Sung Hing-chuen v. Cheng Tsui

DCCJ007810/1977

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT KOWLOON

CIVIL JURISDICTION

ACTION NO.7810 OF 1977

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Coram: E. de B. Bewley, D.J.

Date of Judgment: 11th April, 1978.

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JUDGMENT

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1. This is an action for possession in which the plaintiff claims the right to re-enter the premises in suit for a forfeiture under section 53 of the Landlord & Tenant Ordinance. He maintains that forfeiture is incurred by the defendant's breach of a term of the oral tenancy agreement, namely that the flat should be used as a domestic dwelling.

2. The plaintiff and the defendant were the only two witnesses and, where their evidence conflicts, I prefer that of the plaintiff. He told a precise and convincing story, in which the exchanges between the parties were set out in chronological order. The defendant on the other hand was loquacious, evasive under cross-examination and, on the principal point of conflict, he made a damaging admission.

3. The plaintiff's evidence was that it was agreed between them at the commencement of the tenancy that the flat was to be used for domestic purposes. The defendant's case was that there was no such stipulation. During cross-examination, however, he said that he showed his friends a letter from the plaintiff's solicitors complaining about the presence of a commercial signboard outside the premises. His friends explained it and advised him that to display such a signboard was a breach of his tenancy agreement. If the parties had not agreed on the purpose for which the flat was to be used, no such advice would have been given.

4. On 1st June, 1975, the plaintiff let the premises to the defendant on a month to month basis. There was no written agreement but it was agreed verbally that the rent should be $620 per month, that the defendant should pay all fees, including maintenance, electricity and water charges and that the flat was to be used as a domestic dwelling. The deed of mutual covenant (P5), to which the plaintiff's predecessor in title was a party, prohibits business user.

5. The plaintiff went to the flat every month to collect the rent personally from the defendant. In April, 1977, he noticed a signboard outside the front door reading 'Tung Kong Precious Stone Company' and lit by fluorescent lighting. In the premises there were several electric grinding machines. He remonstrated with the defendant but Mr. Cheng said that the machinery was light and portable and that its presence did not matter. When the plaintiff pointed out that they created a fire risk, the defendant made no reply.

6. The plaintiff instructed his solicitors to write to the defendant pointing out the breach of agreement and asking him to remedy it. This letter is P7. As a result of this communication the defendant telephoned the plaintiff and angrily pointed out that other tenants were doing the same thing and he threatened to set fire to the flat. A second letter from the plaintiff's solicitors followed in May (P8), in which they demanded payment of the current month's rent.

7. On 8th July, 1977, the plaintiff applied to the Commissioner of Rating & Valuation for a certificate of primary user. This was issued on 23rd July and states that the primary user of the premises on the day of inspection was non-domestic.

8. The plaintiff did not collect any further rent from the defendant but he visited the flat on three subsequent occasions. On 6th August he found that the signboard had been removed but the machinery was still there. The defendant was not in. On 16th August the defendant was again absent but the machinery was being operated by his brother. A final solicitors' letter was posted to the defendant (P10) on 25th August, but was returned 'unclaimed'. Before issuing the writ, the plaintiff paid a last visit to the flat in October. The defendant was there and so was the machinery, though not actually in operation. Not receiving any undertaking to remove the machinery, the plaintiff issued the writ on 14th November, 1977.

9. Subsequently the defendant telephoned the plaintiff and tried to persuade him to withdraw the writ. The plaintiff agreed to do so provided the defendant removed the machinery, gave him a written undertaking as to his future user of the flat and paid the arrears of rent to his solicitors. The defendant asked the plaintiff to meet him but no meeting took place and no undertaking was received.

10. On 7th March, 1978, the plaintiff obtained another certificate of user, which stated that on 1st March the primary user was domestic (P11).

11. Mr. Foo, who appeared for the plaintiff, stated in opening that he also was entitled to re-enter the premises on breach of the covenant to pay rent. He did not however ask leave to amend the particulars of claim. In the event the issue does not arise, as the plaintiff admits that the defendant tendered the rent but he refused to accept its instead he instructed the defendant to pay the money to his solicitors. The plaintiff could not, therefore, have succeeded on this ground.

12. The first question that arises is whether the defendant was in breach of the agreement. In Wickenden v. Webster⁽¹⁾, the lease contained a covenant not to carry on any public trade or business and to occupy and use the premises as a private dwelling house only. The lessee kept a day school and also had a dancing class on the premises once or twice a week, and placards were published stating that the house was open as a dancing academy on certain evenings. This was held to be a breach of covenant. And in Segal Securities Ltd. v. Thoseby⁽²⁾ a similar covenant was held to be breached when the tenant accepted a paying guest.

13. In Donald W. Shields v. Mary Chan⁽³⁾ the Court of Appeal held that the occasional use of one room in the premises for carrying on correspondence in connection with the tenant's employment did not destroy the residential character of the premises and did not amount to a breach of covenant.

14. The facts in the present case are much stronger than in the above cases and it is, after all, a question of degree. The defendant has not denied that the machines remained in the flat throughout the period April-November. I am satisfied that the removal of the sign was but a 'sop to Cerberus'. The prima facie evidence of the July certificate has not been rebutted and the plaintiff's own evidence as to what he saw on his several visits to the flat was very convincing. I find therefore that there was, from the plaintiff's visit to the flat in April until the issue of the writ in November, a breach of the tenancy agreement.

15. The agreement contained no proviso for re-entry by the landlord in the event of breach. If the term in question amounted to a condition subsequent, the omission is immaterial but if it was merely a covenant, there can, in the absence of such a proviso, be no ejectment. See Bashir v. Commissioner of Lands⁽⁴⁾.

16. A condition is a clause which shows a clear intention on the part of the landlord, not merely that the tenant shall be personally liable if he fails in his contractual duties, but that the lease shall determine in the event of such a failure. It may be express or implied. No precise form of words is necessary: it is sufficient if the words used were intended to have the effect of creating a condition. Whether a stipulation amounts to a covenant or a condition depends entirely upon the intention of the parties. Maley v. Fearn⁽⁵⁾. The court however leans towards a literal or strict construction of a forfeiture clause, that is to say against the landlord. See Doe d. Spencer v. Godwin⁽⁶⁾.

17. I think there exists in Hong Kong a general awareness of the important distinction between lettings for domestic purposes and lettings for business purposes. This is partly because of the security of tenure afforded to the tenant of domestic premises by Pt. II of the Landlord & Tenant Ordinance and similar earlier legislation. Thus, in this case the defendant is a protected tenant and may be ejected only under the provisions of the ordinance. I am sure he was well aware of this at the time of the letting. The owner of property or landlord is also conscious of the importance of user from the terms of his occupation permit or deed of mutual covenant. In the present case the deed of mutual covenant, which binds the plaintiff as assignee of one of the original owners of the premises, forbids him to suffer or permit the premises to be used for business purposes. The plaintiff is deemed to have notice of this provision and it is therefore a factor that would be likely to cause him to place emphasis on the future user of the premises.

18. In CHENG Chun-pang v. CHENG Ting-tat⁽⁷⁾, Cons, D.J. (as he then was) held that a provision in an oral tenancy forbidding gambling on the premises amounted only to a covenant, which, without an express proviso for re-entry, could only be enforced by an injunction or an action for damages. In reaching this conclusion the learned judge noted it was a common practice to insert such a covenant in tenancy agreements and he found nothing that led him to suppose that the parties intended to do anything other than insert the usual covenant. But there is a substantial difference between an agreement that premises shall not be used for gambling, prostitution, etc. and an agreement as to the very nature of the letting. This case may therefore be distinguished.

19. I have come to the conclusion that, in the circumstances of Hong Kong, where rents and protected tenancies are in the forefront of public consciousness, when the parties to an oral tenancy agreement specify that the letting is to be domestic, without further embellishment, their bargain should be interpreted as if they intended the term to be a condition subsequent, which automatically carries with it a right of re-entry.

20. The next question to be considered is whether plaintiff, by his demand for rent, has waived his right to re-enter. This is an area which has been judicially described as a minefield in which persons entering should tread warily. Swanwick J. in Blackstone v. Burnetts (West End)⁽⁸⁾ put it thus:

"If a landlord, after he knows of a breach of covenant entitling him to forfeit a lease, either communicates to the tenant his election to treat the tenancy as continuing or does any act which recognizes the existence of the tenancy or is inconsistent with the determination, he is deemed to have waived the forfeiture."

21. The plaintiff's solicitors wrote to the defendant on 4th May in the following terms:

22. There was no further demand for rent before the issue of the writ but, on several occasions during that summer, the defendant either offered to pay the rent then due, or actually tendered it to the plaintiff. The plaintiff's attitude remained consistent: he refused to accept it and asked the defendant to pay the money to his solicitors. His understanding was that, once he had accepted rent from the defendant, the latter would be entitled to keep the machinery in the flat. Indeed the defendant actually put it to the plaintiff in cross-examination that his intention was to recover possession and that he regarded the question of rent as a minor matter. To this, the plaintiff replied obliquely that he had asked the defendant to pay it to his solicitors.

23. By the issue of the writ the plaintiff finally and irrevocably indicated his intention to put an end to the tenancy. If a waiver occurred, therefore, it took place between April-November. The subsequent unsuccessful negotiations between the parties cannot affect this issue. Civil Service Coop. Society v. McGrigor's Trustee⁽⁹⁾.

24. It is well-settled law that a demand for rent, even if stated to be 'without prejudice', followed by acceptance, amounts to waiver of a breach. Matthews v. Smallwood⁽¹⁰⁾: Oak Property Co., Ltd. v. Chapman⁽¹¹⁾. In the latter case the court held that the strict common law rule should be relaxed in the case of statutory tenancies, and that the landlord might safely issue a demand for rent without prejudice, provided he took out his writ within a reasonable time thereafter. That case, however, concerned a non-continuing breach of covenant and it is only just that in those circumstances a landlord should be required to make an early election.

25. In this case there was a continuing breach of the condition. It was broken from day to day while the defendant operated his machines and carried on business. This is crucial because, generally speaking, the receipt of rent - a fortiori a demand for rent - does not, in the case of a continuing breach, amount to waiver of forfeiture. In Penton v. Barnett⁽¹²⁾ Rigby L.J. drew the distinction thus:

"Is the breach something which had happened once or for all or something which still remains within the tenants' power to discontinue?"

26. In Doe d. Ambler v. Woodbridge⁽¹³⁾ it was held that using rooms in a house in a manner prohibited by the lease - taking in a lodger - amounted to a continuing breach and that the landlord was not, by receiving rent, precluded from taking advantage of the forfeiture, provided the user continued after such receipt of rent.

27. In Doe d. Baker v. Jones ⁽¹⁴⁾ Alderson B. stated:

"Receipt of rent is a waiver of all forfeitures, which are, so to speak, single and complete, and are not in the nature of continuing forfeitures."

In the same case, Platt B. said:

"It is a fallacy to say that the receipt of rent was a waiver of the breach of contract to repair, for it was a continuing breach, and until the repairs were perfected, the lessors of the plaintiff were entitled to re-enter for the forfeiture."

28. But in Griffin v. Tomkins⁽¹⁵⁾, Cockburn, C.J. said:

"Where a lessor, with full knowledge that a breach of this particular description has been committed (carrying on trade), waives the forfeiture by a distinct acceptance of rent accruing due after the forfeiture, that amounts not merely to a waiver of the past breach but to a licence to continue the breach in future."

In that case the plaintiff received two quarters' rent after knowledge of the breach and he knew that the tenant could only continue in business if he had security of tenure for a year at least.

29. In Matthews v. Smallwood⁽¹⁰⁾ Parker J. stated:

"Waiver of a right of re-entry can only arise where the lessor, with knowledge of the facts upon which his right of re-entering arises, does some unequivocal act recognizing the continued existence of the lease ...... therefore, though an act of waiver operates with regard to all known breaches, it does not operate with regard to breaches which were unknown to the lessor at the time when the act took place."

30. In Segal Securities v. Thoseby⁽²⁾, in which the taking of a paying guest was held to be a continuing breach, Sachs J. noted that it had not been specifically decided whether a demand for rent alone, without acceptance, could amount to waiver. He took the view that a demand could operate as a waiver in the same way as an acceptance and in support quoted Bramwell B. in Croft v. Lumley⁽¹⁶⁾

"When a lessee commits a breach of covenant, on which the lessor has a right of re-entry, he may elect to avoid or not to avoid the lease, and he may do so by word or by deed; if with notice, he says, under circumstances which bind him, that he will not avoid the lease, or he does an act inconsistent with his avoiding, as distraining for rent ....... or demanding subsequent rent, he elects not to avoid the lease; ......"

Sach, J. considered that demand and acceptance were merely different forms of notification by a landlord of election not to avoid or forfeit the lease. He held that, while the demand for rent amounted to a waiver of a right of forfeiture for defendant's breach of covenant up to the time of the statutory notice requiring defendant to remedy the alleged breach, it did not operate as a waiver of a later breach, as the plaintiffs had not been shown to have had knowledge that the breach would be continuing after the expiration of the notice.

31. In Blackstone's case⁽⁸⁾, Swanwick, J. held, after reviewing the authorities, that an unambiguous demand for future rent in advance amounts in law to an election and does constitute a waiver if, at the time it is made, the landlord has sufficient knowledge of the facts to put him to his election.

32. Finally, in Central Estates Ltd. v. Woolgar (No. 2)⁽¹⁷⁾, in which there was an actual acceptance of rent, it was held that the intentions of the parties were irrelevant; it was sufficient if there was an unequivocal act done by the landlord, which recognized the existence of the lease, after having knowledge of the ground of forfeiture. Cairns, L.J. however stated (at page 618):

"I will assume that a demand for rent does not by itself effect waiver. If such a demand is made, the tenant is entitled to tender the rent and to say 'Now you must elect: you can refuse any rent and maintain the forfeiture, or you can accept the rent and waive the forfeiture' ..... the tender of rent by itself is by implication an invitation to the landlord to elect; and if he accepts the rent, he elects to waive the forfeiture."

The learned judge did not however express any view as to whether a demand by itself did effect a waiver.

33. It seems to me, on the above authorities, that the plaintiff was entitled to take advantage of the subsequent breaches by the defendant, which continued right up to and probably beyond the issue of the writ on 14th November provided he had no notice that such breaches were likely to take place. In fact there was nothing to indicate to the plaintiff that the defendant intended to carry on business indefinitely in the face of the plaintiff's declared intention to enforce the agreement. The plaintiff very naturally wished to resolve the matter amicably by giving the defendant time in which to comply with the agreement. I hold therefore that the plaintiff's demand for rent did not amount to waiver of his right to forfeiture.

34. Nor was there any waiver resulting from the plaintiff's delay in suing for possession. A landlord does not, merely by lying by and witnessing the breach, waive the forfeiture. Doe d. Sheppard v. Allen⁽¹⁸⁾. Long acquiescence by a landlord, or a failure to insist on his rights, does not amount to a release from a covenant, unless his conduct is wholly inconsistent with the continued existence of the covenant or shows that he intended to waive performance of it. Re Lower Onibury Farm: Lloyds Bank Ltd. v. Jones⁽¹⁹⁾. That is not the position in this case.

35. I must now consider if the defendant is entitled to equitable relief, bearing in mind once more that the courts lean against forfeiture.

36. In CHENG SO Yin-kay v. CHENG Biu⁽²⁰⁾, Briggs, J. (as he then was) held that, apart from statute law, the only instance where relief will be given in cases where there is a breach of covenant, other than a covenant to pay rent, are cases where the breach was due to some accident, surprise or mistake. Since that case the House of Lords, in an unanimous decision, has laid down the principles upon which equitable relief should be granted. In Shiloh Spinners Ltd. v. Harding⁽²¹⁾, Ld. Simon said at p. 603:

"I would therefore myself hold that equity has an unlimited and unfettered jurisdiction to relieve against contractual forfeitures and penalties. What have sometimes been regarded as fetters to the jurisdiction are, in my view, more properly to be seen as considerations which the court will weigh in deciding how to exercise an unfettered jurisdiction. Prominent but not exclusive among such considerations is the desirability that contractual promises should be observed and contractual rights respected, and even more the undesirability of the law appearing to condone flagrant and contemptuous disregard of obligations. Other considerations are how far it is reasonable to require a party who is prima facie entitled to invoke a forfeiture or penalty clause to accept alternative relief (e.g. money payment or re-instatement of premises) and how far vindication of contractual rights would be grossly excessive and harsh having regard to the damage done to the premises and the moral culpability of the promisor."

37. In KUNG Wai-ying v. A.G.⁽²²⁾, Li, J. held that the courts of Hong Kong have jurisdiction to grant equitable relief in the terms stated by Ld. Simon, in spite of the absence in Hong Kong of the statutory provisions for relief that exist in England.

38. On that basis I have come firmly to the conclusion that the defendant is not entitled to relief from forfeiture. What is his behaviour but a flagrant disregard of his obligations? He attempted to justify his behaviour by informing the plaintiff that everybody else was doing it i.e. using domestic premises for business purposes, and landlords could not expect to be able to enforce their strict rights. In the face of the plaintiff's patient attitude, the defendant continued in breach of the agreement from April until November, his only concession being to remove the sign in July.

39. The defendant will face hardship, I dare say, in having to find alternative accommodation, but in the circumstances of this case I am satisfied that it cannot be said to be grossly excessive.

40. There will be judgment for the plaintiff for possession and for arrears of rent at the rate of $620.00 from 1st May, 1977.

Representation:

Mr. T.C. Foo (T.Y. Lee & Co.) for plaintiff.

Defendant in person.

Cases cited in the judgment:-

Date of hearing: 14th March, 1978.

Date on which judgment was delivered: 11th April, 1978.

Order: Judgment for plaintiff for:

Representation:

Mr. T.C. Foo (T.Y. Lee & Co.) for plaintiff.

Defendant in person.

(1) 1856 6 E. & B. 387

(2) 1963 1 A.E.R. 500

(3) 1963 H.K.L.R. 121

(4) 1959 3 W.L.R. 996

(5) 1947 L.J.R. 276

(6) 1815 4 M. & S. 265

(7) V.D.C. Action No. 2574/70

(8) 1973 1 W.L.R. 1487 at 1496

(9) 1923 2 Ch. 347

(10) 1910 1 Ch. 777

(11) 1947 2 A.E.R. 1

(12) 1898 1 Q.B. 281

(13) 1829 9 B. & C. 376

(14)1850 5 Exch. 498

(15) 1880 42 L.T. 359

(16) 1858 6 HL C 672 at 705

(17) 1973 3 A.E.R. 610

(18) 1810 3 Taunt. 78

(19) 1955 2 A.E.R. 409

(20) 1970 H.K.L.R. 383

(21) 1973 1 A.E.R. 90

(22) 1974 H.K.L.R. 1