SUPER CENTURY INVESTMENTS LTD. v. ADVANCE LTD. AND ANOTHERS

HCA 73/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 73 OF 2002

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J U D G M E N T

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Backgrounds

1. The Plaintiff in this action was the landlord of 12th floor and 20th floor, No. 3 Cameron Road, Kowloon ("the Premises"). By two tenancy agreements ("the Agreements"), both dated 20 November 1999 (one for each floor), the Premises were let to the 1st Defendant for commercial purpose. The rent was $10,740 for each floor exclusive of management fee and rates. Under the Agreements, the term of the tenancy for the 12th floor would run up to 18 July 2002 whilst that for the 20th floor would run up to 4 August 2002. The 1st Defendant also agreed to pay management fee. The 2nd Defendant acted as guarantor in respect of the liability of the 1st Defendant under the Agreements.

2. Starting from 20 September 2001, the 1st Defendant defaulted in the payment of rent. They were also in default in the payment of management fees since 20 August 2001 for 12th floor and since 20 October 2001 for 20th floor.

3. The solicitors for the Plaintiff sent letters of demand to the two Defendants on 20 December 2001. On 24 December 2001, the 1st Defendant wrote back to the solicitors for the Plaintiff and said as follows,

"We intent [sic.] to settle this matter in amiable way, though we are suffering from financial hiccup of which should be over within a reasonable period of time. And in order to strengthen our intention for settlement, we enclose a cheque in payment of one month's rental for the 12th floor.

All action, we would suggest, should better be held for the time being."

4. The cheque sent by the 1st Defendant was a cheque issued by the 2nd Defendant in the sum of $10,740. That, as stated in the letter, was for one month's rent regarding the 12th floor. Not surprisingly, the Plaintiff did not find that to be satisfactory. On 8 January 2002, the Plaintiff issued the writ in the present action. By then, the total amount of rents and management fees in arrears accumulated to $99,500 after giving credit to the Defendants in respect of the sum of $10,740 paid by cheque in December.

5. Although there are provisions for re-entry in the Agreements in the event of, inter alia, non-payment of rent or management fees for more than 7 days (Clause 4(a) in the Agreements), the Plaintiff did not rely on those in the Statement of Claim. The Plaintiff's case is pleaded as follows in Paragraph 11 of the Statement of Claim,

"By reason of the Defendant's failure to pay the arrears of rent and management fees of the 1st and 2nd Premises ... the Defendant has wrongfully repudiated the 1st and 2nd tenancy agreements by evincing an intention no longer to be bound by the respective terms of the 1st and 2nd tenancy agreements, such repudiation has been accepted by the Plaintiff. The Plaintiff is therefore entitled to recover possession ..."

6. In the prayers, the Plaintiff sought possession of the Premises, liquidated sums representing arrears accrued up to the issue of writ and mesne profits and management fees up to possession. In addition, the Plaintiff also asked for damages for breach of the Agreements.

7. On 23 January 2002, the Defendants issued a summons seeking a stay of the action without specifying any grounds. That application was dismissed on 31 January 2002.

8. On 1 March 2002, the Defendants filed a Defence. The main points taken by the Defendants were as follows,

(a) the Defendants denied there was repudiation of the Agreements by the 1st Defendant;

(b) the Defendants alleged that the Plaintiff failed to discharge its duty to mitigate.

It is difficult to see how (b) could be arguable given the fact that the 1st Defendant remains in occupation of the Premises until today.

9. On 8 March 2002, the Plaintiff issued an Order 14 summons. On the same day, the Plaintiff also issued an Order 29 summons seeking interim payment. On 23 March 2002, the Defendants filed an affirmation of the 2nd Defendant. In that affirmation, the Defendants conceded liabilities relating to the monetary claims. She agreed to final judgment being entered against the 1st Defendant. She however denied that the 1st Defendant had repudiated the Agreements.

Decisions of the Master

10. The two summonses were heard by the Master on 25 March 2002. The Master granted final judgment to the Plaintiff regarding possession, arrears of rent and management fees and mesne profit plus management fees up to possession. In addition, interlocutory judgment was entered for damages to be assessed. Regarding the Order 29 summons, it became otiose and the Master granted leave to the Plaintiff to withdraw the same. Although a stay of 14 days was granted by the Master regarding the order for possession, at that stage neither party drew the attention of the court to Section 21F(3) of the High Court Ordinance. That section provided for mandatory relief to tenant in all cases in which a landlord is enforcing against his tenant a right of re-entry or forfeiture for non-payment of rent.

11. At the hearing of this appeal, it was common ground that Section 21F(3) is applicable although the Plaintiff did not plead forfeiture as such. Mr Wong, solicitor for the Plaintiff, accepted that the Plaintiff was enforcing a right of re-entry. That being the case, the relief under Section 21F(3) must be given. The Master did not have any discretion to give any relief less than 4 weeks to the 1st Defendant for payment of all the rent in arrear and costs of the action. In this connection, there have been a number of authorities in England as well as Hong Kong, see Spurgeons Homes v Gentles [1971] 1 WLR 1514; Bullen v Tam Yee Ni [1998] 2 HKC207; Tindixs Services Ltd. v Cheng Wing Chun [1998] 4 HKC 194; Shafford Company Ltd. v Golden Marble Limited, HCA 2264 of 2001, 16 March 2002, Chung J.

12. It is the duty of every advocate, whether counsel or solicitor, to draw the court's attention to the relevant statutes and case law. As I said, the parties failed in that regard at the hearing on 25 March 2002. After the hearing, this mistake was discovered by the solicitor for the Defendants. The point was brought to the attention of the Master and the matter was restored before the Master on 2 May 2002. Since the order of 25 March 2002 was not perfected, the Master had the power to re-open the matter. This was what he did on 2 May 2002. After hearing parties, the learned Master varied his earlier order regarding possession as follows,

"Vacant possession of [the Premises] be given to the Plaintiff by the 1st Defendant at the expiration on 29 May 2002 unless within that period, the Defendants pay into court all sums in arrears and a sum of HK$40,000 on account of the costs of this action."

13. When the orders of the Master were drawn up and sealed, they were drawn up and sealed as two orders, one for 25 March 2002 and another one for 2 May 2002. In my judgment, this is not correct. Given that the Master varied his earlier order before the perfecting of the same, there should only be one order. However, since the matter came before me with two orders, to avoid any unnecessary complications, the Defendants sought leave to appeal out of time in respect of the order of 25 March 2002 and I have granted leave accordingly. Although the hearing of the appeal was completed on 3 June 2002, further written submissions were filed by the parties with the leave of the court regarding certain authorities drawn to their attention by the court.

The claims other than possession

14. At the hearing of the appeal, Mr Tracy, counsel for the Defendants repeated the concession of the Defendants as to the liabilities for rent. In his written submissions, he however confined that to rent accrued up to the alleged acceptance of repudiation. He did not explain why the concession should be so limited. In the affirmation of the 2nd Defendant, the admission was clearly admission as to liabilities for rent, management fees and mesne profits up to the date of delivery of possession. In Paragraph 5 of that affirmation, the 2nd Defendant made the admission by reference to Paragraph 2(a) to (d) of the Order 14 summons of 8 March 2002. It was only on that basis that she could invite the court not to make any order under the Order 29 summons in Paragraph 7 of her affirmation. As mentioned, the Plaintiff took up that invitation at the hearing of 25 March 2002 and the court acted accordingly. The Defendants did not make any application for the withdrawal of such concession or admission at the appeal. In any event, I do not see any justification to allow the Defendants to make such withdrawal given the change of position of the Plaintiff in respect of the Order 29 summons.

15. Further, as far as the monetary claims (other than the one for repudiation damages) are concerned, Mr Tracy only raised substantive arguments regarding the liabilities of the 2nd Defendant. The first point he made was that the Plaintiff did not plead that written request was given to her in the Statement of Claim. This is purely a pleading point because as mentioned in Paragraph 3 above, letter of demand was written to the 2nd Defendant. Mr Tracy was incorrect when he said that the demand against the 2nd Defendant has not been pleaded. It was pleaded in Paragraph 13 of the Statement of Claim.

16. The next point he made was that the guarantees of the 2nd Defendant applied only to the 1st Defendant's default during the subsistence of the Agreements. Hence, the 2nd Defendant would not be liable to the Plaintiff regarding the mesne profits and management fees after the acceptance of repudiation. The following are the relevant provisions in the guarantees,

"1. If the Tenant shall make default in the payment of the rent for the space of seven days or more I will upon a written request by you pay you the rent which shall be so in arrears.

2. If the Tenant shall make default in the performance and/or observance of any of the provisions on its part contained in the tenancy agreement I will pay you all losses damages expenses and costs which you shall be entitled to recover by reason of such default to the extent to which you shall be unable to recover them from the Tenant.

3. This guarantee shall continue only for so long as the tenancy created by the said tenancy agreement shall subsist and extend to the acts and defaults of the Tenant during that period ..."

17. Mr Tracy laid emphasis on Clause 3 whilst Mr Wong, solicitor for the Plaintiff argued that liabilities of the 1st Defendant for damages after acceptance of repudiation were covered by Clause 2. In my judgment, such liabilities do fall within the expression "damages expenses and costs which [the Plaintiff] shall be entitled to recover by reason of such default". In other words, if the 1st Defendant repudiated the Agreements, the damages that the Plaintiff could recover by acceptance of such repudiation are within the scope of Clause 2. Mr Tracy submitted that Clause 2 should be read subject to Clause 3. I do not think there is any conflict between my construction of Clause 2 and the wordings in Clause 3. The liabilities of the 1st Defendant for repudiation damages flowed from its repudiation that occurred during the subsistence of the Agreements. Hence, the liabilities were incurred and the relevant acts of default were committed by the 1st Defendant during the subsistence of the Agreements. The act of repudiation transformed the primary obligation of the 1st Defendant to pay rent into the secondary obligation to pay damages including damages for the unexpired term of the tenancies (see Photo Production v Securicor Ltd. [1980] AC 827 at p. 848-9).

18. In the present context, I do not think it matters that part of the damages were awarded by way of mesne profit. Such mesne profit in fact overlapped with the repudiation damages recoverable by the Plaintiff. It arose from the continued occupation of the Premises by the 1st Defendant after the acceptance of repudiation. But if mesne profit was not awarded, repudiation damages in the same amount could be awarded to the Plaintiff for the same period. I fail to see why the 2nd Defendant should be in a better position because the 1st Defendant, instead of moving out of the Premises after the acceptance of the repudiation, continued to occupy the Premises wrongfully. On the other hand, if there were no repudiation, the 1st Defendant would be occupying the Premises under the Agreements. Up to now, notwithstanding the order of the Master, the 1st Defendant remains in possession of the Premises. The 2nd Defendant is therefore liable jointly and severally with the 1st Defendant for rent and management fees or damages in the same amount during the post-writ period in any event.

Repudiation

19. It is common ground that it is now settled law in Hong Kong that the doctrine of repudiation is as applicable to tenancies as other contracts. The central issue in the appeal is whether there was any repudiation on the part of the 1st Defendant. Although he attempted to argue otherwise in his written submissions, at the hearing before me Mr Tracy accepted that non-payment of rent in an appropriate case could constitute repudiation. For authorities supporting this proposition, see Progressive Mailing House v Tabali Proprietary Ltd. (1985) 157 CLR 17; Ripka Pty. Ltd. v Maggiore Bakeries [1984] VR 629; Sichant Investments Ltd. v Wong Kam Kei, HCA No. 3430 of 1994, 19 December 1995, Waung J. Abandonment of the property by the tenant is not a prerequisite for repudiation. In Progressive Mailing House v Tabali Proprietary Ltd. [1985] 157 CLR 17, Mason J specifically rejected a submission to the contrary at p. 34.

20. On the undisputed facts of the present case as set out in Paragraphs 2 to 4 above, is there any arguable defence that the 1st Defendant did not commit any repudiatory breach of the Agreements? Mr Tracy argued that the 1st Defendant was only unable to pay the rent and management fees because of economic downturn and this did not amount to repudiation. He said that the evidence showed that the Defendants wished to keep the tenancies and hence, there was no intention to repudiate. He drew a distinction between a blank refusal to pay rent and the inability to pay on in the present case. He suggested that the 1st Defendant was only asking for time to pay.

21. Mr Tracy relied on Hop Woo Cheung Enterprises v Intergroup Industries Ltd. [1982] HKC 436 to support his aforesaid arguments. In that case, at p. 441E to I Barnes J said,

"The only wrongful conduct alleged against the tenant before the tenancy was forfeited is the failure to pay two instalments of rent. Did that failure following 24 punctual payments evince an intention not to continue to perform its part of the contract? The failure was not accompanied by an abandonment of possession nor by a breach of any other of the tenant's covenants. I do not mean to suggest that a failure to comply with the terms of a covenant to pay rent could never be indicative of an intention 'not to perform the contract'. The modern approach to leases emphasizes the contractual rather than the 'estate' element of the arrangement. Rent is not now seen as 'something issuing out of the land' but as a contractual obligation assumed by the tenant. If, viewed as a contract, the arrangement showed that the only benefit the landlord would receive was the rent the tenant agreed to pay, then, failure to pay even though unaccompanied by an abandonment of possession might be indicative of a repudiatory intention on the part of the tenant."

Pausing here, it is quite clear that His Lordship accepted that non-payment of rent could, in appropriate circumstances, even without abandonment of possession, be regarded as repudiation. On the facts of the case, the conclusion of Barnes J was as follows,

"But, in this case, even if one takes the view that the receipt of rent was the only benefit the landlord received under the agreement and that the payment of it was the basic obligation undertaken by the tenant, the failure to pay punctually the two instalments of rent did not amount to a repudiation."

22. As submitted by Mr Wong, the facts of that case were rather unusual. The landlord had commenced two actions successively. In the first action, it did not claim that there was repudiation on the part of the tenant. It only sued for possession and arrears of rent and mesne profit. Vacant possession was delivered by the tenant subsequently with part payment of the amount due and a request of the balance be set off from the deposit which was equal to two months' rent. Then the landlord started a second action asking for repudiation damages.

23. A number of features distinguished that case from the present one. The tenant had been paying rent punctually for 24 months and the rental deposit was equivalent to the amount in arrears. That was a very different situation from the position of the 1st Defendant. By January 2002, the 1st Defendant was in default for 4 months and the Plaintiff had already issued demand through solicitors including a threat of proceedings for possession. Despite that the 1st Defendant could only tender payment of one month's rent for one of the Premises. It also intimated in its reply that the company was having financial difficulties and there was no definite time frame offered for payment.

24. I do not read Hop Woo Cheung as an authority for the proposition that there could not be repudiation if the tenant is merely unable to pay. More to the point is the Australian case of Shevill v Builders Licensing Board [1982] 149 CLR 620. In that case, the lease was for three years starting from 7 March 1976. The lessee was constantly late in paying rent. It was experiencing financial difficulty since December 1976 (see p. 631). Cheques were dishonoured. From April 1977 to August 1977, rental payments were always in arrears. Arrangements were agreed in May 1977 to ensure arrears in rent were paid. The largest outstanding balance occurred in June. Afterwards, there were some partial payments reducing the balance. On 3 August 1977, the landlord issued a writ claiming for possession. At that time, two months' rent remained unpaid. (see p. 624-5). The evidence did not show that the rent would not be paid and in the past rent had rarely been more than two months in arrears (see p. 630). On the contrary, the evidence revealed serious and consistent effort on the part of the lessee to meet its obligations (see p. 634). All the arrears were paid before judgment (see p. 630). Possession was yielded up by the lessee in October 1977 pursuant to an order. The landlord also claimed repudiation damages in respect of loss of rental income for the remainder of the term (with credit given for rent actually received). The High Court of Australia held that on the facts there was no repudiation on the part of the lessee. It was stressed that repudiation is a serious matter and is not to be lightly found or inferred.

25. At p. 625-7, Gibbs CJ observed that there were three situations under which a contract would be regarded as repudiated by a party,

(a) if one party renounces his liabilities under it - if he evinces an intention no longer to be bound by the contract or shows that he intends to fulfill the contract only in a manner substantially inconsistent with his obligations and not in any other way;

(b) if one party, although wishing to perform the contract, proves himself unable to do so, and the breach goes so much to the root of the contract that it makes further commercial performance of the contract impossible;

(c) if there has been a breach of a fundamental or essential term of the contract.

26. It seems that arguments in Shevill focused on the third ground. The first ground was obviously not applicable. The second ground was ruled out on the evidence (see p. 630, 633, 634). On the third ground, Gibbs CJ said at p. 627,

"It is clear that a covenant to pay rent in advance at specified times would not, without more, be a fundamental or essential term having the effect that any failure, however slight, to make payment at the specified times would entitle the lessor to terminate the lease."

27. With greatest respect, this must be right. One can hardly imagine the law allowing a landlord to claim that a tenant is in repudiation merely because of a slight delay in payment of rent. Plainly, the term as to payment of rent cannot be a fundamental term. However, it does not mean that non-payment of rent can never be relied upon as an act of repudiation. It depends on the circumstances. If the circumstances were such that the non-payment makes the further commercial performance of the tenancy agreement impossible, that could be repudiation on the second ground.

28. This was what happened in the case of Ripka Pty Ltd v Maggiore Bakeries Pty Ltd. [1984] VR 629. The tenant in that case paid about half of the rent in an eight months period and rates, taxes and stamp duty remained unpaid. There were repeated statements by the tenant that it was unable to pay the rent due and other charges. Gray J concluded,

"In this case, the massive defaults in rent and other payments, coupled with a stated inability to pay, does, in my opinion, evidence an inability to perform the contract. Furthermore, when one has regard to the lessor's obligations to its financiers, it can be said that the default goes so much to the root of the contract that it makes further commercial performance of the contract impossible."

29. Mr Tracy pointed out that in that case, the landlord had obtained finance in order to construct and fit out the Premises and had no source of income other than the rent to service the loan. Whilst Gray J did refer to the landlord's obligation to the financier, I do not think this was a crucial matter although it should be taken into account. There was nothing in the judgment to suggest that the tenant was told about the landlord's predicament either at the time of the lease or at the time of breach. As I see it, the ultimate question is whether the breach is of such a magnitude that it shows the further performance of the tenancy agreement was commercially impossible. If the answer were in the affirmative, the breach would go to the root of the contract.

30. The other case which came before the High Court of Australia was Progressive Mailing House v Tabali [1985] 157 CLR 17. The lessee in that case stopped payment of rent on a pretext that was found by the court to be baseless. The arrears ran from June to October 1979. The lessee persisted in withholding rent even after the solicitors for the lessor warned them of the consequence. In October 1979, the lessor commenced action for possession and sought repudiation damages on top of arrears of rent. The High Court held that the lessee was liable for repudiation damages. In the judgment, there were references to both fundamental breach (viz. ground (b) in Paragraph 25 above) and repudiation in the sense as per ground (a), viz. persistence in carrying out the contract in a way substantially inconsistent with the terms of the lease (see p. 37, 38, 40, 55 and 56). It is important to note that they led to the same results: the innocent party was entitled to accept the breach and terminate the contract and sue for repudiation damages. Further, the court held that the three grounds of termination set out in Paragraph 25 above could exist concurrently and a lessor can rely on all the grounds at the same time.

31. Although there were other breaches by the lessee in Progressive Mailing House, I respectfully agreed with the observations of McHugh JA in Wood Factory v Kiritos [1985] 2 NSWLR 105 at p. 145E to F that the refusal to pay rent was the main ground on which the High Court held that there was repudiation and fundamental breach.

32. Mr Tracy said Progressive Mailing House was a case of blank refusal. However, this aspect was only relevant to ground (a). As I said, the court also decided the case on the basis of ground (b). Mr Tracy submitted that the Plaintiff did not plead a case of fundamental breach. He regarded fundamental breach as a separate cause of action from repudiation. Whilst some of the judges in Progressive Mailing House did use the two expressions to identify the two concepts separately, it is clear from the judgment of Gibbs CJ in Shevill at p. 625-627 that all three grounds could broadly and loosely be described as repudiation. I cannot shut my eyes towards a case of termination of the Agreements on ground (b) merely because the Plaintiff pleads repudiation without specifically alluding to fundamental breach.

33. In Sichant Investments Ltd. v Wong Kam Kei, HCA No. 3430 of 1994, 19 December 1995, Waung J followed the Australian authorities and held that the remedies to the landlord were concurrent. A contractual right of re-entry (which does not by itself render the covenant to pay rent a fundamental term, see Shevill) can be exercised together with a right arising from acceptance of repudiation. It was also held that there was no need to give any notice to the tenant as to the landlord's intention to claim repudiation damages when he accepted the repudiation.

34. From these authorities, I derive the following propositions,

(a) The three grounds set out in the judgment of Gibbs CJ in Shevill for termination of the contract by the innocent party upon a breach by the defaulting party are concurrent remedies and they can all loosely be described as repudiation;

(b) In any cases of termination on those grounds, acceptance of repudiation by the innocent party was required;

(c) Unless there are very clear wordings in the tenancy agreements to the contrary, a clause stipulating the obligation of the tenant to pay rent cannot be a fundamental term and ground (c) in Paragraph 25 cannot be relied upon by a landlord in respect of a mere non-payment of rent;

(d) In appropriate cases, a landlord can still rely on grounds (a) and (b) in respect of non-payment of rent. The key issue is whether the circumstances shows that the tenant evinces an intention not to be bound by insisting on a mode of performance substantially inconsistent with his obligations under the tenancy or alternatively that the breach goes so much to the root of the contract that it makes further commercial performance of the contract impossible;

(e) Abandonment of possession is not an essential element in repudiation in the context of tenancy agreement. A tenant can repudiate the tenancy whilst he is still remaining in possession.

(f) Regarding ground (b), inability to perform due to financial difficulty is not materially different from a refusal to perform. The court has to examine the objective consequence of the breach rather than the subjective intent on the part of the defaulting party in assessing whether such a ground is established.

35. Applying these principles to the facts of the present case, I hold that the 1st Defendant has failed to show an arguable defence that its non-payment of rent and management fees did not constitute repudiation. The arrears were substantial and had lasted for a quite lengthy period of time. The 1st Defendant persisted in the non-payment despite demand letter from the solicitors for the Plaintiff. The effort of the Defendants to make payment after the demand letter was minimal. The cumulative effect of all these is a breach going to the root of the Agreements. It is in my judgment commercially impossible to expect a landlord to accept the continuation of the tenancies in these circumstances. On this basis, it is clear to me that the Defendant repudiated the Agreements on ground (b) when the writ was issued.

36. Further, on the available evidence, even in an Order 14 context, it is clear to me that the Defendant did not have any intention to meet its entire obligation regarding payment of rent and management fees, whether punctually or otherwise. It is clear from the history of the matter that the 1st Defendant was playing delaying tactics. After the writ was issued, the Defendants took out a completely groundless application for stay of the action. Apart from one month's rent paid in December 2001, the Defendants only made another payment of $50,000 on 21 March 2002 shortly before the Order 14 hearing before the master. Another cheque of $30,000 was given to the solicitors for the Plaintiff on 31 May 2002, shortly before the hearing of the appeal before me. There is still a substantial amount of arrears. No explanation has been given by the Defendants as to why such payments were always made shortly before the hearings but not earlier and why the full amount cannot be paid, despite relief being given to them under Section 21F in the order of 2 May 2002.

37. Although these matters occurred after the issue of the writ, the court is entitled to take them into account in assessing the intention of the Defendants at an earlier stage. On the evidence before me, the Defendants has not shown an arguable case that their defaults in payment of rent prior to the issue of the writ were wholly beyond their control. No evidence has been produced by the 1st Defendant regarding their accounts during the material time. It is noteworthy that the management fee was only $3,040 per month for each floor. It is difficult to accept that the 1st Defendant could not even pay that amount. They might have financial difficulties. But they have not produced any evidence to show that they had any sincere wish to pay rent and management fees even if they had such ability. If they genuinely intended to honour their obligations to pay rent and management fees under the Agreements, they should have done more in their response in the letter of 24 December 2001. As it was, that letter showed that the 1st Defendant was trying to delay as much as possible regarding payment of rent and management fees. In the circumstances of the present case, I do not regard the payment of one month's arrears for only one property as evidence of sincerity on the part of the 1st Defendant in view of the scale of the arrears and seriousness of the breach by that stage. In my judgment, the evidence showed that the 1st Defendant persistently refused to pay rent and in so doing, manifested an intention to fulfill the contract only in a manner substantially inconsistent with their obligations under the Agreements and not in any other way. Hence, the 1st Defendant had also repudiated the Agreements on ground (a) prior to the issue of the writ.

38. Mr Tracy also took the point that there was no acceptance of repudiation prior to the issue of the writ. In my judgment, the issue and service of the writ was the acceptance and I see no reason why this could not be valid. (see Brennan J in Progressive Mailing House at p. 49-50 and Sichant Investments Ltd. v Wong Kam Kei, HCA No. 3430 of 1994).

39. Another point taken by Mr Tracy in his written submissions but not elaborated at the hearing was that the acceptance of a month's payment in December 2001 constituted affirmation of the Agreements. That was clearly wrong in the light of the decision of Le Pichon J (as she then was) in Mixwell Properties v Lee Wan Yuen [1997] 1 HKC 465.

The Section 21F relief

40. The remaining point is whether the relief granted by the Master on 2 May 2002 complied with Section 21F. Mr Tracy argued that it did not because it referred to payment of "all sums in arrears" instead of confining to "all the rent in arrears". Hence, the 1st Defendant was required to pay not only the arrears of rent but also the arrears in terms of management fees. Mr Tracy submitted that for this reason, the order of 2 May 2002 is invalid and to rectify the situation, this court is obliged to give the 1st Defendant another 4 weeks from date of the order made in this appeal in strict compliance with Section 21F, viz. the condition must be confined to payment of arrears of rent. This point had not been taken before the Master.

41. There is no dispute that management fees were in arrears and the Defendants' position is clearly unmeritorious. Does Section 21F give them a charter to take such a point?

42. Mr Wong invited the court to construe the reference to "rent" in Section 21F to include a reference to management fees. He cited the case of Maryland Estates Ltd. v Bar-Joseph [1998] 3 All ER 193. It was held by the English Court of Appeal in that case that the expression "all the rent in arrear" in Section 138(3) of the County Courts Act 1984 (similar to our Section 21F) included sums falling due after the service of the summons for use and occupation and claimed as mesne profits. With respect, I agree whole-heartedly with that decision and the reasoning of Beldam LJ set out at p. 201D to J. However, that does not assist Mr Wong. Although the Court of Appeal substituted the figure set out in the relief by a sum including "service charges" (see p. 202B), that was because in the tenancy agreement in that case, there was a special provision by which the tenant covenanted to pay service charge which was to be regarded as, and recoverable as, rent (see p. 195F). There is no such provision in the Agreements.

43. In the present case, the management fees were not included as part of the rent under the express terms of the Agreements. It was payable to the manager of the building rather than the landlord. Although there was a covenant by the 1st Defendant to pay management fee, it does not follow that a breach of that covenant transforms the arrears of management fees into arrears of rent. The Plaintiff is entitled to recover damages for breach of such covenant and such damages would be the management fees paid by the Plaintiff to the manager upon default in the payment of the same by the 1st Defendant. Yet legally speaking, it does not mean that the management fees form part of the rent. At the same time, it could be argued that as owner of the Premises, the Plaintiff remained primarily liable to the manager for the management fees and the 1st Defendant only covenanted to make such payments on behalf of the Plaintiff to discharge such primary liability. As such, the management fees could be regarded as part of the rent although at the request of the Plaintiff it was paid to the manager instead of the Plaintiff. In substance, the payment was still made by the 1st Defendant in consideration of the grant of the lease by the Plaintiff and their use and occupation of the Premises (See Gray, Elements of Land Law, 3rd Edn. p. 331-332). The point has not been adequately argued by the parties before me and I do not wish to express a concluded view in this judgment since I am able to decide the matter on another point.

44. On the assumption that the management fees did not form part of the rent, there were in fact two separate sets of breaches by the 1st Defendant: firstly, non-payment of rents; secondly, non-payment of management fees. In the letter dated 20 December 2001, the Plaintiff gave notice to the 1st Defendant regarding both sets of breaches and demanded rectification of the same. The 1st Defendant did not comply with such demand. Hence, the court was entitled to take into account of both sets of breaches in granting relief. Section 21F (10)(b) provides that nothing in Section 21F shall be taken to affect the power of the Court to make any order as respects a right of re-entry or forfeiture on any ground other than non-payment of rent. As far as the non-payment of management fees is concerned, Section 21F does not curtail the power of the court to impose a condition for relief being granted in terms of payment of the management fees in arrear.

45. Mr Tracy indicated at the beginning of the appeal that he abandoned the argument that no notice has been given under Section 58 of the Conveyancing and Property Ordinance Cap. 219. That concession was made properly. I see no reason why the letter of 20 December 2001 could not constitute such notice. As I mentioned, the demand has been pleaded in the Statement of Claim. Reasonable time has lapsed between the letter and the issue of writ.

46. I therefore hold that even if Mr Tracy were correct in his submission that in the context of Section 21F "rent" does not include management fees on the facts of the present case (as I said, I do not reach any conclusion as to the validity of this submission), the order of the Master made on 2 May 2002 is still valid by reason of Section 21F(10)(b).

Result

47. Given the fact that the tenancies would in any event expire in July and August 2002, there might not be any need for assessment of repudiation damages. That depends on the actual date or dates of delivery of possession. As the matter stands, I do not propose to disturb the orders made by the Master.

48. For these reasons, subject to the observation that the two orders should be drawn up and perfected as one order, the Master's decision was correct. I note that the monetary judgment was actually sealed on 9 May 2002. In the circumstances, the appeal is dismissed. I also make an order nisi that the Defendants shall pay the Plaintiff's costs of the appeal.