MURDOCH INVESTMENTS INC. v. YANGTZE COAXIAL CABLE LTD.

CACV 123/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 123 OF 2000

(ON APPEAL FROM DCDC NO. 1520 OF 2000)

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J U D G M E N T

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Keith JA (giving the first judgment at the invitation of Godfrey V-P):

The facts

1. This is an appeal from a refusal to discharge a warrant of distress for rent. The relevant facts are these. The Defendant is the Plaintiff's tenant of an office in Tsim Sha Tsui. The rent was $50,875.00 a month. It was payable on the first day of each month. The Defendant did not pay the rent due on 1 March, and on 9 March the Plaintiff applied to the District Court for a warrant of distress for that rent pursuant to the provisions of Part III of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) ("the Ordinance").

2. On 11 March, i.e. two days later, the Defendant paid the sum of $68,915.72 to the Plaintiff by cheque. That payment is not disputed. What is in dispute is what it was paid to the Plaintiff for, bearing in mind that there were a number of different sums which the Defendant owed the Plaintiff at the time.

The law

3. The law, in my view, is clear:

"Where several separate debts are due from the debtor to the creditor, the debtor may, when making a payment, appropriate the money paid to a particular debt or debts, and if the creditor accepts the payment so appropriated, he must apply it in the manner directed by the debtor; if, however, the debtor makes no appropriation when making the payment, the creditor may do so. It is essential that an appropriation by the debtor should take the form of a communication, express or implied, to the creditor of the debtor's intention to appropriate the payment to a specified debt (or debts), so that the creditor may know that his rights of appropriation as creditor cannot arise. It is not essential that the debtor should expressly specify at the time of the payment, which debt or account he intended the payment to be applied to. His intention may be collected from other circumstances showing that he intended at the time of the payment to appropriate it to a specified debt or account" (emphasis supplied): Chitty on Contracts, Vol. 1, 28th ed., paras. 22-059 and 22-060.

The Defendant's case

4. Prior to the payment of $68,915.72 made by the Defendant on 11 March, the Defendant had received two demands from the Plaintiff. The first was dated 15 February, and was a demand for $68,915.72 for the rent, management fees, rates and interest due on 1 March. The second was dated 6 March, and was a demand for a number of debts, some current debts, but others which were at least 30 days, 60 days, 90 days and 120 days old. The current debts to which the demand related amounted again to $68,915.72, and those current debts must therefore be treated as including the rent due on 1 March. Accordingly, the Defendant's case is that the fact that the amounts were identical shows that it intended its payment on 11 March to be in respect of (a) the demand of 15 February and (b) the demand of 6 March for the current debts, including the rent due on 1 March. Indeed, the Defendant claims that that is what an officer of the Plaintiff was expressly told when the cheque was handed over.

The Plaintiff's case

5. The Plaintiff's case is that the Defendant did not make known, either expressly or impliedly, to which debts its payment of 11 March related. The Defendant did not make that known expressly because it is claimed that nothing was said as to which debts the payment related when the cheque was handed over. Nor did the Defendant impliedly make known that the payment related, inter alia, to the rent due on 1 March because no inference, it is said, can properly be drawn from the fact that the cheque was identical to the amounts referred to in the demands of 15 February and 6 March. Accordingly, the Plaintiff purported to appropriate the payment towards the older debts, and it issued a receipt dated 11 March acknowledging the payment and apportioning it to debts other than the current arrears of rent. The older debts to which it purported to apply the payments were rates, management charges and a small item described as "handling charges".

The application for the discharge of the warrant

6. It was against that background that the Defendant applied for the warrant to be discharged. The basis of the application was that the rent to which the warrant related had been paid. That application came before Deputy Judge Tong on 23 March. The Defendant was represented by one of its directors. He had filed an affirmation in effect asserting that the rent to which the warrant related had been paid. The transcript of the hearing reveals that he told the judge that the cheque for $68,915.72 was "precisely the current amount due for the month of March 2000, as shown on the statement of invoice presented by the landlord".

7. The judge decided not to discharge the warrant. He expressed his ruling as follows:

"The items to which the landlord had applied the defendant company's payment to meet were all within the meaning of rent under part 3 of the Landlord and Tenant (Consolidation) Ordinance. Had the plaintiff applied for a distress warrant to distrain rent for those items a warrant of distress would have been granted all the same. The defendant company is liable to pay all those items as much as they are liable to pay the rent in its narrow sense under the tenancy agreement."

In my opinion, the judge fell into error. The items to which the Plaintiff had applied the payment did not come within the meaning of "rent" as used in Part III of the Ordinance. Indeed, there is no definition of "rent" in Part III of the Ordinance. Moreover, whether the items to which the Plaintiff had applied the payment came within the meaning of "rent" was irrelevant as the only question was whether the Plaintiff had been entitled to apportion the payment to debts other than the rent due on 1 March.

8. I appreciate, as Ribeiro JA pointed out in the course of argument, that various Ordinances permit various debts to be recovered by distress in the same manner as rent. Thus, section 21(2) of the Rating Ordinance (Cap. 116), and for that matter section 24 of the Building Management Ordinance (Cap. 344), provide that rates and management fees may be recovered by distress. But although the Plaintiff could have sought to recover the arrears of rates and management fees by distress, the fact remains that the warrant for distress related only to the rent due on 1 March.

Should the warrant now be discharged?

9. In view of the relatively small sums involved, it would not, I think, be appropriate for us to remit the case back to the judge to decide the issue which he did not decide himself. I appreciate that without the evidence of the person who handed the cheque to the Plaintiff, or the person who received the cheque from the Defendant, it is not possible to determine whether the Defendant expressly informed the Plaintiff that the cheque related to the current debts, and therefore, inter alia, to the rent due on 1 March. However, assuming in the Plaintiff's favour that nothing was said about that at the time, I have no doubt that the cheque was impliedly tendered as payment of the current debts. No other conclusion seems to me to be tenable in view of the fact that the cheque was for the same amount as (a) the demand of 15 February for the sums due on 1 March and (b) the demand on 6 March for current debts, which, as I have said, must be treated as including the rent due on 1 March. It follows that the Defendant was entitled to have the warrant set aside because the rent to which the warrant related had not been paid.

10. There is one other point which needs to be addressed. The Plaintiff applied for leave to file fresh evidence to exhibit the tenancy agreement for the purposes of relying on clause 3(b)(iv), which provides:

"The Landlord shall be entitled to treat non-payment of any amount debited to the Tenant in accordance with the foregoing provisions of this Clause or any part thereof in all respects as non-payment of rent under this Agreement."

The Plaintiff contends that on its proper construction that clause entitled the Plaintiff to apply any payment received from the Defendant to whichever of the Defendant's debts which it chose. I disagree. Clause 3(b)(iv) merely entitled the Plaintiff to treat non-payment of rates as non-payment of rent. In other words, non-payment of rates triggered such remedies as the Plaintiff may have had for non-payment of rent, but it did not result in the Plaintiff being entitled to appropriate any payment made to it by the Defendant as it chose.

Conclusion

11. For these reasons, I would allow this appeal, I would set aside the order of the judge, and I would order that the warrant of distress be discharged.

Ribeiro JA:

12. I agree.

Godfrey V-P:

13. I also agree. We will order the Plaintiff to pay the Defendant's costs of the appeal (including the Defendant's costs of its application for leave to appeal) to be taxed (if not agreed). We will make no order as to the costs of the Plaintiff's application to this court for leave to adduce further evidence.