XCHRX CHUN MING ENGINEERING CO. LTD. v. SYSTEM FIDELITY LTD.

1996 No. A3845

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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INTRODUCTION

1. This is an appeal from Master O'Donnell's refusal on 22nd October to give the Plaintiff summary judgment under Ord. 14 on its claim against the Defendant. Master O'Donnell gave the Defendant unconditional leave to defend the action.

THE EVIDENCE

2. The Plaintiff is the landlord of a flat on the ground floor of Ka Ming Court, 688-690 Castle Peak Road, Kowloon. It let the flat to the Defendant by a deed of tenancy dated 6th January 1995. The tenancy was for five years from 1st January 1995 to 31st December 1999. The rent payable by the Defendant over the years was as follows:

(i) $110,000.00 per month from 1st January 1995 to 29th February 1996;

(ii) $171,000.00 per month from 1st March 1996 to 28th February 1998; and

(iii) $276,000.00 from 1st March 1998 to 31st December 1999.

The rent was payable in advance on the 1st day on each month. These facts are common ground on the pleadings.

3. In addition, the Statement of Claim indorsed on the writ alleges that the Defendant covenanted in the tenancy deed to pay all management charges in respect of the flat. The Defendant does not plead to that allegation in its Defence, but (a) the contents of the Statement of Claim were verified on affirmation by a director of the Plaintiff, and (b) no evidence has been filed disputing that fact. Indeed, it is confirmed by a glance at the tenancy deed itself, which has been exhibited since the hearing before Master O'Donnell, but for reasons which I shall come to later I do not propose to rely on what a perusal of the tenancy deed shows.

4. The Plaintiff's case is simple. It claims that the Defendant failed to pay the rent and monthly management fees due on 1st March 1996 and 1st April 1996. The tenancy was therefore forfeited, and the Plaintiff claims that it became entitled to possession of the flat, to the arrears of rent and management fees which were outstanding on 3rd April 1996 when the writ was issued, and to mesne profits and management fees thereafter until vacant possession of the flat has been given up to the Plaintiff.

5. The Defendant's case is that it was obliged under the tenancy deed to provide the Plaintiff on or before 1st March 1996 with 12 post-dated cheques each for $171,000.00 representing the rent for the period from 1st March 1996 to 28th February 1997. However, the Defendant claims that in a telephone conversation between Lo Wing Man, a director of the Plaintiff, and Joseph Yu, a director of the Defendant, on 13th February 1996, it was agreed that the rent for the period 1st March 1996 to 28th February 1998 was to be reduced from $171,000.00 a month to $128,000.00 a month, and that the rent for the period from 1st March 1998 to 31st December 1999 would be the subject of subsequent negotiations. As a result of that agreement, Mr. Yu went to the Plaintiff's office on 28th February 1996 with 12 post-dated cheques each for $128,000.00. It is said, however, that Mr. Lo went back on his word and refused to accept the cheques. For his part, Mr. Lo denies that he ever agreed to a reduction of the rent, and he claims that the alleged visit by Mr. Yu on 28th February to the Plaintiff's office never happened, nor were the 12 post-dated cheques each for the sum of $128,000.00 a month ever tendered to the Plaintiff.

MASTER O'DONNELL'S APPROACH

6. That was the state of the evidence before Master O'Donnell. The note made by Master O'Donnell of the hearing before him is in the court file. It reads:

"Plaintiff has not filed tenancy agreement, the subject of the statement of claim and this application. As such the Plaintiff is not entitled to summary judgment."

That was not the correct approach. I assume that for "filed" Master O'Donnell meant "exhibited". There was no need for the Plaintiff to exhibit the tenancy deed, because there was no dispute over its material terms. There was no need, therefore, for the Plaintiff to establish its material terms by evidence.

THE REQUIREMENT OF WRITING

7. Had Master O'Donnell considered the application on its merits, I am sure that he would have come to the conclusion which I have, namely that the facts relied upon by the Defendant, even if true, could not have amounted in law to a defence to the action. I say that for this reason. The term of the Defendant's tenancy was for more than 3 years, and was therefore unenforceable unless it had been in writing or evidenced in writing. That was the effect of sections 3-6 of the Conveyancing and Property Ordinance (Cap. 219). For that reason, the tenancy deed in the present case could only have been varied if the variation was in writing or evidenced in writing: see Chitty on Contracts, 27th ed., Vol. 1, para. 22-030, and New Hart Builders Ltd. v. Brindley [1975] 1 Ch. 342. Since the alleged variation was not in writing or evidenced in writing, the tenancy deed cannot in law be treated as having been varied.

8. Mr. Patrick Szeto for the Defendant attempted to meet this point by saying that the conversation between Mr. Lo and Mr. Yu, if it occurred, did not amount to a variation of the tenancy agreement, but to a recision of the tenancy agreement and the creation of a new tenancy for a new term of less than 3 years which did not require to be in writing or evidenced in writing. I cannot accept this argument. The conversation was about the amount of rent payable under the tenancy agreement. It was concerned only with the question as to whether or not the rent should be reduced. It is simply not possible to give this conversation the legal effect which Mr. Szeto claims it has.

9. Alternatively, Mr. Szeto argued that the conversation, if it occurred, rendered the current tenancy void for uncertainty because it left unresolved what the rent would be for the final period of the tenancy. I cannot go along with that argument either. If no agreement was reached in the future as to the rent for the final period of the tenancy, the original rent which had been agreed would stand.

CONSIDERATION

10. That is sufficient to dispose of the appeal, and there is therefore no need for me to consider whether the issue of fact as to whether the conversation took place is a triable one. However, in the interests of completeness, I should add that Mr. C. H. Chan for the Plaintiff took an additional point. The alleged variation related only to the reduction of rent. Mr. Chan argued that there was no consideration for that variation. However, Chitty, op. cit., para. 22-031 speaks of "the more liberal approach [which] has been adopted in some cases, and the courts have been prepared to find consideration and enforce the agreement where it has conferred a practical benefit upon the promisor." I am not convinced that no practical benefit was conferred on the Plaintiff by the alleged variation. In my view, it is arguable that the Plaintiff might have regarded as a possible advantage the fact that it was less likely to run the risk of the Defendant defaulting on the rent or of surrendering the tenancy if the Defendant was paying a reduced rent. I appreciate that there is no evidence before me that anyone on the part of the Defendant threatened to default on the rent or to surrender the tenancy if the Plaintiff would not agree to a reduction of the rent, but it is just possible that at any trial of the action it would have been found that the Plaintiff would have regarded the practical benefits I have mentioned of substance.

CONCLUSION

11. However, for the reasons I have given, this appeal must be allowed, and there must be judgment for the Plaintiff for the claims in paras. 1-3 of the prayer in the Statement of Claim. Interest on the arrears of rent, mesne profits and management fees will run from the dates when they would otherwise have become due at the judgment rate approved from time to time by the Chief Justice. Pursuant to section 21F(3) of the Supreme Court Ordinance (Cap. 4), I must identify the period within which the Defendant must pay into court all the arrears of rent if the order for possession is not to take effect. I bear in mind that the Defendant has paid no rent at all since 1st March 1996, and in the circumstances I direct that the period be 6 weeks. I will hear the parties on the question of costs.