Elegant Profit Ltd v. Chung Lai Sang and Another

HCSA 8/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 8 OF 2005

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM

NO. 72756 OF 2004)

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BETWEEN

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Before: Hon A Cheung J in Court

Date of Hearing: 21 July 2005

Date of Judgment: 19 August 2005

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J U D G M E N T

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Issue

1.Can a landlord, who has sold his property subject to the tenancy in question, sue his tenant for arrears of rent that has become due and payable prior to the sale?  That short but interesting question is the only question raised by this Small Claims Tribunal appeal.

Facts

2.The Claimant is the former registered owner and landlord of a property in Hillwood Road, Kowloon.  The 1^st Defendant is its former tenant.  On 14 May 2004, the Claimant sold the property to a purchaser subject to tenancy.  Prior to the assignment, the 1^st Defendant has stopped paying rent, in clear breach of the tenancy agreement.

3.After the sale, the Claimant commenced proceedings in the Small Claims Tribunal for recovery of the arrears of rent that had accrued prior to the assignment.  The only defence raised was that as the Claimant had already assigned the property together with the tenancy to the purchaser, it no longer had the title to sue for the arrears of rent, even though the same had accrued prior to the assignment.

4.The Claimant’s claim against the 2^nd Defendant, a licensee of the suit property, was withdrawn prior to trial.

5.The Tribunal rejected the 1^st Defendant’s argument and gave judgment in favour of the Claimant in the total sum of $40,161.00.

6.Dissatisfied with the judgment, the 1^st Defendant appeals to this Court, and raises the question that I posed at the beginning of this judgment.

7.It is difficult to see any merits, in the general sense of the word, in the case of the 1^st Defendant.  But the defence it has been relying on, though technical in nature, appears to be well supported by authorities.

Common law position

8.The original common law position has been set out by Lord Denning MR in his judgment in Re King [1963] 1 Ch. 459, 481, in terms of three propositions as follows:

“	(i)	If the cause of action accrued exclusively to the assignor during his time (as, for instance, when compensation was to be paid to him for damage done to the land so that it became “merely a chose in action” severed from the reversion) then the assignor alone could sue and not the assignee: see Martyn v. Williams by Martin B.; but a covenant to repair does not fall into that category: see Watson B.
	(ii)	Failure to pay rent during the assignor’s time was a breach which caused damage to the assignor exclusively.  He alone could sue for it and not the assignee: see Flight v. Bentley where the judges of the Courts of Common Law (according to Shadwell, V.-C.) expressed the opinion “that, though the assignment would give, to the assignee, the entire title to the rent to become due on the quarter day next after the assignment, yet it was clear that the assignment would not, at law, pass the antecedent rent; for it had been severed from the reversion, and was a mere chose in action.”
	(iii)	If there was a breach during the assignor’s time which caused damage which continued to depreciate the property during the assignee’s time (as it would do in the case of a failure to repair or reinstate), then the assignee could sue in respect of the whole damage: for then it was annexed to the reversion and not severed from it.”

Statutory modifications

9.There were statutes passed in England changing the common law.  The position has been summarised in Megarry and Wade, The Law of Real Property (6^th ed.) para. 15-011 as follows:

“	(c)	Liability to the assignee of the reversion.  At common law, the benefit of a covenant did not pass on an assignment of L’s [i.e. the landlord’s] reversion to R.  Therefore R could sue T [i.e. the tenant] neither for his own breaches nor for those of A [i.e. the tenant’s assignee].  The Grantees of Reversions Act 1540 changed the law and gave R the same rights to sue T for breach of covenants as L had had.  It was thereby considered to create privity of contract between those who had privity of estate.  Despite some decisions to the contrary, it became established that T was liable to R for breaches of covenant committed by A, because L’s privity of contract passed under the statute to R.
		Although the Act of 1540 remained in force until the end of 1925, its provisions were extended but not superseded by the Conveyancing Acts 1881-1911.  The Conveyancing Acts did not expressly confer on R the same rights of suit for breach of covenant as L would have had, but instead annexed the benefit of covenants touching and concerning the land to the reversion so that the reversioner for the time being might enforce them.  Those provisions, as amended, were re-enacted by section 141 of the Law of Property Act 1925, …”

Section 141 of Law of Property Act 1925/section 31 of Cap. 219

10.For all practical purposes, section 31 of the Conveyancing and Property Ordinance (Cap. 219) is the Hong Kong equivalent of section 141 of the Law of Property Act 1925.  The local provisions read:

“	31.	Rent and benefit of lessee’s covenants to run with the reversion
	(1)	Rent reserved by a lease, and the benefit of every covenant or provision therein contained, having reference to the subject-matter thereof, and on the lessee's part to be observed or performed, and every condition of re-entry and other condition therein contained, shall be annexed and incident to and shall go with the reversionary estate in the land, or in any part thereof, immediately expectant on the term granted by the lease, notwithstanding severance of that reversionary estate, and without prejudice to any liability affecting a covenantor or his estate.
	(2)	Any rent, covenant or provision mentioned in subsection (1) shall be capable of being recovered, received, enforced, and taken advantage of, by the person from time to time entitled, subject to the term granted by the lease, to the income of the whole or any part, as the case may require, of the land leased.
	(3)	Where the person mentioned in subsection (2) becomes entitled as mentioned in that subsection by assignment or otherwise, the rent, covenant or provision mentioned in subsection (1) may be recovered, received, enforced or taken advantage of by him notwithstanding that he becomes so entitled after the condition of re-entry or forfeiture has become enforceable, but this subsection does not render enforceable any condition of re-entry or other condition waived or released before such person becomes entitled as aforesaid.
	…”

Re King

11.In Re King, the issue arose as to whether a breach of a covenant to repair in a lease committed by the tenant prior to the assignment of the reversion of the land by the landlord could be enforced by the assignee of the landlord.  Although all three judges came to the same conclusion, their reasonings were different. Their difference turned on the proper construction of section 141 of the Law of Property Act 1925.  In particular, it hinged on whether the provisions were merely declaratory of the pre-existing common law position, which was the minority view of Lord Denning, or whether those provisions changed the common law position in favour of the assignee, which was indeed the view of the majority comprising Upjohn and Diplock LJJ (as they then were).

12.According to Lord Denning (at pages 482-483), the provisions in section 141 had not changed the previous law, and his Lordship thought that the three propositions of law, which have been reproduced above, remained good law.  It should be remembered that whereas proposition no. (ii) dealt specifically with the question of rent, in Re King itself, what was in issue was a covenant to repair, which was covered by proposition no. (iii).

13.Both Upjohn and Diplock LJJ thought that section 141 changed the pre-existing law.  Upjohn LJ analysed the situation thus (at pages 487-488):

“I turn, then, to a consideration of the meaning of section 141 and construe the language used in its ordinary and natural meaning, which seems to me quite plain and clear.  To illustrate this, consider the case of a lease containing a covenant to build a house according to certain detailed specifications before a certain day.  Let me suppose that after that certain day the then lessor assigns the benefit of the reversion to an assignee, and at the time of the assignment the lessee has failed to perform the covenant to build.  Who can sue the lessee for breach of covenant?  It seems to me clear that the assignee alone can sue.  Upon the assignment the benefit of every covenant on the lessee’s part to be observed and performed is annexed and incident to and goes with the reversionary estate.  The benefit of that covenant to build, therefore, passed; as it had been broken, the right to sue also passed as part of the benefit of the covenant and, incidentally, also the right to re-enter, if that has not been waived.  I protest against the argument that because a right to sue is itself a chose in action it, therefore, has become severed from, and independent of, the parent covenant; on the contrary it remains part of it.  The right to sue on breach is merely one of the bundle of rights that are contained in the concept “benefit of every “covenant.”  The reasoning of the common law judges in Flight v. Bentley that rent which issued out of the land became severed after it had become due does not apply to a covenant.  Further, for my part I do not regard this authority as very satisfactory.  Shadwell V.C. does not appear to have heard full argument and his consultation with some common law judges (who heard no argument) seems to have been most informal.  To return to my example.  Suppose the right to sue for breach of that covenant did not pass, and that right remained in the assignor, then the assignee would take the lease without the benefit of that covenant and he could never enforce it.  So he has not got the benefit of every covenant contained in the lease and the words of the section are not satisfied.  That cannot be right.  The obligation to build being (as I have assumed) clearly defined by detailed specifications in the lease, it seems to me quite plain that the assignee could bring an action for specific performance compelling the lessee to perform his covenant to build.  That is one of the rights which passed to him when the benefit of that covenant passed.  The assignor has by the operation of section 141 assigned his right to the benefit of the covenant and so has lost his remedy against the lessee.  Of course, the assignor and assignee can always agree that the benefit of the covenant shall not pass, in which case the assignor can still sue, if necessary, in the name of the assignee.”

14.As far as practical considerations are concerned, his Lordship said (at page 489):

“I reject the argument based on the view that the assignee will pay less for the property because he purchases it without the benefit of the right to sue in respect of pre-assignment breaches.  That, with all respect, begs the question.  You must first ascertain what passes to the assignee.  The assignee may in fact be expected to pay rather less where some covenants remain unperformed because a covenant performed is worth more in a commercial sense than a covenant unperformed.  A property with a house on it is probably worth more than a property unbuilt though with an enforceable covenant to compel the lessee to build.  A property in repair is almost certainly worth more than a property out of repair though with an obligation on the lessee to repair.  But that is a matter of practical negotiation and nothing more.”

15.Finally, as regards the pre-Conveyancing Act 1881 cases, Upjohn LJ had this to say (at pages 489-490):

“We have been referred by counsel, whose researches were extensive, intensive and painstaking, to a vast body of authority dealing with the state of the law before the Conveyancing Act of 1881.  The Master of the Rolls has pointed out in his judgment that we were able to put most of them on one side marked “Not “to be looked at again” because so many of them hardly touched the fringe of the problem before us.  Upon a full consideration of the matter, I do so for an additional reason.  I would put all the pre-1881 authorities on the shelf “Not to be looked at again” because I do not think they form any safe guide to the law today.  Where the language of a statute is clear and unambiguous it is wrong to interpret the statute by reference to earlier law.  The language of the statute prevails.  Where the proper construction of the statute is doubtful or it appears to be ambiguous, it may be necessary to inquire into the relevant law before the passing of the statute, but in my opinion section 141 for all relevant purposes is clear and unambiguous.  Furthermore, great as is my respect for the Master of the Rolls as such and also as one of the editors of Smith’s Leading Cases, I cannot agree that section 10 of the Act of 1881 was declaratory of the existing law.”

16.Diplock LJ set out four possible answers to the issue before the court at the beginning of his judgment as follows (at page 494):

“Where the reversion to a lease is assigned after breach by the tenant of a repairing covenant, there are mathematically only four possible answers to the question: Who is entitled to sue the tenant for damages for the breach?  Namely, (1) the assignor of the reversion, (2) the assignee of the reversion, (3) both, and (4) neither.  The third and fourth possibilities would not be easy to reconcile with a just and rational system of law.

17.His Lordship went on to consider the wording of the section as follows (at pages 496-497):

“The “benefit” of a covenant to keep premises in repair or to reinstate them after fire is (as is apparent from subsection (2)) the right to enforce the covenant by exercising such remedies for its breach as are expressly provided by the lease, for example, by forfeiture or entry to execute the repairs and recover their cost, or as are available at common law, namely, by suing for damages for breach.  By subsection (1) this right to enforce the covenant in question is not only to be “annexed and incident to” the reversionary estate in the land, but also is to “go with” that reversionary estate.  The expression “go with” must be intended to add something to the concept involved in the expression “annexed and incident to” and in my view connotes the transfer of the right to enforce the covenant from the assignor to the assignee with the consequent cessation of the right to the assignor to enforce the covenant against the tenant.  Such remedies as the assignor was entitled to exercise in respect of existing breaches of covenant by the tenant become vested in, and exercisable by, the assignee.  This view of the meaning of subsection (1) is confirmed by subsection (3) which makes it clear that the assignee can exercise the remedies available under the terms of the lease or at common law in respect of breaches committed before the date of assignment of the reversion, for it is only in respect of such breaches that “the condition of re-entry or forfeiture” can have become enforceable before the assignee became entitled to the reversion.”

18.Diplock LJ then explained why the construction that he preferred would lead to a “simple, rational and just” result (at pages 497-498):

“Looked at purely as a matter of the meaning of the words used in section 141 of the Law of Property Act, 1925, I take the view that the effect of this section is that after the assignment of the reversion to a lease, the assignee alone is entitled to sue the tenant for breaches of covenants contained in the lease whether such breaches occurred before or after the date of the assignment of the reversion.  The effect of the section so construed is to enact a simple, rational and just rule of law.  The measure of damages for breach of a covenant in a lease which runs with the land––the only kind of covenant with which the section is concerned––is the diminution in the value of the reversion consequent upon the breach and is sustained by the person entitled to the reversion.  If upon an assignment of the reversion the benefit of such covenants, including the right to exercise remedies in respect of existing breaches, is transferred from the assignor to the assignee, justice is done to all three parties concerned.  The assignor suffers no loss, for the sale price of the reversion will take account of the value of the rights of action or other remedies against the tenant for antecedent breaches of covenant which are transferred to the assignee; the assignee will be able to enforce these remedies against the tenant; the tenant will remain liable for the diminution in value of the reversion caused by his breaches of covenant whenever committed.  Any other solution would lead to complication and injustice, particularly where there is a continuing covenant to keep in repair which, as in the present case, overlaps a covenant to reinstate within a limited time.”

19.In short, Upjohn LJ clearly thought that by virtue of section 141, the right to sue for breach of a covenant to repair that had taken place prior to the assignment could only be enforced by the assignee, but not the original landlord.  He left open a similar question relating to a covenant to pay rent, although it is quite apparent from what he had said in his judgment and the logic of his reasoning that he was inclined to the same view regarding a covenant to pay rent.

20.Diplock LJ did not specifically discuss the position of a covenant to pay rent or the correctness of the decision in Flight v. Bentley (1835) 7 Sim. 149, which, as Lord Denning had pointed out in his second proposition reproduced above, decided that the original landlord rather than the assignee of the reversion could alone sue for rent already in arrear at the date of the assignment.  That is not surprising because Re King was, on the facts, concerned with a repairing covenant.  But on my reading of his Lordship’s detailed judgment, the logic of analysis would apply equally to a covenant to pay rent as it applied to a covenant to repair.  Moreover, his Lordship, like Upjohn LJ, was also of the clear opinion that the right to sue for a past breach vested with the assignee alone.

London and County Ltd v. W. Sportsman Ltd

21.The fate of Flight v. Bentley was eventually determined by the Court of Appeal in the decision of London and County Ltd v. W. Sportsman Ltd [1971] Ch 764.  The facts of that case were rather convoluted, but for our present purposes, it would suffice to say that one of the issues raised in that case was whether an assignee of the reversion could sue and re-enter for rent already in arrears at the date of the assignment when the right of re-entry had arisen before the assignment.  In other words, that case was directly concerned with the breach of a covenant to pay rent committed prior to the assignment of the reversion.  Russell LJ (as he then was), giving the leading judgment of the court, with which both Lord Donovan and Megaw LJ agreed, dealt with the issue as follows (at pages 782H-784F):

“Taking the language of the section, I find it difficult to see how it can be said that rent due and unpaid by Miah for the quarters from March 1964 to June 1965 inclusive was not rent reserved by his lease, and accordingly annexed by the section and by the section made incident to and to go with the reversionary estate in the land on August 31, 1965.  Similarly it seems to me that the condition for re-entry for failure to make those payments of rent is apparently so annexed and made incident and to go.  Equally, it would seem correct to say that subsection (2) provides that the third party, as the person after the assignment of the reversion entitled to the income of the land, is entitled to recover that same rent and enforce its payment.  Similarly subsection (3) appears to me to provide that that person may recover that rent, notwithstanding that he became entitled after the condition of re-entry or forfeiture had become enforceable unless it had previously been waived.  That last subsection seems to me in terms to refer to entitlement to rent that had accrued due and payable before the assignment of the reversion, being indeed so much in arrear as to have produced an occasion of forfeiture.  …

In my judgment, the view expressed in Flight v. Bentley, 7 Sim. 149 on this matter is not now the law.  The language of section 141 (substantially re-enacting the earlier legislation from 1881 onwards) is such as, in my judgment, to indicate plainly that an assignee of the reversion may sue and re-enter for rent in arrear at the date of the assignment when the right of re-entry has arisen before the assignment.  The decision in Rickett v. Green [1910] 1 K.B. 253 was, therefore, correct, and the express assignment of the quarter’s rent in arrear was not necessary to the decision.  The other and major part of the decision in Flight v. Bentley, 7 Sim. 149 many years ago suffered an ignominious fate: see Moores v. Choat (1839) 8 Sim. 508 and Moore v. Greg (1848) 2 Ph. 717: and now the minor part is, in my judgment, to be disregarded.”

22.That, in my judgment, was a direct decision on the point raised in this appeal.  In my judgment, on a fair reading of Russell LJ’s judgment, his Lordship was of the view that after the assignment of the reversion, only the assignee, but not the original landlord, could sue for arrears of rent which had become due and payable prior to the assignment.  Flight v. Bentley was no longer good law.

23.Mr Coleman, appearing for the Claimant (former landlord) in the present appeal, argued valiantly that this was too wide a reading of the judgment of Russell LJ.  He pointed out, no doubt quite correctly, that Russell LJ, in the passages reproduced above, did not expressly or specifically say that only the assignee could sue for the arrears of rent.  He said that the judge did not say that the original landlord could not also sue for the arrears of rent.  In other words, counsel submitted that both the original landlord as well as the assignee could sue the tenant to recover the outstanding rent.

24.I am unable to accept the submission.  In my judgment, his Lordship was clearly saying, in the passages quoted above, that by virtue of the provisions in section 141, the assignee became the only person entitled to sue for the arrears of rent.  As the learned judge said (at pages 782H-783A), he found it difficult to see how it could be said that the past rent in that case “was not rent reserved by [the] lease, and accordingly annexed by the section and by the section made incident to and to go with the reversionary estate in the land on [the date of assignment]”.

25.In Russell LJ’s discussion of the judgments of the majority (on this point) in Re King, he could not possibly have forgotten what Diplock LJ had said at page 497 about the expression “go with” used in section 141(1) of the Act, which is worth reproducing again at this juncture:

“By subsection (1) this right to enforce the covenant in question is not only to be “annexed and incident to” the reversionary estate in the land, but also is to “go with” that reversionary estate.  The expression “go with” must be intended to add something to the concept involved in the expression “annexed and incident to” and in my view connotes the transfer of the right to enforce the covenant from the assignor to the assignee with the consequent cessation of the right to the assignor to enforce the covenant against the tenant.”

26.Furthermore, Diplock LJ clearly said at the beginning of his judgment in Re King (at page 494) that the option of both the original landlord and the assignee being entitled to sue the tenant for breach of covenant was “not … easy to reconcile with a just and rational system of law”.

27.As I commented above, it is plain from the judgments of Upjohn LJ and Diplock LJ in Re King, that both judges thought that the effect of section 141 is to make the assignee the only person having the right to sue for a past breach of covenant.  Russell LJ could not have possibly missed the point when he referred to Re King and used it as a logical premise for deciding the matter before him in London and County.

Arlesford Trading Co. Ltd v. Servansingh

28.Any doubt regarding what Russell LJ meant was removed by a subsequent case also decided by his Lordship, namely Arlesford Trading Co. Ltd v. Servansingh [1971] 1 WLR 1080.  In that case, the plaintiffs as assignees of the reversion sued the defendant as the original lessee for rent in arrear at the date of the assignment.  Russell LJ, giving the judgment of the court (comprising also Phillimore LJ and Lyell J) said (at pages 1082E/F and 1083B):

“It has been established in this court that an assignee of the reversion can claim, against the lessee, arrears of rent accrued prior to the assignment and to re-enter on the ground of the failure to have paid such arrears by force of section 141 of the Law of Property Act 1925: see London and County (A. & D.) Ltd. v. Wilfred Sportsman Ltd. [1970] 3 W.L.R. 418.  …

… The obligation on the defendant remained on him in his capacity as lessee under the lease, and the ability to enforce against him passed with the reversion to the plaintiffs.”

29.According to the learned judge, the ability to enforce payment of the arrears of rent against the tenant “passed with the reversion” to the assignee.  There can be no question of the assignor of the reversion retaining a concurrent right to recover the arrears.

Textbooks

30.My reading of these cases is shared by both English and local textbook authors/editors.  Thus Woodfall’s Law of Landlord and Tenant (looseleaf ed.), Vol. 1, para. 16.043 reads:

“It was formerly thought that the assignee of a reversion had no right of action against the lessee for arrears of rent which accrued due before the assignment; nor for damages for breaches of covenant committed once for all before the assignment of the reversion.  It is now settled that the right to sue, not only for continuing breaches, such as breaches of the repairing covenants but, indeed, for all breaches of covenant which have occurred before the assignment, vests in the assignee of the reversion under section 141(1) of the Law of Property Act 1925 and the assignor is divested of his cause of action in respect of them.  The same is true of the right to sue for arrears of rent due before the assignment.”

31.Megarry at para. 15-051 reads:

“

(a)

Assignee’s right to sue for previous breaches.  An assignee of the reversion acquires the right to sue for breaches of covenant committed before the assignment, and the assignor loses this right.  This has been held to be the result of section 141 of the Law of Property Act 1925, which provides that rent and the benefit of leasehold covenants (if they touch and concern the land) and conditions shall be “annexed and incident to and shall go with” the reversion.  As has been explained, the position of an assignee of the reversion differs in this regard from that of an assignee of the lease, who does not acquire the right to sue for prior breaches of covenant by the landlord.  The legislation has in this respect changed the previous law, which was that the assignor of the reversion and not the assignee could sue for rent due and other breaches of covenant committed before the assignment, not being breaches of a continuing character.  Thus in a case where, at the time of the assignment of the reversion, there were outstanding breaches of covenants to repair and reinstate the property, the assignee and not the assignor is the person entitled to sue.”

32.Locally, The Annotated Ordinances of Hong Kong (Cap. 219),para. 31.04 explains the law as follows:

“By virtue of sub-s (1) of [section 31], a landlord can sue a tenant for breach of covenants, including recovery of arrears of rent accruing before he acquired the reversion.  Subsection (2) overcomes a procedural problem to enable a person who is solely entitled to the income of the land, but is not the holder of the legal reversion, to sue in his own name on the leasehold covenants to enforce a right of re-entry.  Subsection (3) permits an assignee landlord, or other person entitled to sue for rent or to take action upon a covenant by virtue of sub-s (2), to enforce a right of re-entry or forfeiture based upon a breach of covenant that occurred before he acquired the reversion, provided that the right has not been waived.”

33.Lastly, Nield, Hong Kong Land Law (2^nd ed.), para. 14.2.2.2 is to the same effect.

34.It is true that the authors or editors all relied on the above English cases as authorities in support of their summaries of the law.  But my point here is that my reading of the relevant cases is well shared by the views of the authors or editors of the above works.

Hong Kong and Commonwealth authorities

35.Not only so, but His Honour Judge Sweeney, sitting as a master of this court, also came to the same conclusion in a very careful judgment given in the case of Oriental Solution Investment Ltd v. Sin Ka Wing [1999] 4 HKC 135.  In my view, that decision was correctly decided.

36.Neither counsel has referred me to any pertinent Commonwealth authorities.  In my own limited research, I only managed to locate a first instance decision of the High Court of Alberta, Canada, namely The Liquor Depot at Riverbend Square Ltd v. Time for Wine Ltd (1997) ACWSJ Lexis 157062, (1997) ACWSJ 417677, 72 ACWS (3d) 358, Fraser J (20 June 1997), where the Canadian court, applying London and County, held that after an assignment of the reversion, only the assignee but not the assignor was entitled to sue for a breach of covenant committed prior to the assignment.  In so holding, the court relied on the provisions in a Canadian statute which it said were provisions similar to section 141 of the Law of Property Act 1925 (see paras. 45-49 of the judgment).  However, as the actual wording used in the Canadian statute is quite different from section 141 of the Law of Property Act and section 31 of our Ordinance, I find the Canadian case to be of rather marginal assistance.

Further discussion

37.Mr Coleman argued that none of the English decisions, nor the decision in Oriental Solution, are binding on this Court.  That, in my judgment, is quite beside the point.  What is important is that, in my view, the relevant provisions have been, if I may say so with respect, carefully and correctly construed in the English authorities discussed above.  In other words, I agree with the reasonings and conclusion expressed in those cases.

38.Mr Coleman said that the English position would lead to injustice and unfair results, and counsel cited the present case as an example – counsel told the Court that the assignee of the property is simply not interested in suing to recover the arrears of rent and his client is left with no remedy if the English position is adopted.

39.I would not exclude the possibility of the English position working injustice in individual cases.  On the other hand, I can easily think of solutions that may be employed to overcome the supposed difficulty, particularly at the stage of the assignment.  Whilst an express reservation of the right to sue for arrears of rent that had already accrued would not give the original landlord a title to sue for the same (Oriental Solution at page 140G), a specific covenant in the assignment by the assignee to, as it were, lend his name to the assignor to bring such an action (subject to a suitable indemnity) would easily overcome the difficulty – such a covenant may be specifically enforced if the assignee should subsequently be unwilling to allow his name to be used in the recovery action.  Furthermore, as Diplock LJ pointed out in Re King (at page 497), the sale price of the property could easily take into account the fact that upon the assignment the vendor/original landlord would lose his right to sue for arrears of rent accrued prior to the assignment.  More fundamentally, as Upjohn LJ pointed out at page 489 of his judgment in Re King, practical considerations of this sort cannot affect the proper construction of the section – unless the construction would lead to a wholly unjust or even absurd result, which, generally speaking, cannot possibly be the case here.

40.For my part, the English position provides certainty, is workable and easy to apply, and is by no means unfair.  That there could be other possible solution(s) is neither here nor there.  The English position has been around for over 30 years, and in Hong Kong it is generally treated as representing the true legal position.  I see no reason to disturb the law, as it is understood now.  The position in England has changed after 1995 with the enactment of the Landlord and Tenant (Covenants) Act 1995: see Megarry at page 975 et seq.  The Act has not been followed in Hong Kong.  The subsequent change in legislation in England cannot affect the correctness of the English position prior to 1995, as was explained by the relevant English authorities discussed above.

41.On the other hand, as has been alluded to above, allowing both the assignor and the assignee to sue for past breaches (which is counsel’s proposition) would easily lead to confusion and inconvenience if not injustice, and put the tenant in double jeopardy.  The co-existence of such a right on the part of the original landlord to recover rent already due prior to the assignment and the express authorisation by section 31(3) for the assignee to exercise the right of forfeiture against the tenant based on the same non-payment of rent prior to the assignment would lead to a wholly unsatisfactory and confusing situation.  By the same token, the original landlord’s relief against the tenant for non-payment of rent accrued prior to the assignment would be quite limited as for obvious reasons, after the assignment, he could not exercise – as he no longer had – the right to forfeiture.  As Diplock LJ observed in Re King (at page 494), all this would be difficult to reconcile with a just and rational system of law.

Outcome

42.For all these reasons, the appeal must be allowed.  I so order.  I also order that judgment be entered for the 1^st Defendant against the Claimant.

43.As for costs, I make an order nisi that the Claimant do pay to the 1st Defendant the costs of this appeal as well as the costs in the proceedings below.  So far as the costs of the appeal is concerned, they are to be taxed if not agreed.  As for the costs below, if no agreement can be reached, the matter will have to go back to the tribunal for determination.  Unless either party should apply to vary the costs order nisi within 14 days after this judgment is handed down, upon the expiry of the 14-day period, the same shall become absolute.

44.I thank counsel for their assistance.

Mr Russell Coleman, instructed by Messrs James W.L. Li & Co., for the Claimant (Respondent)

Mr Wong Po Wing, instructed by Messrs Chan, Wong & Lam, for the 1^st Defendant (Appellant)