Hin Fat Investme Nt Co Ltd v. Taipan Agencies Corporation and Another

DCCJ001191/1980

Landlord and Tenant - Subletting in breach of the provision of the tenancy agreement - Landlord's messenger sent to collect rent on a single occasion was a rent collector simpliciter and not the landlord's agent - Endorsement on the cheque given to the messenger to the effect that the premises had been sublet could not be regarded as notice to him and thereby to the landlord - Demand by landlord of accrued rent after having knowledge of subletting does not amount to waiver of right of forfeiture - Order of possession against tenant for subletting in breach of contractual tenancy also operates as an order for possession against the sub-tenant.

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

ACTION NO 1191 of 1980

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BETWEEN

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Coram: H. Wong, D. J. in Court

Date: 18 June 1982

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JUDGMENT

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1. Plaintiff brought this action to claim possession of the premises known as No.11 Shiu Fai Terrace, Moon Fair Mansion, Apartment B12, 12th floor (referred to as the suit premises) and carpark No.39 of t that building on the grounds that 1st defendant had committed a breach of the tenancy agreement and/or Section 53(2)(e) of the Landlord & Tenant (Consolidation) Ordinance, Cap.7 by subletting those premises to 2nd defendant.

2. 1st defendant admitted the said subletting but raised the defence of waiver, while 2nd defendant adopted a neutral position and adduced no evidence.

Background

3. In 1974 Sheung Lee Investment Co. Ltd., as stated by its director, CHIU Kai-sun, purchased the suit premises and immediately obtained plaintiff's services to manage them. This agency, as confirmed by Tseng Henson, plaintiff's accountant and person-in-charge of tenancy matters, included the letting and taking and defending legal action in respect of the managed property. In October 1978 Mr. Tseng looked after thirty- flats, including the suit premises, and followed his usual practice of advertising the availability of the suit premises for rent.

4. Miss CHOW Siu-kam, then 1st defendant's clerk, spotted that advertisement, as it was her duty to scan items in newspapers concerning premises to let, and telephoned Mr. Tseng for more information thereon. She noted down the additional particulars provided by Mr. Tseng and passed all records obtained on the suit premises to Mr Thomas Young, 1st defendant's proprietor. Mr. Young then proceeded to view the suit premises and made known to Mr Tseng his wish to lease them in his own name. On being asked for his Identity Card by Mr. Tseng, Mr. Young produced his New Zealand passport which was rejected by Mr. Tseng as being unsatisfactory, because it disclosed an almost expired visa for its holder to stay in the Colony.

5. Mr. Young subsequently instructed Piss Chow to continue the discussion with Mr. Tseng on different grounds and their negotiations finally brought the parties to an agreement. As a result, on 13th October 1978 plaintiff and 1st defendant signed not in the persence of each other a tenancy agreement in English for the lease of the suit premises for a term of three years from 16th October 1978 at a monthly rental of $4,500.00. Clause 2 of that agreement stipulates that the tenant agrees :

6. In the same month and subsequent to that signing fir. Peter Brown came to Hong Kong to join Martin & Voorhees, 2nd defendant. He was then in need of private accomdation, which would be provided by his employer and, from his contact with 1st defendant, was offered the lease of the suit premises, either on an unfurnished basis at $5,600.00 or with furniture and electrical applicances at $8,000.00 in monthly rental. lie chose the latter option and both defendants on 30th October 1978 entered into a tenancy agreement whereby 1st defendant let the suit premises to 2nd defendant for a period of two years from 25th October 1978. In April 1979 a complaint was received by plaintiff that water was leaking at the suit premises. An inspection was carried out by Mr. Chiu, in the presence of Mr. Brown, when that complaint turned to be unfounded. Subsequently, rental of the suit premises for December 1979 and January 1980 was in arrears, as a result of which Mr. Tseng sent HO Yiu-wah, a messenger with two rent receipts in exchange of payment thereof. HO Yiu-wah was given two cheques which he duly handed over to Mr. Tseng. On noticing that those cheques bore the indersement ".... sublet to Martin &. Voorhees" Mr. Tseng first asked 1st defendant for replacement cheques without such indorsement but following a conversation with Mr. Young on the next day changed his mind about that request and informed 1st defendant that he would take appropriate action on 1st defendant's subletting. The above brief facts on the background of the case were not in dispute.

Defence and findings

7. 1st defendant raised five grounds in support of their defende of waiver :

8. These two grounds can conveniently be dealt with together and it is reasonable to assume from their tenor that 1st defendant implied that, by the nature of their business, they would not use the suit premises themselves.

9. In her evidence Miss Chow stated that Taipan Agencies Corporation, 1st defendant, and Taipan Agencies Ltd., were both engaged in real estate agency at the same address and in the course of their operation as such brokers earned commission, normally from tenants, on the successful introduction of leased property to them. She added that those two companies took up tenancies of premises for subletting as well. Mr. Young confirmed this aspect and went on saying that he owned 1st defendant and had a majority shareholding in six or seven limited companies, including Taipan Agencies Ltd., which handled real estate agency, management and consultancy. It was his practice to rent flats in the name of 1st defendant or one of those companies for subletting at high prices, sometimes after having renovated or furnished them. He made no bones that this procedure and the intentional non-disclosure of his interest in the company which appeared as tenant in the head-tenancy were adopted in order to lead the landlord into believing that a bona fide company had taken up the lease for self-occupation. Neither did he hide the fact that he would later sublet such premises, well knowing the presence of a clause against subletting in the relevant tenancy agreement, such as what had happened in the present case. His explanation of this attitude was due to his feeling that landlords would seldom exercise their right of forfeiture on becoming aware of a breach of covenant by the head-tenant subletting the leased premises and would rather sue the tenant in respect thereof only for financial gains.

10. To return to the instant case, Mr. Young stated that following his failure to lease the suit premises direct from Mr. Tseng, he gave instructions to Miss Chow to pursue the matter from different angles.  On 13th October 1978 Miss Chow at first proposed to Mr. Tseng that 1st defendant should give a letter of guarantee to plaintiff in support of Mr. Young's pledge to pay rent of the suit premises if those premises were let to him. personally and he was for some reasons out of the Colony, but that proposal did not find favour with Mr. Tseng. According to Miss Chow, she then made a second offer that 1st defendant would take up the tenancy on behalf or for the use of Mr. Young who had a close connection with 1st defendant.  In this regard, Mr. Tseng's evidence was that Miss Chow informed him that Mr. Young was 1st defendant's director, whereupon he suggested, and she agreed, that 1st defendant should lease the suit premises as Mr. Young's residence.

11. Mr. Young admitted that he did not reveal his ownership of 1st defendant to Mr. Tseng and did not, either by himself or through Miss Chow, ask Mr. Tseng to delete the clause against subletting in the relevant tenancy agreement, because he knew that such request would be refused by Mr. Tseng. Furthermore, both Mr. Young and Miss Chow confessed that they had not, up to the signing of that agreement, told plaintiff that 1st defendant leased the suit premises for subletting purposes.

12. There is thus a discrepancy between the evidence of Mr. Tseng and Miss Chow on Mr. Young's position vis-a-vis 1st defendant, From my observation I prefer Mr. Tseng's version to that of Miss Chow. My views on this aspect are reinforced by the fact that 1st defendant and Taipan Agencies Ltd., which were both managed by Mr. Young at one office and were, in Miss Chow's words, the subject of interchangeable use in similar business. had been the source of confusion to Miss Chow herself. I am also of the opinion that although 1st defendant's main business is that of real estate agency, it does not necessarily follow that they lease domestic premises for no purpose other than subletting. Lastly, I accept Mr. Tseng's claim of lack of knowledge' on the distinction between a limited company and a corporation and his contention as well as that of Mr. Chiu that, although they knew the character of 1st defendant's operation, they found it normal for let defendant, just as for any other company, to acquire the. lease of the suit premises for occupation by one of their executives or directors. For the above reasons I reject let defendant's first two grounds of waiver.

13. Miss Chow stated that in mid November 1978 Mr. Tsang suddenly rang her to say that plaintiff kept records of occupiers of its property and would like to know who occupied the suit premises. She maintained that all along she spoke to him in Punti but, to this question, gave in answer these words in English ".Mr. Peter Brown of Martin & Voorhees" and only spelt Peter Brown to him. Under cross-examination she said that Mr. Tseng rather spelt Peter Brown and obtained her confirmation as to their correctness. On this point Mr. Tseng's testimony was that on 20th November 1978 he telephoned Miss Chow for payment of rent of the suit premises, which was overdue, and received her promise to pay it up. Here it is noted that Miss Chow agreed that 1st defendant often failed to make payment of rent to plaintiff on due dates. Mr. Tseng then went on asking her whether Mr. Young had moved into the suit premises and was told that Mr. Young had not but that Mr. Peter Brown had done so. Mr. Tseng then asked Miss Chow to spell Peter Brown and she obliged him.

14. I find Mr. Tseng's testimony to be logical and reliable and accept it in preference to that of Miss Chow. Further, I am of the opinion that if Mr. Tseng was unsure on the spelling of Peter Brown, a common English name, he would certainly be in doubt about the orthography of "Martin & Voorhees" and would probably have inquired into the constitution of that name had it been mentioned by Miss Chow. Finally, I find support to my views that Miss Chow's memory was faulty from her confusion, as stated above, about the person who actually spelt Peter Brown and from her contention that Pr. Brown had rung her in April 1979 to complain about a water leakage when Mr. Brown himself denied having done so. In the light of this finding 1st defendant's third ground of waiver cannot be sustained.

15. There is no quarrel that in April 1979 Mr. Tseng received a complaint that water leaked from the suit premises to the floor below and, apart from asking Mr. Chiu to take care of the matter, told Mr. Chiu that Mr. Brown was living at the suit premises. Mr. Chiu therefore called at the address in question and on arrival identified himself as the landlord's representative to Mr. Brown. For his part, Mr. Brown said that he had a very short conversation with Mr. Chiu and, since that meeting was of little significance to him, vaguely recollected that he might have given to Mr. Chiu his business-card or telephone number. Dr. Chiu denied having received such item or information and remarked that he purely gook Mr. Brown as 1st defendant's employee. Under questioning Mr. Chiu clarified that his said assumption did not lead him go make further inquiry and that if he had known Mr. Brown's actual employment with a company other than 1st defendant he would have taken action accordingly. Mr. Tseng coroborated Mr. Chiu's standpoint by emphasizing that he let the suit premises to 1st defendant, a company, and would not object to any employee of 1st defendant occupying the suit premises. Mr. Tseng further expressed the view that since Mr. Young, who was known go him as 1st defendant's director, held a New Zealand passport, it would not be surprising go him that a foreigner like Mr. Brown was in 1st defendant's employ as well. It was suggested by 1st defendant that Mr. Chiu carried out that abortive inspection as a camouflage for a "fishing expedition" go obtain proof of subletting. I reject this suggestion, first because Mr. Young said that he received the said complaint and passed it on go plaintiff so that that visit was not imitiated by plaintiff and, secondly, if Mr. Chiu then knew of that subletting he would not have waited until February 1980, i.e., nine months later to institute these proceedings. In short,  I accept the evidence of plaintiff's witnesses and reject that of the defence. I thus hold the belief that plaintiff was not aware of the subletting in April 1979 and dismiss 1st defendant's fourth ground of waiver

16. It is assumed that 1st defendant thereby implied that plaintiff was pug to notice in regard go subletting and, by accepting those cheques, had waived its right of forfeiture of the tenancy involved.

17. It was said in "Tsang and another v. LANG Fong and others^"(1) and in different words but with the same meaning in Megary's Laws of Property, at p.657 that, "There are two essential elements for waiver of an accrued right of actions:

18. In the present case the issue consists a breach of the tenancy agreement as well. In any event the initial question to be asked is "When was such knowledge first acquired?"

19. Bowstead on Agency says at p.334:

"Basis of rules .... In knowledge cases, authority whether actual or apparent, should not be relevant, and the principal is deemed to be affected because knowledge acquired by such agent in respect of a matter where the agent has power to bind the principal or as to which he has a duty to inform a principal, is presumed to have been passed on''.

20. In the instant case it is doubtful whether the indorsement can be regarded as a notification. Even of it is so regarded, it was not known to HO Yuk-wah who, being a messenger, was under no order to verify the contents of the cheques which bore that indorsement. In my- view HO Yuk-wah was not plaintiff's agent on the question of knowledge and was at most a mere rent collector, as one held by Sanguinetti, D. J. in "TSANG Shiu-tim and another v. WONG Kee and another"⁽¹⁾ when he said :

"This rent collector was one simplicitor with no duties beyond the mere collection of rents wherefore his knowledge of the subletting could not be imputed to the landlord on a finding of fact that such knowledge had not been communicated".

21. There is no dispute that Mr. Tseng was plaintiff's agent. From facts I have no doubt that he was under the impression that the indorsement meant 1st defendant's wish to sublet the suit premises to 2nd defendant or that 1st defendant was going to so sublet and asked 1st defendant for fresh cheques to replace those with that indorsement. 1st defendant banked on Mr. Tseng's said request in further support of their claim of waiver.

22. Woodfall on Landlord and Tenant says at P.852:

"The following acts amount to a waiver: Demand of rent accruing due after forfeiture, if the demand is absolute and unqualified ... bat the subsequent receipt of rent due prior to the forfeiture is not waiver".

23. The principle on such demand was expounded in "David Blackstone Ltd. and another v. Burnetts (West End) Ltd. and another"⁽²⁾ when it was held that :

24. In the present case the tenancy was for three years from 16th October 1978 to 15th October 1981, so that the alleged waiver of 18th January 1980 was witnin the agreed term. In my view this is a contractual tenancy and was not affected by Amendment No.6 of 1980, which came into force on, 18th December 1979, because that Amendment only applied to tenancies which had expired by effluxion of time and which tenants had held over at the time of notice to quit or issue of the writ as the case might be. Consequently, the question of demand of rent, if it had occured, should be under the common law rule, as stated in "CHOW Sau po v. CHAN Sau-min^"(1) and confirmed in "CHUK Yau-cheong v. LEE Miu-ying^"(2)

25. As far as the instant case is concerned, Mr. Tseng's evidence discloses that when he asked 1st defendant for replacement cheques he made it known to them that subletting was not allowed. He then was not in possession of knowledge of facts that would give him the right to forfeiture. Another important pint is that on 18th January 1980 his demand for replacement cheques was for past rent due and owing on or before 16th January 1980 and not for future rent. It was held in Dumpor's case, which was among Smith's Leading cases, 13th edition, 35 at p.40 that :

"Although acceptance of rent due after the cause of forfeiture is a waiver, the receipt of rent accrued due before the forfeiture is no waiver, for there is no inconsistency in accepting rent accrued due before the supposed determination of the estate".

26. I accept plaintiff's explanation that after it had obtained knowledge of subletting on 19th January 1980, it decided not to bank the two cheques with the said indorsement but to keep them as evidence at the trial. Plaintiff's said action is distinguished from that of the landlord in "Pierson v. Harvey"⁽³⁾. In the quoted case the tenant had paid rent into the landlord's bank account for several months and the landlord had not taken steps to repay it to the tenant or given notice to the tenant that he would not receive it.

27. The law on waiver was succinctly stated by Lord Denning, M.R. in "Barnett Brothers (Taxis) Ltd. v. Davies"⁽¹⁾.

"The principle of waiver-is simply this:

If one party by his conduct leads another to believe that the strict rights arising under the contract will hat be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict rights when it would be inequitable for him to do so."

28. In "Mattewsm-Smallwood"⁽²⁾, Swanwick, J. said:

29. From the above remarks, I conclude that the fifth ground of waiver must fail.

30. To sum up, in the present case 1st defendant admitted that they had deliberately taken the risk of subletting the suit premises, well knowing the existence of the relevant prohibition in their tenancy agreement with plaintiff. However, they have, in the light of the foregoing findings, failed to establish waiver of the right to forfeiture by plaintiff on their subletting of the suit premises to 2nd defendant. Plaintiff's claim must therefore succeed. In these circumstances D2'S position comes within the ambit of s. 53(5) of the Ordinance which says:

"where a tenant has, in breach of the contractual tenancy, sublet the whole or any part of the premises, an order for possession of the premises under subsection (2) against the tenant shall also operate as an order for possession against the sub-tenant".

31. There will be judgment in plaintiff's favour for possession of the suit premises against both defendants.

(1)    (1959) D. C. L. R. 25

(2)    (1947) K.B. 886

(3)    (1949) 33 HKLR 296

(1)    (1960) DCLR 228

(2)    (1973) 3 All E. R. 782

(1)    (1976) DCLR 88

(2)    Civil Appeal NO.14 of 1979

(3)    (1865) 1 T.L.R. 430

(1)    (1966) 1 W.L.R. 1334 at p. 1339

(2)    (1910) 1 ch. D. 777 at p. 790

Representation:

Miss A. Eu, instructed by M .K. Lam & Co. for plaintiff.

Mr. M. Bharwaney, instructed by H. A. Hoosenally for 2nd defendant.

Mr. M. Bharwaney, instructed by H. A. Hoosenally for 1st defendant for the first part of the hearing.

Mr. T. Young, 1st defendant's proprietor, appeared in person at the last stage of the trial.