GEORGE H. LIU AND SUSAN PARKER LIU v. TAKE HARVEST LTD.

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J U D G M E N T

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Kempster, JA:

1. This is an appeal by defendants, Take Harvest Ltd, by leave of the judge, from a judgment of Deputy Judge Bharwaney given in the District Court on 15 January 1992 and, on 11 February, upheld on review whereby they were held liable to the plaintiffs, George and Susan Liu, in the sum of $12,833 with interest and their counterclaim dismissed. The defendants ask that such judgment be set aside and, instead, that judgment be entered on the counterclaim in the sum of $44,354.80 with interest.

2. These proceedings derive from a tenancy agreement dated 29 October 1990, being one of a series of transactions relating to the material premises, by which the defendants let to the plaintiffs, as from 18th of that month, the 2nd floor of "Wilfred Apartment", 110 Repulse Bay Road at a concessionary rent of $55,000 per month for a term of one year subject to a month's notice of termination at the election of the defendants only. It was always in the contemplation of the parties that the plaintiffs would vacate during the term in favour of a tenant paying the going rent.

3. Clause 9, the definition of "the Deposit" in the First Schedule and paragraph 5(a) If the Second Schedule to the Agreement required the payment by the plaintiffs to the defendants of $110,000 on or before the signing of the Agreement to secure the due performance of the tenants' covenants. That sum was duly paid. Paragrah 5(b) of the Second Schedule provided for a refund:

"within 15 days after the expiration or sooner the termination of this Agreement and the delivery of vacant possession ... or within 15 days of the settlement of the last outstanding claim by the Landlord against the Tenant in respect of any breach, non-observance or nonperformance of any of the agreements, stipulations or conditions herein contained and on the part of the Tenant to be observed and performed whichever is the later."

4. By reason of endorsement on behalf of the Commissioner for Rating and Valuation pursuant to s 116(4) the Agreement had been excluded from the provisions of Part IV of the Landlord and Tenant (Consolidation) Ordinance (Cap 7).

5. On 10 December 1990 the plaintiffs, who had paid rent up to 17 November, moved out. The keys were left with a domestic helper on a lower floor. A letter from the defendants' solicitors dated 11 December and demanding payment of the monthly rent accrued due on 18 November followed. Solicitors for the plaintiffs replied on 20 December demanding $86,166 being the balance of the deposit after deduction of one month's rent. For that letter a document dated 24 December was substituted and the plaintiffs' demand reduced to $67,833 by the acceptance of liability for rent to 10 December.

6. By letter dated 11 February 1991 the defendants, by their solicitors, purported to exercise the right of re-entry to the premises reserved by clause 7(a) of the Tenancy Agreement which reads:

"If the rent hereby reserved or any part thereof shall be unpaid for fifteen (15) days after the same shall have become payable ... it shall be lawful for the Landlord at any time thereafter to re-enter upon the Premises ... and thereupon this Agreement shall absolutely determine and the Deposit so paid as aforesaid shall be forfeited to the Landlord ..."

The reference to "the Deposit so paid as aforesaid" is less than felicitous as its receipt is not acknowledged until the document is perused to its very end but no ambiguity or obscurity arises. By clause 7(b) the plaintiffs were bound to pay interest on monies due but unpaid. The defendants also took possession of the keys from the domestic helper.

7. On 26 February the plaintiffs commenced proceedings in the District Court claiming from the defendants $67,833 being the amount of the deposit less rent or mean profits due with interest. On 11 March the defendants filed their Defence and Counterclaim denying liability and seeking judgment for arrears of rent to 11 February together with a declaration that they were entitled to forfeit the deposit of $110,000. The Reply and Defence to Counterclaim is dated 18 March. There is no plea of estoppel. At trial counsel for the defendants limited their counterclaim to $44,354.80; being the arrears of rent calculated up to 11 February less the amount of the deposit.

8. The outcome of this litigation turned initially on the judge's finding of fact that, on 9 November 1990 and in the course of the second of two telephone conversations between the first plaintiff and Mr Henry Lau, a director of the defendant company, the first plaintiff, on his own behalf and that of the second plaintiff, had agreed with the defendants, who. had received an offer to rent the premises for $73,000 a month, by Mr Lau that the plaintiffs would vacate by 30 November and that outstanding rent should be deducted from the deposit. This meant that "by" 30 November was to be understood as "on" but that the defendants would accept possession if the plaintiffs chose to give it up earlier. Joseph v Joseph 1967 Ch 78 at p 86 per Lord Denning MR.

9. Secondly, the outcome of this litigation turned on the ruling in law that by the express and implied terms of their oral agreement the parties had concluded a new lease comprising the provisions of the document dated 29 October save that the term of the tenancy was to be 20 days and the date of commencement 9 October, and thereby worked a surrender of the earlier lease by operation of law. Fenner v Blake [1900] 1 KB 426. It followed that the deposit became repayable pursuant to paragraph 5(a) of the Second Schedule to the written Agreement.

10. The findings of fact of a trial judge who has seen and heard the witnesses are always respected by this court. Indeed, Mr Chain, for the defendants, does not seek to challenge them here despite the terms of the letter from the second plaintiff to the defendants dated 23 November and from the plaintiffs' solicitors to those acting for the defendants dated 20 and 24 December 1990. It is common ground that on 29 November the plaintiffs, as a firm, concluded a lease for the occupation of an apartment in Kennedy Heights, Kennedy Road, Hong Kong. In relation to conclusions of law we are, however, on an equal footing. By their Notice of Appeal the defendants challenge the finding of surrender by operation of law while, by their Respondents' Notice, the defendants seek to support the judge on grounds of estoppel in relation to which, although not pleaded, the judge had made a finding adverse to them. It is not an issue upon which I find it necessary to express an opinion.

11. As Russell LJ said in Jenkin R Lewis Ltd v Kerman 1971 Ch 477 at p 496:

"even if there is no express grant of a new lease the old lease will be surrendered by operation of law if the arrangements made between the landlord and the tenant are such as can only be carried out so as to achieve the result which they have in mind if a new tenancy is in fact created."

By section 3 of the Conveyancing and Property Ordinance (Cap 219) it is provided that:

"(1)     Subject to section 6(2), no action shall be brought upon any contract for the sale or other disposition of land unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged or by some other person lawfully authorised by him for that purpose.

(2)    This section applies to contracts or other dispositions whenever made and does no affect the law relating to part performance or sales by the court."

Section 6(2) reads:

"Nothing in section 3 or 5 or in subsection (1) shall affect the creation by parol of leases taking effect in possession for a term not exceeding three years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without a premium."

Section 6(2) could not be prayed in aid in relation to the new parol lease held to have come into existence since it did not provide for the best rent which could reasonably be obtained without a premium. It would therefore be unenforceable but, being nonetheless valid, effective to work a surrender of the existing written lease by operation of law if the intention of the parties could not otherwise be implemented. There was no other way. In the absence of writing, the existing lease could not be varied and an agreement to surrender it on 30 November could not be enforced. On this somewhat laconic basis I would affirm the judge's finding on the law in relation to surrender. No issue arises as to his arithmetic. I also affirm his finding that by reason of s 117(1) of the Landlord and Tenant (Consolidation) Ordinance the domestic tenancy concluded by oral agreement on November 9 did not terminate by effluxion of time on 30 November.

12. I cannot agree with the judge that the facsimile letter dated 11 December 1990 constituted one month's notice by the tenants within the meaning of s 119B(2) albeit the plaintiffs had occupied the premises under the oral tenancy for more than a month. The material part reads:

13. "I am right now relinquishing the premises to you".

14. That letter was, however, apt to indicate that the plaintiffs were quitting the premises, which they had in fact left on the previous day, and the defendants must be taken to have accepted the situation and resumed possession on 11 February. Accordingly, in my opinion, the plaintiffs are liable to the defendants in the sum of $44,354.80 on account of liability for rent running until that date less the $110,000 deposit. It is the sum counterclaimed by the defendants.

15. Though given the opportunity so to do Mr Chain did not seek to amend his Notice of Appeal to argue this point, which was raised by the Court, but Mr Kat, for the plaintiffs, has nobly striven to grapple with it. I would, for myself, rely upon the terms of RSC 059 r10 (3) and (4), allow the appeal, set aside the judgment entered for the plaintiffs on the claim and counterclaim, dismiss the claim, enter judgment for the defendants on the counterclaim in the sum of $44,354.80 and await submissions in relation to costs.

Sir Derek Cons, V-P:

16. Having regard to the authorities to which our attention has been drawn, in particular Jenkin R Lewis Ltd v Kerman 1971 Ch 477, I, too, find myself constrained to agree with the judge below that a new tenancy was created on 9 November and the old tenancy surrendered by operation in law. It is not disputed that the new tenancy was then continued by the provisions of the Landlord and Tenant Ordinance.

17. Like my Lord I am unable to find that the memorandum of 11 December, which is page 65 in the "A" bundle, constitutes a sufficient notice to comply with s 119B(2) of the Landlord and Tenant Ordinance. Seeking to persuade us, as he did, Mr Kat has brought a fresh and exciting approach to the law relating to landlord and tenant but, despite his ingenuity, I am not persuaded. Although Mr Chain declined earlier to amend his Notice of Appeal to include this point, it would be wrong to ignore it and for the Court to perpetuate an obviously unsatisfactory conclusion. Therefore, I, too, would allow the appeal in all the terms suggested by my Lord.

Penlington, JA:

18. I also agree with the judgment just delivered by my Lord Kempster JA and would allow this appeal.