Sylvia Seto v. Mody Holdings Ltd

Case No.HCA 1811/1976

Court

High Court CFI

Date—

Judge—

Case Document

100%Judiciary

HCA001811/1976

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 1811 OF 1976

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BETWEEN
	SYLVIA SETO	Plaintiff
	and
	MODY HOLDINGS LIMITED	Defendant

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Coram: Trainor, J.

Date of Judgment: 12th January, 1978.

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JUDGMENT

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1. The plaintiff is the registered owner of the property Nos. 140-142 Austin Road, Tsimshatsui, Kowloon which she holds from the Crown under what is called a Regrant, but is in fact an agreement for a lease, made the 14th November, 1962. The term set out in the agreement is for 150 years from the 25th December, 1893. The agreement also contained the usual covenant by the lessee to maintain the premises in good and substantial repair and condition and in such repair and condition to deliver them up to the Crown on the expiration or sooner determination of the term. There were also provisions for re-entry for breach of covenant.

2. On the 19th May, 1969 the plaintiff sub-let the premises to the defendant for business purposes for a term of seven years from the 15th September, 1969. The sub-lease contained the usual covenant to pay rent and to maintain and keep the whole of the interior of the premises in proper tenantable repair and condition and in such condition to deliver up the premises to the Lessor (as I shall call her) on the expiration or earlier termination of the sub-lease. There was also the usual provision for re-entry if rent should be in arrear for fifteen days (whether demanded or not) and for the breach of any of the other covenants by the lessee.

3. On the 1st September, 1976 the plaintiff issued a writ to forfeit the sub-lease on the grounds that the rent was in arrear since the 15th March, 1976; and also for breach of the covenant to maintain the interior of the premises in repair.

4. The witness called by the defendant tried to explain the arrears by saying that there was an arrangement between the defendant and the plaintiff that payment of the rent might be withheld during the absence of the plaintiff from Hong Kong. She said that the defendant was at all times able and willing to pay the rent. As I understand her, she said that the plaintiff, when in Hong Kong, frequently called to collect rent, and had she called to collect the rent on her return from abroad, or had the witness been aware of her return, there would not have been any arrears.

5. Apart from the provision for re-entry for arrears of rent whether the same was demanded or not, I did not believe the witness. I was satisfied from the evidence that for some time prior to March 1976 the defendant had from time to time been in considerable arrear in payment (in fact on one occasion a writ was issued for arrears of rent) and that no such arrangement as alleged had ever been made. All the arrears have been paid into court, and, in addition, there has been paid into court monthly a sum equal to the monthly rent, to be attributed to rent or mesne profits, depending on the outcome of this case.

6. Having heard all the evidence I held the lease to be forfeited for non-payment of rent, but, as the principal reason for forfeiture for non-payment of rent in a lease is to secure payment of the rent, and as the lessor's rent is now available to her I granted the defendant relief against the forfeiture.

7. I also held that the defendant had been guilty of waste in that it made considerable alterations to the premises.

8. The defendant maintained that when it took over the premises in pursuance of the lease it had been a school; and that what was done was necessary to make the premises suitable for use as an hotel, an intended use of which the plaintiff was fully aware. Mr. Woo for the defendant argued that, in the circumstances, there was an implied consent by the plaintiff for the defendant to do what it did. Mr. Wei who appeared for the plaintiff would not oppose the argument that there was an implied consent on the part of the plaintiff to the defendant doing such reasonable alterations as were necessary to adapt the premises for use as an hotel provided they were lawful. He referred to letters sent by the Building Authority to the plaintiff in 1971 pointing out that a number of the alterations which had been done were in contravention of the Building Ordinance, which letters had been forwarded to the defendant. He maintained that consent to make alterations which were illegal could not be implied.

9. I agreed with Mr. Wei, and held that there had been such a breach of the covenant to maintain in repair by reason of voluntary waste as left the lease liable to forfeiture.

10. However, it would appear that what has been done, and it all happened many years ago, does not, to-day, meet the stern disapproval of the Building Authority that its letters of 1971 would suggest. Indeed, part of a letter of the 14th April, 1977 from the Building Authority to the solicitors for the defendant reads:

" I confirm that some unauthorised works have been carried out to this building. However, from our inspection of the premises no structural, or other changes (sic) is apparent and accordingly the Building Authority does not propose to take any action at the present time."

11. That being so I held that the defendant was entitled to be relieved from forfeiture if it obtained the consent of the Building Authority for what had been done, or made such alterations as the Building Authority might demand.

12. As the term of seven years created by the sub-lease expired on the 14th September, 1976 all of the foregoing would be purely academic were it not for a Deed of Covenant, entered into by the parties on the 20th May, 1969, the day after the execution of the lease, a Special Condition in the Regrant, and the counterclaim of the defendant.

13. The Special Condition, so far as it is applicable, reads:

	"3(a) The grantee shall not assign, underlet mortgage or otherwise deal with the lot or any section thereof or create or assign, underlet, mortgage or otherwise deal with any estate interest or share therein or enter into any agreement to do any of the said things unless and until he shall first have paid to the Government the whole of the outstanding balance of premium together with interest accrued thereon at the said rate;
	Provided that the grantee may without making such payment as aforesaid,

	.........
	(ii)	underlet the lot or any section thereof if the term thereby created does not and cannot under the provisions of any document creating or affecting the same be extended or renewed so as to exceed seven years;
	..........
	(iv)	enter into any agreement or agreements to do any of the things prohibited by this condition if he shall first have obtained the consent of the Registrar General (Land Officer) thereto, complied with any conditions imposed by him, and paid to him a fee of $1,000.

The premium referred to in 3(a) was one of $707,952 payable by 21 annual instalments.

14. The sub-lease from the plaintiff to the defendant is an unexceptional lease for seven years with the usual covenants, conditions and provisos. It contains no option to renew, and nothing to suggest anything other than a reversion to the lessor on the termination of the term. In fact the lessee renounces its right to any relief that might be available to it by reason of any then existing or thereafter enacted legislation.

15. The Deed of Covenant to which I have referred, after setting out the parties and citing the Regrant, reads:

	"(3) By Special Condition 3 of the said Conditions of Regrant the Covenantor is prohibited from entering into any lease or tenancy exceeding seven years unless and until the whole of the outstanding of premium has been paid to the Hong Kong Government.
	(4) A Tenancy Agreement for seven years has been entered into between the parties hereto.
	(5) It is the wish of the parties hereto that the said property should be let by the Covenantor to the Covenantee for a total period of 15 years.
	NOW THIS DEED WITNESSEFH as follows:-
	1. The Covenantor hereby covenants with the Covenantee that she the Covenantor shall not let the said property to any other person for a period of 15 years from the 15th day of September, 1969.
	2. For the purposes aforesaid, the Covenantor hereby deposits the said Conditions of Regrant with Messrs. Woo & Kwan, Solicitors, who shall hold the same for a period of 9 years from the 15th day of September, 1969.
	3. The Covenantor hereby further covenants with the Covenantee that she the Covenantor will pay to the Hong Kong Government a sum of $74,308.00 on or before the 15th day of November, in each year whilst the Covenantor is under obligation to pay the same under the said Conditions of Regrant.
	4. The Covenantee hereby covenants with the Covenantor that should it decide not to renew the said tenancy agreement this Deed will automatically become null and void."

16. It must be assumed from that document that the defendant was fully aware of the contents of the Regrant. That means that it knew that not only might the plaintiff not underlet, but she might not agree to underlet if the premium, or the balance of it, was unpaid, except as provided in the Regrant.

17. The first provision that concerns this case is 3(a)(ii) which permits underletting if the term created does not exceed, and cannot under the provisions of "any document" creating or affecting the term be extended or renewed so as to exceed seven years. That sentence clearly envisages not only an under-lease creating a term but any other document purporting to affect or enlarge or renew such term, and effectively prohibits any such enlargement or renewal beyond seven years. That being so the defendant was fully aware that however much the plaintiff and itself might "wish" the term to be for 15 years the plaintiff might not grant, or commit herself to grant such a term without first paying off the balance of the premium then due, or obtaining the consent of the Registrar General. That the plaintiff had no intention of paying of the balance of the premium is obvious from the covenant of the plaintiff in the Deed of Covenant to pay the instalment of $74,308 so long as she is obliged so to do.

18. It might be argued that the defendant precluded itself from entering into any agreement for a term of more than seven years, or any agreement to permit enlargement of such a term when in the lease of the previous day it covenanted not "to do or cause to be done or suffer or permit any act deed or thing whatsoever in contravention to (sic) the terms or conditions under which the said premises are held from the Crown". I merely say "might be argued" as it would be open to contrary argument on a ejusdem generis basis. However, I do not rely for any support for my decision on that possible argument.

19. The Deed of Covenant expresses what was then the "wish" of both parties: that the property should be let by the plaintiff to the defendant for 15 years. It does not say that there is an agreement to that effect; to have said so would have been in conflict with the terms of the Regrant, but as Special Condition 3(a)(iv) makes provision for a departure from the limitation on underletting provided the consent of the Registrar General is first obtained and a fee of $1,000 paid to him there would have been no objection to stating that they agreed to a further term of 8 years subject to the approval of the Registrar General. Indeed, if the parties had agreed among themselves that the defendant should have the premises for 15 years there was nothing to prevent an application being then made to the Registrar General for permission; I cannot see the $1,000 fee being any obstacle.

20. As I interpret the document it reflects the intention of the parties to create a sub-letting for the period of 7 years and goes on, then, to provide, pursuant to the "wish" of the parties, that if the plaintiff should decide to let the premises again after the termination she will give the defendant the first refusal; and to ensure that she undertakes not to let the property to anyone else for 15 years from the 15th September, 1969. If however the defendant decides not to seek a renewal then the plaintiff is released from any obligation, and is free to let the premises to whomsoever she wishes.

21. What then is the position between the parties vis-a-vis the Regrant if there is a covenant by the plaintiff to let only to the defendant should she decide to relet on the expiration of the seven year term.

22. In my opinion the Regrant does not per se affect the position at all. Even if the plaintiff had originally granted the defendant a term of 15 years the effect would not have been to make the sub-lease void; at the most it would give the Crown the right to re-enter pursuant to the conditions in the Regrant, should it wish so to do.

23. The position then is that the plaintiff if she decides to lease the premises must first offer them to the defendant. If the defendant were to accept it would of course run the risk of re-entry by the Crown. If the defendant decides not to accept the offer then that is the end of the Deed of Covenant. But the plaintiff does not intend to let the premises to anyone and she cannot be compelled so to do.

24. Had the defendant been entitled to a renewal of the lease I would have so ordered despite its breach of the covenants to pay rent and maintain in repair, but as the plaintiff does not intend to sub-let the premises to anyone I hold that the defendant's counterclaim: that it is entitled to remain in possession, and specific performance of the Deed of Covenant (there is nothing that the plaintiff could be compelled to perform) must be dismissed. The plaintiff therefore succeeds on the claim and counterclaim and is entitled to costs on both.

25. I direct that the money paid into court be released to the plaintiff as arrears of rent for the period in arrear and thereafter as mesne profits.

26. I allow a stay of execution for two months on condition that the defendant pay to the plaintiff the monthly sum of $12,000 by way of mesne profits payable in the same way and on the same dates as rent was heretofore paid; in default execution to issue.

Representation:

Mr. R. Wei (Philip K.H. Wong & Co.) for plaintiff.

Mr. P. Woo (Haldane & Co.) for defendant.