Cheung So-shi v. Yeung Ming-hing and Another

HCA000802/1973

IN THE SUPREME COURT OF HONG KONG

(ORIGINAL JURISDICTION)

ACTION NO. 802 OF 1973

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Coram: Li, J. (In Court)

Date of Judgment: 28th November 1975

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JUDGMENT

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1. This is an action for damages in the sum of $29,500, being costs for the reinstatement of a flat. The plaintiff is the registered owner of No. 25, Tai Shek Street, Shaukiwan, Ground Floor. By an agreement dated the 5th of March the plaintiff, as registered owner of the premises, let the said flat at 25, Tai Shek Street, Shaukiwan (hereinafter referred to as 'the premises') to the Luen Tai Manufactory, which was a firm of partnership comprising two partners, the 1st and the 2nd defendants, for a term commencing from the 1st of March, 1969, expiring on the 29th of February, 1972. The plaintiff's case is that on the expiration of the term the defendants refused to render possession in accordance with the said agreement. Some time in March, 1972, a fire broke out inside the premises causing extensive damage. The defendants, despite the fire, persisted in failing to render vacant possession to the landlord, the plaintiff. As a result, the plaintiff had to commence proceedings in another action in this court to obtain possession; and indeed, possession was obtained by default in a judgment given by this court in September, 1972. When the plaintiff obtained possession, it was found that the premises were so extensively damaged that after obtaining the various estimates, she had the premises put back in good condition, and that cost $29,500. Hence this action.

2. By their defence, the 1st defendant pleads that on or about the end of March, 1971, the partnership entitled Luen Tai Manufactory had been dissolved and business ceased. As a result, a new company by the name of Luen Tai Manufactoring Limited was formed by the 2nd defendant to take over the remainder of the term of three years from the plaintiff. The plaintiff, being a landlady living a couple of floors above the premises, should know and did know that there had been a change of tenants. The plaintiff continued to collect rent from the new tenant, and therefore the 1st defendant being no longer a tenant, is not responsible for failing to render possession, and also is discharged from all obligations under the said agreement dated the 5th of March, 1969. The 2nd defendant also filed a defence to a similar effect except that the 2nd defendant is hiding behind the curtain of a limited company. Otherwise, the defence of the 1st and the 2nd defendants is exactly the same and based upon exactly the same principle.

3. The 2nd defendant who was formerly legally represented at the last moment gave notice to appear in person. However, the 2nd defendant never appeared. Therefore, it leaves the 1st defendant to continue his own defence in these proceedings. Having heard evidence as to the notification of the date of the hearing, or attempted notification of the date of the hearing, to be given to the 2nd defendant, I am of the opinion that the 2nd defendant deliberately gave an address in which he could not be reached. For this reason, I allowed the proceedings to begin and continue in the absence of the 2nd defendant.

4. It is a common ground, despite the non-admission in the defence filed, that the plaintiff is, at all material times, the registered owner of the premises. It is also common ground that the agreement for a lease was signed on the 5th of March, 1969 between the plaintiff and the 1st and 2nd defendants, granting a lease of three years in the premises from the 1st of March, 1969 to the 29th of February, 1972. The relevant provisions in Clause 2 of the agreement reads this:

"The Tenant to the intent that the obligations may continue throughout the term hereby created DOTH hereby agree with the Landlord as follows:

Clause 2 (d):

Clause 2 (m):

It is also common ground that after the signing of this agreement, 1st and 2nd defendants, in partnership started business in the premises by the name of Luen Tai Manufactory. Rent was paid regularly in advance and it was the habit of the plaintiff to go and collect rent early in the month by either personally bringing a rent receipt, written and addressed to Luen Tai Manufactory, Mr. YEUNG Ming-hing, or ask a servant or agent to bring such a receipt to a person in Luen Tai Manufactory in the premises in exchange for a cheque in payment of rent for the month. This continued until near the expiration term and here the case started to develop. According to the plaintiff, one of the employees of Luen Tai Manufactory asked her to continue or extend the lease upon the same terms as from March, 1972. The plaintiff disagreed because she wanted some more rent, and instead of $820 per month, she wanted $1,400 per month. She was persuaded and was agreeable, at that time, to accept for the month of March the same rent of $820, and such was entered in her record book - Exhibit 15(a). However, she was adamant that before any new lease could be created, or any extension could be given, the tenant was required to go to her solicitors to sign a new lease giving a new rent to the amount of $1,400 per month. The defendants failed to pay any rent for the month of April for obvious reasons which I shall mention later and failed to go to the solicitors to sign the lease probably for the same reason. The defendants continued occupation in March. In the meanwhile they moved a substantial portion of their belongings and machinery away from the premises. On the 21st of March, a fire broke out, and the premises were severely damaged, the damages extending to the outer wall of the building. That is probably why the defendants never went to the solicitors to sign the new lease, let alone paying any more rent.

5. The defence evidence, as given by the 1st defendant himself, is that the first and second defendants signed the lease together personally in their capacity as partners of Luen Tai Manufactory. The 1st defendant was indeed in charge for the first eighteen months or so after the commencement of the lease. By September, 1970, 1st defendant had relinquished control of the partnership business to his partner, the 2nd defendant, Mr. LEUNG Kwok-choy. By March, 1971, LEUNG Kwok-choy told the 1st defendant that the business was poor and the partnership was in debt and offered to the 1st defendant to buy up the partnership business because the partnership was in dire need of more capital. However, the 1st defendant was not in a position to put up any more money and as such he practically gave up his share completely without any compensation. LEUNG Kwok-choy then took over and incorporated the business into a company. Notice was then given to the Business Registration Office as to the cessation of the partnership business. However, the 1st defendant quite honestly admitted that he himself took no part in notifying the plaintiff as to the cessation of the partnership business. Nor did he notify the plaintiff from that time onwards that he was no longer a tenant. Nor did he notify the plaintiff that the lease had been given up to the new limited company by the name of Luen Tai Manufacturing Limited. Indeed, the changeover was so slapdash, according to the 1st defendant, that only one thing was changed: only the English name of Luen Tai Manufactory on the sign-board was changed by adding "Ltd." at the end of the name. The Chinese name remained the same.

6. I should add that there is evidence as to the estimate and the cost of repair. This has not been strongly challenged. The plaintiff paid for such repairs in the sum of $29,500.

7. The 1st defendant relies solely on the ground that the defendants, if they were in possession at all, they were not in possession by holding over but as a trespasser, and therefore not bound by the covenant of the agreement signed between the parties. As the plaintiff has relied completely on the tenancy-covenant, therefore the proceedings should be struck out. That is a preliminary point. The second line of defence is that the lease had been assigned to the new limited company to the knowledge of the plaintiff. The plaintiff had continued to receive rent from the new tenant and therefore by implication or by express consent had accepted an assignment of the lease to a new tenant for the balance of the term. The third line of defence is that at the end of the term, namely in February, 1972, the plaintiff had orally agreed with the principal or the officers of the new company, or an agent of the new company, to let the premises to the new company upon a new lease. Therefore the 1st defendant must be discharged from his obligations and therefore he is no longer liable or under any covenant of the old agreement. Lastly, it is suggested that the plaintiff also failed in her claim upon the principle of estoppel and res judicata in the sense that she, the plaintiff, had in 1972 obtained possession. Reference is made to Clause 2(m) relating to the tenant's obligation to redeliver the premises on expiration of the lease. At that time, the plaintiff could then sue for damages not only for the return of possession, but the return of possession of the premises in good condition. As the plaintiff had failed to do so, therefore the plaintiff must not be allowed to commence this action.

8. Case of Yat Tung Investment Limited v. Dao Heng Bank and Another⁽¹⁾ is cited in support of this last proposition. I shall deal with it first. The Yat Tung Investment Co. Ltd. case⁽¹⁾ was decided upon the fact that where there was a defence to the counter-claim, which was well within the knowledge of the appellant in that case at the time when the first action was brought, and yet the appellant in the first action did not see fit to pursue the said defence to the counterclaim in the first action. Because of this the appellant was barred from suing on such facts which he could have raised as defence to the counterclaim in the first action on the principle of res judicata, estoppel or frivolous or vexatious litigation. The ratio in that case, as I understand it, is directly binding upon me in principle since it is an appeal to the Privy Council from the Full Court in Hong Kong. I have said I am bound by that decision in principle but the facts in each case depend on its own merit. Had the facts in this case been exactly the same as in that case, of course I would be bound. However, in this particular case when the plaintiff claimed possession in the Original Jurisdiction action in 1972. No possession had been rendered to her yet. Despite the fire, the door of the premises was still locked and the plaintiff had no access. In any event the tenant's obligation under Clause 2(m) to restore the premises had not arisen until such time he delivered up possession. The very action in 1972 against the defendants to obtain possession amounts to asking the court to direct what the defendants ought to do. Before the delivery of possession was effected to the plaintiff, the plaintiff had no way of knowing the exact extent of damages or how to ascertain it. In fact, there was nothing to prevent the defendant, in the meanwhile, between the fire in March, 1972 and the judgment in September, 1972, to repair the flat into good condition. I cannot hold that the facts in this case are in any way similar to the facts in the case of Yat Tung Investment Company Limited⁽¹⁾. For this reason, I hold that the defendant's plea on this ground must fail.

9. I have already given a ruling in the application to me to strike out the statement of claim. It has been said that since the defendants are sued as trespassers for wrongly holding over, they are completely discharged from the obligation of the covenant in the said agreement. Again, until such time as the defendants rendered vacant possession to the plaintiff, there was no way the landlady could know whether the flat was in good condition and good repair. Furthermore, had I held otherwise and acceded to this application, then in every sense of the word the law is an ass, because if a tenant holds over and pays rent dutifully after the expiration of the term of the lease, then that he is held over upon the terms of the old lease and as such, he is liable to the full on all the covenant with the landlord. If he is dishonest enough or unreasonable enough to hold on to the premises without paying rent and thereby label himself by his own conduct and own default as a trespasser, then he is absolved from all the obligations of the covenants of the old lease and he can do whatever he likes and he can neglect the premises and leave it to a dilapidated state without being liable to the landlord. If I have no other authority to cite in disapproval of this proposition, I would only say that no law would allow a person to benefit by his own default, and those who have come to equity must come in clean hands.

10. That leaves me to decide upon the issue, first, whether there was an assignment of the lease and then whether the plaintiff had consented to such an assignment. I find as a fact and indeed there is no other evidence to contradict it, that the partnership business did stop on the 31st of March, 1971. However, I also find as a fact that the plaintiff had no notice of such assignment. Indeed, had the plaintiff any notice of the assignment, probably the plaintiff would there and then ask for some more rent for a change of tenant. The defendants were complacent enough to let the plaintiff continue under the mistaken impression that she was having the same tenants. The legal effect of this is this: that the defendants were still bound and still have privity of contract between themselves and the plaintiff. On the cessation of the partner-ship business, it would be obligatory for the defendants to notify the plaintiff, and on cessation of business the lease should have been terminated. But their defendants saw fit not to give notice. Insofar as the dissolution of the partnership is concerned, it may be binding between the two partners. As to a third person, to an innocent third party, certainly, the defendants may not escape liability by saying that they have ceased the business. As the defendants still have privity of contract in this agreement with the plaintiff, they are fully liable as to the covenant they have given to the plaintiff.

11. The second point is that the plaintiff had already given evidence that she didn't really care which tenant she was having provided they were not conducting a trade in respect of plastic materials. That may well be so. It is also said that she was prepared to grant the lease to whoever being the boss of the ground floor premises. That may be so. But I hold as a fact the plaintiff had at all material times been under the impression that the boss of the ground floor occupier was still the 1st and the 2nd defendants. Thus in Exhibit 15(A), the record which she kept contemporaneously, she put the rent was received from Luen Tai Manufactory, which was the name of the partnership, and from Mr. YEUNG Ming-hing, the 1st defendant. Besides, there is also evidence that for the month of March, the plaintiff was induced to accept rent for that month the same rent and continue the lease for another month at least. The fire took place in March. I find as a fact that the plaintiff, at all material times, had no knowledge of the changeover or of the assignments. She was still letting the premises to the two defendants and not to a limited company. Whatever happened between the two defendants, the plaintiff had no notice and was not bound by their personal arrangements.

12. Having accepted rent in March, the plaintiff was in fact allowing the defendants to hold over for a month until a new lease which would increase rent be singed. In the course of that month, the premises were burnt down and damaged. That is why, I presume, that the defendants never bothered to go and sign a new lease. Nor would they bother to pay rent, because by that time the premises would be of no use to them. Having regard to the circumstances, I am of the opinion that Clause 2(c) of the agreement, as well as Clause2(m) of the agreement or the lease apply to both defendants and they should, as the fire occurred in March, make good the repairs of the premises. By the time they chose or were forced to render vacant possession, they should have delivered up possession of the premises in good repair and condition. They failed to perform the covenants.

13. There is one further point in the pleadings. The plaintiff relies entirely on the covenant. There is no evidence adduced as to negligence. There is no evidence adduced as to what caused the wiring of the premises to short-circuit so as to cause the fire. Further, the covenants in Clause 2(c) and Clause 2(m) apply only to the interior of the premises. The outer wall in Item 8 of Document No. 12 relates to the repair of the outer wall. The defendants are not bound by the covenants to repair the outer wall. For this reason, the $4,000 allocated for the repair of the outer wall should be deducted from the total sum of $29,500.

14. I have decided that the defendants are in fact in breach of covenant due to the fact, first of all, that was privity to the contract, and that there had been a holding over of the old tenancy. Even if I were wrong in this, I hold that in law that they are liable even though there had been no holding over, but that the delay in surrendering the premises is due entirely to the fault of the defendants. As to the quantum of damages, I have already explained that the repair of the outer wall which costs $4,000 should, in my view, be deducted from the claim. For these reasons, I give judgment to the plaintiff in the sum of $25,500 against both defendants and costs should follow the event. The plaintiff should have costs.

Representation:

(1) (1975) 2 W.L.R. 690