HAU GAY YAU v. WONG MUK DIN

CACV 15/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 15 OF 2014

(ON APPEAL FROM DCCJ NO. 1052 OF 2010)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1. The Plaintiff in this action is one of the registered owners of agricultural land at Lot Nos 1075, 1076, 1080, 1081 and 1085 in Demarcation District 92 [“the Land”]. The other registered owner is his deceased brother. The Plaintiff is a co-executor of the estate of the deceased brother and probate was granted on 11 April 2008. The Defendant had been a tenant of the Land for a long time. In 2003, there had been litigation between the Plaintiff and the Defendant about the terms of the tenancy. After trial, in DCCJ 777 of 2002, His Honour Judge Carlson found that the Defendant occupied the Land on a periodic tenancy. The Defendant continued to occupy the Land pursuant to that tenancy.

2. In the present action (which was commenced on 24 March 2010) the Plaintiff claimed that he had validly terminated the tenancy by a notice to quit [“the NTQ”] dated 28 May 2008.  He claimed vacant possession and mesne profit against the Defendant.  The Plaintiff also alleged that the Defendant had rejected the Plaintiff’s proposed revision of rent in 2008 and made a counter-proposal which was not agreed by the Plaintiff.  Thus there was no agreement on the rent review and therefore the tenancy was terminated.  In his Defence of 13 June 2010, the Defendant raised the following lines of defence:

(a) He put the Plaintiff to proof that upon the death of the co-owner, the Plaintiff became the sole beneficial owner of the Land;

(b) He said under the terms of the tenancy, the Plaintiff and his brother were not entitled to possession  as long as the tenancy had not expired by effluxion of time or terminated by mutual consent (para 1(c)).  He further said the tenancy was not a periodical tenancy but a fixed term tenancy up to 30 June 2046 (para 5);

(c) The original rent was $14,000 per year payable around June each year and he had paid the same for the years up to 22 July 2009;

(d) Because he had surrendered the licence to operate a pig farm on the Land, there should be a reduction of rent to $6,000 upon a rent review which, in accordance with the finding of Judge Carlson, should take place every 5 years; and

(e) The Plaintiff had not undertaken the rent review by making application to the Lands Tribunal or by a jointly appointed land surveyor.  It was therefore an abuse of process for the Plaintiff to pursue his claims.

3. The parties set out the issues between them in an agreed list of issues dated 21 January 2013.  The issues are as follows:

“         AGREED LIST OF ISSUES IN DISPUTE

1. The terms of the tenancy as found by His Honour Judge Carlson in DCCJ No. 777 of 2002, including the length of the term, how the annual rent is to be paid and how the annual rent is to be reviewed.

2. How the tenancy can be validly terminated in law.

3. Whether there were breaches of the Defendant in failing to pay the annual rent on time in the past.

4. Whether the Defendant, as tenant, is entitled to insist on an annual rent of HK$14,000.00 and insist on remaining in occupation of the land in question without having regard to the Plaintiff’s wishes as the Landlord.

5. Whether the Plaintiff’s Notice to Quit dated 28^th May 2008 has been validly served and if so, whether such notice is valid to terminate the tenancy.”

4. The action was tried before His Honour Judge Chow [“the Judge”] in February and March 2013.  The trial lasted for three days.  On 17 April 2013, the Judge dismissed the Plaintiff’s claims as he found the NTQ to be ineffective because:

(a) It was sent to the solicitors for the Defendant and addressed to the solicitor as opposed to the Defendant: it stated “to give you notice” instead of “to give your client notice”;

(b) There is no evidence the solicitors had authority to accept service of the NTQ on behalf of the Defendant, thus there is a failure to comply with Section 62(2) of the Conveyancing and Property Ordinance [“the CPO”]; and

(c) The address of the solicitors for the Defendant was not the last know place of abode or business under Section 62(3) of the CPO.

5. The Judge did not deal with the Plaintiff’s claims for mesne profit for the Defendant’s occupation of the Land after 31 May 2009.

6. Leave to appeal was granted by Cheung CJHC on 16 August 2013.  The Plaintiff contended that the Judge erred in holding that the NTQ was ineffective and in holding that the solicitors had no authority to accept the service of the NTQ in light of the evidence.  The Plaintiff also complained that the Judge failed to deal with other issues raised at the trial, viz issues 1, 2, 3 and 4 in the Agreed List of Issues.

The Respondent’s Notice

7. The Defendant filed a Respondent’s Notice on 5 February 2014.  One of the additional grounds raised to uphold the decision of the Judge is estoppel arising from the judgment of Judge Carlson.  On 31 July 2014, three weeks plus 1 day before the hearing of this appeal, the Defendant filed an amended Respondent’s Notice which substantially revised its case on estoppel.

8. We must reiterate what has been recently said in the Reasons for Decision of this court (differently constituted) in To Pui Kui v Ng Kwok Piu HCMP 2466 of 2012, 21 August 2014 (regarding the decision on late amendment of Respondent’s Notice in CACV 281/2012) paras 13 to 19 in respect of the undesirability of the late amendment of Respondent’s Notice even though it is permissible under Order 59 Rule 7.  That rule must be read together with the duty of the parties and their legal representatives under Order 1A Rule 3 and the practice in relation to the preparation for appeal in PD 4.1.  There was no explanation from the Defendant as to why the amendment was done at such a late stage.

9. Mr Kenneth Chan, counsel for the Defendant, said that the amendment only seeks to further elaborate the legal implications of the judgment of Judge Carlson and the Plaintiff would not be taken by surprise or prejudiced.

10. We do not agree.  Prior to the amendment, in the original Respondent’s Notice, the Defendant only referred to the finding of Judge Carlson in respect of the oral assurance that the Defendant could stay on the Land for a very long period of time. In the amended Respondent’s Notice, apart from quoting extensively from the judgment of Judge Carlson (which is not necessary and not good practice), the Defendant also put forward the contentions that the oral assurance has “the same effect of being ‘fixed term tenancy’ (except the rent would be subject to review in every 5 to 6 years)” (para 2(c) of the amended Respondent’s Notice) and “the ‘period of the tenancy’ must be more than ‘yearly tenancy’, i.e. more than 1 year” (para 2(d) of the amended Respondent’s Notice).  Whilst these may be regarded by Mr Chan as elaborations of the implications flowing from the judgment of Judge Carlson, they do put the Defendant’s case on different bases as compared with a mere oral assurance, the original ground in the Respondent’s Notice. 

11. Further, a completely new point was raised at para 2(f) that according to the judgment of Judge Carlson if the parties did not agree on the rent, prevailing market rent should apply and the Plaintiff is estopped from terminating the tenancy.

12. A more fundamental objection to these pleas (whether in the original Respondent Notice or in the amended Respondent’s Notice) is that they are not points raised in the Defence nor points taken at the court below.  In the Defence, it had not been pleaded that the Plaintiff was barred from terminating the tenancy by reason of the oral assurance.  Whilst there was a plea that the tenancy was a fixed term tenancy up to 2046, there had not been any plea that the oral assurance had such effect.  There was also no plea of an alternative case that if it was not a fixed term tenancy, it was a periodic tenancy of more than one year.  Up to the hearing of the appeal, there has not been any application for the amendment of the Defence.

13. We are of the view that at the very least the Defendant should plead the oral assurance in his Defence and the defence case on its effect before these contentions could be entertained at trial.  On its own, the oral assurance could not be legally enforceable in light of the requirement of writing under Sections 3 and 5 of the CPO.  However, this question has not been fully considered before Judge Carlson.

14. In the closing submissions advanced on behalf of the Defendant at the court below, his solicitor made these observations at paras 4.1 and 4.2,

“4.1 His honour Judge Carlson in DCCJ 777/2002 did not have to decide on the terms on which the Defendant was to enjoy the Premises. The Plaintiff’s case in DCCJ 777/2002 was focused on a written tenancy agreement dated 1^st June 1999 which the Defendant had signed and which was for a term of 2 years at an annual rent of HK$14,000.00 [C195 para. 10]. The learned judge ruled that the Plaintiff had failed on his claim based on the written agreement which the learned Judge found “does not regulate or govern the Defendant’s occupation of the land”. [C201 para. 22]. A further finding appeared on para. 23 in that “by virtue of the Plaintiff’s promises he must now be held to be estopped from relying on the terms of the agreement”. Hence, the Plaintiff in DCCJ 777/2010 failed both on the written tenancy agreement and also on promissory estoppels. There is issue estoppels in the present proceedings. Counsel for the Plaintiff appears to have accepted this proposition.

4.2 It is to be noted that having made the 2 rulings [on the written tenancy agreement and on promissory estoppels], His Honour Judge Carlson had no need to make any findings on the terms of the Defendant’s tenancy and that is perhaps why he did not spell out the terms of the tenancy except to find as a fact [C200 para. 20] that

“I find as a fact that he assured the Defendant that he could stay for a very long period of time. Whilst he may not have meant that it could literally be for as long as 50 years after Hong Kong’s handover, I am content to say that 10 to 20 years that the Defendant has also mentioned was spoken of as well the words that the Defendant could “put his heart at ease” and [para. 21] “I find as a fact therefore that the Defendant continued to occupy the land on a purely oral agreement for a periodic tenancy as before with rent reviews every five years”.”

15. Having read the judgment of Judge Carlson, we are satisfied that His Honour did not have to and therefore did not make any findings as to the precise nature and the duration of the oral tenancy.  Judge Carlson did not have to consider and therefore did not make any finding on the legal consequence of the failure to reach agreement on rent in a rent review. In his judgment in DCCJ 777 of 2002, Judge Carlson said at paras 15 and 22:

“15. Ultimately, the case, I believe, resolves itself essentially into a question of fact. The principal issue to decide is whether the parties really intended to contract on the basis of the lease in writing (p. 87) or whether the agreement was to remain purely an oral agreement as it had been from 1976 to 1999. If the evidence is such that the written document at p. 87 contains the terms of the agreement then, subject to some of Mr Kwong’s undeveloped legal submissions, the Defendant must be in real difficulty. Nevertheless, if the evidence persuades me that the written document was merely something for the Chinese authorities, if things went wrong after 1997, and the verbal arrangements held good to the effect that the Defendant could occupy the land, as he had done hitherto, with rent reviews every 5 or 6 years, then I would have thought that no reliance can be placed on the written lease and the Plaintiff is probably stuck with his verbal assurances that the Defendant could stay and spend, build and develop the land in the way that he has done.

…

22. This being my view of the evidence it must follow that the Plaintiff must fail on his claim based, as it is, on the written tenancy agreement which I have found does not regulate or govern the Defendant’s occupation of the land.  On this basis alone the claim must fail and must therefore stand dismissed.”

16. It should also be noted that Judge Carlson’s reliance on the effect of the oral assurance was limited to the rejection of the Plaintiff’s case based on the written tenancy agreement (see para 23 of his judgment).  His Honour was not concerned with any analysis on the legal effect of the oral assurance on the terms of the oral tenancy.  His finding on the nature of the oral tenancy is confined to this statement at para 21 of his judgment:

“… I find as a fact therefore that the Defendant continued to occupy the land on a purely oral agreement for a periodic tenancy as before with rent reviews every five years. …”

17. We do not see any bases for Mr Chan’s submission that such a finding can somehow convert the periodic tenancy into a fixed term tenancy of an indefinite period.  In light of what Judge Carlson had said at para 21 of the judgment, it is impossible to suggest he had made a finding that there was a fixed term tenancy up to 2047 (or 2046 as asserted in the defence, which Mr Chan said was a mistake for 2047). 

18. The preference of Judge Carlson of the evidence of the Defendant to that of the Plaintiff as adduced before him does not mean that he had implicitly made finding on facts as per the evidence of the Defendant.  The findings are those set out in the judgment.  In respect of issues which were not germane in the action before the court, the judge did not need to make any finding even though evidence was adduced.  This is particularly so when Judge Carlson had not been adequately assisted at the trial.  At para 14 of his judgment, Judge Carlson had to say the following:

“14. There is much potential for legal argument in this matter and Mr Kwong for the Defendant has raised substantial points of law without showing me a single authority for his wide ranging submissions. Equally Mr Ching for the Plaintiff has demonstrated a languid approach to the task at hand. I desire to say this, because often a judge is grateful to the advocates for their assistance, which is usually very real, but in this matter such assistance has not be forthcoming.”

19. Nor do we see any legal bases for Mr Chan to derive from the judgment of Judge Carlson a finding to the effect that in the absence of agreement on rent on a rent review, the rent should be the prevailing market rent.  There was no such finding by Judge Carlson. 

20. For these reasons, there is no merit in the grounds raised in the amended Respondent’s Notice. 

The Notice to Quit

21. Turning back to the Plaintiff’s grounds of appeal, we are of the view that the Judge erred in holding that the NTQ was ineffective and not validly served on the Defendant.  At common law, a NTQ can be served on a solicitor acting for a tenant, see Hill & Redman’s Law of Landlord and Tenant para A[4543]; Halsbury’s Laws of Hong Kong, Vol 17(1) 2007 Reissue, para 235.174.

22. That common law rule is not displaced by Section 62 of CPO.  It is clear from the wordings as well as the context of Section 62(2) and (3) that it is only providing for supplementary modes of service of NTQ in addition to those permitted under the common law.  Thus, in contrast with Section 62(1) which provides that notices shall be in writing (which is clearly mandatory), Section 62(2) and (3) contain provisions as to how notices “shall be sufficient” and “shall be sufficiently served” respectively.  And Section 62(4) provides for another mode by which notice “shall also be sufficiently served”.  There is no reference in those provisions to personal service which is the most direct form of service.  One only needs to refer to Section 74 of the Landlord and Tenant (Consolidation) Ordinance on possible modes of services of notice to quit to realize that Section 62(2) to (4) are not intended to exclude other modes of services.  In our judgment, the provisions in Section 62 (2) to (4) are not meant to be an exhaustive code for service of NTQ.  Hence, the Judge’s rejection of the effectiveness of the NTQ and its service on the ground of failure to comply with Section 62 is misconceived as a matter of law.

23. The Judge was clearly wrong in his finding that there was no evidence to show that the solicitor was acting for the Defendant. As Mr Leung submitted, the history of the correspondence between the solicitors clearly demonstrated that Messrs Paul Kwong was acting for the Defendant when the NTQ was sent to that firm and there was no mistake that the solicitor received the same as agent for the Defendant.  The Defendant accepted in his oral evidence that he was told about it by the solicitor and he gave instructions to the solicitor to reply to it without taking any point as to the lack of authority of the solicitor.  The Judge had failed to have regard to such compelling evidence and we have no difficulty in setting aside his finding in these circumstances. 

24. Viewed in context, the NTQ was clearly giving notice to the Defendant as opposed to only the solicitor that the tenancy would be terminated.  As shown in the evidence of the Defendant under cross-examination, it was actually so understood by the solicitor for the Defendant and the Defendant himself.  Thus he gave instructions to the solicitor to reply to it.  The Judge’s construction of the wordings of the NTQ is, with respect, unduly narrow and pedantic.  That is not a correct approach in considering the effect of a notice to quit.  Hill & Redman’s Law of Landlord and Tenant para A [4482] set out the proper approach:

“Wherever possible, a notice to quit will be construed so as to make it effectual, ambiguities being construed so as to give it validity and inaccuracies, obviously opposed to the intention of the party giving it, being corrected. The principle is that the court will correct an obvious literal error in a notice to quit if the notice is quite clear to a reasonable recipient reading it with knowledge of the terms of the tenancy, so that he could not reasonably be expected to be misled by it. …”

Disposal

25. We would therefore allow the appeal and set aside the Judge’s order.

26. The next question is whether the case should be remitted back to the District Court for a retrial.  Bearing in mind the long lapse of time since the action had been commenced, we fully understand Mr Leung’s protestation on behalf of his client against such a course.  If this court can properly and fairly resolve the matter, we would do so.  On the other hand, as we said in the course of hearing, it is not the function of this court to resolve factual disputes which involve the assessment of viva voce evidence that this court has no opportunity to hear.

27. Unfortunately, in his judgment, the Judge adopted the unconventional course of adjudicating only on one issue (viz the validity of the NTQ) amongst those several issues raised by the parties.  And more unfortunately, the Judge’s determination of that issue was erroneous.

28. As regards the other issues, we are inclined to agree with Mr Leung that the dispute on whether the tenancy was periodical or a tenancy of fixed term up to 2046 (or 2047) could be resolved by us in light of the evidence adduced and the judgment of Judge Carlson.  It is quite plain that there cannot be any tenancy with a fixed term up to 2046 (or 2047) in view of the findings of Judge Carlson at paras 20 and 21. 

29. However, we cannot say the same in respect of the effect of the agreement that there would be a rent review every 5 years and the failure of the parties to agree on the rent in 2008.  As Yuen JA mentioned at the hearing, it is at least arguable that the agreement (if effective, which we have to assume to be so for present purpose) implies that the tenancy cannot be terminated by a simple notice to quit before the procedure for rent review had been duly completed.  The issue as to the proper mechanism for rent review had been raised in the Defence which was verified by the Defendant in the statement of truth.

30. Though Mr Chan may not be able to rely on the judgment of Judge Carlson to establish any issue estoppel in favour of his client on this question, it is still an issue which the Judge should have addressed based on the evidence before him, untrammeled by any issue estoppel. The Defendant alluded to the unreasonable stance taken by the Plaintiff in the rent review at paras 4 and 5 of his witness statement, which was adopted as evidence at the trial.  On the other hand, the Plaintiff only referred to the correspondence between the parties from para 12 to para 17 in his witness statement.  In his oral evidence, the Plaintiff referred to the absence of increase in rent for 16 years and thus an increase was overdue.  The Plaintiff said the Defendant’s insistence on rent at previous level was unreasonable.

31. In the context of a periodic tenancy coupled with an agreement for rent review every five years, on the evidence before the court below, there are tr`iable issues in the present case on the duties of the parties in the rent review process and whether the Plaintiff has complied with that duty in the circumstances of this case.  If the Plaintiff has not fully discharged his duty in that respect, there is a triable issue on the right of the Plaintiff to terminate the tenancy by a notice to quit when the process of rent review has not been properly carried out.  These issues cannot be decided properly by this court without the relevant finding of facts on the evidence by the Judge.

32. The Judge also did not deal with the challenge as to the Plaintiff’s standing without joining the co-executrix in the action.

33. Not without some reluctance, we order that the issues identified at paras 31 and 32 to be remitted to the District Court for retrial.  We wish to underscore that the re-trial should be confined to those issues as we do not intend to allow the parties to re-open the whole case. In particular, we do not accede to Mr Chan’s request to remit the whole question of the terms of the tenancy to be re-opened.  Before us, counsel had attempted to seek amendment of the Defence to put forward an alternative case that the periodic tenancy was for a period of five years each.  He then withdrew that application.  We are not disposed to permit this question to be revived in the remitted trial of the specified issues.

34. We also make a costs order nisi that the Defendant shall pay the costs of the appeal, such costs shall be taxed if not agreed.  As for the costs of the trial below, they would be costs in the cause of the retrial.