Cheung Yu Hon v. Luk Ngai Ling Irene and Another
Read the full judgment text of CACV 100/2005 on BabelCite. This Court of Appeal judgment was delivered on 13 October 2005.
1. I agree with the reasons for judgment of Le Pichon JA.
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cacv 100/2005 in the high court of the hong kong special administrative region court of appeal civil appeal no. 100 of 2005 (on appeal from HCA NO. 7588 of 2000) _________________________ BETWEEN
_________________________ Before: Hon Rogers Acting CJHC and Le Pichon JA in Court Date of Hearing: 13 October 2005 Date of Judgment: 13 October 2005 Date of Handing Down Reasons for Judgment: 21 October 2005 _________________________ REASONS FOR JUDGMENT _________________________ Hon Rogers Acting CJHC: 1.I agree with the reasons for judgment of Le Pichon JA. Hon Le Pichon JA: 2.This is an appeal from the ruling dated 21 February 2005 of Deputy High Court Judge Poon on a preliminary issue to the effect that the defendants are debarred from raising at the trial what the judge described as “the warranty defence” by reason of issue estoppel. At the conclusion of the appeal, this court dismissed the appeal with written reasons to be given later. Background 3.The plaintiff is the grantee of land held under New Grant No. 12613 (“the Crown lease”) dated 18 March 1993. The plaintiff erected a building on the land. Special Condition 4 of the Crown lease provided that
Effectively, only commercial use was permitted. 4.On 11 June 1998, the plaintiff entered into a provisional agreement to let the first and second floors of the building (“the property”) to “Li Pak Sau (Cambridge Nursing Home)” for a period of three years commencing 1 July 1998 at a monthly rental of $75,000. Clause 2 of the provisional agreement described the use of the property as being for an “Old-Aged Home”. 5.The plaintiff and the defendants then entered into a formal tenancy agreement (“the agreement”) on 31 July 1998. It is common ground that both parties were legally represented in relation to the agreement. Against the heading “Permitted Use” in the Particulars on the first page of the agreement was the entry “non-domestic use”. The other provisions of the agreement pertinent to this appeal include the following:
The agreement also contained provisions against assignment or subletting as well as provisions for forfeiture and re-entry on default and non-waiver. 6.On 15 July 1998, the defendants, through their architects, applied to the Buildings Department for a change of user from shops to a residential care home for the elderly. It became evident from the reply dated 11 August 1998 a copy of which was sent to the plaintiff by the Buildings Department that the District Lands Officer was of the view that the proposed use contravened Special Condition 4 and that a lease modification would be required for the proposed change of use. 7.The plaintiff applied for a change of use to an old people’s home on 16 March 1999 but due to the objection of local residents, the application could not be processed. 8.About two months later, the plaintiff received a letter from the District Lands Office regarding the breach of Special Condition 4, demanding a forbearance fee of $90,297 for a three-month forbearance period unless the breach were remedied within 28 days. The plaintiff paid the forbearance fee demanded on 9 June 1999. This was the first in a series of payments made by the plaintiff in respect of forbearance fees. Although the plaintiff had invoiced the defendants for the forbearance fees, the defendants’ stance was that it was not their responsibility and refused to make payment. 9.In late April 2000, the villagers withdrew their objection to the proposed change in user and on 31 May 2000, the plaintiff paid an initial administrative fee in respect of a temporary waiver application. 10.Demand letters were sent by the plaintiff’s solicitors to the defendants to cease and desist from breaching the conditions of the grant in June 2000 and forbearance fees paid. The defendants ignored those demands continued to act in breach of Special Condition 4 and on 28 July 2000, the plaintiff instituted the present proceedings seeking vacant possession of the property for, inter alia, breach of Special Condition 4, reimbursement of forbearance fees paid to government, mesne profits etc. and damages. The defence raised (which the judge referred to as “the warranty defence” and which I propose to adopt for the purposes of this judgment) was that there was an express, implied or collateral warranty on the part of the plaintiff to procure, at his sole expense, the requisite modification or waiver of the Special Condition and to bear all forbearance fees levied by the government arising out of any non-compliance by reason of the defendants’ occupation prior to the waiver or modification being obtained. The statement of claim was re-amended on 27 November 2000 to include unlawful subletting as an additional ground for relief. 11.In April 2001, the master granted the plaintiff summary judgment for vacant possession against the defendants. In August 2001, Recorder Leong SC dismissed the defendants’ appeal. She found that the plaintiff was entitled to a possession order on two independent grounds: user and subletting. At the commencement of the trial of the action before the judge, the preliminary point on issue estoppel arose. It is the judge’s ruling on that point on 21 February 2005 that is the subject of the present appeal. 12.Before the judge, Mr Hung who appeared for the defendants conceded that issue estoppel had been created in respect of the six matters described in paragraph 13 of the judgment. Those included the following: there was no express warranty given; the defendants had breached Special Condition 4 and were in breach of clause 3(21) of the agreement. This appeal 13.Only one point arises in this appeal: whether the implied term as pleaded by the defendants could exist when the intended user was in breach of Special Condition 4 and clause 3(21) of the agreement. For the purposes of deciding whether or not the defendants are estopped from raising the warranty defence at trial, it is necessary to ascertain what the Recorder did decide as regards the warranty defence. 14.The defendants accept that they had breached Special Condition 4 resulting in a breach of clause 3(21) of the agreement. One of the defences raised was the plaintiff had acquiesced in those breaches as appears from paragraph 23 of the Decision. After referring to clause 5(4) of the agreement which was a non-waiver provision in favour of the landlord, the Recorder said:
By rejecting the defence of acquiescence and waiver, the Recorder rejected the warranty defence as a whole, both express and implied. I say this because if the plaintiff was under an obligation to procure the user modification, it would not be open to him to complain about the user, albeit that it contravened Special Condition 4 and breached clause 3(21), much less to obtain a possession order. For otherwise, he would be allowed to profit from his own wrong. I therefore agree with the judge’s conclusion at paragraph 18 of his judgment that had the Recorder not rejected the warranty defence that the plaintiff was under an obligation (be it express or implied) to procure the user modification, she would not have ruled that the plaintiff was entitled to forfeit the lease based on the user ground. To grant forfeiture in those circumstances necessarily meant the rejection of the warranty defence in its entirety. 15.On the appeal hearing, Mr Hung sought to distance himself from the wide ambit of the warranty defence as pleaded by submitting that the essential part was the obligation on the plaintiff to procure the user modification, and that it could be “plus or minus” the obligation to pay for the same. It was suggested that the plaintiff’s duty was to co-operate by procuring the modification. But that was not how the warranty defence was pleaded. As pleaded, it involved 3 elements: (1) an obligation on the plaintiff to procure the user modification; (2) such user modification was to be at the plaintiff’s sole expense; and (3) until such user modification was obtained, all forbearance fees were to be borne by the plaintiff. In my view, it would be remarkable that any landlord, properly advised, would have granted a lease on such terms particularly in light of the amount of rental involved. Be that as it may, as there was no appeal from the Recorder’s decision, the defendants are bound by it. 16.Mr Hung took additional points. It was said that issue estoppel could not arise where the defendants could not have appealed the Recorder’s decision. As I understand it, the argument was that as the Recorder was entitled to grant forfeiture on the subletting ground alone as to which the defendants had no defence, her finding on the user ground was ‘unnecessary’ and therefore the defendants could not have appealed from it. Mr Hung referred to Lord Denning’s observations in Penn-Texas Corporation v Murat Anstalt and Others (No. 2) [1964] 2 QB 647 at p. 660-661:
In the Penn-Texas case, whilst the ruling was that there was power in the court to order a limited company to produce documents, no order had been made against the English company to produce documents. Therefore there was nothing for them to appeal against. But in the present case it is clear that the Recorder considered that each of the two grounds (user and subletting) would have justified a possession order. Indeed she granted the possession order against the defendants based on the user ground before she went on to consider the additional subletting ground. See paragraphs 26 and 27 of the decision. The order made in paragraph 26 was plainly an order from which the defendant could have appealed. Had the user ground stood alone as the basis for the possession order, there is no question but that the defendants could have appealed. The existence of the subletting ground as an independent basis for the order made might explain why the defendants chose not to appeal but that is not to say that they could not have appealed. In my view, Penn-Texas is distinguishable. 17.Mr Hung also referred to Lake v Lake [1955] P 336 for the proposition that the right of appeal did not extend to a finding or a statement in the reasons given by the court for the conclusion reached. Lake v Lake concerned a husband’s petition for divorce based on his wife’s cruelty and adultery. The wife denied both charges but pleaded that if, contrary to her contention that she had committed adultery, it had been condoned. She cross-petitioned for a decree of judicial separation based on her husband’s cruelty. The commissioner dismissed the petition pronouncing in his formal order that the charges were not sufficiently proved and that the wife had not sufficiently proved the contents of her answer. The wife sought to appeal against a finding which she alleged the commissioner had made that she had committed adultery. But there was no concluded expression of opinion in the judgment on that issue. The so-called ‘finding’ stemmed from what transpired in a discussion with counsel at the end of the judgment as recorded in the transcript and not in the judgment itself suggesting that the commissioner did find that the wife had committed adultery. But in Lake v Lake, the issue of adultery and the finding thereon did not form the basis for the conclusions reached as recorded in the form of order or judgment. 18.In any event, whether or not my view that Penn-Texas and Lake v Lake are distinguishable is correct, in those cases no relevant order was made from which an appeal would have lain. The decisions are not authority for the proposition that there is no estoppel simply because the party alleged to be estopped chose, whether for practical reasons or not, not to appeal an order on one of the bases which grounds the estoppel in question. 19.It was further submitted that the plaintiff was estopped by convention from raising the question of issue estoppel. Johnson v Gore Wood & Co. (a firm) [2002] 2 AC 1 was cited to the court. The suggestion was that it was an abuse of process for the plaintiff to have allowed the action to proceed for 3½ years without raising the issue estoppel point until the first day of the trial, thereby lulling the defendants into thinking that the question of liability on forbearance fees was alive. When analysed, this complaint is little short of suggesting that the plaintiff was under some obligation to take steps to strike out paragraphs 7, 8 and 11 of the version of the defence before the judge. I can discern no valid basis for imposing such an obligation on the plaintiff. In my view, the defendants are themselves to blame for failing to appeal the decision of the Recorder and must bear the consequences.
Mr William Wong, instructed by Messrs Pang & Associates, for the Plaintiff/Respondent Mr Andy Hung, instructed by Messrs Lily Fenn & Partners, for the Defendants/Appellants |