DCCJ 3832/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3832 OF 2003

____________________

BETWEEN:
LI CHING WING Plaintiff
AND
XUAN YI XIONG also known as Defendant
TONY Y. X. XUAN (禤亦雄)

___________________

Coram: HH Judge Lok

Date of hearing: 3 November 2003 (in Chambers)

Date of handing down of Decision: 10 December 2003 (in Court)

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DECISION

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1. This is an application for summary judgment under O. 14 of the Rules of the

District Court, Cap. 336.
2. This is one of the many litigations arising from the outbreak of Severe Acute
Respiratory Syndrome ("SARS") in Hong Kong early this year. The Plaintiff
was and is the registered owner of the premises known as Flat 6, 35th Floor,
Block E, Amoy Garden, 77 Ngau Tau Kok Road, Kowloon, Hong Kong ("the
Premises"). By a tenancy agreement dated 4 July 2002 ("the Tenancy
Agreement"), the Plaintiff let the Premises to the Defendant for domestic
purpose for a fixed term of 2 years commencing from 1 August 2002, at a
monthly rent of $6,000 payable in advance on the 1st day of each and every
calendar month.

3. Then there was the outbreak of SARS in March 2003, and many residents of
Amoy Garden, in particular those living in Block E ("Block E"), were infected
with the disease. Having heard about the news, the Defendant moved out of the
Premises on 29 March 2003 and stayed with his family in Guangzhou until 10
April 2003.

4. On 31 March 2003, the Department of Health issued an order ("the Isolation

Order") to isolate Block E for 10 days. On the following day, the residents of
Block E were evacuated to various places of safety. After the expiry of the
Isolation Order, the residents of Block E were allowed to return to their flats,
and the Defendant did so. On 24 April 2003, the Defendant sent a letter to the
Plaintiff to terminate the Tenancy Agreement, in which the Defendant also
indicated that he was willing to waive his entitlement to the rental deposit as
some kind of compensation to the Plaintiff. By a letter dated 16 June 2003, the
Plaintiff accepted the alleged wrongful repudiation of the Tenancy Agreement.

5. In this action, the Plaintiff claims against the Defendant for the accrued rent
and damages arising from the repudiation of the Tenancy Agreement. The
central issue is, therefore, whether the Defendant was entitled to terminate the
Tenancy Agreement under the peculiar circumstances of the present case.

6. The Defendant is seeking to rely on the following three grounds to terminate

the Tenancy Agreement:
 (i) the Tenancy Agreement was frustrated by the making of the
Isolation Order;

(ii) the Plaintiff was in breach of the implied covenant that the
Premises were fit for human habitation; and

(iii) the Plaintiff was in breach of the implied covenant to carry out
structural repair to the Premises.

I will deal with these allegations in turn.

Frustration

7. The application of the doctrine of frustration in the context of a lease has

been considered by the House of Lords in the landmark case of National
Carriers Ltd. v. Panalpina (Northern) Ltd. [1981] A.C. 675. The lease in
issue was a 10-year lease of a warehouse. By a temporary order, the City
Council closed the street which gave the only access to the warehouse. The
lessee relied on the doctrine of frustration and refused to pay rent, and the
landlord therefore instituted legal proceedings for recovery of rent. The House
of Lords held that the lease was not frustrated since the closure was expected to
last only for a year or a little longer, which would still allow the lease to run for
3 more years after the street re-opened. The decision of the lower court in
granting summary judgment in favour of the landlord was therefore affirmed.

8. In reaching the decision, the House of Lords approved the earlier decision of
Cricklewood Property and Investment Trust Ltd. v. Leightons Investment
Trust Ltd. [1945] A.C. 221. In that case, the lessee under a 99-year building
lease claimed that wartime building restrictions had frustrated the lease. The
House of Lords held that there had been no frustration, since the lease had over
90 years to run when the war broke out, and it was unlikely that the war would
last for more than a small fraction of the whole term.

9. Whist accepting that the doctrine of frustration could be applied to determine

a lease, Lord Simon of Glaisdale in the Panalpina case defined the concept of
frustration as follows:
 "Frustration of a contract takes place when there supervenes an event (without
default of either party and for which the contract makes no sufficient provision)
which so significantly changes the nature (not merely the expense or
onerousness) of the outstanding contractual rights and/or obligations from what
the parties could reasonably have contemplated at the time of its execution that it
would be unjust to hold them to the literal sense of its stipulations in the new
circumstances; in such case the law declares both parties to be discharged from
further performance." (at 700F)

Lord Simon also said the following in his judgment:

"[The tenants] were undoubtedly put to considerable expense and inconvenience.

But that is not enough. Whenever the performance of a contract is interrupted by
supervening event, the initial judgment is quantitative - what relation does the
likely period of interruption bear to the outstanding period for performance? But
this must ultimately be translated into qualitative terms: in the light of the
quantitative computation and of all other relative factors (from which I would
not entirely exclude executed performance) would outstanding performance in
accordance with the literal terms of the contract differ so significantly from what
the parties reasonably contemplated with those literal terms?" (at 707B-D)

10. In such case, an event which causes an interruption in the expected use of
the premises by the lessee will not frustrate the lease, unless the interruption is
expected to last for the unexpired term of the lease, or, at least, for a long
period of that unexpired term (see: Chitty on Contract, 28 ed., vol. 1, para.24-
053). That was the reason why Lord Hailsham of St. Marylebone said the
following in the Panalpina case:

"No doubt the circumstances in which the doctrine [of frustration] can apply to
leases are, to quote Viscount Simon L.C. in the Crickwood case, at p. 231,
"exceedingly rare." ......... Like Lord Wright [in the Crickwood case], I am struck
by the fact that there appears to be no reported English case where a lease has
ever been held to have been frustrated. I hope this fact will act as a suitable
deterrent to the litigious, eager to make legal history by being first in this field."
(at 692B-D)
11. The Defendant relies on the Isolation Order as a ground to frustrate the
Tenancy Agreement. However, out of a term of 2 years, a period of about 10
days, of which the Defendant was not allowed to stay in the Premises by virtue
of the Isolation Order, was quite insignificant in term of the overall use of the
Premises. The outbreak of SARS may arguably be an unforeseeable event,
however, such supervening event did not, in my judgment, significantly change
the nature of the outstanding contractual rights or obligations from what the
parties could reasonably have contemplated at the time of the execution of the
Tenancy Agreement. Hence, the defence of frustration cannot possibly succeed
in the present case.

Implied covenant as to habitability of the Premises

12. It is also the Defendant's case that the Plaintiff was in breach of the implied
covenant that the Premises were fit for human habitation. The relevant legal
principles are best summarized by Malcolm Merry in his book, Hong Kong
Tenancy Law, 3rd ed., in which the learned author said the following in pages
49-50:

"The law also implies a covenant or condition that the premises are fit for human
habitation. Traditionally, this covenant is limited to furnished lettings at the
beginning of the tenancy. It does not seem to extend to unfurnished premises
(which are of course the majority) nor throughout the life of the lease.

.........
However, if there is no such warranty nor any express covenant as to the
condition of the premises, the courts, in England at least and presumably Hong
Kong too, will refuse to imply one. On the letting of an unfurnished flat or house
there is no implied covenant that the house is fit for human habitation or for the
purpose for which it has been let, nor that the property is free from dangerous
defects or can lawfully be used for the tenant's intended purposes.

The position is different in the United States, where the courts of some states
have broken away from the traditional restrictive approach. In other states,
metropolitan or state legislation implies a warranty of habitability into residential
leases. The policy behind such legislation - and the reasoning of the courts - is
that a lease of an urban dwelling amounts to a hiring by a tenant of a collection
of goods and services. For his money, a tenant is entitled to a living space in such
a state of repair and with such facilities in the way of heating, lighting, plumbing
and so on that it is, by current standards, habitable. This requirement of
habitability lasts throughout the lease.
 The English courts have been slower to throw off the consequences of the
agricultural origins of leases. In leases of farms the land is of greater importance
than the buildings. The idea that the land must be habitable made little sense.
However, even in England there has been a movement towards placing greater
responsibility for the condition of premises on the landlord. In some cases there
is a statutory implied term that the premises are and will be kept fit for human
habitation and that the landlord will be responsible for certain repairs. The
Defective Premises Act 1972 imposes a duty of care in the landlord to those
(including the tenant) injured through defects in the premises (though there is no
similar legislation in Hong Kong). In Liverpool City Council v Irwin (1976) the
House of Lords held that a local authority landlord liable, on the basis of an
implied term in the tenants' leases, for the poor state of repair to the common
parts of a high-rise block of flats which it owned.
It was emphasized in that case, as in others, that the test of whether a term is to
be implied is one of necessity: is it necessary to read the term into the tenancy
agreement in order to give the agreement efficacy? Such a test is arguably wide
enough to read into all leases of residential premises, or at least of flats, that the
premises shall be in habitable condition at the beginning of the term, if not
throughout.

The arguments in favour of such a warranty are strong in built-up Hong Kong
where leases have rarely had much to do with the surface of the land as opposed
to the buildings put upon it. It is, however, doubtful whether Hong Kong's judges
would be bold enough to imply such a term unless given a lead by judges in
other common law jurisdictions or a push by the legislative council."

13. Despite the liberal view of the learned author, I do not think that the
Defendant can possibly succeed with such defence. Firstly, there had been no
reported case, both in Hong Kong or in England, in which the court implied a
term as to habitability in a tenancy agreement involving unfurnished property,
of which the Premises were one. Secondly, even for furnished letting, such
implied term is only limited to the condition of the property at the beginning of
the tenancy. In the present case, there is simply no allegation that the Premises
were inhabitable by that time.
14. Even assuming that the judges in Hong Kong are, to quote words of the
learned author, "bold enough", to imply such a covenant, how can the
Defendant prove that the Plaintiff was in breach of such term at the time of his
repudiation of the Tenancy Agreement? According to the Report of the SARS
Expert Committee, the contents of which are not disputed, the spread of SARS
in Block E was caused by a number of factors, including: (i) one of the visitors
of Block E, the index patient, carried the virus to the neighbourhood; and (ii)
the U-traps in the sewage systems in many of the flats in Block E had been left
dry, which allowed the virus to pass from the building sewage system back to
the apartments. However, all these dangers were no longer present after the
expiry of the Isolation Order. The index patient no longer resided in Block E,
the whole building had been disinfected, the crack found in one of the sewer
vent pipe was repaired and the residents of the Building were informed about
the proper use of the U-traps in their flats. In such case, this is no evidence that
Block E was unfit for habitation after the expiry of the Isolation Order. This
conclusion is certainly supported by fact, as no resident of Block E was
infected with the disease after 15 April 2003. The last certified case was on 15
April 2003 whilst the patient was in hospital, and there is no evidence that this
patient was infected with the virus after returning to Block E upon the expiry of
the Isolation Order. Further, the Report by the World Health Organization on 16
May 2003 also confirmed that there was no live virus present in Amoy Garden
by that time.
15. It may be arguable that Block E was, at one stage during the term of the
tenancy, not fit for human habitation. However, if the Defendant were to
succeed, he must be able to show that there was an implied term as to
habitability throughout the term of the tenancy, the breach of which entitled
him to terminate the Tenancy Agreement. But why should the court imply such
a term? This certainly does not fulfill the necessity test as laid down in the case
of Liverpool City Council v. Irwin, [1977] A.C. 239. Indeed, the outbreak of
SARS was beyond the control of any individuals, and so one should not expect
the Plaintiff to give an absolute warranty that the Premises would be safe from
such virus. In England, this is in fact a trend, both by way of legislative
intervention and judicial decisions, to impose harsher duty on the part of the
landlord to repair a leased property, but at least, the physical condition of the
property is something which is within the control of the landlord. This is very
different from an absolute warranty that the premises are suitable for habitation
and free of virus at all times, which are something beyond the control of the
landlord.

16. I can appreciate that there was a genuine fear among the residents of Block
E whether their homes were safe after the expiry of the Isolation Order, in
particular the SARS outbreak was not completely under control at that time.
However, fear alone did not provide the tenants with a legal justification to
terminate their tenancy agreements. Hence, except with the greatest sympathy
for the Defendant, I do not find that such ground of defence is arguable.

Implied covenant to repair the Premises

17. The Defendant also complains about the sign of water seepage in the
partition wall between the toilet and the living room of the Premises. According
to the Defendant, he first noticed the sign of seepage after he moved into the
Premises. The Defendant then made a complaint to the Plaintiff, who advised
him that he should take the Premises as they stood and the Plaintiff would not
carry out any repair work. The Defendant made the same complaint after he
returned to the Premises after the expiry of the Isolation Order, but the Plaintiff
still refused to repair the wall. Hence, the Defendant claims that he was entitled
to terminate the Tenancy Agreement on the ground that the Plaintiff was in
breach of the implied covenant to repair the Premises.

18. The Plaintiff's case in this regard is slightly different. He claims that the
sign of water seepage was already there when he purchased the Premises in
1998. After the purchase, the Plaintiff had let the Premises to two tenants and,
at one stage, he himself also lived in the Premises with his family. Although
there was sign of water seepage, there was actually no water seeping from the
wall, and so it was not necessary for the Plaintiff to repair it. Further, the
Defendant actually asked about the sign of seepage before signing the Tenancy
Agreement, and so he was all along aware of such problem.

19. As this is an Order 14 application, I am prepared to accept the Defendant's

factual allegations at this stage. But despite so, I do not think that it would
advance the Defendant's case any further. As I see it, such defence is not open
to the Defendant for a number of reasons. Firstly, the Defendant had not
expressly relied on such ground to terminate the Tenancy Agreement in his
letter to the Plaintiff dated 24 April 2003, and in fact, the Defendant all along
relied on the outbreak of SARS as a ground to terminate the Tenancy
Agreement. In such case, it is not possible for the Defendant to rely on such
argument now.
20. Secondly, it is doubtful whether the court should imply such a term in the
Tenancy Agreement. Indeed, the nature of an implied covenant to repair a
leased property is very similar to that of an implied covenant as to habitability.
The learned authors of Woodfall on Landlord and Tenant, (2003 ed.) had the
following to say in respect of these covenants:

"In general, there is no implied covenant by the lessor of an unfurnished house or

flat, or of land, that it is or shall be reasonably fit for habitation, occupation, or
cultivation, or for any other purpose for which it is let. No covenant is implied
that the lessor will do any repairs whatever. Nor is there an implied obligation
that the house will endure during the term, even though fair wear and tear is
excepted from the tenant's covenant to repair. A landlord is not liable in his
capacity as landlord to his tenant for defects in the premises demised rendering
them dangerous or unfit for occupation, nor for personal injury to the tenant
caused by such defects, even though the landlord is aware of their existence. He
is under no duty to warn the tenant of such defects. At common law a landlord
who lets a house in a dangerous state is not liable to the tenant, or to a sub-
tenant, or to the tenant's customers or guests." (at para. 13.001)

The learned authors of Hill & Redman's Law of Landlord and Tenant (2003 ed.)
also said the following:

"The common law has traditionally been reluctant to imply obligations in respect
of repair against a landlord where the parties had entered into a contractual
relationship in which it was open to the parties to make such provision but they
failed or chose not to do so. Thus, the general rule is that, in the absence of
express stipulation, or of a statutory duty, the landlord is under no liability to put
the demised premises into repair at the commencement of the tenancy, nor,
normally, is he under any such liability during the continuance of the tenancy."
(at para. [A] 6342)

There are, of course, exceptions to these general rules, but none of

them is applicable here. Hence, in the absence of express stipulation
in the Tenancy Agreement, I do not think that the court should imply
a term requiring the Plaintiff to repair the Premises.
21. Thirdly, even if the Plaintiff were in breach of such an implied term, that
does not necessary mean that the Defendant could terminate the Tenancy
Agreement. It is trite law that the Defendant could have enforced the covenant
by going to court to ask for specific performance, or to claim for damages
resulting from breach of covenant. The Defendant might have even carried out
the repair work himself and set off the costs against the rent payable (see:
Woodfall on Landlord and Tenant, ibid., at para. 13-070 to 13.107 and Hill &
Redman's Law of Landlord and Tenant, ibid., para. [A] 6405). However,
terminating the tenancy was not an option open to him. Even if the Defendant
were to have such right, it is arguable that he had waived the same by
continuing to stay in the Premises after the making of the first complaint to the
Plaintiff.

22. Fourthly, the Defendant only complains about the sign of water seepage
which was only a cosmetic defect. There is simply no evidence that the
Premises suffered any structural problem. The duty to repair on the part of the
landlord, if there is one, is usually associated with the duty to repair structural
defect, and there is no way for the court to imply a term which covers cosmetic
defect as well.

23. By reason of the aforesaid analysis, I do not find that there is any triable
issue. However, as the facts of this case are quite unusual, I also have to ask
myself whether, despite the lack of triable issue, there are some other reasons
there ought to be a trial, which is the second limb for granting leave to defend
under O. 14. But the causes for the spreading of SARS in Amoy Garden had
already been thoroughly investigated, with the result of which widely
publicized, and so I wonder whether there is anything more that the Defendant
can do to substantiate his case. Indeed, Mr. Bedford for the Defendant cannot
tell me how further preparation time or a trial can benefit the Defendant.
Hence, as the outcome of the trial would be the same, I see no point in allowing
the Defendant to defend the claim.
24. I therefore grant summary judgment in favour of the Plaintiff. As the
Defendant does not claim for any abatement of rent, he is liable to the Plaintiff
for the rent accrued prior to the termination of the Tenancy Agreement in the
sum of $15,200. Credit should be given to the rental deposit in the amount of
$12,000, and so I grant final judgment in favour of the Plaintiff against the
Defendant in the sum of $3,200, being the difference of the aforesaid, and
interlocutory judgment for damages to be assessed.

25. I also make an order nisi that:

(i) there be interest on the sum of $3,200 at 8% per annum

from 28 June 2003 to the date hereof and thereafter at
judgment rate;
(ii) the costs of this action, including the costs of this
application, be reserved to the judge or master hearing
the assessment of damages; and
(iii) there be certificate for counsel for the hearing of this
summons.

The order nisi is to be made absolute 14 days after the date of the handing
down of this decision.

26. Before I conclude, I should perhaps mention once again my sympathy for
the Defendant in the present case. The outbreak of SARS was a tragic event.
Apart from losing their love ones, many residents of Block E were living under
the fear whether their homes were safe. But despite such genuine fear, it did not
provide tenants with a legal justification to terminate their tenancy agreements.
To hold otherwise may also be unfair on the part of the landlords, as they have
to bear with all the consequences arising from such event, which was beyond
their control. Perhaps, we can only hope that the people in Hong Kong do not
have to face the same crisis again in the future.
27. As this case involves legal principles of some importance, I, with the
consent of the parties, decide to hand down this decision in open court.

(David Lok)
District Judge

Representation:

Mr. Raymond Lau, instructed by Messrs. Simon Ho & Co., for the Plaintiff

Mr. Nigel Bedford, instructed by Messrs. Or, Ng & Chan, for the Defendant