OLIVESBURG LTD. v. VOLSTEAD TRAVEL SERVICE CO. LTD.

1994, No.A4364

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HEADNOTE

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RELIEF AGAINST FORFEITURE OF TENANCY GRANTED ON CONDITIONS - EXTENSION OF TIME FOR COMPLIANCE WITH CONDITIONS - APPLICATION BY PLAINTIFF FOR VARIATION OF CONDITIONS IMPOSED IN THE ORDER GRANTING EXTENSION OF TIME - NO TENANCY AT WILL OR SUFFERANCE CREATED BY THE RELIEF - CONTRACTUAL TENANCY DOES NOT COME TO AN END UPON A FORFEITURE WHEN THERE IS IN SUBSISTENCE AN APPLICATION FOR RELIEF - OPERATION OF FORFEITURE SUSPENDED UPON MAKING SUCH AN APPLICATION AND UNTIL TIME FOR COMPLIANCE WITH CONDITIONS HAS EXPIRED - A FAILURE BY THE TENANT TO PERFORM ANY PROVISION IN THE CONTRACTUAL TENANCY PENDING FULFILMENT OF THE CONDITIONS IMPOSED FOR THE RELIEF WILL ENTITLE THE LANDLORD TO ENFORCE ANY NEW AND INDEPENDENT RIGHT THAT THE PROVISIONS OF THE CONTRACTUAL TENANCY MAY CONFER UPON HIM FOR SUCH BREACHES NOTWITHSTANDING THE RELIEF GRANTED - NON- PAYMENT OF RENT AFTER THE DATE OF THE ORDER GRANTING EXTENSION OF TIME NOT A GROUND FOR VARIATION OF THE CONDITIONS IMPOSED THEREUNDER

1994, No.A4364

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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D E C I S I O N

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1. This is an application by the plaintiff for a variation of the order, made on 31 August 1994, granting an extension of time to the defendant to comply with the terms of an order relieving the defendant from the landlord's forfeiture of its tenancy. The application was dismissed with no order as to costs. With the consent of the parties, and for reasons that will become apparent later, the reserved reasons are now handed down in open court.

2. It is not necessary for me to go into the detail circumstances that had given rise to the making of the original order granting relief against forfeiture. Relief against forfeiture was originally granted by Master Jennings on 30 June 1994 against the plaintiff's claim for recovery of possession of the premises for a failure to make due payments towards rent, management fee and rates. Relief was granted by the learned Master upon payment of a sum representing all arrears of rent, management fee and rates, as well as mesne profits due since issuance of the writ and up to the time of payment. Costs were awarded against the defendant, but not as a condition for granting the relief. Payment was to be made by 6 July 1994. The defendant defaulted in making such payment and by a summons dated 13 July 1994 applied for an extension of time to comply with the condition for making payment of the said sums. The application for an extension of time was dismissed by Master Britton with costs. The defendant appealed against the refusal of the learned Master, and the matter came before me on 31 August 1994. The appeal was allowed and an extension of time was granted to the defendant to comply with Master Jennings' order for relief. The extension was granted upon condition that the defendant do pay the plaintiff, by 5:00 p.m. the same day, the sum of $516,064.60, representing all amounts due under the said tenancy for the period from 17 April 1994 to 31 August 1994, with interest thereon as provided by the provisions of the tenancy. In addition, it is also a condition for the extension of time that the defendant do pay costs, either in a sum agreed between the parties or as taxed, within 7 days upon receipt of a written demand from the plaintiff's solicitors or upon receipt of the allocatur as the case may be. General liberty to apply was given to parties.

3. In the event, the parties were not able to reach any agreement over costs and a taxation of such costs has been set down for hearing in December 1994. Furthermore, though the defendant had made due payments for its occupation of the premises in September 1994, it again failed to make any further payment for its occupation since then. Consequently, the plaintiff took out the present application for an order in the following terms :

The Conditions imposed by the Order of the Honourable Mr Justice Jerome Chan dated 31 August 1994 for relief against forfeiture be varied and the following conditions be added :-

'the Defendant do pay the Plaintiff within 3 days from the date of this Order the sum of $105,811.70 being the mesne profit (sic) and management fee due for the month of October 1994 together with interest on the said sum of Hong Kong$105,811.70 at the rate of 1% per month from 1 October 1994 until the date of payment.'

The plaintiff also seeks indemnity costs from the defendant. It should be noted that to describe my order of 31 August 1994 granting an extension of time to the defendant to comply with the conditions for relief ordered by the learned Master on 30 June 1994 as "an order for relief against forfeiture" is a misconception. The second matter that strikes me as unusual in the application is that it is the plaintiff who is applying for an variation of my order instead of the defendant applying for further relief for its failure to make payment for its occupation of the premises since September, whether one calls it mesne profits or rent.

4. The only ground relied on by the plaintiff in its affirmation in support of the application is that "it is just and equitable that the defendant should continue to pay the mesne profit (sic), management fee and other outgoings in relation to the suited (sic) premises so long if it and its associated companies are still occupying the suited (sic) premises". In support of that submission Mr Kwang said that if relief against forfeiture is granted on conditions; then pending full compliance of such conditions, the tenant is in occupation of the premises under either a tenancy at will or at sufferance and is liable to pay mesne profits, and not rent under the contractual tenancy that is the subject matter of the relief. In other words, pending fulfilment of such conditions the relief would not have come into effect and the contractual tenancy would not have been reinstated. The legal vacuum thus created in the interim by the yet to be fulfil conditions would be filled by bring into existence the fiction of a tenancy at will or at sufferance. And as the conditions are condition precedent to the granting of relief, pending the fulfilment of such conditions it is open to the court to vary the order as the equity and justice of the case required. My attention has, however, not been drawn to any basis or reasons for bringing this legal fiction of a tenancy at will or at sufferance into being.

5. The nature and effect of the remedy of relief against forfeiture should first be examined. It is trite law that when such relief is granted to the tenant, the effect is that the contractual tenancy between the landlord and the tenant is retrospectively reinstated. For all intents and purposes the forfeiture is nullified as if there had never been any in existence before. Thus in Dendy v. Evans [1910] 1 K.B. 263, it was held that an under-lease did not determine upon the issue of the writ in the forfeiture proceedings, and the order for relief kept such sub-lease alive, and rent under it remained payable. The resurrection of the forfeited contractual tenancy is the purpose of the relief. In the case of a conditional order for relief, upon duly compliance of the conditions the contractual tenancy is fully reinstated and the forfeiture will be treated as if it had never existed.

6. Is there any reason to hold that upon the making of a conditional order for relief, the legal position of the parties under the forfeiture would not be affected at all by the order pending the fulfilment of the conditions imposed thereunder? Is there any ground for holding that the contractual tenancy should be treated for all intents and purposes as being already terminated pending fulfilment of the conditions imposed under a conditional order for relief?

7. There is English authority holding that despite a forfeiture, when there is pending a determination on a subsisting application for relief against such forfeiture, the contractual tenancy cannot be treated as if it had already been terminated by the forfeiture. In Meadows v. Clerical, Medical and General Life Assurance Society [1980] 1 All E.R. 454, it has been held that a tenancy of business premises in respect of which there was a judgment for forfeiture coupled with a subsisting application for relief against forfeiture was not a tenancy which had "come to an end ..... by ..... forfeiture", within s.24(2) of the Landlord and Tenant Act 1954, since the right to apply for relief was part of the process of forfeiture, and, until that process was completed by the application for relief being determined, the tenancy could be restored by the grant of relief and could not be said to have come to an end. Sir Robert Megarry V-C held that :

"There are, of course, curiosities in the status of a forfeited lease which is the subject of an application for relief against forfeiture. Until the application has been decided, it will not be known whether the lease will remain forfeited or whether it will be restored as if it had never been forfeited. But there are many instances of such uncertainties. When the validity of a notice to quit is in dispute, until that issue is resolved it will not be known whether the tenancy has ended or whether it still exists. The tenancy has a trance-like existence pendente lite; none can assert with assurance whether it is alive or dead. The status of a forfeited underlease which is the subject of an application for relief seems to me to be not dissimilar, at least it cannot be said to be dead beyond hope of resurrection."

8. Then after referring to the case of City of Westminster Assurance Co. Ltd v. Ainis (1975) 29 P & CR 469, he continued to observe :

"In that case, the landlords obtained judgment in default of appearance for possession against the tenants under a lease on the ground of non-payment of rent and breach of covenant. The tenants then applied for relief against the forfeiture, and were granted it conditionally on complying with certain conditions, some of which could be performed in the future. While certain conditions had yet to be complied with, the landlords took proceedings for possession against some squatters who had occupied the premises, and the squatters contended that the right to sue for possession was in the tenants and not in the landlords. Over the dissent of MacKenna J, Cairns and Lawton LJJ rejected this contention and reversed the decision of Cusack J, holding that the landlords were entitled to sue the squatters for possession. The order giving relief was construed as being an order which did not restore to the tenants the rights of lessees under the forfeited lease until the conditions had been complied with. In the meantime, the tenants, if they remained in possession, would, in the words of Cairns LJ, be there 'not as tenants under the lease but as tenants at will or on sufferance'. Lawton LJ treated the order for relief as imposing a fetter on the landlords' right to possession against the tenants. This fetter operated in favour of the tenants alone, and not in favour of the whole world, so that as against others the landlords were entitled to possession. On compliance with all the conditions the tenants were to be restored to their rights as lessees. but until then they were not to have the rights of lessees. This approach seems to assume the continued existence of the lease in some form, despite the forfeiture, with the order operating to qualify the tenants' rights under the lease. I do not think that there is anything in the case which shows that in such a case the lease has come to an end by forfeiture within the meaning of s.24(2)."

9. In the quoted case of City of Westminster Assurance, it was the view of Cairns LJ that "if conditions are to be performed in the future then in the meanwhile, until the time comes for performance, the defendants here, if they remain on the premises, are there not as tenants under the lease but as tenants at will or on sufferance". Unfortunately the learned judge did not elaborate on why he came to the said conclusion apart from saying that he agreed with the view of Walton J in Talbot v. Blindell [1908] 2 K.B. 114. He said,

"The only case to which we have been referred in which I have found some guidance on the matter is that of Talbot v. Blindell. The headnote there is in these terms:

Where an order granting relief against the forfeiture of a lease was expressed to be made upon the defendants performing certain conditions, and the defendants having performed part of the conditions declined to perform the remainder and desired to waive the relief: Held, that there was no power to compel the defendants to perform the conditions, and that the order for relief must therefore be treated as abandoned.

In the arguments presented to the court by Upjohn on behalf of the defendants appears this passage:

The order is a conditional order, and the conditions are not mandatory at all. If the defendants decline to perform the conditions the order for relief falls to the ground. The defendants are no doubt tenants at will or on sufferance, and are bound to pay rent up to the time that they go out of possession, and in the judgment of Walton J. appears the sentence : "The result is, I think, that I must agree with the construction put on the order by the defendants." In my view that is the proper construction......."

It appears that Cairns LJ was relying solely on the general statement of Walton J that he accepted counsel's construction on the order of the master. Nevertheless, the decision in Talbot was on the issue of whether the tenant could be compelled to perform the conditions imposed. The casual statement by counsel as to the nature of the tenant's occupation pending performance of the conditions was not supported by any legal arguments or authorities. I do not believe that Walton J's general statement should be, or can be, taken to be an acceptance of counsel's said casual statement on an issue that the court was not called upon to decide. I do not accept that City of Westminster Assurance is a good or useful authority for the proposition that the tenant is holding under a tenancy at will or at sufferance pending fulfilment of the conditions for relief.

10. The decision of Sir Robert Megarry V-C was considered by the Court of Appeal in Cadogan v. Dimovic [1984] 1 W.L.R. 609 in another context under the Law of Property Act 1925 and the Landlord and Tenant Act 1954 and was distinguished. That is the state of judicial opinion on the issue in England, and I am not aware of any reported case in Hong Kong relevant to this issue.

11. If a legal fiction of a tenancy at will or at sufferance is to be created pending fulfilment of the conditions imposed, how would this sit well with the retrospective nature and effect that comes into operation upon the fulfilment of such conditions. Would it then be the position that the fulfilment of such conditions will also undo the legal fiction, and such legal fiction should be treated as if it had never arisen before in the same manner as one treats the breach and forfeiture ? What then should be the terms of such fictitious tenancy at will or sufferance? Would it be upon the same terms as the contractual tenancy in its entirety, including terms dealing with duration of the contractual tenancy and other provisions that cannot be applicable to a tenancy at will or sufferance? Would it then be the case that the tenant cannot be held liable in the interim for any further breach of the contractual tenancy that had already been determined? Would such a tenancy at will or at sufferance attract statutory protection under the Landlord and Tenant (Consolidation) Ordinance, Cap. 7, as a new tenancy that has come into existence after the forfeiture of the contractual tenancy? If so, can the subsequent operation of relief upon due compliance of the conditions or the lapsing of the relief upon the non-fulfilment of the conditions operate to undo the statutory protection and terminate the protected tenancy at will or at sufferance? Not only would a legal fiction for a tenancy at will or at sufferance create far more legal problems than it purports to solve, there is a grave risk for a tenant to be able to abuse the system. He would be able to claim statutory protection under the tenancy at will against the plaintiff's accrued legal right to forfeiture by refusing to comply with the conditions for relief after successfully applying for a conditional order for relief in his favour. The suggested legal fiction can neither be supported by reason nor necessity.

12. For the reasons canvassed supra, I am in agreement with the views of Sir Robert Megarry V-C and Lawton LJ that the contractual tenancy does not come to an end upon a forfeiture when there is in subsistence an application for relief against forfeiture. The operation of the forfeiture is suspended upon the making of such an application. If after determination of the application in favour of the tenant conditions are imposed for the granting of the relief, a fortiori, the suspension of the forfeiture is continued until time for compliance with such conditions has expired. I am of the view that the construction that the contractual tenancy had already been terminated by the forfeiture and the tenant is in occupation under a tenancy at will or at sufferance is not to be preferred. The construction that the tenant is still holding under the contractual tenancy pending fulfilment of conditions that has been imposed for granting relief against forfeiture is the proper one. Pending the determination of an application for relief, and a fortiori, pending the fulfilment of conditions imposed upon the granting of such relief, the contractual tenancy does not come to an end. The contractual tenancy is still subsisting pendente lite with the forfeiture suspended in the meantime. In the premises, the defendant is not holding under any tenancy at will or at sufferance as contended by the plaintiff. And the order granting relief against forfeiture made by Master Jennings has the effect of continuing the suspended state of the forfeiture that had arisen upon the making of the application for relief. The suspension will determine upon the expiration of time for compliance with the conditions imposed. If there had been duly compliance by then, the suspension is transformed into a nullification of the forfeiture. In the event of non-fulfilment of the conditions, the suspension is lifted and the forfeiture is to take effect as if there had not been any application for relief.

13. A failure by the tenant to perform any provision in the contractual tenancy during the period pending fulfilment of the conditions imposed for the granting of relief will entitle the landlord to enforce any new and independent right that the provisions of the contractual tenancy may conferred upon him for such breaches notwithstanding the order granting the relief. If such breaches also constituted a non-performance of the conditions imposed for the relief, the plaintiff will also be entitled to enforce the judgment for possession.

14. The plaintiff is coming back to court to seek a variation of the conditions, that had been imposed for the granting of an extension of time, in the absence of any valid justification. There had been no change of circumstances since the making of the order dated 31 August 1994 justifying a variation of the order. The delay in having costs taxed was not caused by the defendant. There is no indication that the defendant was or is not willing or ready to comply with all the conditions imposed. The failure to pay rent and management fee whilst giving rise to a fresh cause of action and new grounds for a fresh forfeiture cannot be a justification to seek the kind of variation the plaintiff is seeking. The plaintiff is not seeking any recession of the order of Master Jennings (that granted relief against forfeiture) on the grounds of any abuse or inequitable conduct of the defendant subsequent to the making of the order. The plaintiff is not seeking a variation of Master Jennings' order as well. The plaintiff is seeking an order to vary my order granting an extension of time to comply with Master Jennings' order. The variation sought is to compel payment of money that had become due after the date of my order as a condition for the extension of time granted on that date. The ground relied upon is that it is just and equitable to vary the order in the manner sought. The plaintiff could have sought as a further condition at the time of the making of my order that pending payment of costs the defendant shall duly observed all the provisions of the tenancy agreement. There is no explanation offered as to why such a condition was not sought at the relevant time. The plaintiff has an independent right to enforce payment of rent and management fee and does not require any variation of my order to enable it to pursue such a right. Even if my conclusion on the nature of the defendant's occupation pending fulfilment of the conditions is wrong, the plaintiff can still pursue his legal rights for mesne profits for the use and occupation of the premises on the strength of the alleged tenancy at will or sufferance. The plaintiff is not left without remedies. The plaintiff is really attempting to obtain in these proceedings instant judgment on a different and fresh cause of action that had arisen subsequent to the commencement of these proceedings without taking out proper proceedings as he ought to. The cause of action relating to the October rent and management fee arose long after the commencement of the present proceedings and is wholly unrelated to the cause of action in these proceedings.

15. Walton J. held in Talbot v. Blindell that :

"I think that I must take the order as it now stands. I have no doubt that if I had been asked on (the date of the making of the order) to make it a condition of granting the relief that the defendants should there and then decide whether they would accept the relief on those terms or not, I should have acceded to that application, and should have made the order in the form that, 'the defendants undertaking to perform the three things,' the relief was granted. That, however, is not the form in which the order is made, nor do I think I can say that the order was drawn up in its present form by any slip or inadvertence. I do not think, therefore, that I can alter or amend the order, but I must deal with it as it stands."

16. Though Walton J was not dealing with an application for variation, in a not dissimilar sentiment as the learned judge I am unable to find any valid justification for a variation of my order dated 31 August 1994 in the manner sought. It may well be that it would have been just and equitable to impose on 31 August 1994 a condition for due performance of the provisions of the contractual tenancy had I been asked. However, 1 was not. The plaintiff must accept the consequence of its oversight in not seeking such a condition at the material time. The defendant is not obliged to accept the conditions I imposed for the extension of time in the same manner as it could not be compelled to perform the conditions for the relief. However, it did perform two of the three conditions I have imposed and had shown every intention to comply with the third one. It did so on the understanding that there is no condition in terms of what the plaintiff is now seeking to impose. The defendant has substantially altered its position in reliance on the existing state of conditions. It would not be just and equitable to bring in such a substantial alteration to the status quo of the order the defendant has been acting upon. It is now too late for the plaintiff to try to ratify the oversight by the present application for a variation. The fresh cause of action had arisen already prior to the making of the present application and the plaintiff should be left to pursue its legal rights properly in the normal way. In the premises, the application was dismissed.

17. The defendant sought costs against the plaintiff upon the dismissal of the application. The application for costs was rejected and I made no order as to costs. The plaintiff's application was a misconceived attempt to redress an unfortunate situation that had arisen solely as a result of the failure of the defendant to comply with its undoubted obligation to make payment for its use and occupation of the premises pending fulfilment of the conditions imposed for relief. There is no excuse offered by the defendant to exculpate itself from its wrongful failure to make due payment as it is obliged. The equity of the situation is that the defendant should not be awarded any costs despite the dismissal of the plaintiff's summons. For that reason, I made no order as to the costs of the parties.