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)

________________________

DECISION
 ________________________

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