LAI HEUNG AND ANOTHER v. WU MAN HUNG t/a INTERNATIONAL MARBLE WORKS CO

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Plaintiffs, who are husband and wife, own between them the suit premises at Shop B on the ground floor and office B on the first floor of No. 238, and Shop A on the ground floor of No. 240, Lockhart Road, Wanchai, Hong Kong ("the premises"). The premises were at all material times and are managed by their son, one Lai Sai Sang ("Lai") under a power of attorney dated 4.12.1986. The Defendant is the tenant of the premises under a tenancy agreement dated 2.1.1987 ("the Agreement"). The Agreement provided for a tenancy of the premises for a term of 3 years from 12.12.1986 to 11.12.1989 at a monthly rental of $55,000. By clause 8(a) of the Agreement the Defendant was given an option to take up a further term from 12.12.1989 to 11.12.1992 at the monthly rentals of $59,400, $64,152 and $69,284 respectively for the 3 years. The option would have to be exercised between 12.5.1989 and 11.6.1989 to be effective. Pursuant to clause 4(g) of the Agreement, notice of exercise of the option would be "sufficiently served if addressed to the landlord and sent by prepaid post to or delivered at the landlord's address hereinbefore mentioned" in the Agreement i.e."care of Hing Yip Electrical Engineering & Supplier Limited of No. 115, Portland Street, Mongkok, Kowloon, Hong Kong".

2. By these consolidated actions the Plaintiffs sought, essentially, a declaration that the Defendant has not exercised the option to renew under clause 8(a) of the Agreement. Initially the Plaintiffs also claimed for recovery of possession of the premises on the ground that the tenancy had expired on 11.12.1989. However, shortly before the trial, the Plaintiffs conceded that the tenancy is protected under Part V of the Landlord & Tenant (Consolidation) Ordinance, Cap. 7 and served a 6 month notice of termination expiring in March 1992. In the premises, the only real issue left to be determined is the exercise of the clause 8(a) option. I say "real issue" because the Plaintiffs also claim a subsidiary declaration that the letter dated 27.5.1989, i.e. the alleged notice exercising the option, only came into existence after 11th June 1989, i.e. after the validity period; having dropped the initial more serious allegation of forged document.

3. It is the Plaintiffs' case that the option has never been exercised by the Defendant in manner stipulated by the Agreement or at all. The Defendant alleged that he had done so on 27.5.1989 by a letter dated the same date. The Plaintiffs further contended that if the alleged letter of 27.5.1989 was in fact sent in manner alleged, it was defective in 2 ways. Firstly, the address appearing on the said letter does not contain a reference to "care of Hing Yip Electrical Engineering & Supplier Limited" and thus failed to comply with the requirement of clause 4(g) of the Agreement. Secondly, the said letter purported to renew the tenancy for "a further three years from 12 December 1989 to 12 December 1991" which gives rise to uncertainty. It is also the Plaintiffs' case that as the Defendant was at all relevant times aware of the change of Hing Yip Electrical Engineering & Supplier Ltd.'s address from No. 115 to No. 52 of Portland Street, the despatch of the said letter to the old address would not be a sufficient exercise of the option.

4. The Plaintiffs called 3 witnesses to give oral testimony at the trial. P.W.1, Lai, described how he came to be under the impression that one Miss Ho Man Yee (who subsequent to the execution of the Agreement became the Defendant's wife), a clerk of the Defendant, played a major role in the negotiation for the tenancy in 1986. That he was anxious to find out, in April 1989, from his former solicitors, Mr. Chik Pui Hong (P.W.3) of Messrs. Fok & Johnson how the option could be exercised. That he had never received the alleged letter of 27.5.1989. That he should be able to receive it even if it had been sent to the old address at No. 115 as the postman is familiar with him and had been redirecting the mails to No. 115 to his new address. That when he did not receive any notice exercising the option he instructed P.W.3 to write to the Defendant to put on record that fact. And as P.W.3 failed to attend to the matter forthwith he kept on enquiring P.W.3 about the matter until end of July 1989. By letter dated 1.8.1989 to the Defendant, P.W.3 put on record that the option had not been exercised and requested possession upon expiration of the tenancy on 11.12.1989. This led to a telephone call from D.W.2 on or about 2nd or 3rd August 1989. P.W.1 said D.W.2 admitted to him during this telephonic conversation that she had forgotten to renew the agreement and asked if they can have a talk to see whether it was possible either to continue the tenancy at current market rental or to purchase the premises from the Plaintiffs. P.W.1 said an appointment was made for a meeting at his new address at No. 52, Portland Street in the afternoon of the following day. He said the Defendant, D.W.2 and one Giles Wong (D.W.3) attended the meeting. He said D.W.2 introduced the other 2 to him. They went to a nearby restaurant to have tea. He said at the restaurant the Defendant introduced D.W.2 to him as his wife who had forgotten to renew the tenancy. He said all 3 of them admitted they had forgotten to renew the tenancy. He said they asked if there was a chance for them to continue to rent the premises, and if so, what would be the rental.   P.W.1 quoted $140,000 a month whereupon D.W.3 commented the current market rental in that vicinity was only $80,000 to $100,000. Then they discussed about the sale and purchase of the premises.  P.W.1 asked for $15 million and the Defendant counter-offered $12 million. Terms for instalment payment were also discussed. Thereafter, the parties continued to negotiate for the sale and purchase of the premises. On or about 10.8.1989, P.W.1 reduced the price to $13.8 million and requested a reply from the Defendant within 10 days. On 20.8.1989 P.W.1 phoned D.W.2 but was told they were no longer interested in buying as the price was too high. He said he asked her if they were interested in renting and she said no. He said he asked her 3 times. Then came a letter dated 23.8.1989 from the Defendant's solicitors alleging that the option had been exercised by the said letter dated 27.5.1989. A copy of the said letter was enclosed. P.W.1 was angry and decided to telephone D.W.2 and tape-record their conversation. On or about 25.8.1989 he did so and after 2 unsuccessful attempts he managed to tape-record a telephone conversation he had with. D.W.2 a few days later. The tape was produced ('P-1').

5. During the taped conversation P.W.1 confronted D.W.2 several times with accusations of their admission that they had forgotten to renew the tenancy and that the said letter of 27.5.1989 was a "bogus document". Initially D.W.2 denied the accusations in a rather mild manner. Finally, when P.W.1 confronted her with details of the alleged admission at the restaurant, D.W.2 failed to respond with further denial (last answer on page 41 of the Bundle of Documents). The conversation ended with the following exchanges:-

6. The Plaintiffs also called the solicitor, P.W.3, and the intended tenant, Tsang Chi Wai, (P.W.2) to corroborate the evidence of P.W.1, and to prove that P.W.1 had agreed to let the premises to P.W.2 at a monthly rental of $120,000 subject to ability to deliver vacant possession. I do not find the evidence of P.W.3 helpful, nor could it contribute any support towards the evidence of P.W.l. Whatever P.W.1 told P.W.3 about the failure to receive any notice from the Defendant cannot be admissible as evidence of the truth of that fact.

7. The Defendant gave evidence and called his wife and Giles Wong as witnesses. The Defendant's and his wife's evidence is that they were very conscious of the need for the option to be exercised within the validity period and thus had been keeping an eye on the issue. They said the premises are very important to the retail business of the Defendant as similar retailers of marble products tend to congregate in that vicinity. They said the Defendant was to leave for a business trip to Italy with D.W.3 in the week following 27.5.1989. They wished to have the exercise of the option done and over with before the Defendant's departure. Thus on 27.5.1989, a Saturday, a draft letter was prepared by D.W.2. Believing their business and personal friend, D.W.3, can do a better job with the English, they sought his assistance. After they had their usual regular Saturday lunch they went back to the office and D.W.3 corrected D.W.2's draft as well as typed out the original of the said letter dated 27.5.1989 and the envelope for the Defendant. He and D.W.2 went to a nearby postbox and had the letter posted.

8. All 3 defence witnesses said they were known to P.W.1 as they all attended the viewing of the premises with him, as well as having casual chats on several occasions at the premises when he dropped by in 1987. They said there was no need for any of them to be introduced to P.W.1 when they attended the meeting at the office of P.W.1 and later at the restaurant. D.W.2 denied making any admission to P.W.1 over the telephone when the meeting was arranged. She said it was P.W.1 who wished to sell the premises citing the loss of confidence of his parents in Hong Kong after the 4th June Incident in China as a reason. They denied making any admission about the failure to exercise the option at the restaurant. They said there was no discussion about the letting of the premises as the purpose was to discuss a sale and purchase of them.

9. D.W.3 can hardly be properly regarded as an independent witness. He was and still is involved deeply in joint-venture investments in properties as well as in the furniture business with the Defendant. He is also the agent of the supplier of the Defendant. He attended the meeting at the restaurant because it was agreed he should take up a substantial stake in the intended purchase of the premises. The idea was to purchase the premises with a limited company which would then become the landlord of the Defendant. A limited company, International Marble Works Co. Ltd., jointly owned by the Defendant and D.W.3 actually issued the cheque paying the legal fees for the Agreement. D.W.3 is a certified public accountant in U.S.A. and gave evidence in fluent good English. The reason for his involvement in the alleged letter of 27.5.1989 is to correct D.W.2's draft, in particular, the grammar. And yet when one looks at the said letter, both the grammar and the English fail to correspond to the standard demonstrated by D.W.3's oral testimony. There is no explanation offered by any of the witnesses as to why despite the corrections allegedly made by D.W.3 to the draft the end-product is still infested with grammatical error and poor English uncharacteristic of him.

10. Both the Defendant and D.W.3 are apparently very intelligent and able businessmen. They said they offered $12 million for the premises, a price which did not take into account the burden of a 3 year tenancy at rentals well below the current market rate, because they believe they should offer a reasonable market price. And that they believe the landlords, who had demonstrated to be greedy people constantly asking for prices above the market rate for the premises during previous discussions, would not have accepted a lower price. It appeared remarkable to me that such able businessmen would not make use of such a good bargaining advantage, if the option was exercised, or even attempt at all to make use of it when the landlords kept on asking for unrealistically high prices. This is despite their admission that D.W.3 did mention about the current market rental to be in the region of $80,000 to $100,000 during the negotiation for the sale and purchase. D.W.3 said he in fact owned the shop next door to the premises. They explained they viewed the intended purchase of the premises as a long term purchase, and thus, did not take into account the burden on the market value of the premises resulting from their alleged exercise of the option. D.W.3 was apparently happy to invest substantially in the premises at market price though it would only generate an income well below the market rate. The limited company jointly owned by the Defendant and D.W.3 which had the registered office at the premises was not carrying on any business there. D.W.3 attempted to explain that good business for the Defendant would mean good business for him as the agent of his supplier. In his cross-examination the Defendant said he believed D.W.3's interpretation of the Agreement who said "according to the Agreement the address typed there should be the one and therefore the notice should be sent to the address stipulated in the Agreement". However, D.W.3 did not mention in his evidence that he had advised the Defendant on the interpretation of the clause. He said he just copied the address of the landlord in the Agreement. Both the Defendant and his wife gave remarkably similar explanations when questioned as to why no better precautionary measures, such as mailing by registered post or seeking confirmation from the Plaintiffs of receipt of the notice, were taken. Apart from saying it did not occur to them, both commented that it was sufficient to act in accordance with the terms of the Agreement, meaning by ordinary post. Both gave the purchase and payment of mortgage instalments for a factory premises in the New Territories which was previously rented by the Defendant as an example to justify their long term investment theory.

11. The Defendant said he suspected that P.W.I was up to his trickeries to push up the asking price after he received the letter of 1.8.1989; and yet, he proceeded to negotiate the sale and purchase without setting the record straight in writing and behaved as if no such dishonest trick had been practised on him. D.W.2 even said after she phoned P.W.1 in early August to clarify that the said letter of 27.5.1989 had been sent (after the blantant lie in the 1.8.1989 letter) she had a casual chat with P.W.1 towards the end of the conversation. She could not even recall the reaction of P.W.1 when she told him about the letter of 27.5.1989. The behaviour of the Defendant and his wife after the receipt of the letter of 1.8.1989 and during the ensuing discussions with P.W.1 is hardly consistent with their having validly exercised the option.

12. Perhaps the most telling piece of evidence against the Defendant is the taped conversation his wife had with P.W.1. After hearing the tape and reading the transcript several times, I definitely have the impression that she was not able to persist her initial denials against P.W.1's confrontations with any conviction or sincerity as the accusations became more positive and sharp. She explained in her evidence in-chief she did not know what P.W.1 was talking about when she gave those answers during the conversation. But in cross-examination she had to admit ultimately she knew the meaning of the accusation of bogus documents. The allegation of her and her husband's admissions of a failure to renew the tenancy could not have eluded her as it was repeated so many times. There was no real denial of that by her during the taped conversation.

13. Despite being guilty of exaggeration and overzealous at times in putting his case in the best light possible, I find P.W.1 to be basically truthful in his account of the events. I have no hesitation in preferring his evidence to that of the defence witnesses. I do not accept that he or his parents were anxious to dispose of the premises. I do not find it probable that a man who is anxious to dispose of his property would, just prior to commencement of negotiation with a sitting tenant for a sale, sent off an outrageously dishonest letter making false allegations of the tenant failing to exercise the option thereby putting any chance of an amicable negotiation at risk. It is also unlikely that a man who is eager to sell his property because of a loss of confidence in the future, and with knowledge of the exercise of the option, would ask for such an unrealistic price as $15 million and would refuse to accept a counter-offer of $12 million which is what his own valuer had told him to be the market value of the property, (and according to the Defence witnesses, a price without taking into account the burden of a renewed tenancy at low rentals). Furthermore, I do not believe a reasonable man would first openly parade his trickery and dishonesty before he enters into business negotiation with others. It would be more reasonable to expect a man to resort to such kind of dishonesty after negotiation fails.

14. I refused to accept that the Defendant had exercised the option as alleged by the defence witnesses or at all. I find as facts that D.W.2 had during the telephone conversation with P.W.1 pursuant to her receipt of the letter dated 1.8.1989, and the defence witnesses had at the restaurant meeting that followed shortly after that, admitted that the Defendant had forgotten to exercise the option. It is not necessary to make any finding as to whether the letter of 27.5.1989 did or did not come into existence before 11.6.1989. Judgment is to be entered in favour of the Plaintiffs for a declaration that the Defendant has not exercised the option to renew the tenancy pursuant to clause 8(a) of the Agreement.

15. In the premises, there is no need for me to determine the other complaints raised by the Plaintiffs. However, I would, if the need arises, hold that pursuant to the provisions of clause 4(g) of the Agreement the failure to make reference to "care of Hing Yip Electrical Engineering & Supplier Limited" in the address of the landlord stipulated in the Agreement is not a defect of materiality, or of sufficient significance as to affect the validity of the service of the notice (had I found in favour of the Defendant on that issue). Furthermore, service of a notice to the address as stipulated in the Agreement is sufficient service in accordance with clause 4(g) of the Agreement and it is immaterial whether the landlord did or did not actually receive the same. The removal notice of Hing Yip Electrical Engineering & Supplier Ltd. cannot, without more, amount to a sufficient notice to the tenant of a change of address of the landlord for the purpose of service of documents under the Agreement. The despatch of rentals to the new address by the tenant would not affect the clear and unequivocal provisions in clause 4(g). The terms of the letter dated 27.5.1989 clearly refer to the "terms stated on page 17 of the Tenancy Agreement" and I would not have accepted that there is any uncertainty created by the obvious careless mistake of referring to a "3 year term from 12.12.1989 to 12.12.1991". In the premises, had I found in favour of the Defendant in his alleged posting of the letter of 27.5.1989 to the Plaintiffs on 27.5.1989, I would have found also in his favour in the other issues raised by the Plaintiffs.

16. Costs should follow the event and I do make an order nisi for costs to the Plaintiffs.

Dated the 26th day of September 1991.