LAM KING CHOI v. MA CHI DICK

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT KOWLOON

CIVIL JURISDICTION

ACTION NO. 32 & 33 of 1985

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BETWEEN

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JUDGMENT

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1. These proceedings are concerned with a fairly common dispute between landlords and tenants of domestic premises in Hong Kong. The plaintiff is the landlord and owner of Flats G and H, 14th Floor, 90 Lok Shan Road, Kowloon, which he purchased some five years ago. The defendant is the tenant of these flats, having entered into possession thereof under a written tenancy agreement for 5 years made with the plaintiff's predecessor-in-title on the lst June 1979. In 1984 the plaintiff sought to increase the rent by $600 per month. The defendant objected to this increase.  As a result, rent due on the 1st October 1984 and subsequently was not paid, and on the 4th January 1985 the plaintiff issued two writs, seeking possession of the flats on the basis of forfeiture for non-payment of rent, and arrears of rent since the 1st October 1984. What appeared, at first sight, to be a fairly straightforward case has proved to be somewhat complicated by reason of certain unusual features, the conduct of the parties, and the various changes in the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) which have been effected since the defendant became the tenant of the flats.

2. The writ in action No. 32 of 1985 relates to flat Hi that in action No. 33 of 1985 relates to flat G. Both actions were listed as "floaters" and came before me on the 26th March 1985. Neither party was legally represented. With their consent I ordered that the two actions be consolidated and heard together. In an extempore judgment, I dismissed both claims for possession of the flats because I was satisfied, by the evidence before me, that they were the subject matter of a tenancy or tenancies, which were "continuing under section 52(1)" of Cap. 7 and, having regard to sections 52(1B) and 53(1)(b) of Cap. 7, could only be brought to an end by proceedings in the Lands Tribunal.  Nevertheless, it seemed to me that I had jurisdiction to entertain the claims for arrears of rent which had accrued up to the date of the writs. Accordingly, in the belief that the plaintiff had complied with the relevant statutory provisions (i.e. sections 57 to 61 and 64 of Cap. 7), I gave judgment for the plaintiff, in each action, for the sum of  $5,534, being four months rent at the increased rate of $1,383.50 per month. A stay of execution was imposed on condition that the defendant paid the total amount of $11,068 into court within 3 days. The defendant complied with that condition; and this amount has since been paid out to the plaintiff.

3. On the 2nd April 1985, I decided to exercise my powers of review under section 53 of the District Court Ordinance (Cap. 336), because it seemed to me, upon a fuller consideration of the relevant statutory provisions, that the defendant might not be legally liable to pay the increased rent, notwithstanding the fact that the Commissioner of Rating and Valuation ("the Commissioner") had issued certificates purporting to authorise an increase. Brief reasons for my decision to review were sent to the parties, in the hope that one or both of them might obtain legal representation. In the event, they again appeared in person, and I have not had the advantage of assistance on the construction of the relevant statutory provisions or the effect of the certificates placed before me.

4. Although the plaintiff and the Commissioner have treated the two flats as the subject of separate lettings, I am satisfied that there is only one tenancy comprising the two flats ("the premises"). The two flats were combined into one unit by removal of the partition wall. There is one entrance. It is, in my view, clear from the tenancy agreement between the defendant and the plaintiff's predecessor in title (Exhibit D2) that there was a single letting of both flats at a single rent of $1,400 per month. Although the plaintiff expressed ignorance of Exhibit D2, and some surprise at its production, I am satisfied that it is a genuine document. It bears revenue stamps showing that stamp duty was paid on the 3rd June 1979. It may be the case that the plaintiff's professed ignornace of this document is due to the fact that he purchased the flats when the defendant was already in possession, and he does not have possession of the title deeds, as the premises are mortgaged to a bank. The fact that the agreement is under hand, and not in the form of a deed, might have posed certain problems, having regard to provisions of the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23) and the Land Registration Ordinance (Cap. 128). But, it was, in my view effective to create a "tenancy" for the purposes of the application of Cap. 7.

5. At the date when the tenancy agreement was executed, the tenancy was excluded from Part II of Cap. 7. It became subject to Part II as a result of the enactment of Ordinance No. 6 of 1980. It was not excluded from Part II by the amendments introduced in 1981 (now section 50(6)(n) of Cap. 7) Accordingly, when the contractual period of the Tenancy expired by effluxion of time, on the 31st May 1984, the tenancy "continued" under section 52(1) of Cap. 7. At the review, the plaintiff produced a bundle of rate demands for the two flats (Exhibit P8). These show that the rateable value of each flat was $6,000 in 1981 and 1982, but had been increased to $24,300 by 1984. Although there was no other evidence of the rateable value of the premises, I consider that I can infer that the higher values are based on the more recent valuation list, with the consequence that the tenancy of the premises did not cease to be subject to Part II on the 19th December 1984 as a result of the operation of section 50(6)(m) of Cap. 7, because the rateable value of the premises, for the purposes of that provision, is governed by section 50(10)(a) of Cap. 7.  The fact that the Commissioner issued certificates of increase (Forms TR9A) in August 1984, and confirmed them, after a review, by Forms TR18B dated the 21st December 1984 (see Exhibits P3, P4, P5 and D3), is some indication that he did not consider that the premises ceased to be subject to Part II of Cap. 7 by reason of section 50(6)(m) thereof. But, I must acknowledge that it is far from conclusive, since the Commissioner's decisions appear to have been made on the assumption that he was dealing with two separate tenancies, instead of a single tenancy comprising both flats.

6. Having concluded that the tenancy of the premises is still governed by Part II of Cap. 7, and can only be brought to an end in accordance with the provisions of sections 52 and 53 of Cap. 7, I confirmed my earlier decision that I lacked jurisdiction to entertain the plaintiff's claims to recover possession of the premises on the basis of alleged forfeiture for non-payment of rent, or indeed, on any other basis.

7. I confess that I came to that conclusion with some reluctance. Being a District Judge I am empowered to exercise all the jurisdiction of a Presiding Officer of the Lands Tribunal. Once it became apparent that the tenancy was one "continuing" under Part II of Cap. 7, it would have caused me no loss of dignity to adjourn the hearing, to enable me to doff my wig and robes of office as a District Judge, and then resume the hearing as a Presiding Officer of the Tribunal. But, although the District Court's previous exclusive jurisdiction over these matters was transferred to the Lands Tribunal some time ago, and the relevant ordinances have been substantially amended since then there is still no jurisdiction to transfer to the Tribunal proceedings which have been erroneously commenced in the District Court. I consider that this omission on the part of the legislature must be regarded as deliberate. In the case of certain other disputes, which are entrusted to tribunals, there is express provision for their determination to be transferred to, and continued before, the ordinary courts.

8. The Lands Tribunal has jurisdiction to order the payment of arrears of rent and/or mesne profits. In general, I consider that when a landlord also seeks to recover possession on the grounds of non-payment of rent, it is desirable that both claim should be heard together by the same court or tribunal. However, in the present case, I did not think that it would be just to add to the surprise or bewilderment of the parties by refusing to adjudicate upon the landlord's claim to recover arrears of rent. As the defendant had indicated a clear willingness to pay an increased rent at the rate to which the landlord was legally entitled, I saw no point in obliging the plaintiff to wait for his money until he commenced fresh proceedings, and obtained a hearing date, in the Tribunal.

9. At the original hearing, it seemed to me that the plaintiff had established that he was legally entitled to receive rent at the increased rate, with effect from the lst October 1984, on the basis of Forms TR 18B, issued by the Commissioner on the 21st December 1984 (Exhibit P5). I was, and still am, satisfied that he was not so entitled on the strength of Forms TR 9A (Exhibit P3), issued by the Commissioner on the 14th August 1984, because the notices (Exhibit D3) served by the plaintiff on the defendant were clearly invalid, as they did not comply with the requirements of sub-sections (1) and (2) of section 61 of Cap 7.  They specified that the increase was to take effect from the lst September 1984; whereas, the earliest date was, in my view, the 1st October 1984. In any event, the defendant invoked the Commissioner's jurisdiction (under section 59 of Cap. 7) to review his earlier certificate before the 1st September 1984 (See Exhibit P.4), although he did not exercise his right (conferred by section 60 of Cap.7) to appeal to the Tribunal against the Commissioner's decision on his review of his earlier certificates (i.e. Exhibit P5). I am satisfied that he did not do so because he thought that the question of what rent he was legally obliged to pay would be determined in the course of the present proceedings, which were commenced by the plaintiff well within one month of the Commissioner's confirmation of his earlier certificates. In any event, the defendant's failure to exercise his statutory right of appeal to the Tribunal does not, in my view, preclude him from contesting the plaintiff's alleged right to receive rent at the increased rate by defending the present actions. (ct Wandsworth B. C. v. Winder [1984]  3 W. L. R. 1254).

10. In the present case, it seems to me that there are two principal questions: (1) if the Commissioner affirms a certificate of increase, issued under section 58(1)(a), after a review conducted in accordance with section 59, is the landlord obliged to serve on the tenant a notice, or further notice, which complies with the requirements of section 61, before he can legally demand and recover the increased rent?  (2) if the landlord is not required to serve such notice "in the specified form", or any notice, on the tenant, is the Commissioner empowered to determine that the increase is to take effect from some date prior to the conclusion of his review? Before giving any answers to these questions, I will endeavour to summarise or set out the relevant statutory provisions.

11. Part II provides for five situations in which the rent of a domestic tenancy may be increased. It may be increased by agreement (s. 55); because of improvements by the landlord (s. 55A); because of rate increases (s.56); by apportionment or aggregation of rates (s. 56A); or because of differences between the current rent and the prevailing market rent (ss. 57 and 58). In each case notice must be given to the tenant by the landlord or the Commissioner before any increase can take effect. With the exception of an agreed increase, the legislation leaves the initiative for an increase to the discretion of the landlord. There is no automatic increase, and the Commissioner has no unilateral power to dictate the rent payable, or that an increase shall be payable. The landlord can invoke the statutory machinery and determine what, if any, increase shall be payable, without first having to apply for a certificate from the Commissioner, in all except the two situations governed by sections 56A and 57. Such certificates are only conclusive as to the upper limit of the increase. It is left entirely to the landlord to decide whether to increase the rent up to the permitted limit, or at all. In most cases, he will act upon the certificate, in order to get more money from his tenant, but he is in no way obliged to act on the certificate. For instance, if he obtains a certificate under section 58(1)(a) at a time when market rents are stabilised or depressed, he may decide to forego the benefit of a permitted increase in the hope or expectation that market rents will rise at some time during the two-year "moratorium" imposed by section 64. Although the legislation empowers the Commissioner to exert some control over the level of rents for domestic tenancies, it does not override the basic freedom of the parties to the tenancy to negotiate a new rent by agreement. Nor does it oblige a tenant, in the absence of such agreement, to pay a higher "permitted" rent, unless the landlord invokes the statutory machinery and complies with the conditions or restrictions for imposing an increase upon an unwilling tenant.

12. In the present case, I am only concerned with the situation governed by sections 57 and 58, namely, an increase sought on the basis of a difference between the current rent and the prevailing market rent. In order to understand the reasons for my decision at the review, I consider that it may be helpful to set out the relevant statutory provisions more extensively. They are:-

"s.58(1)	Where a landlord applies for a certificate under section 57, the Commissioner shall -
	(a)	if satisfied that the prevailing market rent exceeds the current rent paid by the tenant, issue free of charge and serve on the landlord and the tenant certificates in the specified form stating the amount, as ascertained in accordance with subsection (2), by which the current rent may be increased; ......
and he may endorse on the certificates such matters as he thinks proper relating to such application ........"
s.59	(1)	Where the Commissioner issues a certificate under section 58, the landlord or the tenant may within 14 days of service on him of the certificate apply to the Commissioner by notice in duplicate in the specified form for a review of the certificate.
	(2)	On receipt of an application under subsection (1), the Commissioner shall review his certificate issued under section 58 and, after giving both parties the opportunity of making written submissions, he may affirm the certificate or cancel it and issue a new certificate under that section .
	(3)	.......
	(4)	The Commissioner may, at the time of any review under subsection (2), determine the date from which any increase in rent shall take effect."
"S.61	(1)	An increase in rent specified in a certificate issued under Section 58(1)(a) shall not take effect except in pursuance of a notice of increase in the specified form served by the landlord on the tenant, specifying the date from which the increase is to take effect.
	(2)	.......
	(3)	The date specified in a notice under subsection (1) shall not, subject to Section 64, be earlier than the first day when rent becomes due after the expiration of 1 month from the service of the notice.
	(4)	Notwithstanding this section, where proceedings on a review under Section 59 or an appeal under Section 60 are not concluded on the date specified in a notice under subsection (1), the failure by the tenant or sub-tenant to pay the increase in rent prior to the conclusion of such proceedings shall not be a breach of covenant to pay rent nor give rise to a right to forfeiture."

13. Before I set out the chronology of the steps taken by the parties to the present proceedings, I consider that I should acknowledge that, insofar as they may have failed to comply strictly with the statutory provisions and procedures which affect their relationship, their mistakes are understandable. The relevant statutory provisions are, in my view, somewhat ambiguous and complex. The material dates and events are as follows:-

14th August 1984 - Commissioner issues certificates under s.58 (1) (a), authorising an increase of $300. (Exh. P3 & D3). 15th August 1984 - The plaintiff issued notice (Form TR11) under s.61, specifying the 1st September 1984 as the date from which the increase was to take effect (Exh. D3). 23rd August 1984 - The defendant applies for review on Form TR18 (Exh. P4). 30th August 1984 - Commissioner invites parties to male written submissions. (Exh. P4). 20th October 1984 - Plaintiff issues notice of increase under s.56 (Exh. D4). 19th November 1984 - Plaintiff's solicitors issue "warning" letters, threatening proceedings to recover possession under section 53(2)(a) and (d) of Cap. for non-payment of the "increased" rent, specified in Form TR11. (Exh. D1). 21st December 1984 - Commissioner issues Form TR18B notifying parties of his decision on the review, whereby he confirmed his certificate issued on the 14th August 1984, and commented: "An increase in rent pursuant to the certificate may take effect on 1st October, 1984."  (Exh. P5 and D3). 4th January 1985 - Plaintiff issues writs claiming forfeiture for non-payment of the "increased" rent and arrears of rent from the lst October 1984 "to the date of judgment" at the "increased" rate, and mesne profits from the date of judgment to the date of vacant possession. 9th January 1985 - Writs served on defendant.

14. Although the notices, issued by the plaintiff on the l5th August 1984, must have been served on the defendant on or before the 23rd August 1984, they were, in my view, clearly invalid for the reasons already stated. As a matter of law, the defendant was, in my view, fully justified in disregarding these notices. It is, perhaps, significant to observe that Cap. 7 does not confer on a tenant a special statutory right to question the validity of a section 61 notice, which the landlord is required to serve on him. The statutory machinery merely provides him with opportunities to appeal to the Commissioner in order to question the latter's certificate "issued under section 58(1)(a)". But, I consider that a tenant is entitled to question the validity of a section 61 notice if he is sued for rent at the increased rent in any court or tribunal having jurisdiction. If a landlord has served a valid section 61 notice on his tenant, he may not need to serve a further notice under that section, in order to recover the arrears of rent, if the Commissioner subsequently affirms his section 58 notice under section 59(2). But, if the Commissioner cancels his original section 58 certificate, and issues "a new certificate under that section" I consider that a landlord must probably serve a fresh section 61 notice on his tenant. The latter situation does not arise in the present case, but the possibility is, in my view, material to the construction of the scope of the Commissioner's powers under section 59(4).

15. Before considering that question (the second question posed earlier), I would observe that there is some ambiguity surrounding the extent of the protection to be enjoyed by a tenant under section 61(4), because there is no indication of when proceedings on a review under section 59, or an appeal under section 60, "are concluded".  Are they "concluded" when the Commissioner or the Tribunal issues its decision?  Are they only "concluded" when the decision is communicated to the tenant?  It is noticeable that, whereas the Commissioner must serve on both parties to the tenancy any certificate he may issue under section 58, he is not obliged to serve either party with any certificate or notice of his decision under section 59.  In practice, he does so. In my respectful view, section 61(4) does not indicate clearly at what point of time the tenant's immunity from breach of covenant or forfeiture, for non-payment of the increased rent, ceases.  Unless he succeeds in paying the increased rent before midnight of the day when the Commissioner reaches or communicates his decision under section 59, it would seem that he must suffer a forfeiture of his tenancy. It seems to me, from the general tenor of the legislation that the legislature intended that such increases should generally take effect in futuro (cf. sections 55(lA) (a)(ii); 55A(3); 56(3)); 61(3)) if only to avoid such unreasonable or absurd results. An ordinary court, or statutory judicial tribunal, can usually avoid such absurd or unreasonable situations by exercising its discretion to stay execution of its orders or by giving time for their observance. I cannot, and do not, question the decision of the legislature to confer upon a branch of the executive a power to determine or regulate the rights and duties of the parties to contracts formerly entrusted to the judiciary, especially if one bears in mind that the latter's basic constitutional function to apply the law and do justice in individual cases may not produce an ideal or perfect solution for many modern social problems. But, having regard to the timing and circumstances surrounding the enactment of the various provisions of Cap. 7, to which I have referred, I am not persuaded that the legislature intended to give the Commissioner unlimited and arguably arbitrary powers to deal with disputes between landlords and tenants in respect of premises which fall outside the realm of "public housing", subsidized by the general taxpayer.

16. I now return to my second question. Prima facie, section 59(4) gives the Commissioner an absolute discretion to determine the date from which "any increase in rent shall take effect."  Although the word "shall" perhaps implies that the Commissioner can only determine a date which is subsequent to the date or "conclusion" of his review, I do not think that the solitary choice of this notoriously ambiguous word precludes the Commissioner from "back-dating" a decision given under section 59(4). Used in isolation, this particular word may be intended to have a mandatory or imperative meaning. But, in the general context of the legislative provisions which are material to the issues before me, I conclude that the Commissioner was not empowered to declare that the increase in rent, in the present case, should take effect from the 1st October 1984. By doing so, he was placing the tenant in a position of immediate and irretrievable breach of covenant and/or forfeiture, or seeking to waive the landlord's failure to comply with section 61 of Cap. 7.  In my view, the legislature has not given the Commissioner such powers of dispensation.

17. Accordingly, I was not satisfied that the plaintiff had proved his claim to receive rent at the increased rent, and as he had, at the date of my review, actually received more than he may be entitled to receive, I considered that I should dismiss his claims for arrears of rent.