Lau Chik Yee-yung and Others v. Wong Sing-tsun and Others

HCA005416/1981

Landlord and tenant - relief against forfeiture may be ordered by Master on giving judgment for possession on grounds on non-payment of rent, notwithstanding other issues to be tried - leave to sub-tenant to defend made conditional on payment of rent at rate payable under the sub-lease.

BETWEEN

Coram: Bewley, J. in Chambers

Date: 11 January 1982

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JUDGMENT

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1. The plaintiffs let the premises in suit - a ground floor shop - to the 1st defendant for a term of 2 years and 7 months, commencing on 1st April, 1980 and expiring on 31st October, 1982.

2. Clause 3(e) of the tenancy agreement provided that the 1st defendant should not assign, underlet, or part with the possession of any part of the premises.

3. Clause 5(a) provided that, if the rent remained unpaid for 15 days after becoming payable, the plaintiffs might determine the agreement.

4. On 1st August, 1981, the plaintiffs issued a writ against the 1st, 2nd and 3rd defendants, alleging breach of both these covenants and seeking possession of the premises.

5. The 1st defendant did not enter an appearance and has taken no part in these proceedings. The 2nd defendant entered an appearance on 18th August and the 3rd defendant on 24th August.

6. The plaintiffs took out an O.14 summons on 18th September and the parties appeared before Master McClelland on 30th November.

7. The following order was made:-

(1)    Judgment for possession of the suit premises against the 2nd defendant and 3rd defendant on the ground of non-payment of rent;

(2)    Relief against forfeiture on condition that the 2nd defendant do pay arrears of rent amounting to $58,000.00 and 3rd defendant do pay arrears of rent amounting to $116,000.00 within 14 days from the date hereof;

(3)    The 2nd defendant and 3rd defendant do pay water rates and management fees in such amount as agreed between the solicitors for the respective parties;

(4)    Times Photo and Optical Co. Ltd., trading as "Star Times Optical Co.", be substituted for Yao Sik Kan as 3rd defendant. Any costs occasioned by this amendment be payable by the substituted 3rd defendant to the plaintiff;

(5)    Service of amended writ be dispensed with;

(6)    Leave for 2nd defendant and substituted 3rd defendant to defend conditional upon:

(7)    Defences within 14 days;

(8)    Reply (if any) within 14 days;

(9)    Mutual discovery on defendants within 14 days;

(10)    Inspection within 7 days;

(11)    To be set down for trial before a judge without a jury in the Running List within 42 days: estimated time 2 days;

(12)    In default of any of term of clauses to 2, 3 and 5, plaintiff to be entitled to enter judgment forthwith against the defaulting party;

(13)    Plaintiff entitled to one half of his costs of today's hearing against both defendants. Other costs to be costs in the cause;

(14)    Certificate for counsel; and

(15)    Liberty to apply.

8. The 3rd defendant appeals against paragraphs (1), (2), (3) and (13) of this order.

9. There are shop counters at the left, right and rear of the premises. The 1st defendant ran a radio business at the right-hand counter under the name Star Radio. He has now left the premises and this counter remains unoccupied. On 1st February, 1980, he sublet the left-hand counter to the 2nd defendant, who sold watches under the name Star Watch Co. The rear counter was sublet to the Star Times Optical Co. on 1st September, 1980.

10. The 3rd defendant, Mr. YAO Sik-kan, is a director of Times Photo & Optical Co. Ltd. According to the application for registration under the Business Registration Regulations, the main business of this company has, since 15th September, 1980, been carried out, at the suit premises, under the name Star Times Optical Co.

11. According to the plaintiffs' attorney, Mr. LEUNG Pui-tso, the first he knew about any sub-tenancy was when he was approached by the 3rd defendant, in July this year, and asked if, since his principal tenant was in debt and had disappeared, he would accept him as a direct tenant. Mr. Leung says this was the first time he had met the 3rd defendant, but the latter says they had been introduced by the 1st defendant. At any rate, the 3rd defendant's request was refused.

12. The 3rd defendant's first complaint about the order of 30th November is that he was wrongly joined as a party and, therefore, not subject to the order. The 3rd defendant has produced evidence to show that the rent was paid to the 1st defendant by the Times Photo & Optical Co. Ltd., rather than by the 3rd defendant personally. There was, of course, no reason why the plaintiffs should have known this, even after they became aware of the existence of the 3rd defendant. Even if Mr. Leung noticed the sign 'Times', which appears above the rear counter, there was nothing to indicate that this was not the 3rd defendant's own firm. The name of the limited company is not displayed.

13. In the final paragraph of his affirmation of 7th October, the 3rd defendant says that Star Times Optical Co. paid the rent and that he, himself, had lost contact with the 1st defendant. The plaintiffs say, with justification, that, prior to the 3rd defendant's affirmation of 10th December, they were unaware of the limited company's existence.

14. Miss Remedios submits that, on receipt of the affirmation of 10th December, at the latest, the plaintiffs should have taken out a summons to amend the writ. Mr. Suen replies that there was no reason why his clients should have been penalized in costs and that, in the circumstances, it was for the 3rd defendant to apply to strike out.

15. I think the latter submission is correct. The first time the plaintiffs knew that the 3rd defendant objected to being sued in his personal capacity was at the hearing. He had entered an appearance in his own name. If objection is taken that the proper parties are not before the Court, it should be taken as soon as possible: Sheehan v. G.E.R.⁽¹⁾. The 3rd defendant was, therefore, properly before the master on 30th November and the latter was entitled to make an order against the 3rd defendant personally. The first ground of appeal, therefore, fails.

16. It is conceded that there was a breach of covenant for non-payment of rent and that the plaintiffs were entitled to an order for possession on this ground. Miss Remedios submits, however, that, as relief against forfeiture is in the nature of a defence and, as the master was considering the question of leave to defend, on the issue of unlawful subletting, an order for possession should not have been made, but should have been reserved to the trial judge, who would himself consider the question of relief, having regard to all the circumstances revealed at the trial of the sub-letting issue.

17. In support of the above proposition, counsel cited LAI Kwok-wah & Others v. Sylvia Seto & Another⁽²⁾, in which it was held that it was for the trial judge to decide upon what terms relief against forfeiture should be granted, if granted at all, and that conditions imposed upon the grant of leave to defend had in a sense prejudged the issue.

18. I do not see how that case can assist on this point. There was only one ground for possession, namely non-payment of rent. Here there are 2 alternative grounds, which are totally separate matters.

19. The question of non-payment of rent is not a live issue and, as it is a ground for possession, the plaintiffs were fully entitled to judgment under O.14. The plaintiffs may choose not to proceed on the other ground. The master was entitled to give judgment for possession and, having done so, he was bound to consider the question of relief. Otherwise, the action would have been at an end: there would have been no need for the plaintiffs to pursue their remedy under the covenant against sub-letting.

20. The third ground of appeal is that the master was wrong to order payment of arrears of rent as a condition of leave to defend. In fact, this is not what he did. Leave to defend was given to the substituted 3rd defendant, conditional on payment of rent or mesne profits with effect from the hearing date. Arrears were ordered to be paid by the 3rd defendant as a condition of relief against forfeiture.

21. In Sylvia Seto & Another v. Kowloon Shopping Centre Ltd. & Others⁽³⁾, Fuad, J. ordered the sub-tenant to pay arrears of rent at the rate payable by the tenant to the landlord as a condition of relief. He said at page 733:

"Mr. Cheung was not able to cite a single case where a Court exercising purely equitable jurisdiction, without the aid of statutory provisions, granted relief to a sub-tenant occupying only part of the property comprised in the headlease, by requiring him to pay only the arrears of rent in respect of the part of the premises sub-leased to him."

22. Miss Remedios also submits that the rent payable pending trial should be the rent owed under the sub-lease and not that payable by the 1st defendant to the plaintiffs. Under the tenancy agreement the latter was $29,000 per month during the period from 11th April, 1980, to 10th April, 1982. The master has apparently apportioned this sum between the 2nd defendant and the substituted 3rd defendant in the proportion 1/3 and 2/3 . The rental payable under the sub-tenancy agreement of 1st September, 1980, was only $6,000 per month.

23. Miss Remedios does not represent the substituted 3rd defendant, which is the only party affected by this part of the order. A consent judgment has been entered against the 2nd defendant on payment of mesne profits of $9,666.66 per month from 22nd September, 1981, to 11th December, 1981. Counsel is, technically, therefore, not instructed to oppose the order for conditional leave to defend. No point as to this is taken by counsel for the plaintiffs and I consider justice will best be done, in the circumstances, by assuming that Miss Remedios is instructed to appear for the substituted 3rd defendant. It is clear from the affidavits that there is a very close connection between the 3rd defendant and the substituted 3rd defendant.

24. In LAI Kwok-wah v. Sylvia Szeto,⁽²⁾ it was also decided that, when leave to defend is given, the Court should make an order only in respect of arrears of rent payable under the sub-lease. The rental pending trial was not the subject of argument, but Huggins, J. said at page 419:

"I am, therefore, in no doubt that the judge was right to make it a condition of granting leave to defend that the 2nd defendants should, each month until judgment in the action, pay to the plaintiffs' solicitors a sum equal to the rent which would have been payable under the head-tenancy agreement."

25. However, the order proposed by Pickering, J., with which McMullin, J. agreed, was that the sub-tenants should have leave to defend, conditional on their paying into court arrears of rent at the rate payable under their sub-lease and, thereafter, at the same rate.

26. Mr. Suen argues that this is insufficient protection for the landlord. But if the substituted 3rd defendant succeeds in the defence of waiver, it will continue in occupation at a rental to be determined by the Court, which is unlikely to be greater than that payable under the sub-lease. If the plaintiff succeeds in establishing breach of covenant and obtains possession, the order for mesne profits against the substituted 3rd defendant is likely to be higher, but not necessarily as high as the rental payable by the 1st defendant. If the consent order against the 2nd defendant is any indication, it may be considerably less. As observed by McMullin, J. in LAI Kwok-wah⁽²⁾, one would think that the order for mesne profits must necessarily be restricted to such loss as has accrued to the plaintiffs as a result of the sub-tenant's intervention in the suit. The plaintiffs will be able to demand a rental in the region of $29,000 if they get vacant possession of the whole premises. It is only since the consent order on 11th December, that it is the substituted 3rd defendant alone that has prevented them from doing so.

27. I think, in the circumstances, the plaintiffs will be sufficiently protected if the rental under the sub-tenancy agreement, that is to say $6,000 per month, is paid pending trial.

28. To this extent the appeal is allowed and the order of the master varied.

29. Finally, Miss Remedios submits that the 3rd defendant should not be liable to pay any share of the plaintiffs' costs. She does not say why. It was entirely her client's fault that he was before the master in the first place. The plaintiffs succeeded on their summons on all matters concerning the 3rd defendant. I am, therefore, not prepared to say that the order for costs was wrong. I will now hear counsel on the question of the costs of the appeal.

(1)    (1880-81) 16 Ch. D. 59

(2)    (1979) H.K.L.R. 416

(3)    (1980) H.K.L.R. 717

Representation:

Mr. K.H. Suen (Bernard Wong & Co.) for plaintiffs

Miss C. Remedios (W. S. Lo & Co.) for 3rd defendant