Lee Chui Foon v. Great Mace Trading Co Ltd

CACV000124/1982

Headnote

Landlord and tenant - waiver of forfeiture for breach of a covenant in a lease, not to sublet.

No waiver occurs where negotiations that do not result in a concluded agreement take place between a landlord and tenant after the landlord has knowledge of the cause of forfeiture. Even a concluded agreement would not unequivocally have indicated that forfeiture had been waived where, as in the present case, the new lease would have taken effect fromtthat date in the past when the landlord became entitled to forfeit. Ward v. Day (1864) 5 B.& S. 359 distinguished.

There is nothing in the Landlord and Tenant (Consolidation) Ordinance or in the Rules of Court that would permit an order for possession to be back-dated.

BETWEEN

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

Date: 14 December 1982

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JUDGMENT

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Fund, J.A. :

1. This is an appeal from the decision of a District Judge whereby he dismissed the appellant's action for possession of her flat in one of the blocks of Scenic Villas, Hong Kong.

2. The appellant, by a tenancy agreement dated the 11th September 1978, leased the flat to Great Mace Trading Co. Ltd. (Great Mace) for a term of three years beginning on the 25th August 1978 at a monthly rent of $7,000 a month inclusive of rates. By a clause in the agreement, Great Mace undertook "not to assign, sublet or part with possession of the said premises or any part thereof". There was the usual provision for forfeiture. Mr. Thomas Young, who is no stranger to these courts in landlord and tenant cases, represented his Company, Great Mace, by leave. During the hearing he conceded that there had been a sub-letting to a Mr. Franz Brun and relied solely on waiver. By this time judgment by default had been entered against Mr. Brun who had been sued as the 2nd Defendant, and who had been paying $16,000 per month to Great Mace under the sub-lease. The appellant claimed possession under s.53(2) (a), or alternatively under s.53(2)(e), of the Landlord and Tenant (Consolidation) Ordinance.

3. In Great Mace's Defence, the waiver was pleaded in this way: However, even if in the event the court finds the 2nd Defendant's occupation constitutes any breach, the Plaintiff has waived and covenant and/or statutory provisions to the contrary and the right to re-entry by agreeing to an extension or renewal of the tenancy on the 15th September 1981 and a demand for rental on the 22nd September 1981.

4. The appellant's husband, Mr. Ho Sun-wing, who manages her affairs for her under a Power of Attorney, gave evidence that when he received information which led him to suspect that the flat had been sub-let, he declined to accept any further rent. He spoke to Mr. Young on the telephone and handed the matter over to his solicitors, who wrote to Great Mace, on the 9th September 1981 in these terms -

"We act for Madam Lee Chui Foon, your landlady of the above premises

We are instructed that it has recently come to our client's notice that you have in breach of the Tenancy Agreement dated 11th September 1978 made between our client as Landlord of the one part and you as Tenant of the other part sublet the said premises to one Mr. Franz Brun without our client's knowledge or prior consent. We are now instructed to inform you, which we hereby do, that unless vacant possession of the said premises is delivered up to our client or to whom as she may appoint WITHIN THE NEXT 14 DAYS hereof, we have definite instructions to institute legal proceedings against you for the repossession thereof without further notice.

Our client reserves all her rights to claim compensation and/or damages from you in connection with the said premises."

5. It is not clear from the evidence precisely when it was, but Mr. Ho told the Court that Mr. Young came to see him and demanded a new tenancy and there was a discussion over possible new terms. Mr. Young offered $10,000 a month rent and Mr. Ho said he would consider $20,000. Then came a telephone conversation between Mr. Young and Mr. Ho which, unknown to Mr. Ho, Mr. Young was recording on to tape. The transcript of the conversation in Cantonese, and its English translation, was produced in evidence. Neither Mr. Young nor anyone else gave evidence on behalf of Great Mace.

6. Regarding the telephone conversation, the Judge came to the following conclusions -

"From a perusal of Exhibit D1 [the transcript] and having considered the oral evidence adduced I am satisfied on the balance of probabilities that on the 15th day of September 1981:

1. Mr. Ho as the plaintiff's duly authorised agent offered the 1st defendant a new tenancy of the suit premises from the 24th day of August 1981 at a rent of $20,000 per month exclusive of rates and management fee which were to be paid by the 1st defendant;

2. That it was agreed that subject to the plaintiff's approval the 1st defendant was entitled to sublet the premises.

3. That Mr. Young suggested that the plaintiff's approval to a subletting should not be unreasonably withheld in the case of a respectable and responsible person. Mr. Ho agreed to that term initially but later asked Mr. Young to write to the plaintiff's solicitor about the proposed clause relating to the plaintiff's consent to subletting.

4. Finally it was agreed that Mr. Young would write to Mr. Ho with the proposal in relation to consent to subletting.

I am satisfied that the plaintiff agreed to offer a new tenancy under which subletting was allowed subject to the plaintiff's consent. The one issue which remained to be finalised was whether the plaintiff would approve the 1st defendant's proposal that such consent could not be withheld it the case of a respectable and responsible sub-tenant. I would observe that this remaining issue was one open to the lst defendant to waive unilaterally as, if agreed to by the plaintiff, it would solely have benefited the 1st defendant."

7. We will say at once that the last sentence of this passage can only be understood, as Mr. Chang suggested before us, by assuming that the Judge here imported a concept which was irrelevant - the sentence would only be apt if the sufficiency or otherwise of a memorandum in writing evidencing an agreement for a lease was under consideration (Megarry and Wade (4th Edition) p.555). The principle cannot be prayed in aid to establish that there was a concluded contract where in truth there was not.

8. To return to the sequence of events - immediately after the telephone conversation, on the same day, Mr. Young wrote to the appellant herself, and the letter was passed on to her solicitors. This is what the letter said -

"Further to the telephone conversation this morning between our Mr. Young and Mr. Ho Sun fling, we hereby confirm acceptance of your counter-offer in regard to the renewal of our lease of the above-mentioned premises.

Renewal Term: Two years from August 25, 1981.

Rental: HK$20,000.00 per month exclusive rates and management fee.

Sub-letting: It is agreed that the premises may be sublet subject to your approval but such approval shall not be withheld in the case of a responsible and respectable person or entity. Consent is given to the existing occupier of the premises Mr. Franz Brun to remain in occupation as an Authorised sub-tenant.

Please give your written confirmation of the above by signing and returning the duplicate of this letter."

9. Two days later (the 17th September 1981) Mr. Young wrote again, this time to the appellant's solicitors. He referred to an "agreement... to our renewal of the lease" and asked for the draft of the lease agreement for approval. He also said "In the meantime, we would appreciate it if you or your client would sign and return our confirmation letter dated Sept. 15, 1981... before your client or Mr. Ho Sum Wing has a change of mind as has already happened several times.

10. The draft tenancy agreement was sent to Great Mace by the solicitors under cover of a "without prejudice letter dated the 22nd September. The letter also enclosed a draft consent to subletting to Mr. Franz Brun. On the 23rd September Mr. Young replied, requesting certain alterations to the draft - one related to the sub-letting clause in the draft agreement. On the 28th September, the appellant's solicitors, on her behalf, declined to alter the terms as requested, in another without prejudice letter, and the letter ended thus -

"We are now instructed to give you notice, which we hereby do, that unless a tenancy agreement in the same terms and conditions as contained in the draft is executed by you at our office WITHIN THREE DAYS DAYS FROM THE DATE hereof, failing which we have definite instructions to forthwith institute legal proceedings against you for the repossession of the suit premises without further notice."

11. Mr. Young duly responded by a letter of the 30th September asserting that an agreement had been reached as spelled out in his letter of the 15th September and insisting that the document should reflect its terms. He maintained that "the September 18th, 1981 agreement remains binding until superceded.'' No formal agreement was signed by the parties and the writ was duly issued on the 11th October, 1982.

12. The Judge concludes that the tender of the new tenancy agreement and the demand for the non rent cent on the 22nd September, 1981 were, on the appellant's part, unconditional, He cited para 430 of Vol 27 of Halsbury (4th Edition) and from p 658 of Hegarry and Wade (4th Edition) where it is stated that waiver will be implied if the landlord agrees to grant a new lease to start from the normal determination of the existing lease. He then added: It may be noted that according to this authority it (is) sufficient if the landlord agrees to grant a new tenancy agreement. It is not necessary for that offer to be accepted by the tenant. We will presently return to this passage.

13. The trial Judge then went on to say that he was satisfied that if the new agreement had been executed it certainly would have constituted waiver. Since it was not executed, he asked, what was the position?  It was clear that with knowledge of the breach the plaintiff not only had tendered the new tenancy agreement but had also tendered a written form of consent to sub-letting the premises. Thus in the documents unconditionally tendered by the plaintiff she had indicated that she would now consent to a sub-tenancy to the very person whose previous occupation gave rise to the breach. While it was true that the tenancy agreement was never executed, in the particular circumstances of the case, he was satisfied that the tendering of those documents evidenced a definite election on the part of the plaintiff to waive.

14. The Judge then referred to Ward v. Day (1864) 5 B.&S. 359 and cited a passage from it, as follows -

"But after the distress actions were brought, and then a negotiation took place, as stated in paragraph sixteen of the case "for the granting of a new licence to Edgar Hall for a further term of twenty-one years... That resulted in a verbal agreement on the part of the plaintiff to grant such new licence. The parties therefore had all come to an agreement. The arrangement (sic) indeed was not binding, and the plaintiff afterwards withdrew from it, but that is of no importance to the present question. For he had agreed with the Halls that when the present term had expired, then a new licence should be granted to hold for a further term. This, in my opinion, was a recognition that the licence in question was still continuing. I consider that if a landlord, when he is in a position to take advantage of a forfeiture, elects not to take advantage of it, and so declares to the party against whom he has power to enforce the forfeiture, and at a later period acknowledges the continuance of the tenancy he thereby waives such forfeiture." [Emphasis added].

Here too, said the Judge, there were negotiations culminating in an oral agreement for a new tenancy to commence immediately on the expiration of the prior one. The oral agreement was equally not binding but had advanced to the stage where a new tenancy agreement was tendered for execution. Although it was not executed he was well satisfied that the landlady's actions amounted to an election not to take advantage of the forfeiture, for her negotiations in respect of a new tenancy agreement went so far as tendering a new tenancy agreement for execution. Whatever might be the position of the prior negotiations taken by themselves, the subsequent action of the landlady tendering the new agreement - and the consent to subletting - to the tenant was an unequivocal declaration by the landlady to the tenant that the landlady had waived the forfeiture. The crucial question was not whether a new tenancy agreement had been granted, but whether there had been a definite election on the part of the landlady to waive her right of forfeiture. He saw the court's task as being to review all the circumstances to ascertain whether such an election had been established. The evidence had to be unequivocal. That was one reason why the entering into of a new tenancy agreement was usually decisive in favour of waivers. But it vas not the only evidence a court might properly act upon. He reminded himself that, in deciding whether an election to waive had been made it was primarily the landlady's actions that were important and he had approached the evidence in accordance with those principles. The evidence did establish a definite election on the part of the plaintiff to waive her right of forfeiture.

15. We were informed by Mr. Chang that Ward v. Day is the only case in point of course it is really no more than an example of the application of the principle that waiver will be implied if, after the cause of forfeiture has come to a landlord's knowledge, he does any act by which he recognises the relationship of landlord and tenant as still continuing. The detailed facts of Ward v. Day need not detain us, but Mr. Chang drew our attention to the fact that although the judge gave the 5 B.& S. citation, he seems in fact to have quoted from another report. There is a difference between the two versions. The B.& S. report states -

"...A negotiation then took place in which the landlord was one party, the tenant another, and E. Hall, son of J, hall, was another, and that negotiation resulted in an agreement that when the terms of the grant should expire a fresh term would be granted to the son - an agreement not binding because there was no writing..." [Emphasis added].

16. As we understand Mr. Yung's arguments before us, it was no part of his case that the telephone conversation of the 15th September 1981 between Mr. Young and Mr. Ho resulted in a concluded agreement, and we do not take the Judge to have so found. Although Mr. Young was extremely persistent during the conversation, the wording of the consent to sub-letting clause eras not unconditionally accepted by Mr. Ho - and thus there could not have been a concluded contract. It was an important clause because all the trouble had arisen from an unlawful subletting. Apart from that, on reading the transcript one cannot escapes the conclusion that despite Mr. Young's overbearing manner, poor Mr. Ho was clearly emphasising, though not in so many words, that it was a subject to contract arrangement. The matter, therefore, rested in negotiation.

17. It may be that the Judge was partially influenced by the passages he quoted from Halsbury and Megarry and Wade with their references to agreeing to grant a new lease". As has been noted, he considered from those Passages that it was sufficient for the landlord to agree to grant a new tenancy it eras not necessary for the offer to be accepted by the tenant. Here we think he went astray. "Agreeing to grant a new lease means what it says. It does not mean offering to grant a new lease" or "expressing an intention to grant a new lease. There must be an agreement between the parties. Whichever of the reports of Ward v. Day one reads, it is clear that the negotiations between the parties had resulted in a concluded agreement, although it was not binding for want of writing. As has been seen, the Judge held that whatever was the position of the prior negotiations taken by themselves, the subsequent action of the landlady tendering the new agreement was an unequivocal declaration to the tenant that the forfeiture had been waived. Ward v. Day, of course, is no authority for the proposition that where negotiations do not result in agreement, the subsequent tendering of a draft, of a new lease, unconditionally, amounts to waiver.

18. Furthermore the agreement in Ward v. Day was to take effect 'from the day when the original agreement was to expire", i.e. at some time in the future and in the normal course of events. That factor is in our view crucial to the decision, for it is that factor, and that factor alone, which unequivocally indicates the intention of the landlord to continue the existing lease. For if he did not so intend, but were instead to forfeit that lease, there would be a hiatus, leaving the tenant with no estate until the new lease took effect.

19. If however the new lease is to take effect from that date in the past when the landlord became entitled to forfeit - as would have been the instant case - there is no hiatus, the new lease following immediately upon the old and in effect replacing it. In that circumstance it is impossible to see how even a concluded agreement could unequivocally indicate that a forfeiture had been waived. It would in our view rather indicate the opposite, for the original and the new lease could not possibly coexist side by side.

20. Both the text books cited by the Judge below refer to this factor. Halsbury mentions the grant of a new lease to commence "from the regular determination" of the existing lease, Megarry and Wade speak of its normal determination". With all respect to the Judge he failed to appreciate the true situation.

21. For these reasons we allowed the appeal at the conclusion of the hearing. It is therefore not necessary to discuss the other matters raised by Mr. Chang and we would prefer in particular to leave for consideration on some other occasion the question whether the common law doctrine of waiver needs to be modified in its application to tenancies continued under the Landlord and Tenant (Consolidation) ordinance.

22. Mr. Chang asked us, in view of all the circumstances, to back-date the order for possession. We found nothing in the Ordinance or in the Rules of the Supreme Court to warrant such a course and, for that reason, made the order effective immediately.

23. It will be observed that we have so far ignored the 27 pages of the learned Judge's judgment under his heading "Does the old or the new law apply?" This is a question which, as Mr. Chang explained to us, was taken by the judge himself, Counsel took the view that it was not relevant and discussed it only so far as courtesy to the judge demanded. We agree with Counsel. Nothing seems to have turned on the numerous cases reviewed. Had the position been otherwise it would have been highly undesirable to rely on so many cases not cited and not argued before the court, without giving Counsel an opportunity for further argument. When one reads those pages one is forced to the unhappy conclusion that the Judge created for himself an opportunity to criticise certain recent decisions of this Court - he should not have permitted himself to do this. A commentary in a law journal is one thing, a judgment quite another.

Representation:

Mr. Denis Chang, Q.C., with Miss Maria Yuen (Ho & Wong) for the Appellant.

Mr. Y.W. Yung (Wong, Hui & Souza) for the Respondent.