Hongkong Bank Trustee Ltd v. Chan Chi Wah and Others

CACV000107/1982

Headnote

Landlord and Tenant - where, by a clause in lease, a tenant covenants "not without the previous consent of the landlord to permit or suffer any person other than those mentioned in the Schedule to use or reside in the premises" a breach continues for as long as an ''unscheduled" person so resides - where rent has been accepted after knowledge of the breach, such acceptance does not operate as a waiver of future breaches except in relation to the period the landlord knew they would continue - relief from forfeiture granted upon terms.

BETWEEN

___________

Coram: Hon. Leonard, V.-P., Cons & Fuad, JJ.A.

Date: 4 November 1982

__________

JUDGMENT

__________

Fuad, J.A.:

1. This is an appeal from a decision given by a Judge of the District Court on the 2nd June 1982 dismissing an action for possession of a flat in Wanchai, and for related relief. We refer to the parties by their original appellations. The Plaintiff, the Hong Kong Bank Trustee Ltd., let the flat to the 1st Defendant by a tenancy agreement dated 1st June 1978 for a period of three years from that date, at a stipulated rent, exclusive of rates. The lease also provided for payment by the tenant of various other charges. It was common ground that Part I of the landlord ands Tenant (Consolidation) Ordinance (Cap. 7) did not apply to the premises, and that by virtue of the provisions of Part II of that Ordinance, the tenancy had been extended when the three year term ended on the 31st May 1981.

2. Although the lease itself was produced before the trial Judge, it did not for part of the appeal documents. However, the material part of the Statement of Claim (as amended) makes reference to two of its clauses -

"5. By Clause 2(j) of the tenancy agreement, the 1st Defendant promised not to assign, underlet or part with the possession of the said premises or any part thereof nor to enter into, permit or suffer any arrangement whereby any person who is not a party to this Agreement obtains the use or possession of the said premises or any part thereof irrespective of whether any rental or other consideration is given for such use or possession.

6. By Clause 2(g)(1) of the tenancy agreement, the 1st Defendant promised not without the previous written consent of the Plaintiff to permit or suffer any other person or persons other than those mentioned in the Schedule thereto to use or reside in the said premises.

7. Pursuant thereto, the persons stated in the Schedule were D2, D3, D4 and D5 and no other.

8. In breach of Clause 2(j) of the said tenancy agreement, the 1st Defendant has sub-letted or parted with possession of portions of the said premises to the 6th Defendant.

9. Further, the 1st Defendant is in breach of Clause 2(g)(1) of the said tenancy agreement by permitting the 6th Defendant to reside in or use the said premises.

10. Further or in the alternative, the 1st Defendant is in breach of Section 53(2)(e)(i) of Part II of the Landlord and Tenant (Consolidation) Ordinance in that he has, in breach of the contractual tenancy, after the 14th day of December 1973 sub-letted or parted with possession of portions of the said premises to the 6th Defendant.

11. ......

12. Clause 4(a) of the said agreement contained a proviso for re-entry of the said premises should the 1st Defendant (inter alia) fail or neglect to observe or perform any of the agreements stipulations or conditions therein contained and on the part of the lst Defendant to be observed or performed.

13. The Plaintiff will rely on the provisions for re-entry in the said Clause 4(a) of the agreement and will also rely on Section 53(2)(a), Section 53(2)(e) and Section 74A(c) of the Landlord and Tenant (Consolidation) Ordinance."

3. The Judge accepted the unchallenged evidence that Madam Chan Wai Ying (the 2nd Defendant) and her three brothers and sisters (the 3rd, 4th and 5th Defendants) were all listed in the Schedule to the lease. The tenant, Mr. Chan Chi Wah (the 1st Defendant), who is also one of Madam Chan's brothers, left Hong Kong in August 1980 to study in the U.S.A. and he was still there at the date of the hearing. After his departure, Madam Chan assumed responsibility for the rent.

4. Madam Chan married Mr. Cheng Wa Luk (the 6th Defendant) on the 2nd January 1980. For a while after the marriage Mr. Cheng lived with one of his brothers nearby but when his brother-in-law, Mr. Chan, left to study abroad in August 1980, he moved in with his wife and still lives with her in the flat which is the subject of this appeal.

5. By a letter dated the 16th March 1981, solicitors acting for the Plaintiff' bank wrote to Madam Chan as follows -

"We act on behalf of Hong Kong & Shanghai Bank, Hong Kong (Trustee) Limited, the Landlords of the captioned premises and to which Mr. Chan Chi Wah is the tenant under the tenancy agreement for the term of 3 years to commence from the 1st day of June 1978.

We have been instructed by our clients that you have signed 3 copies of Form TR7 as alleged agent for the tenant by virtue of a letter by him dated the 28th April 1980.

We understand from our clients' rental agent that you have informed their representative that you do not know the date of return of Mr Chan from the United States. Our clients feel perturbed over this matter as it would appear that Mr Chan has left Hong Kong for nearly one year.

Unelss you can produce satisfactory evidence to us that Mr. Chan has not abandoned the flat in question, proceedings will be commenced for recovery thereof at the expiry of the said term of the tenancy without further notice.

In the meantime, our clients do not accept your capacity to sign the said Forms, pending clarification of this matter to their satisfaction.

We shall be obliged if you will give this matter your immediate attention."

6. On the 25th April 1981, Madam Chan's solicitors replied in the following terms -

"We are instructed that Mr. Chan Chi Wah is presently studying in the United States of America and is expected to return to Hong Kong next year. He has no intention of abandoning his tenancy in respect of the above-mentioned premises. In fact, the said premises are still being occupied by members of his family. Our client, Madam Chan Wai Ying is one of the recognised occupants of the said premises and she got married in January 1980 after which her husband, Cheng Wa Luk also resided at the said premises.

On a without prejudice basis, we hereby apply on our client's behalf to add Madam Chan's said husband as a recognised occupant of the said premises so as to regularise matters herein.

As Mr Chan Chi Wah will not be returning to Hong Kong until next year, he has authorised Madam Chan Wai Ying to enter into a new tenancy agreement in respect of the said premises on his behalf upon the expiration of the present tenancy agreement.

We are given to understand that Madam Chan Wai Ying has signed a Form TR7 in respect of the said premises, which form was rejected by your client as not having been signed by an authorised person. Madam Chan was authorised by her brother Chan Chi Wah to sign the said Form TR7 by a letter dated 7th April, 1981 copy of which is enclosed herewith for your reference. If your client insists on seeing a proper Power of Attorney, we shall certainly be happy to arrange for a Power of Attorney to be signed by Mr. Chan Chi Wah in favour of his sister Madam Chan Wai Ying.

Kindly take your client's instructions and let us know whether they are willing to enter into a fresh tenancy agreement with our client on the same term as in the present tenancy agreement save for the term as to rent and to the recognised occupant."

7. This elicited a reply dated the 30th April 1981 to the effect that the Plaintiff's solicitors would be taking instructions, and the writ was issued on the 8th January 1982.

8. It was common ground, too, that although the Manager of the Plaintiff's "rental agents" instructed his staff not to accept rent for the premises as from the 1st March 1981 in the light of information he had received, a cashier made a mistake and accepted rent for the month of May 1981. No rent has been accepted since.

9. In his judgment, after recounting the facts and noting what had been pleaded in paragraphs 8 and 9 of the Statement of Claim, the Judge made reference first to Hong Kong and Shanghai Bank (Trustee) Ltd. v. Chan Lai-wah [1980] H.K.L.R. 570 and concluded that the clause upon which the decision turned was apparently identical in terms to clause 2(j) of the lease he had to construe, and the Court of Appeal had held that "the presence on the premises of a daughter-in-law was in breach of this agreement." He expressed the preliminary view that the same considerations would apply in the instant case, but the Plaintiff had not pleaded the second part of clause 2(j), limiting his claim to a breach of that part of the clause which prohibited subletting or parting with possession of portions of the said premises to the 6th Defendant. And so, since this breach had been waived, the Plaintiff had to fall back on clause 2(g)(i). He formulated the issue thus -

"(1) whether Clause 2(g)(i) amounts to a "user" within the meaning of the authorities; or alternatively

(2) whether occupation by the 6th Defendant means that permission had been granted by the lst defendant through his sister D2 acting as his agent and that the clause is a "ermission"clause rather than a "user" clause."

10. In his view the distinction was that if the clause were a "user" clause, the breach would be regarded. as a continuing one and therefore the acceptance of rental in the month of May 1981 constituted a waiver for the month of May only, whereas if the breach were not a continuing breach, then the waiver applied not only to the alleged subletting, but also to any permission given to the 6th Defendant to occupy the premises.

11. The trial Judge then reviewed three of the authorities cited to him, briefly recounting the facts and the decisions reached -

and reached the following conclusion -

"It appears to me that the covenant in the instant case differs from those in Segal Securities Ltd v. Thoseby and Doe d. Ambler v. Woodbridge and comes within the ambit of that extant in Walrond v. Hawkins. Accordingly, the acceptance of rent for the month of May constituted a waiver of the permission to allow CHENG Wah-luk, the husband of CHAN Wai-ying to share the premises after CHAN Chi-wah left for the United States of America. That as the breach was not in law a continuing one, the plaintiff must fail under this head."

12. The Judge went on to consider whether he would have exercised his discretion in favour of the Defendants to grant relief against forfeiture, had his decision been otherwise on the issue upon which he dismissed the Plaintiff's claim, and indicated that he would indeed have granted relief, and the terms upon which he would have granted it.

13. The controversy which still divides the parties lies within a narrow compass, for Counsel before us agreed on the basic propositons of law that are relevant to this appeal. A landlord can choose whether or not he wishes to assert his right to forfeit a lease for the breach of one of its covenants. The forfeiture is taken as waived if he elects not to avail himself of the right; the election may be express or implied. Waiver will be implied if both the following elements are present -

14. If, with knowledge of the breach, the landlord accepts rent which fell due after the breach, even though by mistake (and through one of his servants or agent against his express orders) as a matter of law this constitutes a waiver. But such a waiver is not a general waiver of future breaches. It applies only to the specific breach. Where, however, the breach is of a continuing nature, breaches which continue after the date of the original waiver give rise to a fresh right to forfeiture. Some breaches are, of course, plainly of a continuing nature such as breaches of covenants to insure and covenants to repair. It is in cases such as the present that difficulties can arise, as the authorities cited to us show. These must, however, be read with caution for the each turn on the precise form of words used in the particular covenant being construed. It is for this reason that we have found it necessary only to refer to some of them.

15. As the extract we have quoted above from the trial Judge's judgment shows, he took the view that the effect of the waiver depended upon whether the covenant that had been breached was one against giving a particular permission or one against using the premises in a certain way. He then relied on Walrond v. Hawkins (1875) L.R. 10 C.P. 342, holding that the acceptance of rent constituted a waiver of the permission to allow Madam Chan's husband to share the premises. In that case, as the headnote shows, the lease of a farm included a covenant that the lessee would not "assign or demise to or permit any other person to occupy the premises, or any part thereof, without the consent in writing of the lessor". The lessee underlet part of the farm to another for one year from the 31st January 1873. On the 30th September 1873 the lessor,knowing of the breach, distrained for (and received) the rent due on the 29th September. It was held that the lessor had waived the breach of the covenant not "to assign or demise" without his consent and that permitting the sub-tenant to remain in occupation for the remainder of the year was not a new or continuing breach of the covenant not "to permit any other person to occupy" without consent.

16. With the utmost respect to the Judge, we consider that he was wrong in founding his decision on anything that was said in Walrond v. Hawkins. We have no doubt that the effect of that case was as summarised by Bramwell L.J. in Lawrie v. Lees (1880) 14 Ch. D. 249, 262, and approved by Somervell, L.J. in Downie v. Turner [1951]2 K.B. 112, at p.117 -

"The covenant in that case  was that the lessee was not to assign or demise to or permit any other person to occupy the premises or any part thereof without the consent of the lessor. What the Court of Common Pleas said was this, 'What the lessee has done is a demise, and it is a breach of the covenant not to demise, but the lessor has elected not to treat it as a breach or forfeiture, and he cannot say also that the lessee has broken the other covenant that he would not permit any other person to occupy'".

It is thus clear that these cases are not applicable because the instant case was not one where the waiver of the breach of one covenant could be said to extend to a consequential continuing breach of anther covenant which the tenant had no power to discontinue.

17. We are bound to say that we consider that nothing depends in this area of the law upon whether the covenant is expressed in positive or negative terms, as Mr. Yu has contended. A covenant "to keep in repair" and a covenant "not to allow the premises to fall into disrepair" each impose continuing obligations. What we have to do is to examine the wording of the relevant covenant against the sets alleged to amount to a breach and determine whether or not the breach is one of a continuing nature so that the acknowledged waiver can not be said to extend beyond the month in respect of which rent was accepted.

18. We are of the opinion that Segal Securities Ltd. v. Thoseby [1963] 1 Q.B. 887 is of assistance to the appellant's case. A maisonette was leased to the tenant for 21 years, the rent being payable quarterly in advance. There was a covenant in the lease "to use the demised premises for the purpose of a private residence only". For some years after her husband's death, the tenant shared the premises with two, and sometimes three, other ladies. During the months immediately before June 1962, the tenant had a personal friend living with her, sharing expenses in circumstances that gave her no profit. Living on the premises, too, was another lady who was a paying guest and did not live as a member of the family. On the 8th June 1962 the landlord served a notice on the tenant under the relevant statute requiring her to remedy the breach of the "user" covenant within 28 days. The rent fell due between the date of the service of the notice and of its expiry. On the 25th June the landlord demanded the rent for the next quarter "without prejudice." The tenant's cheque in response to the demand was returned to her. On the 7th August, the landlord issued his writ, claiming forfeiture. The tenant denied the breach and, in the alternative, relied or the demand for rent as constituting waiver. Sachs J. held that on the facts, having regard particularly to the position of the paying gust, the tenant was in breach of the covenant during the period up to the service of the statutory notice; the breach was a continuing one; the demand for rent, even though made without prejudice, operated as a waiver; but since rent was payable in advance, the demand only operated as a waiver of past breaches, and of continuing breaches known to the landlord at the time of the demand, and for such period as the landlord knew they would continue. Since he was not shown to have known that the breach would continue until the expiry of the notice, he had not waived the breaches which occurred between the date of the demand for rent and the issue of the writ.

19. We now return to clause 2(g)(i) as set out in paragraph 6 of the Statement of Claim whereby, it will be recalled, the tenant covenanted "not without the previous consent of the Plaintiff to permit or suffer any other person or persons other than those mentioned in the Schedule to use or reside in the premises." It seems to us quite plain that every day that a person other than one mentioned in the Schedule was allowed by the tenant to use or reside in the premises amounted to a fresh breach, and there was thus a continuing breach of the covenant while Madam Chan's husband lived with her in the flat.

20. The question we now have to ask ourselves is whether on the evidence before the trial Court it was shown that on the date that rent was mistakenly accepted, and the waiver occurred, the landlord knew that the breach would be continuing after the month of May 1981. The evidence indicated the contrary. The letter from Madam Chan's solicitors of the 25th August 1981 to which we have earlier made reference, asked for her husband to be recognised as a "scheduled occupant" and enquired whether the landlord would agree to entering into a new tenancy agreement to reflect the news situation. It seems to us, therefore, that the answer to the question we have posed must be "no". The letter clearly showed that Madam Chan was seeking a new agreement to regularise the position. Even though the application was made on a "without prejudice" basis (para. 2 of the letter) the landlord was entitled to assume that if a variation of the terms of the lease was not agreed, the breach of covenant would be discontinued. The letter in reply dated the 30th April could not be regarded as an acquiescence by the landlord to the existing state of affairs.

21. We were not told, nor did we think it right to enquire, why the landlord was taking, what seemed to us on the face of it, a rather harsh line. After all, no question of overcrowding was involved; and what could be more natural than that Madam Chan and her husband should wish to live together? The landlord had a perfect right to insist on his legal rights. However, we are happy to record that Mr. Mok, for the appellant, informed us that he did not seek to oppose relief from forfeiture being granted to the plaintiff, on terms.

22. For the reasons we have given, we allow the appeal and make an order for possession in favour of the landlord. However, we direct that the order for possession be stayed until the 1st February, 1983 and that it shall have no effect if the breach is discontinued on or before that date and if, also by that date, arrears of rent at the following rates (together with interest at 14% per annum) are paid to the landlord or his duly authorised agent -

Representation:

Mr Y.C. Mok (Hampton, Winter and Glynn) for the Appellant

Mr. B. Yu (K.K, & Winston Chu) for the Respondents.