Chinachem Investment Co Ltd v. Chung Wah Weaving and Another

CACV000040/1977

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Coram: Briggs, C.J., Huggins and Pickering, JJ.A.

Date of Judgment: 24th January 1978.

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JUDGMENT

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Huggins, J.A.:

1. The issue on the appeal has been whether the judge was right in refusing a remedy to the Plaintiffs on the ground that they had not only waived a past breach of the restrictive covenant but also so acquiesced in the continued breach of the covenant that the covenant itself had been waived. The covenant was one not to use the space for any other purpose than parking, loading and unloading of motor vehicles. Use consistent with the covenant could be incidental to an industrial user or to any other user. However, the Statement of Claim has been taken by everyone as though it contained an allegation that the Defendants have used the space "for industrial purposes other than parking, loading and unloading of motor vehicles".

2. Two kinds of breach have been mentioned in argument: (a) the installation of machines in spaces Nos. 7, 8 and 9 as marked on the plan exhibited, and (b) the stacking of piece goods in spaces Nos. 1 and 2 (and, as I understand it, elsewhere). Of these the stacking of goods has not been proved to have existed at the time action was brought.

3. The first question is whether the judge was justified in his finding that Mr. Fok was aware of the fact that the space provided for parking, loading and unloading was being used for purposes other than those permitted. A second question is whether the judge was wrong in finding that Mr. Luk was not in a position to waive the breach of covenant. The second question will only arise if we decide that the judge was wrong on the first.

4. The judge found that Mr. Fok visited the premises "at least twice" and that he "must have been aware of the use to which the space reserved for parking was being put". Having then held that a waiver had been established he went on to find that

"Mr. FOK watched the defendant install heavy machinery and equipment in the restricted part of the premises and convert part of those premises into an office. He took no steps to prevent those breaches, indeed in respect of the diesel tank, gave active assistance. All this entailed heavy expenditure on the part of the defendant. The lease was a short one. It was for no more than three years and with no option to renew. The only inference that can be drawn from this conduct is that Mr. FOK was tacitly consenting to the defendant's use of the Ng Fong Street half of the premises otherwise than for parking, loading and unloading of vehicles throughout the duration of the lease".

Mr. Fok's two visits were in January and in March. The first was for the purpose of discussing the positioning of a chimney which the Defendants wished to install in part of the building which was not subject to the restrictive covenant or even part of the demised premises. The chimney was one for a boiler which, it is agreed, was to supply water to one of the offending machines. At the time of this first visit a concrete bed had been dug in spaces 7, 8 and 9 for the two machines. By the time of the second, which was in connection with the siting of an underground tank for diesel oil to fire the boiler, the two machines had been completely installed. There had, indeed, been an initial discussion about the tank during the first visit. The position seems to have been that Mr. Fok was not expressly invited to approve the site of the tank but that he knew of the original plan to site it in the open yard where the chimney was erected and of the subsequent proposal to site it at the entrance to the demised premises. He suggested that he be consulted before a decision was taken if any problem should arise and the second visit appears to have been pursuant to that suggestion. Although the evidence on the subject is minimal it seems to be common ground that the tank itself obstructs the reserved space.

5. The parties are ad idem as to the law to be applied, but it is the application of the law to the facts of this case which produces the conflict between them. I find it necessary to refer to only three cases. In Wolfe v Hogan 1949 2 K.B. 194 the court was concerned to decide whether part of a house was let as a separate dwelling where there had in fact been a change of use. Denning L.J. said at p. 205:

"A house or a part of a house originally let for business purposes does not become let for dwelling purposes, unless it can be inferred from the acceptance of rent that the landlord has affirmatively consented to the change of user. Let me illustrate that from the common law doctrine as to waiver of forfeiture. A breach of covenant not to use premises in a particular way is a continuing breach. Any acceptance of rent by the landlord, after knowledge, only waives the breaches up to the time of the acceptance of rent. It does not waive the continuance of the breach thereafter and, notwithstanding his previous acceptance of rent, the landlord can still proceed for forfeiture on that account. Indeed in the case of a continuing breach, the acceptance of rent, after knowledge, is only a bar to a claim for forfeiture if it goes on for so long, or is accepted in such circumstances, that it can be inferred that the landlord has not merely waived the breach, but has affirmatively consented to the tenant continuing to use the premises as he has done. (See notes to Dumpor's case in the Smith's Leading Cases (13th ed.), vol. I, at pp. 48 and 49.)".

In Lloyds Bank Ld. v Jones 1955 2 Q.B. 298, 326 Morris L.J. indicated the correct test in the words:

"The judge in his judgment held that the conduct of the landlords in standing by from May 23, 1934, until January 31, 1951, without protest at the respondent's non-residence on the holding constituted waiver, or release of, or acquiescence in, the respondent's breach of clause 15, and that the landlords were now estopped from alleging that the respondent had committed a breach of clause 15. On the admitted facts I cannot see that any implication arises that the landlords agreed that they would never again insist on full performance of clause 15. It may well be that if they accepted rent with knowledge they waived breaches of covenant from time to time, but I can see no reason why they should be prevented from demanding proper compliance as from the date they required it. There may be conduct from which can be implied the waiver or abandonment of a right. I do not think that the landlords so conducted themselves that they could not assert that clause 15 should be honoured."

That such an inference will not be lightly drawn appears from the words of Buckley L.J. in Shaw v Applegate 1977 1 W.L.R. 970, 977H when he was reviewing the well-known passage in the judgment of Fry J. in Willmott v Barber (1880) 15 Ch. D. 96, 105:

"As I understand that passage, what the judge is there saying is that where a man has got a legal right - as the plaintiffs have in the present case, being legal assignees of the benefit of the covenant binding the defendant - acquiescence on their part will not deprive them of that legal right unless it is of such a nature and in such circumstances that it would really be dishonest or unconscionable of the plaintiffs to set up that right after what has occurred."

There is nothing in any of the other cases cited to us which appears to me to be inconsistent with these three modern cases and I am content to accept the passages I have cited as containing the law which must be applied in the case at bar. Nor do the other cases to which we have been referred assist me in making that application. In my view the judge was right to conclude that Mr. Fok knew after the second visit (if not after the first that the reserved space was being used for industrial purposes other than the parking, loading and unloading of motor vehicles. The acceptance of rent thereafter clearly constituted a waiver of the past breach. I think also that the judge was right to hold that there was such acquiescence as amounted to waiver of the covenant itself for the duration of the tenancy. It was not so much that Mr. Fok watched the installation of the machines and the completion of an office in the reserved space and said nothing but that, as the judge said, Mr. Fok gave active assistance in the installation of the offending obstructions. The Plaintiffs may never have "discussed the two machines" with the Defendants but when siting the chimney Mr. Fok cannot have been ignorant of the facts that there were two machines and that the boiler was to supply water to one of them. Equally he must have known that the boiler was to be fired with oil from the tank, although he may not have known that the tank would itself obstruct the reserved space. I will accept that the Defendants, in installing the machines, did not rely upon any express assurance from the Plaintiffs and that Mr. Fok never saw stacks of denim material blocking the reserved space. The fact remains that even at his first visit it was blatantly obvious that the reserved space was not being used, or intended to be used, solely for parking, loading and unloading of motor vehicles. In all the circumstances his cooperation in relation to the chimney and the oil tank was an acquiescence in the breach of the covenant for the duration of the three-year term.

6. I would dismiss the appeal. 

24th January 1978.

Representation:

Coram: Briggs, C.J., Huggins & Pickering, JJ.A.

Date of Judgment: 24th January, 1978.

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JUDGMENT

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Pickering, J.A.:

7. I am of the view that the learned judge came to the right conclusion. Mr. Miller, for the respondents, relied upon the case of Doe dem. Ambler v. Woodbridge⁽¹⁾ as authority for the proposition that there could be no waiver in the case of a continuing breach. Such proposition, for which that old case of 1829 was authority, may now be doubted; see Griffin v. Tomkins⁽²⁾ where it was held that the plaintiff, by accepting rent with the knowledge of a breach of covenant against converting the demised premises into shops, had waived that covenant once and for all. A distinction may well lie in the nature of the covenant breached. In Doe dem. Ambler v. Woodbridge⁽¹⁾ the breach of covenant was the letting of part of the premises to a lodger - a matter which could easily and quickly have been terminated where was in Griffin v. Tomkins⁽²⁾ the breach consisted of the unauthorised conversion of the demised premises into shops, a conversion which, by its very nature, was likely to persist until the end of the tenancy. I am unable to agree with Mr. Miller, for the appellants, that that case has been "explained" in Atkin v. Rose⁽³⁾. In the the latter case the only reason why the receipt of rent was held not to amount to a general waiver of the covenant to use the premises exclusively as a tobacconist's shop, was that the existence of a barber's shop in part of the premises was unknown to the landlord at the date of receipt of the rent.

8. Support for the existence of such a distinction as I have suggested above, is to be found in the case of Segal Securities Ltd. v. Thoseby⁽⁴⁾ where the breach consisted of permitting a private residence to be in the occupation of more than one household. It was held that since the landlord in that case could not be taken to have known that the breaches would continue he had not waived them once and for all; the clear inference was that had the breaches been of a nature which must have persisted to the end of the tenancy, they would have been held to have been waived.

9. In the present case the breach consisted (inter alia) of the installation of two very large machines embedded in concrete and served by a newly installed underground diesel oil tank and by a boiler the chimney for which was erected by the respondents with the knowledge of Mr. Fok and which was of a height greater than any of the existing buildings. It is thus apparent from the nature of the machines and of the ancillary equipment installed to serve them that they were likely to remain in use until the expiration of the three-year term granted by the appellants to the respondents. There can be no question but that Mr. Fok was aware of the existence of the machines and was consulted as to the location both of the chimney and of the diesel oil tank. It is thus of no avail for the appellants to plead that silence does not amount to waiver for here there was not mere silence but avowed acquiescence and that in a situation in which, having regard to the terms of the Crown lease, there lay upon the appellants a positive duty to request the respondents to discontinue the installation of the machines. In my view the degree of acquiescence was such as to debar the appellants from all relief. I am unable to accept Mr. Miller's contention that the appellants are at any rate entitled, on the authority of Stephens v. Junior Army and Navy Stores Ltd.⁽⁵⁾ to damages. In that case the failure of the defendant company to build upon the demised land within the covenanted period involved no acquiescence by the plaintiff in any positive action of the defendant company as was the case here.

10. I would dismiss the appeal With Costs

Representation:

M. Miller, Q.C. and A. Rogers (F. Zimmern & Co.) for appellant.

Jackson-Lipkin, Q.C. and K.H. Woo (David Y.Y. Fung & Co.) for respondent.

(1) 9 B. & C. 377.

(2) (1880) 42 L.T. 359.

(3) (1923) 1 Ch. 522.

(4) (1963) 1 Q.B. 887.

(5) (1914) 2 Ch. 516.