Tan Hock Keng and Another v. Yeung Tat Chiu also known as Tom Young and Others

LDLA000981/1983

IN TEE LANDS TRIBUNAL OF HONG KONG

HOLDEN AT KOWLOON

APPLICATION NO. 981 OF 1983

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BETWEEN

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Coram:  Presiding Officer Judge D'Almada Remedios

Date of Judgment: 13th February, 1984

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JUDGMENT

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1. The Applicant's claim in these proceedings is for possession of Flat B on the 12th floor of Cambridge Building situated at No. 92 Waterloo Road.

2. This case is a sequel to K.C.J. Action No. 12733 of 1981. In that action (which I will refer to as "the previous proceedings"), the Applicant initially claimed possession of the premises the subject matter of this action the ground that her tenant, the 1st respondent (whom I will refer to by his name, Tom Young) in breach of his agreement with the Applicant had sublet the premises to the Hong Kong Aircraft Engineering Company Limited (hereafter, for short, referred to as HAECO). Between the issue of the writ and the hearing of that action, it would appear that the applicant discovered that HAECO had vacated the premises which were then sublet to a Mr. Michael Ainslie (hereafter referred to by his name, Michael Ainslie). An application was then made to have Michael Ainslie joined as second defendant and the writ was amended to include an alternative claim for possession on the ground that in further breach of the contractual tenancy the 1st respondent had sublet the premises to Michael Ainslie who is the 4th respondent in the action now before me. At the conclusion of the trial judgment for possession was ordered against both defendants. An application was then made by the applicant's tenant, Tom Young, for a review of the judgment. On review, the Court reversed its decision and set aside the order made.

3. In the proceedings now before me, Tom Young raised, inter alia, a plea of 'res judicata'. He invited me to deal with it as a preliminary point and I did so after the file in the previous proceedings was produced by consent for such purpose. I ruled that res judicata applied only to the claim against HAECO. I now give my reasons.

4. The file in the previous proceedings produced in evidence contains all the necessary material to apprise me of the issues involved, the evidence, the original judgment and the reasons for allowing the review. A decision arrived at on review merges the original judgment and is to be regarded as what the court finally decided although it is permissible to look at the original judgement to see in what respects and for what reasons the judge came to a finding or conclusion differing from what he had previously determined. It is sufficiently clear from the record of proceedings in the previous case that the judge, on review, accepted the point taken by Tom Young that at the time the writ was issued the second defendant (Michael Ainslie) was not yet a tenant nor was he in occupation of the premises; therefore, the cause of action vis-a-vis the alleged unlawful sub-letting to the second defendant did not exist at the time the writ was issued. An amendment to the writ to bring in the second defendant cannot produce a cause of action which did not exist at the date of the writ as such amendment takes effect not at the date when it was made but from the date of the original document which it amends. So the judge on review held that the claim insofar as it relates to the second defendant did not arise at the commencement of the action and, therefore, cannot be considered.

5. I do not see how the doctrine of 'res judicata' can apply if the applicant now seeks to pursue his claim in regard to the unlawful sub-letting to the second defendant as this issue had not been finally determined on the merits in the previous proceedings. As far as the sub-tenant HAECO is concerned the judge found on review that the applicant accepted rent with knowledge that the premises had been sub-let to HAECO with the result that the applicant's right of forfeiture founded on the sub-letting to HAECO in breach of the contractual tenancy was waived. As the controversy relating to right of forfeiture based on the sub-letting to HAECO had been adjudicated upon by a court of competent juris diction, it is not open to the applicant to re-litigate this same issue which appears to have been included among other grounds for possession in the action now before me. It follows from my ruling that the doctrine of 'res judicata' has no application except in regard to the sub-letting to HAECO. Indeed, it was stressed by the judge in his judgment on review that the breach the applicant knew of was the sub-letting to HAECO and that he did not know of other possible grounds for forfeiture and that it was during the course of the trial that the applicant became aware of other sub-lettings but did not to amend his pleadings to add further defendants. The judge went on to say:

It would appear, therefore, that the judge was not prepared to order a trial de novo to allow the applicant to re-amend for the purpose of pursuing such cause of action which the applicant may have against the second defendant or other parties in respect of sub-lettings that had come to his knowledge in the course of the trial.

6. Apart from the reasons I have just stated, I do not accept the submission of Tom Young that the failure on the part of the applicant to claim possession in respect of sub-lettings disclosed by him in the course of the trial amounts to waiver or to some form of estoppel akin to 'res judicata'. Nor do I accept the contention of Tom Young that because he had made disclosure in the course of the trial in the previous proceedings of other sub-lettings not previously known to the applicant, the failure to join those other persons as parties in that action or amend his claim to include additional breaches or further causes of action, is an abuse of the process of the court: see Gleason v. J. Wippell & Co. Ltd (1977) 3 ALL E.R. 54.

7. Tom Young became the applicant's tenant under a tenancy agreement in Chinese for a term of three years from the 1st December, 1978, at a rental of $3,700 per month. The agreement contains a clause against sub-letting and for forfeiture on breach.

8. The applicant's claim for possession is founded on two grounds: (i) sub-letting of the whole premises in breach of the contractual tenancy under section 53(2)(e) of the Landlord and Tenant (Consolidation) Ordinance if the tenancy is one that is 'continuing' under section 52; alternatively, forfeiture for breach at common law if section 53(2)(e) does not apply; and (ii) under section 53(2)(h) on the ground that the whole of the premises had been sub-let and Tom Young is not in occupation of any part as his dwelling.

9. In regard to the claim under head (i) as mentioned above, it would appear to me that for practical purposes whether it is a 'continuing' tenancy or not, is academic in view of the alternative claim for forfeiture. However, the claim under head (ii) can only be invoked if the tenancy is one that is continuing' under section 52.

10. I find on the evidence that the attorney for the applicant did agree, on the creation of the tenancy, to give to Tom Young a right of renewal for a further term of three years at a rental to be adjusted in keeping with 'the Government rent increase rent regulations' provided Tom Young pays his rent promptly and there is no breach of the terms of the agreement. Although the first respondent's tenancy was for a term of three years it was put to the applicant's attorney in cross-examination that within one year after the inception of the tenancy, on the 20th November, 1979, he gave due notice by letter, sent by double registered post, of his exercise of the option to renew the tenancy. Counsel for the applicant has raised several pertinent considerations before me to cast doubt on whether such a notice was in fact ever sent. The applicant's attorney denies having received such notice but based on the answer given by the attorney for the applicant in the previous proceedings (which was admitted in evidence by consent), I have come, with some hesitation, to the view that the letter was sent.

11. Tom Young appeared in person. Although he did not have the benefit of legal representation it soon became obvious to me that he was not handicapped thereby. He is fully conversant with the law of Landlord and Tenant and he conducted his case with skill and decorum without leaving any stone unturned.

12. His contention is that as soon as he exercised a right of renewal, the original term of three years became automatically converted into a lease for six years; so the tenancy remained unexpired at the date when these proceedings were commenced with the result that the tenancy is not one 'continuing' under section 52 of the Landlord & Tenant (Consolidation) Ordinance. This submission postulates that the tenancy was automatically renewed upon his exercising the option. But that is not correct. In the case before me the right to renew was subject to certain conditions. The uncontroverted evidence before me, which I accept, is that such right is only exercisable provided Tom Young pays his rent punctually and has not committed a breach of any term of the tenancy. The un-contradicted evidence before me is that he pays his rent late - usually on or about the 20th of each month. On Tom Young's own admission he had sub-let the premises during the initial term of the tenancy which is a breach of the agreement. The letter he wrote, therefore, can only operate as an intention to exercise the option when it becomes exercisable. When it was written his right to renew was inchoate. It was not exercisable until the conditions upon which it becomes exercisable had been performed. Having failed to observe or perform those conditions he is not entitled to and had lost the right to renew. This being so, I find that the tenancy is one that is 'continuing' under section 52.

13. It would be convenient if I briefly outline the incident that gave rise to the applicant's claim for possession. In August, 1981, Mr. Lee Tse Chin, the attorney for the applicant, at the request of Tom Young called at the suit premises to inspect damage caused by water seepage. That was the first time he had been to the premises since the inception of the tenancy in 1978. There he saw a foreigner in occupation. Mr. Lee, who does not speak English, did not converse with the foreigner but Tom Young who was there told Mr. Lee that the premises had been sub-let to the foreigner. As a result of Tom Young being informed by Mr. Lee that it was a breach of the agreement to sub-let entitling the applicant to possession, an offer was made by Tom Young to pay a higher rental and to have a new agreement signed. Despite two subsequent meetings between them no agreement could be reached. The final meeting was terminated by Tom Young informing Mr. Lee that he was not prepared to offer any rent increase. Mr. Lee then consulted solicitors. The writ in the previous proceedings was then issued in which possession was claimed on the ground that Tom Young had, in breach of the agreement sub-let the premises to HAECO. After the writ was issued, HAECO vacated the premises when it then came to be occupied by Michael Ainslie who is the 4th respondent in the proceedings now before me.

14. I now come to the history of the lettings relating to the suit premises as reflected by documents put in by consent. The picture is as follows:

15. Until the trial of the previous action the applicant had not heard of the existence of RASSIL. He did not know that the tenant, Tom Young, had sub-let the premises to RASSIL. All he knew about PACIFIC was that his tenant Tom Young worked in that company. He did not know that it is and was at all material times wholly owned by Tom Young or that PACIFIC had created lettings of the suit premises.

16. So, the applicant's case before me is, inter alia, that the first respondent, Tom Young, had sub-let the premises to the fourth respondent, Michael Ainslie through PACIFIC which is a company wholly owned by him; that in reality Tom Young sub-let the premises to Michael Ainslie but he devised a set of manoeuvres to enable him to contend that as the letting to Michael Ainslie was not by him but by a separate legal entity he did not breach the covenant against sub-letting; that if regard is had to the reality of the situation it was Tom Young who had sub-let the premises. In essence, I am being invited to lift the veil of incorporation of PACIFIC.

17. If the veil is not lifted, the letting of the premises by PACIFIC to the fourth respondent, Michael Ainslie, would not be a breach by Tom Young even if  he had covenanted for himself and his assigns. Where a lessee, who has covenanted for himself and his assigns that he will not sub-let or part with possession of the premises without the consent of the lessor, sub-lets them, the lessor cannot, if the sub-lessee further sub-lets without his consent, complain of such further sub-letting as a breach of the covenant by the lessee. A sub-lessee is not for that purpose an assign: Mackusick v. Carmachael (1917) 2 K.B. 581.

18. I propose now to analyse the related lettings. It begins with Tom Young sub-letting the whole of the premises to RASSIL which is a company owned by his wife. There is not much more I know about RASSIL. I do not know what business it carries on or indeed whether it carries on any business at all. It was incorporated on the 21st November 1975. An extract of a search in the Companies Registry shows that up to the present time there has been no allotment of shares notwithstanding that it was formed more than 8 years ago. What I do know is that Tom Young, for some reason , purported to lease the premises to RASSIL for a nominal sum of $200.- when the rent payable by Tom Young was $3,700.- per month and the market value at that time, judging from the rental payable by HAECO, was $7,000.- per month. Again, what objective could there be for RASSIL in turn to grant a lease to PACIFIC (which is wholly owned by Tom Young for the same nominal consideration?  No explanations were proffered by Tom Young who elected not to give evidence. RASSIL did not file any opposition or appear at the trial. In the absence of any explanation from Tom Young or RASSIL, I find the circumstances consistent with the inference that Tom Young, manipulated these lettings which were not arms length transactions but for the purpose of showing that when the premises are sub-let to a true tenant such sub-letting was not by him but by PACIFIC.

19. For Tom Young to enter into a tenancy with RASSIL at a rent which is illusory, and for RASSIL to do likewise and lease it to PACIFIC which is wholly owned by Tom Young is nothing more than a device to bring the position back to square one by letting Tom Young wear the mask of PACIFIC which is consistent either with the inference that Tom Young could exercise effective control over the affairs of RASSIL or that he acted in concert with his wife to bring about the end position I have mentioned. It is of interest to note, on the documentation before me, that on the same dame day that the premises were let to what I would call a real tenant, RASSIL caused the premises to be let to PACIFIC who then let the premises to the real tenant. Although these manoeuvres were orchestrated by Tom Young with some foresight and ingenuity, I do not think that the scheme he has devised has successfully enabled him to say that the landlord is without redress because it was not him but a separate legal entity who had let the premises to Michael Ainslie. In the unusual circumstances of the case before me, I feel justified in disregarding the corporate entity of PACIFIC and treat the letting to Michael Ainslie as a letting by Tom Young. In my view PACIFIC was used as a puppet of Tom Young to conceal the reality of the situation behind the legal facade and that the letting to RASSIL was part of the set-up to achieve that objective.

20. I do not think that Tom Young had any intention to abide by his covenant against sub-letting. Even while proceedings were pending in the previous action when HAECO vacated the premises, he took advantage to create another sub-letting to Michael Ainslie wearing the mask of PACIFIC.

21. Had I not been constrained on the facts to find that I should go beyond the personality of the company to the individual in the case of PACIFIC, the fact still remains that in breach of the covenant, Tom Young had sub-let the premises to RASSIL. This is also a ground relied upon by the applicant. Tom Young does not deny that he had sub-let the premises in breach of the agreement. But he pleads 'waiver'.

22. Tom Young pays his rent by posting cheques to Mr Lee, the applicant's attorney. In some cheques he has put a notation on it mentioning the address of the premises with the words in brackets "Sublet to other parties". These words are in English. Mr. Lee does not read or speak English. For reasons he has given which I need not go into, he merely looked at the figure in the cheque to see if it was correct and caused the cheque to be banked. He did not study the cheque carefully and did not notice the notation. I accept his evidence. I found him to be an honest and reliable witness. Tom Young, however, takes the point that the notation on the cheque amounts to imputed notice and operates as a waiver. I reject this argument. I do not see how a person can waive something he knows nothing about. The lessor's knowledge must be knowledge of the basic facts which in law constitute a breach giving rise to re-entry. If he is not aware of the facts giving him such right there can be no waiver. I also find no merit in the contention that after Mr. Lee saw a foreigner in the premises, the discussions to explore the possibility of settling the matter by entering into a new agreement at a higher rent, amounts to an act affirming the continuance of the existing tenancy. On the contrary, I would think that the facts show that Mr. Lee was not prepared to treat the tenancy as continuing unless some agreement could be reached.

23. In the previous action the court held that the subletting to HAECO was waived because although the applicant knew of the sub-letting in August, rent for September was accepted. It is submitted by Tom Young that 'waiver' means waiver of the whole covenant which operates as a total waiver of all sub-lettings and he prays in aid Dumpor's Case (1603) 4 Co. Rep. 119b. The rule in that case is that a licence to assign or sub-let operated as a total waiver of the condition against so doing, such condition being considered as an entire thing, not capable of being waived or released as to part only. Jurists have throughout regarded this doctrine as being unreasonable. It was abrogated by the Law of Property Amendment Act, 1859, ss. 1 and 2. The position is no different in Hong Kong. It was also abrogated by our Law of Property Amendment Ordinance, Cap. 24, ss. 2 and 3 which is the counter-part ss. 1 and 2 of the U.K. enactment. A licence or consent may have the effect of releasing a tenant from the restriction under the agreement. But waiver, in the strict sense of the word, does not necessarily have that effect. Accurately speaking, waiver is not the waiver of a covenant or condition or some part thereof but a waiver of the right to forfeit which has arisen from the breach. The breach the applicant knew of and which was waived was the sub-letting to HAECO. According to the applicant he was so told when he visited the premises in August 1981 and saw a foreigner there. According to Tom Young the applicant was told of the letting to HAECO at the end of July 1981 when the appointment was made to visit the premises. It was the acceptance of the September 1981 rent that constituted the waiver. So waiver was of the specific breach the applicant knew of which is the sub-letting to HAECO. He did not know of any other breach. I, therefore, find that in regard to the claim under section 53(2)(e), or for forfeiture in the alternative, even if the sub-letting to RASSIL is not to be regarded as a sham or illusory transaction, the right to possession arising from that breach was not waived.

24. In any event I do not see how the sub-letting to Michael Ainslie could possibly have been waived. Sub-letting is not a continuing breach. Each new sub-letting is a new breach. In Doe d Boscawen v. Bliss (1813) 4 Taunt. 735, it was held that a lessor who has a right of re-entry reserved on breach of a covenant not to under-let does not by waiving his re-entry on one under-letting loose his right to re-enter on a subsequent under-letting. The sub-letting to Michael Ainslie occurred after HAECO vacated the premises and at a time when Tom Young knew that the applicant was currently prosecuting an action against him in respect of the breach relating to HAECO. When the sub-letting to Michael Ainslie came to the knowledge of the applicant he had already ceased to accept rent and there is no evidence of any act of waiver on the part of the applicant. Indeed, Tom Young was aware that the applicant was not releasing him from the prohibition against sub-letting. Hence, Tom Young was driven to contend that the sub-letting was by PACIFIC and not by him. I have dealt with this contention but for completeness I would add: If Tom Young is right; if he did not sub-let to Michael Ainslie, then by the same token he did not sub-let to HAECO because, according to him, it was PACIFIC who sub-let to both HAECO and Michael Ainslie. If Tom Young did not sub-let to HAECO there was no breach, so there could have been no waiver: Mackusick v. Carmachel (supra). It is obvious, therefore, that the judge in the previous action found that it was Tom Young and not PACIFIC who sub-let to HAECO which is also implicit from the determination of the judge that the lettings to RASSIL and PACIFIC were fictitious. Tom Young cannot approbate and reprobate. As his case is that the sub-letting to HAECO was waived and he relies on res judicata, it must be on the footing that the sub-letting was by him and not by PACIFIC in which the case the sub-letting to Michael Ainslie was also by him. It is apparent, therefore, that had I not been pursuaded to lift the veil of incorporation of PACIFIC, he cannot be heard to say that he did not sub-let the premises to Michael Ainslie. If he is not precluded from so doing, the applicant can and has claimed, in the alternative, for possession on the ground of his sub-letting to RASSIL. It is not a breach that has been waived as the applicant was not aware of it until it was disclosed in the other action. It seems to me that from whatever angle one views this case, Tom Young finds himself hoisted by his own petard.

25. It only remains for me to deal with the claim by the applicant under section 53(2)(h) which entitles a landlord to obtain possession of premises if the tenant has sub-let the whole or any part thereof and does not himself occupy any part of the premises as a dwelling. Although it is not disputed that Tom Young does not reside in the premises, the proposition advanced by Tom Young in answer to this claim is that as the sub-letting to HAECO was waived, all sub-lettings incidental to that waiver are also waived. This argument is a red herring. The right under section 53(2)(h) is distinct from and unconnected with section 53(2)(e). It is a right given to a landlord even if the terms of the contractual tenancy contain no prohibition against sub-letting. I take the view that even assuming, for the sake of argument, that Tom Young had, by the terms of his agreement a right to create sublettings, legislation has stepped in to say, in effect, that after the contractual period of the tenancy has come to an end, the landlord may seek an order for possession if the tenant has sub-let and is not residing in the premises. In short, the section is intended to deprive a tenant from protection under the ordinance by reason of non-residence. The section came into operation on the 10th June, 1983 and applies to sub-lettings before or after that date. The right given to a landlord under that section did not exist until 1983. For waiver to apply, a right must exist before it can be waived and which is then to be followed by an act which unequivocally waives that right. I do not see how it can be said that the applicant waived his rights under section 53(2)(h) by the acceptance of rent in 1981 when the right under the section the applicant now claims was non-existent at that time, apart from the absence of any evidence that the applicant has done anything since then to constitute waiver. Accordingly, the applicant's claim succeeds on this ground as well.

26. There will be judgment for the applicant for possession and mesne profits as claimed. Although Michael Ainslie was legally represented, I was informed by his solicitors at the first day of trial that he is no longer interested in these proceedings as he has vacated the premises for which reason I gave leave to his solicitors to be excused from attendance during the trial. The contest in the action was really between the applicant and Tom Young although in passing I would mention that it appears to me that the fourth respondent should have been Price Waterhouse & Co. who rented the premises for their employee Michael Ainslie. However, no point turns on this or was taken by any of the contesting parties in regard to this aspect of the matter. I have, therefore, treated Michael Ainslie as the sub-tenant as the parties have argued the case on this basis.

Representation:

Mr. Petrus Chan instructed by Messrs. Leonard K.L. Heung & Co. for the Applicant.

1st Respondent in person present.

2nd & 3rd Respondents in person absent.

Mrs. S. Brand of Messrs Deacons for the 4th Respondent.