Hang Seng School of Commerce v. Maunsell Consultants Association

CACV000082/1984

BETWEEN

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Coram: Sir Alan Huggins, V.-P., McMullin, V.-P. & Kempster, J.

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JUDGMENT

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Sir Alan Huggins, V.-P.:

1. This case requires us to decide what is the effect (if any) of a new agreement for a tenancy to commence immediately upon the expiration of the original term of a tenancy protected by Part II of the Landlord and Tenant (Consolidation) Ordinance where the tenant has not delivered up vacant possession.

2. The material facts were as follows. On 9th June 1980 the plaintiff Appellant granted to the defendant Tenants a tenancy of a flat for a term of two years from 25th May 1980. That tenancy was one to which Part II of the Ordinance applied. The Tenants went into possession. On 23rd March 1982 the Landlord agreed to grant to the Tenants a further term of two years to commence on 25th May 1982. That tenancy (if effective) would also have been within Part II of the Ordinance. The second agreement provided for a rent which was 30% higher than that originally agreed and the higher rent was in fact paid from 25th May 1982 until 30th September 1983. The first fixed term having expired on 24th May 1982, the Tenants on 7th June 1983 gave notice that they would deliver up vacant possession on 30th September 1983. The landlord objected that by virtue of the second agreement the Tenants would remain liable to pay rent at the increased rate until 24th May 1984. The Tenants tendered vacant possession on 30th September 1983 and maintained that they were no longer liable to pay rent. The Landlord contended that they could not in this way unilaterally escape liability to pay the rent reserved under the second agreement. On 5th September 1983 the Landlord took out an Originating Summons for a declaration that the second agreement was binding and that until the expiration of the term mentioned in the second agreement (i.e. 24th May 1984) the Tenants were liable to pay the rent reserved thereby.

3. It is common ground that upon the expiration on 24th May 1982 of the two-year term granted by the first agreement the original tenancy continued by virtue of s.52(1). That section was amended with effect from 11th June 1982, but the amendment is not material to the present case and the relevant part of the subsection is now in these terms:

It was argued before the judge that this subsection was materially different from s.6(1) of the Rent Increases (Domestic Premises) Control Ordinance from which it was derived. S.6(1) read:

The judge was of opinion that there was no material distinction for present purposes between those provisions, and I respectfully agree.

4. The original tenancy having been continued the Tenants remain in possession as "statutory contractual tenants". Unless the steps prescribed by s.55 of the consolidating Ordinance were taken, the Tenants were not obliged to pay the increased rent reserved by the second agreement. There was no evidence before the judge that such steps were taken, but nothing turns upon this, because the higher rent was paid until 30th September 1983 and the action relates only to rent said to be due thereafter.

5. It is not in dispute that the notice given by the Tenants was such that, but for the second agreement, they would have had the right to vacate the flat, thus terminating the statutory contractual tenancy. The case for the landlord is put in three ways:

6. The third contention was only tentatively advanced by Mr. Chang, who well appreciated the difficulties it involved. It was based solely upon dicta in NGAI Sau-ying v KHUE Kwok-keung 1982 H.K.L.R. 256 and WONG Chor-wan v YUEN Yau Civil App. 1983 No. 3 which were not necessary to the decision of those cases. For my part I cannot see how any intention to create a monthly tenancy could be implied where the "holding over" on 24th May 1982 (and possibly the subsequent payment  of rent, although the rent paid was an increased rent and might be said to point to a new agreement) was by virtue of a statutory right to remain in possession under the original, but continued, tenancy. I find no substance in the Landlord's third contention and say nothing further about it.

7. The first contention is based upon YU Tung-bik v Metro Dodwell Motors Ltd. 1975 H.K.L.R. 410, a decision of mine at first instance. There the tenant, who had been granted a fixed term of three years, sought to terminate his tenancy by delivering up vacant possession before the expiry of that fixed term and, therefore, before any statutory continuation could occur. What I there said was that there could be no termination of a tenancy under s. 53(1)(a) by delivery up of vacant possession unless the landlord were willing to accept vacant possession and that, as the landlord's refusal to accept vacant possession was at a time when, by reason of the agreement between the parties, he was under no obligation to do so, the tenant was not entitled to a declaration that the agreement was still subsisting. It must be remembered that s. 53(1)(a) had not then been amended into its present form and did not expressly apply only where the tenancy or sub-tenancy was "continuing under s. 52(1)": prima facie it applied also during the currency of the contractual fixed term. Nevertheless, whilst the decision in that case can be supported on the basis that it was the intention of the Legislature to protect the tenant and not to deprive it of its contractual rights, I now think that delivery up of possession is not dependent upon acceptance of possession by the landlord. That effectively undermines the first contention of the Landlord in the present case, because if there is no obligation to accept vacant possession there can be no question of relieving them from such an obligation.

8. I turn, then, to the Landlord's second contention, which is that the second agreement was a valid agreement but that it necessarily remained in a state of suspended animation until either the continued contractual tenancy came to an end or the term fixed by the second agreement expired, whichever happened first. Once the second fixed term expired the second agreement could have no further application. The trial judge's approach was to say that the second agreement was void by reason of its being inconsistent with the continuation of the original tenancy, and he seems to have assumed from that that the second agreement was wholly void and of no effect, save possibly in so far as it contained or constituted an agreement to increase the rent payable in respect of the continuing tenancy. Mr. Merry says that that was right, because the second agreement for a fixed term was` inconsistent with the statutory continuation of the original tenancy for an unlimited period and because the "duration clause" was so fundamental to the second agreement that the agreement could not stand at all once that clause was held to be void. He relied upon Capital Land Investment Co. Ltd. v SE Mong-kai 1973 H.K.L.R. 371, a decision of the Full Court. There the tenant held over and continued to pay rent upon the expiration on 5th February 1970 of a tenancy for one year. On 5th June 1970 the forerunner of s.52(1) came into force and on 28th July 1970 the parties entered into an agreement for a fixed term of one year commencing on 1st July 1970. That second agreement was followed on 1st July 1971 by a third agreement, which was for a further fixed term of one year from the expiration of the second but apparently with a clause which entitled the landlord to serve notice to quit and to recover possession on or before the expiration of that third fixed term. Notices were served but the tenant declined to move out. The court held that upon the expiration of the original fixed term the tenant continued in possession under the provisions of the Ordinance and that the subsequent agreements were void and of no effect in so far as their provisions conflicted with the incidents of the protected statutory tenancy.

9. Mr. Chang submits here that there is no real inconsistency at all between the second agreement and the continued tenancy and that the two could co-exist quite happily until the continued tenancy was terminated or the term fixed by the second agreement expired. He accepts that the second agreement could not create any estate in the land unless and until the Tenants had, after the expiry of the first fixed term, given vacant possession and had subsequently gone back into possession. He submits that until a person takes possession pursuant to an agreement for a tenancy he has only an interesse termini (see per Lord Justice Bowen in Gillard v Cheshire Lines Committee (1884) 32 W. R. 943) but that that is an interest which is not repugnant to an existing leasehold estate granted by a previous contract. If that be correct, he argues, the second agreement is not prevented from taking effect according to its tenor immediately upon the termination of the statutory continued tenancy and rent would become payable under the second contract instead of under the continued tenancy so long as the term granted by the second contract endured. He says that the idea of a contractual tenancy's being kept in abeyance in this way is not entirely novel and he points to Moodie v Hosegood 1952 A C. 61, although that case is obviously distinguishable by reason of the different natures of the English statutory tenancy and our statutorily continued contractual tenancy. If that be wrong, he nevertheless argues that the promise to pay rent is severable from the rest of the contract and that there is no reason in public policy why that promise should not be enforced. Mr. Merry submits that this difference destroys any assistance which might otherwise have been obtained from that case, because the English statutory tenancy confers only a status of irremovability and not an estate in the land. He says the repugnancy is to be found in the creation of two simultaneous estates, for it is his contention that, the Tenants being already in possession on 25th May 1982(albeit by virtue of the statutorily continued tenancy), the second agreement did not create a mere interesse termini but, as it purported to do, an actual estate in the land. He submits that it is not possible to sever the agreement to pay rent.

10. There can be little doubt that the parties thought they were creating a new tenancy which would take effect from 25th May 1982 and that that was their intention: the difficulties produced by this complicated legislation were probably not apparent to them and I suspect the position which has arisen is one which was not contemplated by the Legislature. But for the provision which continued the original tenancy the Tenants would from that date have been holding under the second agreement and would have been liable to pay rent until 24th May 1984. The question is whether the effect of s.52 of the Ordinance was to enable the Tenants to treat their clear and voluntary undertaking to pay rent up to that date as not binding upon them. That was an unmeritorious position to adopt and I can conceive of a case where a tenant, who in like circumstances had given up vacant possession, might suddenly change his mind and wish to take advantage of his second agreement. In such a case, if the Landlord's argument is correct, the tenant would have no right to re-enter into possession and the effect of the statute would be to his grave disadvantage.

11. I confess that I find it impossible to sever a promise to pay rent from the interest in land for which it is the consideration. The agreement is either wholly enforceable or wholly void. Not without some hesitation I have come to the conclusion that this legislation should not be construed as depriving a tenant under a protected tenancy from entering into a further contract for a protected tenancy. By so doing he is not depriving himself of the protection which it was intended that he should have and it would be absurd that he should be compelled to deliver up vacant possession before he could validly contract for a further fixed term.

12. Accordingly I would hold that the second agreement in the present case was not void and that the appeal should be allowed.

McMullin, V.-P.:

13. I agree that in the circumstances disclosed upon the evidence in the present case the plaintiff has an enforceable contractual right to recover the rent fixed by the agreement of the 23rd March 1982.

14. Although I did hot myself understand Mr. Chang to base himself expressly on the existence of an interesse termini in advancing his three propositions in the alternative before this court, he was, I think, content to accept it as a variant of his second argument. To my mind this is the appropriate avenue of approach to the reality underlying the situation. Rightly viewed it provides a just determination of the mutual rights and obligations of the parties to the action.

15. In Capital Land Investment Co. Ltd. v. SE Mong-kai⁽¹⁾ the landlord sought to recover possession of premises under the tenancy agreement which, if there had not already been in existence a monthly tenancy protected from termination by the provisions of the Ordinance, would itself not have created a protected tenancy but one which would have been subject to determination by the Notices to Quit upon which the landlord relied. That is a very different situation. The landlord there was solely concerned with recovery of possession and the Court's finding that the provisions of the subsequent agreement under which possession had been sought was of no effect, as against the existing protected tenancy, is to be understood in relation to the circumstances of that case.

Kempster, J.:

16. On 9th June 1980 the plaintiffs' predecessors in title granted to the defendants a lease of premises, happily named Harmony Lodge and situated at Tung Lo Wan, Shatin, for a period of 2 years running from 25th May of that year to 24th May 1982. It is common ground that such premises enjoyed the protection of Part II of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7). After the expiry of the term the defendants retained possession and the tenancy continued pursuant to the provisions of section 52(1).

17. Meanwhile, on 23rd March 1982, the plaintiffs purported to grant the tenants a reversionary lease to take effect on 25th May 1982 and expire on 24th May 1984. The first question which arises is whether or not such agreement had contractual effect.

18. Since the provisions for increased rent are not advanced by either side as material to the outcome of this appeal it is clear that the provisions of the reversionary lease in no way deprived the defendants of the protection afforded them by the ordinance in relation to the extended lease while Part II would apply to any tenancy taking effect under the reversionary lease, Increased rather than diminished security of tenure would be afforded by the grant of a two year term. Thereafter such tenancy would also indefinitely be extended pursuant to section 52(1). This is in marked contrast to the types of agreement considered in the English cases which were cited to and summarised by the Full Court in Capital Land Investment Co. Ltd. v. Madam SE Mong-kai⁽¹⁾ at page 377. Those authorities demonstrate the illegality of purported agreements by tenants not to avail themselves of the Protection afforded them by the Rent Restriction Acts if and when landlords take proceedings to recover possession. In my view public policy does not demand that an agreement which may inhibit a tenant from himself determining a lease during its term should be declared void but, on the contrary, that an agreement freely entered into, as in the present instance, should be honoured and sustained when it is not contended that its terms conflict with any statutory provision protecting tenants from eviction and unauthorised rent increases. Accordingly I find the agreement of 23rd March 1982 to have been valid. On the other hand the provisions of section 52(1) preclude any implied surrender of the earlier lease by operation of law. There is provision for express surrender in section 52A.

19. On 30th September 1983 the defendants delivered up vacant possession of the premises within the meaning of section 53(1) and thereby brought the tenancy created by the lease of 9th June 1980 to an end. Such delivery-up under an explicitly worded section is a question of fact namely whether or not the tenants removed themselves, any trespassers, goods, chattels and rubbish so as to give the landlords unimpeded physical enjoyment. It is common ground that they did. No question of acceptance of surrender by the landlords or of waiver of the tenants' right to deliver-up vacant possession can arise.

20. Once the tenancy created by the 1980 lease was so determined the defendants had no further interest in the premises as such though they had an "interesse termini" under the agreement of 23rd March 1982. They never perfected that interest by entry though, until the expiry of the term on 24th May 1984, they were entitled so to do. Accordingly they remained bound by their covenant to pay rent from 30th September 1980 until that date and, in the final analysis, that is what the action was about. No question of double payment arises as the defendants had paid at the rate required by the reversionary lease up to 30th September 1983 on the basis that it was an authorised increase under the extended lease while the plaintiffs were in no position to offer vacant possession under the reversionary lease and thus to require payment of the contractual rent thereunder at any earlier date.

21. It follows that in my opinion Deputy Judge O'Dea, who held that the reversionary agreement was void as being repugnant to the provision of the ordinance, failed fully to appreciate the reasoning of the Full Court in Capital Land⁽¹⁾. I would allow the appeal and order judgment to be entered for the declarations claimed in the Originating Summons dated 5th December 1983.

(1)    (1973) H.K.L.R. 371

23rd August 1984