754 HONG KONG LAW REPORTS & DIGEST [2004] 1 HKLRD

Li Ching Wing Plaintiff A

and
Xuan Yi Xiong Defendant

B
(District Court)
(Civil Action No 3832 of 2003)

Judge Lok C
3 November and 10 December 2003

Landlord and tenant — tenancy agreement — frustration — tenant terminated

agreement after 10-day isolation order due to SARS — lease had two-year
term — event causing interruption would not frustrate lease unless expected D
to last for long period of unexpired term
Landlord and tenant — fit for human habitation — implied term — could
not be implied in case of unfurnished property — limited to condition of property
at beginning of tenancy
E
Contract law — frustration — lease — whether lease frustrated due to isolation
order

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Under a tenancy agreement (the agreement), L let an unfurnished

flat (the premises) to T for a fixed two-year term, commencing on
1 August 2002. Subsequently, many residents of the building became
infected with SARS, causing T to move out on 29 March 2003. On H
31 March 2003, a 10-day isolation order (the order) was made in
respect of the building and the residents were evacuated. After the
expiry of the order, T terminated the agreement. T claimed that:
(a) the agreement was frustrated by the order; (b) L was in breach of
an implied covenant that the premises were fit for human habitation; I
and (c) L was in breach of an implied covenant to repair the premises.

Held, granting summary judgment in favour of L, that:

Frustration
(1) The agreement was not frustrated. An event which caused an J
interruption in the expected use of a premises by the lessee would

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 Li Ching Wing v Xuan Yi Xiong
DC Li Ching Wing
Judge
v Xuan
Lok Yi Xiong 755

A not frustrate the lease, unless the interruption was expected to

last for the unexpired term of the lease, or at least, for a long
period of it. Hence, circumstances in which the doctrine could
apply to a lease would be very rare. Here, whilst the outbreak
of SARS might arguably be an unforeseeable event, the 10-day
B period when T was not allowed to stay in the premises was
insignificant in terms of its overall use (Cricklewood Property &
Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC
221, National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675
applied). (See pp.757E–759A.)
C Implied covenant as to habitability
(2) T could not rely on an implied covenant that the premises
were fit for human habitation. First, there was no support from
the authorities that such term could be implied in a tenancy
agreement for unfurnished property. Second, even for a furnished
D letting, such term was limited to the condition of the property
at the beginning of the tenancy and here, there was no allegation
that the flat was uninhabitable at that time. (See pp.759B–760F.)
(3) Third, if such covenant could be implied, here, T could not prove
that L was in breach of this term. Further, such covenant would
E have to be a covenant for the term of the lease the breach of
which would entitle him to terminate the lease. However, the
necessity test for implying such a term was not satisfied: the
outbreak of SARS was beyond any individual’s control and L
should not be expected to give an absolute warranty that the
F premises would be safe from the virus at all times (Liverpool City
Council v Irwin [1977] AC 239 applied). (See p.761B–E.)
Implied covenant to repair
(4) Here, T had not relied on the alleged breach of repairs to terminate
the lease. The Court should not imply a term requiring L to repair
G the premises. Even if L was in breach of the implied term, T was
not entitled to terminate the lease. The complaint was about signs
of water seepage, a cosmetic defect and not that the premises
suffered from any structural defects. Hence, the Court could not
imply a term to cover cosmetic defects. (See pp.762B–763E.)
H
Application
This was an application by the plaintiff-landlord of premises for
summary judgment, in an action against the defendant-tenant for
wrongful termination of the tenancy. The facts are set out in the
I judgment.

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

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

J Legislation mentioned in the judgment

Rules of the District Court (Cap.336, Sub.Leg.) O.14

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 756 HONG KONG LAW REPORTS & DIGEST [2004] 1 HKLRD

Cases cited in the judgment A

Cricklewood Property & Investment Trust Ltd v Leighton’s Investment
Trust Ltd [1945] AC 221, [1945] 1 All ER 252
Liverpool City Council v Irwin [1977] AC 239, [1976] 2 WLR 562,
[1976] 2 All ER 39
National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, B
[1981] 2 WLR 45, [1981] 1 All ER 161

Other materials mentioned in the judgment

Chitty on Contracts (28th ed., 1999) Vol.1, pp.1195–1196 para.24-053
Hill & Redman’s Law of Landlord and Tenant (2003) Vol.1, Division A C
paras.6342, 6405
Merry, Malcolm, Hong Kong Tenancy Law: An Introduction to the Law
of Landlord and Tenant (3rd ed., 1997) pp.49–50
Report of the Severe Acute Respiratory Syndrome (SARS) Expert
Committee, SARS in Hong Kong: From Experience to Action, October D
2003
Woodfall: Landlord and Tenant (2003) paras.13-001, 13-070–13-107

Judge Lok
1. This is an application for summary judgment under O.14 of the E
Rules of the District Court (Cap.336, Sub.Leg.).
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 Gardens, 77 Ngau Tau Kok Road, F
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 first day of each and every calendar month. G
3. Then there was the outbreak of SARS in March 2003, and
many residents of Amoy Gardens, 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. H
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 I
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 J
Agreement.

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 Li Ching Wing v Xuan Yi Xiong
DC Judge Lok 757

A 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.
B 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;
C (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.

D I will deal with these allegations in turn.

Frustration
7. The application of the doctrine of frustration in the context of a
E lease has been considered by the House of Lords in the landmark case
of National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 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
F 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
G 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 & Investment Trust Ltd v Leighton’s
Investment Trust Ltd [1945] AC 221. In that case, the lessee under a
99-year building lease claimed that wartime building restrictions had
H 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
I to determine a lease, Lord Simon of Glaisdale in National Carriers Ltd v
Panalpina (Northern) Ltd [1981] AC 675 defined the concept of frustration
as follows:

Frustration of a contract takes place when there supervenes an event

J (without default of either party and for which the contract makes no
sufficient provision) which so significantly changes the nature (not

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 758 HONG KONG LAW REPORTS & DIGEST [2004] 1 HKLRD

merely the expense or onerousness) of the outstanding contractual A

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 p.700F) B

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 C
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 D
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 p.707B–D)
E
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 Contracts (28th ed., 1999) Vol.1, pp.1195–1196 para.24-053). F
That was the reason why Lord Hailsham of St Marylebone said the
following in National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC
675:

No doubt the circumstances in which the doctrine [of frustration] can G

apply to leases are, to quote Viscount Simon LC in the Cricklewood
case, at p.231, “exceedingly rare.” … Like Lord Wright [in the
Cricklewood 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 H
litigious, eager to make legal history by being first in this field. (at
p.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, I
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 terms 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 J
the nature of the outstanding contractual rights or obligations from

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 Li Ching Wing v Xuan Yi Xiong
DC Judge Lok 759

A 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.

B
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 summarised by Malcolm Merry
in his book, Hong Kong Tenancy Law: An Introduction to the Law of
C Landlord and Tenant (3rd ed., 1997), in which the learned author said
the following at pp.49–50:

The law also implies a covenant or condition that the premises are
fit for human habitation. Traditionally, this covenant is limited to
D 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
E 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
F 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
G 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,
H 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
I 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
J Defective Premises Act 1972 imposes a duty of care in the landlord
to those (including the tenant) injured through defects in the premises

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 760 HONG KONG LAW REPORTS & DIGEST [2004] 1 HKLRD

(though there is no similar legislation in Hong Kong). In Liverpool City A

Council v Irwin (1976), the House of Lords held that a local authority
landlord was 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 B
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. C
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 D
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, E
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 F
Premises were inhabitable at 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? G
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 H
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 pipes was repaired I
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 J
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

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 Li Ching Wing v Xuan Yi Xiong
DC Judge Lok 761

A 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 Gardens by that time.
15. It may be arguable that Block E was, at one stage during the
B 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
C fulfill the necessity test as laid down in the case of Liverpool City Council
v Irwin [1977] AC 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
D 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
E 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
F 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.

G 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
H 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
I 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
J 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

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 762 HONG KONG LAW REPORTS & DIGEST [2004] 1 HKLRD

Premises with his family. Although there was sign of water seepage, A
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 O.14 application, I am prepared to accept the B
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 C
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 D
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: Landlord
and Tenant (2003) had the following to say in respect of these covenants:
E
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 F
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 G
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)
H
The learned authors of Hill & Redman’s Law of Landlord and Tenant
(2003) Vol.1 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 I
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, J
normally, is he under any such liability during the continuance of the
tenancy. (at Division A para.6342)

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 Li Ching Wing v Xuan Yi Xiong
DC Judge Lok 763

A 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
B term, that does not necessarily 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
C off the costs against the rent payable (see: Woodfall: Landlord and Tenant
(2003) at paras.13-070–13-107 and Hill & Redman’s Law of Landlord and
Tenant (2003) Vol.1, Division A para.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
D 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
E 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,
F 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 Gardens had already been thoroughly
investigated, with the result of which was widely publicized, and so I
G 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.
H 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
I 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:

J (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;

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 764 HONG KONG LAW REPORTS & DIGEST [2004] 1 HKLRD

(ii) the costs of this action, including the costs of this application, A
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 B
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 loved ones, many residents
of Block E were living under the fear whether their homes were safe. C
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 D
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.
E

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