XCHRX HA SHEUNG PING AND ANOTHER v. LO SIU YIN AND ANOTHER

1993, No. A9087

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The 1st Plaintiff was tenant of a flat at 388 Shanghai Street, 5th Floor. The 2nd Plaintiff is the 1st Plaintiff's husband. He occupied the flat with her. The 1st Defendant is the landlord. The 2nd Defendant is nowallegedly the tenant and occupier of the flat. The Plaintiffs' claim against the 1st Defendant is for a declaration that the 1st Plaintiff is still the lawful tenantof the flat and for damages for trespass and conversion. Against the 1st and 2nd Defendants, the Plaintiffs claim a declaration that the tenancy agreement between the 1st and 2nd Defendants does not give any right to the 2nd Defendant to possess or occupy the flat, an order for possession and damages for trespass, alternatively an account of profits.

2. By summons dated 11th October 1993, the 1st Plaintiff sought an order against the 1st Defendant (who was then the only Defendant) for possession pursuant to Ord. 29 r.2. By summons dated 6th January 1994, the 1st Plaintiff seeks final judgment against the Defendants for possession of the flat and for judgment against the Defendants for damages for trespass to be assessed pursuant to Ord. 14. It is the latter summons which is pursued by the Plaintiffs and of which I am seised.

3. The 1st Plaintiff had been tenant of the 1st Defendant for a number of years. By a tenancy agreement dated 17th February 1993 (the agreement), the 1st Defendant let the flat to the 1st Plaintiff for a period of 23 months from 15th February 1993 to 14th January 1995 at a slightly increased rent of HK$5,200.00 per month. The 1st Plaintiff paid the 1st Defendant a sum of money to top-up the rental deposit and on account of rent. There is a dispute as to the precise amount involved but, for the purpose of these proceedings, it is immaterial. A few days after signing the agreement, the Plaintiffs went to China on business. Apparently, it was customary for them to do this from time to time. The 1st Defendant received no further payment from the Plaintiffs on account of rent. She made enquiries at the flat and discovered an accumulation of unpaid utility bills and management fees. She attempted to communicate with the Plaintiffs in China and, indeed, left a message for them. It is a matter of dispute, although not material to this application, whether the Plaintiffs made any attempt to contact the 1st Defendant in response to her message. Having heard nothing and having received no further payment, the 1st Defendant in June 1993 applied for a distress warrant in the District Court. Subsequently, an order for forced entry was obtained. The bailiff levied distress on the contents of the flat on 13th August. Included in the bailiff's inventory was a safe. On 8th September, the bailiff again attended at the flat when the safe was opened and an inventory of the contents was made. Subsequently, the contents of the flat were sold at auction.

4. At the end of August, the 1st Defendant changed the locks on the door of the flat and assumed possession. She did this, according to paragraph 19 of the Defence and Counterclaim, "for the preservation of the said premises as the 1st Plaintiff had failed to contact the 1st Defendant at all and appeared to have abandoned the premises".

5. The abandonment aspect was clarified in an affirmation of the 1st Defendant. The 1st Defendant asserts that, following execution by the bailiff, the flat was deserted and contained only an accumulation of rubbish. The 1st Defendant, therefore, believed the flat to be abandoned. Given that immediately before execution the flat was equipped with the Plaintiffs' furniture and belongings, it is somewhat disingenuous on the part of the 1st Defendant to make such an assertion. In my judgment, however, nothing turns on this for the purpose of this application.

6. On 16th September, the Plaintiffs returned to Hong Kong after an absence of about 7 months. The found they could not gain access to the flat because the locks had been changed and because work was in progress in the flat. The police were called by the Plaintiffs but were unable to assist. On 23rd September, the Plaintiffs' solicitors wrote to the 1st Defendant's solicitors, setting out the history of the matter and asking for possession of the flat which had been wrongfully denied. On 24th September, the 1st Defendant let the flat to the 2nd Defendant which is now in possession and occupation.

7. On 27th September, the 1st Defendant's solicitors replied to the letter of the Plaintiff's solicitors. They said that "your client has no claim to the premises in view of the blatant abandonment of the same". They went on to outline the history of the matter and concluded

"Your client has no further claim to the tenancy. Our client on the other hand has a claim for unpaid rent until the time she re-possessed the premises."

8. There the matter rested until the Plaintiffs commenced proceedings on 8th October. In her 1st affirmation dated 8th October, the 1st Plaintiff said that the 1st Defendant had not "stated her case as to how my interest in the said premises had been lost". Some light was thrown on this in the defence dated 5th January 1994 where, in paragraph 23, the 1st Defendant said that "the 1st Plaintiff was in total disregard of the provisions of the tenancy agreement ... and the 1st Defendant was acting in the preservation of her proprietorial interests in the said premises by taking possession at the end of August when the property was left unattended by the 1st Plaintiff".

9. Mr. Chain, who represented the Plaintiffs, was equally in the dark until shortly before the hearing commenced. He was led to believe, and it was subsequently confirmed by Mr. Cheung for the 1st Defendant, that the 1st Defendant's case is that she has forfeited for non-payment of rent. Mr. Chain pointed out that nowhere in correspondence, pleadings or affidavit has forfeiture been mentioned. He was, however, prepared to grapple with the point.

10. I must say at once that I do not find it surprising that a layman should know nothing about forfeiture, and would fail to mention it in conversation or correspondence. Professional advisers are, however, another matter. I do find it surprising that the question of forfeiture should not have been raised either in correspondence, in the defence or in professionally drawn affidavits. That said, however, because what the 1st Defendant was doing was to all intents and purposes forfeiture, I do not think that any real damage has been done.

11. For the 1st Defendant, Mr. Cheung made 3 points which he said ought to be determined at trial. First, clause 3 of the agreement between the 1st Plaintiff and 1st Defendant is arguably a clause entitling the 1st Defendant to forfeit for non-payment of rent. For the purpose of this application, Mr. Chain was prepared to accept that. Mr. Cheung, however, said it is further arguable that on the true construction of the clause the parties agreed to dispense with the requirement of a common law demand for rent which is a pre-requisite to the exercise of the right of forfeiture.

12. Second, acknowledging that the levying of distress recognises a subsisting relationship of landlord and tenant, Mr. Cheung argued that while the execution of the distress warrant on 13th August may have operated as a waiver of forfeiture in relation to non-payment of rent up to that date, non- payment of rent on 15th August was a fresh breach upon which the 1st Defendant was entitled to rely. He said that the activities of the bailiff in relation to the contents of the safe on 8th September are, at least, a matter for trial at which it can be determined whether they constituted a further or continuing execution of the distress warrant which would have the effect of recognising the continuing subsistence of the tenancy, or whether the activities were purely of an administrative nature, the distress having been completed on 13th August.

13. Third, Mr. Cheung submitted that by changing the locks and taking possession of the flat at the end of August the 1st Defendant had arguably forfeited. Even if that action did not amount to forfeiture, the re-letting of the flat to the 2nd Defendant on 24th September again arguably did.

14. The real issue which divides the parties is the question of whether a formal common-law demand for rent was necessary before the 1st Defendant could exercise her right of forfeiture. It was not in dispute that the common law is applicable here. The nature of a common law demand before a right of re-entry may be exercised is set out at paragraph 1037 of Foa's General Law of Landlord and Tenant, 8th Edition. It is not necessary for me to set out the details because again it is not in dispute that no such demand was made. What Foa does say, however, is that the difficulties in relation to a demand "are got rid of by an express stipulation for re-entry on non-payment without any demand, or (what comes to the same thing, for it does away with the necessity for any demand) without any "legal or formal" demand being made at all".

Clause 3 of the tenancy agreement reads :

"The rent for the premises must be paid in advance on the first day of each month. No delay on any excuse will be allowed. If Party B fails to pay the rent to Party A after 10 days in arrears, or in case Party B does not perform any of the conditions in this Tenancy Agreement, then Party A shall be lawfully entitled to terminate this Tenancy Agreement, to let it to others and to demand the outstanding rents."

15. Mr. Cheung said that it is arguable that the proper construction of that clause admits of the landlord terminating the tenancy without any prior demand for rent and confers the right to demand rent after termination. Mr. Chain said that no such construction should be put upon the clause, that there is no real doubt about the true construction, and that the matter should not be allowed to go to trial on this basis. I accept that I must grasp the nettle.

16. I accept Mr. Chain's submission that the matter is unarguable. A forfeiture clause is always strictly construed against a landlord. If a prior demand is to be dispensed with, plain and unambiguous language should be used. No such language has been used. I accept, as Mr. Chain argued, that clause 3 confers on the landlord the right to re-let and to demand outstanding rent, but only after a lawful termination which lawful termination would require a prior demand.

17. In London and County (A & D) Limited v. Wilfred Sportsman Limited (1971) 1.Ch. 764, the form of words used which could obviate the need for a demand were "whether formally demanded or not". In Phillips v. Bridge (1873) LR 9 CP 48, the agreement in question contained the words "being demanded". The court, consisting of 4 judges, was in agreement that by those words the parties agreed to dispense with the common law demand and substituted a requirement for a simple demand. In his judgment at p.54, Coleridge C.J. discussed Hill v. Kempshall 7 C.B. 975 in which the relevant agreement made no reference to demand. The judge said :-

"The question was whether the lessor could re-enter without a demand. In the course of the argument, Maule, J., asked, "Does the entry of the landlord put an end to the lease?" And, upon being answered in the affirmative, suggestion of counsel that "the forfeiture was incurred on the rent being unpaid on the 25th of June; it was a complete forfeiture on the landlord's choosing to avail himself of it;" the learned judge replied, "The tenant should have an opportunity of paying the rent, by having it demanded." "

18. The important words of clause 3 are "lawfully entitled to terminate". I am satisfied that they provided exclusively for the manner in which the landlord may terminate the tenancy. The following words provided merely for the relief and rights to be still available to the landlord after lawful termination. In relation to termination, there is no mention of demand. It is plain on the authorities, therefore, that not only is a demand necessary but that it must be a full common law demand. No such, or indeed any, demand having been made, the 1st Defendant has failed lawfully to terminate the agreement between the parties.

19. In view of my finding, the other 2 points raised by Mr. Cheung become academic. For the sake of completeness, however, I would have found both points to have been arguable and to have been matters for trial.

20. At the conclusion of the hearing, Mr. Chain said that he was instructed by the Plaintiffs that they do not wish to obtain possession against the 2nd Defendant provided suitable arrangements can be made for the 2nd Defendant to be given lawful possession. I hope that such an arrangement can be made between all the parties. Mr. Chain was prepared to accept for the purpose of this application that the 2nd Defendant is an innocent party; went into occupation of the flat without knowledge of the background; and proceeded to incur substantial expense. A point made by Mr. Hui for the 2nd Defendant was the manifest injustice that would be inflicted on the 2nd Defendant if it was to be compelled to give up possession to the 1st Plaintiff.

21. In all the circumstances, I make the following orders nisi.

1. A declaration that the agreement between the 1st Plaintiff and 1st Defendant was not lawfully forfeited and continued to subsist until such time as the 2nd Defendant obtained a right to possession of the flat. If no agreement or arrangement can be made, it will be appropriate for this order to be varied to one for possession against both Defendants.

2. Judgment for the 1st Plaintiff for damages for trespass to be assessed against both Defendants. I express the hope that the 1st Plaintiff will not see fit to pursue this relief against the 2nd Defendant.

3. The 1st Defendant to pay both the 1st Plaintiff and the 2nd Defendant their costs of this application.