Surrender of lease — Oral agreement to surrender — Oral agreement unenforceable — Claim for rent under tenancy agreement — Whether tenant entitled to rely on oral agreement by way of defence — Held, tenants deprived of right to rely on oral agreement as defence — Statutory requirement that no action available on land contract not in writing
The tenants occupied the premises in Hong Kong under a sale-and-leaseback agreement. The leaseback was effected by a tenancy agreement of October 29 1990 for a term of one year from October 18 1990. On November 9 the parties orally agreed that the tenants should surrender their tenancy on or before November 30. A term of that agreement, by necessary implication was that the tenants should not be charged rent after they had surrendered the tenancy. At the request of the landlord the tenants continued in occupation until December 10. The landlord refused to accept the attempted surrender, but on February 11 1991 it re-entered the premises.
The tenants successfully brought proceedings claiming the return of their deposit under the tenancy agreement less an amount for outstanding rent until December 10 1990. The Hong Kong Court of Appeal reversed the decision, but it held that as the landlord had won its appeal on a point not taken in the notice of appeal, it should pay most of the tenants’ costs. The landlord appealed to the Privy Council against the costs order and the tenants cross-appealed with the object of establishing that their liability for rent terminated on a date earlier than February 11 1991 when the landlord re-entered the premises.
On appeal the landlord sought to rely on section 3 of the Conveyancing and Property Ordinance of Hong Kong (which was in similar terms to section 40 of the Law of Property Act 1925 in England). Section 3 provided that no action should be brought upon any contract for the sale or disposition of land unless the agreement or a note thereof was in writing. The tenants argued that the oral agreement, though unenforceable under section 3, was none the less available as a defence in the same way as any enforceable contract.
Held The landlord’s appeal and the tenants’ cross-appeal were each allowed in part.
1. If full effect was given to the oral agreement, subject to the impact of section 3, the tenants were liable for rent up to December 10 1990 when they vacated the premises.
2. In cases such as this, an oral agreement was not available as a defence in the same way and to the same extent as any enforceable contract. If due regard was paid to the statute, the question was whether the party relying on the oral agreement was in substance seeking to enforce it.
3. The tenants should be regarded as seeking in substance to enforce the oral agreement of November 9. Under the tenancy agreement the landlord was entitled to receive rent until February 1991. To meet that claim the tenants were obliged to ask the court to give effect to their rights under the oral agreement within section 3. Thus they were seeking in substance to enforce that agreement. Accordingly, section 3 deprived the tenants of the right to rely on the oral agreement for the purpose of defeating the landlord’s claim for rent up to February 11 1991.
4. However, as the landlords had been allowed to rely on section 3 at a very late stage the tenants should be similarly given an opportunity to rely on estoppel. The matter would be remitted to the District Court of Hong Kong to adjudicate on the parties’ respective rights.
Edward Nugee QC and Benjamin Chain (Hong Kong Bar) (instructed by Philip Conway Thomas) appeared for the landlord; Gavin Lightman QC and Michael Merry (Hong Kong Bar) (instructed by Macfarlanes) appeared for the tenants.