Hong Kong Investment Co Ltd v. Dawstan Ltd and Another
Read the full judgment text of HCA 9210/1981 on BabelCite. This High Court CFI judgment.
1. The plaintiff is the owner of premises known as second floor, 47B Shouson Hill Road, Hong Kong ("the premises").
Cited by 2 cases
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HCA009210/1981
BETWEEN:
Coram: Roberts, C.J. Date: 11th & 12th May, and 1st June, 1983. ---------------- JUDGMENT ---------------- [Retrospective ratification of Tenancy subject to Part II of Landlord and tenant Ordinance, Cap. 7, cannot remove protection of that Part.] Preliminary 1. The plaintiff is the owner of premises known as second floor, 47B Shouson Hill Road, Hong Kong ("the premises"). 2. It is not in dispute that, at all relevant times, the premises were let for domestic purposes and were so used. 3. The premises form part of a new building, the occupation permit in respect of which was issued after 16th August, 1945. It is common ground that Part I of the Landlord and Tenant Consolidation Ordinance ("Cap. 7") never applied to the premises, but that Part II of Cap.7 was applicable at certain times and is so now. 4. The plaintiff and the first defendant ("D.1") entered an agreement in writing ("the 1975 tenancy") on the 28th June, 1975, whereby the plaintiff let the premises to D 1 for a term of three years, from 1st July, 1975, at a monthly rent of $4,500 per month, payable monthly in advance. 5. The 1975 tenancy contained a clause which conferred on D.1 an option to renew for a further term of three years - i.e. from 1st July, 1978 to 30th June, 1981, at the increased rent of $5,000 per month, exclusive of rates, but otherwise on the same terms as the 1975 tenancy. 6. On 9th May, 1978 D.1 gave notice to the plaintiff that he wished to exercise his option to renew the 1975 tenancy for another three years. The 1977 Tenancy 7. On 3rd October, 1977, D.1 let the whole of the premises to the second defendant ("D.2") for a term of three years, from 1st October, 1977 to 30th September, 1980 at a monthly rent of $7,500 per month ("the 1977 tenancy"). 8. The plaintiff asserts that D.1 duly delivered vacant possession of the premises, in pursuance of the 1977 tenancy, to D.2 on 1st October, 1977. This is confirmed by D.2 and I accept it. 9. D.2 has remained in occupation of the premises, since the expiry of the 1977 tenancy on 30th September 1980, by virtue of the provisions of Part II of Cap.7. Purported ratification of 1977 tenancy The preamble to the 1977 tenancy is worded as follows -
10. The 1975 agreement, under which D.1 took possession of the premises, contained no covenant against assignment or subletting. The 1977 tenancy, therefore, in the absence of the phrase "as agent for Hong Kong Investment Company Limited (hereinafter called 'the landlord')" would have operated as a normal sub-lease by a principal tenant to a sub-tenant. It is this phrase which has given rise to this action. 11. A Writ and Statement of Claim, dated 16th December, 1981, were served on D.1 and D.2 on 13th January, 1982. Paragraph 11 of the Statement of Claim contains a purported ratification by the plaintiff of the authority of D.1 to let the premises to D.2 on 3rd October, 1977, and asserts that D.1 had surrendered and delivered vacant possession of the premises to D.2, who thus became the new tenant of the plaintiff, D.1's tenancy under the 1975 tenancy being terminated as from 1st October. 1977. Relief sought 12. The plaintiff seeks a declaration that the tenancy of D.1 was determined, as from 1st October, 1977, upon the ratification by it of the tenancy granted on its behalf by D.1 to D.2 in 1977. 13. The plaintiff also claims the following supplementary relief, which is dependent upon it obtaining the declaration sought -
14. D.1 entered a defence and counterclaim, dated 19th June, 1982. At the outset of the trial, however, D.1's counsel informed me that he did not intend to pursue the counterclaim, which I formally dismissed. 15. D.1, therefore, merely seeks a declaration that it is entitled to collect rent from D. 2 at the rate agreed between it and D.2. 16. D.2 admits that he became lessee of the premises under the 1977 tenancy, as from 1st October, 1977, and that he is still in possession. He claims that his tenancy is protected by Part II of Cap.7 He seeks no relief. Evidence 17. No witnesses were called by any of the parties. I am thus obliged to decide this matter on the basis of the pleadings and of the two bundles of agreed documents, which were submitted by the plaintiff and D.2. I note that the documents, numbered 4, 15 and 16 in D.2's bundle of documents, were not agreed to be admissible and I have therefore ignored them in reaching my conclusions. 18. The attitude of D.2 was that he is a tenant protected by Part II of Cap.7, whether his landlord is the plaintiff or D.1, and that he has no interest in the outcome of the main action, so long as it is not disputed that he is so protected. 19. Having received a demand for rent from the plaintiff in January 1982, D.2, in order to secure his position, took out an interpleader summons, on 9th February, 1982, under which he has paid the rent due from him since 1st February, 1982, into court. Application of Part II of Cap. 7 20. The effect of Part II of Cap.7, on the 1975 and 1977 tenancies, is complicated by amendments to it during the relevant period. 21. When the 1975 tenancy was created, on 28th June, 1975, it became subject to the protection of Part II. 22. However, the Landlord and Tenant Consolidation (Amendment No.4) Ordinance, 1975 (Ord. 93/75), which came into force on 19th December, 1975, inserted the following new provision (Section 50(6)(k)) in the list of exemptions from Part II -
23. Thus, the 1975 tenancy, since the tenant under it was a corporation, lost the protection of Part II on 19th December, 1975. Similarly, the 1977 tenancy was not protected when granted in October, 1977. 24. However, by the Landlord and Tenant (Consolidation) (Amendment) Ordinance 1980 (Ord 6/80) which came into operation, so far as this provision is concerned, as from 18th December, 1979, section 50(6) (k) was repealed, thus re-conferring the protection of Part II upon appropriate leases made to corporations. So both the 1975 tenancy and the 1977 tenancy became protected by Part II from that date and have remained so ever since. 25. Section 50 of Cap. 7 provides that, where the contractual period of a tenancy, which is subject to Part II, expires by effluxion of time the tenancy shall not come to an end during the continuance in force of Part II. 26. By section 53(1) a tenancy which continues in force by virtue of section 50 shall come to an end when -
27. It is not argued that paragraphs (b) and (c) could have any application. Plaintiff's case 28. The plaintiff's case can be summarised in the following way. 29. The plaintiff is entitled, within a reasonable time of discovering that the premises were purported to have been let on its behalf by D.1 to D.2,to ratify that act of agency. There is ample authority that an ignorant principal, in whose name an act is done, may ratify that act subsequently, even if the agent had no authority to act for him at all - for. example, see In re Tiedemann and Ledermann Freres (1) and Bolton Partners v. Lambert(2) 30. The plaintiff asserts that he did so ratify, by virtue of paragraph 9 of his Statement of Claim. It was not disputed that a valid ratification can be effected in such a manner. 31. By reason of that ratification, the plaintiff argues that the 1975 tenancy was ended, and vacant possession of the premises was delivered up by D.1 to D.2. 32. If, which the plaintiff did not admit, the 1975 tenancy were protected by Part II, there was a delivery of vacant possession within the meaning of section 53(1)(a). 33. If the 1975 tenancy was not so protected, there had been an implied surrender by operation of law, since D.1, by purporting to grant another tenancy of premises already subject to an earlier tenancy, had acted in a manner inconsistent with the continuation of the 1975 tenancy. 34. I note that the plaintiff did not plead estoppel against D.1. NOr did it rely upon it during argument. I have therefore not considered what effect, if any, this doctrine might have had. Defendant's case 35. D. 1 contends that, whatever the previous history of Cap.7 may have been, the 1975 tenancy was in fact still in force on 19th December, 1979 since it is agreed that rent under it was being proffered by D.1, and accepted by the plaintiff, until 31st January, 1981. And from 19th December, 1979, it has been a tenancy which is protected by Part II and can only come to an end, so long as Part II exists, in one of the events set out in section 53(1). 36. It is not argued by the plaintiff that there has been any such delivery of possession by D.1 since 19th December, 1979 as would take the tenancy outside Part II only that the ratification of the 1977 tenancy retrospectively ended the 1975 tenancy, notwithstanding that it had continued to enjoy ten protection of Part II since 19th December, 1979. 37. I was, in this context, referred to Capital Land Investment Co. Ltd v. Madam So Ming Kai (3), in which the Full Court found that the term "vacant possession", for the purpose of the then equivalent section to section 53(1)(a) in the earlier Ordinance, meant actual physical delivery by the tenant to the landlord of premises which were emptied of the tenant's chattels. 38. It seems to me that a strict test of this nature should be required to be satisfied, in deciding whether a tenancy loses the protection of Part II. Otherwise it could be said that, wherever there is an assignment or sublease of protected premises, vacant possession has been delivered, if that phrase merely means that the principal tenant vacates and delivers possession to someone else. The delivery of possession must surely be to the landlord, a condition which is not fulfilled in this instance. 39. I am satisfied, therefore, that the 1975 tenancy remains in force and subject to Part II, unless the plaintiff can establish that-
Effect of 1977 tenancy 40. The plaintiff concedes that its ratification of the 1977 tenancy can only be effective, so as to give rise to a tenancy between itself and D.2, if the 1975 tenancy has ceased to have effect and has been replaced by the 1977 tenancy. 41. It contends, therefore, that there was a determination of the 1975 tenancy in 1977 by operation of law. In support of this contention, it refers to Rule 128 on page 429 of the 17th Edition of Hill & Redman's Law of Landlord and Tenant ("Redman") which states that a "surrender by operation of law occurs when the parties act in a way which is inconsistent with the continuation of that tenancy." 42. Such a surrender occurs when one patty does, and the other assents to, an act which is inconsistent with the continuance of the tenancy. For instance, delivery of possession by a tenant to his landlord and the latter's acceptance of possession effect a surrender. 43. At para. 376 of Redman it is said that the grant by the lessor of a new lease to a third person, with the consent of the lessee, operates as a surrender of the old lease, provided that the old lessee gives up possession to the new lessee at the time of the grant of the new lease. The same effect is produced if the landlord, with the consent of the tenant, accepts another person as his tenant. 44. If the ratification is effective, so as to place '"the plaintiff in the position of lessor of the 1977 tenancy, the only implication which can be drawn, from D.1's assertion that he was acting as agent for the plaintiff is, in the absence of any evidence to the contrary, that an end was intended to be put to the 1975 tenancy. Because the 1977 tenancy, effective from 1st October, 1977, granted by the plaintiff to D.2, is necessarily inconsistent with the 1975 tenancy granted to D.1, which was still in effect in 1977 and would remain so, if the option were exercised, until 1981 (discounting the effect of Part 11 of Cap.7). 45. At common law (see para. 373 of Redman), an implied surrender by operation of law occurs either when both parties assent to an act which is inconsistent with the continuation of a lease or where there s delivery of possession by the tenant to the landlord, coupled with his acceptance thereof. 46. Either circumstance will amount to a surrender by operation of law; both are not required. 47. So I find that D.1 had performed an act (the granting of the 1977 lease), to which the plaintiff had assented, by virtue of his ratification, such an act being inconsistent with the continuation of the 1975 tenancy. So there was an implied surrender in law of that tenancy. Ratification 48. The case therefore turns on whether the plaintiff's purported ratification is effective in law. 49. The general principle governing ratification is set out in Article 14 of the 14th Edition of Bowstead on Agency -
50. The basis for this doctrine is that the third party is getting exactly what he bargained for and cannot be prejudiced. The principal is being bound by a contract he chooses to adopt. The agent, by purporting to act on behalf of the principal, is making an offer to the principal to act as his agent, which the principal accepts by ratifying. 51. Authority, if such be needed, that the general principles of ratification apply to the landlord and tenant relationship can be found in Whitehead v. Taylor (4) in which it was held that a landlord could ratify a distress warrant executed without his authority against his tenant. 52. A ratification is not permitted if its effect would be to prejudice a third party unfairly. In this instance, however, it would not have such an effect, as D.2 himself agrees. 53. It is settled that the ratification of a contract must take place within a reasonable time after the contract is made, see Portuguese Consolidated Copper Mines Ltd.(5) in which it was said (at p.34) that the standard of reasonableness must depend upon the circumstances of the case. 54. Was the 1977 tenancy ratified within a reasonable time, the lease being granted on 3rd October, 1977 and the act of ratification being 13th January, 1982, when the Statement of Claim was served on D.1? Was ratification within a reasonable time? 55. The gap between the act sought to be ratified and the date on which the ratification was notified to D.1 was over 4¾ Years. The interval between the first refusal of rent by the plaintiff and such notification was about a year. 56. However, time does not begin to run until the principal knows that there has been an act of agency and so is in a position to decide whether or not to ratify it. 57. The main difficulty in deciding whether or not the interval between the plaintiff's knowledge and its act of ratification is reasonable is that there is no evidence as to when it first knew of the presence in the 1977 tenancy of the unusual preamble. 58. It can fairly be inferred, ford the decision of the plaintiff not to accept any more rent from D.1 after the end of January 1981, that it must have realized at that stage that D.2 was in possession of the premises and that this would probably be in pursuance of a sub-lease. 59. It may be that, when the plaintiff refused to accept rent after January 1981, it was attempting to preserve its rights in case there had been a sub-lease at a time when such an action would have entitled it to recover possession under Part II. But suspicion, or even knowledge, of the existence of a sub-lease does not mean that the plaintiff was likely to have known of the very unusual preamble to the 1977 tenancy. 60. I judge that it is for the plaintiff to satisfy me that it exercised its ratification within a reasonable time, bearing in mind that delay simpliciter should not be a bar to relief if it can be shown that neither D.1 nor D.2, as a result of the delay, was placed in a worse position than he would have been in without any delay - see NG Kee v. Attorney General (6). 61. Because of this burden, 1 think that I must take that date which I think is the earliest of the likely dates - i.e. early in January 1981, as the time at which, on balance, the plaintiff came to know of the act of agency. 62. To what extent can it be said that the various parties might have been prejudiced by a twelve months interval? The plaintiff itself is not even if it were, it could hardly complain, since the interval was of its own choosing. 63. Nor is D.2 prejudiced. He is secure in his occupation of the premises, at the rent payable under the 1977 tenancy, plus any variations permitted by law. He has safeguarded himself by payment into court of the rent due from him, until it is decided whether the plaintiff or is his landlord. 64. Can D.1 be said to have been unreasonably prejudiced by such delay? There was no evidence that he has been, other than that, if he succeeds, he would have been deprived of receiving Shi rent for over a year by reason of the plaintiff's delay for which he could be compensated by an appropriate award of interest. 65. As against this, if the plaintiff is right, D.1 had been wrongly collecting rent, which should have accrued to the plaintiff, for 3 years and 4 months. The interval between knowledge and ratification was less than a third of this. 66. On balance, and conscious that this is really an exercise of discretion, rather than a finding of fact based on evidence, I conclude that the act of ratification was exercised within a reasonable time. Capacity 67. It was argued for D.1 that there can only be ratification if the purported principal was competent at the time of the act, and at the time of ratification, to be the principal of the person doing the act. Support for this proposition was found in, Firth v., Staines (7). 68. In that case, Wright, J., delivering the judgment of the Divisional Court of the Queen's Bench, set out three conditions which must be satisfied, to constitute a valid ratification -
69. It was conceded that the first two conditions were met but argued that the third had not on the ground that the principal was not legally capable of doing the act himself. 70. It is true that the principal could not himself have let the premises to D.2 during the currency of D.1's lease. But he was able to do so if D.1 agreed to the surrender of the 1975 tenancy, as I have found that D.1 did, by operation of law. 71. I find that there is no substance in the objection that the plaintiff was not capable in law of ratifying the grant of the 1977 tenancy to D.2. Conclusion 72. My findings are as follows -
(1) [1981] 2 Q. B. 66. (2) [1880] 41 Ch. D 295. (3) [1973] H.K.L.R. 371. (3) [1973] H.K.L.R. 371. (4) [1839]10 A. & E. 210 (5) [1890] 45 Ch.D. 16 (6) [1977] H.K.L.R. 587. (7) [1897] 2 Q.B. 70. Representation: E. Chan (Iu,Lai & Li) for Plaintiff W. Chan (Michael Cheuk & Co.) for 1st Defendant Y.C. Mok (Wilkinson & Grist) for 2nd Defendant. |
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