NON-NO FASHION WHOLESALE LTD. v. CHUNG KAM WING AND ANOTHER

HCA20335/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.20335 OF 1998

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REASONS FOR JUDGMENT

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The judgment

1. On 12 January 2001 at the conclusion of the hearing, I gave judgment on the following terms :

1. The claim by the plaintiff by original action, namely, Non-No Fashion Wholesale Limited ("Wholesale Limited") against the defendants by original action, namely, Chung Kam Wing ("Chung") and Shu Man Lee ("Shu") is dismissed.

2. There shall be judgment for the plaintiffs by counterclaim, namely Chung and Shu against the 1st defendant by counterclaim, namely Wholesale Limited for possession of the premises known as Workshop B5 on the Ground Floor of Block B, Hong Kong Industrial Centre, Nos.489-491, Castle Peak Road, Kowloon, Hong Kong ("the premises").

3. There shall be judgment for the plaintiffs by counterclaim, namely Chung and Shu against the 1st and 2nd defendants by counterclaim, namely, Wholesale Limited and Kwan Sing Kwong ("Kwan") for the following relief :

(1) A declaration that the signature of Chung that appeared on the purported tenancy agreement of February 1996 ("the 1996 Tenancy Agreement") was a forgery and was not signed by Chung; further, the 1996 Tenancy Agreement was null and void and of no effect.

(2) An injunction to restrain Wholesale Limited and Kwan, by themselves, their agents, servants or otherwise howsoever from remaining on or continuing in occupation and/or trespassing the premises.

(3) An injunction to restrain Wholesale Limited and Kwan, by themselves, their agents, servants or otherwise howsoever from using the premises or permitting or causing the premises to be used for any purpose other than as a factory.

(4) Damages for trespass in the sum of $2,322,871.52 as calculated up to 12 January 2001 and in accordance with the calculation set out in Exhibit D6. The damages shall continue at $150,000 per month from 13 January 2001 together with all forbearance fees and government rent that Chung and Shu are liable to pay to the government from 13 January 2001 in the event that Wholesale Limited and Kwan continue to be in occupation of the premises after 12 January 2001.

(5) An order that Wholesale Limited and Kwan do indemnify and repay Chung and Shu the forbearance fees and interest that they would be liable to pay to the government from 9 September 2000 to 12 January 2001.

(6) Damages for fraud to be assessed.

(7) An account of profits made by Wholesale Limited and Kwan by reason of their use of the premises and an order of payment of such profits to Chung and Shu.

4. The claim by Chung and Shu against the 3rd defendant by counterclaim, namely Leung Lai Kuen ("Leung") is dismissed.

5(1). Costs of the claim by Wholesale Limited in the original action be to Chung and Shu. Such costs to be borne by Wholesale Limited.

5(2). Costs of the counterclaim by Chung and Shu be borne by Wholesale Limited and Kwan.

5(3). The above two sets of costs are to be taxed on indemnity basis.

5(4). There will be no order for costs in the counterclaim between Chung and Shu and Leung.

6. Payment out of $1,300,000 in court to Chung and Shu forthwith.

7. Liberty to apply.

2. I also stated that I would refer this matter to the Secretary for Justice after I have rendered the Reasons for Judgment for her to consider whether criminal prosecution should be taken against Kwan.

3. I will now give the reasons for my judgment.

Facts

4. Kwan is a director and shareholder of Wholesale Limited. Chung and Shu are the owners of the premises.

5. The case of Wholesale Limited is that in February 1996, it together with another company called Non-No Fashion Garment Limited ("Garment Limited") entered into a tenancy agreement ("the 1996 Tenancy Agreement") with Chung and Shu, whereby they agreed to let the premises to Wholesale Limited and Garment Limited. The express terms of the agreement are :

1) the tenancy would be for a term from 1 March 1996 to 31 December 2003;

2) for the period from 1 March 1996 to 17 March 1998 ("the first period"), the monthly rental shall be $120,000;

3) for the period from 18 March 1998 to 31 December 2003 ("the second period"), the monthly rental shall be $150,000;

4) Wholesale Limited and Garment Limited may sublet the premises; and

5) Wholesale Limited and Garment Limited may use the premises for such purpose as they deem fit.

6. Pursuant to the 1996 Tenancy Agreement, Wholesale Limited and Garment Limited paid $240,000 as the deposit for the first period of the tenancy agreement, and they further paid cash of $600,000 as deposit for the second period of the tenancy agreement. Wholesale Limited claimed that it is an implied term of the 1996 Tenancy Agreement and also an implied term of a collateral agreement reached between the parties in January 1995 that Chung and Kwan would apply to government authorities for the change of the use of the premises to that of a showroom.

7. Chung and Shu had repudiated the 1996 Tenancy Agreement and the collateral agreement when they issued a Notice to Quit dated 16 October 1998 to the occupiers of the premises. Further in breach of the implied term, Chung and Shu failed to procure the change of user, as a result, a vesting notice dated 10 October 2000 was issued by the Hong Kong government whereby it exercised the right of re-entry. The premises was vested in the Financial Secretary Incorporated upon the registration of the notice in the Land Registry on 31 October 2000.

8. Although Wholesale Limited claimed that the 1996 Tenancy Agreement was entered together with Garment Limited, it was only Wholesale Limited itself who lodged the present action against Chung and Shu. Wholesale Limited initially sought specific performance of the 1996 Tenancy Agreement. However, this was not pursued at the trial, instead, it asked for damages for breach of the tenancy agreement to be assessed.

The case of Chung and Shu

9. Chung and Shu denied that they had ever entered into the 1996 Tenancy Agreement with Wholesale Limited or Garment Limited. They said that the signature of Chung on this agreement was a forgery. They further counterclaim against Wholesale Limited, Kwan and Leung who is the wife of Kwan and also a director and shareholder of Wholesale Limited. They alleged Kwan and Leung made use of the corporate vehicle of Wholesale Limited to practise a fraud on Chung and Shu by forging the signature of Chung and made use of this agreement to delay the recovery of possession of the premises by Chung and Shu. The counterclaim is for, among other things, a declaration that this agreement is void and is of no effect and an injunction to prevent the Wholesale Limited, Kwan and Leung from remaining in occupation of the premises and also for damages.

Is there a tenancy agreement?

10. The central issue in this case as agreed by the parties is whether the 1996 Tenancy Agreement exists between the parties. I find that Chung had never agreed to this agreement and his signature on the agreement is a forgery. In order to deal with this issue, it is necessary to see the context in which this agreement is said to have come into existence.

The 1994 action

11. On 13 September 1991, Chung and Shu entered into a tenancy agreement ("the 1st Tenancy Agreement") with Garment Limited and let the premises to Garment Limited for a term of three years from 1 December 1991 to 30 November 1994. The rent was $95,000 per month from 1 December 1991 to 30 November 1993 and $100,000 per month from 1 December 1993 to 30 November 1994. Garment Limited was given the option of continuing with the tenancy for a term of two years from 1 December 1994 to 30 November 1996 at $120,000 per month. The premises is an industrial building. Special Condition 3 of the Conditions of Sale of the premises stated that except with the consent of the Governor, the premises shall only be used for a factory. Condition 15 permits the government to re-enter and take back the possession of the premises in the event that the purchaser fail to observe or comply with the conditions of the Conditions of Sale. The 1st Tenancy Agreement provided that Garment Limited shall not do any act which shall amount to a breach of conditions contained in the Conditions of Sale.

12. On 26 August 1994, Chung and Shu commenced High Court Action No.A8575 of 1994 ("the 1994 action") against Garment Limited seeking recovery of the premises on the ground that Garment Limited had used the premises as a showroom and not for industrial purpose. The 1st Tenancy Agreement further provided that Garment Limited shall not sublet the premises. In the Amended Statement of Claim of the 1994 action, it was further pleaded that Garment Limited had sublet the premises and it was in arrears of rent from 1 September 1994 to 31 November 1994 (together with arrears of rates in the sum of $317,528.75). Further it was pleaded that the 1st Tenancy Agreement had come to an end by effluxion of time on 30 November 1994.

The January 1995 settlement

13. It is not disputed that in January 1995, there was discussions between Kwan and Chung on the settlement of the 1994 action. Kwan offered to pay the sum of $2,142,408.60 then due to Chung and Shu by postdated cheques. The amount of $2,142,408.60 was made up of :

1)	forbearance fees	$782,408.60
2)	forbearance fees deposit	$500,000.00
3)	rental deposit	$110,000.00
4)	rental for September, October and November 1994	$300,000.00
5)	rental for December 1994	$150,000.00
6)	rental for January and February 1995	$300,000.00

14. According to Chung, the offer to settle came from Kwan. Chung recorded the terms of the proposals made by Kwan in a written document, and Kwan signed on this document on 23 January 1995. Amongst the terms set out in this document are that :

1) The tenant agreed to pay the forbearance fees that had been paid by Chung and Shu. At that time, Chung and Shu had already paid forbearance fees demanded by the Lands Department because the premises was used as showroom instead of industrial use.

2) The tenant agreed to pay all outstanding arrears of rent.

3) The tenant agreed to pay the solicitors' fees of Chung and Shu.

4) The parties agreed to enter into a new tenancy agreement with the following terms :

i) add one item of forbearance fees deposit of $500,000;

ii) increase the rental by $30,000 (i.e.$150,000 per month); and

iii) payment of the rentals to be paid by postdated cheques in respect of March to December 1995 and January to November 1996.

15. The document also contained a phrase "Explain to tenants". Chung said that was a request by Kwan for Chung to explain to the sub-tenants about the position. Chung agreed that by this settlement, he would continue to let the premises to Kwan for a further term of two years until end of 1996 as provided for in the 1st Tenancy Agreement.

Wholesale Limited's pleaded case

16. According to the pleaded case of Wholesale Limited in the present action, Chung and Kwan represented that if Garment Limited consented to Chung and Shu entering judgment against Garment Limited in the 1994 action and if Garment Limited and Wholesale Limited reimbursed Chung and Shu for all charges and costs occasioned by Chung and Shu's successful application for the change of the land user of the premises from industrial purposes to that of showroom, Chung and Shu would grant them a lease in relation to the premises for a term commencing from 1 March 1996 and expiring on 31 December 2003. Further, Chung and Shu would refrain from executing the judgment and from recovering possession of premises from Garment Limited and Wholesale Limited. Wholesale Limited pleaded that this representation constituted the collateral agreement between Wholesale Limited and Chung and Shu.

The judgment

17. On 27 January 1995, judgment was entered for Chung and Shu against Garment Limited. According to the order dated 7 February 1995 made by Deputy High Court Judge Wong, the terms were :

"1. Judgment be entered against the Defendant by the Plaintiffs for the following reliefs :-

(i) The Defendant do forthwith deliver vacant possession of the premises known as Workshop B5, Ground Floor, Block B, Hong Kong Industrial Centre, 489-491 Castle Peak Road, Kowloon, Hong Kong ('the said Premises') to the Plaintiffs;

(ii) The Defendant do forthwith pay to the Plaintiffs the arrears of rent and rates in the total sum of $317,528.75;

(iii) An injunction restraining the Defendant whether by itself, its directors, servants, agents, tenants or licencees from using or continuing to use the said Premises otherwise than as a factory, or doing or suffering to be done any act in breach of the Conditions of Sale No.4268 relating to the said Premises;

(iv) Damages for breach of the Tenancy Agreement (as defined in paragraph 2 of the Amended Statement of Claim herein);

(v) The Defendant do pay to the Plaintiffs mesne profits at the market rent of the said Premises from 1st December 1994 until vacant possession shall have been delivered up by the Defendant;

(vi) There be an assessment of the damages and mesne profits referred to in paragraphs (iv) and (v) of this Order;

(vii) Costs of this action including costs of the application for summary judgment be paid by the Defendant to the Plaintiffs."

The subsequent events

18. Pursuant to the settlement reached in January 1995, Kwan instructed a firm of quantity surveyors, Messrs Lawson Tang and Sung ("Lawson Tang") to apply to change the user of the premises from industrial to showroom. On 28 March 1995, the Town Planning Board informed Lawson Tang that it had approved the application for change of user on a temporary basis for three years with conditions. On the following day, Lawson Tang applied to the District Lands Office for a temporary waiver of the user condition.

19. According to Kwan, the parties in January and February 1996 discussed again the tenancy agreement. As a result, the 1996 Tenancy Agreement was signed.

20. According to Chung, troubles soon started after the settlement in January 1995 because some of the postdated cheques issued by Kwan were not met on presentation and were only met after they were presented again. Kwan also requested Chung not to present the cheques. By 1996, Chung instructed his lawyers to proceed against Garment Limited.

21. According to the correspondence between solicitors, the solicitors for Garment Limited first referred to the 1996 Tenancy Agreement in October 1996. Chung stated that he was only informed by his own lawyers of the existence of this tenancy agreement in January 1997. When he realized the existence of this document, he reported the matter to the police. The police, however, did not take action against Kwan.

22. On 8 October 1996, the sealed judgment of the order made by Deputy Judge Wong was obtained. On 12 November 1996, the writ of possession of the premises was issued. On 25 November 1996, Garment Limited commenced an action, namely High Court Action No.A13493 of 1996 ("the 1996 action") against Chung and Shu, claiming a declaration that Garment Limited was a tenant under the 1996 Tenancy Agreement. On 4 March 1997, Master Chu (as she then was) granted a stay of execution of the judgment entered in the 1994 action pending the outcome of the 1996 action.

23. At the meantime, Chung and Shu had applied for interim payment in respect of the use and occupation by Garment Limited. An order was made by Master Chung (as he then was) on 3 December 1997 in favour of Chung and Shu. Garment Limited appealed to Sears J who dismissed the appeal on 2 January 1998. Further appeal by Garment Limited to the Court of Appeal was also dismissed on 30 April 1998.

24. On 2 June 1998, Garment Limited commenced another High Court action, namely High Court Action No.8912 of 1998 ("the 1998 action") against Chung for the return of deposit of $240,000 under the 1996 Tenancy Agreement. On 6 May 1998, Chung and Shu petitioned to wind up Garment Limited on the ground that it had failed to pay the interim payment ordered by Sears J. On 16 June 1998, the winding-up order was made against Garment Limited. The Official Receiver decided not to defend the 1994 action or proceed with the 1996 and 1998 actions commenced by Garment Limited. On 7 October 1998, with the consent of the Official Receiver, a joint application was made to lift the stay of execution of the judgment of 8 October 1996 on the possession of the premises. On 27 November 1998, Wholesale Limited commenced the present action against Chung and Shu, relying on the 1996 Tenancy Agreement.

Inherent improbability of the 1996 Tenancy Agreement

25. I find it inherently improbable that Chung had agreed to the 1996 Tenancy Agreement. Considering Garment Limited, which was also one of the companies controlled by Kwan, had commenced two actions in 1996 and 1998 and claiming to be the tenant under the 1996 Tenancy Agreement without any reference to Wholesale Limited, the present action by Wholesale Limited is nothing but a delaying tactic by Kwan to prevent Chung and Shu from recovering possession of the premises. This is not the usual landlord and tenant case where the tenant itself is in occupation of the premises. Right from the commencement of the 1st Tenancy Agreement in 1991, the premises had been subdivided by Garment Limited into over 10 sub-units and let out to various subtenants. The evidence revealed that after deducting the monthly rent due to Chung and Shu, Kwan through his corporate vehicles obtained between $100,000 to $200,000 per month from the subletting. Clearly there is a huge financial interest at stake if Chung and Shu were able to recover possession of the premises.

26. The 1996 Tenancy Agreement is a handwritten agreement. Kwan said that the agreement was signed by Chung at Kwan's office. Kwan saw Chung signing his name on the document. Chung had been represented by lawyers throughout, Garment Limited was also represented by lawyers. The 1st Tenancy Agreement was prepared by lawyers. Although the discussion for the settlement of the 1994 action in January 1995 was conducted personally by Chung and Kwan, Chung's evidence is that at the discussion he told Kwan that he had to refer the matter to his lawyer and he did. The consent summons relating to the settlement of the action was prepared by lawyers for both parties. Although the way in which the 1994 action was settled was somewhat unorthodox, that is not an indication that Chung had adopted an informal approach when he came to the 1996 Tenancy Agreement. Bearing in mind the length of the tenancy which was for six years and nine months with rental for the whole period at over $13 million, it is simply incredible that Chung would have agreed to accept such an informal arrangement.

27. The case initially pleaded by Wholesale Limited is that the 1996 Tenancy Agreement was entered into on 11 September 1996. This was also the plea in the 1996 action by Garment Limited. Kwan's case is that in mid 1996, he informed his own solicitors about the 1996 Tenancy Agreement. His solicitors told him that the document had to be stamped. He had contacted Chung about sharing the stamp duty but Chung refused, and he paid for the stamp duty himself. The document was stamped on 11 September 1996. The allegation that Chung had refused to pay stamp duty was raised for the first time in the evidence of Kwan. Previously there was no allegation of such an event.

28. Despite the alleged signing of the 1996 Tenancy Agreement, Kwan's lawyers had not chosen to reply to Chung's lawyers that the position of the parties from February 1996 onwards was governed by this agreement. On 7 September 1996, Chung's former lawyers wrote to Garment Limited's lawyers stating that Garment Limited had, in breach of the order of Deputy Judge Wong, failed to pay the mesne profits at the rate of $120,000 per month for the period from 1 June 1996 to 30 September 1996, totaling $480,000. The reply came on 24 September 1996 in which Garment Limited's lawyers stated that the money had been paid and demanding receipt for the payment. Surely, if the 1996 Tenancy Agreement had been in existence since February 1996, then it is not a matter of payment of mesne profit under the 1995 settlement, but rather payment of rental under the new agreement. The omission cannot be an oversight.

29. On 10 October 1996, Chung's lawyer issued a notice to occupants to vacate the premises. On 14 October 1996, Garment Limited's lawyer wrote that unless the receipt for the rent paid for 1 June 1996 to 31 October 1996 was to be issued, Garment Limited would take necessary action as it may deem fit. Further, he stated that Garment Limited had deposited two postdated cheques dated 1 November 1996 and 1 December 1996 for the rental payment of the months of November and December 1996. He asked for the cheques to be cleared and for the formal receipt to be given. Again there was no mention of the 1996 Tenancy Agreement.

30. By 24 September 1996 and 14 October 1996, Garment Limited's lawyer must have knowledge of the existence of the 1996 Tenancy Agreement if the evidence of Kwan is true. However, there was no reference to this tenancy agreement at all in these two letters, instead, Garment Limited's lawyer only disclosed this agreement in the letter of 17 October 1996. The only likely explanation for this late disclosure is that the situation had become desperate because Chung and Shu's lawyers were proceeding to enforce the judgment obtained in January 1995. Kwan had to resort to a false and a forged document to save himself, through his companies, from being forced to leave the premises.

Cash deposit of $600,000

31. The alleged payment of rental deposit for the second period of the 1996 Tenancy Agreement from 18 March 1998 to 31 December 2003 of $600,000 by cash is equally incredible.

32. Kwan had filed numerous affirmations in the 1994 action. The affirmations filed from July 1997 onwards by Kwan were disclosed in the trial bundle. In none of these affirmations had he ever mentioned that $600,000 cash had been paid by him to Chung. This is surprising, considering that Chung and Shu were alleging at that time that Kwan's company had failed to pay the mesne profits for the use and occupation of the premises. If Kwan had actually paid such a substantial sum of money to Chung, one would have expected him to say that the allegations of non-payment were false and he was someone who was capable of paying $600,000 in cash to Chung in February 1996.

33. Furthermore, the content of the affirmation actually contradicted Kwan's evidence that he had paid $600,000 cash to Chung. In his affirmation filed on 10 December 1998 in support of Wholesale Limited's application to be joined as a party to the 1994 action, Kwan referred to the 1996 Tenancy Agreement. At paragraph 5, Kwan stated that Wholesale Limited had since the commencement of the 1996 Tenancy Agreement paid to Chung and Shu all the rental deposit, rent and other sums that had become due thereunder. The particulars set out payment of the deposit for the first period in the sum of $40,000 and various monthly rentals of $120,000. There was no mention that $600,000 cash deposit for the second period had been paid.

34. Paragraph 9 of the affirmation stated that because Chung and Shu had now denied the existence of the 1996 Tenancy Agreement and failed to refund to Wholesale Limited the deposit for the first period for the sum of $240,000, Wholesale Limited withhold a sum of $30,000 per month since the commencement of the second period of the tenancy as a set off against the deposit for the first period. Accordingly, Wholesale Limited had been paying Chung and Shu a sum of $120,000 instead of $150,000 since 18 March 1998.

35. The reason given by Kwan as to why he only paid $120,000 per month belied his case on the deposit of $600,000. If Chung had actually denied the existence of the 1996 Tenancy Agreement, he ought to have returned the $600,000 deposit to Kwan as well, together with the deposit of $240,000 for the first period. Instead, Kwan did not appear to be concerned at all with this refund of $600,000. The 1998 action instituted by Garment Limited merely claimed for the refund of the deposit of $240,000 and not the $600,000. If Kwan had actually paid $600,000 cash, one would have thought that instead of merely deducting $30,000 per month to set off against the deposit for the first period, he would have used the $600,000 cash as payment of the monthly rent of $150,000. In my view, the truth of the matter is that Kwan was fabricating a story that he had paid $600,000 to Chung.

36. Furthermore, in respect of the deposit of $240,000 for the first period of the tenancy under the 1996 Tenancy Agreement, all that Kwan can point to was a payment of $40,000 for the deposit.

37. There was no evidence produced by Kwan as how he managed to pay the cash of $600,000. Kwan's company had been paying rental to Chung and Shu since 1991 by way of cheques. Even after the parties had reached the settlement in January 1995, the mode of payment was still by cheque. Kwan alleged that Chung had telephoned him demanding the $600,000 in cash. He alleged that prior to this payment of $600,000, Chung had also on another occasion demanded him to pay cash of $100,000 as tea-money for his wife Shu since Kwan had caused so much trouble on the tenancy matter. This allegation had never been raised by Kwan before and was raised for the first time during his cross-examination when he was pressed by counsel for Chung and Shu on the payment of $600,000 cash.

38. Chung and Shu's lawyer had in December 1996 asked for the receipt for this $600,000, this was never responded to by Kwan's lawyer. Mr Yuen, counsel for Wholesale Limited, Kwan and Leung, submitted that the 1996 Tenancy Agreement itself had recorded for the receipt of this $600,000 by Chung. If this is the case, I fail to see why Kwan's lawyers had not responded to this request earlier.

39. In the January 1995 settlement when the rental deposit was increased because the monthly rental was increased from $120,000 to $150,000, the actual amount that Garment Limited was required to pay was the difference between the existing rental deposit and the rental deposit based on the new rent. However, oddly, the new rental deposit for the second period in the 1996 Tenancy Agreement was required to be paid in addition to and without any adjustment of the previous deposits. Further, unlike previous dealings in which Garment Limited was only required to pay a deposit of two months rental, the $600,000 represented rental for four months. No credible evidence had been given by Kwan as to why he agreed to this.

Kwan is not a credible witness

40. Kwan is not a credible or trustworthy witness. His evidence is full of inconsistencies. The only explanation is that he had given so many false information that he was unable to keep up with his lies.

41. The evidence of Kwan at the hearing is that the settlement in 1995 was that Chung would let the premises for a term of at least five years from January 1995. However, he stated that this letting of five years was conditional upon the Town Planning Board granting the change of user of the premises. If the Town Planning Board did not grant the change, then the term would be in accordance with the document signed by him on 23 January 1995. Apart from signing on the document on 23 January 1995, Kwan had also written out the terms that had been agreed in his own writing in a document. Kwan had initially denied that he had written this document but later accepted that it was in his own writing. In neither of these documents was there any reference to the five year term. There was also no indication that the five year term would be conditional upon the Town Planning Board approving the change and that, in default, the terms agreed in January 1995 would continue between the parties.

42. What is even more improbable is the pleaded case of Wholesale Limited in the present action that in January 1995, Chung had already represented that a new lease would be granted for the term from 1 March 1996 and expiring on 31 December 2003. Kwan's oral evidence did not refer to specific time period. The term from 1 March 1996 to 31 December 2003 is the one agreed in the 1996 Tenancy Agreement. Kwan had never explained these discrepancies.

43. The oral evidence of Kwan is that Chung had agreed with him when they were discussing the terms of the 1st Tenancy Agreement that Kwan could use the premises as a showroom and that he could subdivide the premises and sublet to others. This allegation is not borne out by contemporary document. In April 1992, the government complained to Chung that the premises had been, in breach of the Condition of Sale, used for garment showrooms and property agency purposes. Chung's lawyer referred the matter to Kwan's lawyer whose response was surprising. Instead of saying that Chung had agreed to let the premises for showroom purpose, Kwan's lawyer merely stated that the breach of the condition had been purged.

44. In respect of the subletting, the oral evidence of Kwan is that since 1991 the premises had already been subdivided and let out to various sub-tenants. This is not what Kwan said in his affirmation filed on 10 December 1998. He stated that Garment Limited had solely occupied the premises from 1991 onwards. After February 1996, Garment Limited and Wholesale Limited jointly occupied the premises. After Garment Limited was wound-up, Wholesale Limited occupied the premises and subdivided the premises into 18 workshops which were sublet to 17 sub-tenants.

45. The 1st Tenancy Agreement, in fact, expressly prohibited acts which may amount to a breach of the condition of the Crown Lease. It also expressly prohibited the subletting of the premises. Garment Limited, in its Defence to the 1994 action, had never pleaded that there was an express agreement that Garment Limited could use the premises as a showroom or could sublet the premises.

46. It is Kwan's case that the parties only discussed about the settlement of the 1994 action in January 1995. However, in his affirmation filed on 17 January 1998, he stated that Garment Limited had in May and June 1994 paid the sums of $50,000 and $100,000 respectively to Chung and Shu "as deposit and necessary expenses for renewal and/or execution of the fresh tenancy agreement for the period from December 1994 to January 1996". He then stated that since the parties had not executed any tenancy agreement for that period, the sum of $150,000 "shall be set off against the rental and necessary expenses alleged to be due and owing" by Garment Limited to Chung and Shu. The reference to another discussion is baffling.

47. In Kwan's affirmation filed on 20 November 1997, it referred to two cheques of $300,000, claimed that these two cheques were for the payment of the deposit of the forbearance fees of $500,000 and rental deposit of $100,000. He said that as the Lands Department had approved the application for the conversion of the user of the premises, therefore, there was no need to pay the deposit for the conversion. At paragraph 6, he stated this : "as shown in the bracket following the 110,000 under item 3, $190,000 which represented the two months rental deposit for the previous lease was still retained by the landlords. As the plaintiffs (i.e. Chung and Shu), all along denied having granted the defendant (i.e. Garment Limited), further leases, the two cheques were agreed not to be presented by the plaintiff".

48. This is again a strange contention. First of all, the additional rental deposit was $110,000 and not $100,000 as alleged by Kwan. Under the terms of the 1995 settlement, Garment Limited was required to pay a deposit of $300,000 because the rental had been agreed to be increased to $150,000 per month. But because under the 1st Tenancy Agreement, Garment Limited had already paid $190,000, all that it was required to pay was another $110,000. Further, on Kwan's own case, he had not paid the $110,000 additional deposit agreed as a result of the 1995 settlement. With this background, he alleged that Chung had agreed in February 1996 to enter into a fresh term of six years and nine months with him. The situation is totally unreal.

Evidence of Chung

49. Chung is not a sophisticated person. He operated a metal factory at the premises before he let the premises to Garment Limited. I find him to be a credible and truthful witness. I find that he had never agreed with Kwan in February 1996 to let the premises to Kwan and he did not sign the 1996 Tenancy Agreement. I find that he had not agreed to let the premises to Kwan as a showroom or allowed him to sublet the premises when they first discussed the 1st Tenancy Agreement. I accept that in January 1995, he agreed to settle the matter with Kwan. At that time, it was approaching Chinese New Year and, out of sympathy, he agreed to allow Kwan to continue to occupy the premises. He also agreed to continue to let the premises to Kwan if he would discharge all the outstanding obligations and pay the future rentals. I further accept Chung's evidence that despite the 1995 settlement in which the parties agreed to increase the rental to $150,000, he later agreed to reduce it to $120,000 because Kwan told him that he was in financial difficulties. He obviously felt frustrated with the money and time he had spent in trying to recover the premises. In his evidence, he said he has already spent $1 million to $2 million on legal fees in this case. Considering the delaying tactics taken by Kwan, Chung's grievances and frustrations are well justified.

Expert evidence on handwriting

50. In my view, Kwan had failed to show that Chung had agreed with him on the 1996 Tenancy Agreement. This is sufficient to dispose of the case of Wholesale Limited. However, the evidence relating to the 1996 Tenancy Agreement consists more than factual evidence. Both parties have adduced expert evidence relating to the signature of Chung on this agreement.

Professor Cheung

51. Wholesale Limited called Professor Cheung Kwong Yue ("Professor Cheung") of the Department of Chinese Language and Literature of the Chinese University of Hong Kong. Professor Cheung's specialization is in the research and teaching in Chinese etymology (the study of ancient and history of words and their meanings), semasiology (the deciphering of ancient text) and paleography (the study of ancient words, writing and documents). In his curriculum vitae, he stated that for over 20 years, he had conducted research in museums of the world and he had examined numerous private collections of Chinese calligraphy contained in art works. For more than 10 years, he had been involved in more than 30 legal cases, acting as a handwriting expert. He had given evidence in court.

52. Professor Cheung had not received any formal training in forensic handwriting comparison. What he had done in this case was to obtain photocopies of the signature of Chung appearing in the title deeds of the premises and in the 1st Tenancy Agreement. He also obtained the signatures of Chung in various court documents by photographing them with a digital camera. The dates of these documents range from 1983 to 2000. He compared these samples signatures with the signatures of Chung in the 1996 Tenancy Agreement ("the questioned signature"). The conclusion he reached in his report is that because of the different writing styles of Chung in the sample signatures, he could not dismiss the possibility that the questioned signature is written by the same person who wrote the sample signatures. He said this is particularly supported by the similarities seen when comparing the questioned signature with the sample signatures. In his evidence-in-chief, Professor Cheung said that the percentage of similarity is over 50%. He stated that after seeing the third report of Mr Hung Pui Shing, the expert of Chung, he could assess the similarity as more than 50%.

53. The instruments Professor Cheung used in comparing the signatures were magnifying glass, digital camera and computer. After photographing the sample signatures with his digital camera, the data would be loaded to the computer and the image of the signatures would be enlarged on the computer screen.

Mr Hung

54. Mr Hung is a document examiner in the Questioned Documents Section, Forensic Science Division of the Government Laboratory. He specializes in the examination of forged and counterfeit documents, typescripts, handwriting and signatures since 1992. He had given evidence as an expert witness in courts in Hong Kong on numerous occasions, although this is the first time he appeared in the High Court as an expert witness. Following the complaint by Chung to the police of his forged signature, Mr Hung had examined the signature and prepared a report on 8 August 1997. With the approval of the Government, Mr Hung prepared further reports at the request of Chung's solicitors on the questioned signature.

55. What Mr Hung did was to ask Chung to sign his signatures on sample sheets. He also asked Kwan to sign the name of Chung on sample sheets as well. He compared the sample signatures with the questioned signature. His conclusion in the 1997 examination was that the questioned signature was written in a cursive style and barely legible. Detailed examination revealed delicate retouching of strokes, which suggested that the questioned signature was unnaturally written. Although the questioned signature was superficially similar to the sample signatures of Chung, discrepancies in terms of proportion, slant and writing movement were found. His conclusion was that the questioned signature was probably not written by Chung. In regard to Kwan's sample signatures of Chung, they were not comparable to the questioned signature. He said that comparison of a questioned signature and controlled signatures specimens written by person other than the signatory of the questioned signature is usually hampered by numerous uncertainties. He said that he could neither identify nor eliminate Kwan as being the writer of the questioned signature.

56. In his evidence-in-chief, Mr Hung said that he would usually not give a percentage in assessing the similarity or dissimilarity of handwriting but he would say that it would be 80% that the questioned signature was not Chung's signature.

57. The scientific instrument used by Mr Hung in the comparison is the stereo microscope which is the standard instrument in signature comparison. With this microscope, the examiner is able to see the indented mark left on the paper by the writing. The questioned signature was written in ball pen. The peculiar feature of ball pen writing is that there may be areas in which the ink may not appear on paper because the roller point has not caught the ink but nonetheless there are indentations or marks that appear on the paper which can be revealed under the microscope.

Assessment

58. The inadequacy of the digital camera used by Professor Cheung is that this is an ordinary, family type camera. Distortions may appear on the screen of the computer because of the nature of the computer itself. Furthermore, the inadequacy of using photocopies is that when enlarged, all that the image will show is a group of carbon dust. It is apparent that Professor Cheung made the comparisons based on penmanship and the style of the writing. With respect to Professor Cheung, the methods he used are only superficial methods of comparison. His conclusion that it is possible that the questioned signature was written by the same person who wrote the sample signatures because of the different writing styles of the sample signatures is not a logical conclusion. Certainly, it is not one which requires the expertise of an expert.

59. In my view, it is more reliable to concentrate on the quality of the signatures rather the penmanship and style of the writing. After all, the similarity of a forged signature can be based on a genuine signature. Mr Hung stated that the sample signatures of Chung supplied to Mr Hung and Professor Cheung exhibited a wide range of variation in structural form rather than in different writing styles. They were written in a cursive style, exhibiting fluency and spontaneous writing movements. However, the questioned signature when enlarged, clearly revealed that there were hesitation, pen lift and retouching of writing strokes. In other words, the strokes were not written in a carefree and natural manner and probably they were executed by way of drawing. Furthermore, one distinguishing feature of all Chung's signatures is that an eyelet, opened or closed, was found before the bottom angular turning of the right radical "重" of the first character "鍾". This is not found in the questioned signature.

60. I find Mr Hung to be an impressive witness and I accept his evidence. Certainly, his expertise is based on forensic training and experience in this field aided with modern technology of document examination. Although Mr Hung used the words "qualified opinion" in his report on his conclusion that the questioned signature was probably not written by Chung, it does not lessen the weight that one can attach to his evidence. I accept his explanation that the words "qualified opinion" mean that he was not completely sure and he had a little reservation on this matter, but on balance, the probability was much higher that the questioned signature was not written by Chung. In my view, Professor Cheung had exaggerated when he said it was the report of Mr Hung which caused him to conclude that it was more than 50% that the questioned signature belonged to that of Chung. Any fair reading of Hung's report would not cause such an opinion to be formed.

Conclusion on the 1996 Tenancy Agreement

61. Chung and Shu's task does not require them to show that the questioned signature was forged by Kwan himself. Their case is that Chung did not sign on the 1996 Tenancy Agreement. In my view, they clearly had adduced sufficient evidence that the questioned signature was not Chung's signature. Kwan's allegation is a specific one in that he saw Chung signing in front of him. I find against him. Accordingly, I dismissed the claim of Wholesale Limited against Chung and Shu.

Counterclaim by Chung and Shu

62. In respect of the counterclaim by Chung and Shu, their case is based on fraud. In finding for Chung and Shu, I had borne in mind that although the standard of proof when crime is alleged in a civil trial is still that of the civil standard, because of the serious allegation, I would require strong evidence before I can be satisfied that the allegation is established on a balance of probability. In my view, such strong evidence is clearly present in this case. Kwan is clearly the mastermind in ensuring that Chung and Shu would not be able to recover their premises. Wholesale Limited is merely his corporate vehicle in carrying out the fraud. It is obvious that right from the beginning of the tenancy in 1991, Kwan had been in charge. He admitted that he was in control of Garment Limited and Wholesale Limited. He alone conducted the negotiation with Chung in January 1995. There is no doubt whatsoever that Garment Limited and Wholesale Limited are merely the means in which he took control of the premises and sublet to others, making huge gains in the process. After the winding-up of Garment Limited and after the Official Receiver had decided not to continue with the various litigations involving Garment Limited, Kwan was determined not to let Chung and Shu have possession of the premises. It is obviously fraudulent to allege Chung had agreed on a new tenancy agreement and arranged for a forgery of Chung's signature on the 1996 Tenancy Agreement.

63. Mr Yuen submitted that ultimately it is merely a matter of financial gain and Kwan would not be so stupid as to forge someone else signature. In my view, desperate people do desperate acts and it is precisely because of financial interest that caused Kwan to carry out the fraudulent scheme. What the evidence reveal in this case is that Kwan was in financial difficulties, hence there was trouble with paying the agreed sums and the rentals to Chung and Shu. In his evidence, Kwan stated that he had asked his lawyers to handle the legal problems for him and his lawyers had not informed him of what they had done. I do not accept his evidence. He is obviously a shrewd person and every move he had made was a calculated one. He was fully aware of the steps taken on his behalf by his lawyers.

Chung and Shu's own wrong?

64. It was contended by Kwan that it was Chung and Shu who refused to continue with the agreement on forbearance fees with the government which resulted in the government re-entering the premises.

65. Chung stated that he decided not to help Kwan with the change of user after learning of the 1996 Tenancy Agreement. He stated that by then, forbearance fees for 1997 to 1998 had probably been paid and he stopped continuing with the arrangement in 1999. In my view, with the discovery of the forged 1996 Tenancy Agreement, any right thinking person would sever his association with Kwan. Chung was clearly justified in stopping the arrangement on the payment of forbearance fees to the government. Furthermore, at that time the Customs and Excise Department had been investigating the sale of pirated goods at the premises and Chung was interviewed by the Customs officer on this. In my view, the liability to pay forbearance fees to the government arises because of the wrongful occupation by Kwan through his corporate vehicles at the premises and also by the unauthorized use of the premises as a showroom. The damages and quantum were not disputed.

Conclusion on the counterclaim

66. In my view, Chung and Shu had clearly proved their case of fraud against Kwan. He is liable to them and as Wholesale Limited is his vehicle, it is equally liable to Chung and Shu. Chung and Shu also pursued a case of fraud against Leung, the wife of Kwan. However, there is very little evidence connecting Leung to the fraudulent scheme. While I accept the submission of Mr Shum, counsel for Chung and Shu, that it is improbable that Leung would not have been aware of the fraudulent scheme carried out by her husband, I am not satisfied that in considering the evidence as a whole, I can infer that Leung had committed the crime. For this reason, I dismissed the case against her. Indemnity costs are clearly appropriate in a case of fraud.