XCHRX WEST COAST INTERNATIONAL (PARKING) LTD. v. SECRETARY FOR JUSTICE

HCA 13458/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13458 OF 1999

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D E C I S I O N

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1. This is an appeal from a decision of Master Jones given on 1 September 2000 when he gave judgment for the defendant on their counterclaim, and dismissed the plaintiff's claim, under the provisions of Order 14A. The action concerns the tenancy of a piece of land in Tin Shui Wai, Yuen Long, New Territories, under a tenancy agreement dated 23 July 1996 between the plaintiff as tenant and the then Governor as landlord, represented herein by the defendant, and a letter dated 23 March 1999 from the District Lands Officer to the plaintiff, the precise terms of which I shall examine shortly, which the plaintiff claims grants a new tenancy to them but which the defendant contends merely revises the rent payable under the existing tenancy, the other terms of which remain the same. References herein to the defendant include the landlord.

2. The 1996 tenancy agreement granted a tenancy of two years certain commencing on 5 July 1996 and thereafter quarterly until such time as the tenancy is determined. The rent was fixed at $2,672,226.50 from 5 July 1996 to 31 March 1997, and then at $902,000.00 a quarter. The provisions for termination are: (i) in respect of part of the land, by 6 months notice by the defendant at any time within or outside the two years term; or (ii) by one month's notice by the defendant under certain circumstances, with compensation; or (iii) by either party giving three months notice to expire at the end of the two year period or any time thereafter.

3. The agreement also provided for an increase in rent after three years in the following terms under clause 4(g):

"That in the event of the tenancy hereby created not being terminated within three years from its commencement, the rent hereby reserved may be increased by the Landlord at his sole discretion on or after the expiry of every third year of the tenancy upon the Landlord giving to the Tenant not less than three calendar months' prior notice to that effect. Upon the expiry of such notice such increase shall take effect whereupon the increased rent shall be deemed to be substituted for the rent previously in force under this Agreement PROVIDED that no such revision shall take effect within three years of the immediately preceding revision and PROVIDED FURTHER that the parties hereto expressly agree that nothing herein contained shall imply an intention on the part of either party that the tenancy shall not be terminated in accordance with the provisions of this Agreement;"

4. The tenancy was not terminated at the end of the two year period and continued under the terms of the agreement as a quarterly tenancy. Three months and 13 days before the third anniversary of the commencement of the tenancy, namely on 23 March 1999, the letter referred to above was sent to the plaintiff, purporting to increase the rent under the terms of the agreement, and also increasing the deposit payable under that agreement, and seeking the plaintiff's consent, which was given. On 24 May 1999 the defendant wrote again to the plaintiff giving notice to terminate the tenancy on 30 September 1999. It is the plaintiff's case that the letter of 23 March 1999 was not merely notice of an increase in rent under clause 4(g), but effectively the offer of a new tenancy of two years from 5 July 1999 on the same terms as before, and the notice of termination was accordingly not valid as it did not come within any of the provisions for termination in the original agreement.

5. The relevant part of the letter of 23 March 1999 reads as follows:

"Short Term Tenancy No. 1388 in
Tin Shui Wai Areas 25, 25B & 27, Yuen Long

I refer to your tenancy of the above Government land, which commenced on the 5th day of July 1996 by a Tenancy Agreement dated July 23, 1996.

I am prepared to allow your tenancy to continue on the terms and conditions contained in the said Tenancy Agreement subject however to a revision of the rent. The revised rent will be HK$1,286,625.00 per quarter commencing on the 5th day of July 1999 ("the effective date") and will be payable until further notice. This letter is formal notice to you of an increase of the rent with effect from that date.

I would further advise that in connection with the aforesaid revised rent, the deposit deposited with the Landlord in accordance with the terms and conditions of the said Tenancy Agreement is revised to HK$2,573,250.00 with effect from the effective date and shall remain deposited with the Landlord throughout the term of the tenancy. In this connection, you are required to pay to the Landlord the sum of HK$769,250.00, being the difference between the existing deposit and the revised deposit on or before 5th day of July 1999. Upon your delivering up vacant possession of the above Government land to the Landlord and your duly observing and performing your obligations under the said Tenancy Agreement, the deposit will be refunded to you without interest.

If you wish your tenancy to continue and are prepared to pay the revised rent and deposit as indicated above, please sign the enclosed copy of this letter where indicated in the presence of a witness and return it to me within 28 days from the date of this letter. Government reserves the right to charge interest on the new rent from the effective date until the date of payment at the rate of 2% per annum above the prevailing Best Lending Rate of The Hongkong & Shanghai Banking Corporation Limited in the event of the same not being paid on the effective date.

In the event that I do not receive from you the signed copy indicating your agreement to the revised rent and deposit, such action as is deemed appropriate in relation to your tenancy will be taken."

6. Agreement to these terms was signified by the plaintiff signing the letter before a witness as requested.

7. Had the letter ended after the second paragraph there could be no doubt that it was effective notice under clause 4(g) of the Tenancy Agreement of the landlord unilaterally increasing the rent as allowed under that clause, with the same tenancy continuing as a quarterly tenancy. The paragraph clearly refers to the tenancy continuing and the rent being increased. However, Mr Remedios points out that there are two principal things wrong with the rest of the letter.

8. First, while clause 4(g) provides for an increase in the rent, there is no similar provision in the agreement for an increase in the deposit and a demand for such an increase is a new term, unsupported by consideration, and only consistent with a new tenancy. Second, there is no requirement in the agreement for the tenant to have to consent to the increase in rent, or to acknowledge acceptance of it, and certainly not before a witness. He contends that the effect of these terms of the letter is to grant a new tenancy to the plaintiff on the same terms as the original Tenancy Agreement with a term of two years from 5 July 1999, and the notice terminating the tenancy is accordingly invalid.

9. It cannot be denied that the Government had no right to demand an increase in the deposit, and there was certainly no need for the plaintiff's consent to the increase in rent which the Government could impose unilaterally, but does it signify an intention to create a new tenancy? I do not think it does.

10. It is clear from the letter itself, as Mr Merry for the defendant points out, that it is written in the context of the existing tenancy, and refers to it continuing. There is no suggestion of the existing tenancy being terminated, which would be logical if a new one was contemplated, and would be necessary in the present circumstances where it is a continuing quarterly tenancy. The position might be different were it a tenancy for a fixed term which was terminating by effluxion of time.

11. The writer of the letter was certainly wrong in demanding the increase in deposit, and asking for consent, but I am entitled to look at all the circumstances to draw a reasonable inference of the intentions of the parties, and it does not help to pick out inconsistent elements in the letter and make a leap from that to a totally new tenancy agreement. The whole tenor of the letter looked at as a whole is to put in place the increase in rent under the existing agreement. There is no evidence as to how the deposit requirement was included, but to someone unfamiliar with the law it may well seem a logical consequence, and I am entitled in the circumstances to treat it as a mistake. Had the plaintiff refused to pay, the defendant could have had no complaint. As to the consent, while not necessary, I agree with Mr Merry that it is polite to seek it for the sake of amiable relations between the parties, and it seems to me to be eminently sensible to ensure that, not only does the tenant not object, but that the tenancy will continue. Had the plaintiff failed to reply, the new rent would still have been effective, but the defendant would have no indication of the tenant's intentions as to continuing the tenancy after that.

12. Even if a new tenancy was intended, what would have been the terms? Apart from the requirement for a new deposit, no other terms are mentioned. Mr Remedios says that it would be on the same terms as the original agreement with a term of two years. I have some difficulty with that. The original agreement was for an initial fixed term of two years from 5 July 1996. It would be necessary to alter that term to one commencing on 5 July 1999. There is nothing in the letter to indicate that term should be included in a new agreement, and it cannot be presumed. At best it could only be a new quarterly tenancy, which does not assist the plaintiff in challenging the notice to terminate.

13. I am accordingly of the view that the letter, taken as a whole, and in the context of the existing agreement to which it refers, does not create a new tenancy and the existing quarterly tenancy continued on the same terms except as to rent.

14. The appeal is accordingly dismissed with an order nisi for costs to the defendant to be taxed.