MOK YEE WAN v. TAIPAN AGENCIES LTD. AND OTHERS

Landlord and tenant - recovery of possession - forfeiture - classification of premises between Parts II and IV - different legal requirements for surrender of tenancy during its consensual term compared with during a period of statutory continuance - concurrent tenancies - statutory position of sub-tenancies - whether filing of invalid Part IV application for new tenancy activates statutory continuance provisions - whether periodic tenancy to commence on expiration of fixed tenancy may be implied depends on evidence of the real intention of both parties - mesne profits are a form of damages and a proper measure of such damages is the market rent for the relevant period which may be higher than the prior monthly contractual rent of $12,000 - Held: 1. suit premises subject to Part IV; 2. Approval of Commissioner of Rating not required to surrender of contractual tenancy; 3. application for new tenancy under Part IV could not have been entertained by Tribunal hence no period of statutory continuance arose;4. breach of tenancy gave rise to forfeiture without requirement to give any notice, 5. Both sub-tenants also in breach of statutory condition under Section 119P; 6. Orders for possession against all respondents, 7. Mesne profits at $15,000 per month until delivery up of vacant possession.

IN THE LANDS TRIBUNAL OF HONG ICONG

Application No. L.T. 1626 of 1985

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JUDGMENT

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1. The applicant (hereafter called "the landlady") is the owner of domestic premises situate at 4th Floor, Block 28, Baguio Villa, 550 Victoria Road, Hong Kong. In these proceedings the landlady seeks vacant possession against all respondents and an order for mesne profits against the 1st respondent (hereafter called "Taipan") for the period from 1st October 1985 until the delivery up of vacant possession. The orders sought are unexceptional but the proceedings have been complicated by the involved factual background reflected in part by the re-re-amended notice of application.

2. The relationship between some of the parties goes back to 1981. On 9th September 1981 the landlady let the suit premises to the 2nd respondent (hereafter called "Pacific") for a period of 3 years from 1st October 1981 at a rent of $18,000 per month. The tenancy agreement permitted subletting. Under the tenancy agreement the landlady appointed Taipan her manager of the suit premises and all rent payable by the Pacific was to be paid to the Taipan as manager. I record that Mr. Thomas Young was a director of both Taipan and Pacific. This first tenancy was a contractual tenancy subject to Part II of the Landlord and Tenant (Consolidation) Ordinance.

3. On 10th August 1983 Mr. Young signed a letter on behalf of Taipan addressed to the solicitors for the landlady. This letter is of twofold importance. First the letter records that Taipan, I infer in its capacity as the landlady's manager, has accepted the surrender by Pacific of the first tenancy agreement from 30th September 1983. Secondly, Taipan gave notice that it was terminating the management agreement from 30th September 1983.

4. On 30th September 1983 the landlady entered into a now tenancy agreement in respect of the same suit premises but direct to its former manager Taipan. The tenancy was for a period of 2 years from 1st October 1983 at a rent of $12,000 per month. This tenancy agreement also permitted subletting. It is undisputed that Taipan orally sub-let the whole of the suit premises to the Pacific. Pacific in turn has sublet the whole of the suit premises to 3rd respondent (hereafter called "the German Consulate") at a monthly rent of $22,000.

5. The landlady submits that as the new tenancy, under which is founded the present application, was entered into after 10th June 1983, it falls into Part IV of the Landlord and Tenant (Consolidation) Ordinance pursuant to Section 50(6) (o). The landlady claims that in breach of Clauses 1 and 2(a) of the tenancy agreement, Taipan has persistently failed to pay rent on due date in spite of repeated reminders and demands. Warning letters were also sent to Taipan purportedly pursuant to Section 119E(1)(d) of the Ordinance. Although payments of rent have invariably been late it is common ground that Taipan has up to the hearing of this application made monthly payments at the rate of $12,000. Some of these payments were made under a interim order obtained in other proceedings - L.T. No. 1100/85. However, the landlady submits that the tenancy was terminated on 30th September 1965 since when mesne profits and not rent have been payable. Further that the mesne profits payable exceed the prior rent of $12,000 per month so a balance is still due by the 1st respondent. I will return to the mesne profit issue after I have disposed of a series of contrary submissions advanced by the first three named parties.

6. The landlady bases the termination of the tenancy, as at 30th September 1985, on the service in terms of Section 119 (1), of Form CR 101 on 27th March 1985 which stipulated that the tenancy would be terminated on 30th September 1985. On 16th September 1985 the landlady commenced proceedings in this Tribunal for recovery of possession and arrears of rent - L.T. No. 1077/85. On 20th September 1985 all arrears were paid up and the application was discontinued.

7. Two days earlier, on 18th September 1985 Taipan applied to the Lands Tribunal pursuant to Section 117 for a new tenancy -L.T. No. 1100/85. The landlady filed a notice of opposition on 28th September 1985. The notice of opposition included the ground that Taipan had failed to serve Form 102 in compliance with the Ordinance and accordingly pursuant to Section 119D(2) the application for a new tenancy could not be entertained. At an interlocutory stage an order for mesne profits was made in favour of the landlady. However, before the application proceeded to a substantive hearing it was on 9th December 1985 withdrawn by Taipan.

8. Shortly afterwards on 31st December 1985 the present application was commenced. The result of various amendments to the application is that the landlady now founds her application to recover possession in common law. Unlike Parts I and II of the Ordinance, under Part IV, Section 117(2) expressly preserves parties common law rights including a landlord's right to terminate a tenancy by forfeiture. The landlady submits that the suit premises are subject to Part IV and a right of forfeiture arises whenever a tenant is in default. The tenant has been in default originally arising from non-payment and subsequently for late payment of rent. Further, the contractual tenancy expired on 30th September 1985 and as Taipan failed to serve Form 102 in response to Fern 101, Taipan has lost the right to any statutory security of tenure protection it may otherwise have enjoyed under Part IV. The evidence of a continued failure to pay rent on due date or within 15 days thereafter is overwhelming. I find that the applicant has established a breach by Taipan of Clauses 1 and 2(a) of the tenancy agreement which gives rise to the right of forfeiture in terms of Clause 4 of the tenancy agreement.

9. The position of the sub-tenancies, it was submitted, is covered by Section 119P. The evidence for the landlady was that the she only became aware of the oral sub-tenancy to Pacific in December 1985 and the further sub-tenancy to the German Consulate in February 1986. Both those dates were after the service of Form 101 and Section 119P(2) did not apply. The relevant previsions were Section 119P(8) and (8A). Under Section 119P(8) upon termination of the tenancy from the landlady to Taipan, that tenancy would continue between the landlady and Pacific. However, that tenancy would then be subject to the statutory condition imposed by Section 119P(8A) that any subletting without the written permission of the landlady would constitute a breach giving rise to forfeiture. The subletting from Pacific to the German Consulate, it was submitted, is therefore caught by that statutory condition and the applicant is also entitled to orders for possession against Pacific and the German Consulate.

10. Taipan and Pacific submitted that the landlady was not entitled to possession and the other orders sought for a number of reasons. First, it was submitted, the suit premises were subject to Part II until 18th December 1985 when they became Part IV premises upon the rateable value limitation, imposed en Part II premises by Section 50(6)(m) being lowered from $35,000 to $30,000. Taipan and Pacific accept that rateable value is only one of several alternative criteria which may have the effect of moving Part II premises into Part N. However, as I understood their submission, if the Part II first tenancy was not surrendered and concurrent tenancies came into existence when the second tenancy was granted, the first tenancy was not affected by Section 50(6)(o). The tenancy remained under Part II until the change in rateable values made it subject to Part IV pursuant to Section 50(6)(m).

11. On the basis of that proposition Taipan and Pacific then developed an intricate submission. If 18th December 1985 was the relevant date up to which the first tenancy was still in Part II, the new tenancy agreement on 1st October 1983 to Taipan was granted when the prior tenancy to Pacific was still current. In that event concurrent tenancies would have existed. I was referred to 1 'Woodfall's Law of Landlord and Tenant' (28th Edn) 1-0611. I accept that where concurrent tenancies exist the new grant by the landlord, operates for the concurrent period, as an assignment by the landlord to the new tenant of the reversion, during the period that the two terms run concurrently. In that event, it was submitted the serving of the Part IV Form CR 101 notice of termination was invalid, for the premises would still have been subject to Part II.

12. Taipan and Pacific were prepared to recognise at least one difficulty which faced them, namely the apparent surrender of the first tenancy as at 30th September 1983. This difficulty they sought to meet by the submission that under Section 52A the surrender was of "no effect" because it was not approved by the Commissioner of Rating and Valuation. The short answer to that submission is that Section 52A only applies to the surrender of statutorily continued tenancies. The Commissioner's approval is not required to surrenders which are agreed to during the consensual term of the contractual tenancy as distinct from the subsequent period when the tenancy may be continued by statute.

13. I am aware that in Hang Seng School of Commerce v. Maunsell Consultants Asia (1985) HKLR 134, 140 Kempster JA makes passing reference to the provision for express surrender in Section 54A but no where is it suggested that the section also applies to surrenders which occur before the contractual term has expired. All such a surrender by a tenant requires is the consent of the landlady unless there is a contractual provision which waives such consent. In this instance that consent was necessary and was confirmed in writing, if paradoxically as it now turns out, on behalf of the landlady by Taipan, her then manager. I hold that the first tenancy, which I accept was subject to Part II, was surrendered on 30th September 1983. The new tenancy granted on 1st October 1983 from its inception was subject to Part IV by virtue of Section 50(6)(o). In terms of that provision, as anew tenancy granted after 10th June 1983, it did not have to wait, as the prior tenancy if unsurrendered would have had to wait, until 19th December 1985, to become subject to Part IV.

14. The dealings between the parties as landlady and tenant are for the purposes of the instant application therefore governed by Part IV and not by Part II. In that event Taipan and Pacific advanced further alternative submissions. They accepted for the purpose of these submissions that the new tenancy from the landlady to Taipan granted on let October 1983 had throughout been subject to Part IV. Under Part IV, it was submitted, the effect of Taipan applying for a new tenancy pursuant to Section 117 necessarily invoked the provisions of Section 119N. In Taipan's and Pacific's view the contractual tenancy was continued beyond 30th September 1985 under Section 119N to a later date, namely 9th March 1986, being 3 months after the application for a new tenancy was withdrawn. If the tenancy was so continued then the landlady had acted prematurely in commencing the instant application on 31st December 1985 as the tenancy was at that date still continued and protected by statute. The application on that ground alone, it was submitted, should be dismissed.

15. The effect of Section 119N was considered by the Tribunal in Towers Perrin Forster & Crosby Inc. v. Suvindra Ltd. L. T. No. 57/82 and there is no need to repeat here the details of the substantial periods of statutory continuance which can arise under the Section. Where an application is withdrawn I accept that the statutory 3 month period of continuance runs from the date of the withdrawal of the application. An application may be withdrawn unilaterally. Neither the consent of the Tribunal or the other party is required - Rule 25 lands Tribunal Rules Cap. 17. An opposing party's relief is limited to costs.

16. The landlady's response was that there had never been a valid application to the lands Tribunal for a new tenancy under Section 117. Accordingly, no extension of the contractual tenancy arose under Section 119N. This submission was founded on Section 119D which, inter alia, provides that the Tribunal shall not entertain an application for a new tenancy, if it is made more than 2 months after the landlady gives notice under Section 119. In fact the landlady gave notice pursuant to Section 119 by Form CR 101 on 27th March 1985. Taipan's application for a new tenancy on 18th September 1985 was clearly given much longer than 2 months later. However, the landlady did file a notice of opposition to that application and obtained an interim order for mesne profits. Can the Section 119D time limits be waived and, if so, do those actions of the landlady amount to waiver?

17. I had earlier accepted the view of the majority in the House of Lords in Kammins Ballrooms Co. Ltd. v. Zenith Investments (Torquay) Ltd. (1971) AC 850, which had considered the equivalent English provision, namely Section 29 of the Landlord and Tenant Act 1954, that the time limits are merely procedural and may be waived. The House of Lords was concerned with a premature and not a late application. The application was opposed on the ground that it was made at the wrong time, was a complete nullity and no agreement or waiver could give a Court jurisdiction. The House of Lords by a majority of 4 to 1 held that the Section does not go to jurisdiction but is only procedural and may be waived. On this issue, Lord Reid was a member of the majority and stated at pages 859, 860:

On the facts the House of Lords held by a majority of 3 to 2 that there had been no waiver.

18. If the House of Lords judgment is applied to our Section 119D the time limits are procedural and may be waived. However, while the landlady took a step in the proceedings by filing a notice of opposition, she expressly pleaded Section 119D(2) and the failure of Taipan to serve Form CR 102. If the time limits under Section 119D can, as a matter of law, be waived I find as a fact that they have not been waived in the present application.

19. However, recently Section 119D came before the Court of Appeal in Sin Hua Trust Savings & Commercial Bank Ltd. v. Ng Yee May CA No. 137/85 The Court of Appeal considered the different question whether the time limitation under Section 119D(3)(a)(iii) could be enlarged by the Tribunal pursuant to Section 10(2)(d) of the Lands Tribunal Ordinance, Cap. 17. The Court of Appeal adopted a strict literal interpretation of both sections, and held that the enlargement provisions were simply not relevant to Section 119D(3)(a)(iii). Accordingly a tenant's failure to apply for a new tenancy until after the current tenancy had terminated, was fatal. Huggins V. P. expressly left open whether Section 10(2)(d) might enable the Tribunal to enlarge the time limited under Section 119D(3)(a)(i) and (ii).

20. The present purported application was made on 18th September 1985 just before the tenancy terminated on 30th September 1985 so Section 119D(3)(a)(iii) is inapplicable. The relevant provision is Section 119D(3)(a)(i) which was not considered by the Court of Appeal. Nor did the Court of Appeal have to consider the question of waiver. It also appears that the House of Lords judgment was not cited to the Court of Appeal but, of course, it was not relevant to the narrow issue before the Court. However, the Court of Appeal's judgment is open to the inference that it adopted a much stricter approach than the House of Lords and would be unlikely to hold that the time limits could be waived. This would not affect my ultimate conclusion for I have already found as a fact that there was no waiver.

21. Equally if, as a matter of law, time under Section 119D(3)(a)(i) and (ii) may be enlarged pursuant to Section 10(2)(d) that also would not on the facts affect the present dispute. At no stage, did Taipan apply for the time limit under Section 119D(3)(a)(i) to be enlarged. As Taipan has withdrawn the application for a new tenancy it would now in law and in fact be impossible for it even to attempt to apply for time to be enlarged. I hold that no application was made by Taipan under Section 117 which the Tribunal could lawfully have entertained. The Lands Tribunal was deprived of the opportunity of making any order to that effect as before any substantive hearing was reached the application was withdrawn.

22. I further hold that as the Tribunal could not have entertained the application under Section 117, there was no interim continuance of the contractual tenancy under Section 119N. To hold otherwise would enable a tenant without merit to exploit the provisions of Part N by obtaining a lawful extension of his right to occupy domestic premises. On this approach a tenant could file an application for a new tenancy which, as a matter of law, could not be entertained yet by withdrawing before the substantive hearing, obtain the advantage of interim continuance under Section 119N. I am satisfied that is a superficial and erroneous interpretation of the relevant sections of Part IV. I hold that Section 119N only continues a contractual tenancy where an application has been made under Section 117 which is capable of being entertained by the Tribunal.

23. Taipan further submitted that if the Lands Tribunal had no jurisdiction to entertain the application for new tenancy, possession had continued under a periodic tenancy after the contractual tenancy terminated on 30th September 1985. In that event notice to terminate the periodic tenancy after 30th September 1985 was necessary and no notice had been given. On this submission the proceedings were defective and should be dismissed. This submission raises the complex question of notice in relation to premises subject to the Landlord and Tenant (Consolidation) Ordinance.

24. The position in regard to notice must also now take into account the relatively new provisions of Section 58 of the Conveyancing and Property Ordinance, Cap. 219 which came into force on 1st November 1984. Section 58(14) cryptically provides:

"(14) This section shall have effect subject to the Landlord and Tenant (Consolidation) Ordinance ...

 

Unfortunately notice requirements vary considerably depending on which Part of the latter Ordinance is applicable. Under Part IV where an application for a new tenancy is made, the prescribed statutory notices apply and Section 58 does not apply. However Part IV, unlike Parts I and II, preserves common law forfeiture and other rights - Section 117(2. Accordingly where common law rights are exercised in respect of Part IV premises, common law and general statutory notice provisions other than those contained in Part V apply. The position may be contrasted with Part II where no notice is required to terminate a statutory continued tenancy. The necessity for notice under Part II only arises in a minority of cases where a periodic tenancy exists. In that event notice is required to terminate the periodic tenancy before it can be continued by statute - Ngai Sau Ying v. Henry Chue Kwok-keung (No. 2) (1982) HKLR 256. However, in the more common case of a Part II fixed tenancy no notice is required.

25. The notice requirements under Part IV appear to be threefold. First, where a tenant applies for a new tenancy the prescribed Part IV notices must be given. If a landlady applies to recover possession on the ground of forfeiture, Section 58 of the Conveyancing and Property Law Ordinance applies. As a result the second alternative is that if the forfeiture ground is nonpayment of rent and a written tenancy exists between the parties which expressly excludes the necessity first to make demand for payment, no notice is necessary. Thirdly in all other cases notice must first be given and the time limited thereunder expire, before application may be made to the Lands Tribunal.

26. Returning to Taipan's submission I accept that a Part IV contractual tenancy for a fixed term may on expiration, if the parties agree, be followed by a periodic tenancy. Indeed, that may even occur under the more stringent provisions of Part II without any statutory continuance intervening - Hang Seng School of Commerce v. Maunsell Consultants Asia (supra). The difficulty Taipan faces is simply that on the facts no periodic tenancy arises. The landlady gave a Part IV notice before the expiration of the contractual fixed term tenancy, that it was to terminate on its date of expirations, namely 30th September 1985. There is no express evidence that the parties agreed that a periodic tenancy should follow. All the evidence is to the contrary. The first lands Tribunal application by the landlady L. T. No. 1077/85 as for rent due for the final months under the contractual fixed term tenancy. The landlady filed a notice of opposition to Taipan's application for a new tenancy commencing on 1st October 1985. The interim order for mesne profits obtained before the application was withdrawn does not imply that the parties agreed to the creation of a periodic tenancy. Whether a periodic tenancy is to be implied depends on the real intention of both parties Marcroft Wagons Ltd. v. Smith (1951) 2 KB 496r 506. The acceptance of payment under the interim order is fully explained by reasons other than the creation of a periodic tenancy. The order was obtained at a time when the possibility that the tenant might be entitled to remain under Section 119N had not been judicially determined. Taipan never sought a periodic tenancy. The landlady's pleadings consistently contended that after 30th September 1985 Taipan ceased to have the status of a tenant. At most Taipan was holding over after the expiration of the contractual tenancy. There being no periodic tenancy no Section 58 notice was necessary. There simply was no existing tenancy to determine. Applying the law to the foregoing findings of fact the landlady is entitled to orders for possession against all three respondents.

27. The landlady also applies for an order against Taipan only for mesne profits from 1st October 1985 until vacant possession is delivered up. Mesne profits are, of course, a form of damages and a proper measure of damages is the market rent of the suit premises during the period for which mesne profits are claimed. In practice many landlords are content to apply for mesne profits at the same rate as the prior rent which may often be less than the market rent. In the present case the landlady has asked for an order at the rate of $22,000 being the rent paid to Pacific by the German Consulate. In objecting to that rate Mr. Young claimed that Pacific's obligations as to repair and otherwise, were greater than the obligations of the landlady to Taipan. The landlady also called Mr. Simon M. Lai, Chartered Surveyor, to give expert evidence on market rent and he produced a written sport - Exhibit A33. In Mr. Lai's opinion the market rent for the suit premises for the relevant period was $15,000 per month. In his opinion the rent to the German Consulate of $22,000 was a very good rent. Mr. Young accepted that $15,000 was consistent with Taipan's understanding of relevant market rents.

28. In the circumstances it would be unsafe to rely on the isolated, if actual rent, passing between the German Consulate and Pacific as the market rent. I prefer the expert evidence of the landlady's own chartered surveyor that the market rent is $15,000. I propose to award mesne profits at that rate.

29. I therefore make the following orders:

30. The re-re-amended notice of application for the first time sought an order for costs. Liberty is reserved to the applicant if it is sought further to pursue that matter.

31. DATED this 24th day of April, 1986.