Annie Chan v. Lau Wai Kwong and Others

HCA005062/1982

Landlord and tenant

A landlord may elect to terminate a lease by accepting the tenant's wrongful repudiation and at the same time preserve his right to claim damages for losing the benefit of the unexpired term.

Decision of the Supreme Court of Canada in Highway Properties v. Kelly, Douglas & Co. Ltd. 17 D.L.R. (3d) 710 followed.

IN THE HIGH COURT Of JUSTICE

BETWEEN

Coram: Hon. Mantell J.

Dates of Hearing: 10th and 11th May, 1984.

Date of Delivery of Judgment: 11th May, 1984.

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JUDGMENT

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1. On 26th October 1981, the defendants took a lease of third floor premises, Unit B, Kiu Kwong Industrial Building owned by the plaintiff in Ka Hing Road, New Territories. There had been, I am told, a previous tenancy agreement between the parties in respect of the same premises. Towards the end of October 1981, the defendants found themselves in financial difficulties and I have been told by Mr. Lau, one of the defendants who gave evidence before me, that he then spoke over the telephone to the plaintiff in December 1981 or January 1982 saying that they would not be able to continue the tenancy beyond the end of the month or the month following. I find Mr. Lau an entirely honest witness and I summarise his evidence when I say that the response made to that announcement by Madam Chan, the plaintiff, who does not remember the conversation, was non-committal. He said she was obviously unhappy about the situation and concerned about her own position particularly with regard to the payment of rent.

2. The fact of the matter was that the defendants were not able to pay rent for January, and did not; nor were they able to pay rent for February, and did not, and I say "were not able" because I am perfectly satisfied that Mr. Lau as an honourable man would have paid rent had he been in a position to do so. Some time in February, probably towards the end, the defendants being, by this time, two months' rent in arrear the plaintiff instructed her solicitors to distrain for the arrears and the warrant which they obtained was, I find, executed on 2nd March. There were certain items found on the premises, which produced $5,500. On that day, a Mr. Yeung, who is one of the defendants, was present. He saw the bailiff and the bailiffs' officers; he let them into the premises; he was there during the making of an inventory; and after they left leaving one of their number behind to keep watch, he handed over a set of keys to the premises to that gentleman. The set of keys was, I find on the evidence, one of two sets which had be given to the defendants. The other set was most probably left in a drawer or cupboard in the third floor premises. A few days later as I find though I cannot put a precise date to it, Madam Chan caused a second lock to be put to the door of the premises. She did not approach any of the defendants because she was upset that she had lost a paying tenant and she was also upset about the manner in which they had left. She told me that she put the lock there not to keep the defendants out, though it may very well have had that result, but because she was anxious to make sure that the premises would be safe.

3. I am asked to say by the defendants that the indirect acceptance back of a set of keys and the putting on the door of a second lock amounted either to an act of forfeiture arising out of the non-payment of rent or an acceptance of a surrender of the tenancy. In the light of the evidence that I have heard from Madam Chan, I do not find that the circumstances were such as to bring this tenancy to an end either one way or the other. Rather do I find that the tenancy continued; and it continued until an exchange of letters at the end of March and in the first two weeks of April. On 31st March 1982, solicitors then acting for the defendants wrote to solicitors then acting for the plaintiff in these terms:

"              We have instructions to act for Lam Wai Kwong, Yeung Pak Yung, Chau Shing Fai and Yeung Pak Muk trading as KIU KWONG Watch Case Factory, the tenant of the above premises and are given to understand that you act for the Landlady.

We are instructed to give your client notice, through your goodselves, that our clients wish to terminate the tenancy agreement between our respective clients with effect from 1st April 1982.

We are instructed that when the bailiff seized the goods and chattels in Tsuen Wan District court Distraint No. 33 of 1982 our clients have surrendered the keys to the bailiff and the main entrance is locked by a new lock to which our clients has no keys. Further, we understand that all the goods and chattels inside the said premises were sold to your client. In the circumstances, please treat this letter as formal delivery of vacant possession of the said premises to your client."

The reply came on 14th April 1982:

"               With reference to your letter dated 31st March 1982 we would like to inform you that because of your clients' early termination of the Tenancy Agreement our client reserves her right to claim against your client for any loss and damages arising our of the breach by the early termination of the tenancy Agreement dated 26th October 1981.

Our client also reserves the right to claim against your client for all arrears of rent and damages incidental thereto."

4. Since the defendants have not satisfied me that any earlier occurrence or circumstance had brought the tenancy to and end, I find that the letter of 31st March did amount to a repudiation of the tenancy and further, I find, that the letter of 14th April in response amounted to an acceptance of that repudiation. Moreover, it was not just a bare acceptance of the repudiation; it was an acceptance which expressly purported to reserve the right to sue for damages arising out of the breach by the early termination of the Tenancy Agreement in addition to the right to claim against the defendants for arrears of rent and incidental damages. It was, therefore, an acceptance which expressly purported to reserve the right to claim not only for any arrears of rent which had accured up to that time but for any damages arising from prior breach and also for damages, if the plaintiff was entitled to them, arising by virtue of the tenancy being brought to an end prematurely. Thereafter, as I find, despite having taken all reasonable steps to re-let the premises, the plaintiff was unable to do so. She asked her solicitors to handle the matter. They put the premises in the hands of estate agents who advertised them at the old rate, that is the rent at which the defendants had taken the premises. But the plaintiff was prepared to entertain an offer of something less than $2 a square foot, a very considerable reduction. Even so, she told me and I accept, there no offer was brought forward of any description and consequently the premises remained unlet until after the expiry of the agreed term in October 1983. Shortly afterwards, one of the defendants, Mr. Lau, was able to find a new tenant at a lower rent than the defendants had been paying. That tenant is still in occupation.

5. In those circumstances, the plaintiff sues for arrears of rent, and damages equal to the amount of rent for the unexpired portion of the tenancy, that is from the beginning of April 1982 to the end of October 1983. There is no dispute over the arrears of rent and the only question is as to whether or not on the facts as I find them to be the plaintiff is entitled to damages.

6. There is authority for the proposition that a lease, being a transaction in land, is to be treated differently from other classes of contract. I was referred in particular to Total Oil Great Britain Ltd. v. Thompson Garages (Biggin Hill) Ltd. ⁽¹⁾ in which the distinction was drawn by Lord Denning. That was a case where on the facts it was found that there had been a repudiation of a lease by an oil company which had been accepted by the dealer and Lord Denning said: "Does it put an end to the lease? I think not. It, meaning the lease, conveys an interest in land. It does not come to an end like an ordinary contract on repudiation and acceptance." And he then referred to the Cricklewood Property case⁽²⁾ and in particular to the opinions of Lord Russell and Lord Goddard to the effect that frustration did not bring a lease to an end and so, he continued "Nor do I think, does repudiation and acceptance." However, a point very similar to the one which arises in this case fell to be considered by the Supreme Court of Canada in the case of Highway Properties Ltd. v. Kelly. Douglas & Co. Ltd.,⁽³⁾ the judgment of the Court of five being given by Mr. Justice Laskin. After reviewing the facts of the case, Mr. Justice Laskin considered a submission that upon repudiation and acceptance of a Tenancy Agreement a landlord might, nonetheless, claim damages from the defaulting tenant upon notice being given that the acceptance of repudiation was on that basis. This is how he put it:

"Counsel for the appellant, in effect, suggests a fourth alternative, namely, that the landlord may elect to terminate the lease but with notice to the defaulting tenant that damages will be claimed on the footing of a present recovery of damages for losing the benefit of the lease over its unexpired term."

And his conclusion was as follows:

"It is no longer sensible to pretend that a commercial lease, such as the one before this Court, is simply a conveyance and not also a contract. It is equally untenable to persist in denying resort to the full armoury of remedies ordinarily available to redress repudiation of covenants, merely because the covenants may be associated with an estate in land. Finally, there is merit here as in other situations in avoiding multiplicity of actions that may otherwise it a concomitant of insistence that a landlord engage in instalment litigation against a repudiating tenant."

7. Well, I accept that had there been a surrender here, and possibly if there been forfeiture, on the authorities there could be no claim by the landlord in relation to the unexpired portion of the tenancy. But as I find the facts here fall within the ambit of the principle set out so clearly by Mr. Justice Laskin and I am disposed to apply that principle in the present case notwithstanding the decision of the English court of Appeal. I am fortified in doing so because more recently, the House of Lords in dealing with the question of frustration as it applies to leases has held that the doctrine of frustration albeit in rare circumstances will apply, thus to a degree, or perhaps altogether, destroying the basis for the decision in the Total Oil case. I am further fortified by the knowledge that this very point has been considered by Mr. Justice Barnes⁽⁴⁾ who came to a similar view to that which I propose to adopt.

8. Consequently, I find that the plaintiff is entitled to recover damages equal to the rent of the unexpired portion of lease and in doing so, I take into account Mr. Wei's highly persuasive submissions that all has not been done that might have been done to mitigate loss. The burden rests upon the defendants to show that damage has not been mitigated. They have not discharged that burden. I entirely accept Madam Chan's evidence on the point.

9. The defendants have paid in anticipation of this Tenancy Agreement a deposit of $16,000. At one time, Mr. Lee was disposed to argue that that sum could be retained in addition to the damages to which I find the plaintiff is entitled. But on express instructions, Mr. Lee did not pursue the submission. Consequently, credit has to be given for the deposit and also for the amount realised on the sale of the defendants' goods. Giving credit for those amounts, there will be judgment for the plaintiff in the sum of $165,704 with costs.

10. In giving this judgment I wish to make it plain that I do not express a concluded view as to whether or not in the event of forfeiture it is possible for a landlord to claim damages against the defaulting tenant in relation to the unexpired period of the term.

(1) [1972] 1 Q.B. 318 at p.323

(2) Cricklewood Property and Investment trust Ltd. v. Leighton's Investment Trust Ltd. [1945] A.C. 221

(3) 17 D.L.R. (3d) 710

(4) unreported High Court Action No. 4760/81

Representation:

Sammy Lee instructed by Ip, Ku & Stoppa for plaintiff.

Paul Wei Instructed by Tsang, Chau & Shuen for all defendants.