The Hongkong Land Co Ltd and Others v. Richard Edwin Austin Mason

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

Landlord and Tenant Appeal No.4 of 1974

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IN THE MATTER of Part II of the Landlord and Tenant
(Consolidation) Ordinance, Cap.7.

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Coram: Hooper, D.J. in Court.

Date of Judgment: 10 September, 1974.

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JUDGMENT

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1. This is an appeal from the decision of the Tribunal appointed to review the Certificate of Increase in Cert. No. 07477 relating to the premises at No.7B, Bowen Road, 10th floor, Flat A, which appeal is brought under the provisions of Section 60(1) of Part II of the Landlord and Tenant (Consolidation) Ordinance, Cap.7 as amended by Ordinance No.78/73 (hereinafter referred to as "The New Part II"). I understand that this is the first appeal under the New Part II to fall for determination in the Victoria District Court and it is unfortunate that the Respondent to this appeal did not attend at the hearing, or instruct a legal representative. The result is that I have not had the benefit of hearing argument, and have only the submissions advanced on behalf of the Appellant, with the exception of certain written representations set out by the Respondent in a letter dated the 18th of July. 1974 addressed by the Respondent to the Deputy Registrar, to which I shall refer in more detail later.

2. The Appellants called only one witness, Mr. Brook, the Assistant Manager of Hongkong Land Company Limited, who gave the history relating to the present appeal. The Appellants first applied for a Certificate of Increase under Section 57(1). Mr. Brook produced the Respondent's letter setting out his representations in respect of his application (Exhibit A2) and he produced the Certificate of Increase issued by the Commissioner in respect of this application (Exhibit A3). This Certificate number 07477 certified that the existing rent of three thousand six hundred dollars per month may be increased by four hundred and twenty dollars per month and was dated the 28th of March 1974. The Appellant then applied for review of the Certificate under Section 59(1). On being notified by the Commissioner of Rating and Valuation that the Tribunal had been appointed, the Appellants submitted their representations. However the Tribunal confirmed the previous decision and the Certificate was issued to that effect No.0288 (Exhibit A4). This certificate was of course issued in substitution for the former one. It is against this decision that the Appellants are now appealing.

3. Mr. Brook, who is a Chartered Surveyor, in his capacity as Assistant Manager of Hong Kong Land Co. Ltd. has testified that he is involved in the management of over six hundred residential flats overall of a high quality luxury accommodation. He has given a detailed description of the suit premises and submitted a plan showing the layout (Exhibit A6) and photographs showing the building itself (Exhibit A5) and showing the view from the floor above that in which the flat is situated (Exhibits A7(1), (2), (3) & (4)). He testified that the building is located very conveniently for Central District and not far away from Bowen Road. He produced four other tenancy agreements in respect of flats in the same building (Exhibits A8-11), all of which were signed this year. These agreements are all in respect of tenancies for periods of two years and range from rentals of eight thousand dollars per month to eight thousand five hundred dollars per month, exclusive of rates, depending to a certain extent on the floor on which the flats are situated. Mr. Brook is of the opinion that as his company has recently negotiated tenancies on the 14th and 15th floors at eight thousand five hundred dollars and very recently a flat on the 12th floor at eight thousand three hundred dollars per month, he would therefore expect to be able to obtain a rent in respect of the suit premises in the region of this figure, it being a flat only two floors below, that is on the 10th floor.

4. As the respondent was absent during the hearing, the evidence of Mr. Brook went unchallenged and uncontradicted by any other evidence.

5. On hearing this appeal the Court may, under Section 60(3) of the New Part II, confirm, vary or set aside the increase confirmed by the Tribunal and may make such other order as it thinks proper.

6. The procedure on this appeal is governed by the "Tenure and Rent of Domestic Premises Rules 1974", which were made under the enabling provisions of Section 73 of the New Part II. These rules require that the appeal shall be brought on a specified form setting out the grounds for appealing against the decision of the Tribunal. They also provide for an answer to be filed by the Respondent stating the grounds of his opposition and specifying the allegations which he disputes. There is no specified form for the answer. The rules also provide for notices to admit facts and notices to produce documents. They also provide that if the Respondent does not appear at the time and place set down for the hearing, the Court may, on being satisfied that notice of such time and place were served on him proceed to hear and determine the application or appeal. The Court may permit evidence to be given orally on oath or declaration or by means of affidavit.

7. It seems clear therefore that the appeal takes the form of a re-hearing on all disputed matters of fact and law. The appellant can no longer rely, as he could previously, on the Certificate of the Commissioner, being prima facie evidence that the increase stated therein was reasonable etc. Furthermore neither the Commissioner nor any public officer employed in the Department of Rating and Valuation nor any member of the Tribunal can be called to give evidence in proceedings before this Court (Section 68(1)).

8. There appears to be no statutory duty under this Part that the Commissioner or the Tribunal appointed under Section 59(2) should keep any record of their respective proceedings or give any reasons for their respective decisions. The obligation on the Commissioner under Section 58(1) is to issue the Certificate and to indorse thereon his determination of the facts in dispute.

9. In the present case there is no such indorsement on the Certificate Exhibit A3 and this Court has no means of knowing upon what basis the Commissioner or the Tribunal reached their decisions. Furthermore there is no provision for service of the Notice of Appeal upon either the Commissioner or the Chairman of the Tribunal to enable either of them to be present or be heard at the hearing of the appeal, as would normally be the case in appeals to the Supreme Court from any decision of any person or tribunal under Order 55 Rules 4 & 8 of the Supreme Court Rules. This Court is thus deprived of the considerable experience of the Commissioner and the officers of his department. Furthermore it would appear that this Court does not have the same inquisitorial powers as are given to the Commissioner under Section 70 of the New Part II.

10. In my view the burden of proving that the decision of the Tribunal is wrong is on the party so alleging and it is on the evidence before this Court that I should decide this matter.

11. The formula for arriving at increases in rent is set out in Section 58(2) of the New Part II. There are four factors which must be known, namely, the current rent, the fair market rent, the "appropriate factor" and the rateable value.

The Current Rent This is defined in Section 49 as meaning "the rent, exclusive of rates, payable by a tenant at the date of an application under Section 57". There is no difficulty on this factor because neither the appellant no the respondent disputes the figure of three thousand six hundred dollars which appears on the Commissioner's Certificate Exhibit A3. This is apparent from the grounds of appeal, and the answer thereto.

The Fair Market Rent This is defined in Section 49 in the following terms:

"Fair market rent means the rent, exclusive of rates, at which premises the subject matter of a tenancy to which this Part applies might reasonably be expected to be let on the terms of the tenancy (other than those relating to rent and duration of the tenancy) but disregarding the effect of this Part."

12. What does this mean? The phrase "might reasonably be expected to be let", with a slight variation, appears to have been borrowed from the rating legislation. It would seem that similar principles will apply in determining what is the rent at which the suit premises might reasonably be expected to be let.

13. It would thus seem to be the intention of the legislature that the test to be adopted is that of the hypothetical landlord, the hypothetical tenant, and the hypothetical tenancy, a test which is well known in relation to rating matters. This hypothetical tenancy would have the same terms as the present tenancy (other than those relating to rent and duration of the tenancy). It would seem to be obvious that the rent at which premises might reasonably be expected to be let must depend on the duration of the tenancy. In order to determine this rent, the Court must therefore also determine what might reasonably be expected to be the duration of the hypothetical tenancy. In doing so the Court must disregard the effect of this Part.

14. It is obvious that such matters as size and quality of the premises in question, their amenities state of repair and site convenience are all matters for consideration by the Court.

15. It does seem to me to be a basic principle that the premises must be assumed to be vacant and unlet, and that every intrinsic quality and every intrinsic circumstance which tends to push the rents in the market up or down must be taken into consideration. The rent should represent the figure at which the hypothetical landlord and the hypothetical tenant would come to terms as a result of bargaining for that tenancy in the light of competition or its absence in both demand and supply as a result of "the higgling of the market", on the assumption that the tenancy will not be controlled by Part II.

16. The use of the word "reasonably" in the definition would seem to indicate that the hypothetical landlord and the hypothetical tenant are reasonable beings, not out to exact from the other unreasonable or one-sided bargains, but both being free to negotiate according to normal considerations of what is fair. The test is therefore an objective one.

17. In the present appeal there is an issue between the parties as to the fair market rent. The appellant contends that there are no reasonable grounds upon which the Tribunal could hold that the fair market rent for the suit premises is five thousand seven hundred dollars. The Appellant also contends that the Tribunal failed to direct itself that, because certain specified flats in the same building having the same net floor area and the same amenities have recently been let to new tenants on the same terms of tenancy "other than those relating to rent and duration" at rents ranging from eight thousand to eight thousand five hundred dollars per month, it is reasonable to infer that the fair market rent is about the same level or the average of these rents.

18. Although the Respondent did not comply with Rule 8(1) of the Tenure and Rent of Domestic Premises Rules of 1974, he sent a letter to the Deputy Registrar asking that certain representations be brought to the attention of the Court or alternatively that the hearing be adjourned until sometime in September. As it appeared that the Respondent was in any event quite content to rest his case on the submissions in his letter, and because the Appellants were not agreeable to an adjournment, the case proceeded on the hearing date and his representations were noted by the Court. His first point is that the Appellants' contention seems to be that the fair rent of the premises is now five times that of the amount of one thousand eight hundred dollars per month, which was the rent at the time when the building was new in September 1966. He contends that this is a disproportionate increase. His second point is that the Appellants apparently base their case upon the rentals negotiated for recent new leases. He contends that if the purpose of the Ordinance is not to protect the public against exploitation by means of such rental levels, he cannot see that it serves any useful purpose at all.

19. I can see nothing in his first point, because the fair market rent must be determined in the light of the circumstances in the present day, and its ratio to rents which were being agreed in 1966 to my mind is of no assistance. He does not appear to be aware of the formula in Section 58(2) for calculating permissible increases in rent.

20. His second point cannot be dismissed so lightly however. It must surely be the case that Part II has has an effect upon the market rent levels today. The provisions of The New Part II are very much more favourable to the tenant, than they are to the landlord. Where parties are therefore entering into negotiations for a tenancy today, it would seem that these advantages both in respect of rent restriction, and security of tenure, must considerably affect the market rent and push it higher than would otherwise be the case. It seems to me that the hypothetical tenant today, disregarding the effect of Part II, would find himself in quite a different position from that of the tenants in the recent agreements.

21. Whilst I have no doubt that the Court can properly take into consideration recent rents negotiated on new leases to day, I feel that some discounting would have to be made for the effects of The New Part II. It seems to me that the rents which were being negotiated on new leases before the New Part II came into effect on the 15th December 1973, would be nearer the sort of rent at which the hypothetical landlord and the hypothetical tenant would reach agreement.

22. Unfortunately the details of the most recent new tenancies negotiated immediately before the 15th of December 1973 have not been disclosed to this Court. I find it very difficult therefore to reach any conclusion on the basis of comparisons of rent what the hypothetical tenant would pay today. To reach such a conclusion would require expert knowledge on all the relevant matters.

23. It may well be that Mr. Brook is an expert by reason of his experience in dealing with matters of this sort, but he has not been asked and has not given an opinion as to what rent a hypothetical tenant could reasonably be expected to pay today disregarding the effect of Part II. All he has said, in relation to rent, is that he would expect to be able to let the suit premises for a figure about the same level as the other specified flats.

24. As I have said before this Court does not know the basis upon which the decisions of the Commissioner and the Tribunal were made. I cannot therefore find, as the Appellants would have me do, that the Tribunal was wrong in principle or failed to properly direct itself on all relevant matters.

25. I am not satisfied that, on the evidence before me, I can hold that the Tribunal took into consideration any incorrect figure relating to the fair market rent. I cannot hold that the figure of five thousand seven hundred dollars, quoted by the Appellants as the figure upon which the Tribunal's calculations must have been based, is not the "Fair Market Rent".

"Appropriate factor" It is provided in Section 58(3) that the appropriate factor shall be five or such other figure as the Legislative Council may by resolution determine. In the absence of such a resolution, the appropriate factor at the time of this appeal is five.

"The Rateable Value" Section 58(5) provides that the rateable value of any premises for these purposes shall be ascertained in two ways, the first by reference to the valuation list declared on the 9th of March 1973 or as subsequently included in that list, the second by determination of the Commissioner in accordance with Section 7 of the Rating Ordinance of 1973. It also provides that the decision of the Commissioner shall be final.

26. In fact I do not know what is the rateable value of these premises. No evidence was presented to me from which I could ascertain the rateable value of the premises in the manner required. I was not informed whether the premises in question had been included in the valuation list etc. Neither was I informed as to any decision by the Rating Commissioner on the rateable value. No where in the grounds of appeal or in the answer of the Respondent, if his letter is to be regarded as an answer, is the rateable value mentioned.

27. In my view the burden is on the Appellants to show that the increase in rent confirmed by the Tribunal is incorrect. On the evidence before me, I am not satisfied that they have discharged this burden.

N.B. The increase in rent certified by the Commissioner and confirmed by the Tribunal was accordingly confirmed.

Representation:

Mrs. Wong of Deacons for Appellant.

Respondent absent.