CHE LOY CO. LTD. v. TSANG SIU CHOW

DCCJ 12124/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 12124 OF 2001

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JUDGMENT

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1. The Plaintiff is the registered owner of the premises known as shop No. 13, Lower Ground Floor, Che Cheung Building, 141A Po Kwong Village Road, Tze Wan Shan, Kowloon (hereinafter called "the suit premises"). The Plaintiff is also a wholly owned subsidiary of the Chinachem group of companies.

2. The Plaintiff entered into a tenancy agreement with the Defendant on 8th January 1998 whereby the Plaintiff agreed to lease the suit premises to the Defendant for a term of 24 months 23 days commencing from 8th November 1997 to 30th November 1999 at a monthly rental of $13,000.

3. It is the Plaintiff's case that the Defendant had failed to pay rental since 1st November 1999 and mesne profits since 1st December 1999, management fees since 1st September 1999 and rates since 1st October 1999. It claims vacant possession of the suit premises and payment of rent and mesne profits, management fees and rates up to the date of delivery of vacant possession with interests. It is the Plaintiff's case that vacant possession had not been delivered to date.

4. The Defendant acted in person and filed an amended defence on 4th December 2001. He claimed therein that the tenancy of the suit premises had been transferred to one Wong Kwong Kee operating a business in bathroom accessories in or about 1998. He had no knowledge of the said Wong failing to pay rent until a few months later when the Plaintiff notified him in writing. He went to the Plaintiff's office with Wong and informed the Plaintiff he had transferred the shop to Wong, that in future the Plaintiff should seek payment of rent from Wong. Subsequently, he received no further notifications or reminders from the Plaintiff until the service of the writ in these proceedings.

5. The Plaintiff in reply denied that the Plaintiff had accepted Wong as a tenant and referred to previous proceedings against the Defendant for distress of rent and Wong had claimed the goods at the suit premises belonged to him. A settlement was reached between the Plaintiff and Wong as the claimant of the goods.

The Plaintiff's case

6. The Plaintiff's witness Miss Ng Kam Seung (PW1) was called to give evidence on the Plaintiff's behalf. PW1 is the leasing officer working at the Leasing Department of the Chinachem group of companies including the Plaintiff. She took over the responsibilities of managing the tenancy of the suit premises upon her predecessor Miss Kam's departure on 11th October 2000.

7. It was PW1's evidence that the Defendant had failed to write to the Plaintiff requesting for termination of the tenancy or to assign the tenancy to another person, it further claimed that the Defendant had failed to surrender the premises by delivery of the keys of the premises and deliver vacant possession to the Plaintiff. She was visited by the Defendant and Mr. Wong (DW2) and his wife Mrs. Wong after the writ in these proceedings was served in August 2001. At this meeting, the Defendant told her he had notified Miss Kam of the transfer of the suit premises previously and he should not be liable to pay the rental and mesne profits and other expenses under the tenancy. He further asked that the rental deposit be applied towards rent in arrears and mesne profits.

8. The day after the meeting, PW1 called up Mrs. Wong informing her that the Plaintiff will accept the rental deposit of $41,600 to be applied toward outstanding rental if the balance of the amount claimed ($114,169.68) amounted to $70,000 odd was paid, and provided the premises would be cleaned up, the Plaintiff would withdraw the claim.

9. PW1 said she sent the Plaintiff's staff at Che Cheung Building to look at the suit premises and found that partitions have been installed in the premises. On 3rd September 2001, she called up Mrs. Wong and informed her that only the rubbish at the premises needed to be removed, there was no need to remove the partitions. It was further agreed that afterwards, the keys would be handed over to the Plaintiff. However, the keys were never handed over.

10. It was also PW1's evidence that according to the Plaintiff's record, Miss Kam had by a memorandum given instructions to the executive office of the Plaintiff to be forwarded to the Plaintiff's solicitor to take out proceedings for repossession of the suit premises in March 2000. A set of calculations of outstanding rental and mesne profits and interests was prepared up to 31st March 2000. PW1 said she had subsequently updated these figures in June 2001.

11. PW1 denied maintenance work was conducted inside the suit premises in September 2001. That she had further given no notice to the tenant for maintenance work to be done at the suit premises because there was no work to be done at the suit premises, and furthermore, the Plaintiff could not gain access to the suit premises.

12. PW1 claimed she had sent all notices, letters and reminders to the Defendant to his last known address in Tuen Mun which was the Defendant's address on the tenancy agreement.

13. The Plaintiff had served notice under Ss. 47 and 49 of the Evidence Ordinance and Order 38 of the District Court Rules and produced evidence it relied on in these proceedings. These include the previous distraint action documents.

The Defendant's case

14. The Defendant gave evidence at the hearing and claimed that in 1998, his business could not be sustained and he transferred the shop to Wong Kwong Kee (DW2) who operated a bathroom accessories shop next door. He said DW2 had agreed with him that from 1st July 1998 DW2 would take over the suit premises and would pay rental directly to the Plaintiff, he would also be responsible for rates, management fees and other facility expenses on the suit premises. The Defendant produced an undated agreement between himself and DW2 witnessed by DW3 (p.35 of the pleadings bundle) as evidence of the agreement.

15. The Defendant admitted he did not notify the Plaintiff of the transfer. 3 months after the transfer, he received a letter from the Plaintiff informing him that the rental on the suit premises had been in arrears for 3 months. He then went up to the Plaintiff's office with DW2 and his wife and saw Miss Kam. He informed Miss Kam that he had transferred the tenancy of the suit premises to DW2 and, in future, the Plaintiff should go to DW2 for payment of rental. He further said Miss Kam said nothing in reply.

16. Later on, he received a notice from the Plaintiff's solicitor requesting the removal of the canopy at the shop. He went to see DW2, DW2 informed him he had received a similar letter. He claimed that was the last letter he had ever received from the Plaintiff until the service of the writ. He went to see DW2 after service of the writ and found DW2 had moved to another shop in the same building. DW2 told him that after the Plaintiff levied distress on DW2's goods for non-payment of rent, he had surrendered the shop back to the Plaintiff after paying all outstanding rental. DW2 told him the Plaintiff's Miss Kam had refused to pay him back the rental deposit. The Defendant claimed that as he had not been served any notices of distress against him, he had no knowledge of it at the time. He said he had performed his duty under the tenancy by taking DW2 and his wife to see the Plaintiff and informed the Plaintiff's staff responsible for the tenancy that DW2 and his wife had taken over the tenancy.

17. DW2's evidence supported the Defendant's evidence. He admitted there was a meeting with Miss Kam after the rental fell into arrears for 3 months soon after he took over the suit premises from the Defendant. He confirmed there was an oral agreement between the Defendant and himself to transfer the lease of the suit premises to him and the document in p.35 of the pleadings bundle was evidence of the agreement. He said he did not think it was important to get the tenancy changed to his name because he had the Defendant's receipts for the deposits paid. However, he was unable to retrieve the deposits paid from the Plaintiff. It is his evidence that he had settled the distress claim with the Plaintiff by agreeing to pay the rental in arrears of $93,227 by two installments in cash delivered to Miss Kam with costs.

18. DW2 further claimed that Miss Kam of the Plaintiff would call him or his wife whenever the rental was in arrears. He went to the Plaintiff's office to surrender the premises, and he had shown Miss Kam the agreement between the Defendant and himself as evidence that the tenancy had been transferred to him. On that occasion, Miss Kam refused to give him the rental deposit. Consequently, he told Miss Kam he would quit the premises and if she did not accept he was the tenant she should sort it out with the Defendant. At that meeting he had requested rental deposit be applied on the outstanding rental and the balance to be returned to him. Miss Kam had refused to do so because the rental deposit was in the Defendant's name. He said this happened approximately 3 months after the settlement of the distress proceedings.

19. DW2 further confirmed the negotiation between PW1, Defendant and himself at the Plaintiff's office after service of the writ, and the telephone call from PW1 to his wife to clean up the premises on the next day. He said he had to break the lock on the curtain gate to get into the premises, after clearing up the premises he used a padlock and chain to secure the curtain gate. Then a few months ago, he saw some maintenance men going into the suit premises to work on the pipes inside the premises. A new gate and lock had been installed since then. He took some pictures of the suit premises at the time and these were produced by the Defendant in exhibit D-1.

20. DW3's evidence supported the Defendant's and DW2's evidence on the agreement of transfer of tenancy on 1st July 1998. He confirmed he was the witness to the agreement. Until 2 years ago, he operated a tyre shop next door to the suit premises and his wife is the registered owner of a small shop on the same floor in the same building as the suit premises. DW2 was the previous tenant of the shop before he moved to the suit premises pursuant to the agreement of 1st July 1998. He said Che Cheung Building had undergone extensive renovation and maintenance work involving electrical wiring, plumbing, replacement of salt and fresh water pipes, the outer walls and public areas in the last 3 years.

Findings

21. On the evidence before me, I am satisfied that the Defendant had taken DW2 and his wife to the Plaintiff's office and told the Plaintiff's staff Miss Kam who was responsible for the tenancy of the suit premises that he had transferred the tenancy to DW2. This was apparently accepted by the Plaintiff because from then on, the Plaintiff through Miss Kam had dealt with DW2 and his wife on matters in respect of the suit premises instead of contacting the Defendant. The Plaintiff had actual knowledge of the existence of the transfer of the tenancy since that time which was 3 months after the transfer on 1st July 1998. By her conduct, Miss Kam led both the Defendant and DW2 to believe the Plaintiff had acknowledged the transfer of tenancy to DW2 by the Defendant.

22. The Plaintiff claims that applications for transfer of tenancy should be in writing under the tenancy agreement. I find, however, there is acquiescence of the transfer of tenancy by the Defendant to DW2. Chitty on Contracts, vol. 1 para. 29-139, sets out the definition of acquiescence as defined in De Bussche v. Alt (1878) 8 Ch. D. 286 at 314:-

"If a person having a right, and seeing another person about to commit, or in course of committing, an act infringing upon that right, stands by in such a manner as really to induce the person committing the act, and who might otherwise have obtained from it, to believe that he assents to its being committed, he cannot afterwards be heard to complain of the act."

23. The Plaintiff since the Defendant's visit with DW2 to its office at the end of 1998, accepted rental from DW2 and dealt with DW2 and his wife over tenancy matters instead of the Defendant had clearly acquiesced to the transfer of the tenancy by the Defendant to DW2.

24. Even though the subsequent action of distress in November 1999 was levied against the Defendant, and the intervention by DW2 was as the claimant to the goods seized on 27th November 1999, the contents of the affirmation filed by DW2 on 9th December 1999 clearly established he had been in occupation of the suit premises and had been paying rent to the Plaintiff and that there was a transfer by the Defendant to him the suit premises with the DW2 paying to the Defendant the deposits Defendant had paid to the Plaintiff thus transferring the right to the deposits to DW2. The Plaintiff cannot turn a blind eye to these facts, insisting on pretending DW2 had no interests in the suit property.

25. Miss Po, Counsel for the Plaintiff disputed the agreement of transfer as an unstamped document and not admissible in Court as evidence under S. 15 of the Stamp Duty Ordinance Cap. 117. S. 15 of the Ordinance is applicable to documents which are stampable. Miss Po's contention is that the agreement is a conveyance of an interest in land, it is therefore stampable. It has not been shown to me under which section of Schedule One of the Stamp Duty Ordinance this document could be stamped. In any event, this document is written evidence that an oral agreement between the Defendant and DW2 existed. The Plaintiff is not a party to this document.

26. I have heard sufficient evidence from Defendant, DW2 and 3 and to be satisfied that the agreement existed. I am also satisfied that the Plaintiff had 3 months after its execution been notified by the Defendant and DW2 that there was a transfer of tenancy. This may be a breach of Clause 2 (j) of the agreement that the Defendant had parted with possession of the suit premises, but the Plaintiff through its staff Miss Kam had clearly accepted the transfer of tenancy and had waived the breach. The only complaint the Plaintiff's PW1 had of the transfer was that the application was not made in writing. I can find no such requirement set out in the tenancy agreement.

27. Even if I am wrong in my finding that the Plaintiff had by its acquiescence of the occupation and rental payment by DW2 and thereby waived its right against Defendant, the Plaintiff had ample opportunity to sort out the tenancy with the Defendant and the occupation by DW2 in the months that followed for the better part of 1999. It had failed to do so.

28. Events came to a head when DW2 was in rental arrears from 1st January 1999 to October 1999. DW2 negotiated with Plaintiff's Miss Kam, offering to pay half of the rental in arrears. The Plaintiff refused. Distress was levied in November 1999 on DW2's goods. When H.H. Judge Poon granted the consent order for payment by 2 instalments from DW2 on 10th December 1999, by this time, Plaintiff clearly had full knowledge of the occupation by DW2 of the suit premises.

29. In any event, the tenancy between the Plaintiff and the Defendant expired on 30th November 1999. Whatever contractual obligations the Defendant might have been under, must have expired with the tenancy.

30. The Plaintiff has shown that it had sat back and done nothing other than collecting rental from DW2. It was only after DW2 quitted the suit premises that it went after the Defendant for the rental in spite of the expiry of the tenancy having had full knowledge of the transfer of tenancy to DW2.

31. After the expiry of the lease, it is undisputed that DW2 had attended the Plaintiff's office with the intention of surrendering possession of the suit premises, the Plaintiff therefore had actual notice of the surrender of the lease.

32. In the passages referred by Counsel for the Plaintiff in Hill and Redman's Law of Landlord and Tenant, 2002 edition, para. 2129 and 2685:-

"Following an assignment, the original lessee may defend an action based on his covenants on the grounds that he has performed the covenants or that his assignee has performed the covenants or that some event has occurred, such as a surrender of the lease, which has put a complete end to any liability under the covenants. He may also have a defence if the lessor has released the assignee from a liability by means of accord and satisfaction, at least in a case where the lessor does not expressly reserve his rights against the original lessee."

"The lessor will be debarred from insisting on the necessity of consent if he has accepted the assignee as tenant in place of the assignor, but this acceptance is not to be inferred merely from the fact that possession has been given to the assignee with the knowledge of the lessor and without objection on his part; this, while an important element, is not conclusive where the facts show that the lessor did not intend to accept the assignee."

33. The Defendant had on more than one occasion notified the Plaintiff the tenancy had been transferred to DW2. It failed to inform the Defendant it did not accept the Defendant's transfer of tenancy to DW2 and by accepting rent from DW2 and dealing with DW2 instead of with Defendant, it has demonstrated it accepted DW2 as the assignee of the lease. It is particularly so when there was no provision in the tenancy agreement with the Defendant for consent to sublet or assign, it simply disallowed any assignment, subletting or parting with possession of the suit premises under clause 2 (j). Clearly, by its conduct, the Plaintiff had accepted the transfer.

34. Under the tenancy agreement, Clause 2 (d) stated:-

"2 (d) To permit the Landlord and its agents and all persons authorised by it at all reasonable times to enter upon and examine the conduction of the said premises and the Landlord may serve written notice to the Tenant specifying any repairs necessary to be done and require the Tenant forthwith in execute the same and if the Tenant shall not within 15 days after service of such notice to finalise such repairs then the Landlord shall enter upon the said premises and execute such repairs and the costs thereof shall be a debt due from the tenant to the landlord and be forthwith recoverable by action."

Clause 4 (a) provides that:-

"4 (a) If and whenever any part of the rent hereby reserved shall be in arrear for FIFTEEN DAYS whether the same shall have been legally demanded or not or if and whenever there shall be a breach of any of the Tenant's terms and conditions herein contained or if the Tenant shall go into bankruptcy or liquidation or suffer any distress or execution to be levied on the Tenant's goods then and in any of the said cases it shall be lawful for the Landlord at any time thereafter to re-enter upon the said premises or any part or parts thereof in the name of the whole and thereupon the term hereby created shall be determined but without prejudice to any right of action of the Landlord in respect of any breach of the Tenant's terms, conditions and covenants herein contained."

35. The Plaintiff is entitled to re-enter the premises upon the tenant's being in rental arrears for 15 days or upon a breach of any of the terms and conditions in the lease. The Defendant had obviously breached clause 2 (j) of the tenancy agreement and further had been in arrears of rent on more than one occasion. Yet, according to the Plaintiff, it refused to re-enter the suit premises to date.

36. Bearing in mind that DW2's surrender of lease took place after the expiry of the tenancy on 30th November 1999, the Plaintiff is not entitled to insist that the tenant should remain in the premises and to continue to pay rent. Whatever duty the Defendant had under the tenancy agreement must have expired with the lease when it was clearly pointed out to the Plaintiff repeatedly that the Defendant no longer occupied the suit premises.

37. Miss Po relied on the case of Wornford Investments Ltd. v. Duckworth and Ors. [1979] 1 Ch. 127, I find it does not apply in this case. In the Wornford case, the lease assigned was for the remainder of the term of a 20 year lease, whereas in the present case, the lease was 24 months and 23 days which expired on 30th November 1999. The liability under the lease must disappear with the expiry of the lease. It follows further that when the agreement is spent no privity of contract subsisted.

38. As far as the re-entry for possession of the premises is concerned, from the evidence of DW2 and the photographs taken by him, there did not seem to be any difficulties in gaining entry by the workman to the suit premises. The Plaintiff's claim that it was not able to gain entry to the suit premises is not acceptable. It is DW1's evidence that the pictures were given to him in September 2001 soon after the service of the writ. PW1 admitted that the Plaintiff still has a number of empty shops on the lower ground floor which it failed to let out. For this reason, the Plaintiff was obviously not in a hurry to let the suit premises out. It is the evidence of PW1 that instructions to issue writ for repossession was given by Miss Kam to the Plaintiff's execution office in March 2000 yet no action was taken by the Plaintiff's solicitors until 9th August 2001. No reasons for the 17 months delay had been offered by the Plaintiff.

39. For the aforesaid reasons, and since the Plaintiff is entitled to vacant possession of the premises in any event after 30th November 1999, I find the Defendant not liable to the Plaintiff in any way, the rental up to 31st October 1999 had been settled by DW2. Mesne profits until DW2's surrender would have been covered by the $41,630 rent deposit kept by the Plaintiff. I therefore dismiss the Plaintiff's claim with costs to the Defendant.