LI CHING WING v. XUAN YI XIONG

DCCJ 3832/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3832 OF 2003

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DECISION

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1. This is an application for summary judgment under O. 14 of the Rules of the District Court, Cap. 336.

2. This is one of the many litigations arising from the outbreak of Severe Acute Respiratory Syndrome ("SARS") in Hong Kong early this year. The Plaintiff was and is the registered owner of the premises known as Flat 6, 35th Floor, Block E, Amoy Garden, 77 Ngau Tau Kok Road, Kowloon, Hong Kong ("the Premises"). By a tenancy agreement dated 4 July 2002 ("the Tenancy Agreement"), the Plaintiff let the Premises to the Defendant for domestic purpose for a fixed term of 2 years commencing from 1 August 2002, at a monthly rent of $6,000 payable in advance on the 1st day of each and every calendar month.

3. Then there was the outbreak of SARS in March 2003, and many residents of Amoy Garden, in particular those living in Block E ("Block E"), were infected with the disease. Having heard about the news, the Defendant moved out of the Premises on 29 March 2003 and stayed with his family in Guangzhou until 10 April 2003.

4. On 31 March 2003, the Department of Health issued an order ("the Isolation Order") to isolate Block E for 10 days. On the following day, the residents of Block E were evacuated to various places of safety. After the expiry of the Isolation Order, the residents of Block E were allowed to return to their flats, and the Defendant did so. On 24 April 2003, the Defendant sent a letter to the Plaintiff to terminate the Tenancy Agreement, in which the Defendant also indicated that he was willing to waive his entitlement to the rental deposit as some kind of compensation to the Plaintiff. By a letter dated 16 June 2003, the Plaintiff accepted the alleged wrongful repudiation of the Tenancy Agreement.

5. In this action, the Plaintiff claims against the Defendant for the accrued rent and damages arising from the repudiation of the Tenancy Agreement. The central issue is, therefore, whether the Defendant was entitled to terminate the Tenancy Agreement under the peculiar circumstances of the present case.

6. The Defendant is seeking to rely on the following three grounds to terminate the Tenancy Agreement:

(i) the Tenancy Agreement was frustrated by the making of the Isolation Order;

(ii) the Plaintiff was in breach of the implied covenant that the Premises were fit for human habitation; and

(iii) the Plaintiff was in breach of the implied covenant to carry out structural repair to the Premises.

I will deal with these allegations in turn.

Frustration

7. The application of the doctrine of frustration in the context of a lease has been considered by the House of Lords in the landmark case of National Carriers Ltd. v. Panalpina (Northern) Ltd. [1981] A.C. 675. The lease in issue was a 10-year lease of a warehouse. By a temporary order, the City Council closed the street which gave the only access to the warehouse. The lessee relied on the doctrine of frustration and refused to pay rent, and the landlord therefore instituted legal proceedings for recovery of rent. The House of Lords held that the lease was not frustrated since the closure was expected to last only for a year or a little longer, which would still allow the lease to run for 3 more years after the street re-opened. The decision of the lower court in granting summary judgment in favour of the landlord was therefore affirmed.

8. In reaching the decision, the House of Lords approved the earlier decision of Cricklewood Property and Investment Trust Ltd. v. Leightons Investment Trust Ltd. [1945] A.C. 221. In that case, the lessee under a 99-year building lease claimed that wartime building restrictions had frustrated the lease. The House of Lords held that there had been no frustration, since the lease had over 90 years to run when the war broke out, and it was unlikely that the war would last for more than a small fraction of the whole term.

9. Whist accepting that the doctrine of frustration could be applied to determine a lease, Lord Simon of Glaisdale in the Panalpina case defined the concept of frustration as follows:

"Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance." (at 700F)

Lord Simon also said the following in his judgment:

"[The tenants] were undoubtedly put to considerable expense and inconvenience. But that is not enough. Whenever the performance of a contract is interrupted by supervening event, the initial judgment is quantitative - what relation does the likely period of interruption bear to the outstanding period for performance? But this must ultimately be translated into qualitative terms: in the light of the quantitative computation and of all other relative factors (from which I would not entirely exclude executed performance) would outstanding performance in accordance with the literal terms of the contract differ so significantly from what the parties reasonably contemplated with those literal terms?" (at 707B-D)

10. In such case, an event which causes an interruption in the expected use of the premises by the lessee will not frustrate the lease, unless the interruption is expected to last for the unexpired term of the lease, or, at least, for a long period of that unexpired term (see: Chitty on Contract, 28 ed., vol. 1, para.24-053). That was the reason why Lord Hailsham of St. Marylebone said the following in the Panalpina case:

"No doubt the circumstances in which the doctrine [of frustration] can apply to leases are, to quote Viscount Simon L.C. in the Crickwood case, at p. 231, "exceedingly rare." ......... Like Lord Wright [in the Crickwood case], I am struck by the fact that there appears to be no reported English case where a lease has ever been held to have been frustrated. I hope this fact will act as a suitable deterrent to the litigious, eager to make legal history by being first in this field." (at 692B-D)

11. The Defendant relies on the Isolation Order as a ground to frustrate the Tenancy Agreement. However, out of a term of 2 years, a period of about 10 days, of which the Defendant was not allowed to stay in the Premises by virtue of the Isolation Order, was quite insignificant in term of the overall use of the Premises. The outbreak of SARS may arguably be an unforeseeable event, however, such supervening event did not, in my judgment, significantly change the nature of the outstanding contractual rights or obligations from what the parties could reasonably have contemplated at the time of the execution of the Tenancy Agreement. Hence, the defence of frustration cannot possibly succeed in the present case.

Implied covenant as to habitability of the Premises

12. It is also the Defendant's case that the Plaintiff was in breach of the implied covenant that the Premises were fit for human habitation. The relevant legal principles are best summarized by Malcolm Merry in his book, Hong Kong Tenancy Law, 3rd ed., in which the learned author said the following in pages 49-50:

"The law also implies a covenant or condition that the premises are fit for human habitation. Traditionally, this covenant is limited to furnished lettings at the beginning of the tenancy. It does not seem to extend to unfurnished premises (which are of course the majority) nor throughout the life of the lease.

.........

However, if there is no such warranty nor any express covenant as to the condition of the premises, the courts, in England at least and presumably Hong Kong too, will refuse to imply one. On the letting of an unfurnished flat or house there is no implied covenant that the house is fit for human habitation or for the purpose for which it has been let, nor that the property is free from dangerous defects or can lawfully be used for the tenant's intended purposes.

The position is different in the United States, where the courts of some states have broken away from the traditional restrictive approach. In other states, metropolitan or state legislation implies a warranty of habitability into residential leases. The policy behind such legislation - and the reasoning of the courts - is that a lease of an urban dwelling amounts to a hiring by a tenant of a collection of goods and services. For his money, a tenant is entitled to a living space in such a state of repair and with such facilities in the way of heating, lighting, plumbing and so on that it is, by current standards, habitable. This requirement of habitability lasts throughout the lease.

The English courts have been slower to throw off the consequences of the agricultural origins of leases. In leases of farms the land is of greater importance than the buildings. The idea that the land must be habitable made little sense. However, even in England there has been a movement towards placing greater responsibility for the condition of premises on the landlord. In some cases there is a statutory implied term that the premises are and will be kept fit for human habitation and that the landlord will be responsible for certain repairs. The Defective Premises Act 1972 imposes a duty of care in the landlord to those (including the tenant) injured through defects in the premises (though there is no similar legislation in Hong Kong). In Liverpool City Council v Irwin (1976) the House of Lords held that a local authority landlord liable, on the basis of an implied term in the tenants' leases, for the poor state of repair to the common parts of a high-rise block of flats which it owned.

It was emphasized in that case, as in others, that the test of whether a term is to be implied is one of necessity: is it necessary to read the term into the tenancy agreement in order to give the agreement efficacy? Such a test is arguably wide enough to read into all leases of residential premises, or at least of flats, that the premises shall be in habitable condition at the beginning of the term, if not throughout.

The arguments in favour of such a warranty are strong in built-up Hong Kong where leases have rarely had much to do with the surface of the land as opposed to the buildings put upon it. It is, however, doubtful whether Hong Kong's judges would be bold enough to imply such a term unless given a lead by judges in other common law jurisdictions or a push by the legislative council."

13. Despite the liberal view of the learned author, I do not think that the Defendant can possibly succeed with such defence. Firstly, there had been no reported case, both in Hong Kong or in England, in which the court implied a term as to habitability in a tenancy agreement involving unfurnished property, of which the Premises were one. Secondly, even for furnished letting, such implied term is only limited to the condition of the property at the beginning of the tenancy. In the present case, there is simply no allegation that the Premises were inhabitable by that time.

14. Even assuming that the judges in Hong Kong are, to quote words of the learned author, "bold enough", to imply such a covenant, how can the Defendant prove that the Plaintiff was in breach of such term at the time of his repudiation of the Tenancy Agreement? According to the Report of the SARS Expert Committee, the contents of which are not disputed, the spread of SARS in Block E was caused by a number of factors, including: (i) one of the visitors of Block E, the index patient, carried the virus to the neighbourhood; and (ii) the U-traps in the sewage systems in many of the flats in Block E had been left dry, which allowed the virus to pass from the building sewage system back to the apartments. However, all these dangers were no longer present after the expiry of the Isolation Order. The index patient no longer resided in Block E, the whole building had been disinfected, the crack found in one of the sewer vent pipe was repaired and the residents of the Building were informed about the proper use of the U-traps in their flats. In such case, this is no evidence that Block E was unfit for habitation after the expiry of the Isolation Order. This conclusion is certainly supported by fact, as no resident of Block E was infected with the disease after 15 April 2003. The last certified case was on 15 April 2003 whilst the patient was in hospital, and there is no evidence that this patient was infected with the virus after returning to Block E upon the expiry of the Isolation Order. Further, the Report by the World Health Organization on 16 May 2003 also confirmed that there was no live virus present in Amoy Garden by that time.

15. It may be arguable that Block E was, at one stage during the term of the tenancy, not fit for human habitation. However, if the Defendant were to succeed, he must be able to show that there was an implied term as to habitability throughout the term of the tenancy, the breach of which entitled him to terminate the Tenancy Agreement. But why should the court imply such a term? This certainly does not fulfill the necessity test as laid down in the case of Liverpool City Council v. Irwin, [1977] A.C. 239. Indeed, the outbreak of SARS was beyond the control of any individuals, and so one should not expect the Plaintiff to give an absolute warranty that the Premises would be safe from such virus. In England, this is in fact a trend, both by way of legislative intervention and judicial decisions, to impose harsher duty on the part of the landlord to repair a leased property, but at least, the physical condition of the property is something which is within the control of the landlord. This is very different from an absolute warranty that the premises are suitable for habitation and free of virus at all times, which are something beyond the control of the landlord.

16. I can appreciate that there was a genuine fear among the residents of Block E whether their homes were safe after the expiry of the Isolation Order, in particular the SARS outbreak was not completely under control at that time. However, fear alone did not provide the tenants with a legal justification to terminate their tenancy agreements. Hence, except with the greatest sympathy for the Defendant, I do not find that such ground of defence is arguable.

Implied covenant to repair the Premises

17. The Defendant also complains about the sign of water seepage in the partition wall between the toilet and the living room of the Premises. According to the Defendant, he first noticed the sign of seepage after he moved into the Premises. The Defendant then made a complaint to the Plaintiff, who advised him that he should take the Premises as they stood and the Plaintiff would not carry out any repair work. The Defendant made the same complaint after he returned to the Premises after the expiry of the Isolation Order, but the Plaintiff still refused to repair the wall. Hence, the Defendant claims that he was entitled to terminate the Tenancy Agreement on the ground that the Plaintiff was in breach of the implied covenant to repair the Premises.

18. The Plaintiff's case in this regard is slightly different. He claims that the sign of water seepage was already there when he purchased the Premises in 1998. After the purchase, the Plaintiff had let the Premises to two tenants and, at one stage, he himself also lived in the Premises with his family. Although there was sign of water seepage, there was actually no water seeping from the wall, and so it was not necessary for the Plaintiff to repair it. Further, the Defendant actually asked about the sign of seepage before signing the Tenancy Agreement, and so he was all along aware of such problem.

19. As this is an Order 14 application, I am prepared to accept the Defendant's factual allegations at this stage. But despite so, I do not think that it would advance the Defendant's case any further. As I see it, such defence is not open to the Defendant for a number of reasons. Firstly, the Defendant had not expressly relied on such ground to terminate the Tenancy Agreement in his letter to the Plaintiff dated 24 April 2003, and in fact, the Defendant all along relied on the outbreak of SARS as a ground to terminate the Tenancy Agreement. In such case, it is not possible for the Defendant to rely on such argument now.

20. Secondly, it is doubtful whether the court should imply such a term in the Tenancy Agreement. Indeed, the nature of an implied covenant to repair a leased property is very similar to that of an implied covenant as to habitability. The learned authors of Woodfall on Landlord and Tenant, (2003 ed.) had the following to say in respect of these covenants:

"In general, there is no implied covenant by the lessor of an unfurnished house or flat, or of land, that it is or shall be reasonably fit for habitation, occupation, or cultivation, or for any other purpose for which it is let. No covenant is implied that the lessor will do any repairs whatever. Nor is there an implied obligation that the house will endure during the term, even though fair wear and tear is excepted from the tenant's covenant to repair. A landlord is not liable in his capacity as landlord to his tenant for defects in the premises demised rendering them dangerous or unfit for occupation, nor for personal injury to the tenant caused by such defects, even though the landlord is aware of their existence. He is under no duty to warn the tenant of such defects. At common law a landlord who lets a house in a dangerous state is not liable to the tenant, or to a sub-tenant, or to the tenant's customers or guests." (at para. 13.001)

The learned authors of Hill & Redman's Law of Landlord and Tenant (2003 ed.) also said the following:

"The common law has traditionally been reluctant to imply obligations in respect of repair against a landlord where the parties had entered into a contractual relationship in which it was open to the parties to make such provision but they failed or chose not to do so. Thus, the general rule is that, in the absence of express stipulation, or of a statutory duty, the landlord is under no liability to put the demised premises into repair at the commencement of the tenancy, nor, normally, is he under any such liability during the continuance of the tenancy." (at para. [A] 6342)

There are, of course, exceptions to these general rules, but none of them is applicable here. Hence, in the absence of express stipulation in the Tenancy Agreement, I do not think that the court should imply a term requiring the Plaintiff to repair the Premises.

21. Thirdly, even if the Plaintiff were in breach of such an implied term, that does not necessary mean that the Defendant could terminate the Tenancy Agreement. It is trite law that the Defendant could have enforced the covenant by going to court to ask for specific performance, or to claim for damages resulting from breach of covenant. The Defendant might have even carried out the repair work himself and set off the costs against the rent payable (see: Woodfall on Landlord and Tenant, ibid., at para. 13-070 to 13.107 and Hill & Redman's Law of Landlord and Tenant, ibid., para. [A] 6405). However, terminating the tenancy was not an option open to him. Even if the Defendant were to have such right, it is arguable that he had waived the same by continuing to stay in the Premises after the making of the first complaint to the Plaintiff.

22. Fourthly, the Defendant only complains about the sign of water seepage which was only a cosmetic defect. There is simply no evidence that the Premises suffered any structural problem. The duty to repair on the part of the landlord, if there is one, is usually associated with the duty to repair structural defect, and there is no way for the court to imply a term which covers cosmetic defect as well.

23. By reason of the aforesaid analysis, I do not find that there is any triable issue. However, as the facts of this case are quite unusual, I also have to ask myself whether, despite the lack of triable issue, there are some other reasons there ought to be a trial, which is the second limb for granting leave to defend under O. 14. But the causes for the spreading of SARS in Amoy Garden had already been thoroughly investigated, with the result of which widely publicized, and so I wonder whether there is anything more that the Defendant can do to substantiate his case. Indeed, Mr. Bedford for the Defendant cannot tell me how further preparation time or a trial can benefit the Defendant. Hence, as the outcome of the trial would be the same, I see no point in allowing the Defendant to defend the claim.

24. I therefore grant summary judgment in favour of the Plaintiff. As the Defendant does not claim for any abatement of rent, he is liable to the Plaintiff for the rent accrued prior to the termination of the Tenancy Agreement in the sum of $15,200. Credit should be given to the rental deposit in the amount of $12,000, and so I grant final judgment in favour of the Plaintiff against the Defendant in the sum of $3,200, being the difference of the aforesaid, and interlocutory judgment for damages to be assessed.

25. I also make an order nisi that:

(i)	there be interest on the sum of $3,200 at 8% per annum from 28 June 2003 to the date hereof and thereafter at judgment rate;
(ii)	the costs of this action, including the costs of this application, be reserved to the judge or master hearing the assessment of damages; and
(iii)	there be certificate for counsel for the hearing of this summons.

The order nisi is to be made absolute 14 days after the date of the handing down of this decision.

26. Before I conclude, I should perhaps mention once again my sympathy for the Defendant in the present case. The outbreak of SARS was a tragic event. Apart from losing their love ones, many residents of Block E were living under the fear whether their homes were safe. But despite such genuine fear, it did not provide tenants with a legal justification to terminate their tenancy agreements. To hold otherwise may also be unfair on the part of the landlords, as they have to bear with all the consequences arising from such event, which was beyond their control. Perhaps, we can only hope that the people in Hong Kong do not have to face the same crisis again in the future.

27. As this case involves legal principles of some importance, I, with the consent of the parties, decide to hand down this decision in open court.