Yue Wah Chuk Richard and Another v. Mckeon Brendan Hugh

DCCJ 7088/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 7088 OF 2003

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BETWEEN

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Coram: Deputy District Judge W.C. Li in Court

Date of Trial: 6^th November 2006

Date of Handing Down Judgment: 7^th November 2006

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JUDGMENT

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1.The plaintiff and the defendant were the landlord and tenant of a property in Robinson Road, Hong Kong (“the premises”). By a written tenancy agreement dated 1 November 2001, the plaintiff leased the premises to the tenant for a fixed term of two years from 1 November 2001 to 31 October 2003 at a monthly rent of $33,000.00. The defendant exercising his right under a break clause (clause 10) served a Notice of Termination on the plaintiff on 28 July 2002 giving the required 3 months notice to the landlord, this notice failed to conform with the requirement that the effective date of termination must not be earlier than 15 months from the commencement of the lease, and this was made good by a subsequent letter from the defendant dated 20 August 2002 by amending the effective date of termination to 31 January 2003. It is common ground that this notice was effective and in accordance with the terms of the lease.

2.Before the expiry of the Notice of Termination, the defendant asked for a new tenancy at a reduced rent. No agreement on a new tenancy was reached at any time. The Notice of Termination expired on 31 January 2003. The defendant remained in occupation of the premises until 10 November 2003.

3.The defendant paid some rent to the plaintiff during this period. From May to July 2003, the defendant offered and paid $28,000 per month. The plaintiff insisted on $33,000 per month as under the tenancy, and treated the defendant to have waived his Notice of Termination and that the lease had not yet been terminated. The plaintiff made it clear to the defendant that for May to July 2003, $5,000 arrears of rent remained outstanding for each of these months. From August onwards, the defendant failed to pay any rent to the plaintiff for his occupation of the premises. The defendant had paid two months rental deposit to the plaintiff under the tenancy agreement.

4.The plaintiff commenced action against the defendant on 16 December 2003. The defendant acknowledged service of the writ on 3 March 2004 but did not file any defence. On 15 March 2004, the plaintiff served a Notice of Intention to Enter Judgment in Default of Defence, still no defence was filed by the defendant, and Default Judgment was obtained against the defendant on 30 March 2004. The defendant applied to set aside the Default Judgment on 30 June 2003 and that application was heard before H.H. Judge To on 12 August 2004. H.H. Judge To allowed the defendant’s application on a technicality, to wit, the tenancy was effectively terminated upon expiry of the defendant’s Notice of Termination on 31 January 2003, and the plaintiff could not have founded their cause of action for arrears of rent on a tenancy that had been terminated. H.H. Judge To took the view that the law as to the effect of serving a valid notice to quit in Tayleur  v.  Wildin (1868) LR 3 Ex 303 is good law and followed in Hong Kong. Kelly, CB  on page 305 said : “The question is whether …if the notice to quit was a notice that could be withdrawn and done away with at the option of the party giving it, and it was in fact so withdrawn whilst the tenancy subsisted, the tenancy would not have been terminated. But it is clear that, whether the notice to quit is given by the landlord or the tenant, the party to whom it is given is entitled to insist upon it, and it cannot be withdrawn without the consent of both. If that is so, then the consent of the parties makes a new agreement, and if there is a new agreement there is a new tenancy created to take effect at the expiration of the old tenancy”. Tayleur  v  Wildin (1868) was approved by the English Court of Appeal in Freeman v Evans(1922) 1 Ch 36 where Lord Sterndale MR said at page 45: “As Tayleur  v  Wildin has stood for so long without being disapproved of and has found its way into the text books, and has no doubt, as Brett LJ said, been acted upon for a great number of years and as it has been before the Court of Appeal in England and has never been in any way doubted or criticized by that court, I think we ought to act upon it”.  Tayleur  v  Wildin has remained good law in Hong Kong and has been followed in  Lai Mai-yu   v  The Attorney General(1997) HKLR 382. It has also found its way into our local text book. Hong Kong Tenancy Law by Malcolm Merry Esq., 4^th edition, has this to say: “The effect of a valid notice to quit is to terminate the landlord-tenant relationship. Though the tenant may stay on the premises, he does so as a trespasser, not as a tenant. He may be sued for damages (mesne profit) for his illegal use and occupation…a notice to quit cannot be unilaterally withdrawn and its effect (termination of the lease) cannot be waived”. The prevailing view is that once a valid notice to quit has been served by either the landlord or tenant, it cannot be withdrawn even with the consent of both parties. If the landlord and tenant agree to continue the relationship, the continuation becomes a new lease. When no new lease is agreed upon between the landlord and the tenant, and the tenant remains in occupation on expiration of the notice to quit, the tenant either becomes a trespasser if he has not obtained the consent of the landlord or he becomes a licensee if he has the landlord’s consent. I agree entirely with H.H. Judge To in his reasons and finding that the tenancy between the plaintiff and the defendant here had effectively been terminated on expiration of the defendant’s Notice of Termination on 31 January 2003.

5.The plaintiff claimed against the defendant for arrears of rent from May to October 2003, and compensation for use of the premises from 1^st to 10^th November 2003, accrued interest of 2% per month on the due rent under clause 4.02 of the tenancy agreement, interest and costs of this action. Alternatively, the plaintiff claimed, if the defendant’s Notice of Termination had effectively terminated the tenancy on 31 January 2003, and the defendant was a licensee, the defendant had to pay a licence fees equivalent to the rent he had to pay under the expired tenancy agreement, viz. $33,000 per month. Further in the second alternative that the tenancy had been effectively been terminated on 31 January 2003 and the defendant did not remain as a licensee but as a trespasser, the defendant is liable to pay compensation for the period he was in occupation of the premises at the rate of the old rent of $33,000 per month.

6.The defendant defended the action claiming that the Notice of Termination had effectively terminated the tenancy on 31 January 2003 and the defendant remained in occupation under an understanding between the landlord and him that he could remain in occupation pending the negotiation of a new lease at prevailing market rent or at a rental to be agreed. He claimed that an agreement on a rental of $28,000 was reached between him and the plaintiff payable from 1 February 2003. Alternatively, the defendant claimed that he would only be liable to pay mesne profit of $28,000 per month which was the agreed rental or the prevailing market rental at the material time.

7.Following Tayleur  v  Wildin(1868)  and Lai Mai-yu  v  A.G. (1997) HKLR 382, the defendant’ saying that the tenancy had effectively been terminated by his “Break Notice” on 31 January 2003 must be correct. For the same reason, I would not agree with the plaintiff that the correspondence between the parties was capable of having the Notice of termination waived or withdrawn. In fact from reading the bundle of correspondence between the plaintiff and the defendant, there appeared no agreement to have existed when the tenancy terminated on 31 January 2003.  It is also clear from the correspondence that the plaintiff was under a misunderstanding that the Notice of Termination could be waived and he had later treated it to be waived. In a letter from the plaintiff to the defendant dated 14 January 2003, this was in response to the defendant’s previous letters asking for a new rental at $24,000 p.m., the plaintiff had this to say, “In light of past difficulties in collecting rent from you, and costly and lengthy legal actions in recovering overdue amounts from you, I am not inclined to consider any rent reduction at this moment”.  Up to that stage, the plaintiff had made it clear that he would not consider accepting any rent lower than the existing rent of $33,000 p.m. It was apparent that the defendant was trying to impose upon the plaintiff to accept a lower rent. On 30^th. January 2003, the defendant wrote to the plaintiff and offered “in the interest of reaching a quick agreement, I can up the offer to 25K all in per month”. On 6^th. February 2003, the plaintiff wrote back with this to say in reply, “subject to signing a formal contract, I will accept HK$30,000 per month provided that I receive on or before February 10, 2003, January’s rental payment of HK$33,000, plus cheques dated the first of each month for monthly rental from February up to and including October 2003……”  The correspondence continued thereafter with no agreement reached and the defendant eventually delivered up vacant possession on 10 November 2003. From the contents of these correspondence, it is therefore clear that the defendant had no basis whatsoever to claim that he remained in occupation on the understanding that he and his landlord had reached an agreed rental of $28,000 p.m. or that rent were to be negotiated at prevailing market rent. The Notice of Termination expired and the tenancy came to an end on 31 January 2003.

8.The plaintiff was under a misapprehension that the defendant in continuing to propose a new rental payment was waiving or withdrawing the termination notice and therefore allowed him to remain in occupation. As such I do not think the defendant was a trespasser. He was a licensee in these circumstances. As a licensee, the defendant had a licence fee to pay for the term of his occupation. As to what licence fee he had to pay, that would depend on the term of his licence. In the case of Thetford (Mayor)  v  Tyler(1886) LR 32 Ch DLord Denman C.J. on 366, said  “where a party, having held for a term at a certain rent, continues to occupy after the expiration of his term, it is presumed, if there be no evidence to the contrary, that he holds at the former rent”. And Wrightman J. in the same case held a similar view and said, “when a party is allowed to hold after the expiration of a tenancy by agreement, the terms on which he continues to occupy are matter of evidence rather than law. If there is nothing to show a different understanding, he will be considered to hold on the former terms:…………”. In our case here, there was no evidence as to the term of the licence for the defendant’s continued occupation of the premises. The plaintiff assumed the tenancy was subsisting and the original rent being payable. The defendant would be presumed to hold on the former terms of the tenancy and was liable to pay a licence fee in the same amount as the rent he had to pay.

9.The plaintiff had also argued that the defendant was liable to pay the old rent after the termination by reason of estoppel by convention. According to the estoppel by convention, when the parties to a transaction proceed on the basis of an underlying assumption (either of fact or of law, and whether due to misrepresentation or mistake, makes no difference), on which they have conducted the dealings between them, neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. : per Lord Denning MR in Amlagamated Investment & Property Co Ltd  v  Taxas Commerce International Bank Ltd (1981) 3 ALL ER 577 at 584. The plaintiff here were acting under an assumption that the notice was waived indefinitely or withdrawn, and that while they were talking on a new rental agreement, all the terms including the rent under the original tenancy agreement was still in force. The plaintiff had made this very clear to the defendant and the parties were proceeding on this state of mind. In this circumstance, it would be unjust for the defendant to go back on that assumption. For this reason, the defendant would also be liable to continue paying the old rent until a new agreement was reached. Either way, the defendant was liable to pay an amount equal to the old rent of $33,000 to the plaintiff.

10.For the months of May, June and July 2003, the defendant paid $5,000 short for each of these months. That would amount to $15,000 owing for these 3 months. No payment was made from August to 10 November 2003. The licence fee or compensation would therefore amount to $110,000 ( 3 and 1/3 months). The interest of 2% per month would also be payable and that amounts to $4,440. The total would come up to $129,440. The defendant had 2 months rental deposit with the plaintiff. Credit of $66,000 is to be accounted for and that leaves a total of $63,440.00. This is the amount claimed by the plaintiff. The defendant as a licencee was liable to the plaintiff for this amount. He was further estopped from denying that he was liable to pay the old rent for the time he remained in occupation of the premises.

11.I therefore enter judgment for the plaintiff against the defendant for $63,440.00, being licence fee or compensation for the defendant’s occupation of the premises for the said period of time together with accrued interest. I also order interest at judgment rate to be paid by the defendant to the plaintiff on the said judgment amount from the date of the original writ, viz. 16 December 2003, to the date of judgment hereof, and also interest at judgment rate from the date of judgment to the date of full satisfaction of the judgment sums. I also make a cost order nisi that the defendant is to pay the cost of this action to the plaintiff, to be taxed if not agreed, with certificate for Counsel.  The nisi order to be made absolute within 14 days of handing down of this judgment.

Representation:

Miss Rachel Lam instructed by Messrs. Kok & Ha for the Plaintiff

The defendant, not legally represented, absent from the trial