Sky King Restaurant Ltd v. Central Enterprises Ltd

CACV000005/1971

IN THE SUPREME COURT OF HONG KONG

(APPELLATE JURISDICTION)

CIVIL APPEAL NO. 5 OF 1971

(On Appeal from O.J. Action No. 2163 of 1970)

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Coram: Full Court (Hon. Blair-Kerr, S.P.J., McMullin and Leonard, JJ.)

Date of Judgment: 29 October 1971

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JUDGMENT

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Blair-Kerr, S.P.J.:

1. I agree. I find myself quite unable to accept Mr. Jackson-Lipkin's argument that if we are in doubt as to whether the letter of 26th October 1970 constituted an act of waiver, that is the end of Mr. Bernacchi's argument on the waiver point. I entirely agree with my Brother that only if we were prepared to say that no court could possibly find that the letter constituted an act of waiver, would we be justified in ruling at this stage that there was no issue of fact to be tried. I am not prepared to go as far as that. I think that we should allow the issue to be tried.

2. As regards the evidence point, it is really asking too much of any court to say that we should take Mr. Kwan's affidavit at its face value simply because the appellants did not take the trouble to deny his allegations on oath. Mr. Kwan is the respondents' solicitor. Clearly he was not speaking from his own personal knowledge; and not only did he not give the sources of his information, but it seems highly probable that his information was hearsay, or perhaps double hearsay, anyway.

3. According to my note, part of Mr. Jackson-Lipkin's submission ran thus:-

4. That is all very well. But if this matter were to go to trial, it would presumably be open to the appellants to endeavour to prove that their restaurant was not a common gaming house; and, if they succeeded in doing so, the judge would presumably rule that they did not permit their premises to be used for an illegal purpose. At least that would be the appellants' submission; and it is not for us to prejudge the issue at this stage.

IN THE SUPREME COURT OF HONG KONG

(APPELLATE JURISDICTION)

CIVIL APPEAL NO. 5 OF 1971

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Coram: Full Court (Blair-Kerr, S.P.J., McMullin & Leonard JJ.)

Date of Judgment: 29th October, 1971.

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JUDGMENT

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5. McMullin J.: This is an appeal from an order of a judge in Chambers pursuant to an application under O.14 for summary judgment whereby leave was given to the plaintiff company to enter judgment for possession of the 4th, 6th and 7th floors of Wu Sang House, No.655, Nathan Road, Kowloon. By the same order it is directed that there should be at a stay of execution for 8 weeks and that the defendant should be at liberty to proceed with his counterclaim.

6. The plaintiff company is the owner of the building in which the defendant company's restaurant is situated and the defendant company occupied the stated premises by virtue of a lease for 15 years from the 1st of January 1969. The plaintiff company sought repossession of the premises occupied by the defendant company on the ground that the latter had used the premises in breach of certain covenants in the lease. Clause 2 of the lease enjoined upon the tenant, inter alia, the performance of the following covenants:

Clause 3 of the lease is in the following terms:

"3. Provided Always and it is expressly agreed that if the rent reserved or any part thereof shall be unpaid for fifteen days (whether formally demanded or not) or in the case of the breach or non-performance of any of the stipulations and agreements herein contained on the part of the Lessee to be kept done or performed or if the Lessee shall become bankrupt, go into liquidation or enter into any composition or arrangement with his creditors or shall suffer execution to be levied upon any of his goods or effects it shall be lawful for the Lessor at any time thereafter to re-enter upon the said premises or part thereof in the name of the whole and to forfeit the said deposit payable hereunder and thereupon this Lease shall absolutely determine but without prejudice to any rights which may have accrued to the Lessor by reason of any antecedent breach of any of the obligations on the part of the Lessee hereinbefore contained."

The basis of the plaintiff company's claim was that on two separate occasions, the first being the 2nd of February 1970 and the second the 10th of October 1970, as a result of police raids upon the defendant company's premises, a number of persons were found illegally gambling upon those premises. Para.6(a) of the endorsement to the writ avers that, by reason of the matters complained of, the plaintiff company was entitled to determine and did determine the lease by its letter dated the 28th of October 1970. It is common ground that this letter, which was not produced before us, was received by the defendant company and that it demanded that the defendant company should deliver up possession of the premises to the plaintiff company within 14 days from the 28th of October 1970.

7. Upon the application before the judge in chambers, Mr. Jackson-Lipkin for the plaintiff company moved in support of the application for summary judgment upon the affidavit of the plaintiff company's solicitor in which the facts already referred to (and which appear upon the endorsement to the writ) were recited, ostensibly of the solicitor's own knowledge. Para.6, 7 and 8 of this affidavit are, in fact, in terms identical with what appear in para.5, 6 and 7 of the statement of claim endorsed upon the writ and are in the following terms:

8. The hearing at chambers occupied about 40 minutes. Mr. Charles Ching, who appears today, led by Mr. Bernacchi, argued the case for the defendant company. Judgment was delivered orally at the conclusion of the argument and no note of counsel's argument or other details of the proceedings in chambers, and no written note of the reasons for the decision, are before us upon the papers in the appeal. We have had, however, the assistance of both Mr. Jackson-Lipkin and Mr. Ching in this court as to the actual argument advanced on both sides in the court of hearing.

9. Upon the hearing of the appeal, Mr. Bernacchi for the defendant company sought to introduce fresh evidence by way of affidavit. His application was opposed and, upon consideration, we rejected it. To justify his application he likened the function of this Court in hearing appeals from a judge in chambers under O.14 to that of a single judge hearing appeals from the Master in England. On such appeals further affidavits are freely admitted and on further appeals to the Court of Appeal, he suggested, a similar indulgence might be granted as a matter of convenience. At the time this application was brought all such applications were heard by a judge in chambers rather than before the Registrar (as now) or a Master. Our former practice was in contrast with that in England, hence the analogy between this Court and a single judge hearing appeals from a Master. However the informality of an appeal from a Master is very different from an appeal from a judge in chambers. In Robinson v. Bradshaw⁽¹⁾ the Court of Appeal (Lord Coleridge C.J. and Grove J.) allowed a new affidavit to be read "as a matter of convenience". It does not appear from that very brief report whether the introduction of the fresh affidavit was opposed and we could not regard it as authority for the proposition that leave to read fresh affidavits should be granted as a matter of course. In Nash v. Rochford Rural Council⁽²⁾ a dictum of Lindley L.J. in In Re Copiapo Mining Co.⁽³⁾ that "if the Court thought that the case had been decided on insufficient evidence, and that the evidence proposed to be adduced would be sufficient to enable the court to discover the truth, that would be a special ground within the meaning of the rule..." was not approved and it was regarded as "dangerous" and as tending "to a want of finality in all proceedings of the Court" to admit further evidence merely on the ground that it would give more satisfactory proof of what took place. That admittedly arose in an appeal in a jury action but the same principles apply to 0.14 in that it is most undesirable that defendants in such applications should be allowed to "amend their hands" as and when they wish.

10. Mr. Bernacchi makes three points upon this appeal. Firstly, he says that, if there was any breach of covenant deriving from the alleged gambling incident, the plaintiff company has nevertheless waived its right of forfeiture and affirmed the lease; secondly, he says that there was, in any event, no admissible evidence before the judge in chambers to show that any gambling had taken place upon the premises and that there is therefore no evidence of breach of covenant to justify the entry of judgment against his client; and finally, that if the evidence put before him was admissible, it did not, in the circumstances, show any act or acts in breach of the terms of the lease. This third proposition turned upon a distinction which counsel tried to draw between the term "unlawful" and the term "illegal". It is the latter term which appears in the covenant contained in Clause 2(12) (i) and the burden of counsel's contention on this point was that what the customers of the restaurant were found doing upon the occasion of the police raid, while it might conceivably be an infringement of some of the provisions of the Gambling Ordinance and therefore technically unlawful, was not in the ordinance sense illegal.

11. It may be said without further ado that there does not appear to us to be any substance in this contention whatsoever. The distinction which counsel seeks to draw, if it can be said to exist at all, is altogether too subtle to afford him any assistance in the construction of the relevant covenant. Moreover, as Mr. Jackson-Lipkin points out, Clause 2(12) (i) contains both the terms "illegal" and the term "immoral" and this of itself puts paid to the suggestion that "illegal" carries in itself, and beyond the ordinary meaning of "unlawful", a further nuance of immoral or improper behaviour. We are of the opinion that if what was done by the patrons of the restaurant upon the occasions in question was, under the terms of the existing law, unlawful it is also illegal within the meaning of Clause 2(12)(i).

12. The point argued most vigorously and at greatest length by both sides was the point of waiver. The point depends entirely upon a letter which, it is agreed, was received by the defendant company on the 26th of October 1970 following upon the second of the two police raids to which reference is made in the endorsement to the writ and in the supporting affidavit of Mr. Kwan. The letter was written in Chinese and the following is an English translation which, since no objection has been taken by either party to these proceedings in respect of it, we must assume to be an accurate translation of the terms of the original. It reads as follows:-

Mr. Bernacchi's contention is that this letter, in the context of the circumstances put before the judge in chambers, is an unequivocal act of waiver by the plaintiff company of any right of forfeiture which might have accrued to it as a result of the alleged breaches of covenant in that, with knowledge of the alleged breaches, the letter, and in particular the second paragraph thereof, affirms the continued existence of the lease. At its strongest, counsel's contention was that the letter of the 26th of October 1970 was a clear affirmation of the lease and that it could not be otherwise construed. The writing of it was, in other words, an unequivocal act on the part of the plaintiff company whereby, with knowledge that there had been a breach of covenant, the breach was condoned and the right to forfeit therefore waived.

13. Dealing with this aspect of the argument, counsel for the plaintiff company maintained that, whatever else it might be, the letter could not constitute an unequivocal act of waiver by reason of the fact, (a), that there is no express reference to the lease in the letter or any direct suggestion that what had occurred constituted the breach of any covenant in the lease; and (b) that the context of the circumstances under which the letter came to be written make it clear that the writer was concerned with something quite different from the contractual relations between the parties to the lease. In this connection it should be noted that it was common ground between the parties that the letter was written by a Mr. Chan, who was described as the supervisor of the plaintiff company's building, as a result of an interview with Superintendent Darkin of the Hong Kong Police subsequent to the raid upon the premises. It was common ground also that Mr. Darkin warned Mr. Chan against permitting a repetition of gambling upon the premises and that the latter, as a result, on the very same day, the 26th of October 1970, wrote the letter which the defendant company relies upon as constituting the act of waiver.

14. The greater part of the very considerable body of case law cited to us in the course of this appeal was cited in support of these opposing contentions. Although the walls of the opposing positions were heavily buttressed with authority on the topic of waiver extending backward over an interval of nearly two hundred years, there was, in the event, a remarkable unanimity between counsel as to the scope and effect of the doctrine at the present day. Thus there was no dispute on the propositions that, in order to afford a defence in an action for breach of covenant, the act relied upon as constituting a waiver of the right of forfeiture must be (a), an act done by the landlord or by his duly authorized agent; (b), an act done with full knowledge of the breach; and (c), an act which unequivocally affirms the continuance of the lease. It was outside this area of unanimity that the real dispute between the parties eventually defined itself. It will be unnecessary therefore to refer to the cases in so far as they reflect the propositions set out above.

15. Mr. Jackson-Lipkin is clearly right when he says that the act relied upon as waiver must amount to an unequivocal election to treat the lease as being in existence. Mr. Bernacchi, equally, is right when he says that what matters is not what motivated the act provided it is an unequivocal affirmation of the lease. Both counsel, however, pressed these principles somewhat further. Mr. Bernacchi says that it is of no consequence whether the person doing the act intended it to be such or whether he had no such intention or even if he had the intention not to affirm the lease. Mr. Jackson-Lipkin maintained that the act must not only be unequivocal but that it must have direct reference to the particular covenant of which breach was alleged. In this latter connection, counsel points out that there is no express reference to the covenants in the letter written by Mr. Chan and he suggested that if it could be said to refer to anything in the lease it must be said to refer not to the covenants set out in Clause 2(12)(i) but to those in Clause 2(13) or possibly Clause 2(21). Counsel's point was that, if the letter could be referable to a covenant in the lease at all, and if the Court was in doubt as to which particular covenant it referred to, then the letter itself could not be regarded as an unequivocal act of affirmation. There does not appear to be anything in the decided cases to take the matter as far as that although it is true that in most cases the notice relied upon as waiver had reference to the breach of a particular covenant. (See Roe d. Goatly v. Paine ⁽⁴⁾; Doe d. Morecraft v. Meux ⁽⁵⁾; Few v. Perkins ⁽⁶⁾; all of which were cases referred to by counsel and which deal with the breach of covenants to repair.)

16. The answer to this contention would appear to be that the landlord is presumed to know his own covenants. If he becomes aware that his tenant has done anything which involves a breach of any covenant the lease becomes at once voidable under the provisions of Clause 3 thereof. Thereafter, if, in the knowledge of such breach, the landlord does anything which unequivocally affirms the continued existence of the lease he must be said to have waived his right of forfeiture for the breach. The rule is not that the act of waiver, to afford a defence, must have unequivocal reference to some one particular covenant or other but that the act must unequivocally affirm the lease in the knowledge that something has occurred which constitutes a breach of any term the breach of which gives to the landlord a right to forfeit. Mr. Bernacchi's whole point on this issue was that it was immaterial whether, when he was writing the letter, Mr. Chan had in mind Clause 2(12) (i) or Clause 2(13) or Clause 2(21), or, indeed, whether he had the covenants of the lease in mind at all. So long as he was aware when writing the letter, of the doing of something by the tenant which amounted in fact to a breach of one or more of the covenants, then, if in that context, and whether or not he consciously adverted to the forfeiture aspect of the matter, he nevertheless so addressed the tenant as to warn against a repetition of the act, without claiming a forfeiture for it, he must be held to have affirmed the lease on behalf of his employer.

17. Mr. Jackson-Lipkin is surely right when he says that the reference in the letter to "all serious consequences" cannot include such a consequence as the forfeiture by the plaintiff company of the defendant company's lease, although Mr. Bernacchi suggested that it might do so. We did not understand him to press for this interpretation very seriously and, in any event, such an interpretation is by no means essential to his contention. Indeed, it seems most likely from the terms of the letter that the primary, and possibly the sole, purpose with which it was written was to reflect the alarm felt by Mr. Chan as a result of the warning given to him by the police and to let it be apparent that that warning had been taken to heart. No doubt the serious consequences to which Mr. Chan referred were consequences which might possibly affect the plaintiff company including the putting in jeopardy of its own lease from the Crown. The cases which say that mere "lying by" is not sufficient to constitute waiver are irrelevant. As far as the respondents are concerned the letter of the 26th of October is either a positive act of affirmation or it is not. The suggested rule is admirably summarized in the passage to which counsel referred us from Woodfall's Landlord and Tenant, 27th Edn. at page 892 of Vol.1:-

"The general rule is that, the lease being voidable and not void, the lessor, or other person legally entitled to the reversion, is put to his election as soon as he becomes aware of the breach. Consequently, once he has communicated to the tenant his election to treat the tenancy as continuing or has done any act which recognizes the continued existence of the tenancy or is inconsistent with its determination, he is deemed to have waived the forfeiture."

Clearly the sending of the letter in question was not such a routine act as in Doe d. Nash v. Birch⁽⁷⁾ was found not to fix the employer of a clerk with his apparent act of waiver. Woodfall makes it clear that that case is, in any event, an exceptional one which went on special facts and that it does not affect the general principle which the learned authors put upon the basis that the law will, where the lessor (or his duly authorized agent) has with knowledge of the breach done some unequivocal act, presume an intention to waive the forfeiture whatever the actual intention may have been. A landlord who deals with his tenant in relation to an act constituting a breach by the tenant of his covenant must be presumed to realize that a point has come when an election is open to him and if what he does or says thereafter is capable of being construed as having a bearing upon such election he might surely be expected to make it clear whether he is electing or not. The question whether he has done so or not is a question of fact. In this case it is a question of interpreting the terms of a letter in the context of a given set of facts. There may be matters relevant to that body of fact which are simply not before us at all as, for example, the precise nature and scope of Mr. Chan's agency vis-a-vis the plaintiff company. Clearly it is arguable that the letter does constitute an election on the part of the company. We do not think it can be right to say that if we entertain any doubt as to whether or not it is such act of election that the appeal must thereupon fail. What the defendant company must show is that there is now, and that there was before the judge in chambers, some arguable issue of fact or law. Unless we were prepared to say that no court could possibly come to the conclusion that the letter of the 26th of October constituted an act of waiver the question whether it is such or not must remain an issue to be tried.

18. We are of the opinion that the second main ground of appeal also is well founded. The contention here was that there was no sufficient evidence before the judge in chambers to prove illegal gambling. The affidavit in support of the O.14 summons was sworn by a solicitor and the facts recited therein as showing breach of covenant amount to a bald statement that persons were found illegally gambling on the premises and that these persons were subsequently charged with and convicted of gambling in a common gaming house contrary to the provisions of the Gambling Ordinance. Counsel's objection is, firstly, that this is obviously hearsay and secondly, that it does not condescend to such particulars as will show that offences under the Gambling Ordinance had in fact been committed. The plaintiff company in its own affidavit in reply (which was itself objectionable in that it did not aver facts and resembled a pleading rather than an affidavit) had made it clear that it was not admitting either that the convictions had occurred or, if they had occurred, that they were valid. The defendant company's affidavit clearly does not disclose the source of the information contained therein and we think it would be quite unrealistic to say, as Mr. Jackson-Lipkin asked us to say, that we must leave the matter there and take it that, in professing to speak of his own knowledge, the affirmant, Mr. Kwan, was in truth reciting matters of fact of which he was directly and personally aware. The affidavit of Chan Tak which, we are informed, was first put before the judge in chambers in the course of the hearing of the application, does not seem to help the matter except in so far as it may be inferred, from what is stated therein, that the source of Mr. Kwan's information may have been Mr. Chan Tak's report to him of what the police had said to Mr. Chan Tak on the 26th of October when the latter went to Mongkok Police Station. Mr. Kwan's averments follow closely the wording of the formal notice (Exh. DP2) attached to Mr. Chan's affidavit. In our view, the affidavit of Mr. Kwan as it stands offends against the provisions of 0.14(2)(ii) as also of 0.41 rule 5(2) nor is the objection to its form one without substance. If it was merely a question of Mr. Kwan having failed to disclose the source of information supporting the averment that the persons found upon the premises had been convicted before the magistrate of illegal gambling the omission would scarcely be a serious one since, although the appellant puts the respondent to the proof of that, it does not appear to be seriously disputed that such convictions did in fact occur. However the real burden of the appellant company's case in this regard is that the affidavit does not disclose such facts as to show prima facie that the convictions were justified. Counsel for the respondent company appeared to argue that it was not open to the appellant company to go behind the convictions and that it was not incumbent upon the respondent company to show that the premises had been used as a common gaming house within the meaning of the Ordinance. The argument here was that the breach of covenant relied upon to sustain the forfeiture came under Clause 2(12)(i) which enjoins the tenant not to suffer or permit the premises to be used for any illegal or immoral purposes. Therefore, counsel said, once it had been shown that the patrons of the restaurant had been convicted of using it illegally that was an end of the matter and one must assume from the fact of the conviction that something illegal had been done. Apart from the fact that this argument appears to assume the result which it purports to establish, it is plain from the endorsement on the writ that the particular illegality alleged was gambling which was illegal by virtue of its being conducted in circumstances which made the restaurant a common gaming house. It is true that there was no appeal from the magistrate's decision but there is no evidence before this court, nor was there before the judge in chambers, to show the facts upon which the convictions followed and indeed both parties in this appeal seemed to incline to the view that there were pleas of guilty. It cannot simply be assumed that these convictions were right and this is more especially the case in respect of offences under the Gambling Ordinance which are sometimes of a peculiarly technical nature. On this ground alone it would seem highly desirable that there should be a trial.

19. For these reasons we think the appeal must be allowed. The defendant will be admitted to defend.

20. Note: Following further submissions by counsel at the time of handing down of judgment the following order was made:

21. That leave to defend be conditional upon the payment into court within 2 weeks from today's date of a sum equivalent to all arrears of rent or mesne profits together with all arrears at this date outstanding in respect of rates, electricity and other charges in the agreed total sum of $119,446.93. In default of such payment in the plaintiff company to be at liberty to apply to this court for judgment. Costs of the appeal and of the application in chambers under Order 14 to be the appellants'.

29th October, 1971.

Representation:

Bernacchi Q.C. & Charles Ching instructed by H.H. Lau & W.S. Lo for appellant.

Jackson-Lipkin instructed by Woo & Kwan for respondent.

(1) 1883 W.R. 95

(2) 1917 1 K.B. 384

(3) 10 Times L.R. 180