XCHRX PIONEER TIME INVESTMENT LIMITED v. UNION FORCE INVESTMENT LIMITED

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

Action No. A9165/1995

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J U D G M E N T

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Findlay, J.:

1. On 12 October 1995, the plaintiff recovered judgment against the defendant in default of any defence being served. On 25 October 1995, the defendant issued a summons seeking the setting aside of this judgment. On 2 November 1995, this summons was dismissed by the Master, with costs on a full indemnity basis. The defendant now appeals against this decision.

2. The plaintiff's claim is for rent and other amounts due under a tenancy agreement evidenced by an offer letter dated 30 March 1995, signed by the defendant confirming its acceptance, and a specimen lease incorporated by that letter.

3. In its defence, the defendant accepts that it signed this letter, but did so on a "subject to contract" basis. The defendant says that it was the "mutual understandings" of the parties that the tenancy as pleaded by the plaintiff "would only take effect until execution of a formal tenancy agreement and prior to that the defendant would only be a monthly tenant". Presumably, the defendant means to say that the agreement pleaded by the plaintiff would not take effect until the execution of a formal tenancy agreement.

4. The plaintiff has, on the face of it, a binding agreement. The defendant says that it is not binding. It is for the defendant to show that it has a real prospect of successfully establishing this at trial.

5. The basis for the defendant's allegation is the evidence of Ms Angela Yang. This is what she says about entering into the agreement -

"In or about the end of March 1995, I talked to Karen Lau over the phone again and told her about our intention to take up both Room 2002 and Room 2003. Karen Lau replied that it was possible for us to take up Room 2002 as well. As to the rental for both premises, she said that we could sit down and discuss it later. She further said that in order to protect the interest of the Plaintiff and to show our sincerity, we have to sign an offer letter first and to discuss the details of the terms, including rental, acquisition of the tenancy of Room 2002, etc., after the signing of the offer letter, and that the actual terms would be recorded in the formal agreement.. She also said that after the expiry of the Tenancy Agreement on 14th April 1995, we could continue to stay in Room 2003 as a monthly tenant and continue to pay the old rental in the sum of HK$56,420.00 per month until a new tenancy agreement was signed and everything was finalized. However, she again said that in order to protect the Plaintiff's interest and to show our sincerity, we have to pay a further security deposit money in the sum of HK$113,534.40.

At that time, there was only about half month left before the Tenancy Agreement was due to expire on 14th April 1995 and there would not be enough time for the Defendant to find new business premises if we decided to move on 14th April 1995. On reliance of Karen Lau's aforesaid representation and not otherwise, I agreed to sign the offer letter and pay further deposit money first, and then to negotiate the details of the terms afterwards. It was expressly made clearly to Karen Lau that the offer letter was signed subject to further negotiation and that it does not amount to any tenancy agreement between the Plaintiff and the Defendant.

The negotiation between the parties continued. But even up to late June 1995, Karen Lau and I still could not agree on the new rental payable to the Plaintiff on the renewal as the general rental for business premises in Hong Kong was at that time going further down. Karen Lau insisted the rental be at the rate of HK$43.00 per square foot and she also proposed that I should signed the formal tenancy agreement first and that we could still negotiate for a lower rental after my signing of the same. I of course objected to this course and insisted that a formal tenancy agreement would only be signed after we reached an agreement on the new rent. Otherwise the Defendant would remain as a monthly tenant at the old rent."

6. Ms Lau denies this. It also poses more questions than it answers. How was the plaintiff's interest to be protected by having an agreement that was not worth the paper on which it was written? If the agreement was to mean nothing, why did she sign it? Why did she sign an agreement that, on the face of it, bound the defendant when it was not intended to bind it? Ms Yang does not explain this at all. She does not say she was foolish, inexperienced, overawed or pressured into doing so. Ms Yang is a director of the defendant and a woman of some education. It appears from her affirmation that she was able to read it without the aid of an interpreter. Quite apart from the improbability that a woman in her position would do something so silly, it is clear from her own words that she knew that one should not sign an agreement when it was not intended to be binding. She says that when Ms Lau asked her to sign the lease and negotiate afterwards, she "of course I objected to this course and insisted" that it be signed only after agreement. So why did she do precisely this earlier? Why did she not then "of course" object. She does not explain, and Mr Mak was unable to offer any reason. Ms Yang says that "It was expressly made clearly to Karen Lau that the offer letter . . . does not amount to any tenancy agreement between the Plaintiff and the Defendant". When was this made clear? How was it made clear? The truth of this matter emerges from Ms Yang's own mouth. She says that "there was only about half month left before the Tenancy Agreement was due to expire on 14th April 1995 and there would not be enough time for the Defendant to find new business premises if we decided to move on 14th April 1995" That is why she agreed to the new tenancy and signed the agreement. The defendant had no choice.

7. The tenancy agreement signed by Ms Yang required a payment of the sum $113,429. When the defendant returned the tenancy agreement, it paid this sum by a cheque dated 15 April 1995. It is significant that 15 April 1995 was the date of the commencement of the new lease.

8. The only adminicle of evidence that gives any credence to what Ms Yang says is that, on 16 May 1995, the plaintiff wrote to the defendant demanding rent and other sums calculated on the basis of the old tenancy. The defendant paid this by cheque dated 19 May 1995, and the plaintiff issued a receipt dated 26 May 1995. The plaintiff explains this by saying that the demand letter was written by the Distraint Section of the Leasing Department, which had not updated the leasing details.

9. The only possible value this evidence can have in supporting what Ms Yang says is in making a case that the plaintiff demanded the old rent because it knew that it did not have a binding new tenancy. But this cannot be so because, otherwise, its conduct was consistent only with the belief that it did have a new tenancy with the defendant. On 12 April 1995, the plaintiff wrote to the defendant enclosing the lease for execution and asking for payment of a sum calculated on the basis of the new rent. On 25 April 1995, the plaintiff issued a debit note showing the rental calculated at the new rate, and a reminder of this dated 10 May 1995. The plaintiff issued another debit note, showing the rent at the new rate, on 25 May 1995. It issued a further debit note, again showing the rent at the new rate, on 23 June 1995. On 14 June 1995, the plaintiff wrote to the defendant demanding rent at the new rate. In the face of this conduct by the plaintiff, it cannot possibly be said that the plaintiff was behaving as if the old tenancy was still valid and a new tenancy had not been entered into.

10. On 8 July 1995, the defendant wrote to the plaintiff saying that it would quit the premises on 15 July 1995. No mention is made of the form of tenancy under which the defendant occupied the premises. The plaintiff replied on 10 July 1995 saying that it could not accept early surrender of the tenancy.

11. In the face of these letters, debit notes, and a reminder, there is not one word from the defendant, which was not adverse to putting pen to paper, saying words to the effect - "What are you talking about? We have no new tenancy with you under which the increased rent is payable. We are in occupation under a monthly tenancy at the original rent."

12. In my view, there is no evidence that shows that there is a real likelihood that the defendant will succeed in its defence; it has no real prospect of success. It follows that the appeal must be dismissed. The judgment granted by the Master stands.

13. As for the costs of this application, the terms of the tenancy provide that the costs are payable on a full indemnity basis. There seems no reason why I should not enforce this. Accordingly, I make an order nisi that the defendant pay the costs of this appeal on a full indemnity basis.

(J.K. Findlay)

Judge of the High Court