Powerful Dragon Ltd v. Windsor Sauna Co Ltd

LDPE 1507/2003

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Part V Possession Application No. LDPE 1507 of 2003

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Coram: Member C.Y. LAM, Member of Lands Tribunal

Dates of Hearing: 21 January 2004

Date of Judgment: 6 February 2004

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J U D G M E N T

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The Issue

1.On account of the breach of the non-subletting condition which provides for forfeiture of the tenancy upon its being breached, the Applicant who is the landlord of the premises at the 3rd Floor, Fortress Tower, No. 250 King's road, Hong Kong (hereinafter known as the Subject Premises) applied to take back the possession of the Subject Premises from the Respondent, the tenant of the Subject Premises. A written warning was given on the 13th November 2003 requiring the Respondent to cease the breach within 14 days. This warning did not make it inflexible for strict compliance within 14 days. If a longer time was needed, the Respondent was invited to revert to the Applicant within 3 days. The Respondent, nevertheless, had not complied with the warning, nor did the Respondent go back to the Applicant within 3 days for a longer time for compliance. The Applicant, therefore, took out an application on 1st December 2003 requesting the grant of an order by the Tribunal to authorize the taking back of the possession of the Subject Premises as well as an order on costs in favour of the Applicant.

2.The Applicant's application based on the evidence derived firstly from the affirmation of Lam Shun Ying (a director of the Respondent) given to the High Court in HCA No. 2345 of 2003 on 25th June 2003, secondly, the Business Registration Certificate dated 1st Feb. 2000 (page 19 of Bundle B refers), and thirdly, the Inland Revenue Department tax computation records in respect of Lam Chun Kwong trading as Windsor Sauna (pages 130 to 139 of Bundle B refer). Lam Shun Ying 's affirmation given to the High Court spelled out the fact that Lam Chun Kwong was the nominee running the sauna business at the Subject Premises. The Business Registration Certificate put on record that Lam Chun Kwong was the business proprietor trading in the name of Windsor Sauna at the Subject Premises. The Inland Revenue Department tax computation records confirmed something similar to the Business Registration Certificate. Whilst Lam Chun Kwong is not an employee and neither the shareholder nor director of the Respondent, the Applicant considered that the Respondent had breached Clause 4 (12) of the tenancy conditions, which is reproduced hereunder: -

"Not to assign underlet part with the possession of or transfer the premises or any part thereof or any interest therein nor permit or suffer any arrangement or transaction whereby any person who is not a party to this Agreement obtains the use possession occupation or enjoyment of the premises or any part thereof irrespective of whether any rental or other consideration is given therefore. The tenancy shall be personal to the Tenant named in this Agreement an without in any way limiting the generality of the foregoing the following acts and events shall unless approved in writing by the Landlord be deemed to be breaches of this Clause; -

(a) ...

(b) ...

(c) The giving by the Tenant of a Power of Attorney or similar authority whereby the donee of the Power obtains the right to use possess occupy or enjoy the premises or any part thereof and does in fact use and enjoy the same.

(d) In the case of a tenant which is a corporation or partnership tenant the permitting of any person other than a bona fide employee employed by the Tenant to use possess occupy or enjoy the premises.

(e) ...

(f) ..."

3.The Applicant's counsel emphasized the act of the Respondent above did not amount to sub-letting but parting with the possession of the Subject Premises to Lam Chun Kwong who is not a party of the tenancy agreement between the Applicant and Respondent. The Respondent admitted that Lam Chun Kwong was not its employee. This is in consistency with the evidence given by Chan Wang Kin, the Respondent's business representative, who said that Lam was only given some remuneration to disburse the travelling expenses he incurred.

The Respondent's View

4.The Respondent, in its Notice of Opposition, did not dispute the Applicant's above allegations, save and except on the following points: -

(1) It is a common trade practice of appointing a nominee to register as the business proprietor for the purpose of avoiding the complication of the Respondent, being a limited company, in the filing of tax returns with the Inland Revenue Department. Nominating Lam Chun Kwong, an individual, as the business proprietor had all the benefits of being simple and straightforward in the accounting and filing procedure. The Respondent denied that Lam Chun Kwong was the de facto business proprietor but a nominee only, who had not had the right of use, occupation possession, and enjoyment of the Subject Premises. In this regard, Mr. Chan Wang Kin, the Respondent's business representative and beneficial shareholder testified in court. The Respondent did not consider it appropriate to regard the appointment of a nominee as a breach of Clause 4(12) citing Iu Tze Shi v The Hop Woo Firm [1950] HKLR 258.

(2) The predecessor-in-title of the Subject Premises was aware of the practice of having Lam Chun Kwong as the nominee in as early as 1999 when the first tenancy commenced. In this connection, the Respondent had a former senior staff member of the predecessor-in-title, Ms Yeung Lai Ming, testified in court, too. Ms Yeung's evidence given was in favour of the Respondent. She forgot her precise post title but professed that she was a senior executive of the predecessor-in-title handling a wealth of properties owned by the predecessor-in-title before her resignation from the predecessor-in-title. The predecessor-in-title's continued acceptance of rent from the Respondent direct, in the Respondent's view, denoted its acceptance of having Lam Chun Kwong nominated for registration as the business proprietor. The Applicant who acquired the ownership of the Subject Premises from the predecessor-in-title in September 2002, whilst inherited all the rights, should have also inherited the liability of the waiver. The Respondent quoted the Hong Kong Tenancy Law, Malcolm Merry, 4th Edition, p.130 to support this.

(3) The Applicant should have known the existence of the fact that the Respondent was the tenant with Lam Chun Kwong registered as the business proprietor at the time of its acquisition of the Subject Premises by conducting a search of the Inland Revenue Department records along with the normal search at the Land Registry. Its imputed knowledge of Lam Chun Kwong being registered as the business proprietor should lead to the conclusion of a waiver being granted to the Respondent. Its termination of the LDPE 1283 proceedings on 13.11.2003 along with the acceptance of rent from the Respondent likewise revealed its intention to waive the so-called breach. Based on the Hong Kong Tenancy Law, Malcolm Merry, 4th Edition, P.148-149, the Respondent considered the no-waiver clause of the tenancy conditions inoperative.

(4) The Respondent, since the commencement of the Applicant's legal action in December 2003, had taken steps to comply with the Applicant's requirement notwithstanding the arguments above. The Respondent had made change of the Inland Revenue Department business registration record so that Lam Chun Kwong was removed from the record as being the business proprietor and replaced him by the Respondent instead with effect from 6thJanuary 2004. The Respondent's counsel considered the non-compliance of the non-subletting covenant purged within a reasonable time. The Respondent should be granted the relief from forfeiture even though the aforesaid waiver was not considered in existence."

The Applicant's View

5.The Applicant held the following views towards the points of defence raised by the Respondent: -

(1) Based on Lam Shun Ying's affirmation, Lam Chun Kwong was running the business at the Subject Premises as a nominee. No doubt, Lam Chun Kwong must have been given the occupation and possession of the Subject Premises. Otherwise, it was impossible for Lam Chun Kwong to run the business. The Applicant cited the Cheung Yu Hon v Luk Ngai Lin Irene and Luk Ngai Si Icy HCA 7588 of 2000 10th August 2001, Recorder Leong, S.C. to support its view.

(2) The Applicant pointed out that in September 1999, Lam Chun Kwong was not yet on the Inland Revenue Department record as the business proprietor. The argument that a waiver had been granted by the predecessor-in-title did not exist. Moreover, at the time when the second tenancy agreement was signed, Ms Leung Lai Ming, one of the two witnesses of the Respondent, no longer worked for the predecessor-in-title. There is, therefore, no proof that the said waiver continued in the second tenancy.

(3) Under the tenancy agreement between the Respondent and predecessor-in-title, any waiver granted should be given in writing. The Respondent's so-called waiver was apparently verbal in nature.

(4) By the judgement laid down in Official Custodian for Charities v Parway Estates Developments Ltd. [1985] Ch.151 (C.A.), the landlord is not obliged to check the business registration records to ascertain whether the Respondent is registered as the business proprietor. In the absence of knowledge concerning Lam Chun Kwong's nominee status, it is unreasonable to infer that the Applicant had given a waiver.

(5) The Applicant disagreed that the acceptance of rent after the withdrawal from the proceedings of LDPE1283 of 2003 constituted a waiver of the breach, citing: -

(a) Halsbury's Laws of England Fourth Edition (Re-issue), Vol.27 (1) Para.510 which says "A demand made by the landlord or his agent with knowledge of the breach for rent due after the cause of forfeiture operates as a waiver. Where money is accepted, it is a question of fact whether it is tendered and accepted as rent, ..............................Forfeiture is not waived by acceptance of rent accrued due before the cause of forfeiture unless at the same time the landlord recognises the tenancy as subsisting, as for example, where he describes the tenant as such in the receipt."

(b) Evans v Enever [1920] 2 K.B. 315 which says that " .........notwithstanding that the rent which was paid to the plaintiff in the first action had accrued due subsequently to the date of the adjudication, its acceptance by the plaintiff did not operate as a waiver of the forfeiture."

(c) Pacific Place Holdings Limited v Sealand Housing Corporation, HCA 3314 of 1999, 29th September, Maria Yuen J. which says that "However, it is clear that in the present case, the rent which was being claimed was rent in arrears and therefore there was no question of any waiver of those rent in arrears by virtue of the forfeiture"

(d) Hong Kong Tenancy Law, Malcolm Merry, 4th Edition, P.151.

(6) The Applicant did not consider the grant of relief justified, as the breach did not cease upon request in November 2003. Its warning letter issued which set out the requirement for compliance was not complied with on its expiry.

The Tribunal's View

6.The Tribunal does not dismiss the need for a nominee given the benefits that the Respondent is capable of deriving from such arrangement. Such arrangement, however, should not be essential as there is also the disadvantage of having an individual as the business proprietor and the advantage of running a business not by way of an individual. Therefore, the Tribunal has reservation that it is a trade practice of having a nominee.

7.There is also the doubt whether Lam Chun Kwong, except for the purpose of filing tax returns and on the Inland Revenue Department record as the business proprietor, was just a puppet and not the real business proprietor. He cannot be a pure puppet as in one way or another he is liable to somebody and for something legally once he has been registered as the business proprietor. By the way, the Respondent has failed to adduce that Lam has not been playing the role of the latter except the evidence given by Chan Wang Kin whose evidence the Tribunal has reservation to accept in entirety. Given the onerous responsibilities of the business proprietor operating a commercial sauna house, Lam's role must be real but not nominal. As such, he must have been given the right of and in actual occupation, use and possession of the Subject Premises. Otherwise, there must be problems in his discharge of responsibilities as a registered business proprietor.

8.The Tribunal is also not convinced that Ms Yeung Lai Ming was senior enough in the corporate hierarchy to represent the predecessor-in-title. She even forgot her post title and made no mention as to whether she was authorised to give the consent. The Respondent must adduce evidence to show that the authority was there for Ms. Yeung to waive the requirement under the tenancy conditions. Alternatively, Ms Yeung might have handled Chan Wang Kin's inquiry in a casual manner by giving Chan the simple answer that the landlord did not care whether the tenant was the business proprietor, in order to get rid of further trouble from Chan. Since the Tribunal finds it that the waiver was not there in September 1999, it is unnecessary to bother with the arguments of whether or not the "no waiver (except in writing)" provision in the tenancy conditions operates and whether or not the Applicant inherits the liability of waiver from the predecessor-in-title.

9.As to the withdrawal from the proceedings of LDPE 1283 of 2003, the Tribunal does not find that a waiver has therefore been established. The application for LDPE 1283 of 2003 was taken out on 15th October 2003, i.e. shortly after the issuance of the HCA 2345/2003 judgment on 22nd September 2003, with its withdrawal on 13th November 2003 and the despatch of the warning letter to the Respondent on the same day. The withdrawal was made on good ground, i.e. due to the Applicant's non- compliance with the provision in S. 58 of the Conveyancing and Property Ordinance, Cap. 219, and there has been no delay in the series of action taken since the issuance of the HCA 2345/2003 judgment. The Applicant's intention not to waive the breach is quite obvious. The acceptance of money from the Respondent does not constitute a waiver as firstly the Applicant was entitled to receipt of rent before forfeiture and secondly, there was no indication from the Applicant that the money accepted after forfeiture was accepted as rent (receipt for mesne profits on Page 228, Bundle B refers). Some relevant views are contained in the authorities cited by the Applicant's counsel. The Tribunal accepts the explanation therein given.

10.Going back to the warning letter issued on 13th November 2003, the Tribunal does not find it entirely specific concerning the nature of breach. The Applicant advised the Tribunal that the Respondent did part with the possession but not subletting etc. The Tribunal also finds that the period of 14 days imposed for purging the breach may not be reasonable. The Applicant was seemingly aware of this and had invited the Respondent to revert in the event of a longer time being required. The Respondent failed to comply with the requirement to remedy the breach within the 14 days nor did it revert to the Applicant for a longer time, and consequently, the Applicant's application to the Tribunal.

11.The Tribunal does not find it appropriate to base on the period for compliance set down in the warning letter for institution of legal action. S. 58 of the Conveyancing and Property Ordinance, Cap 219 provides that " A right of re-entry...........shall not be enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice (a) specifying the particular breach complained of and.............. and the lessee fails, within a reasonable time thereafter, to remedy the breach...." What is needed to establish under S.58 is whether the breach has been rectified within a reasonable time instead of whether the time set down for compliance by the Applicant in its warning letter has been complied with. In the present case, the breach was rectified on 6th January 2004 by the removal of Lam Chun Kwong's name from the Inland Revenue Department business registration record and substituted it by the name of the Respondent as the business proprietor. The crux of the issue is, therefore, whether it is within a reasonable time for the Respondent to remedy the breach on 6th January 2004 having regard to the fact that a warning letter was issued on 13th November 2003. In this respect, the Tribunal was not given the clear arguments from both parties as to whether the breach was purged within a reasonable time and despite being inquired on the procedure to rectify, no details were given particularly on the steps that needed to be taken before effecting the change of the proprietor's name. The Tribunal in this regard considers that the onus of proof as to whether it is indeed unreasonable rests with the Applicant. In the absence of relevant information and proof, the Tribunal has no alternative but to accept that it is not unreasonable.

12.Of course, changing the name of the proprietor back to the Respondent is by no means satisfactory to the Applicant as the Massage Establishment and Commercial Bathhouse licences remain held not in the name of the Respondent (unsure whether it still holds true now). Unfortunately (or fortunately to the Respondent), this has not been mentioned and not the requirement set down in the Applicant's application. The Tribunal therefore does not find the need to bother with these two licences.

13.Nearer the time of issuing this judgement, the two counsels sent in further evidence and supplementary submissions to this Tribunal. No doubt, these documents are of assistance to the Tribunal but should be given in open court. The Tribunal supposes that the two counsels are fully aware of this court requirement. Though these documents are of assistance, the Tribunal has not taken them into account in arriving at the decision.

Costs of Application

14.The Applicant was not erred to submit the application on 1st Dec. 2003. The Tribunal does consider that the Respondent's nominee arrangement amounts to a breach of Clause 4(12) of the tenancy conditions. The application is nevertheless unsuccessful because the breach is considered rectified within a reasonable time. In this premise, the Tribunal considers that the costs of application be to the Respondent.

15.Order

The Tribunal hereby orders that the application dated 1st Dec.2003 be dismissed and that the costs of application be to the Respondent, which if not agreed, to be taxed at District Court Scale.

Representation:

Mr. Joseph Vaughan instructed by M/S Gallant Y.T. Ho & Co., for the Applicant, present

Mr. Danny NG instructed by M/S George Tung, Jimmy Ng & Valent Tse, for the Respondent, present