Chan Mei-lin v. Tang Wah-leung t/a Wah Hing Plastic Factory and Another

CACV000028/1973

IN THE SUPREME COURT OF HONG KONG

(APPELLATE JURISDICTION)

CIVIL APPEAL NO. 28 OF 1973

(On appeal from O.J. 1221/70)

-----------------

-----------------

Coram: Full Court (McMullin & Pickering, JJ.)

Date of Judgment: 9th November 1973.

-----------------

JUDGMENT

-----------------

McMullin, J.:

1. In the year 1960 CHU Ka-nei who was Crown Permittee of certain land in the New Territories leased that land to a person called LAW Chi by written agreement dated 15th of May 1960 for a period of 15 years. That letting arrangement never ran to term but was superseded in 1967 by a further written agreement whereby the same plot of land was let by CHU Ka-nei and his co-permittee, CHEUNG Yin-hing, to the wife of LAW Chi, a woman called CHAN Mei-lin, the appellant herein. The period of this tenancy was stated to be 8 years commencing the 15th of May 1967 and concluding on the 14th of May 1975. By a further written agreement dated 27th of April 1969 CHAN Mei-lin leased two chicken sheds out of a number of similar sheds upon the property together with the land appurtenant there to to the first respondent, TANG Wah-leung, who was in business under the style of the Wah Hing Plastic Factory which firm is the second respondent. The term was 80 months running from the 15th of May 1969. The English translation of Clause 4 of this agreement reads as follows:

Throughout all these proceedings it has never been in dispute that these several tenancy arrangements related to land which was held on yearly licence only by the original lessor but no point touching the validity of the several leases arose from that in the course of the various hearings and none arises now. Secondly, it was never in dispute that the land so dealt with had always been designated in the Crown lease as agricultural land.

2. Pursuant to this final arrangement TANG Wah-leung set up a plastic factory upon the land and employed the sheds for industrial purposes. The New Territories Administration, which in late 1968 had designated these particular sheds for use as chicken sheds only, intervened to object to this user and there followed negotiations and correspondence between TANG Wah-leung and his associates on the one hand and the relevant authorities on the other. It was never disputed that CHAN Mei-lin and her husband LAW Chi lent their assistance to attempts to get the Hong Kong Government to sanction this new form of user of the sheds and the supporting land. These endeavours were to no avail however and the District Officer in October 1969 informed LAW Chi, TANG Wah-leung and certain other adjoining occupiers who were similarly circumstanced that the use of the land and sheds for industrial purposes must be discontinued. TANG Wah-leung continued to use the premises as before while still endeavouring to engage CHAN Mei-lin and her husband in further attempts to have the position legalised with the District Administration but on the 25th of November 1969 officials from the District Office, Yuen Long, arrived and demolished the offending sheds. TANG Wah-leung appears to have stayed on until the 20th of January 1970 making some make-shift use out of the demolished sheds for his business but moved out eventually on the 19th of January 1970.

3. Such in brief outline are the circumstances out of which arose the subsequent litigation which has culminated in the appeal now before this court. TANG Wah-leung was the plaintiff in the action and he claimed damages for the loss he had incurred arising from what he alleged had been misrepresentation on the part of the defendant, CHAN Mei-lin. She denied misrepresentation and counterclaimed for the value of the structures thus lost for which she claimed $30,000 and also arrears of rent at $700 a month from the 15th of January 1970 to the date of the writ and mesne profits at the same rate thereafter. In respect of these several claims the learned trial judge, applied the maxim "In pari delicto potior est conditio defendentis". He found that there had been no misrepresentation by the plaintiff but also that both the plaintiff and the defendant had been well aware that industrial user was contrary to certain conditions attached to the Crown Land Permit which was the root of title both for the plaintiff and the defendant. He dismissed the plaintiff's claim and dismissed the defendant's counterclaim for $30,000 damages for demolition of the buildings but allowed her claim for arrears of rent at the rate of $700 a month from the 15th of June 1970 up to the date of re-entry by the Crown which was the 31st of December 1970. This amounted to a sum of $4,550 being six and a half months' rent.

4. The plaintiff appealed from this decision and there was a cross-appeal by the defendant. The plaintiff's appeal was dismissed for want of prosecution. The defendant's cross-appeal upon her counterclaim was allowed and Huggins, J. delivering the judgment of the Full Court said as follows:

"It has been submitted that the damages should include (i) the value of the demolished structures and (ii) compensation for the loss of rent under the agreement for the period after re-entry by the Crown. With that I agree, but it is then submitted that we should enter judgment for the defendant in the sum of $30,000 under the first head. In my view we should not do that. The defendant had no estate in the land and, although it was not open to the plaintiff to deny her title to let, that is a factor which is properly to be considered in assessing damages: the defendant was at risk of eviction at short notice and upon eviction would have lost the structures which her husband had erected. Similarly it was a matter of uncertainty whether the defendant would have enjoyed the rents for the full term of the tenancy even if there has been no breach of the conditions of the Crown Land Permit. I do not think we are in a position to assess any of the damages now claimed and that the case should be referred to a Registrar for an assessment to be made."

5. Subsequently the matter was taken before Mr. Registrar Jones who took the view that so far as the claim for rent was concerned the defendant, having security of tenure for twelve months only under the Crown Land Permit, was entitled to only one year's damages for loss of rental as a result of the demolition of the two sheds. He refused to make any award for loss of rent however on the basis that the rent had been paid up to the date of cancellation of the agreement. As to the demolition of the sheds themselves, he took the view that since the structures built thereon would have become the property of the Crown in any event whenever the land was resumed the defendant could have suffered only nominal damages for their destruction and he assessed the damages at $1.

6. From this ruling the defendant appealed to Briggs J. as he then was, in Chambers. Before the learned judge Mr. Mills-Owens, who has appeared throughout for the defendant, pointed out that the Full Court's direction was that damages were to be awarded for loss of future rental i.e. for the period after re-entry by the Crown. It was conceded before this court that the Registrar was mistaken in his approach to this aspect of the matter. The learned judge in Chambers said:

He then went on to consider the Registrar's finding in relation to the nominal damages awarded for the destruction of the two sheds. He upheld the Registrar's finding of nominal damage only, not upon the basis relied upon by the Registrar, but because he took the view that the defendant had encouraged the plaintiff to continue using the structures for an improper purpose and that in the full knowledge that this was wrong took no steps to mitigate her damage. He rejected the contention of Mr. Mills-Owens that it was primarily the responsibility of the appellant to see that the Government requirements were observed. He held in effect that it was equally the responsibility of the plaintiff and the defendant and that both had been equally to blame for the loss of the structures.

7. From the decision of the judge in Chambers this determined litigant appeals once more to this court. Mr. Denis Chang, for the respondent, concedes that the judge in Chambers was mistaken in deducting the deposit of $3,500 from his total award of $11,216. This is clearly so since the figure of $4,496.70 awarded by the trial judge was already intended to represent rent for the whole year from January to December 1970 less the amount of the deposit of $3,500 which was already in the defendant's hands. In effect the deposit of $3,500 was being accounted twice over to the debit of the defendant in the computation of the total sum awarded. Counsel on both sides are in agreement that the appeal must be at any rate to this limited extent be allowed. Mr. Chang, however, does not admit that this is a matter of such substance that, assuming that the remainder of the appellant's grounds were to fail, she should nevertheless get her costs of the appeal since this matter was clearly an accidental slip such as could have been corrected by agreement of counsel under the "slip rule" subsequent to the judgment. With that view we are in agreement and it remains now to consider the substantive grounds of appeal against the decision of the Learned judge in Chambers.

8. Firstly, it is said that the learned judge in Chambers erred in assessin damages attributable to lost rental payments (a) by allowing only one year's rent from the date of recovery of possession by the Government in addition to the year's rent allowed by the trial judge (less the set off consisting of the deposit); and (b) in "scaling down" even that award by reference to three factors: firstly that the permit was only for one year; secondly, that both parties know the true position as regards the user of the land; and thirdly, to take into account of the fact that that award was in the nature of a lump sum. We are in agreement with Mr. Mills-Owens that the lump sum factor is not a relevant consideration since, at the time that the award was made by the judge in Chambers the rental period supporting the award was already in the past. Mr. Mills-Owens's principal contention in this regard however is that it was wrong in principle to give so limited an award even had it not been "scaled down" since evidence taken before the Registrar at the time of the assessment, pursuant to the order of the Full Court, indicated that the Hong Kong Administration was prepared to issue a further permit to Mr. LAW Chi in respect of the land on which the sheds had stood. That being so, counsel said, there should have been an award for the full rent accrued due at the date of the Registrar's order plus an additional sum to cover the period between that date and the falling in of the lease between the plaintiff and the defendant i.e. 14th of January 1976. In respect of this latter period only it was, he contended, reasonable to award a figure of rent "scaled down" to deal with future contingencies. We think there is nothing in this point. It should be noted in any event that the evidence before the Registrar was somewhat contradictory in that, although a representative from the District Office, Tsuen Wan, said it was the intention of the District Office to grant a new permit covering all existing structures to Mr. LAW Chi, LAW Chi himself, who also gave evidence, was of the opinion that it would be impossible for him to gain a new permit from the District Office. Quite apart from that however, it must be observed that the evidence of the representative from the District Office makes it clear that the structures demolished by Government would not be permitted to be rebuilt. Never was it suggested before any court prior to the present appeal nor was it suggested to this court that the Government was going to alter its stand about the nature of the permitted user of the land in question. If this be kept in mind it will be seen that the argument of counsel has a distinctly chimaerical look to it. He says that if the plaintiff's breach of Clause 4 of the agreement between himself and the defendant had not resulted in the structures being demolished the defendant could have continued to look to the plaintiff as a source of rental revenue right up to the conclusion of the lease between them. But the whole purpose of that lease was to enable the plaintiff to pursue a trade which both parties knew to be in breach of the conditions in the permit. It was precisely that illicit user which gave the premises their comparatively high rental value. We are certainly not prepared to assume that if there had been no improper user of the premises, and therefore no forfeiture thereof, the defendant would nevertheless have achieved the same level of revenue which accrued to her as a result of her connivance with the plaintiff in defiance of the conditions in the Crown Permit. That permit was cancelled because of the breach of the conditions therein on the 31st of December 1970 and it was for the period from the 31st December 1969 to the 31st December 1970 that the learned trial judge awarded damages for the year during which the plaintiff might have continued in occupation of the premises notwithstanding the demolition of the sheds in November 1969. As Mr. Mills-Owens points out the effect of the award for rent made by the learned judge in Chambers amplified that original award by bringing it up to the 15th of December 1971. He asks that damages on the basis of a further 18 months' rent at the full rate (i.e. up to the date of the order of the Registrar) be awarded and thereafter damages for prospective lost rent at a "scaled down" rate to the conclusion of the term in 1976.

9. Since the learned trial judge had found both parties equally to blame for the demolition of the structures he might well have denied the defendant all right to damages for rent lost by her own default since she was the plaintiff on the counterclaim and the very maxim upon which the trial judge relied in refusing the plaintiff's damages might well have been invoked in his favour as defendant upon the counterclaim. The reason why he did not do so is no doubt, to be found in what was said by Huggins, J. when he was delivering the judgment of the Full Court upon the appeal. He enlisted a maxim more familiar in another branch of the law in interpreting what had been said by the trial judge and approved what had been said as a fair finding on the basis: caveat emptor. Indeed it would seem that this is a maxim which would apply with greater force than does the notion of "equal fault" to the situation of the plaintiff who, in undertaking to pay rent at a certain rate for a certain period for a certain piece of land, did so in the full realisation that he might be acquiring something in the nature of a hereditas damnosa. Since the trial judge had found that there was no element of wilful misrepresentation on the part of the defendant the plaintiff could only be regarded as embarking upon a course of commercial conduct with a fair view of the commercial risk involved. Under the tenancy agreement the onus had been placed upon the plaintiff to see that his user of the premises had the sanction of the Government authorities. The Full Court held that the defendant's assistance to the plaintiff to obtain the sanction of the authorities did not amount to a waiver of her rights under Clause 4 of her agreement with the plaintiff. She was entitled therefore to insist that he should compensate her for the loss of a rentable asset, lost through his misfeasance, and in assessing that loss the court could ju tly guide itself by reference to what the sheds would have fetched if rented for a purpose within the permitted user for the remaining period of the agreed term "scaled down" to allow for contingencies deriving from the fact that the root of her own title was fragile. For this reason we cannot say that the learned judge in Chambers was in error in choosing as his measure of damage a sum equivalent to the agreed rent for one year certain. It may well be true that the Crown would never have re-entered the premises up to the conclusion of the period limited by the agreement had the premises been used for permitted purposes. In the absence of any evidence, either before the Registrar or the judge in Chambers, as to what that might have amounted to we cannot say that the measure he adopted was wrong. It is clear enough that the industrial user of the premises must have yielded a very much enhanced rent and it could well be that the premises would simply not have been rentable at all if they had been put on offer for purely agricultural purposes. We take the view however that that year's rent should not have been "scaled down" to take account of the three matters to which the learned judge in Chambers referred. The point about the lump sum has already been dealt with but the other two considerations do not seem to be of greater relevance than that. The Full Court's direction was to assess what the premises would have been worth by way of rent if the plaintiff had not made a breach of the conditions of the permit. It would appear that the learned judge in Chambers intended to let one year's rent at the agreed rate represent the value of a six-year rental period of the premises for agricultural (i.e. proper) purposes subject to the contingencies inherent in the dubious root of the defendant's title. An uncertain six years' rent at an unknown lower rate was being assimilated to one full year at the higher rent certain. It would not therefore seem to be logical to "scale" that year's rent down further to allow for the fact that the permit was valid only for twelve months since both the past behaviour of the District Administration and the evidence of the officer from that Administration given before the Registrar indicated that, if the user had been a proper one, the permit was likely to have been renewed indefinitely. Likewise we take the view that the parties' knowledge, which they shared, that the industrial user was against the terms of the Crown Permit is a factor which ought to be considered as already allowed for in choosing twelve months at the rent certain to stand for the value of six years' possession by the defendant of a rentable asset of uncertain value since it was that improper user which was itself the principal factor in rendering the value uncertain.

10. With regard to the demolition of the sheds we think there is some force in Mr. Mills-Owens's observation that the notion of mitigation of damage is not strictly relevant to the circumstances as they occurred. Where two parties knowingly combine in a course of action which puts the property of one of them at risk and where, as a result, the property is lost and they subsequently fall out, it does not seem apposite to say of either of them that he could have mitigated his loss by not co-operating with the other party since that co-operation was the whole point of the common venture. The point is not however of much assistance to his client since what may be said of either party in such circumstances is not that he failed in his duty to mitigate but that he was wrong from the outset in knowingly incurring a risk which was equally obvious to both of them. It is to this part of the cross-claims of the plaintiff and the defendant that the maxim "potior est conditio" may most fairly be applied. Although it is quite true to say that the plaintiff could have used the premises for permitted purposes and thus not put the defendant's property at risk neither he nor she had ever envisaged that he would use them for any purpose other than that announced in the agreement. The defendant could not but have known that she would be unable to acquire a valuable tenant at $700 a month unless she permitted him to use the premises in such a way and she herself evidently encompassed and discounted the risk involved of losing them by Government re-entry. For these reasons we think the learned judge in Chambers was right to hold that nominal damage only should be awarded in respect of the destruction of the sheds. As regards the damages for lost rent however we think that a full year's rent at the rate of $700 per month should have been allowed and we vary the order made to that extent. To that extent, in addition to the matter of the deposit mentioned earlier, the appeal is allowed. This means that for the figure of $7,716.20 allowed by the judge in Chambers there will be substituted a figure of $8,400 and the sum of $3,500 in respect of the deposit, i.e. $11,900 in all. The appellant to have 25% of her costs of the appeal and the respondents 75% of their costs.

Representation:

R. Mills-Owens (Rowdget W. Young & Co.) for Appellant.

D. Chang (K.L. Wong & Co.) for Respondents.