TAINAM HOLDINGS LTD v. FUNNY LAND AMUSEMENT CENTRE LTD

HCA2643/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2643 OF 2004

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REASONS FOR JUDGMENT

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1. The defendant is appealing the decision of the Master in ordering possession of the premises with damages for trespass to be assessed.  I have dismissed the appeal and I now give my reasons.

2. The main issue before me is whether a landlord is entitled to serve a one month notice to quit under section 9(2)(b) of the Landlord and Tenant (Consolidation) (Amendment) Ordinance (Ord. No.16 of 2004) (“Amendment Ordinance”) when it has previously served a six month notice to quit under the Landlord and Tenant (Consolidation) Ordinance (Cap.7).

Background

3. By a Tenancy Agreement dated 29 January 2003, the plaintiff’s predecessor in title Court Investment Enterprises Limited (“Court Investment”) let the premises to the defendant for use as an electronic game centre for the fixed terms of three years commencing 1 January 2001 and expiring on 31 December 2003.  The execution of the Tenancy Agreement post-dated the commencement of the term as the parties had a dispute as to certain alleged oral agreement for tenancy and had come to a settlement.

4. On 6 February 2004, Court Investment formally assigned the premises to the plaintiff.

5. Prior to the assignment, on 16 May and 26 June 2003, the plaintiff served written notices to terminate the tenancy requiring the defendant to quit and deliver up vacant possession on 31 December 2003 (“2003 Notices”). 

6. The 2003 Notices were purportedly served under Part V of Cap.7 although it is not so stated in therein.   There is in issue as to whether Part V of Cap.7 applies to the tenancy in question and I shall return to this later.

7. The defendant remained in possession of the premises after 31 December 2003, alleging, inter alia, an oral renewal of the tenancy in mid October 2003 for a further term of three years.

8. Also prior to the assignment, on 12 January 2004, Court Investment as 1^st plaintiff and the plaintiff as 2^nd plaintiff commenced proceedings against the defendant in HCA58/2004 (“1^st Action”) for vacant possession of the premises.  The claim was on the alternative bases that :

(i)	Part V of the Landlord and Tenant (Consolidation) Ordinance does not apply to the tenancy and it has been terminated by effluxion of time on 31 December 2003;
(ii)	alternatively (which is denied) that Part V does apply, the tenancy was terminated pursuant to section 122(1) of Cap.7 on 31 December 2003.

9. The 1^st action was defended by the defendant on the basis that :

(i)	Part V of Cap.7 applies to the tenancy;
(ii)	it is denied that the 2003 Notices were served;
(iii)	if the 2003 Notices were served, they were invalid and ineffective as they were not issued under the authorization of Court Investment at the material time.

10. The 1^st and 2^nd plaintiffs in the 1^st Action applied for summary judgment but the defendant was granted leave to defend.  The action is still pending.

11. On 9 July 2004, the Amendment Ordinance came into effect.   On 27 September 2004, without prejudice to its right and claims in the 1^st Action, the plaintiff served notice to the defendant to quit on 31 October 2004 (“2004 Notice”). 

12. On 19 November 2004, the plaintiff commenced the action herein against the defendant for vacant possession of the premises and damages to be assessed.

13. The plaintiff took out a summons under Order 14 for summary judgment, and under Order 18, rule 19 to strike out paragraph 7 of the Defence and Counterclaim which alleged a collateral oral agreement between Court Investment and the Defendant that the tenancy be extended for three years at a 15% increase in the monthly mental with other terms and conditions of the Tenancy Agreement remain unchanged.

14. The defendant took out a cross-summons that the action herein be dismissed under Order 18, rule 19, or be consolidated with the 1^st Action. 

15. The Master refused the application on the part of the defendant, struck out paragraph 7 of the Defence and Counterclaim and entered judgment for the plaintiff.  

16. In the Notice of Appeal, the defendant sought to set aside the decision of the Master save as to the striking out, and asked for unconditional leave to defend other than on ground raised in paragraph 7 of the Defence and Counterclaim.  The defendant did not appeal against the Master’s decision in refusing to dismiss the action nor to consolidate it with the 1^st Action.

Amendment Ordinance

17. Section 8 of the Amendment Ordinance, inter alia, repealed section 122 of Cap.7 which stipulated the minimum length of notice of six months to determine tenancy to which Part V applies.  Section 9 of the Amendment Ordinance also provided for savings in respect of Part V :

"	9.	Savings in respect of Part V
		(1)	Notwithstanding the repeal of section 122 of the principal Ordinance on the commencement date —
			(a)	a notice of termination served under section 122(1) of that Ordinance before that date shall have effect in relation to the tenancy to which it applies; and
			(b)	the definition of “notice of termination” in section 120A of that Ordinance shall continue to apply in relation to that tenancy.
		(2)	On and after the commencement date, a tenancy to which Part V applies and which is in existence on the day before the commencement date, but in respect of which no notice of termination has been served before the commencement date under section 122(1) of the principal Ordinance -
			(a)	may be terminated in accordance with its terms or as otherwise agreed between the parties; or
			(c)	if it is a tenancy which was continued by virtue of section 122(4) of that Ordinance, may be terminated either as a month to month tenancy or as agreed between the parties.”

18. The relevant parts of the repealed section 122 of Cap.7 is set out as follows :

“	(1)	(a)	Save where vacant possession is given up or where a tenant surrenders his tenancy in exchange for a new tenancy no tenancy, whether existing on 14 April 1962 or created thereafter, shall cease or be determined without a written notice of termination being served by the landlord or tenant on the other party.
		(b)	The notice shall be served by the landlord, not less than 6 months, or by the tenant, not less than 1 month, before the day on which it is to take effect.
		(c)	A tenancy for a fixed term shall not cease at the end of that term unless notice is served by the landlord, not less than 6 months, or by the tenant, not less than 1 month, before that end.
	(2)	Nothing in this section shall be construed as permitting any tenancy to be determined earlier than would have been the case had this Part not been enacted or as affording any tenant any security of tenancy beyond the period of 6 months required for a notice of termination.
	(3)	Where notice of termination in English and Chinese is served on a tenant and in addition is posted on 3 successive days upon the main door or entrance of the premises affected, such notice of termination shall take effect terminating also any sub-tenancies created under the tenancy to which it relates.
	(4)	When but for subsection (1) a tenancy would have terminated, the tenancy shall continue at the same rent until a notice of termination expires upon such of the covenants, conditions and other terms of the original tenancy as are appropriate to a month to month tenancy, together with, in the absence of any express covenant for the payment of rent and condition of forfeiture, the covenant and condition implied in every tenancy by section 126.
		…”

Grounds of Appeal

19. Mr Yau for the defendant submitted that the plaintiff is not entitled to invoke section 9(2)(b) of the Amendment Ordinance to serve the 2004 Notices, nor to issue proceedings based on the purported notice under section 9(2)(b), nor to obtain judgment herein, until the dispute in the 1^st Action has been resolved.

20. To comply with section 9(2)(b), the plaintiff must show :

(i) the tenancy is one which Part V applies;

(ii) the tenancy was in existence on the day before the commencement date (9 July 2004);

(iii) no notice of termination has been served before the commencement date; and

(iv) the tenancy was continued by virtue of section 122(4) of the Ordinance.

21. Mr Yau submitted that the following issues are pending in the 1^st Action :

(i) the plaintiff contends that Part V does not apply to the tenancy;

(ii) the plaintiff maintained all along that the 2003 Notices were served and were valid.

Hence, without the adjudication in the 1^st action, it is unknown whether Part V is applicable, whether any notice of termination (be it valid or invalid) have been served before the commencement of the Amendment Ordinance, nor whether the tenancy was continued under section 122(4) and in existence on the day before the commencement date.  It is premature for the plaintiff to issue the 2004 Notice before adjudication of the 1^st Action.

22. Mr Chow submitted that in an action on trespass, the cause of action is complete when the plaintiff has proved : (1) the title to the property; (2) the intention to recover possession; and in case of a tenancy, the tenancy has ended.  He referred to Portland Managements Ltd v. Harte & ors [1977] 1 QB 306 per Scarman LJ (as he then was) at 314F :

“…But if the absolute owner is suing, and if the absolute owner has shown by his conduct an intention to recover possession, then it is not enough for the defendant merely to assert or give evidence that he is in possession: he has got to show that he is there on the basis of some title which is consistent with the ownership of the premises being vested in the plaintiff.”

23. Mr Chow reiterated that in an Order 14 application, once the plaintiff has proved its case, it is incumbent upon the defendant to show a real or bona fide defence.

24. Mr Chow submitted the that there is no factual dispute in the case.  The collateral oral agreement was struck out and there is no appeal against it.  The defendant stated in the Notice of Appeal that the 2003 Notices were as a matter of fact served on the defendant. 

25. Mr Chow asked rhetorically that if Part V did not apply, the tenancy came to an end and the defendant is trespassing.  If Part V did apply, the tenancy was terminated, at the latest, by the 2004 Notice.

26. Mr Yau’s defence was that no valid notice has been served under Part V of Cap.7 and/or the Amendment Ordinance.  I now turn to examine the specific points raised.

Applicability of Part V

27. The issue as to the applicability of Part V is as follows.  Under section 121(2) of Cap.7, Part V applies to every tenancy unless excluded.  Part V does not apply to tenancies to which Parts I, II and IV of Cap.7 apply and there is no dispute that the premises were used for a business purpose and Parts I, II and IV do not apply.  Further, section 121(2)(a) provide that Part V does not apply to :

“… a tenancy for a fixed term of 3 years or more the agreement for which contains no provision for earlier determination of the same other than for breach of any of the provisions of the agreement or under a provision of the tenancy allowing forfeiture or determination following the destruction, or partial destruction, of or damage to the premises;”

28. The Tenancy Agreement was for a fixed terms of three years and for business purpose.  But it contained a provision in Section VII as follows :

"	SECTION VII
	ABATEMENT OF RENT
	Suspension of Rent
	If the Premises or the Building or any part thereof shall at any time during the Term be destroyed or damaged or become unfit for occupation not due to any default of the Tenant but owing to fire flooding defective construction earthquake subsidence of the ground or any calamity beyond the control of the Landlord and the policy or policies of insurance effected by the Landlord shall not have been vitiated or payment of policy moneys refused in whole or in part in consequence of any act or default of the Tenant or if at any time during the continuance of this tenancy the Premises or the Building shall be condemned as a dangerous structure or a demolition order or closing order shall become operative in respect of the Premises or the Building then the rent hereby reserved or a fair proportion thereof according to the nature and extent of the damage sustained or order made shall after the expiration of the then current month be suspended until the Premises or Building shall again be rendered fit for occupation Provided that should the Premises or the building not have been reinstated in the meantime either the Landlord or the Tenant may at any time after six months from the occurrence of such damage or destruction or order give to the other of them notice in writing to determine this present tenancy and thereupon the same and everything herein contained shall cease and be void as from the date of the occurrence of such destruction or damage or order or of the Premises becoming unfit for occupation but without prejudice to the rights and remedies of either party against the other in respect of any antecedent claim or breach of the agreement stipulations terms and conditions herein contained or of the Landlord in respect of the rent payable hereunder prior to the coming into effect of the suspension."

29. In Wong Suk Yee v. North Sea Fishing Co Ltd & anor [1994] 2 HKC 158, the tenancy agreement provided that :

“If the said, premises, or any part thereof, are rendered unfit for use or inaccessible by fire, water, storm, wind, typhoon, act of God, white ants, earthquake, subsidence of the ground or any other cause beyond the control of the landlord and not attribute [sic] to any failure of the tenant to observe and carry out the terms and conditions of this agreement, the rent or any part thereof in proportion to the extent to which the said premises shall have been so rendered unfit for use or inaccessible shall abate and cease to be payable until the same shall have been again rendered fit for occupation or use or accessible, provided always that the landlord shall not be required to reinstate the said premises if by reason of the condition of the same or any local regulations or other circumstances beyond the control or the landlord, it is not, in the landlord’s opinion, practicable or reasonable to do so. If the said premises shall not be rendered fit for occupation or use or accessible within two calendar months or the date of the occurrence of the vent rendering it unfit or inaccessible, then the tenant shall be at liberty to terminate this agreement by serving on the landlord not less than one calendar month’s notice in writing to this effect.”

30. The judge at first instance found that the clause in question was the type of situation which section 121(2)(a) of Cap.7 was designed to deal with, and held that the Ordinance did not apply to the tenancy.  On appeal, Cons ACJ delivering the judgment of the Court of Appeal held at 160D that :

“With very great respect to the judge below, in my view, he did not in fact have regard to the wording of the section.  The section does not refer to a type of situation.  It refers to provisions which ‘allow forfeiture or determination following the destruction, or partial destruction, or of damage to the premises.’”

31. His Lordship held that the effect of section 121(2)(a) is limited to the words quoted, and the clause in question also contained provisions which are not within that category.  Hence, the section did not apply to the tenancy and Part V therefore applied.

32. Mr Chow for the plaintiff submitted that it is not necessary for this Court to come to any definite conclusion on whether the Tenancy Agreement is subject to Part V.  Mr Chow pointed out three possible scenarios :

(i)	if the tenancy fell outside Part V, it would have been terminated on 31 December 2003 under common law.  The Amendment Ordinance would have no effect;
(ii)	if the tenancy fell within Part V, and the 2003 Notices were valid, the tenancy would have come to an end on 31 December 2003, and the Amendment Ordinance would likewise have no effect;
(iii)	if the tenancy fell within Part V, but the 2003 Notices were invalid, the tenancy would have continued under section 122(4) of Cap.7 and be in existence on the day before the commencement date and hence could be terminated as a month to month tenancy by the 2004 Notice.

33. Mr Chow submitted that in any event, the defendant would have been a trespasser by 1 November 2004 by virtue of the 2004 Notices.

34. Mr Yau submitted that in the present action, the plaintiff’s only cause of action was trespass as from 1 November 2004 on the factual basis of the 2004 Notice.  The Statement of Claim only mentioned the alternatives (i) and (ii) by way of reference to the pleadings in the 1^st Action (see paragraph 5), and alternative (iii) was stated to be entirely without prejudice to the plaintiff’s rights and claims in the 1^st Action (see paragraphs 7 and 8).  It is not pleading an alternative case in the true sense as the alternatives (i) and (ii) are in the 1^st Action.  The plaintiff cannot elect between the alternatives and must wait for the determination in the 1^st Action.

35. Mr Chow referred to the Hong Kong Civil Procedure 2004 at paragraph 15/1/2 that “the words ‘cause of action’ comprise every fact (though not every piece of evidence) which it would be necessary for the plaintiff to prove, if traversed, to support his right of judgment of the court (see Read v. Brown (1888) 22 QBD 128, per Lord Esher MR at 131).”  Mr Chow submitted that all the material facts have been pleaded.

36. Further, Mr Chow submitted that the complete cause of action on trespass has been pleaded, and the court is entitled to come to a decision based on his alternative analysis.

37. I find that the Section VII of the Tenancy Agreement is not in the same wording and is wider than section 121(2)(a).  Hence, the section did not apply and Part V applied to the tenancy.

38. Be that as it may, I also accept Mr Chow’s argument that even without deciding on the application of Part V, the plaintiff is entitled to proceed on the alternative bases as all material facts have been pleaded.  There is no surprise nor prejudice to the defendant as to what issues are really in dispute.

Notice of termination

39. Mr Yau submitted that “notice of termination” referred to in  section 9(2) include both valid and invalid notices purportedly served under section 122(1).  At any rate, the validity of the 2003 Notices is unknown and pending adjudication in the 1^st Action.  Court Investment is a necessary party to the adjudication.  The Court cannot adjudicate upon the validity of the 2003 Notices without Court Investment.

40. Mr Chow submitted that Mr Yau’s interpretation of section 9(2) will lead to absurdity.  If an invalid notice has been served under the old regime, and notice cannot be served under the new regime because a notice was already served, and the old regime having been repealed, that will mean no notice can ever be served.  Hence, notice can only mean valid notice but not invalid notice.  Mr Chow indicated that if driven, he would accept that the 2003 Notices were bad on the face since the plaintiff did not become the landlord until February 2004.

41. Mr Chow referred to the Woodfall on Landlord and Tenant at paragraph 17.267 on the practice of a second notice to quit :

“… Service of a series of notices without prejudice to the validity of each is often done in cases of doubt as to the correct date for termination of the tenancy.  A second notice to quit, given to expire before the first, is valid.  The second notice may be given even though the landlord has already begun proceedings for possession on the basis of the fist notice; and the landlord is entitled to proceed with his action despite having served a second notice.”

42. Save as to the savings in section 9(2) which the learned author did not intend to deal with, I respectfully agree with the above.

43. I find that Mr Yau’s argument will lead to absurdity.  It is clear from the context of section 9(2) that the mischief is to prevent a landlord who has served a six month notice under the old regime to take advantage of the new regime and serve another one month notice in order to abridge the duration of the notice and curtail the rights of the tenant.  It is an entirely a different situation when the previous notice has lapsed or the it is invalid.

44. I find that the 2003 Notices were invalid as the plaintiff was not the owner then and the 2003 Notices were not stated to be served on behalf of Court Investment.  Court Investment is a necessary party in the 1^st Action but not here.  Validity of the 2003 Notices has been pleaded in the Statement of Claim and is a relevant issue in this case.  The tenancy continued as a monthly tenancy in the absence of any agreement of the parties.  My finding will subsume the question of service.

45. Be that as it may, it is not necessary to deal with the point as per Mr Chow’s alternative analysis.

46. Mr Yau raised the point that even if tenancy were continued by section 122(4) and in existence before the commencement date, since the plaintiff only became the owner on 6 February 2004, it is arguable that the new tenancy commences on the 6^th of the month and ends on the 5^th of the month, and the 2004 Notice may be invalid as it does not expire at the end of the period of the tenancy.

47. Mr Chow referred to the 2004 Notice containing the omnibus clause of termination that “or at the end of the next month of the tenancy which will expire next after the end of one month from the service upon you of this notice.”  Mr Chow referred to Woodfall at paragraphs 17.255 and 17.257 for the validity of such a clause.

Section 9(2)(b) applicable

48. On the basis that I have found Part V to be applicable to the tenancy, the 2003 Notices were invalid, the tenancy was continued by section 122(4) of Cap.7 and in existence on the day before the commencement date of the Amendment Ordinance, and the plaintiff was entitled to serve the 2004 Notice and the tenancy was validly terminated before the issue of the proceedings herein.

Alternative analysis

49. Alternatively, I accept Mr Chow’s argument that it is clear on any view of the matter, the defendant’s tenancy has been terminated at the latest on 31 October 2004.  Accordingly, the plaintiff is entitled (and has been so entitled at all material times since the date of the Writ of the present action) to an order for possession for possession of the premises and damages against the defendant for trespass at least from 1 November 2004.

Conclusion

50. In the premises, I find that the defendant has raised no real or bona fide defence.  The appeal is dismissed and the decision of the Master affirmed.

Costs

51. I have granted costs to the plaintiff to be taxed if not agreed.

52. I thank both Mr Yau and Mr Chow for their helpful submissions.