ORIENTAL SOLUTION INVESTMENT LTD v. SIN KA-WING t/a C K DESIGN CO

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. HCA 1116 OF 1999

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DETERMINATION OF OUESTION OF LAW

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          The Plaintiff's claim is for HK$222,580.60 and interest being arrears of rent due by the Defendant for his use and occupation of the Plaintiff's premises known as ALL THAT portion A2 of Flat A on the ground floor with cockloft Al and A2 thereof, No. 87 Hennessy Road, Hong Kong, pursuant to a written lease dated 10 May 1996 under which the Defendant covenanted to pay a monthly rent of $70,000, exclusive of rates.

          The said lease was between Colorhall Enterprises Limited and the Defendant. By an Assignment dated 30 May 1997 Colorhall assigned unto the Plaintiff the said premises together with all benefits under the said lease as a result whereof the Plaintiff became the Defendant's landlord from that date.

          By an oral agreement made between Mr CHOY Ma-yeung of the Plaintiff and the Defendant at the end of May 1998 the said monthly rent was reduced to $60,000.

          It is accepted by both sides to this dispute and paragraph No. 7 of the Defence filed on 23 February 1999 concedes that no rent has been paid by the Defendant to the Plaintiff for his use and occupation of these premises during the period from 1 September 1998 to 22 December 1998.

          By a further Assignment dated 22 December 1998 the Plaintiff assigned these premises subject to this tenancy agreement to Madam LING LEUNG Kit-hing pursuant to a Sale and Purchase Agreement dated 30 November 1998. No written demand was made for arrears of rent to the Defendant prior to the issuance of this Writ of Summons by the Plaintiffs on 21 January 1999, i.e. one month after the Assignment.

          The Plaintiffs through their solicitors took out an Order 14 Summons returnable for 19 April 1999 which said summons was adjourned by consent to 21 May for a full hearing. On that date, following submissions from CHONG Tin-chun of Counsel, instructed by Messrs Ng and Yung and Mr LEUNG Lap-keung, solicitor, for the Defendant it was agreed that there was a question of law suitable for determination without a full trial of the action which determination will finally determine the entire cause of action. Accordingly, they posed the following question under Order 14A of the Rules of the High Court:

"After an assignment of the reversion by a successor in title of the original lessor, whether the assignor (who no longer has any estate in the property/land), is entitled to sue the tenant for breach of a covenant in the lease, namely, breach of a covenant to pay rent, which occurred before the assignment, and recover there from any arrears of such rent?"

DETERMINATION

1. The relationship of landlord and tenant is quite simply contractual. Privity of contract exists between them, and each is therefore liable to the other on all the covenants of the lease, irrespective of whether those covenants "touch and concern" the land. Because they both hold an interest in the same property there is also privity of estate between them.

2. Once the Plaintiffs had assigned their interest in this property on 22 December 1999 to Madam LING they retained privity of contract with the Defendant but Madam LING inherited privity of estate with the Defendant.

3. The enforceability of covenants at any given time depends upon the type of privity which exists between the parties. Where there is privity of contract all covenants are in theory enforceable but where there is privity of estate only those covenants which "touch and concern the land" are enforceable (see sections 31 and 32 of Conveyancing and Property Ordinance Cap. 219). All of the covenants normally found in a standard form written lease such as the tenants covenant to pay rent, rates and taxes, used for domestic or business purposes only, or the landlord's covenant for quiet enjoyment run with the land or "touch and concern the land".

4. Non - standard covenants that are personal to the relationship between a particular landlord and a particular tenant do not "touch and concern the land" and are not relevant to this determination.

5. Accordingly, it can be seen that Madam LING is entitled to sue for any non-payment of rent after 22 December 1998. Indeed, clause 25 of the Sale and Purchase Agreement of 30 November 1988 expressly states that she takes the premises subject to the rights of the tenant. But what of arrears of rent accruing before this Assignment? Historically at Common Law an assignee of the reversion cannot sue for arrears of rent accruing before the assignment of the reversion to him, see Flight v Bentley (1834) 7 Sim. 149, where it was held that "failure to pay rent during the assignor's time was a breach which caused damage to the assignor exclusively." This proposition was quoted with approval by Lord Denning, M. R. when he reviewed the history of the law on this topic in Re: King, Robinson and Gray (1963) 1 AER 781. However, in citing that case before this court Mr CHONG for the Plaintiffs failed to appreciate that Lord Denning was the dissenting judge because Upjohn LJ in giving a majority verdict said that he would put all of the pre-1881 authorities on the shelf marked "not be looked at again" because they did not, in his opinion, form any safe guide to the modern law.

6. He found that section 10 of the Conveyancing and Law of Property Act 1881 employed clear and unambiguous language which did not need reinterpretation by reference to earlier law, and that Flight v Bentley no longer represented the law as to arrears of rent. In fact, section 10 of the 1881 Act replicates section 12 of the Landlord and Tenant (Ireland) Act 1860 which was an earlier attempt to set clear rules in this area of law. See the introductory remarks of Lord O'Brien, LCJ in Lyle v Smith (1909) 2 IR 28.

"This case brings up again a controversy which has existed for some centuries in our law, namely, when does a covenant run with the land? Spencer's Case (1583) 1 SMLC (11th edition) p. 55, however reminiscent of an earlier period, most certainly does not renew our youth. The learning connected with it tells us of those subtle distinctions which in other days delighted the sages of the law, but which, perhaps, did not reflect much credit on the law itself."

7. Section 10 of the 1881 act was re-enacted in almost identical form as section 141 of the Law of Property Act 1925 which in turn is almost identical to Hong Kong's own section 31 of the Conveyancing and Property Ordinance which provides:

8. In considering the original version in Re: King's case (as above) Lord Upjohn held:

"The obligation to build being (as I have assumed) clearly defined by detailed specifications in the lease, it seems to me quite plain that the assignee could bring an action for specific performance compelling the lessee to perform his covenant to build. This is one of the rights which passed to him when the benefit of that covenant passed. The assignor has by the operation of section 141 of the Law of Property Act, 1925, assigned his right to the benefit of the covenant, and so has lost his remedy against the lessee. Of course, the assignor and assignee can always agree that the benefit of the covenant shall not pass, in which case the assignor can still sue, if necessary, in the name of the assignee."

9. I note in the present case that clause 25 (E) of the Sale and Purchase Agreement expressly reserves unto the vendor the right to claim from the tenant all arrears of rent up to the date of completion, even after completion. However, it seems that the parties to the transfer did not apply their minds to the question of subsisting breaches by the tenant when reaching agreement on the price to be paid. Instead, the Plaintiff handed over the Defendant's rental deposit to the new landlord as if everything was in order.

10. As was said by Russell LJ in London and County Ltd v W Sportsman Ltd (C.A) 1971 Ch. Div. 1 at page 783:

"Similarly it seems to me that the condition for reentry for failure to make those payments of rent is apparently so annexed and made incident and to go. Equally, it would seem correct to say that subsection (2) provides that the third party, as the person after the assignment of the reversion entitled to the income of the land, is entitled to recover that rent and enforce its payment. Similarly, subsection(3) appears to me to provide that that person may recover that rent, notwithstanding that he became entitled after the condition of re-entry or forfeiture had become enforceable unless it had previously been waived. That last subsection seems to me in terms to refer to entitlement to rent that had accrued due and payable before the assignment of the reversion, being indeed so much in arrears as to have produced an occasion of forfeiture."

11. This passage is helpful in assessing the legislative intent of the expression "by the person from time to time entitled" in subsection (2). It also reasserts that the ultimate sanction against a tenant in breach of covenant is to forfeit the deposit, determine the lease and re-enter upon the demised premises, none of which remedies is open to the Plaintiff in the present case, but all of which are available to Madam LING as "the new landlord" under clause 25 of the Sale and Purchase Agreement.

12. So far we have seen that Madam LING acquired the right to sue in respect of breaches of covenant whensoever committed. But does she have exclusive right to sue ? There is remarkably little decided authority for this proposition in English case law and none whatsoever in reported Hong Kong decisions. Apart from the majority decision of Upjohn J. in Re: King's case (referred to above) there is also the decision of Russell L.J. in Arlesford Trading Co Ltd v Servanasingh (1971) 1 W.L.R. 1080, where he held that:

"The Defendant's (tenant's) liability as the original lessee, under the lessee's covenants remained throughout the lease and the ability to enforce them against him passed to the Plaintiffs (new landlord) with the reversion although there had never been privity of estate between the Plaintiff and the Defendant."

13. In the present case I find that the Plaintiff lost his right of action upon the assignment of his reversion to Madam LING who then acquired exclusive right to sue in respect of breaches of covenant whensoever committed. Any purported reservation of the right to sue contained in clause 25(E) of the Sale and Purchase Agreement is of no benefit to the Plaintiff in these proceedings as they have chosen to sue in their own name rather than in the name of Madam LING, i.e. the party "from time to time entitled" under section 31(2) of the Conveyancing of Property Ordinance.

14. Accordingly I dismiss the Plaintiff's summons herein dated 5 March 1999. Further, this determination being a complete answer to the Plaintiff's claim herein, I dismiss the Plaintiff's claim with costs of the entire action including costs of this application to the Defendant, to be taxed in default of agreement.