何靜敏 v. 陳輝煌

CACV 269/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 269 OF 2013

(ON APPEAL FROM LDPD NO 1123 OF 2013)

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J U D G M E N T

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Hon Cheung CJHC:

1.  I agree with the judgment of Au J.

Hon Lam VP:

2.  I also agree with the judgment of Au J.

Hon Au J:

A.  INTRODUCTION

3.  The respondent, Ms Ho, is the present registered owner of the premises (“the Premises”) at 1/F, 18-18A, Boundary Street, Mongkok.

4.  The appellant Mr Chan was a tenant of the Premises under a tenancy agreement (“the Tenancy Agreement”) dated 23 July 2007.  He entered into the Tenancy Agreement with the Premises’ previous owners (“the Previous Owners”) as landlords.  It is common ground that, since the Tenancy Agreement, Mr Chan had not occupied the Premises himself but sublet it to various subtenants.

5.  In May 2013, Ms Ho applied to the Lands Tribunal under LDPD 1123/2013 (“LDPD 1123”) seeking an order for vacant possession of the Premises against Mr Chan on the basis that she had validly terminated the tenancy by notice.

6.  By way of an order (“the Order”) dated 22 July 2013 made after trial, Deputy District Judge Tracy Chan (“the Judge”) allowed the application and ordered Mr Chan to surrender vacant possession of the Premises.

7.  This is the appeal brought by Mr Chan seeking to set aside the Order.  It is however worth noting that, by the time of the hearing of this appeal, Ms Ho had already enforced the Order by evicting all of Mr Chan’s subtenants from the Premises.  As a result, Mr Chan has also asked this court to order (a) reinstatement of the tenancy agreement, and (b) Ms Ho to pay damages for Mr Chan’s loss and damage caused by the eviction of his subtenants.

B.  THE BACKGROUND

8.  The relevant background can be summarised shortly as follows.

9.  As mentioned above, the Tenancy Agreement was entered into between Mr Chan as tenant and the Previous Owners as landlords in July 2007 for the leasing of the Premises and the adjacent premises (“the Adjacent Premises”)[1] at 1/F, 16-16A of Boundary Street.

10.  Clauses 1 and 2 of the Tenancy Agreement provided expressly as follows:

“第1條：業主將旺角界限街／道16-16A, 18-18A號即──大廈／樓1座1/F樓租與租客，雙方訂定租金每月港幣0 拾壹萬捌仟0佰0拾0元正（收租時另發租單為憑）及訂明租用伍年，由二00七年四月一日起至二0一二年三月三十日止。租客在租用期內不得退租，否則按照所餘租期之時間賠償租金。如租客在租用期一年內要求退租，業主有權另外扣除一個月按金之數目以彌補損失。

第2條：租客不得分租或轉租與別人。除所租用之樓宇外，租客不得佔用其他地方。租客如繼續租賃或退租，須於一個月之前以書面通知（續租則另訂新租約方生效力），否則租客須補償一個月租金給業主。如業主要收回樓宇，亦須於一個月前通知租客。” (the striking-through indicates words that had been crossed out by the parties)

11.  Thus, under Clause 1, the Tenancy Agreement was for a term of 5 years from 1 April 2007 to 30 March 2012[2] at a monthly rent of $18,000.

12.  At the same time, clause 17 (“Clause 17”) of the Tenancy Agreement (which is a handwritten clause inserted into the agreement) also provided as follows:

“第17條：租約5年滿後另再加3年活期，其租金按當年之租金而被調整租金，另立租約每月貳萬貳千元，租客有權租3年。” (the striking-through indicates words that had been crossed out by the parties)

13.  Therefore, under Clause 17, on the expiry of the 5-year term under the Tenancy Agreement, the tenant had a right to continue to rent the Premises for further 3 years at a monthly rent (“the new rent”) of $22,000.

14.  After entering the Tenancy Agreement, Mr Chan had sublet the Premises to various subtenants and had been receiving rents from them.

15.  On 3 December 2011, the Previous Owners as vendors and Ms Ho as purchaser entered into a sale and purchase agreement for the sale of the Premises.

16.  On 2 April 2012 (ie, after the expiry of the 5-year term under the Tenancy Agreement), the Previous Owners (together with the owners of the Adjacent Premises) made an application to the Lands Tribunal under LDPD 812/2012 (“LDPD 812”) seeking vacant possession of the Premises and the Adjacent Premises against Mr Chan.  The basis of the application was that the tenancy had been validly terminated by way of a notice served on Mr Chan on 26 November 2011.

17.  Mr Chan opposed the application in LDPD 812 on the basis that the tenancy had been renewed for another 3 years after 1 April 2012 under Clause 17.

18.  The owners however argued that, instead of the Tenancy Agreement, it was another written agreement dated 15 May 2007 (“the Other Tenancy Agreement”) which validly governed the tenancy.  The Other Tenancy Agreement was also for a term of 5 years, and renewable for 3 years. However, under its relevant clauses, the landlords could terminate the further 3-year tenancy by notice.

19.  After trial on 24 May 2012, Member Kwok rejected the landlords’ case and found that the Tenancy Agreement was the relevant governing agreement.  He then went on to conclude that under Clause 17, the tenant had a right to rent the premises for 3 more years at the new rent, and thus the tenancy had not expired.  As such, the landlords could not terminate the tenancy and the notice of termination served on Mr Chan was ineffective.  He therefore refused the application for vacant possession[3].

20.  Thereafter, Mr Chan continued to pay the new rent of $22,000 to the Previous Owners and the owners of the Adjacent Premises.

21.  On 3 July 2012, Ms Ho completed her purchase of the Premises from the Previous Owners and became its registered owner.

22.  Mr Chan continued to pay Ms Ho $11,000 as the portion of the new rent for the Premises.

23.  As mentioned above, on 21 March 2013, Ms Ho served a notice of termination (“the Termination Notice”) on Mr Chan, seeking to terminate the tenancy on 30 April 2013, and requiring him to surrender vacant possession of the Premises on that date.

24.  Mr Chan did not give vacant possession.

25.  On 9 May 2013, Ms Ho applied to the Lands Tribunal under LDPD 1123 for an order of vacant possession of the Premises.  The basis of Ms Ho’s claim was that she had validly terminated the tenancy by way of the Termination Notice.

26.  Mr Chan opposed the application on the ground that the tenancy was still subsisting as he had already exercised his right under Clause 17 to renew the tenancy for another 3 years from 1 April 2012.

27.  The matter was tried before the Judge on 16 July 2013.  By her reasoned judgment (“the Judgment”) dated 22 July 2013, the Judge allowed Ms Ho’s application and ordered Mr Chan to give vacant possession of the Premises.

C.  THE JUDGMENT

28.  As identified by the Judge at paragraphs 2 and 3 of the Judgment, the issues before her at trial were:

(1)  On a proper construction of Clause 17, whether the renewed 3 years tenancy (if so renewed) was one that was terminable by the landlord by notice.

(2)  If not, whether Mr Chan had properly exercised the right of renewal under Clause 17 in accordance with Clause 2 by giving the landlords a one-month renewal notice before the expiry of the old tenancy, and by entering into a new written tenancy agreement.  In that respect, there were also the subsidiary issues of:

(a)  whether there was an oral agreement (“the Oral Agreement”) between Mr Chan and the Previous Owners that he needed not enter into a new tenancy agreement in order to exercise the right of renewal; and

(b)  in any event, whether Member Kwok in the LDPD 812 Judgment had found and concluded that Mr Chan had already exercised the right to renew the tenancy for 3 years.

(3)  If the tenancy had been so properly renewed, whether it was in any event null and void as against Ms Ho pursuant to s 3(2) of the Land Registration Ordinance (Cap 128) (“LRO”), given that the Tenancy Agreement had not been registered at the Land Registry.

29.  In essence, the Judge found and concluded that:

(1)  On a proper construction of Clauses 2 and 17 of the Tenancy Agreement, (a) Mr Chan had a right (“the Renewal Right”) to renew the Tenancy Agreement for 3 years from 1 April 2012, and once the Renewal Right was properly exercised, the landlord had no contractual right to terminate it by notice[4], and (b) in order to properly exercise the Renewal Right, Mr Chan had to give the landlords a one‑month renewal notice before the expiry of the previous tenancy and to enter into a new written tenancy agreement with the landlord.

(2)  However, Mr Chan had not properly exercised the Renewal Right in failing to give the necessary renewal notice and to enter into a new tenancy agreement[5]. Moreover, in that respect:

(a)  the Judge also rejected Mr Chan’s evidence on the Oral Agreement[6]; and

(b)  the Judge concluded that Member Kwok did not find and rule in LDPD 812 that Mr Chan had already exercised the Renewal Right under Clause 17[7];

(3)  Further or alternatively, even if the Renewal Right had been validly exercised by Mr Chan, the tenancy was null and void as against Ms Ho under s 3(2) of the LRO as the Tenancy Agreement had not been registered at the Land Registry[8].

(4)  Therefore, the Tenancy Agreement either had not been renewed for another 3 years under Clause 17 or in any event was void against Ms Ho.  As such, since 1 April 2012, Mr Chan had had only a monthly tenancy with the landlord at common law, which was terminable by the landlord by notice.  As a result, Ms Ho had validly terminated the tenancy by way of the Termination Notice. Mr Chan must vacate the Premises[9].

30.  The Judge thus ordered Mr Chan to give vacant possession of the Premises.  By her own review on 30 July 2013, the Judge further ordered that Mr Chan should pay mesne profits at the rate of $11,000 per month to Ms Ho until vacant possession was given.

D.  THIS APPEAL

D1.  Appeal history

31.  Mr Chan subsequently applied to the Judge for leave to appeal against the Order, for a stay of its execution and an injunction to restrain Ms Ho from taking steps to evict Mr Chan’s subtenants.

32.  By a judgment dated 23 August 2013, the Judge refused leave and all of Mr Chan’s applications.

33.  By way of a summons dated 6 September 2013[10], Mr Chan (acting in person) made an application to the Court of Appeal for leave to appeal and for a stay of execution of the Order.

34.  Given there was a stay application, Lam VP directed that there be a hearing of the summons on 16 September 2013 before this court (Lam VP and myself).

35.  At the hearing, Mr Chan was by then represented by counsel.  The court was then informed that Mr Chan had effectively given vacant possession of the Premises to Ms Ho, as all his subtenants had already moved out.  The stay application therefore fell away.  Counsel however indicated that Mr Chan still wanted to pursue the appeal, seeking damages from Ms Ho if he was successful.  Counsel also sought leave to amend the grounds of appeal.

36.  The court eventually gave time to Mr Chan to file and serve an amended summons for leave to appeal setting out his new grounds of appeal, and directed that the court would deal with the leave application on paper.

37.  Leave was later granted on paper by the court on the basis of the new grounds set out in the Amended Summons filed on 23 September 2013.

38.  On 7 February 2014, Mr Chan filed his Supplemental Grounds of Appeal, prepared by his new counsel, Ms Lau (together with Mr Yip), who appeared for him at this hearing.

D2.  Grounds of Appeal

39.  In summary, Mr Chan raises the following principal grounds of appeal:

(1) On a proper construction, Clause 17 amounted to an automatic right of renewal of the tenancy for 3 years upon the payment of the new rent.  In other words, Mr Chan was not required to give any renewal notice and enter into a new tenancy agreement if he wanted to exercise that Renewal Right.  The Judge therefore erred in law in concluding that Mr Chan had not validly exercised the Renewal Right (“the Construction Ground”).

(2) In any event, even if there were terms in the Tenancy Agreement that governed the procedures required for the proper exercise of the Renewal Right, by reason of estoppel or part performance (given that Mr Chan had been paying, and Ms Ho had been accepting, the new rent), Ms Ho had waived such compliance and/or accepted that the Renewal Right had been exercised and the tenancy had been renewed for 3 years.  In the premises, the Judge again erred in law in concluding that Mr Chan had not exercised the Renewal Right (“the Estoppel Ground”).

(3) The question of whether Mr Chan had already exercised the Renewal Right to renew the tenancy for 3 years from 1 April 2012 was already determined and concluded in Mr Chan’s favour by Member Kwok in LDPD 812.  Ms Ho should therefore be estopped from challenging that again in LDPD 1123 under the res judicata principles. The Judge therefore erred in law in effectively finding that Ms Ho was not so estopped (“the Res Judicata Ground”).

(4) The Judge further erred in law in concluding that the new 3‑year tenancy was null and void under s 3(2) of the LRO (“the LRO Ground”).

40.  For reasons that would become clearer later, I would propose to look at the Estoppel Ground first.

D3. The Estoppel Ground

41.  In my view, Ms Ho is estopped by convention from denying that there is a subsisting 3-year tenancy (from 1 April 2012 to 31 March 2015) between her and Mr Chan, which was renewed in accordance with the terms of Clause 17.

42.  The principles relating to estoppel by convention are well established: when the parties have acted in their relationship upon the common assumption that the given state of facts or law is to be accepted between them as true, it would be unfair on one for the other to resile from the agreed assumption.  See: Spencer and Bower Estoppel by Representation (4^th ed), VIII.2.1.

43.  It is also trite that, as stated by Ribeiro PJ in Unruh v Seeberger (2007) 10 HKCFAR 31 (at paragraphs 133 and 150), three elements must be satisfied for an estoppel by convention to be raised:

“133. As the statements of principle make clear, the parties must enter into some legal relationship on the basis of an assumption that is shared by or common to them both. The commonality of the assumption is what marks out estoppel by convention as a distinct form of estoppel.

…

150. Two further elements must be established for constituting an estoppel by convention. First, there must be an attempt by one party to depart from the common assumption which departure would be unjust because of ‘the part taken by him in occasioning its adoption by the other party’. Secondly, the other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption ‘if the opposite party were afterwards allowed to set up right against him inconsistent with the assumption’ when abandoning the common assumption.” (emphasis added)

44.  Thus, the party seeking to rely on estoppel by convention has to show that:

(1) The parties must enter into some legal relationship on the basis of a common or shared assumption;

(2) It is unjust for a party to depart away from the said assumption; and

(3) The other party would suffer prejudice.

45.  In the present case, the following uncontroversial facts show that, upon taking up the Premises, Ms Ho and Mr Chan entered into the landlord and tenant relationship on the basis of the common assumption that Mr Chan had a 3-year tenancy renewed in accordance with Clause 17:

(1) In her notice of application filed under LDPD 1123, Ms Ho stated her case on the tenancy between her and Mr Chan as follows:

“租約期滿收樓。終止租賃通知書於2013年3月26日以記錄平郵方式發出租約終止日期為2013年4月30日。本人連租約於2012年7月3日買入上述出租處所。

租約由上手業主（呂友池）與同層之16‑16A單位業主（蔡細乖）一同租出予租客（陳輝煌），固定5年租期約滿後，…現時業主及租客雙方行使三年活期，現本人申請要求收回18-18A單位。租約定明之租金HKD22,000（活期租），本人只佔一半即HKD11,000-。” (emphasis added)

(2) Thus, it was Ms Ho’s own stated case that (a) the relevant tenancy of the Premises between her and Mr Chan was the renewed 3 years tenancy from 1 April 2012 at the new rent as stipulated in the original Tenancy Agreement, and (b) she purchased the Premises with that renewed tenancy. Her only case for vacant possession was that the renewed 3 years tenancy was terminable by notice, but not that Mr Chan had not exercised the right under Clause 17 to renew the tenancy.

(3) The parties had also conducted themselves pursuant to this stated and common position. Since taking up the Premises, Ms Ho had been receiving $11,000 as rent from Mr Chan, and that amount was stipulated to be the new rent of the Premises for the renewed tenancy under Clause 17.

46.  From these unchallenged facts, it is clear to me that:

(1) The parties entered into the legal relationship of landlord and tenant on the basis of the 3-year tenancy renewed in accordance with the terms of Clause 17;

(2) Given that the renewed tenancy under Clause 17 is not terminable by notice by the landlord (as held by the Judge as a matter of construction, and there is no cross-appeal against that), it would be unjust for Ms Ho now to depart from this assumption by seeking to terminate the tenancy by notice or by denying that there was such a 3-year tenancy at all;

(3) Mr Chan would suffer prejudice if Ms Ho is allowed to resile from this common assumption, as he would lose the secured tenancy and the rental income from his subtenants.

47.  Applying the principles on estoppel by convention to these circumstances, I would hold that Ms Ho is estopped from denying that there is a subsisting 3-year tenancy (from 1 April 2012 to 31 March 2015) between her and Mr Chan at the new rent, which is not terminable by notice by the landlord.

48.  This conclusion is underlined by the fact that, given Ms Ho’s above-mentioned own stated case in the proceedings below, there should not be an issue before the Tribunal on whether there was or was not a 3‑year tenancy.  The only question before the Judge was and should be whether that tenancy was terminable by notice, an issue which the Judge had ruled against Ms Ho.

49.  The Judge was therefore wrong in ordering Mr Chan to surrender vacant possession of the Premises on the basis that there was only a monthly tenancy at common law between the parties, which had been validly terminated by Ms Ho by notice.

D4. The other grounds of appeal

50.  Given my above conclusion on the Estoppel Ground, I do not think it is necessary for this court to further deal with the other grounds of appeal.  The operation of the doctrine of estoppel by convention in the present case is not affected by the correctness of the Judge’s other conclusions to the effect that Mr Chan had not validly renewed the tenancy or that the tenancy so renewed is to be regarded as null and void under the LRO.  Even if the Judge was correct in those conclusions, it is precisely because the law would regard it as unjust in the circumstances of the present case for Ms Ho to deny the existence of the subsisting 3-year tenancy that it intervenes through the doctrine of estoppel by convention.

51.  In the premises, even if Mr Chan fails on all the other grounds of appeal, this appeal in my view should still be allowed under the Estoppel Ground as explained above.

E. CONCLUSION

52.  For the above reasons, the Judge was wrong in concluding that the tenancy between Mr Chan and Ms Ho had been validly terminated by the Termination Notice.  Ms Ho was therefore not entitled to vacant possession of the Premises.

53.  I would allow this appeal and set aside the Order.

54.  However, as I mentioned above, given that Ms Ho has already enforced the Order by evicting Mr Chan’s subtenants from the Premises, Mr Chan has further asked this court to order (a) the reinstatement of the renewed tenancy agreement, and (b) Ms Ho to pay him damages to compensate his loss suffered as a result of her enforcement of the Order.

55.  Insofar as the relief of the “reinstatement” of the renewed tenancy is concerned, it is pertinent to note that Ms Ho has already leased out the Premises to other tenants.  Third parties’ interest is thus involved.  Ms Lau for Mr Chan accepted that in those circumstances, the court would be reluctant to order Ms Ho to re-deliver possession of the Premises to Mr Chan under the subsisting 3-year renewed tenancy upon the setting aside of the Order.  She therefore indicated at the hearing that she would no longer pursue this relief.

56.  Ms Lau therefore asked this court instead to order (without the need for Mr Chan to bring a fresh claim) compensatory damages against Ms Ho for Mr Chan’s loss of rent from his subtenants for the period from the eviction of those subtenants until the end of the 3‑year tenancy (ie, 31 March 2015).

57.  Ms Ho’s counsel however argued that Mr Chan was not entitled to any damages, as the eviction was made lawfully at that time pursuant to the Order, which was valid until set aside.  As such, Ms Ho had committed no wrong recognisable in law against Mr Chan in evicting those subtenants, and therefore no cause of action for damages should lie.

58.  It is perhaps correct to say that the question of whether a tenant could claim damages caused by the landlord’s execution of an order for possession which is subsequently reversed may be debatable in law. Some authorities suggest that he cannot[11], and his cause of action lies only in restitution seeking the restoration of the property (or fruits of property) transferred pursuant to such a court order before being set aside[12]. However, those authorities may only apply in those circumstances where the tenant manages to repossess the premises in question after having succeeded on appeal to set aside the vacant possession order.  I think the situation is different in a case where the tenant is unable to repossess the premises where, for example as in the present case, the landlord has already leased it out to other third parties before the reversal of the original order of possession.  In those cases, I am of the view that the tenant may be treated as having accepted the wrongful repudiation of the subsisting tenancy agreement by the landlord in taking possession of the premises, thereby breaching the implied condition of quiet enjoyment of the premises. The tenant is therefore entitled to claim damages for breach of contract.  For that purpose, the landlord’s breach of the tenancy agreement would be at the time when the original possession order is reversed on appeal, that is, the date of the appeal judgment.

59.  In the premises, I think it is only fair and correct in all the circumstances of this case that the court should, upon setting aside the Order, also order that Ms Ho should pay damages for her breach of the 3‑year renewed tenancy agreement in taking possession of the Premises[13], and the matter be remitted back to the Lands Tribunal for assessment of damages.  In that respect, I would further direct that:

(1) The date of the breach shall be the date of this court’s formal judgment setting aside the possession order below, and for that purpose, I would ante-date the judgment to the date when Ms Ho effectively took possession of the Premises by way of evicting any of Mr Chan’s subtenants from the Premises[14]. The parties shall agree on this date, failing which they should seek directions from the court in writing.

(2) Ms Ho should also repay Mr Chan all the “rent” of the Premises she has continued to receive from him since that date[15].

60.  Given that damages still have to be assessed, I am concerned that the further time and legal costs that would have to be incurred by the parties are likely to be disproportionate to the amount that may be recoverable.  I therefore strongly urge the parties to seriously consider resolving the matter by way of mediation, so as to save costs and time.  To facilitate that, I would direct that the parties should attend a briefing session organised by the Mediation Information Office, and that they should report to this court in writing within 5 days of the attendance confirming that they have done so.  Notice of the appointment will be issued by the Mediation Information Office to the parties through their solicitors.

61.  Finally, as Mr Chan is successful in this appeal, I would further order (on a nisi basis) that the costs of this appeal and below be to Mr Chan, to be taxed if not agreed.

Hon Cheung CJHC:

62.  Accordingly, this appeal is disposed of as indicated in paragraphs 53 and 59 to 61 above.