Dow Corning Asia Ltd v. The Hong Kong Land Co Ltd

LDLA000009/1982

Landlord and tenant - Part IV - application by tenant for leave to discontinue application for new tenancy - quantum of rent to be paid during period of statutory continuance - whether notice of opposition survives withdrawal of application for new tenancy in relation to matters raised therein other than grant of new tenancy - extent of Tribunal's discretion to impose terms on tenant when granting leave to withdraw - Held: 1. Statutory backdating of new rent payable for period of statutory continuance only arises where order for new tenancy made whether or not new tenancy subsequently accepted or rejected; 2. Whether or not jurisdiction to impose payment of fair market rent for period of statutory continuance where new tenancy not granted, as a condition of withdrawal on the instant facts no such condition imposed - Sections 119K, 119M, 119N and 119R Landlord and Tenant (Consolidation) Ordinance, Cap. 7.

IN THE LANDS TRIBUNAL OF HONG KONG

Coram: TRIBUNAL : His Honour Judge Cruden, Presiding Officer and M. W. Phillips, Esq., Member.

Date: 12th day of April, 1983

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JUDGMENT

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1. The applicant tenant applied on the 30th day of April 1982 to the Lands Tribunal pursuant to Section 117(1) of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 for the grant from the respondent landlord of a new tenancy in respect of the residential premises known as Flat CD19, Cliffview Mansion, 21-25 Conduit Road, Hong Kong. On the 20th day of May 1982 the respondent filed a Notice of Opposition pursuant to Sections 1191 and 119I indicating that it did not oppose the grant of a new tenancy but only disputed the 3 years duration and new rent of $30,000 sought by the applicant.

2. On the 17th day of February, 1983 the respondent applied, pursuant to Rule 13 of the Lands Tribunal Rules, Cap. 17 to set the application down for hearing. On the 24th day of February 1983 the Tribunal agreed to the applicant's solicitors request to defer until the first week in March 1983, a decision as to when the application would be heard. On the 3rd day of March 1983 the applicant filed an application, pursuant to Rule 25(2)(b), to withdraw the application for a new tenancy. The respondent filed a notice of change of solicitors on the 4th day of March 1983 together with a notice of objection to the application to withdraw. The application to withdraw was set down for hearing on the 22nd day of March 1983.

3. The applicant has now called evidence in support of the application to withdraw and we have heard submissions from both parties. Rule 25 provides that in the absence of consent an application shall not:

" ... be withdrawn except by leave of the Tribunal."

Here the issue whether the applicant should be granted leave to withdraw unconditionally has been strongly contested. No question of consent therefore arises and the applicant requires the Tribunal's leave before the application can be withdrawn.

4. The applicant called one of its officers, Mr. P. B. Abernethy, who stated that the suit premises were occupied by its Hong Kong managing director, Mr. R. Bass, who had been employed by the applicant for 25 years and has resided in Hong Kong for the past 3 years. Mr. Abernethy stated that when the applica-tion for a new tenancy was filed on the 20th day of May 1982 no major changes to the applicant's organisation in the Far East were contemplated. However, in late February 1983 a decision was made at the applicant's headquarters in Michigan, United States of America, to transfer elements of the Hong Kong branch, including the office of Managing Director, to Australia. Other expatriate staff located in Hong Kong were also affecfed by the move to Australia. Mr. Abernethy stated that instead of moving to Australia, Mr. Bass had opted to retire and would be leaving Hong Kong. As a consequence of these changes the applicant no longer required the suit premises or sought a new tenancy. Mr. Abernethy emphasised that when the applicant originally applied for a new tenancy none of these changes had been decided upon or were known to the Hong Kong branch. We accept Mr. Abernethy's evidence on these points.

5. On those facts, the applicant submitted that the application to withdraw arose solely because of a change of circumstances and was made in good faith. In any event, it submitted, it was contrary to principle to compel a party to continue an application when it wished to discontinue. It was further submitted that the requirement to obtain leave was to pro-tect a respondent on costs and other incidental matters but was not to enable the Tribunal to direct an unwilling applicant to continue to pursue a substantive application.

6. The applicant also submitted that if  leave were granted then its liability to pay rent since the termination of the current tenancy would be at the current rate of $12,705 per month exclusive of rates. The applicant submitted that the Tribunal only had power to fix a new rent under Section 119K where an order was made for the grant of a new tenancy. On this view the provisions of Section 119M(4), which back-date the new rent to the date of the expiration of the contractual tenancy, only apply where either a new tenancy has been granted and accepted or where a new tenancy has been granted but thereafter rejected by the tenant.

7. The applicant finally submitted that upon leave to withdraw being granted not only did the application lapse but the respondent's notice of opposition also necessarily lapsed. Accordingly, there simply was no applica-tion before the Tribunal in relation to which any rent for the interim period could be fixed. It was recognised that the position in England was quite different for Section 24A of the Landlord and Tenant Act 1954 creates a separate right in favour of a landlord, under which he may apply for an interim rent, whatever the position of the substantive application. The application for interim rent in England may be brought by the landlord whether or not the substantive application has been brought by the tenant or the landlord and whether or not the substantive application is ultimately granted, dismissed or withdrawn. Section 24A provides:

It is therefore clear that in England where a tenant applies for a new tenancy but subsequently withdraws or discontinues, the landlord nevertheless has the independent right under Section 24A to apply for an interim rent to be fixed for the period of statutory continuance.

8. The respondent was prepared to consent to the application for a new tenancy being withdrawn, provided the applicant was prepared to pay the fair market rent from the 1st day of July 1982, when the current tenancy was terminated under Part IV, until the applicant vacated 3 months after the date of the order. A draft order in those terms had been prepared by the respondent and was produced at the hearing. We will refer to some of the draft order's terms for they are to some extent reflected in the respondent's submission that the respondent was entitled to receive from the applicant the fair market rent of the suit premises for the interim period:

"... the Applicant's application for renewal of tenancy be withdrawn and that the proceedings be continued for the purpose of the determination of the fair market rent pursuant to Section 119K of the Landlord and Tenant (Con-solidation) Ordinance for the period from 1st July 1982 to the expiration of three months from the date of the order ...

9. The respondent informed the Tribunal that it regarded the present application to withdraw as of general importance. For it was also the respondent in a number of similar applications, yet to be determined, where an applicant after applying for a new tenancy was now many months later, seeking to withdraw the application but was only willing to pay the old rent for the interim period of statutory continuance.

10. We were reminded us that it was the respondent and not the applicant, who took the first step under Fart IV by issuing on the 29th day of December 1981 the statutory notice under Section 119(1) being Form CR101, informing the applicant that it would not oppose the grant of a new tenancy and of other matters provided for under that Section. After the subsequent statutory notices, being Forms CR102 and CR105, were served and the times limited there under had expired, the applicant filed the present application for a new tenancy.

11. The respondent submitted that its Notice of Opposition filed in reply was in the nature of a counter-claim rather than a defence. The notice of opposition did not oppose the grant of the new tenancy sought but had counter and different proposals in relation to other issues of duration and rent. It was submitted that the notice of opposition was not parasitic to the notice of application disappearing with the withdrawal of the application, but survived independently as does a counter-claim in the analagous situation of a civil action, in relation to the remaining disputed issue, namely the rent payable for the interim period.

12. Mr. Sin for the respondent very helpfully referred us to some English authorities dealing with withdrawals under their Landlord and Tenant Act 1954 and also with the nature of an application for interim rent under their Section 24A in relation to the substantive application in the same proceedings. Citing the judgment of Graham J., in Covell Matthews & Partners v. French Wools Ltd. (1977) 2 All E. R. 591 the respondent conceded that an applicant should be allowed to discontinue litigation. However, this was always subject to the respondent not suffering injustice by being deprived of an advantage already gained:

"The principles to be culled from these cases are, in my judgment, that the court will, normally at any rate, allow a plaintiff to discontinue if he wants to, provided no injustice will be caused to the defendant. It is not desirable that a plaintiff should be compelled to litigate against his will. The court should therefore grant leave, if it can without injustice to the defendant, but in doing so should be careful to see that the defendant is not deprived of some advantage which he has already gained in the litigation and should be ready to grant him adequate protection to ensure that any advantage he has gained is preserved."

13. In that case the tenant had applied by way of originating summons for a new tenancy under the Landlord and Tenant Act 1954, the hearing of which was successively postponed while the parties attempted to negotiate  the terms of a new tenancy. Later the tenant applied to the Court to withdraw the application for the new tenancy. The landlord alleged that the negotiations had culminated in an agreement between the parties for a new tenancy. Accordingly the landlord independently issued a separate action   for specific performance of the alleged agreement. The landlord opposed the withdrawal submitting that the application to withdraw should be adjourned until the action had been determined. Graham J. thought that was one alternative open to him but preferred to dispose finally of the application to withdraw. However, to protect the landlord's position in the action for specific performance in granting leave to withdraw, he put the tenant on terms. These included the term that the withdrawal was without prejudice to the parties rights in the action and the tenant was also prohibited from making any fresh application for a new tenancy under the Landlord and Tenant Act.

14. Later in Michael Kramer & Co. v. Airways Pension Fund Trustees Ltd. (1976) 246 E.G. L. R. 911 the Court of Appeal considered whether upon a discontinuance by tenants of an application for a new tenancy under the Landlord and Tenant Act 1954, the landlord's application for interim rent under Section 24A survived. The tenants submitted that the application for interim rent was parasitic to the application for a new tenancy and lasped with the discontinuance of the tenants claim. The landlord submitted that the application for interim rent was in the nature of a counter-claim and survived the discontinuance.

15. The proceedings at first instance had been in the Westminster County Court and there were a number of procedural complications not relevant for our purposes including the absence of any rule in the County Court requiring leave to discontinue. However, the Court of Appeal was in no doubt that the application for interim rent under Section 24A survived the discontinuance. In relation to the English legislation, Stephenson L. J. made these observations:

"It is perhaps to be noted that, unlike many a counterclaim, although it relates to the same premises as the application, it really relates to a separate matter. The tenants are applying for a new tenancy; the landlords are counter-applying for an increase of the rent payable under the continued old tenancy ... The landlords' application of April 30 is, in my judgment, not parasitic to the tenants' application of July 25 1974, but a wholly distinct claim for independent relief. It is a claim distinct from the tenants' proceedings for relief independent of  those pro-ceedings. It does not drop or fall with the discontinuance by the tenants of their own application, but it survives. It must be treated separately, and it cannot be discon-tinued simply by the discontinuance of the tenants' pro-ceedings. However described, and whatever its form, the landlords' application is in substance an originating application. However labelled, it originates, or starts, or initiates a claim, in some sense countering the tenants' application though affording no defence to it, and has its own distinct and separate life just as much as if it had been initiated by what was in form an originating summons or application or had been ordered to stand as a counter-claim, which in substance it was. By making the applica-tion in the form in which it was made in the course of the tenants' proceedings for discontinuance, instead of by a differently headed and worded application alongside those proceedings, the landlords have not turned it into a perpetual parasite. It can be detached and stand alone in its present form without any alteration of its heading or its wording. It would be unreasonable and unjust if by abandoning your attack you could compel your opponent to call off his counterclaim, particularly if its is mounted to attain an objective of its own. I do not find myself compelled by any arguments, rules or authority put before us to treat this counter-attack, if it is correctly so described, as called off by the tenants' abandoning their attack. To do so would be, I think, to disregard the realities of these two applications They are quite distinct in the relief which they claim. The one is, in the form in which it has been made, and understandably made, independent enough of the other to survive its discontinuance."

16. The respondent also referred to 24 Atkin's Encyclopaedia of Court Forms in Civil Proceedings (2nd Ed.) (1981 Issue) 65 which comments on the English procedure in relation to interim rent under the Landlord and Tenant Act 1954 as follows:

"In the High Court, but not in the county court, leave to  discontinue the action is required. On giving leave, the court may direct that the interim rent application stand as a counter-claim, so that it may continue independently of the action. In the county court the claim for interim rent can be made by application in the tenant's action or by originating application. If there appears to be any possibility of the tenant discontinuing his claim for a new lease the latter course would be preferable as the originating application will survive."

17. On the basis of those authorities the respondent invited us to hold that, even if the application for a new tenancy were withdrawn, the notice of opposition, to the extent that it raised the issue of the fair market rent, survived. The Tribunal, it was submitted, had jurisdiction to approach the respondent's claim for a fair market rent to be fixed for the interim period on a twofold basis. First, it could determine that rent under Section 119K pursuant to the respondent's surviving notice of opposition. Secondly and in the alternative, it could allow the application for a new tenancy to be withdrawn subject to imposing a term on the applicant that it pay the respondent the fair market rent for the premises during the interim period. The respondent submitted that an interim rent could be fixed under Section 119K by virtue of the provisions of Section 119M(4). Section 119M(4), it was submitted, is the equivalent Hong Kong provision to the English Section 24A

18. We accept that Section 119M(4) does in some respects correspond with Section 24A. The scheme of the Hong Kong provision, however, is to remove the necessity for any independent application, analagous to Section 24A, by simply providing that the new rent is backdated. The landlord upon the grant of a new tenancy, automatically enjoys the benefit of the new rent being backdated even though the new tenancy is postdated. The landlord does not have to commence a separate application for that purpose. No doubt it is for that very reason that, unlike in England, there is no express legislative machinery to apply for the fixing of an interim rent.

19. In England initially the old rent continued until the new tenancy commenced and that this led to tenants delaying, to their financial advantage, the disposal of applications for new tenancies. This placed landlords in an unfair position and it was to redress this imbalance that Section 24A was subsequently enacted, enabling landlords to apply for a rent higher than the old rent during the inevitably lengthy interim period. Our Section 119M has attacked that initial weakness of the English legislation without the necessity of the landlord having to commence any separate application. We have in earlier judgments referred to some of these differences - Dunlop Hong Kong Ltd. v. Strawberry Hill Development Ltd. L. T. No. 42/82 and Towers Perrin Forster & Crosby v. Suvindra Ltd. L. T. No. 57/82.

20. However, what has now arisen before us for the first time is the different position where the tenant seeks to withdraw before an order for a new tenancy is made. In those circumstances does the landlord enjoy a similar protection? Certainly there is cogency in the respondent's submissions that it may be unfair for the old rent always to continue. However, we are a creature of statute and it is to our statutory powers and in particular to the provisions of Part IV that we must look before that question can be answered:

21. Assuming, without deciding, that the respondent's notice of opposition survives a withdrawal of the application for a new tenancy, it seems to us that the provisions of Section 119M are fatal to the respondent's first submission. For we accept the applicant's submission that under Part IV it is abundantly clear that an order granting a new tenancy is a condition precedent to the statutory backdating of the new rent under the two different circumstances set out in Section 119M. Where an application for a new tenancy is withdrawn before any order thereon is made, there simply is no order for a new tenancy in existence to enable the backdating provisions of Section 119M to come into operation.

22. As to the remaining submission that the Tribunal may impose a condition, if leave is granted, that the fair market rent be paid for the interim period, there is certainly no express power to make such an order. On an application for leave to withdraw we do recognise our inherent power to impose such conditions as may be just in the circumstances. If we were to order payment of the fair market rent for the interim period, it would be necessary for us to hear evidence in order to determine that fair market rent. Again there is no express statutory procedure prescribed. At best we could do so by analogy with the procedure to be followed where a new tenancy is granted. Certainly any such order to so proceed would be different not merely in degree but in kind, to the incidental and other orders commonly made in civil actions where conditions are imposed on leave to withdraw or discontinue being granted.

23. In the instant case there is no evidence of bad faith or of any delaying tactics on the part of the applicant. If we had the power to impose the condition sought we would probably not be inclined to do so in this particular case.

24. We would add that whether we should have the power_, discretionary or otherwise, to determine a new rent for the interim period where an applica-tion is withdrawn, is not a matter for us to comment upon. What is clear is that at present, unlike the position in England, we have no such express statutory power. For we have no provision as wide as Section 24A. If we are to have such a power then the existing legislation would need to be amended. It does not at present exist within the provisions of Part IV. Nor are we satisfied we have the inherent power to make a similar order as a condition of leave to withdraw.

25. From these findings it follows that leave to withdraw the applica-tion for a new tenancy is granted. In England costs are often awarded against the party applying to withdraw but again the position in Hong Kong is different. For in respect of Part IV, Section 119R provides:

"119R. In any proceedings under this Part, the Tribunal shall not make any order as to costs against a party unless that party has conducted his case in a frivolous or vexatious manner."

26. The applicant's conduct in this application has not been frivolous or vexatious. Accordingly there will be no order as to costs.

DATED this 12th day of April, 1983.

Representation:

Mrs. C. N. Booth of Baker & McKenzie for the applicant.

Mr. K. F. Sin of Wilkinson & Grist for the respondent.