MAY KING DEVELOPMENT CO LTD AND ANOTHER v. YOUNG CHING HUO LTD

Landlord and tenant - claim for injunction for breach of covenants - whether letting of separate rooms in a flat to individuals renders premises "a lodging house" or amounts to user other than for "private residential purposes".

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. In this action the plaintiff companies seek an injunction against the defendant company to restrain the breach of certain covenants which relate to the use of four flats in Kowloon.

2. In July 1972, the 1st plaintiff, May King Development Co., Ltd., became the registered owner of a piece of land in Boundary Street, Kowloon, upon which three blocks of flats had already been built. Title was derived under a Crown lease originally granted in 1941 and renewed for a further 24 years upon its expiry in 1973. After acquiring the Crown lease, the 1st plaintiff, together with the 2nd plaintiff, Hoi Tak Lee Investment Co., Ltd., redeveloped the land. They pulled down the existing blocks of flats and built five new blocks, retaining the name "Kent Court". The occupation permit for the new buildings was granted in January 1980.

3. In July 1979 the 1st plaintiff and the defendant entered into a sale and purchase agreement, under which it was agreed that the defendant would buy certain undivided parts or shares in the land and acquire the "exclusive right and privilege to hold, use, occupy and enjoy" five of the flats which, when built, would form part of the new Kent Court. They were all to be in Block No. 5 and be identically positioned on the 2nd, 3rd, 4th, 5th and 6th floors. This action does not concern the flat on the 2nd floor, or the parking space on the ground floor agreed to be sold under the same agreement.

4. The assignment to give effect to this agreement was executed on the 1st April 1980. The 2nd plaintiff was a party to the indenture as "confirmor", because in March 1977 the property in question, together with other property, had been the subject of a sale and purchase agreement between the 1st and 2nd plaintiffs, the vendor agreeing to execute the appropriate assignment in favour of the purchaser or "its nominee or sub-purchaser", when requested so to do.

5. The original Crown lease granted in March 1941 had contained a covenant, the relevant part of which read -

"And [the lessee] will not erect on the said piece or parcel of ground any buildings other than residential buildings .........."

6. In December 1960, the terms of the Crown lease were modified in various ways. The only modification with which I need deal is that by which for the words I have set out, were substituted the following -

"And shall not use or allow to be used the said premises for any purposes other than private residential purposes .........."

It is also necessary to note that the indenture by which the modifications were made, expressly stated that the condition of re-entry on breach or non-performance of any covenant in the original Crown lease would apply to the covenants as amended.

7. The assignment of the 1st April 1980, by virtue of which the defendant company became the registered owner of the flats in Kent Court, included covenants to the effect that the purchaser would perform and observe the covenants in the Crown lease (as modified) as well as those contained in a Deed of Mutual Covenant registered in the Land Office by Memorial No. 1852178. This Deed was made on 12th February 1980 between the 1st and 2nd plaintiffs, and the Wing On Company who had been the first to buy one of the flats. Inter alia, the Deed provided -

"4. Each owner shall be bound by and shall observe and perform the following covenants provisions and restrictions -

8. It seems that sometime during the mdidle of 1980, the plaintiffs became worried about the use to which some of the flats in Kent Court were being put by the defendant company and consulted their solicitors. Whenever this may have occurred, in the 14th July 1980 edition of the Chinese daily newspaper SING TAO JIH PAO there appeared (in the classified advertisements section, and under the heading "Hong Kong Lettings") two advertisements. The following is an English translation of one of them -

The second advertisement was identical to the first, save that for "WEEKLY RENTAL $570.00" there was substituted "MONTHLY RENTAL $1,710.00". Two articled clerks employed by the plaintiffs' solicitors, and acting under their instructions, answered the advertisements. As a result of telephone calls they made, about a month apart, to one of the numbers given in the advertisements, they were eventually directed to Flat E on the fifth floor of Block 5 of Kent Court. Mr. Allen Chan Kin Hoi went there on the 15th July but did not stay. The other articled clerk (who has since been admitted) was Mr. Herman Hui and he took a room in Flat E on the third floor from the 14th to 22nd August. From their evidence and that of the only witness called by the defendant company, Mr. John Young one of their directors, the following facts, which are common ground, emerge in relation to the four flats on the 3rd, 4th, 5th and 6th floors -

9. Mr. John Young explained why his company bought the flats, the use to which they were put and how they were managed. The company was in the "real property business", but also traded, substantially importing goods from the U.S.A. and Japan. They also owned a few commercial properties such as shops. They owned residential property in seven locations on the Island and in Kowloon, apart from the Kent Court flats. All the residential property was bought for long term investment and would be let out to cover the purchase costs on the same basis as the flats in Kent Court. Some of the flats they own, of which the Kent Court flat on the second floor was an example, were for renting as complete units, but the others were let out as single rooms, and the flats with which this case is concerned were specially converted for this purpose. He had felt that in Hong Kong few could afford to take over a complete flat and there was a market for the renting of individual rooms which were well decorated and furnished. While they would be happy to have tenants of these rooms on a longer basis, experience over the past three years had shown that only about half wanted to stay for more than about a month, and that the majority of the rooms had been taken by such people as students returning from overseas studies, expatriates on short term contracts and those who were waiting for other accommodation.

10. Mr. Young told the Court that he regarded the individual rooms in their property such as Kent Court as being let out as service apartments. Unless a tenant indicated that he wanted a tenancy exceeding one year, no written agreements were entered into for he considered that the trouble, paper work and expense involved was not justified. About the service provided, he said that it did not have to be accepted, but explained that since they had spent a lot of money on decorating and furnishing the rooms to a high standard, they preferred to do their own cleaning, to make sure their property "did not deteriorate at an unusual rate". I must say here that on the matter of the service provided and charged for, I feel that Mr. Young was being less than frank. On the evidence taken as a whole, I am left in no doubt that the occupants of the single rooms in Kent Court were not free to elect not to pay the service charge and do their own cleaning instead.

11. During the course of argument it was conceded on behalf of the defendant company that they were bound by the covenants in the modified Crown lease and in the Deed of Mutual Covenant, but it was contended that upon their true construction, neither had been breached. It was also urged upon me that the modifications made to the original Crown lease did not affect the essential nature of the user permitted, and that all the Deed of Mutual Covenant had done was to incorporate, and pass on to the new purchasers, the restrictions contained in the modified Crown lease. It was moreover suggested that since the terms of the Deed of Mutual Covenant had not been set out in the assignment which transferred ownership to the defendant company, they had signed "blind" and if there were any ambiguities or doubts as to its interpretation, a construction unfavourable to the plaintiffs should be selected. I was also asked to hold that even assuming there had been breaches of the covenants, since the flats had been purchased for the very purpose for which they had been used, had the defendant company realised that they would have been held strictly to the terms of the covenants, they would never have executed the assignment and, therefore, the parties had not been ad idem.

12. In relation to the relief sought, it was submitted that the plaintiffs had not shown they had suffered any damages; nor had they established that they had retained a proprietory interest in the flats, thus barring them from relief under paragraph (a) of the proviso to subsection (1) of section 3 of the Law of Property (Enforcement of Covenants) Ordinance, Cap. 297. Considerations of public policy were also put forward, on the grounds that the type of accommodation made available was sorely needed in present day Hong Kong, and allowed opitimum use of scarce land and residential units to be made. A number of other grounds were advanced to persuade the Court not to exercise its discretion to grant the injunction prayed for.

13. It seems to me (leaving aside for the moment the question whether a breach of either of the relevant covenants has been established) that none of these propositions have any validity. The terms of the covenants relied upon in the modified Crown lease and the Deed of Mutual Covenant are as clear as they are binding. They were designed for different purposes, and the covenants in the Deed went very considerably further than those in the modified Crown lease, conferring benefits, as they did, on the existing owners and future purchasers of the flats. Notice of the Deed of Mutual Covenant was transmitted to the defendant company when the assignment was executed, and nothing turns on the fact that its terms were not set out. In the circumstances, surely no-one who was a party to that instrument can be heard to say that he would never have signed had he known that the covenants would be enforced. As regards the question of locus standi, on the evidence I entertain no doubt that the plaintiffs retained a sufficient proprietory interest in the flats and in the land upon which they stand to be able to maintain this action. Nor can I see how the defendant company can be permitted to set up issues of public interest in a case such as this, to absolve them from abiding by the agreement that was made.

14. It is submitted on behalf of the plaintiffs that on the evidence, the four flats in Kent Court were being used as a lodging house and that therefore there has been a breach of the relevant covenant in the Deed of Mutual Covenant. Their case is now firmly based on that contention and the alternative averments in para. 5 of the statement of claim have been abandoned. The plaintiffs also say that for the same reason a breach of the undertaking in the modified Crown lease restricting use to "private residential purposes" has occurred.

15. I will deal first with the covenant in the Deed. Over the years, the courts have frequently been called upon, in one context or another, to decide the manner of an individual's occupation of residential property and many of the authorities have been cited to me. First there were the cases which determined, for the purpose of the parliamentary franchise, whether a person was, what I might call for convenience, "an inhabitant occupier" or a mere lodger. There were also cases which construed legislation protecting the goods of lodgers from distress, and legislation requiring alien lodgers to be registered. And the courts have often had to decide whether a person was a tenant or a licensee under rent control and other landlord and tenant statutes. The task has not been an easy one. In Kent v. Fittall [1906] 60, which was one of the parliamentary franchise cases, Romer L.J., at page 73 said -

          "The subject of this appeal is a striking example of the difficulty that may arise in determining whether a man who resides in a rateable hereditament is an occupying tenant of a dwelling-house or is occupying the tenement as a lodger. It appears to me to be impossible to lay down by a hard and fast rule or a proposition of law, or to define exhaustively what constitutes the difference between an occupying tenant and a lodger, so as to solve the difficulty. Jessel M.R. in Bradley v. Baylis 8 Q.B.D. 195, at p. 219 said: "I have been quite unable, so far as I am concerned to frame an exhaustive definition. Some judges have tried to do so, and, in my opinion, they have failed; and I think it wiser and safer to say that the question whether a man is a lodger, or whether he is an occupying tenant, must depend on the circumstances of each case." I respectfully agree with that statement, and I will proceed to apply it to the case before us, and to consider what are the circumstances of this case."

Much more recently, and nearer home, where the Full Court, in Lam Man-yuen v. Lucky Apartments [1964] H.K.L.R. 689, had to consider whether a tenancy or a licence was established on the evidence in the lower court, Hogan C.J., at p. 698, had this to say -

"Indeed, the law as to the shadowy and elusive line between leases and licences has reached a point where the task of legal advisers in guiding their clients must be exceedingly difficult. At one time the courts tended to regard the presence of certain facts as being incompatible with either a lease or a licence but these clear-cut boundaries have been partly eroded by more recent decisions. The final outcome now tends to depend more frequently on the weight which the court accords to the competing factors and there is, almost inevitably, an arbitrary element in the decision as to precisely how much weight each will attract."

16. It must, I think, be borne in mind that the cases cited to me each involved the construction of a particular statute and the relevant words or phrases were interpreted in the context, and to further the objects, of the statute. In Kent v. Fittall, for example, Collins M.R. remarked (at p.67): "In the discussion as to the meaning of the word 'lodger' as distinguished from the word 'occupier' we are likely to lose sight of the foundation of the whole matter, that is, the conditions upon which the legislature has given the franchise to certain persons as inhabitant occupiers of dwelling houses". The Acts which governed the decision included a definition of "dwelling house" and "lodgings", and went on to provide: "For the purposes of any of the Acts referred to in this section, where an occupier is entitled to the sole and exclusive use of any part of a house, that part shall not be deemed to be occupied otherwise than separately by reason only that the occupier is entitled to the joint use of some other part". In the case before me there is, of course, no statutory guidance and I must determine what the covenant means by the expression "lodging-house", applying the ordinary canons of interpretation. I will respectfully adopt the approach of Brett L.J. in Morton v. Palmer [1881] L.J.Q.B. 7 where he said, after noting that the Lodgers' Goods Protection Act did not define the word "lodger": "I am of the opinion that the word 'lodger' must be taken to mean a lodger according to the understanding of that word by the majority of persons conversant with the modes of letting and occupying houses in this country to lodgers and under-tenants".

17. In that case, Brett L.J. went on to say-

          "The courts have at various times given some tests which help to decide whether a person is a lodger or an under-tenant. I will refer to two tests which have been given. The first given by Mr. Justice Maule in Toms v. Luckett (17 L.J.C.P. 27), contains the fundamental proposition, which is as follows: 'Where the owner of a house takes in a person to reside in a part of it, though such person has the exclusive possession of the rooms appropriated to him, and the uncontrolled right of ingress and egress, yet, if the owner retains his character of master of the house, the individual so occupying part of it occupies as a lodger only.' It is clear, therefore, that if all that has been done is for the owner or lessee of a house to give a man the house to live in on certain terms, that man may be a tenant or an under-tenant; but it cannot be said that the lessor has taken him in to lodge with him. It does not follow that a man who has been taken in to lodge with another should live at the table or sleep in the room of that other. He may very well have the exclusive use of part of the house. A further test was given by Mr. Justice Blackburn in Allan v. Liverpool, (L.R. 9 Q.B. 180), where he said: 'A lodge in a house, although he has the exclusive use of rooms in the house in the sense that nobody else is to be there, and though his goods are stowed there' - by which I understand him to mean that the rooms may be unfurnished - 'yet he is not in exclusive occupation in that sense, because the landlord is there, for the purpose of being able, as landlords commonly do in the case of lodgings, to have his own servants to look after the house and the furniture, and has retained to himself the occupation' - that is, of the house - 'though he has agreed to give the exclusive occupation' - that is, of the rooms - 'to the lodger.' It follows that the person who takes in another to lodge must retain power in and dominion over the house, as the master of a house usually does in this country. It is not absolutely necessary that he should live or sleep in the house; he may live elsewhere and yet reserve power in and dominion over the house, such as a master of a house does in this country usually have. If, however, he goes away, if he gives up all power of dealing with the house as master, then I do not think it is possible to say that he takes another person in to lodge with him." Cotton L.J., in the same case, said: "I think that a 'lodger' is a man living in a house owned by or leased by another person, and to some extent living there with that other person.""

18. Although in many of the cases to which I have been referred, the landlord resided on the premises and the court had to decide whether, on the facts, the nature of the occupancy of a person sharing the house was, nevertheless, that of a tenant and not a lodger, it is clear that the fact that a landlord is or is not resident is not a conclusive factor, as the passage from the judgment of Brett L.J. I have just read indicates. Collins M.R. put the matter in this way in Kent v. Fittall, at p.70, when he discussed Bradley v. Baylis 8 Q.B.D. 195 -

          "I regard the judgment of Cotton L.J. in Bradley v. Baylis, which does not differ from the judgments that preceded it, as to some extent summing up the substance of the earlier dicta on the matter. In the course of his judgment he said, in answer to the question What is a lodger?: 'In my opinion, it is not necessary that the person with whom he lodges, that is, his immediate landlord, should live in the house to make him a lodger. Nor is it necessary that the immediate landlord should have the exclusive control over the key of the outer door; but, in my opinion, some control over the house must be exercised by the person in whose house a man lives to make him a lodger': shewing clearly, as it seems to me, that the substance of the matter is control."

19. The same point was made by Bovill C.J. in Thompson v. Ward [1871] L.R. 6 C.P. 327 when he said, at p.361 -

"It is always important in determining whether a man is a lodger, to see whether the owner of a house retains his character as master of the house, and whether he occupies a part of it by himself or his servants, and at the same time retains the general control and dominion over the whole house, and this he may do though he do not personally reside on the premises."

20. In Honing v. Redfern [1949] 2 All E.R. 15, Goddard L.C.J. at page 17, suggested a general test to be applied when deciding whether there had been a letting to tenants or a letting to lodgers -

"The general test, which has been laid down for many years, is that if the owner of a house who allows other people to live in it lives on the premises and manages the premises himself, or if the owner has a servant resident on the premises to manage them on his behalf, the other people living in the house are lodgers, whereas if he does not live in the house but lets the whole house out to various people it is a letting out of the house in tenements and the persons occupying the tenements are not lodgers but tenants."

21. I now turn to a consideration of Lam Man-yuen v. Lucky Apartments to which I have briefly referred earlier, where the Full Court had to determine whether the defendant was a tenant or a licensee. The Court held that on the facts found by the trial judge it was open to him to hold that the landlord had retained the general control and dominion of the premises, including the part occupied by the defendant. Although exclusive possession could no longer be taken as indicating conclusively the existence of a tenancy, there had not been, as far as the Court was aware, any recognition of a tenancy without a right to exclusive possession. In the course of his judgment, Hogan C.J. set out the factors, from the evidence, which indicated that the defendant was merely a licensee and those which indicated that he was a tenant, and held that none of the factors was in itself decisive.

22. I think it must be accepted that in Hong Kong little significance can be attached to the fact that there were no written agreements. Oral agreements are common enough and it is the nature of the agreement between the parties which is important and not its form. Nor can the fact that only weekly or monthly terms were offered be of any greater significance; daily rates were not available.

23. As regards factors which can be said to indicate the landlords' retention of general control over the flats, if written agreements were not employed then it is only to be expected that intending occupants should be required to give some particulars about themselves. The same can be said about visitors staying over night. The management made no attempt to dictate to the occupants as to who should live with them, nor could any form of control be effective after 7 p.m. when the staff left work. I do not think that the lack of cooking facilities, and the prohibition against cooking in the rooms can be regarded as taking the matter any further.

24. The most important factor in favour of the plaintiffs might be said to be the presence of the management staff during the day, and the provision of service. As regards the latter, just before the passage I quoted from the judgment of Hogan C.J. in Lam Man-yuen v. Lucky Apartments he remarked that one could find tenancies where the landlord provides domestic service. If such service is made available, then the defendant company's staff have to be there for some of the time, and cleaning material etc. has to be kept somewhere. It is perhaps worth noting that during the hours that the rooms are likely to be put to their primary use, the staff are not to be found on the premises.

25. What of the factors which point towards the rooms being let as separate tenancies? Each occupant has his own key to his room and nobody goes in there except to make up the room, and change the sheets etc. They each have a key to the front door of the flat and can come and go as they please. [I would remark here in passing, that in Lam Man-yuen v. Lucky Apartments there was a grill across the ground floor entrance to the premises, and when it was locked at night the occupants had to ring to be let in by the owners' servants.] There are no "house rules"; ordinary civilised conduct demands that one should not disturb one's neighbours.

26. Weighing all the factors which I consider to be relevant, in my judgment the plaintiffs have not discharged the onus of establishing that the occupants of the four flats in Kent Court were lodgers or licencees, for I do not find that the defendant company retained general control and dominion over the flats to a degree that would make them so. If they were not lodgers then the premises were not being used as a lodging house, and there has been no breach of the covenant in the Deed of Mutual Covenant. If I had to find a description of the use to which the flats were being put, I would say that they were being used as service flats.

27. From these findings it seems to me to follow that no breach of the modified Crown lease has been shown. The covenant does not say that the premises shall only be used as private residences in the occupation of single households. In my judgment it cannot be said that a flat whose rooms are let out to individual tenants is not being used for "private residential purposes".

28. For the reasons I have attempted to give, the claim must be dismissed with costs.