attempt was made on the appeal to challenge the Tribunal's finding that on the expiration of the contractual term on the 14th June 1985 the tenancy continued under section 52(1) of the Ordinance, there being no periodic contractual tenancy arising by reason of the holding over by the tenant.

43. The effect of this finding is that both the Part IV notice and the notice to quit purported to affirm a periodical contractual tenancy which did not exist at law. Moreover as it was common ground that Part II applied to the tenancy, the effect of section 116(2)(a) of the Ordinance is that Part IV cannot apply to it. These are matters of law. Therefore no question of estoppel arises and indeed none was raised: c.f. Kai Nam (A firm) v. Ma Kam Chan⁽⁸⁾. The notices were therefore wholly invalid as respectively a Part IV notice and a notice to quit. They clearly did not purport to uphold the continuing tenancy under section 52(1). Indeed the notice to quit was intended to bring about such a tenancy by terminating a contractual periodic tenancy which the landlords were wrongly advised had come into being on the 14th June 1986.

44. The result is that the landlords escaped, albeit unwittingly, the trap exposed by the decision of Pritchard J. in Marche v. Christodoulakis ⁽⁹⁾ where a subtenant established his right to protection under section 15(3) of the Rent and Mortgage Interest (Restrictions) Act 1920 by reason of the fact that the landlord, upon discovering during the subsistence of the contractual tenancy that the tenant had sublet the premises in breach of the terms of the contractual tenancy, had affirmed the contractual head tenancy by serving a valid notice to quit and accepting the last payment of rent. In the present case there was no periodical contractual tenancy to affirm and neither the Part IV notice nor the notice to quit purported to affect the continuing tenancy.

45. However I agree with My Lords Cons V.-P. and Silke J. A. and the Tribunal that as a matter of fact the Part IV notice, which was issued as early as the 28th February 1986, manifested to the tenant the intention of the landlords to recover possession of the suit premises in reliance on the fact that the tenant had sublet the whole of the premises and was not in occupation of any part thereof. Put another way the landlords made it clear by their Part IV notice that they were not intending to waive their statutory right to claim possession of the premises under section 53(2)(h) of the Ordinance. They may have been in a state of confusion about the law but they had made their attitude clear regarding the subletting. Mr. Young himself said in evidence that he did not know what the landlords intended to do, but he can have been left in no doubt that they did not intend to waive their right to terminate the tenancy by reason of the subletting.

46. In my judgment the subsequent receipt of rent and demand for rent were therefore acts made after the manifestation to the tenant by the landlords of their intention not to waive their right to possession under section 53(2)(h) and were not intended to derogate from it. Furthermore the landlord's application was in all the circumstances made within reasonable time, on the 5th May 1986.

47. Accordingly if and so far as the principle applied in the Oak Property Company Case and in Carter v. Green is applicable here, the tenant has failed to establish waiver by the landlords. I too would therefore dismiss the appeal and I commend the Presiding Officer for the able manner in which she dealt with a difficult application.

(1)    [1983] 1 Q.B. 316 (C. A.)

(2)    [1947] 1 K.B. 886

(3)    [1949] H.K.L.R. 296

(4)    [1976] D.C.L.R. 88

(5)    [1979] H.K.L.R. 575 (C.A.)

(6)    [1950] 2 K.B. 76

(7)    Civil Appeals Nos. 3 and 12 of 1983

(8)    [1956] A. C. 358 (P.C.)

(9)    (1948) 64 T.L.R. 466