Suen Chung Kee Danny and Another v. Luk Shu Kuen Irving

LDLA000079/1984

Property law - forfeitures, surrender, repudiation - assessment of mesne profits where delay between date of forfeiture and date of judgment - claim for damages equal to rent from delivery up of vacant possession to the date of the contractual expiry of the residue of the duration of tenancy agreement had there been no forfeiture - Held: 1. Mesne profits awarded for a total amount less than the rate of rent to the date of judgment. 2. Claim for damages rejected on procedural grounds.

IN THE LANDS TRIBUNAL OF HONG KONG

Application No. L.T. 79 of 1984

TRIBUNAL: His Honour Judge Cruden, Presiding Officer

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JUDGMENT

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1. The applicants were the landlords of the respondent in respect of the domestic premises being Flat H, 27th Floor, Fu Kar Court, Fortress Garden, North Point, Hong Kong under a tenancy agreement for 2 years from the 16th day of September 1983 at a rent of $4,300 per calendar month. The respondent is no longer in possession of the suit premises. The present dispute which comes to be determined on the instant application is limited to any outstanding monies owing between the parties.

2. In terms of the tenancy agreement the respondent had paid to the applicants at the commencement of the tenancy a deposit of $8,600 and the first months rent on the 16th day of September 1983 of $4,300. Vacant possession was given to the respondent on the 16th day of September 1983 but I accept that he has never physically resided or used the suit premises. The latter fact is immaterial to the major issues in dispute. However to complete the factual background I record that the respondent has throughout resided at Flat D, 7th Floor, Rialto Mansion, 183 King's Road, Hong Kong and has carried on business at Rhenish Centre, 16th Floor, 248-250 Hennessy Road, Hong Kong.

3. The respondent alleges that when he agreed to enter into the tenancy agreement the applicants then solicitors managing clerk, Mr. K. Wong, further orally agreed on their behalf that the tenancy was subject to the approval of the respondent's wife who was then overseas. Mr. Wong has denied that there was any such oral agreement. All the evidence was by affidavit. I am unable to find, on the evidence, that the tenancy agreement was subject to any such condition.

4. The respondent states that when his wife returned to Hong Kong during October 1983 she disapproved of the suit premises and he then unsuccessfully sought to obtain, through Mr. Wong, a surrender of the tenancy. On 11th November 1983 the applicants solicitors wrote to the respondent drawing his attention to the fact that the second month's rent due on 16th October 1983 had not been paid and that the applicants were entitled to re-enter and forfeit the tenancy. The letter gave notice that if the arrears were not paid within 7 days proceedings would be issued for payment and also for recovery of possession.

5. On 28th November 1983 the respondent attended on Mr. Wong, at the applicants then solicitors offices, and handed him the key to the premises which he asserted was accepted in termination of the tenancy. Mr. Wong agrees that he took possession of the key but states that he informed the respondent that he would have to obtain the applicants instructions whether they agreed to termination and that the key was accepted subject to that condition. On the evidence I am not satisfied that the key was accepted in termination of the tenancy agreement. On 30th November 1983 the applicants solicitors again wrote to the respondent informing him that he was now 2 months rent in arrears and confirming Mr. Wong's view that the key had only been conditionally accepted on 28th November 1983.

6. On 14th December 1983 the applicants issued proceedings in which they declared that they were forfeiting the tenancy and claiming an order for possession, the forfeiture of the deposit of $8,600, arrears of rent, mesne profits and further or other relief together with costs. The application was served on the respondent on the 16th day of December 1983 but he elected not to file nor has he at any time filed a notice of opposition. The respondent had within 14 days of the service of the application upon him to file a notice of opposition. No notice of opposition being filed within that time, it was open to the applicants to have applied for orders in default against the respondent after the expiration of those 14 days, namely on 29th December 1983. Application for orders in default was filed on 15th February 1984 with the Lands Tribunal, Victoria Registry where the proceedings had been initiated. It was only when the Deputy Registrar, Lands Tribunal, Victoria Registry was considering the latter application that it was discovered that the proceedings were in respect of Part IV premises under the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 and should therefore have been commenced in the Lands Tribunal, Central Registry. After various minutes the proceedings were transferred to the Lands Tribunal, Central Registry. However, these complications resulted in orders in default, pursuant to Rule 13A of the Lands Tribunal Rules, not being entered until 13th March 1984.

7. Subsequently the applicants applied for a writ of possession and fieri facial which was issued on 9th April 1984. In enforcement of the latter writ the bailiff attended at the respondent's business premises at No. 248-250 Hennessy Road at the end of June 1984 when the respondent paid into Court the sum of $29,592.83 representing arrears of rent and mesne profits to 8th May 1984 together with costs.

8. The instant application is concerned with the application of that sum. The respondent submitted that the tenancy had been surrendered by agreement on 28th November 1983 and rent was payable only down to that date. In his affirmation in support of the summons he asserted that the deposit of $8,600 was available to the applicants in satisfaction of the rent due for October and November. Accordingly no further monies were payable.

9. If the evidence did not establish termination by agreement then the respondent submitted, in the alternative, that the tenancy agreement had been forfeited by the applicants action in issuing the substantive application for possession. The respondent recognised that the general rule was that in those circumstances rent was payable to the date of service of the writ and thereafter mesne profits until the date of judgment or the delivery up of vacant possession whichever event last occurred. Here, it was submitted, vacant possession was available to the applicants by the date of judgment. However, the respondent further submitted that the applicants had unduly delayed in obtaining judgment and that mesne profits were only payable in respect of January 1984 by which time the applicants should reasonably have obtained judgment.

10. The applicants denied that there had been any agreement to surrender the tenancy in November 1983 and also denied that there had been any undue delay in obtaining judgment.   The applicants submitted that they were entitled to arrears of rent to the 16th day of December 1983; nesne profits at the same rate to 13th March 1984; and thereafter damages at the same monthly rate for the residue of the original tenancy agreement which, if it had not been forfeited, would have expired on the 15th day of September 1985.

11. I find that the tenancy agreement was not surrendered by any agreement on 28th November 1983. Instead I find that the tenancy agreement was later forfeited by the applicants on the ground of the respondent's default.

12. The sum of $8,600 was deposited with the applicants, under Clause (p) of the tenancy agreement, as security, inter alia, for the due observance and performance of the tenancy agreement. The tenancy agreement having been forfeited on the ground of the respondent's default, that sum of $8,600 would also, in the normal course, be forfeited. Counsel for the respondent properly conceded that the applicants were lawfully entitled to retain the deposit as having been forfeited to them. Accordingly, I order that the applicants are entitled to retain the sum of $8,600.

13. The parties were further in agreement that arrears of rent were payable by the respondent from 16th October 1983, at the rate of $4,300 per calendar month, to the date of service of the substantive application, namely 16th December 1983. I make a further order in those terms.

14. The parties were also in agreement that mesne profits, at the rate of $4,300 per calendar month, were payable from 16th December 1983. However, the parties hotly disputed the period for which mesne profits were payable. In accordance with the general rule, counsel for the applicants claimed mesne profits down to the date of judgment, namely 13th March 1984 - Canas Property Co. Ltd. v. K.L. Television Services Ltd. (1970) 2 W.L.R. 1133. Counsel for the respondent recognised that general principle but submitted that it was subject to the exception referred to in the Tribunal's judgment in Colgan Co. Ltd. v. Ethitrade Ltd. L.T. No. 153/83. The Tribunal had observed at page 21:-

"... if a landlord after a tenant vacates takes time before obtaining an order for possession mesne profits would be payable over a much longer period than if they ceased upon a tenant vacating. If this were the position it might appear that a landlord, having elected to forfeit rather than merely sue for arrears of rent simpliciter, would end up enjoying the advantages of forfeiture while minimising its disadvantages.

This fear seems to be more imagined than real. Mesne profits are not rent but damages although in quantum the two are frequently identical. Upon forfeiture a landlord has a common law duty to the tenant to mitigate his loss which generally would involve, once he has made an irrevocable election to forfeit, proceeding with his application expeditiously to recover vacant possession and thereupon use the premises for his own benefit whether by self-occupation, reletting or otherwise.

Where a landlord delayed obtaining an order for possession or was otherwise dilatory that would be a relevant factor for the Tribunal to take into account in the assessment of mesne profits. It would thus be open to the Tribunal to disallow a claim for mesne profits for any period it held in the circumstances to be unreasonable. "

15. On the other hand, the Tribunal recognised that after service of the proceedings it would usually be reasonable for a landlord to refrain from physically entering into possession, even if the tenant had apparently vacated, until the issue was put beyond doubt upon an order for possession being granted.

16. In the instant case there is, on the face of the proceedings, an apparent long period between 29th December 1983 after which application for orders in default could have made and the actual application on 15th February 1984. The making of the orders, because the application had been filed in the wrong Registry, was further delayed until 13th March 1984. The period down to 15th February is, at worst, only a little longer than could reasonably have been expected. The further delay to 13th March 1984 was in part only the fault of the applicants. For the application seems to have been erroneously accepted by the Victoria Registry. On the other hand the respondent was not directly responsible for any delays between 29th December 1983 and 13th March 1984 yet it was his earlier default which led to the necessity of the forfeiture proceedings. Taking all these considerations into account, I am prepared to allow mesne profits from 16th December 1983 for a total sum of $8,600 which is a rather lesser sum than if mesne profits were calculated from 16th December 1983 to 13th March 1984 at the rate specified in the default order of $4,300 per calendar month.

17. I would record that it was common ground that I had jurisdiction to make an award which had the effect of varying the default order. The Rule 13A application for default orders particularised arrears of rent from 16th October 1983 to 15th December 1983 and a default order was made in those terms. However, the default order for mesne profits was open ended being for mesne profits from 16th December 1983 until vacant possession was delivered up. The instant application, although not expressly applying to vary the default order for mesne profit, does so by implication. For it seeks:-

"... an order determining what is the recoverable ... mesne profits ..."

18. Rule 13A (7) itself provides express power to vary or set aside default orders obtained under that Rule in these terms:

19. I am well satisfied that I have power under Rule 13A (7) to vary the default order for payment of mesne profits in the manner already set out. I appreciate that the instant application was not expressly recited to be pursuant to Rule 13A (7). However, I am also mindful of the recent judgment of the Chief Justice, sitting as President of the Lands Tribunal, in Kwan Chow Po Wan v. Fok Ming & Ors. L.T. 255/84 in which he emphasised that:

20. By comparison the Tribunal's power under Rule 13A (7) is at least as wide as the High Court's considerable similar powers under R.S.C. Order 13 Rule 9 - 1 "The Supreme Court Practice 1982" 155.

21. In these circumstances it is quite clear that on the present application I have jurisdiction to make an order for mesne profits which has the effect of varying the sum previously payable under the default order.

22. The remaining dispute was whether the applicants were entitled to damages equal to the rent which would have been received from 13th March 1984 to the contractual expiration of the tenancy agreement on 15th September 1985, had it not been forfeited. The respondent opposed this claim and cited the judgment of Barnes J. in Hop Woo Cheung Enterprises v. Intergroup Industries Ltd. H.C.A. No. 4760/81 referred to in Colgan Co. Ltd. v. Ethitrade Ltd. Barnes J. had held that where non-payment of rent, while giving rise to the right of forfeiture in favour of a landlord, did not amount to repudiation of the tenancy by the tenant, the landlord could not claim damages for non-performance of the contract for the residue of the term of the tenancy which would have continued to run but for such forfeiture.

23. Counsel for the applicant cited the more recent judgment of Mantell J. in Annie Chan v. Lau Wai Kwong & Ors. H.C.A. 5062/82 delivered earlier this year in which it was held that in the case of a repudiation by the tenant an action for damages could be brought by the landlord for the latter period considered by Barnes J. There is probably no direct conflict between these cases. However, while Mantell J. accepted that no action for damages could be brought where there was prior determination by surrender he qualified his observations in relation to forfeiture in these words:-

"Well, I accept that had there been a surrender here, and possibly if there had been forfeiture, on the authorities there could be no claim by the landlord in relation to the unexpired portion of the tenancy. "

24. Of wider interest was the willingness of Mantell J. to apply in Hong Kong the Canadian Supreme Court decision Highway Properties Ltd. v. Kelly, Douglas & Co. Ltd. (1971) 17 D.L.R. (3d) 710. Earlier the Court of Appeal in Po Wai & Anor v. H.E. Pfeifer C.A. No. 87/83 seems in passing to have made a relatively neutral observation on the Canadian case, although on the facts on appeal, it held that it was unnecessary to consider the Canadian case:-

"... an interesting case decided in Canada called Highway Properties Ltd. v. Kelly Douglas & Co. Ltd. which suggests that the previously held view that a breach of a tenancy agreement could not be treated as a repudiation and accepted as such, so as to allow an untrammelled claim for damages for breach of contract may be wrong. The Canadian case was mentioned with approval by the House of Lords in National Carriers Ltd. v. Panalpina (Northern) Ltd. As a result the authority of Total Oil Great Britain Ltd. v. Thompson Garges Ltd. to the contrary effect is, to day the least, open to question. However, the present case does not offer this court the opportunity of considering the application of such an interesting point of law ..."

25. With respect to the very helpful submissions of Counsel, it seems to me that I can dispose of the claim for damages on the simpler grounds I raised with Counsel during argument. First, neither the grounds in the application or the prayer for relief refer to any claim for damages. Secondly, the application pursuant to Rule 13A for default orders particularises the default orders sought. No order for damages was sought. No order for damages was made. The law is well settled that where judgment or orders are obtained by default, a plaintiff or applicant cannot obtain any relief which he did not expressly claim in his pleadings - 1 "The Supreme Court Practice 1982" 339, R.S.C. Order 18 Rule 15/1. Default orders were made precisely is terms of the applicants own application. Later a Writ of possession and fieri facias was applied for, granted and enforced in terms of those orders. The sum of $29,592.83 later paid into Court was the total sum owing under that writ.

26. Counsel for the applicants referred to the incidental and 4th claim in the substantive application for "Further or other relief" and submitted that damages could be awarded under that prayer. However, as already recorded, default orders on the applicants own application have already been granted without any prior amendment to the application being sought to include damages. Nor understandably is any amendment sought now. For thin is clearly not a case where an amendment after judgment would be made - R.S.C. Order 20 - 1 'The Supreme Court Practice 1982' 373. More simply this late claim for damages must fail for the applicants never sought judgment for damages but obtained default orders for only the 1st, 2nd and 3rd claims particularised in that application.

27. I would record that I am solely concerned with the termination of a tenancy agreement by forfeiture founded on the tenant's default. I am not at all concerned with either of the other two suggested alternative forms of termination, namely on the one hand contractual bilateral surrender, or on the other hand, unilateral repudiation. This is a forfeiture case and not a surrender or repudiation case. In the circumstances, perhaps fortunately, it is unnecessary for me even to consider the state of the existing substantive law relating to the right to damages in forfeiture cases. For on the procedural grounds alone, which I have set out, it is abundantly clear and I so hold, that the applicants are not entitled in the present proceedings to damages for the period from 13th March 1984 to 15th September 1985.

28. In the result the applicants are entitled to:-

29. I record that the applicants have since the commencement of the tenancy agreement, subject to its terms, held the deposit of $8,600. They may now appropriate that sum for their own benefit. From the further sum of $29,592.83 paid into Court by the respondent, the applicants are entitled to the arrears of rent and mesne profits totalling $17,200 plus the proper costs of the writ of possession and fieri facias. No costs were sought or granted under Rule 13A on the default orders. Liberty is reserved in respect of any remaining costs or other consequential matters.

DATED this 4th day of September 1984.

Representation:

Mr. T.C. Foo of Foo & Li for the applicants.

Mr. H. Lui of Ronald Ho & Co. for the respondent.