Capital Land Investment Co Ltd v. Se Mong-kai

CACV000005/1973

IN THE SUPREME COURT OF HONG KONG

(APPELLATE JURISDICTION)

CIVIL APPEAL NO. 5 OF 1973

(ON APPEAL FROM O.J. 1917 OF 1972)

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Coram: Full Court (McMullin & Pickering JJ.)

Date of Judgment: 5 July 1973

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JUDGMENT

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McMullin J. :

1. The appellant, Madam SE Mong-kai, who was defendant in the action, entered into possession of post-war premises known as No. 9, Kingston Street, Clarke Mansion, Flat D, 1st Floor, Causeway Bay under a written agreement of tenancy dated 28th of March 1969. The tenancy was or one year and the monthly rent $500. The term expired on the 5th of February 1970 but the appellant held over at a rent of $580 per month and it is common ground between the parties that she held over as monthly tenant at that rent. By a further written agreement entered into on the 28th of July 1970 the parties purported to enter into another agreement for a term certain to commence on the 1st of July 1970 and to conclude on the 30th of June 1971 at the monthly rent of $700 per month. Both of these formal tenancy agreements had contained clauses which were evidently regarded by the parties and by the trial judge as conferring upon the tenant an option to renew subject to revision of rent. It might be doubted whether they do any such thing but fortunately that is not a matter with which we are concerned in the present appeal, because this second tenancy agreement was superseded by a third agreement between the parties, entered into upon the 1st of July 1971, by which the landlord purported to confer yet a further term of one year upon the appellant to expire on the 30th of June 1972 at a rent of $800 per month, and in this final agreement no such a clause is contained. Pursuant to Clause 12 of this third agreement notices to quit and deliver up vacant possession of the premises were served upon the appellant on the 30th of June, the 4th of July and the 7th of July but she refused to move out. Proceedings in ejectment were commenced the plaintiff company relying upon the terms of the third agreement and the notices to quit. In her Defence the appellant pleads as follows :

There were further pleadings in the defence which appear to raise questions of duress, undue influence and also the possibility that the subsequent agreements were not interpreted to or understood by the appellant. None of these lines of defence appears to have been pursued at the trial and the learned trial judge, rightly in our opinion, took the view that they had been abandoned and that the only question before the trial court for decision was whether the provisions of the Rent Increases (Domestic Premises) Control Ordinance, Cap . 338, operated to protect the appellant from ejection notwithstanding the terms of the tenancy agreements entered into by her subsequent to the date of coming into force of that Ordinance.

2. Effectively, the point for decision falls within a very small compass. It is common ground between the parties that the monthly tenancy acquired by the appellant through holding over after the conclusion of the first term of one year was, if considered in vacuo, such a tenancy as would be protected by the Ordinance which, in Section 3 thereof, provides as follows:

"3. (1) save as otherwise provided in this Section and in Section 4, this Ordinance shall apply to every domestic tenancy and domestic sub-tenancy existing at the date of commencement of this Ordinance in a post-war building whether the same be effected orally or in writing and notwith-standing any provision in such tenancy or sub-tenancy including any provision purporting generally or specifically to exclude the provisions of this Ordinance."

The Ordinance came into operation on the 5th of June 1970. The year secured to the appellant under the first agreement had ended on the 5th of February in that year and the second of the three written agreements was not executed until the 28th of July. The monthly tenancy by holding over was therefore, within the wording of the Ordinance, a tenancy "existing at the date of commencement of this Ordinance". Mr. Asome who appeared for the respondent company in the court below and in this court admits that if nothing further had been done by either of the parties after the lapsing of the first agreement the monthly tenancy by holding over would have attracted the full protection afforded by the Ordinance which provides in Section 6:

"6. (1) save as is provided in Section 7 no tenancy or sub-tenancy existing at the date of commencement of this Ordinance shall terminate during the continuance in force of this Ordinance."

Section 24 provides that:

"Subject to the provision of Subsection (4) of Section 6, this Ordinance shall expire at midnight on the 31st day of May 1972."

In December of 1971 by Ordinance 69 of that year the expiry date was advanced to the 31st of May 1974. If, therefore, there had been no subsequent written agreements it is not disputed that the appellant would at the present time still be lawfully in possession as a monthly tenant enjoying the protection of the Ordinance and entitled to rely thereon at least until June 1974. The provisions of Section 6(4) although originally made the subject of a subsidiary argument in favour of his clients' case by Mr. Asome, were eventually conceded by him to have no relevance to the present circumstances since there is no suggestion, whatever view may be taken of the various arrangements made between the parties, that there has been any increase of rent in such a manner as might secure protection to the tenan beyond the eventual expiration of the Ordinance.

3. The case for the respondent company is simply that, although the appellant acquired the status of a protected tenant following upon the commencement of the Ordinance, on the 5th of June 1970, she lost that status by freely entering into the second of the written agreements on the 28th of July in the same year. That agreement, counsel says, created a tenancy to which the Ordinance clearly does not apply since it was not a tenancy existing at the date of coming into force of the Ordinance. There is no doubt that that is the correct view of the tenancies purported to be created by both the subsequent written agreements, and Mr. Miu for the appellant does not seek to dispute the point. He points out, however that there was a tenancy in existence when the Ordinance came into force and he relies upon the provisions of Section 6(1) which have been set out above. It is his contention that the only way in which that tenancy could have terminated lawfully would have been by the occurrence of any one of the five events set out in Section 7(1). A tenancy to which the Ordinance applies can, in other words, lose the protection of the Ordinance only in one or other of those five ways. Mr. Asome at one point seemed to argue that Section 7 did not provide an exhaustive account of the modes of termination applicable to a tenancy to which the Ordinance applies. The point is not central to his argument and in our view it is quite clearly wrong. An assortment of eleven different types of tenancies are expressly excluded from the operation of the Ordinance under the provisions of Section 3. All other tenancies without exception are caught by the Ordinance and can find escape from its control only by the five pathways established in Section 7. Of these the only one which is relevant to the present case is that described in paragraph (a) of Subsection 1. The relevant provision reads as follows:

The whole point at issue between the parties, therefore, resolves itself to this: whether, by entering into the second of the written agreements, the appellant can be said effectively to have rendered up vacant possession of the premises to her landlords. The argument which prevailed with the trial judge was based upon certain decisions under the English Rent Acts in particular the case of Foster v. Robinson⁽¹⁾. As it seems to us there is little advantage to be gained from considering the facts in that case or in the several other decisions under the English Rent Acts which were cited to the trial judge and before this court for the reason that the principle relied upon by the trial judge in the present case is not applicable in view of the special provisions of the law to which I have just now referred. A convenient compendium of judicial opinion establishing the principle upon which the trial judge relied, and which is undoubtedly applicable to cases arising under the Rent Acts in England, may be found in the decision of Roxburgh, J., in the case of Collins & Another v. Claughton⁽²⁾ in which Foster v. Robinson⁽¹⁾and virtually all the other cases relevant to the point are cited. They amount to conclusive authority for the proposition that a tenancy, whether it be statutory or contractual can under the English legislation be the subject of a notional surrender by operation of law. Thus in Collins & Another v. Claughton⁽²⁾ the learned judge approved the decision in Rogers v. Hyde⁽³⁾ which in its turn, relying upon the Foster v. Robinson⁽¹⁾, expressly adopted the view that a contractual and non-protected tenancy can replace a statutory tenancy by a notional surrender and re-grant or by other means. It was in relation to this body of authority presumably that the learned trial judge in the present case, finding for the plaintiff, said the following:

"Applying the principle however of Foster's case, I am of the opinion that in executing the tenancy agreement in 1970 and 1971 the defendant is deemed to have notionally rendered vacant possession and surrendered her monthly tenancy which existed at the commencement of the 1970 Ordinance. By her own conduct she is estopped from denying that there had been any new tenancy since July 1970. The fact whether she surrendered a monthly statutory tenancy or a contractual tenancy is immaterial."

So far as the English Acts are concerned the trend of judicial opinion is readily understandable because, as Mr. Miu has pointed out, in none of the legislation under consideration by any of the courts in any of the cases cited in Collins & Another v. Claughton⁽²⁾ is there any reference to the termination of a tenancy by delivery of "vacant possession". It was said by Lord Greene, M.R. in the case of Brown v. Draper⁽⁴⁾ that there are only two ways by which a tenant whose contractual tenancy has come to an end can lose protection of the Acts. One is by giving up possession and the other is by an order against the tenant for recovery of possession. Although Megarry on the Rent Acts is critical of that view (See his commentary at page 231 of Volume I of the 10th Edition) that still appears to be the opinion of the courts. Since any agreement by a tenant obliging him to give up possession where the Acts do not require him to do so is, in England, void (See Megarry op cit page 18 - 19), it is, no doubt, understandable that the courts there should resort to the notion of delivery of possession by operation of law in order to bind parties to abide the results of agreements entered into by them of their own free will and in full knowledge of what they were doing. But where a statute speaks in unmistakable terms it must be obeyed and cannot be circumvented by the substitution of symbolic for actual performance of any duty which it enjoins. Had the present case been one taken under the English legislation or legislation equivalent to that no doubt the authority of Foster v. Robinson⁽¹⁾ and the other cases would be quite sufficient to see the cause of the respondent company home. The contractual tenancy for one year from the 1st of July 1970 would have replaced the protected statutory tenancy and since it was itself not within the protection of the Ordinance that would be an end of the matter. But the authority of all those decisions is ousted by the words "vacant possession" in Section 7(1). Those words are the bedrock of the appellant's case and they stand unshaken. There can, as we see it, no more be notional or symbolic delivery of vacant possession than there can be a notional or symbolic squaring of the circle. The notion in itself, that is to say, involves a contradiction once it is clear that those words stand in the section according to common usage and not in some extended or diluted sense such as it is always within the power of the Legislature to apply to them by special interpretation. The respondent's case is founded upon estoppel. That is to say, the respondent company asks the court to hold the appellant estopped from denying the reality of her intentions in entering into the subsequent written agreements. But if there is one unmistakable principle which applies equally to cases taken under the local legislation and those taken under the English Rent Acts it is the principle that parties cannot simply by their own agreement create an estoppel which will exclude the operation of the statute (see Welch v. Nagy⁽⁵⁾). We can find nothing in the Ordinance to persuade us that in providing for termination of a protected tenancy by delivery of vacant possession the Legislature had anything less in mind than delivery of actual physical possession by the tenant to the landlord of a premises relieved not only of his own physical occupation thereof but emptied also of all his goods and chattels. The words have a specific entailment which allows of no imaginative interpretation. The reason for this is succinctly stated by Lord Greene M.R. in Cumberland Consolidated Holdings Ltd. v. Ireland⁽⁶⁾. In that case it was argued that the expression "vacant possession" was merely used in contra-distinction to "possession" simpliciter, in order to show that the property was, on completion, to be transferred free from any claim of right to possession in the vendor or any third person such as a tenant or a licensee. The complaint in that case was that the premises had been delivered back with the cellars so cluttered with rubbish that they were unusable and the plaintiffs, who were the purchasers of the premises, alleged that they had not been given vacant possession. In considering the argument outlined above the learned Master of the Rolls said (at page 270):

"The phrase 'vacant possession' is no doubt generally used in order to make it clear that what is being sold is not an interest in a reversion. But it is not confined to this. Occupation by a person having no claim of right prevents him in giving of 'vacant possession', and it is the duty of the vendor to eject such a person before completion ... The reason for this, it appears to us, is that the right to actual umimpeded physical enjoyment is comprised in the right to vacant possession. We cannot see why the existence of a physical impediment to such enjoyment to which a purchaser does not expressly or impliedly consent to submit should stand in a different position to an impediment caused by the presence of a trespasser."

As it seems to us, the clear intention of the Legislature in its present enactment was that the requirements of Section 7(1)(a) would not be satisfied by anything less than the return by the tenant to the landlord of physical possession of an empty house. In the result the two written agreements which succeeded the monthly tenancy by holding over in so far as their provisions conflict with the incidents of that protected statutory tenancy were necessarily void and of no effect.

4. Mr. Asome argued that if the appellant was right in her contention it would mean that, since the two subsequent written agreements were invalid as being in contravention of the express provisions of the Ordinance, that would mean that not only was the limitation of a specific term in those agreements void but also the provisions as to the increased rent would be void. If that was the case it would mean that since the 1st of July 1970 the plaintiff had been paying a rent which could not lawfully be exacted from her firstly at $700 a month and thereafter under the third agreement at $800 per month. In counsel's submission one unjust result of this would be that, theoretically, it would be open to the appellant to sue for recovery of all sums paid by her in excess of the legitimate rent of $580 per month which she had been paying prior to the signing of the second of the written agreements. We doubt if this is true since the tenancy, being a protected tenancy, falls subject to part three of the Ordinance which provides for the possibility of an increase in rent. The danger to the landlord is more apparent than real. The part of the two written agreements which is void as being in conflict with the Ordinance is, in each case, that part which would seek to limit the duration of the tenancy. The Ordinance provides in Section 9 for agreements between landlord and tenant concerning increases in rent. In fact the parties in the present case did agree on two separate occasions that the rent should be increased. Indeed, it is part of the pleadings of the appellant that she entered into these two written agreements in the belief that they related principally to the question of the rent being raised. So far as the question of the increased rent is concerned the respondent company is only in default of its duties under Section 9 in as much as it has not observed the formalities provided by that section for notifying the Commissioner that an agreement as to increase of rent has been arrived at. If the appellant were ill-advised enough to seek to recover back any of the rent paid by her since July 1970 it is difficult to see her succeeding on the basis of any such mere informality. It is true that s.9(3) of the Ordinance provides that

"Rent at the increased rate shall not be recoverable save where the landlord is in possession of a copy of a notice endorsed by the Commissioner under subsection (2)"

and, as we have seen, the respondent company has failed to lodge notice of the increase in rent with the Commissioner, as required by s.9(1). It follows therefore that had the appellant defaulted in payment of rent (which is not the case) the respondent company could not, by virtue of s.9(3) have recovered rent at the increased rate by action. There is nothing in that subsection however to provide for the converse, that is, for the recovery by a tenant of rent already paid in excess of the original rent, where the agreement to pay an increased rent has not been notified to the Commissioner. Quite apart from the lack of any statutory encouragement of such a claim, the appellant would, moreover, be confronted with her own agreements which, on this aspect of the matter, would surely afford the landlords good grounds of defence in estoppel.

5. Thus, so far as the past is concerned, we see no danger of the respondent company being forced to disgorge the difference between the original monthly rental of $580 and the increased rentals which have subsequently obtained from time to time; and, so for as the future is concerned, it is now open to the company to obtain the acquiescence of the appellant to a continuation of a monthly rental of $800 or even some other rental and to lodge the necessary notice thereof with the Commissioner. The appellant's tenancy, has of course continued despite increases of rental, by virtue of s.6(2) of the Ordinance which provides in part:-

"but for the purposes of this Ordinance a tenancy or sub-tenancy shall be deemed to continue in existence notwithstanding any change in the rent payable".

6. For the reasons already given this appeal will be allowed and the order for possession set aside.

7. Annexed to the Grounds of Appeal is a prayer for a declaration that "the Defendant is a protected tenant nnder the Rent Increases (Domestic Premises) Control Ordinance, Cap. 338 and that she has not delivered vacant possession of the premises and her tenancy has not been surrendered by operation of law". It will be apparent that the effect of our allowing the appeal is to say that the appellant is a protected tenant, has not delivered vacant possession and that her tenancy, has not been surrendered by operation of law. That is as far as we can go, however. It is not for an appellate court to grant a formal Declaration which was not asked for in the court below.

8. We were informed that subsequent to the delivery of judgment there was an application to stay execution which was granted upon terms which included a term that, pending the disposal of the appeal, the appellant should pay into court by way of assessed damages, a sum of $800 per month. The landlords had claimed that in fact the market value of the premises was at that date $2,000 per month. It was conceded by Mr. Asome that the learned judge did not have power to make such an order since no claim for double rent had been made in the Statement of Claim. In any event, since the appellant has succeeded upon the appeal all sums of money so paid into court will be returned to her forth with and will be paid out to her solicitors. She will also have the costs of this appeal and of the proceedings in the court below.

Representation:

H.C. Miu instructed by Lau, Chan & Ko for appellant.

Michael Asome instructed by Mak & Co. for respondent.

(1) (1950) 2 All E.R. 342.

(2) (1959) 1 All E.R. 95.

(3) (1951) 2 All E.R. 79.

(4) (1944) K.B. 309 at page 313.

(5) (1950) 1 K.B. 455.

(6) (1946) K.B.D. 264.