KAMSHAN HOLDINGS LTD. v. CHAN TUNG MAN

CACV 141/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 141 OF 1999

(ON APPEAL FROM HCA 7959/1997)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is a tenant's appeal against a judgment of the Court of First Instance dated 16 April 1999, under which the tenant was ordered to pay $80,500 (with costs to be taxed if not agreed) to his landlord. It appears, from the reasons given by the judge below (His Honour Judge Li, sitting as a deputy judge) for ordering this judgment to be entered, that the sum of $80,500 represented the aggregate of three sums, namely : (1) $58,100; (2) $13,000; and (3) $9,550; each of which sums the judge considered the tenant ought to pay to the landlord having regard to the state and condition, at the date of termination of the tenancy, of the premises held by the tenant of the landlord.

2. The tenant now appeals, claiming that there was no legal basis for these awards. And the landlord cross-appeals, claiming that the award made in its favour should have been an award greater (in the aggregate) than $80,500.

The facts

3. The material facts are as follows.

4. Some 35 years ago, one Chan Shing-hee ("Mr. Chan") developed a building at 922, Canton Road. Soon after its completion, he let the ground and mezzanine floors ("the first premises") to Chan Tung-man ("the tenant") the defendant in the action below. Subsequently, Mr. Chan let the floor above ("the second premises") to the tenant as well. These lettings were renewed from time to time (the last time being in 1995), in the case of each letting for a term expiring on 14 March 1997. Each of the most recent tenancy agreements, in which the landlord was described as "Party A" and the tenant as "Party B", contained two clauses, clause 4 and clause 7, the certified translation of which I now set out :

"4. When Party B moves out, he shall remove all the furniture before the expiration of the term of tenancy in order to comply with the (legal) requirements. In case where Party B shall not return the key to the door on any excuse, or leaves behind old and broken trunks and cabinets etc. without taking them away in order to intentionally stall for time, then Party B will be deemed to have abandoned his rights to the items left three days after having actually moved out without taking the same. And Party A shall be entitled to sell these items in the presence of one or two witnesses without going through the police station or tenancy tribunal and to let (the premises) to others. The proceeds from the sale will be used to pay up the rent in arrears. If there shall be still any deficiency, Party B shall still be liable to pay the same without objection.

.....

7. The decorations and partitions affixed to walls, window guards, electrical installations etc. put up by Party B on taking up possession shall not be dismantled when Party B vacates the premises in order to maintain its original complete state. Party B may dismantle such items only on the consent of Party A, but the premises shall still be restored to its complete state."

5. Subsequently, on 20 November 1995, Mr. Chan assigned to the landlord, the plaintiff in the action below, the reversion immediately expectant on the expiration of the terms created by the two tenancy agreements.

6. On 22 March 1997, the tenant handed over the keys of both premises to the landlord's representatives. Nothing was then said, on either side, about the state and condition of the premises, although, over the years before 1995, the tenant had made very substantial additions and alterations to both premises for the purposes of the business he carried on there. These included the construction of a cockloft at the mezzanine level (expressly included in the most recent tenancy agreement as part of the first premises) and the conversion, at all three levels, of all toilets (save one) into storerooms, although the second premises had, originally, been laid out as residential premises. And, although the tenant had left substantial quantities of rubbish, junk and debris in both premises, nothing was said about this either.

7. But, on 12 June 1997, the landlord (by its solicitors) wrote to the tenant complaining that the tenant "had left behind in or failed to remove the premises certain furniture and fittings found present in the premises". They enclosed a quotation detailing these items which quoted a sum of $117,500 for the necessary work.

8. On 8 October 1997, having received no satisfaction, the landlord instituted the proceedings below which resulted in the judgment against the tenant to which I have already referred.

The pleadings

9. By its (amended) statement of claim, the landlord had claimed $117,500 for "removing all those furniture and fittings left behind" by the tenant, asserting that it had "suffered loss and damage" in the said sum. It had also claimed "loss and damage in the term of loss of rental" from 22 March 1997 to the completion date of the removal work at the rate of $45,000 per month; $13,000, being the inspection and evaluation fee paid to its surveyors for the purpose of ascertaining the costs for the removal; and, finally, interest on all sums found due to it; and it renews its claim to all this in this court. Originally, its claim was based exclusively on the provisions of clause 4 of the two tenancy agreements. By amendment, it based its claim also on an allegation of waste. (It did not base any claim on the provisions of clause 7 of the two tenancy agreements, although reference to these provisions was made in the proceedings below; in this court, the landlord applied further to amend its statement of claim so as to rely on clause 7, but we refused that application because we considered it was made so late that it would plainly be prejudicial to the interests of the tenant to allow it and because we considered, for reasons which will appear, that the amendment would not assist the landlord anyway.)

10. The (amended) defence, in substance, traversed the allegation of a breach of the provisions of clause 4 and the allegation of waste.

The law

11. The landlord's claim for various items of "loss and damage" is obviously a claim for damages at common law. Such a claim may sound in contract, or in tort. Insofar as the landlord's claim was a claim for breach of contract, it needed to plead and prove the breach by the tenant of some contractual obligation (express or implied) on the part of the tenant. Insofar as the landlord's claim was a claim in tort, it needed to plead and prove some tortious act on the part of the tenant. In both cases, the landlord's claim for damages would be limited to those items of loss recognised by the law as recoverable in an action for breach of contract, or the case may be , in an action in tort. Again in both cases, it would be open to the tenant to plead and prove waiver or acquiescence by the landlord of any alleged breach of contract on the part of the tenant or of any claim in tort which the landlord might otherwise have had against the tenant.

12. After these general observations, I can now turn to analyse the claims made, or apparently made, by the landlord against the tenant in the action below.

The landlord's claim - breach of contract

13. In my opinion, clause 4 of the tenancy agreements, properly construed, imposes on the tenant an express contractual obligation to surrender the premises to the landlord, on determination of the tenancies, with vacant possession (by which I mean emptied of all furniture, old and broken trunks and cabinets, and all other rubbish : cp. Cumberland Consolidated Holdings v. Ireland [1946] KB 264). The landlord's statement of claim (although inartistically drafted) comprehended, as I read it, an allegation against the tenant of breach of this express contractual obligation. There was undisputed evidence before the judge below that it would cost $2,500 to "clear away of debris, such as rolls of abandoned rubber tubes, bottles of portable fire extinguishers, carton boxes, timber planes, steel cabinets and the like" : see para. 4.5.5 of the Building Survey Report made by Citybuild Surveyors Limited dated 23 July 1997. The landlord was, in my judgment, entitled to an award of damages of $2,500 in this connection.

14. Clause 4 does not entitle the landlord to any further or other award of damages.

15. Clause 7, which was not pleaded, cannot be relied on by the landlord. But, even if it had been pleaded, it would not, in my opinion, have entitled the landlord to any award of damages anyway. Far from obliging the tenant to remove anything from the premises, it dictates the contrary. It imposes no obligation on the tenant to re-instate the premises except where such re-instatement is required after the tenant has removed some fixture or fitting with the consent of the landlord.

16. It was suggested below and before us that in addition to the express contractual obligations imposed on the tenant by clauses 4 and 7 of the tenancy agreements, the tenant was under an implied contractual obligation to use the premises "in a tenant-like manner". It is true that a tenant under a yearly or other periodic tenancy comes under such an obligation : see Marsden v. Edward Heyes Ltd [1927] 2 KB 1 (where the tenancy was a yearly tenancy) and Warren v. Keen [1954] 1 QB 15 (where the tenancy was a weekly tenancy). But the tenancies with which we are concerned here are tenancies for a fixed term. No authority was cited to us, and I am aware of no authority, which imposes any such obligation on a tenant under such a tenancy, and I would hold that in such a case there is no such obligation (I am not here referring to the obligation not to commit waste, as to which I shall set out my views later in this judgment). However, even if there was such an obligation here, I am not persuaded that the tenant was in breach of it to any greater extent than he would have been, anyway, in breach of his obligation not to commit waste, so the claim under the obligation to use the premises in a tenant-like manner adds nothing of any value to the landlord here.

The landlord's claims - tort

17. A tenant for a fixed term is liable for waste : see the Statute of Marlbridge (or Marlborough) 52 Hen. 3, c.23 1267. The alteration by the tenant of the character of the premises, e.g., the conversion of residential premises into industrial premises, would be an act of waste. This did occur here, but it occurred at a time when the reversioner was not the present plaintiff and before 1995; so the premises were let by the present plaintiff's predecessor in title in their already "wasted" state.

18. If the conversion took place with the acquiescence of the then landlord, then of course neither he nor any successor in title of his would be entitled to complain of it anyway. If he did not acquiesce in the conversion, he might have had a cause of action; but he is not the present plaintiff. If he had had a cause of action and had assigned his cause of action to the present plaintiff, the present plaintiff might have been met with the replies (1) that the cause of action was barred by limitation; (2) that the assignment was not permitted at law : see Defries v. Milne [1913] 1 Ch. 98 (although on this point there might have been an argument the other way); (3) that the measure of damages would be the diminution in value of the reversion, which was not pleaded and as to which this was no evidence. However, none of this arises anyway, for there never was any assignment of the cause of action to the present plaintiff from its predecessor in title. It was submitted that the assignment of the reversion to the present plaintiff did itself operate to assign the cause of action; and support for this submission was said to be found in sections 16(1) and 17 of the Conveyancing and Property Ordinance, Cap. 219, which reproduce in essence the "general words" and "all the estate" provisions of ss.62 and 63 of the imperial Law of Property Act, 1925. But I have no doubt that this submission must be rejected. A cause of action in tort is personal to the victim. It does not appertain to his land even though the tort, e.g., trespass, or nuisance, or waste, may relate to that land.

19. For these reasons, I would hold that the landlord, the present plaintiff, has no cause of action for waste against the tenant.

Conclusion

20. The only claim which the landlord is entitled to maintain against the tenant here is the claim for $2,500 for removal of furniture, etc. to which I have referred. All the landlord's other claims are misconceived.

Result

21. Save to the extent indicated, I would allow this appeal and dismiss the cross-appeal. I would set aside the judgment below; order that judgment be entered for the landlord for $2,500; and order (subject to the provisions of Order 42 rule 5B(6) of the Rules of the High Court) that the costs of the tenant below, and of this appeal, on which he has largely succeeded, and of the cross-appeal should be taxed (if not agreed) and paid by the landlord to the tenant.

Rogers, J.A. :

22. In 1967, a six-storey building, No. 922 Canton Road, Kowloon was completed. The owner of the premises, Mr. Chan Shing Hei let the ground floor and cockloft by one tenancy agreement and the second floor by another tenancy agreement to Mr. Chan Tung Man. There were, over the course of the years, a number of tenancy agreements. The last such tenancy agreements were made between the two Messrs. Chan on the 18th April and the 12th July 1995 in respect of the two premises. Shortly thereafter, on the 20th November 1995, Mr. Chan Shing Hei assigned the whole building to the Plaintiff, Kamshan Holdings Limited, which is evidently a BVI company in which Mr. Chan's children hold substantial interests. Mr. Chan's final tenancy came to an end in March 1997.

23. The Defendant, Mr. Chan Tung Man used the premises for what has been termed his rubber tube business. In order, apparently, to conduct the business better, various alterations were made to the premises. In particular, complaint is made that there was a large suspended metal cockloft which projected from the external wall facing Canton Road at the mezzanine floor level which terminated flush with the external wall of the balcony above, that is immediately above the pavement. Then, it is said that internal staircase was removed to provide more storage space. Apparently, alterations were made to, if not removal altogether of, lavatories in the building. A hoist was constructed inside the building and there appears to have been a large number of metal racks which were affixed to the walls. It is said that when Mr. Chan finally left the building in March 1997, there was left behind metal filing cabinets, unused hoses and general rubbish, together with the premises being in what has been termed "a filthy and messy condition".

The causes of action

24. There were three causes of action which were pleaded in the Statement of Claim. In the first place, the Plaintiff relied upon Clause 4 of the tenancy agreements which were in identical terms. In the second place, the Plaintiff alleged that the Defendant had committed waste and that the Plaintiff was entitled to recover in respect thereof. Finally, the Plaintiff made a claim that the Defendant had breached an implied obligation to use the premises in a tenant-like manner and to deliver up possession to the Plaintiff at the termination of the tenancy in the same condition as when the Defendant took the premises with fair, wear and tear excepted.

25. The Judge below held that the Plaintiff was entitled to recover in respect of the failure to remove the steel filing cabinets under the terms of Clause 4 of the agreements, that the Plaintiff was entitled to recover for waste in respect of some of the matters of complaint, in particular, the removal of toilets and the erection of the steel hoisting beam fixed to the ceiling on the second floor but that the Plaintiff was not entitled to recover in respect of the implied obligation to use the premises in a tenant-like manner and presumably to deliver them in the condition in which they existed at the commencement of the tenancy.

The additional ground sought to be argued

26. In addition to the above points, Mr. Chua who appeared on behalf of the Plaintiff, both in the Court below and here, sought leave to amend the pleadings and rely upon Clause 7 of the tenancy agreements.

27. I propose to deal with each of the grounds separately.

Clause 4

28. Clause 4 of each of the tenancy agreements reads as follows :-

"When Party B [the tenant] moves out, he shall remove all the furniture before the expiration of the term of tenancy in order to comply with the (legal) requirements. In case where Party B shall not return the key to the door on any excuse, or leaves behind old and broken trunks and cabinets etc. without taking them away in order to intentionally stall for time, then Party B will be deemed to have abandoned his rights to the items left three days after having actually moved out without taking the same. And Party A shall be entitled to sell these items in the presence of one or two witnesses without going through the police station or tenancy tribunal and to let (the premises) to others. The proceeds from the sale will be used to pay up the rent in arrears. If there shall be still any deficiency, Party B shall still be liable to pay the same without objection."

29. This Clause clearly simply relates to the removal of furniture and by that, I take it to mean all the tenant's belongings, by the tenant before the expiration of the tenancy. In my view, the Judge below was correct. The only claim in respect of this which appears to be relevant is the removal of the steel filing cabinets and other items belonging to the Defendant and the Defendant appears to have been in breach by reason thereof.

Waste

30. The action for waste is an action in tort: see Woodfall on Landlord and Tenant 1994 13.116, Hill Redman's Law of Landlord and Tenant 1998, para. 1029. It exists independently of contract or implied covenant. It is an action founded upon the alteration in the nature of the land. The measure of damages in an action for waste is the diminution in the value of the reversion, less a discount for immediate payment. It would seem that there may be a possibility of obtaining damages equivalent to exemplary damages: see Whitham v. Kershaw (1886) 16 Q.B.D. 613. It might well be that the courts might permit the loss in value of the premises to be assessed on the basis of the cost of putting the premises into the condition in which they ought to be. This, at any rate, seems to have been the course taken following agreement between the parties in Marsden v. Edward Heyes, Ltd [1927] 2 K.B. 1.

31. There is no doubt that the alterations to the premises which I have referred to above, including the installation of the various racking and hoists, must have been accomplished many years ago, very probably soon after the Defendant entered into the first tenancy agreements. Albeit that the obligation to ameliorate waste may be considered to be a continuing obligation by reason of the fact that the tenant is obliged to deliver up premises in a tenant-like condition: see the judgments in Marsden v. Edward Heyes, Ltd., the action is one in tort. Insofar as the Plaintiff's case is founded upon tort, any cause of action must clearly have arisen, if at all, well before the assignment to the Plaintiff of the premises in 1995 and indeed, probably, took place nearly 30 years earlier.

32. In order to found a cause of action on the tort of waste, it is therefore, in my view, imperative for the Plaintiff to show that there has been a valid assignment of the cause of action in tort. It is admitted that there has been no assignment of the cause of action pleadings other than by inference in paragraph 1 of the amended Statement of Claim which refers to the Plaintiff's predecessor in title as landlord. Be that as it may, there was clearly an assignment of the premises although the assignment is not available to this Court. Mr. Chua for the Plaintiff relies, however, upon sections 16(1) and 17 of the Conveyancing and Property Ordinance, Cap. 219. Section 16(1) reads as follows :-

"(1) Unless the contrary intention is expressed in the assignment, an assignment shall operate to assign, with the land, all rights, interests, privileges, easements or appurtenances in, over, belonging or appertaining to that land or at the time of the assignment used, held, occupied or enjoyed with that land and things attached to the land or permanently fastened to anything attached to the land."

33. The question arises, therefore, as to whether the cause of action in tort could be said to be a right or interest, belonging or appertaining to the land. Clearly, it is not a right or interest which belongs to the land and neither, in my view, is it a right or interest which appertains to the land. It is a cause of action for the loss which has been suffered by reason of the diminution in value of the land. It is therefore a cause of action which resides in the land owner because of a loss which has been caused to him. The cause of action appertains to the owner of the land and not to the land.

34. Section 17 of the Conveyancing and Property Ordinance, in my view, avails the Plaintiff even less. That reads :-

"Unless the contrary intention is expressed in the assignment, an assignment shall operate to assign all the estate, right and interest in the land assigned which the assignor has in that land and which he has the power to assign."

35. It seems to me that by no remote strain of construction can it be said that any cause of action in tort is thereby included.

36. Mr. Shum on behalf of the Defendant, Appellant, takes the point that the right of action for damages for waste cannot be assigned and he relies upon the case of Defries v. Milne [1913] 1 Ch. 98. That case did not involve a straightforward assignment of a landlord's title to the land, but Farwell, L.J. at p. 109 was emphatic that a cause of action in tort could not be assigned. It is of course possible to assign a cause of action in tort if there is a sufficient interest assigned therewith. This has now been referred to as a genuine commercial interest. See also the notes in the Third Cumulative Supplement to the 17th Edition of Clerk and Lindsell on Torts, 4-42. Even on the basis that a cause of action for the tort of waste could be assigned together with the full legal interest in the land, it would seem to me that it would have to be made clear in the assignment that the cause of action was so being assigned. Since the only reliance in this case is upon sections 16 and 17 of the Ordinance, it seems to me that it does not avail the Plaintiff to argue that it acquired the ownership of the land.

37. Indeed, it might also be said that if waste has been committed, the value of the land has been diminished, and if there is a subsequent sale of the land, that was presumably done on the basis of the land being in the state whereby it is diminished in value. This therefore emphasises the point that unless there is a specific assignment of the cause of action in tort, the purchaser has no right to sue for waste because he has acquired land in the condition it was at the date of the assignment, and not at some previous dates.

38. Mr. Shum also relied upon the words "unless the contrary intention is expressed ....." in sections 16 and 17. He pointed to the sale and purchase agreement which provided that the vendor sold the premises in its present physical state on an "as is" or "as it is" basis. In my view, this is probably not enough to exclude a statutory inclusion of the assignment of a cause of action in tort, if that is what the section provided.

39. In my view, therefore, the Plaintiff had shown no cause of action in the tort of waste. Certainly, there was no pleading of an assignment of the right of action to sue for waste. That, in my view, would have been a material averment because without an assignment, the Plaintiff would have no cause of action.

40. The Judge below held that many of the matters of which complaint was made did not constitute an action of all wrongs because if they were waste, they were ameliorating waste. For my part, I would not disturb his conclusions in that regard.

The obligation to use the premises in a tenant-like manner and to deliver up possession to the Plaintiff at the termination of the tenancy in the same condition as when the tenant took it

41. In respect of the final matter, it appears to me that this obligation is a contractual obligation arising out of the tenancy agreement. It is an implied obligation. As is stated in the footnote in Halsbury's Law of England, Vol. 27(1), 4th Edition Re-issue, the extent of the obligation to use the premises in a tenant-like manner is not entirely clear. The tenant is clearly under a continuing obligation to make repairs which would amount to voluntary waste. However, the obligation it appears to me must be founded upon the state of the premises at the commencement of the tenancy. There is no dispute in this case that when these tenancies commenced in 1995, the premises were in, for all material purposes, virtually the same condition as they were upon relinquishment. Apart from the fact that the premises were filthy and messy, it appears to me that the learned Judge correctly dismissed the claim in this regard since the matters of complaint existed at the commencement of the tenancy and therefore as a matter of contract, the Plaintiff is not in a position to make a complaint in that regard.

Clause 7 of the agreements

42. Finally, Mr. Chua, on behalf of the Plaintiff, sought to rely upon Clause 7 of the two tenancy agreements which, again, in identical terms. They read as follows :-

"The decorations and partitions affixed to walls, window guards, electrical installations etc. put up by Party B on taking up possession shall not be dismantled when Party B vacates the premises in order to maintain its original complete state. Party B may dismantle such items only on the consent of Party A, but the premises shall still be restored to its complete state."

43. When pressed by the Court, Mr. Chua revealed that his argument rested upon the final words of that Clause. He submitted that whatever else was in the Clause, those final words should be read on their own and that the tenancy agreements thereby required that the premises shall still be restored to its "complete" state. Even if the final words of Clause 7 referred to the state of the premises in 1967 and not the state of the premises in 1995 when the tenancy agreements were entered into, it appears to me that this argument puts a wrong construction on Clause 7. Clause 7 relates to the requirement that the tenant shall not remove what might otherwise be regarded as tenant's fixtures. The tenant would only be permitted to do so with permission of the landlord. The final words read in their proper context, appear to me to require that the tenant should restore any damage made by taking out a tenant's fixtures. They do not have the broad meaning as was suggested by Mr. Chua.

44. In my view, therefore, not only is the argument wrong, but the draft re-amendment of the Statement of Claim which Mr. Chua sought to be allowed at the hearing should be refused since the argument proceeds upon a false basis.

45. In my view, this appeal should be allowed. The only claims which could be validly made would be for the removal of the debris, rolls of abandoned rubber tubes, bottles of portable fire extinguishers, carton boxes, timber planes, steel cabinets and the like. The surveyor's report at paragraph 4.5.5 estimates this to be $2,500. In view of the fact that the survey's report, almost in its entirety, is in respect of matters of which complaint fails, I do not consider that the Plaintiff is entitled to any claim in regard to the costs of the report. In my view, the Plaintiff's claim should be limited to $2,500. I therefore agree with the orders proposed by Godfrey, J.A.

Keith, J.A. :

46. For the reasons given by Godfrey J.A. and Rogers J.A. (whose judgments I have read in draft), I agree that this appeal should be allowed, that the judgment entered against the Defendant should be set aside, and that judgment should be entered against the Defendant only for the sum of $2,500.00 as damages for breach of clause 4 of the tenancy agreements, being the cost of removing the debris from the premises. I also agree with the order nisi which is proposed as to costs. I wish to add a few words only on the implied covenant to which it was contended that the tenancy agreements were subject, namely a covenant on the tenant "to use the [premises] in a tenant-like manner and to deliver up possession [of the premises] at the termination of the [tenancies] in the same condition as when the [tenant] took them, fair wear and tear excepted".

47. I would not go so far as to say that only a tenant under a yearly or other periodic tenancy is subject to such an obligation. In my opinion, it is possible that a tenant under a fixed-term tenancy comes under such an obligation as well. The extent of that obligation has never been precisely determined. However, if a tenant is under an obligation to use the premises in a tenant-like manner, the extent of any obligation to restore the premises to their former condition on the termination of the tenancy is an obligation to restore them, not to their condition when the tenant first "took" the premises, but to their condition at the commencement of the relevant tenancy. The relevant tenancies for the purpose of this case were the tenancies of 18th April 1995 and 12th July 1995. It was not disputed that, to all intents and purposes, the premises had been in virtually the same condition then as they were on the termination of the tenancies.