Union Insurance Society of Canton, Ltd v. The Hongkong Land Co Ltd

HCA000386/1977

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 386 OF 1977

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Coram: Cons, J.

Date of Judgment: 5th December, 1977.

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JUDGMENT

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1. The old Union Building was put up in about 1900. It appears to have become the property of the plaintiff company in 1921. Twenty years later, at the end of 1941, with the possibility of war just around the corner, the company had the idea of selling. The defendant company immediately pricked up its ears but the invasion must have come too swiftly for anything to materialize.

2. Shortly after the war the same broker who had alerted the defendant company just before the war started things moving again. Negotiations came to a successful conclusion. The Crown lease was assigned by the plaintiff to the defendant in early October 1946. The exact date of the assignment is not certain but it does not really matter. It was registered in the Land Office on the 9th October by the firm of solicitors that acted for both companies in the transaction.

3. There was no preliminary sale and purchase agreement drawn up. However it is clear from documents made at the time that the plaintiff was anxiously concerned over three matters. These were:

It is equally clear that the defendant was willing to accommodate the plaintiff in these matters.

4. Towards the end of the 1950s the defendant started to redevelop the site of Union Building. It did so in conjunction with the two adjacent sites on which had stood King's Building and York Building. The new composite building was erected in two phases. During its construction the plaintiff took accommodation in what was then the new Alexandra House, another building belonging to the defendant. The plaintiff moved back as and when it was able, taking all told a lease of just over half of the second floor. This could be reached from a separate ground floor lobby and by a private lift installed by the defendant especially for that purpose. The new composite building was given the name "Union House". As one would expect, the plaintiff raised no complaint.

5. Some time in the early part of last year the defendant intimated an intention to change the name from "Union House" to "Swire House". The plaintiff immediately objected. There was correspondence between the two companies, but in the upshot the defendant remained firm. The name was changed on the 18th February this year.

6. The plaintiff now seeks redress by way of damages. It puts its claim on two grounds, either on a breach of a concluded agreement in 1946 that the name would not be changed, or on a breach of the covenants for quiet enjoyment contained in the leases that it held at the time of the actual change.

7. With regard to the first point the documents show that both companies intended and expected that an agreement would be drawn up. On the 4th October the Acting Secretary of the defendant wrote to the broker in question (AB 11) "I can confirm this company will be prepared to enter into a written agreement with the (plaintiff) on the following lines" and he then set out the matters I have already mentioned. On the 8th October the plaintiff wrote to the solicitors setting out what it called "its requirements" - which are the same matters - and on the following day added another matter which it thought it would be "advisable to insert in our agreement with the (defendant)" (AB 13 and AB 17). No particular document was ever drawn up by the solicitors nor were the matters in question included, as far as I know, in any of the documents that were subsequently made between the two companies. I am asked to deal with the matter informally, to accept that "businessmen often record the most important agreements in crude and summary fashion" and to "construe the documents fairly and broadly without being too astute or subtle in finding defects" so that "the dealings of men may as far as possible be treated as effective, and that the law may not incur the reproach of being the destroyer of bargains": Hillas & Co. Ltd. v. Arcos Ltd.⁽¹⁾. I would be only too happy to do that, if I were satisfied that the companies had at any time come to an agreement. I appreciate that sometimes parties will make an agreement in a very informal way. And there may well be cases where it is difficult to decide whether they have in fact reached agreement or are still at the stage of negotiating. But I find no difficulty in this instance. Two well established companies indicated intentions to incorporate certain ideas into a formal and future agreement. They did not do so. They were both legally advised, albeit by the same firm of solicitors. I am asked to say that in these circumstances they established binding legal obligations - and I observe in passing that this is the only effect of their conduct at the time that I am asked to deal with. On the documents before me I am not prepared to say they did. To my mind the documents point to only one conclusion, that for some reason no longer apparent, final agreement was never reached.

8. I turn then to the second point, that is whether the change of name amounted to a breach of the covenant for quiet enjoyment. The defence says that it cannot possibly be so; that the essence of such a breach is physical interference which disturbs the enjoyment of the demised premises; that matters which create only personal annoyance or inconvenience, however great, cannot at law ever be sufficient. Merely to change the name of the entire building of which the demised premises form one small part is, in the defence submission, not a physical act disturbing the enjoyment of those premises; the premises can be used by the plaintiff equally effectively after the change as they were before.

9. I accept without hesitation that the basic statement of law is correct. It has been well-established over the years. There is however a modern qualification. It is to be found in the words used by Romer L.J. in Owen v. Gadd⁽²⁾:

"I think that ...... in considering whether the enjoyment of premises has been disturbed, one looks to see what the purposes were for which the premises were granted."

In that particular case the premises had been demised for use as a retail shop. The lease contained a covenant to "use and occupy the said shop for the retailing of baby carriages (and other specified items) and for no other purpose except with the consent in writing of the lessors". The landlord erected scaffolding round the shop in order to make necessary repairs to his own premises which were above the shop. The scaffolding interfered with the access to the shop for intending or potential customers. This was found to constitute a breach of the covenant for quiet enjoyment.

10. In the present case the premises were let as offices. The two relevant leases each contain a covenant "to use the premises as an office only and for no other purpose whatsoever". Of course, businesses of many kinds are carried on in offices and each may have its own individual peculiarities. But one feature which I should think is common to almost all is that a large amount of the actual business is carried out through the post. Thus, if the delivery of mail to the office is hindered or obstructed, there is bound to be disruption in the business of the tenant. In other words he is not getting the full enjoyment of the premises for the purposes for which they were let. If the disruption is sufficiently substantial there would be, in my opinion, a breach of the covenant for quiet enjoyment. Alternatively the circumstances may be said to be the same in principle as in Owen v. Gadd, that is, a question of access. The shop in that case was approached on foot. An office may also be approached through the post.

11. Now in Hong Kong it is customary, at least in the Central and commercial district, to address mail merely by reference to the name of the building in which the recipient has his premises, rather than by reference to the number of the street or road. Frequently even the name of the street or road is left out. It follows that if the name of the building is changed, but correspondents are not advised thereof and they continue to use the old name, there is a very real possibility that the delivery of mail will be disturbed and that letters and important documents may be delayed or even lost. The plaintiff sensibly did not take this risk. Instead it caused its stationery to be reprinted and took other precautions which cost altogether $34,359.10. This is not a large sum when compared with the rent payable for the demised premises, but it is not suggested that in itself it is insubstantial. In the circumstances the plaintiff should be entitled to recover that amount from the defendant.

12. The plaintiff seeks additional damages for what it says is loss of goodwill built up by many years of occupation under the name of "Union House". No evidence was called to show that such goodwill in fact existed or that any actual loss was incurred. I think this claim is without merit. The goodwill that attaches to the name "Union" comes from the plaintiff's own business reputation, not from their occupation of any particular building.

13. For these reasons there will be judgment for the plaintiff in the sum of $34,359.10 and costs.

Representation:

Henry Litton, Q.C., and Kemal Bokhary (Hastings & Co.) for the plaintiff.

D.A.L. Wright (Deacons) for the defendant.

(1) 147 L.T.R. 503 at 514 and 512 respectively

(2) [1956] 2 Q.B. 99 at 108