THE HONGKONG LAND PROPERTY CO, LTD. v. SHUNG WORLD INVESTMENTS LTD. AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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RULING

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1. The Plaintiff who is the owner of certain premises at the Landmark let them to the 1st Defendant for commercial purpose for a term of 3 years at a monthly rental of $71,650 exclusive of rates and charges. The 1st Defendant failed to pay rent since July, 1990. There is a provision in the relevant tenancy agreement entitling the Plaintiff to forfeit the lease and re-enter the premises upon non-payment of rent. In the present action, the Plaintiff claims inter alia possession of the premises and arrears of rent. The Writ was issued on 31st July, 1990, amended on 8th August and duly served on the 1st Defendant. No notice of intention to defend has been filed. The Plaintiff's Solicitors applies for default judgment under Order 13. They now appear before me and argue that part of the draft order which is in line with S.21F(3) of the Supreme Court Ordinance Cap. 4, giving the 1st Defendant what I may call a statutory relief against forfeiture upon payment into court within 4 weeks all the arrears and costs, should be excluded from the order.

2. In Lau Wing Kam Raymond v. Cheng Kei Yan and another, HCA 4914 of 1989, unreported, Mayo, J., when dealing with this section, relied on Spurgeons Homes v. Gentles [1971] 1 WLR 1514 and held that it was mandatory to include in the order for possession in that case a condition along the lines of S.21F(3). Accordingly that order was set aside for failing to comply with that provision.

3. Mr. Cook for the Plaintiff very helpfully went through S.21F of Cap. 4, the County Courts Act, 1984 S.138 (from which our section is modelled) and Mayo J.'s decision. He submitted that the present case did not fall within S.21F(3) by virtue of subsection (10) and hence the statutory condition should be omitted from the order.

4. As Fuad J. (as he then was) said in Sylvia Seto and another v. Kowloon Shopping Centre Ltd. and others [1980] HKLR 717 at 727, "the right to grant relief is one which the Courts have always jealously preserved in favour of tenants ... (From) the earliest times, the Courts of Chancery consistently granted relief from forfeiture for non-payment of rent. Equity regarded the proviso for re-entry as no more than security for the payment of rent, and was willing to relieve on terms that the rent was paid, with interest and costs, where appropriate and provided the interests of third parties were not prejudiced." The Courts' right to grant relief has been recognised and to a certain extent restricted by statute. In Hong Kong, the relevant statutory provision used to be Order 88A. After the enactment of S.21F in 1987, Order 88A was subsequently deleted in May, 1988.

5. The protection, if I may put it that way, offered to the tenant by S.21F in relation to an action in the High Court to enforce a right of re-entry for non-payment of rent is two fold. First, under subsection (2), if the tenant, within the time for acknowledging service of the writ, pays into court all arrears of rents and the landlord's costs, there is automatic relief in that the action shall cease and he shall continue to be a tenant without any new lease. Second, under subsection (3), if he does not do so and the Court at the trial is satisfied that the landlord is entitled to enforce the right of re-entry, the Court shall make an order for possession which is to take effect at the expiration of not less than 4 weeks unless within that period, he pays into court all arrears of rent and the landlord's costs. If the tenant pays accordingly, then under subsection (5) he shall continue as a tenant without any new lease. However, if he does not avail himself of these 2 opportunities, the consequence is drastic. For, under subsection (7), the order for possession may be enforced and so long as the order remains unreversed, he shall be barred from all relief. In other words, he will lose his right to apply for relief and the only thing he can do then is to appeal against the order for possession.

6. That being the effect of these provisions and bearing in mind the traditional attitude held by the courts of equity towards relief, I now consider Mr. Cook's submission that the present case falls outside S.21F and hence the "statutory relief" clause should be omitted from the order for possession.

7. I note that although S.21F was taken almost verbatim from S.138 the County Courts Act 1984, there are 2 differences. First, a tenant in England has 5 clear days before the return day to pay up all the arrears and costs whereas a tenant in Hong Kong, under subsection (2) is allowed a period which is prescribed by the rules for acknowledging service (usually 14 days). The reason for this is probably due to the procedural difference in the County Court and the High Court in Hong Kong respectively. Second, in the Hong Kong section, there is the additional provision in subsection (10)(a) regarding the power of the Court to enter final judgment in default of a notice of intention to defend, which is exercised under Order 13. It expressly provides that nothing in S.21F shall be taken to affect this power.

8. In my view, this addition is not purely due to the procedural difference in the 2 places. By deliberately adding this provision (i.e. subsection (10)(a)) in our Hong Kong section, I think it is intended that Order 13 cases would be excluded from the operation of subsection (3). Secondly, for cases falling within the ambit of subsection (3), there is the mandatory requirement that the order for possession would only take effect after the expiration of not less than 4 weeks. Such an order which is in effect suspended pending payment by the tenant is in stark contrast to the final judgment which the Court can enter pursuant to Order 13. Thirdly, to fall within subsection (3), there must be a failure by the tenant to pay within the time prescribed for acknowledging service of the writ and the Court at the trial is satisfied that the landlord is entitled to re-enter. "Trial" is defined in S.21H to include the hearing of an application for summary judgment. One can well appreciate the reason for such inclusion in the definition. For an Order 14 application, there is the hearing and consideration on the merits of the case on affidavit. But in an application for default judgment under Order 13, these are absent and it would be straining the meaning of "trial" in subsection (3) to include such a case. Fourthly, as I said earlier on, subsection (3) does not only provide an opportunity for automatic relief against forfeiture. It also imposes a time limit beyond which the tenant would he forever barred from relief by virtue of subsection (7). His only remedy is to go on appeal. On the other hand, there may be a good reason for a tenant to allow judgment to be entered in default of his filing a notice of intention to defend, the most common reason being that he is not aware of the proceedings. It is true that he can apply to set aside the default judgment. However, if he is truly in arrears of rent, his application is unlikely to succeed. And if his case were also governed by subsection (3), he might end up in the hopeless situation of having lost his right to relief against forfeiture by then even if he wanted to pay off the arrears and being left to pursue an appeal which is doomed to fail.

9. In the cases of Lau Wing Kam Raymond v. Cheng Kei Yan and another, supra, it is not clear whether the judgment set aside by Mayo J. for failing to comply with subsection (3) was obtained under Order 13. After having read the decision carefully, I think this is unlikely to be the case. There is no mention of subsection (10) in the judgment but a reference by Counsel in submission to Order 19. In this respect, I think that cases is distinguishable from the present.

10. For the reasons which I have canvassed above, it is therefore my humble opinion that an application for default judgment pursuant to Order 13 falls outside S.21F(3) and that it is not necessary to include in the order for possession the condition imposed by that subsection.

11. In the present case, there is up-to-date no dispute that the 1st Defendant had failed to pay rent. It is clear no payment was made within the time for acknowledging service of the writ and that the arrears are still outstanding. It is also clear that no notice of intention to defend has been filed. Upon entering judgment under Order 13, I agree with Mr. Cook that the statutory condition should be omitted.