THE PRUDENTIAL ENTERPRISE LIMITED AND ANOTHER v. P.H. SHEK LIMITED AND ANOTHER

High Court Action No. 4911 of 1987

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HEADNOTE

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Landlord and tenant - Covenant by corporate tenant against allowing itself to betaken over - Covenant against parting with possession - Breach of covenant - Waiver - Failure to serve notice under S.58 of Conveyancing and Property Ordinance, Cap. 219 - Notice to quit without prejudice to notice under S.58 - Whether amounted to election to continue the tenancy - Appropriateness of relief against forfeiture where tenant deliberately in breach of covenant for sake of own enrichment.

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                By a tenancy in writing dated 18th December 1982, the landlord let the suit premises from that date for a term of seven years at a monthly rent payable in advance on the first day of each calendar month by the tenant, a limited company operating a "Pizza Hut" franchise. Express covenants were given by the tenant that, on pain of forfeiture and re-entry, it would not alienate the suit premises by parting with possession and, the tenancy being personal to the tenant, the tenant would not without written approval of the landlord allow itself to be taken over. The tenancy agreement also made provision that in the event of the "Pizza Hut" franchise being terminated, the landlord could terminate the tenancy upon giving two months notice in writing to the tenant.

                Despite refusal of prior consent by the landlord, the tenant went ahead and transferred the tenancy and the "Pizza Hut" franchise to a purchaser, Jardine, Matheson & Co Limited ("Jardines"), on 30th April 1987.

                Without first of all serving a notice on the tenant pursuant to section 58 of the Conveyancing and Property Ordinance, Cap. 219, the landlord on 8th May 1987 issued a writ for possession of the suit premises against the tenant on the ground of breach of the covenant against alienation, such writ being served on the tenant on 11th clay 1987.

                Because of a mistake on the part of the landlord's staff, the landlord, on 23rd May 1987, sent the tenant a demand for the month's rent falling due on 1st June 1987. Before the tenant made any attempt to pay that rent, the landlord wrote to the tenant on 27th May 1987, pointing out that the June rent had been demanded by mistake and stating that such rent would not be accepted.

                On 4th July 1987, the date on which the shares in the tenant were transferred to Jardines, Jardines took over the tenant.

                At the end of July 1987, the landlord discontinued the proceedings commenced by the writ dated 8th May 1987.

                Then, on 4th August 1987, the landlord served a notice ("the Statutory Notice of 4th August 1987") on the tenant, pursuant to section 58 of the Conveyancing and Property Ordinance, stating that the landlord intended to re-enter upon the suit premises and forfeit the tenancy because the tenant had committed irremediable breaches of covenant by parting with possession of the suit premises to Jardines and by allowing itself to be taken over by Jardines.

                On 6th August 1987, that was followed by the service of another notice (the "Contractual Notice") on the tenant, whereby the landlord purported to give the tenant two months notice to quit under the provision in the tenancy agreement dealing with the eventuality of the "Pizza Hut" franchise being terminated. That Contractual Notice embodied a clause that it was to be without prejudice to the Statutory Notice of 4th August 1987.

                A formal "Notice Of Forfeiture" was served by the landlord on the tenant on 13th August 1987, asserting that the tenancy was thereby forfeited because the tenant had failed to remedy the breaches of covenant complained of in the Statutory Notice of 4th August 1987.

                Next day, i.e. 14th August 1987, the landlord issued the writ giving rise to the present trial in which possession of the suit premises was sought against the tenant, on the ground of breach of the covenants against parting with possession, and against suffering a take-over, the tenant counter-claiming for relief against forfeiture.

Held, granting possession to the landlord after trial:-

1987 No. A4911

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. By a lease dated the 18th December 1982, The Prudential Enterprise Limited (the 1st plaintiff in the present proceedings) let part of the third basement floor of the Prudential Centre at 216-228A Nathan Road, Kowloon to P.H. Shek Limited and Pirest Limited (the 1st and 2nd defendants, respectively; in the present action) for a 7 year term from the 18th December 1982. The rent together with the managment fee and air-conditioning charges was payable monthly in advance on the 1st day of each and every calendar month. The lease made provision that for the first year of the lease the rent was to be HK$112,860 per month, but for the third, fourth and fifth years (with which the present case is concerned) the rent was to rise to HK169,290 per month.

2. From the outset, the premises have been used for the operation of a "Pizza Hut". Under SECTION (XII), which is the INTERPRETATION AND MISCELLANEOUS part of the lease, Clause (17) provides as follows:

"The Landlord understands that P.H. Shek Ltd. and Pirest Ltd. are the operator of a franchise with the Pizza Hut group headquarters. The Landlord also understands that should such franchise agreement be terminated then P.H. Shek Ltd. and Pirest Ltd. will be required under their franchise agreement to discontinue use of the Pizza Hut style color scheme and will be required to remove all identifying architectural superstructure effectively to distinguish the same from the design under the Pizza Hut registered building design service mark. It is also understood, however, should such franchise be terminated, the Landlord shall have the right to terminate the lease of P.H. Shek Ltd. and Pirest Ltd. upon giving two months' notice in writing."

 

3. SECTION (9l) of the lease, which is entitled "RESTRICTIONS AND PROHIBITIONS" provided that :-

4. Provision for forfeiture and re-entry in the event of breach of covenant by the tenants was made by SECTION (IX), which is entitled "DEFAULT" and is as follows:-

"It is hereby further expressly agreed and declared as follows:

 

5. The only other part of the lease relevant for present purposes occurs in SECTION (XII), INTERPRETATION AND MISCELLANEOUS :-

6. The Prudential Enterprise Limited assigned the Prudential Centre, together with the benefit of all leases, to the Prudential Mall Limited on the 10th March 1987. P.H. Shek Limited and Pirest Limited paid the rent to and dealt with the Prudential Mall Limited as landlord after that date.

7. On 25th March 1987, Miss Diana Shek, a director of P.H. Shek Limited, made overtures to Mr Samuel Tuk Yee Lee (Mr Lee), a director of The Prudential Mall Limited to see whether The Prudential Mall Limited would consent to a transfer of the lease or a change in ownership of the lessees. Mr Lee refused any such consent. (See Core Bundle at page 56, and Mr Lee's affirmation of 25th July 1987 in HCA No. 2678 of 1987).

8. A further approach was made to The Prudential Mall Limited on 13th April 1987 when P.H. Shek Limited wrote as follows:-

9. That letter resulted in a swift rejection on behalf of The Prudential Mall Limited when their solicitors on the 15th April 1987 wrote back as follows:-

"Dear Sirs,

 

55/11

c.c. client

c.c. Jardine, Matheson & Co. Ltd. (CLD)"

10. A meeting was held on the 29th April 1987 between Mr Lee and his solicitors on the one side, and representatives of the lessees and Jardines on the other side, to explore whether the landlords would be agreeable to the tenancy being transferred and/or the lessees being taken over by Jardines, but again, the landlords declined to give any such consent.

11. Besides the meetings of 25th March and 29th April 1987 and P.H. Shek Limited's letter of 13th April 1987 already referred to, there were various other straws in the wind indicating to the landlords that Jardines wanted the lease to be transferred and to take over Pirest Limited, but all this was of a quite inconclusive nature with no evidential value, so that I do not propose to make any further reference to it.

12. In the usual way, The Prudential Mall Limited on the 23rd April 1987 sent the lessees a debit note for the next month's rent in advance, which was to fall due on 1st May 1987.

13. So that the lessees could be left in no doubt whatsoever that the landlord would not allow any transfer of the tenancy, the landlords fired off the following telex to the lessees on the 2nd May 1987:-

"TO: P.H. SHEK LIMITED AND PIREST LIMITED

 

14. The next event to happen as far as the landlords were concerned was to wake up on the morning of 5th May 1987 to read headlines in the Hong Kong newspapers such as, "JARDINES NOW THE NOBLE HUT" and "UNDISCLOSED AMOUNT OF DOUGH BUYS PIZZA HUTS". Those newpapers reported that Jardines had made an announcement the previous day, (i.e. 4th May 1987), that it had acquired the Hong Kong franchise of Pizza Hut restaurants from P.H. Shek Limited for an undisclosed sum. (That sum has never been disclosed to the landlords, nor to the court, but, in the words of counsel for the lessees, it is "substantial", or, in the more colourful words of Mr John Swaine, Q.C., for the landlords, it was, obviously, "A whole mint of money").

15. Those press announcements spurred The Prudential Mall Limited to immediate action. Although Prudential Mall Limited was completely lacking in evidence which would stand up in a court of law, it instructed its solicitors to institute proceedings against the lessees for forfeiture. After spending a couple of days preparing the necessary documentation, the landlords' solicitors issued a writ (being H.C.A.2678 of 1987) on the 8th May 1987, seeking possession of the suit premises and damages for breach of covenant on the basis of alienation, contrary to Clause (19)(c) of SECTION (VI) of the lease. I will set out the whole "Indorsement of Claim" from that writ, since the lessees' counsel at one point addressed me on the basis that the form of that Indorsement was significant in the context of waiver:

The Plaintiff's claim is for:-

 

AND the Plaintiff claims against both Defendants:-

 

16. On the very day that the landlord issued its writ, (namely, the 8th May 1987), a notice appeared in the Hong Kong Government Gazette pursuant to sections 4 and 5 of the Transfer of Businesses (Protection of Creditors) Ordinance, Cap. 49, to the effect that P.H. Shek Limited, carrying on the business of operating restaurants under the name and style of Pizza Hut, had agreed with effect from 30th April 1987 to transfer the business together with, inter alia, the tenancies of the business premises, to Jardines, the transfer having been completed on 30th April 1987. That notice was in the name of P.H. Shek Limited as transferor and Jardines as transferee. Eleven different localities including the snit premises were mentioned in the notice as places where there were Pizza Hut restaurants.

17. That notice cannot be faulted as far as it goes, but it does not tell the whole story. In particular, it made no reference to an agreement made on the 24th April 1987 between (inter alia) P. H. Shek Limited, Mr Shek Pak Hang and Jardines. Discovery of that document has not been made by either of the defendants in the present action, but, presumably, that was the agreement which transferred the Pizza Hut franchise from P.H. Shek Limited to Jardines for "A whole mint of money".

18. There was also another agreement made on the 24th April 1987. That was between Mr Shek Pak Hang, Hut Limited and Jardines. That document first came to the plaintiffs' attention by virtue of the discovery process in the present proceedings. That agreement provided, in effect, that Jardines would take over Pirest Limited from the 30th April 1987. According to that agreement, completion was supposed to take place on the 30th April 1987, but the reality has been that the shares in Pirest Limited were not transferred to Jardines or its nominees until on or about the 4th July 1987.

19. The writ in HCA No. A2678 of 1987 between Prudentia Mall Limited as plaintiff and P.H. Shek Limited and Pirest Limited as defendants, (henceforth referred as "the Abortive Action") which was issued on the 8the May 1987, was served by post on the defendants' solicitors on the 11th May 1987, an Acknowledgement of Service being filed and served on the defendants' behalf on the 21st May 1987.

20. Despite instructions from Mr Lee to his staff at about the beginning of May 1987 not to accept any further rent from, nor send out any further demands for rent to the defendants, The Prudential Mall Limited, nonetheless, did, on the 23rd May 1987, send out a demand to the defendants for June's rent. Before any attempt was made to pay that rent, The Prudential Mall Limited wrote to the defendants on the 27th May 1987 pointing out that the June rent had been demanded by mistake and stating that such rent would not be accepted. The defendants did, after that, attempt to tender the rent for June and for subsequent months, but The Prudential Mall Limited has consistently refused to accept it.

21. On the 5th May 1987, the lessees' solicitors had sent The Prudential Mall Limited a cheque for the rent and other outgoings in respect of May 1987. This is what that letter stated:-

"Dear Sirs,

 

We are instructed by our clients P.H. Shek Limited and Pirest Limited, tenants of the above premises to send you herewith our cheque for the sum of $207,455.30 being rental for the month of May, 1987 including air-conditioning charges, management fees, water charges and other outgoing payable by our clients in respect of the above premises, receipt of which kindly acknowledge.

 

 

Yours faithfully,"

The Prudential Mall Limited did not acknowledge receipt of that cheque. Nor did the Prudential Mall Limited bank it. The next thing the defendants knew was that they had been served with the writ in the Abortive Action (i.e. H.C.A. No. A2678 of 1987). It was not until the 2nd July 1987 that the defendants' cheque was returned to their solicitors, uncashed, with an explanation that it had been retained by the solicitors for The Prudential Mall Limited owing to an oversight.

22. Attention can now be switched back to the course which the Abortive Action took. The first version of the Statement of Claim was filed on 2nd June 1987. The only paragraph of any significance for present purposes is 9 which reads as follows:-

"9.    The Plaintiff's case is that Pirest is now a wholly owned subsidiary of Jardines and that the Defendants have on a day unknown but believed to be on or about the 30th April, 1987 breached the covenants against alienation of the demised premises contained in the lease. The full extent and nature of the Plaintiffs case can only be stated after discovery has taken place"

Next day, namely 3rd June 1987, there followed an amended version of the Statement of Claim. For present purposes the only paragraph worth mentioning from that is paragraph 13, which was as follows:-

"13.     The Plaintiff's case is that Pirest is now or is becoming a subsidiary (wholly owned or otherwise) of Jardines and that the Defendants have on a day unknown but believed to be on or about the 30th April, 1987 breached the covenants against alienation of the demised premises contained in the lease. The full extent and nature of the Plaintiff's case can only be stated after discovery has taken placed. "

23. Neither the original Statement of Claim of 2nd June, nor the amended version of 3rd June contained any prayer for relief. Then came a re-amended Statement of Claim dated July 1987. That contained a prayer for relief identical to the one I have already set out from the INDORSEMENT OF CLAIM on the writ, except that now the date from which rent and other charges were claimed to the date of service of the writ was 1st May 1987 instead of 4th May 1987. Whether that re-amended Statement of Claim was ever filed, and what its precise status is, have not been clarified for me, but I do not think anything turns on this.

24. On 6th July 1987, an affidavit sworn on the 2nd July 1987 by Mr Emerson, solicitor for The Prudential Mall Limited, was filed in the Abortive Action in support of a summons for interim payments of rent and/or mesne profits. It is necessary to set out the operative parts of that affidavit since the defendants' counsel at one point thought he could detect the seeds of a waiver in it. I now set out the relevant extract from that affidavit:-

"3.     (1)    In this action, the Plaintiff claims against the 1st and the 2nd Defendants for :-

 

25. The Abortive Action was doomed to failure from the outset, because The Prudential Mall Limited had failed to comply with the requirement of serving a notice on the defendants under section 58 of the Coveyancing and Property Ordinance, Cap. 219. It is only necessary to set out sub-sections (1) and (2) from that section which are as follows:-

26. Realizing that The Prudential Mall Limited had failed to serve a notice under section 58, the defendants moved to strike out the Statement of Claim in the Abortive Action. Recognizing the futility of going on after failing to serve a section 58 notice, The Prudential Mall Limited bowed to the inevitable by discontinuing the Abortive Action at the end of July 1987.

27. To put its house in order, The Prudential Mall Limited, together with The Prudential Enterprise Limited, on the 4th August 1987 duly served a notice under section 58 on the defendants in the following terms:-

        We, Messrs. Tai, Ho & Chan, of 12th Floor, Fung House, 19-20 Connaught Road, Central, Hong Kong, solicitors for PEL and Prudential Mall Limited ("PAIL") (who are the assignees from PEL of the said Prudential Centre, including the said premises, and/or who are the successors in title to the said PEL in respect of the said Prudential Centre, including the said premises), HEREBY GIVE YOU NOTICE as follows :-

 

.............................

 

Tai, Ho & Chan,

 

Solicitors for the abovenamed PEL & PML"

28. That notice will henceforth be referred to as "the Statutory Notice of 4th August 1987".

29. That was followed on the 6th August 1987 by the service of another notice on the defendants in the followings terms:-

            We, Messrs. Tai, Ho & Chan, of 12th Floor, Fung House, 19-20 Connaught Road, Central, Hong Kong, solicitors for PEL and/or Prudential Mall Limited ("PMLL") (who are the assignees from PEL of the said Prudential Centre, including the said premises, and/or who are the successors in title to the said PEL in respect of the said Prudential Centre, including the said premises), HEREBY GIVE YOU NOTICE as follows :-

 

Tai, He S Chan,

 

Solicitors for the abovenamed PEL & PML"

30. That notice, dated 6th August 1987, will henceforth be referred to as "the Contractual Notice".

31. Next, on 13th August 1987, the defendants were served by the plaintiffs with a notice described as a "NOTICE OF FORFEITURE" in the following terms:-

32. That will henceforth be referred to as the "Notice of Forfeiture".

33. Lastly, the writ in the present proceedings was filed on behalf of the plaintiff on 14th August 1987. That went to the length of actually pleading the Statutory Notice of 4th August 1987 and the Notice of Forfeiture so that there was no risk of repeating the mistake which sank the Abortive Action. Strictly speaking, a landlord is not required to plead the giving of the notice required by S.58 of the Conveyancing Property Ordinance. All that matters is that the landlord has in fact duly given such a notice. Due compliance by a landlord with S.58 is a condition precedent to bringing an action for re-entry for breach of covenant so that performance of that statutory condition is implied and need not be specifically pleaded. See the Supreme Court Practice (the White Book) 1988, para. 18/7/10-11 and Bullen and Leake (12th Edition), para. 42. Thus, the landlords' pleading of the Statutory Notice of 4th August 1987 and the Notice of Forfeiture was unnecessary, but, on the other hand, it does no harm to the landlords' claim in the present action.

34. The only point of any interest in the relief sought by the present proceedings is that now what the plaintiffs ask for in respect of May 1987 is ''meson profits at the monthly rate of HK$515,000 or such other sum as may be assessed from 1st May 1987 or such other date as this court deems just until the delivery up of vacant possession of the said premises".

(B)    Reasons For Findings Of Fact

35. My findings of primary fact are based on a Statement Of Agreed Facts, undisputed correspondence, and my acceptance of the evidence of Mr Emerson, and Miss Yip Mei Yee, an assistant accountant employed by The Prudential Mall Limited, as witnesses of truth who gave me reliable evidence. My findings of secondary fact are based on common sense inferences.

II.    THE ISSUES

36. Six issues arose for determination. They were as follows:-

III.    THE LAW AS APPLIED TO THE ISSUES

37. Had the plaintiffs served the defendants with the requisite notice under section 58(1) of the Conveyancing and Property Ordinance before issuing the writ in the Abortive Action, the defendants would have been deprived of any scope for successfully arguing that the demand for June's rent, mistakenly sent by the 2nd plaintiff's staff on the 27th May 1987, waived the breach when the 1st defendant transferred the tenancy of the suit premises to Jardines on the 30th April 1987.

38. There is no doubt from the authorities that the receipt of rent by a landlord after he has served a tenant with a writ for possession, (which has been preceded by the due service of a notice under section 58(1)), does not amount to a waiver of the breaches complained of in the notice. Some of the many cases establishing that proposition are the following:- Doe d. Morecraft v. Meux⁽¹⁾; Jones v. Carter⁽²⁾; Evans v. Enever⁽³⁾; Civil Service Co-operative Society v. McGrigor's Trustee⁽⁴⁾; and Central Estates (Belgravia) Ltd. v. Woolgar No. 2)⁽⁵⁾.

39. The effect, however, of failing to serve that notice is, I think, that the Abortive Action was a nullity from outset. That is a conclusion I arrive at from a series of cases stemming from section the Conveyancing and Law of Property Act, 1881 which, for present purposes, is indistinguishable from section 58(1) of the Conveyancing and Property Ordinance. Those cases are in Re Riggs, ex parte Lovell⁽⁶⁾; Jolly v. Brown⁽⁷⁾; Fox v. Jolly⁽⁸⁾ and Gates v. W.A. & R.J. Jacobs Ltd.⁽⁹⁾.

40. Where a landlord has served his tenant with properly constituted proceedings for possession, the effect in law is that the landlord is deemed irrevocably to have elected' to treat the lease as an end: Sergeant v. Nash Field & Co.⁽¹⁰⁾; and Wheeler v. Keeble (1914) Ltd.⁽¹¹⁾. That is because service of such proceedings is deemed the equivalent of re-entry on the premises by the landlord. Re-entry, whether deemed or actual, is treated by the law as an unequivocal act by the landlord which can leave the tenant in no doubt that the lease has been irrevocably terminated, so that any subsequent receipt of rent by the landlord will do nothing to revive the lease.

41. Provided the writ had been properly preceded by a notice under S.58(1) of the Conveyance and Property Ordinance, there would still have been an irrevocable re-entry by the landlord, notwithstanding any discontinuance of the proceedings. Authority for that proposition is to be found in Calabar Properties Ltd. v. Seagull Autos Ltd.⁽¹²⁾, explaining Moore v. Ullcoats Mining Co. Ltd.⁽¹³⁾. Thus, despite the discontinuance of such proceedings, any subsequent receipt of rent by the landlord would not waive the forfeiture.

42. Where, however, the proceedings, as here, are a nullity for lack of a notice under section 58(1) of the Conveyancing and Property Ordinance, I fail to see how the court could be Justified in attributing any effect to such proceedings. In particular, the landlord will have no deemed re-entry to rely on for the purpose of showing that rent subsequently demanded and/or accepted will not amount to a waiver of earlier breaches of covenant known to the landlord.

43. By the 27th May 1987, it would be unrealistic to suppose that the plaintiffs did not know about the breach committed by the 1st defendant on the 30th April 1987 when the tenancy of the suit premises was transferred to Jardines. There had been the announcement in the Government Gazette of 8th May 1987 about that transfer. It is virtually inconceivable that the plaintiffs would not have known about that notice before the 27th May 1987.

44. Knowing by the 27th May 1987 of that breach of covenant involving the transfer of tenancy, yet on that same day sending a demand to the defendants for the June rant produces the effect in law that the plaintiffs must be treated as having waived the breach committed by the 1st defendant when the tenancy was transferred on 30th April 1987. As part of a policy of leaning against forfeitures, the law adopts what can only be regarded as a highly artificial approach in its treatment of the effect of a demand for rent accruing subsequently to the landlord's knowledge of a breach of covenant. Even if, as in the present case, it must have been abundantly clear to the tenant that the landlord had only issued the demand for rent because of a temporary mistake on the landlord's part, the effect in law, nonetheless, is that the breach is waived. I do not find that a just result, particularly in the present case where the defendants could not have been under any illusion that the plaintiffs might suddenly have relented in their efforts to kick the defendants out, but, on the view I take of the authorities, I am left with no choice. Three relatively modern cases in support of the principle that demand for rent, albeit mistaken, results in waiver in the circumstances I have just described are, Central Estates (Belgravia) Ltd. v. Woolgar (No.2)⁽⁵⁾; Blackstone (David) Ltd. v. Burnetts (West End) Ltd.⁽¹⁴⁾; and Expert Clothing Service & Sales Ltd. v. Hillgate House Ltd.⁽¹⁵⁾. Although such a rule can result in injustice in individual cases, there is, at least, the merit of certainty to commend it.

45. A word can be said about the alleged waivers which counsel for the defendants sought to show had arisen even before the 27th May 1987.

46. The defendants sent the plaintiffs a cheque for the May rent on or about the 5th May 1987. Failure by the plaintiffs to return that cheque to the defendants until the 2nd July 1987 amounted to a waiver according to the defendants. At the time the plaintiffs received that cheque, they did not know that the 1st defendant had committed a breach of covenant on the 30th April 1987 by transferring the tenancy to Jardines. As at the time of the receipt of that cheque, the plaintiffs knew that something funny was going on, but did not know what. The only information they had was what appeared in newspaper reports on the 5th May 1987. As at that time, the plaintiffs had their suspicions that the defendants might have committed a breach, but the plaintiffs then had no way of proving anything and lacked sufficient facts to be put to their election: Blackstone (David) Ltd. v. Burnetts (West End) Ltd.^(14a); Kammins Ballrooms Co. Ltd. v. Zenith Investments (Torquay) Ltd.⁽¹⁶⁾; Fullers Theatre & Veaudeville Co. v. Rofe⁽¹⁷⁾; and Matthews v. Smallwood⁽¹⁸⁾. Because of the plaintiffs' lack of knowledge until at least after the 8th Nay 1987, when the Hong Kong Gazette notice appeared, the defendants are in no position to prove waiver against the plaintiffs in relation to the non-return of that cheque. (For an analogous situation, see Chrisdell Ltd. v. Johnson⁽¹⁹⁾.)

47. Even if the defendants were able to prove that, at the time when the plaintiffs received the cheque, they knew about the breach of covenant, I do not think that failure to return the cheque could be regarded as a sufficiently unequivocal act to give rise to a waiver. The omission to return the cheque was reasonably consistent with many explanations other than election by the plaintiffs to treat the defendants as their tenants. Had the plaintiffs cashed the cheque or issued the defendants with a receipt for it, the result would have been different, but mere non-return of a cheque, in my view, fell far short of waiver.

48. The fact that the plaintiffs intended to return the cheque to the defendants straight away, but failed to do so because of an oversight does not assist the defendants, in my view. The plaintiffs, in the light of their knowledge at the time, were intending to return the cheque to the defendants as the result of ultra-caution on the part of the plaintiffs, rather than because they knew of a breach. The plaintiffs did not want to run the slightest risk that any action inaction on their part might result in the lease continuing any longer than necessary.

49. Although, for reasons I have already given, I regard the Abortive Action as a nullity, I think it was at least good for the purpose of disabusing the defendants of any notion that the plaintiffs were hanging on to their cheque because the plaintiffs wanted the defendants as their tenants.

50. Yet a further reason exists why failure to return the cheque does not give rise to a waiver. Even if the plaintiffs had accepted the cheque, there would have been no waiver because it related to rent which had accrued due before the plaintiffs knew of any breach of covenant. The rent under the lease, it will be recalled, was payable monthly in advance on the first day of each month. Thus, on the 1st May 1987, the full rent for May accrued due to the plaintiffs as a debt due and owing. Because the plaintiffs subsequently got to know of a breach occuring on the 30th April 1987 would not mean that by accepting the debt due and owing to them before they knew of the breach, they somehow waived the breach. Authority for the proposition that a landlord who, after learning of a breach, receives rent which has accrued prior to his knowing of the breach, will not have waived, are as follows: Green's Case⁽²⁰⁾; Marsh v. Curteys⁽²¹⁾; Price v. Worwood⁽²²⁾; Ellis v. Rowbotham⁽²³⁾; Civil Service Cooperative Society v. McGrigor's Trustees⁽⁴⁾, a case involving a forfeiture brought about by bankruptcy, where Russell, J. at page 357, said :-

"There remains for consideration the point as to waiver. The facts are these. [His Lordship stated the facts relating to the demand for and acceptance of the rent and continued:] This amounts to a demand by the plaintiffs (with knowledge of the bankruptcy) for rent (accrued in part before the bankruptcy, in part between the bankruptcy and the writ, and in part subsequent to the writ), followed by payment and acceptance. Does this operate as a waiver of the forfeiture? Upon a consideration of the authorities I am of opinion that it does not."

and Canas Property Co. Ltd. v. K. L. Television Services Ltd.⁽²⁴⁾, where, at page 442, Lord Denning observed :

"The lease is determined as from the date on which the writ is served. The rent is payable up to the date of service. Mesne profits are payable after the date of service. The writ should be indorsed accordingly. Take an instance when the rent is payable quarterly (for instance on March 25, 1968) and the writ for possession is issued and served during the quarter (for instance, on April 25, 1968). If the rent is payable advance, the writ should claim for the whole quarter's rent due in advance on March 25, 1968: Ellis v. Rowbotham [1900]1 Q.B. 740; and mesne profits from June 24, 1968, to the date of delivery of possession. If the rent is payable in arrear the writ should claim the last quarter's rent due (for example, on March 25, 1968), and then there should be a claim in words for 'rent at the rate of ........ from March 25, 1968, to the date of service of the writ and mesne profits at the rate of ......... from the date of service of the writ till the date of delivery of possession'."

51. The same point about how a landlord does not waive when he claims for rent already accrued prior to his learning of the breach can be made in relation to Mr Wong's contention that by claiming in the statement of claim (as amended) in the Abortive Action for rent from the beginning of May 1987 until service of the writ for rent and thereafter for mesne profits, the plaintiffs had somehow waived the breach involving the transfer of the tenancy to Jardines on the 30th April when they pursued a summons for interim payments under Order 29, rule 12. In my view, there would have been no waiver even if the plaintiffs' summons for interim payment had characterised the payments for the whole of May 1987 as rent, since such rent had already accrued due to the plaintiffs on the 1st May 1987, at which stage they did not know of the breaches by the defendants.

52. The statement of claim, as amended, in the Abortive Action claimed rent from the beginning of May until service of the writ. The summons for interim payments followed the same pattern. A claim couched in that way was, if anything, unduly favourable to the defendants. A claim worded in that way would have been appropriate if the rent were payable monthly in arrear, rather than in advance. The pleader for the plaintiffs would have been wholly within his rights to state from the outset that he was claiming rent for the whole of May. In doing that, he would only have been actin in conformity with the law, as laid down Canas Property Co. Ltd. v. K.L. Television Services Ltd.⁽²⁴⁾.

53. By adopting the formulation to be found in the various versions of the Statement of Claim in the Abortive Action and in the consequential clam for interim payments, the landlords did not, in my opinion, raise the slightest suggestion of waiver.

54. The upshot of what I have said so far is that I regard the breach by the 1st defendant in transferring the tenancy to Jardines on the 30th April 1987 as waived by the 2nd plaintiff's demand on 23rd May 1987 for the June rent.

55. The plaintiffs say they have a second string to their bow. Even if they are found to have waived the breach which occurred on the 30th April 1987 when Jardines received the transfer of the tenancy from the 1st defendant, they contend there was another operative breach on the 4th July 1987 when Jardines took over the 2nd defendant.

56. In reply to that, the defendants sought to argue that the take-over of the 2nd defendant by Jardines was all part of the same transaction as the transfer of the tenancy by the 1st defendant to Jardines, with the result that if the breach involved in the transfer of tenancy was waived, the breach arising from the take-over should likewise be waived. The defendants contended that the case of Downie v. Turner⁽²⁵⁾ supported the proposition they were arguing for.

57. However, a scrutiny of Downie v. Turner reveals that it is merely authority for the principle that, where the breach of one covenant (in that case, not to underlet) necessarily involved breach of another covenant (in that case, to use the premises as a single dwelling house), waiver of a breach of the first covenant necessarily waived the breach of the second covenant.

58. In the case before me, waiver of a breach of the covenant not to part with possession of the tenancy by no process of logic necessarily waives a breach of the covenant against the defendants being taken over. A landlord with a covenant in the form of Clause (19) of Section VI might not be too worried about the tenancy being transferred, so long as he knew that he could still look to the original corporate tenant, owned by people of whom he approved, for performance of the covenants. However, if the ownership of the original corporate tenant changed, the landlord might find his position prejudiced. The new owners of the corporate lessee might be in some way undesirable and not the type of people with whom the landlord would choose to do business. In the face of sub-clause (c) of Clause 19, I do not think the landlord can have new owners of the 2nd defendant foisted upon him unless he chooses to accept them.

59. It makes no difference to the interpretation of Clause (19) that, as events have turned down, the new owners of the 2nd defendant happen to be a highly reputable company like Jardines. If the landlords do not want to continue with the 2nd defendant as tenant under the ownership of Jardines, that is the privilege of the landlords: that is why sub-clause (c) of Clause 19 is there. I do not see how the landlords could have expressed themselves more clearly, and so long as the doctrine of sanctity of contract continues to operate in this territory (except in so far as it is modified by the doctrine of relief against forfeiture), I do not see how the landlords can be denied the protection which sub-clause (c) of Clause 19 explicitly gives them.

60. No doubt, counsel for the defendants is correct when he says that the transfer of the tenancy and the take-over of the 2nd defendant are all part of the same transaction, but such an observation is neither here nor there. The correct question to ask, in my opinion, is whether the transfer of the tenancy necessarily entails a change in the ownership of the 2nd defendant. The answer is obviously, 'No'.

61. In sum, I hold that the waiver on the 27th May 1987, arising from the landlord's demand for June's rent, does not extend to the breach occurring on the 4th July 1987 when the defendants allowed the 2nd defendant to be taken over.

62. One further matter can conveniently be dealt with at this point in relation to the breach occurring on the 4th July 1987. Counsel for the defendants contended that the Statutory Notice dated 4th August 1987 did not embrace the breach of the 4th July 1987 because, in effect, it made no reference to the 4th July 1987. What the Statutory Notice dated 4th August 1987 said was:-

That notice to my mind sufficiently identified the breach arising from the take-over. At the time of serving the Statutory Notice dated 4th August 1987, the plaintiffs were not aware of the actual date of the take-over. The defendants did not tell them, and the plaintiffs had no means of knowing the correct date until after Discovery in the present action. In such circumstances, the plaintiffs did all that could reasonably be expected of them to identify the breach, and it is inconceivable that the defendants did not know that it was the breach of 4th July 1987 which was being referred to in paragraph 2(c) of the Statutory Notice dated 4th August 1987.

63. It will be remembered that whereas the Statutory Notice dated 4th August 1987 was to the effect that the landlords intended within a reasonable time to re-enter upon the suit premises and forfeit the lease for breaches of the covenant against parting with possession or being taken over, the Contractual Notice served two days later purported to give the defendants two months notice to quit pursuant to clause (17) of Section (XII) of the lease but went on to state that such notice to quit was without prejudice to any breaches that the defendants had committed to date, and, in particular, was specifically without prejudice to the Statutory Notice dated 4th August 1987.

64. The first contention by counsel for the defendants about that Contractual Notice, if I understood him correctly, was that it amounted to an election by the plaintiffs to affirm the continuation of the lease for a further two months, the Statutory Notice dated 4th August 1987 being thereby superceded.

65. As I understand the law, the defendants will be entitled to succeed on their contention if, objectively speaking, the Contractual Notice should be regarded by the court as amounting to an unequivocal election by the plaintiffs to affirm the continued existence of the lease. No matter what the real intention of the plaintiffs was in serving that Contractual Notice, and despite any knowledge on the defendants' part that the plaintiffs intended to re-enter upon the suit premises for breach of covenant, the duty of the court is to construe the Contractual Notice objectively. Although the court must construe the Contractual Notice objectively, that in no way means that the court has to close its eyes to all the surrounding circumstances in arriving at its decision on whether the plaintiffs can be said to have elected to affirm the lease through the Contractual Notice.

66. The court's approach to the issue of election in a situation like the one presently under consideration is to be contrasted with the position where the court is called upon to consider whether the demand and/or acceptance of rent by a landlord with knowledge of a breach of covenant amounts to an election. The situation of a landlord demanding or accepting rent when knowing about a breach of covenant is treated by the law as a special category of case where the landlord will be deemed to have waived the breach. In that special category of case, it will avail the landlord nothing to demand or accept the rent under protest by adding, for example, such words as "without prejudice to the landlord's rights in respect of the breach". That the cases involving the demand or acceptance of rent fall into a special category is made clear by Expert Clothing Service and Sales Ltd. v. Hillgate House⁽¹⁵⁾. That case also makes clear that in other types of situation the court is free to look at all of the circumstances to see whether, on "any fair objective consideration" (361D), the landlord's acts should be regarded as an unequivocal election to continue with the lease. The concept of what is meant by an unequivocal ac t received attention in Peyman v. Lanjani⁽²⁶⁾, where, at page 499, Lord Justice Slade cited the following well known: passage from the speech of Lord Blackburn in Scarf v. Jardine⁽²⁷⁾, with approval:

".............. and whether he intended it or not, if he has done an unequivocal act - I mean an act which would be justifiable if he had elected one way and would not be justifiable if he had elected the other way - the fact of his having done that unequivocal act to the knowledge of the persons concerned is an election."

67. On the topic of Election generally, a useful discussion is to be found in Chapter XIII of Spencer Bower and Turner's Estoppel By Representation (Third Edition).

68. When dealing with situations that do not involve the demand or acceptance of tent, the Court is entitled to give proper weight to attempts at disclaimer of election by landlords who use such terminology as "without prejudice to any breach ..............". An example of how a landlord can resort to a "without prejudice" formula, without immediately committing himself to an election, can be found in the pleadings in the case of Calabar Properties Limited v. Seagull Autos Limited^(12a), There, in the Statememt of Claim, the landlord claimed possession, but also, "without prejudice", claimed injunctions from the tenant. The tenant there took the point that, in asking for injunctions, the landlord must have impliedly affirmed the continuations of the lease. The Court rejected that argument, holding that the landlord's claim for injunctions was put forward as an alternative in such a way as not to prejudice the claim for possession. Thus, the option still remained open to the landlord as to whether he would elect to pursue the claim for possession or the claim for the injunctions.

69. In the case before me, I would regard it as perverse to treat the Contractual Notice as amounting to an unequivocal election by the plaintiffs to keep the lease on foot. The Contractual Notice is no more than an alternative or contingent claim that the lease should determine by notice to quit in the eventuality of the Statutory Notice of 4th August 1987 not being effective to bring about a forfeiture. By that Contractual Notice, the plaintiffs were doing no more than keeping their options open, a course which I regard as unobjectionable. Making reference to maxims such as "blowing hot and cold", or "having their cake and eating it" to support the tenant's position, or "wearing both a belt and braces" in support of the landlord's position, does little to clarify the real issues.

70. In my view, the combined effect of the Statutory Notice of 4th August, the Contractual Notice of 6th August, the Notice of Forfeiture of 13th August, and the writ in the present proceedings issued on the 14th August and served shortly thereafter, is that the plaintiffs have unequivocally demonstrated their resolve to re-enter the suit premises for the forfeiture arising, from the defendants' breach of covenant.

71. A case was relied on by counsel for the defendants to show that a notice to quit can amount to an affirmation of a tenancy. That case was Marche v. Christadoulakis⁽²⁸⁾. The only similarity between that case and the present case is that in both of them there was a notice to quit. However, in the Marche v. Christadoulakis case there was no suggestion of the notice to quit being without prejudice to the landlord's enforcing his right to re-enter for a forfeiture. The landlord there simply made a straight forward and unequivocal election to terminate the tenancy by a notice to quit. In the circumstances of that case, his action brought about the unfortunate consequence for him, under the rent restriction legislation in force in England, of recognising the continuation of the tenancy, with the result that a sub-tenant was able to claim the protection of that legislation.

72. An alternative argument put forward on behalf of the defendants was to the effect that somehow the Statutory Notice dated 4th August 1987 would not take effect till 6th October 1987, because of the service of the Contractual Notice giving two months notice to quit from the 6th August 1987. I was not able to follow that argument, and have nothing to say about it.

73. I refrain from making any observations on the effectiveness of the Contractual Notice of 6th August 1987 in the event of it turning out that I am wrong in my view that the service of the writ in the present proceedings successfully effected a re-entry by the landlords to the suit premises for breach of covenant.

(6)      Relief against forfeiture

74. Clearly, by virtue of section 58(2) of the Conveyancing and Property Ordinance, discretionary power is vested in the court to grant the defendants relief against forfeiture if the court deems the circumstances appropriate. In exercising that discretion, I have to pay "regard to the proceedings and conduct of the parties under the foregoing provisions of this section and to all the other circumstances ............."

75. As early as the 25th March 1987, Mr Lee for the landlords, made it abundantly clear to Miss Diana Shek for the tenants that the landlords would not consent to any change in the ownership of the tenants. That stance of the landlords was emphasised to the tenants again, in writing, on the 15th April 1987, the 29th April 1987, and the 2nd May 1987.

76. Despite the landlords' continuous refusal of consent to a take-over, the tenants blithely went ahead with the take-over of Pirest Limited by Jardines on the 4th July 1987.

77. The obvious motive of the owners of Pirest Limited in allowing it to be taken over was to make "A whole mint of-money" for themselves. Is this the type of situation where Equity should intervene to protect the tenant? I do not think it is. The plaintiffs are, I feel, entitled in this context to pray in aid the words of Lord Wilberforce in Shiloh Spinners Limited v. Harding⁽²⁹⁾:

"Established and in my opinion sound principle requires that wilful breaches should not, or at least should only in exceptional cases, be relieved against, if only for the reason that the lessor should not be compelled to remain in a relation of neighbourhood with a person in deliberate breach of his obligations."

78. I think the observation in Tulapam Properties Limited v. De Almeida⁽³⁰⁾ to the following effect is correct: "Relief from forfeiture is in the nature of being an equitable relief, and he who comes to equity must come with clean hands". A corporate tenant, whose owners have caused it deliberately to break a covenant so as to enrich themselves, must expect a frosty reception from equity.

79. The only point which can be made in favour of Pirest Limited is that there now stand behind it the vast resources of Jardines, so that there can never be any question of the tenant not being good for the rent or not being able to afford to comply with any other covenants which require the expenditure of money. Equity, as I understand her, is fair but stern. She is not impressed when told how wealthy a litigant is. Equity does not have one standard for the wealthy, yet another for the not so wealthy. If a wealthy litigant flagrantly disregards a covenant in a lease in the way the defendants have here, Equity will withhold her assistance.

80. Thus, the defendants are not entitled to relief against forfeiture.

IV.    CONCLUSION

81. In view of the foregoing, I give judgment against both defendants in favour of the 2nd plaintiff for possession of the suit premises.

82. From the outset, it was agreed all round that I should only concern myself with the issue of liability, and that the issues of quantum of damages, mesne profits and the other items of relief particularised under paragraph 10 of the amended statement of claim should meanwhile stand adjourned. I now direct that the 2nd plaintiff is at liberty to have a date fixed by the Clerk of Court for the hearing of those issues of quantum (unless such issues can be agreed out of court between the parties).

83. This being a reserved judgment under Order 42, rule 5, I make an order nisi that costs are to follow the event.

(1)     [1824]1 C. & P. 346

(2)     [1846]15 M. & W. 718

(3)     [1920]2 K.B. 315

(4)     [1923]2 Ch. 347

(5)     [1972]1 W.L.R. 1048

(6)     [1901]2 K.B. 16 (in particular, at p. 20)

(7)     [1914]2 K.B. 109 (in particular, at p. 120)

(8)     [1916]1 A.C. 1 (in particular at pp. 8, 14, 17, 18, 19 and 21)

(9)     [1920]1 Ch. 567 (in particular at p. 569)

(10)    [1903]2 K.B. 305

(11)    [1920]1 Ch. 57

(12)    [1969]1 Ch. 451, 454

(12a)    [1969] 1 Ch. 451, 452

(13)    [1908]1 Ch. 575

(14)    [1973]1 W.L.R. 1487

(14a)    [1973]1 W.L.R. 1487, 1496 and 1498

(15)    [1986]1 Ch. 340

(16)    [1971] A.C. 850, 883

(17)    [19231 A.C. 435

(18)    [1910]1 Ch. 777

(19)    [1987]2 E.G.L.R. 123

(20)    [1582] Cro. Eliz 3

(21)    [1596] Cro. Eliz. 528

(22)    [1859]4 H. & N. 512

(23)    [1900]1 Q.B. 740

(24)    [1970]2 Q.B. 433

(25)    [1951]2 K.B. 112

(26)    [1985] Ch. 457

(27)    7 App. Case 345, 360 - 361

(28)    (1948) Times Law Reports 466

(29)    [1973] A.C. 691 at p. 725

(30)    [1981] E.G.L.R. 919, 920