LEI WA v. MO PAK HUNG

DCCJ 124/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 124 OF 2013

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JUDGMENT

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Introduction

1.  This is the trial of a landlord and tenant dispute.

2.  The dispute concerns a piece of agricultural land situated at Lot No 339 in Demarcation District No 85, North, New Territories (“the Land”). 

Factual background

3.  The following facts regarding the tenancy are common ground or not in any serious dispute.

4.  In around 1963, Mr Li Ki Ching, as landlord, and Mr Mo Sum, as tenant, entered into an oral yearly tenancy agreement in respect of the Land.  With the permission of Mr Li Ki Ching and pursuant to a Modification of Tenancy issued by the District Commissioner, New Territories at around that time, Mr Mo Sum constructed three structures on the Land, namely, two brick houses and a pigsty.  He then moved in and resided there with his family. 

5.  Mr Mo Sum passed away in 2005.  The defendant, his son, took over the tenancy upon his death and had since become the tenant.

6.  When Mr Li Ki Ching passed away in 2009, his son, Mr Lee Kwok Mo, took over the legal title of the Land.  Subsequently, in March 2012, the plaintiff acquired the Land from Mr Lee Kwok Mo, subject to the oral tenancy.

7.  Accordingly, since March 2012, the plaintiff had been the landlord of the Land and the defendant the tenant.  At least since 1985, Mr Mo Sum and, later, the defendant had been paying a yearly rent of $1,500.  (But it is not clear how much the yearly rent had previously been.)

The plaintiff’s case

8.  The plaintiff’s case is simple and straightforward. 

9.  Through his solicitors, the plaintiff served a notice dated 20 June 2012 on the defendant to terminate the tenancy with effect from 31 December 2012 and request the defendant to deliver up vacant possession of the Land on or before that day.

10.  The defendant having failed to do so, the plaintiff issued the writ in these proceedings on 11 January 2013, claiming vacant possession, mesne profits from 1 January 2013 and interest. 

11.  As made clear at the trial, the plaintiff’s primary position is that the structures on the Land should be demolished prior to the delivery of vacant possession, since the structures had been constructed for a few decades and they may pose a danger to the safety of those on the Land.  However, the plaintiff confirmed at the trial that he will not take issue if the defendant delivers possession without pulling down the structures as his main concern is to get back the Land as soon as possible.

12.  On mesne profits, the plaintiff asks for the same rate as the yearly rent of $1,500.

13.  The plaintiff gave evidence at the trial and called no other witness.

The defendant’s case

14.  When the defendant moved in to live at the Land with his family, he was about 7 years old. 

15.  He claims that it was an express term of the oral tenancy agreement made between Mr Li Ki Ching and Mr Mo Sum that the latter would build three structures on the Land and that upon the termination of the tenancy, appropriate compensation would be paid to the tenant for the structures at market value.  The defendant says that his family had incurred substantial expenditure on constructing and maintaining the structures throughout the years.  The structures are very extensive and cover a substantial part of the Land.  The family, together with others from the neighbouring land, built cemented pavement linking the Land to the main road.  The defendant stresses that the efforts put in by the family have contributed substantially to the value of the Land.

16.  The defendant gave evidence at trial and called no other witness.  In his evidence, he referred to a number of occasions when Mr Li Ki Ching had discussion with his father, Mr Mo Sum, regarding the Land.  He referred, first, to an occasion in around 1985, when Mr Mo spoke to Mr Li, in the defendant’s presence, about terminating the tenancy and Mr Mo asked for compensation for the structures on the Land.  But the proposal was rejected by Mr Li.  Mr Mo then continued to live on the Land. 

17.  There were other occasions between 1992 and 1997 where Mr Mo again approached Mr Li suggesting returning the Land to him subject to compensation, which was also rejected.  Lastly, there was a conversation which took place in Mr Li’s house and in which Mr Mo and the defendant proposed to buy the Land at a discount if Mr Li did not want to have the Land back with compensation to Mr Mo.  Mr Lee Kwok Mo was present and was upset by the proposal and asked Mr Mo how he dared asking his father to sell the Land.

18.  Apart from the conversation with Mr Li, the defendant, in his evidence, also referred to his correspondence with Mr Lee Kwok Mo’s solicitors in 2010, ie, after Mr Lee Kwok Mo took over the legal title of the Land upon Mr Li’s death.  He alleged that Mr Lee, through his solicitors, tried to negotiate for variation of the oral tenancy or to terminate it.  However, no agreement was reached as to the amount of compensation payable to the defendant at that time.

19.  Apart from pleading the above express term, the defendant also claims in his Further and Better Particulars of the Defence that Mr Li Ki Ching had “implicitly” agreed to rent out the Land without a termination date or make compensation for the structures when he wanted to terminate the tenancy.  That is because Mr Mo had put in significant investments in the Land by erecting the structures and if the landlord can terminate without compensation, he would be able to let out the Land to another person the following year at a much higher rent.

20.  The defendant further claims that the plaintiff is in fact related to Mr Li Ki Ching and that he knew about the express term of the tenancy when he acquired the Land.  (The plaintiff denies this.)

21.  The defendant also argues that he and his family had contributed to increasing the value of the Land in that the Land itself which use is restricted to agricultural use is practically worth nothing whereas due to substantial labour costs expended on the structures, the structures themselves are of significant value.

22.  The defendant’s position is that given that the plaintiff had not paid any compensation to him, the plaintiff was not entitled to terminate the tenancy and the notice served in June 2012 was not effective.  Further, he counterclaims against the plaintiff for compensation for the structures on the Land in the sum of $1,500,000.  No expert evidence has been adduced by the defendant but the sum was an estimate of their market value given by the defendant’s surveyor friends.

23.  In cross-examination, the defendant confirmed that he does not presently live on the Land but has been letting out some of the structures to a few families as residence, some paying no rent and others paying a “minimal” rent.  In total, he had been receiving rents in the sum of $60,000 every year.

Analysis

24.  The defendant’s allegation that there was an express term in the oral tenancy agreement providing for compensation does not seem to be borne out by his own evidence.  According to the defendant’s recount of the several occasions on which the issue of compensation came up in conversations between Mr Li Ki Ching and Mr Mo, it is of note that the request for compensation was rejected on each of these occasions by Mr Li.  But if the oral tenancy had in fact contained the alleged express term, Mr Li would have been under an obligation to pay compensation if either he or Mr Mo had wanted to terminate the tenancy.  The fact that Mr Li refused to pay compensation each time and that Mr Mo did not insist on Mr Li abiding by the express term seems to be at odds with the existence of the alleged express term in the first place.  In fact, it seems to point to and is more consistent with Mr Mo making a unilateral request which Mr Li was free to either accept or reject rather than Mr Mo enforcing a contractual right against Mr Li where the latter had no right to refuse.

25.  The correspondence exchanged between the defendant and Mr Lee Kwok Mo’s solicitors in 2010 is even more telling in this regard.  The chain of correspondence started with a letter from Mr Lee’s solicitors in which it was pointed out to the defendant that Mr Lee had become the landlord of the Land and that the defendant had not paid the yearly rent since 2009.  It was further suggested that the yearly rent should be increased to $3,000 with effect from 1 January 2011.

26.  The defendant replied to this letter by email.  He confirmed, first, that he had in fact paid the 2009 rent and, secondly, that he would shortly deposit the 2010 rent into the landlord’s bank account.

27.  He further wrote as follows:-

“1. Please note that I will follow the implicit, an in fact also explict, agreement between my father and the deceased landlord, Li ki ching, which have been practiced for decades. I will regularly deposit the $1500 before the Lunar New Year to your designated account for the annual land rent of the concerned land lot.

2. As the ‘modification of tenancy’ attached, the deceased landlord, a good friend and supporter of my father, has permit my father to erect 3 structures and pigsty in the land concerned.  His kind supports are confirmed and approved by the District Commissioner, NT.

3. In fact, all the agricultural uses of the land have stopped after my father and mother retired from farming activities.  As mentioned by my father, he once approached the deceased Li to turning back the land lot to him with appropriate compensation for the structures he has permitted to erect so that we could move to public housing.  However, Li suggested that my father to continue occupy the land with the annual rental price of $1500 that have been carried out for decades.  We did regret from time to time that we could not move the urban areas that would be better and convenient to my old parents.

4. Since the land has no further agricultural use value other than the structures.  As agreed by my father and gaining consent from the deceased Li, I am happy to continue renting the land of annual rental price of $1500 that has been practiced and agreed upon for decades or I am willing to turn back the land with market compensation for the structures that have the permission from the deceased Li and the approval of the government. … ” (emphasis added)

28.  On the face of the letter, the defendant did not respond directly to the suggestion that the yearly rent should be doubled but it was clear that he did not agree to pay more rent as he stressed and repeated a few times in his reply that the tenancy at a yearly rent of $1,500 had been “practiced” or “carried out” “for decades”.  In paragraph 4 of the email, he stated that he would be happy to continue with this practice or he was willing to give the Land back with compensation for the structures at market value.  It is noteworthy and, at the same time, puzzling that the defendant did not make any explicit reference to the term allegedly agreed between Mr Li Ki Ching and Mr Mo Sum regarding the landlord’s obligation to pay compensation upon termination of the tenancy.

29.  This omission must be looked at critically against the defendant’s background.  He is an Associate Professor in the Department of Economics at a tertiary institution in Hong Kong.  At trial, he spoke articulately and with clarity.  He readily came across as someone who is capable of expressing his views or stating his position clearly and effectively if he chooses to.  The email quoted above was his first reply to a formal letter issued by his new landlord’s solicitors and it is apparent that it was quite carefully written and some thought had been given to the choice of words used in the reply.  Yet, the defendant did not take this opportunity to point out the alleged term regarding compensation.  The way he had put it seems to suggest that “termination with compensation” was a mere proposal put forward by him, rather than a reference to a previously agreed term.  I consider that it is inherently improbable that the defendant would have omitted to highlight that compensation was a contractual term if the term had indeed been part of the oral tenancy.

30.  Given my analysis of the defendant’s own evidence above, I find that, on a balance of probabilities, the defendant has failed to prove that the alleged express term regarding compensation had ever existed.

31.  I shall now proceed to consider whether such a term on compensation can arise by implication.

32.  The relevant factual circumstances prevailing at the time when the oral tenancy was entered into are as follows:-

(1) It was a simple oral tenancy and was not evidenced in writing.

(2) By granting the tenancy, Mr Li Ki Ching appeared to be giving support to Mr Mo Sum.  In his email, the defendant referred to Mr Li as “a good friend and supporter of my father”.

(3) The purpose of the tenancy was apparently to allow Mr Mo to farm on the Land and thereby make a living. Accordingly, he was permitted by Mr Li to erect structures and a pigsty there.

33.  To a reasonable person in possession of these facts, I do not think that he would come to the conclusion either that the compensation term is necessary in order to give business efficiency to the oral tenancy or that it is so obvious that it goes without saying. These facts would seem to suggest that by granting the tenancy Mr Li was offering help to Mr Mo.  Again, the defendant described Mr Li’s act as “[h]is kind supports”.  Against this background, it is difficult to see how Mr Li and Mr Mo must or would have agreed that the former should compensate the latter for the structures upon termination.  Accordingly, I find that no such term should be implied into the oral tenancy.

34.  Apart from alleging that the oral tenancy contains an express or implied term regarding compensation, the defendant also contends, at some length both in his written and oral submissions, that since it was his family who made substantial efforts in erecting the structures on the Land, these structures are the private property of the defendant and that under the Basic Law and the general principle of natural law, the plaintiff has no right to expropriate such private property and, equally, he has no right to ask the defendant to demolish the structures.  The defendant complains that the plaintiff as a landlord is “greedy and rich” as he seeks to “grab” the Land without compensation from those who had contributed value to it, namely, the defendant and the neighbours in the community.  To allow the plaintiff to do so would be unethical and to deprive the poor people who now reside at the Land of a decent environment to live in.

35.  I do not think that the defendant’s contention is a valid one.  His sole focus is on his private property rights.  He pays no regard at all to the fact that the structures do not exist in isolation but are built on the plaintiff’s property.  The interrelationship between the defendant’s rights over the structures and the plaintiff’s rights over the Land is clearly subject to and regulated by the terms of the oral tenancy.

36.  In the absence of any express or implied term on compensation, as alleged by the defendant, the plaintiff was entitled to serve notice on the defendant to terminate the tenancy without any compensation.  He did so by letter dated 20 June 2012 and I hold that the tenancy was terminated with effect from 31 December 2012 and the defendant should have moved out latest by that date.

37.  The defendant did not move out and is presently still in occupation of the Land, through the sub-tenants.  The plaintiff is entitled to mesne profits at the rate of $1,500 per year from 1 January 2013.  The defendant tried to pay some rent after 2012 but the cheques were returned by the plaintiff.  I accept the plaintiff’s evidence that no money was actually received from the defendant in respect of the Land from January 2013 onwards.

Order

38.  For the above reasons, I make the following orders:-

(1) The defendant do deliver vacant possession of the Land to the plaintiff, whether with or without the structures presently erected on the Land;

(2) The defendant do pay the plaintiff (i) mesne profits at the rate of $1,500 per year from 1 January 2013 up to the date of this judgment; and (ii) further mesne profits at the same rate up to the date when vacant possession is delivered up;

(3) The defendant do pay the plaintiff interest on the sum stated in sub-paragraph (2)(i) above at prime rate plus 1% up to the date of this judgment and thereafter at judgment rate until full payment; and

(4) The defendant’s counterclaim be dismissed.

39.  I also make an order nisi that the defendant do pay the plaintiff’s costs of the action and the counterclaim, to be taxed if not agreed, with certificate for counsel.