TOY STATE INDUSTRIAL LTD v. LAM WING INVESTMENT CO LTD AND ANOTHER

1987, No. A8007

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. By a Tenancy Agreement, the defendants let certain units on the 9th, 10th and 11th floors of the Yick Shiu Industrial Building in Tuen Mun to the plaintiff for a fix term of three years commencing from the 1st January 1985. Under that Tenancy Agreement, the plaintiff had an option to a two years' extension, exercisable by the service of a 6 months' written notice in advance. The revised monthly rental for the period of extension was to be $70,335. It was further provided by the said Tenancy Agreement that posting by registered mail to the plaintiff's address was good service of any notice in writing.

2. It is the case of the plaintiff that on or about the 26th May 1987, by a letter in the Chinese language of even date despatched by registered post, the plaintiff duly served on the defendants such a written notice of extension. The plaintiff seeks a tenancy agreement for the suit premises for a further term of two years commencing from the 1st January 1988 at the said revised rental of $70,335 per month.

3. The defendants claim that such a Chinese registered letter for extension was never received. Hence they deny any valid exercise of an option of extension and put the plaintiff to strict proof that the Chinese letter dated the 26th May 1987 was in fact sent by registered post as alleged.

4. The defendants pray for an order for possession of the suit premises together with mesne profits which is agreed on all hands to be $139,000 per month, yielding a unit rental rate of $3 per sq. ft. Payment of all the outgoings and interim payments at $70,335 per month have been made by the plaintiff. If the defendants should succeed, the difference between $139,000 and $70,335 would represent the outstanding monthy mesne profits payable by the plaintiff for the period of its wrongful occupation. The defendants applied for leave to amend their Counterclaim by including a claim for interest. The application was not resisted by the plaintiff. Leave was accordingly granted. I would treat the Counterclaim as appropriately amended to include a prayer for interest.

5. The bone of contention is, therefore, whether the alleged Chinese registered letter was despatched. Evidence of non-delivery may well have some relevance, but it cannot be decisive. Despite non-delivery, the Chinese registered letter may always be proved to have been duly posted in the manner prescribed by contract. In other words, a notice duly mailed by registered post, though not received by the defendants, would constitute good service under the said Tenancy Agreement. See In re 88 Berkeley Road, N.W. 9, [1971] 1 Ch. 648. The situation here is different from a case without the provision for any specified mode of service, where evidence of service of the notice would be crucial. See Holwell Securities Ltd v. Hughes, [1974] 1 W.L.R 155. Needless to say that all stipulated conditions for exercising the option of renewal or extension must be strictly compiled with. See Hare v. Nicoll, [1966] 2 Q.B. 130. The parties are in agreement on these principles.

6. Mr Cheng is the director of the plaintiff. The company's accounts were kept by a Miss Tse who is now the wife of Mr Cheng. Mr Cheng claimed to possess a desk diary, a note-book on his desk, in which he allegedly entered important information and dates. The date for the despatch of the requisite letter of extension was said to have been noted down in that desk diary somewhere before the end of May 1987. The plaintiff's allegation is that on or about the 26th May 1987, a letter in the Chinese language exercising the option of extension for two years was sent to the defendants by registered post as prescribed by the said Tenancy Agreement. On the balance of probabilities, the burden lies on the plaintiff to establish that such a Chinese registered letter was posted in that prescribed manner.

7. Two witnesses were called by the plaintiff: its director, Mr Cheng who allegedly gave instructions to post the Chinese registered letter and a former staff, Mr Law, its "driver and outdoorer", who was responsible for collecting samples, posting or delivering letters, serving documents and presenting forms or applications.

8. In May 1987, there were 10 - 20 staff in the plaintiff's office, of whom about 3 - 4 worked in the accounts section. Miss Tse, now Mrs Cheng, was in charge of the company's accounts. According to Mr Cheng, he instructed a staff to mail a letter by registered post. Not only did Mr Cheng claim to have put a registered mail chop on the envelop but he allegedly instructed him to send it by registered post. Mr Cheng mentioned no further instructions. He explained that it was the company's policy for the staff posting a letter by registered mail to show, on his return, the postal receipt to the person who had given him instructions. On this occasion, he claimed to have been shown the postal receipt. Mr Cheng further testified that the normal practice was for the postal receipt to be thereafter handed in by the posting staff to the accounts section or office for reimbursement but that he had no personal knowledge whether that practice was followed in this case.

9. When there was no response to the Chinese registered letter, Mr Cheng was allegedly "feeling strange". In June, he contacted the defendant companies and spoke to one Mr Lee whose name and identity he was unsure of. He spoke to the same Mr Lee again at the beginning of August when Mr Lee called. In these alleged conversations, Mr Cheng did not mention the Chinese registered letter nor did he ask Mr Lee when a new agreement for the extension was ready to be signed. There was also no mention of any valid exercise of the plaintiff's option for an extension. Mr Cheng's evidence is that as he "wouldn't dream" of the Chinese registered letter being lost in the post, there was no real need for making any reference to it. Hence, he was minded to and did simply enquire as to position regarding the renewal of the tenancy. Mr Lee on the other end of the telephone was said to demand a minmum renewal rental of $3.20, with the remark that the current market rental was $3.50.

10. Mr Cheng claimed to be "emotional", "vexed" and "annoyed". He lost his temper and terminated the telephone conversations with Mr Lee, having limited his "argument with him" on rent. He insited on following "the price as stipulated in the lease", the option price. The telephone conversations abruptly ended in anger without any fruitful conclusion.

11. Later, Mr Cheng passed the matter over to solicitors who wrote to the defendants on the 10th August 1987, enclosing a copy of what was claimed to be a Chinese registered letter with a demand for a renewal. The defendants responded through their solicitors on the 19th August denying the receipt of that Chinese registered letter of the plaintiff's. According to Mr Cheng, he caused the postal receipt to be searched for but failed to locate it.

12. The defendants' staff, Mr Li Pak-ling was at the material time charged with the duty to receive and read all the incoming mail concerning the tenancy matters of Yick Shiu Industrial Building. In his absence, his boss, Lee Yee-yue would take delivery of the letters and peruse them. Mr Li's evidence is not too precise as to how Lee Yee-yue would deal with these letters on his, Mr Li's return. But Mr Li managed to explain that for letters handled by him, Mr Li, including those concerning tenancy matters of the Yick Shiu Industrial Building, the boss would later pass them on to him and that in any case; letters of this nature would be either filed by the boss or himself in the relevant Correspondence File to which he had access. Mr Li was visibly embarrassed when he was invited to recount the substance of the conversation between himself and his boss on the alleged Chinese registered letter. He was equally uncomfortable in trying to reconstruct the proper sequence of his boss's response in the same conversation. The evidence from Mr Lee Yee-yue seems to have suffered from like imperfection. But their combined version is tolerably clear: both confirmed, one with the other, the non-receipt of the alleged Chinese registered letter and Mr Li was instructed to make a search. In the initial general account of that conversation given by both, the sequence of the conversation was confused with omissions. They both seemed to have been overawed by the display of forensic skill but eventually managed to stitch together the finer details of the conversation in a logical sequence. They are basically honest witnesses, but they were indeed embarrassed.

13. Mr Lee Yee-yue confirmed that when both of them were temporarily absent, another staff, his brother Lee Yee-liong would be responsible for accepting delivery of these letters. According to a standing practice on the boss's instructions, Mr Lee Yee-liong would not open any of these letters, not even those marked "urgent", but would hand them over to Mr Li Pak-ling on his return. When all three were absent from the office like the time when they were witnesses in this case, special instructions would be given to yet another staff to take temporary charge of the receipt of the incoming mail. Mr Lee Yee-liong did not seem to have any distinct recollection of but he finally conceded the two times both in early 1989 when all three were temporarily absent from the office on account of affairs concerning another company.

14. There were two files kept by the defendants for the Yick shiu Industrial Building, one of which contained correspondence for tenancy matters. The file was divided into sections for different units. In addition, there were two cabinets, one of which was for the safe-keeping of existing tenancy agreements and the other for the tenancy agreements about to expire. Mr Lee Yee-yue explained that if a notice of renewal or extension was received, it would be attached to the relevant tenancy agreement due to expire and that both would then be removed from the cabinet first-mentioned to the other cabinet. Therefore, if the Chinese registered letter had been delivered and received, it would have been appended to the plaintiff's tenancy agreement due to expire at the end of 1987 and both put in the second-mentioned cabinet. If the said Chinese registered letter had not been properly read after receipt, it would probably have been filed in the Correspondence File. Further, notices for renewal or extension would not likely have been put into the first-mentioned cabinet. But the boss, Lee Yee-yue searched both cabinets and the relevant file. Mr Li Pak-ling told the court that he only searched the relevant file. He was not asked nor did he volunteer any evidence about these cabinets. Moreover, if the said Chinese registered letter had been received and appended to the plaintiff's Tenancy Agreement due to expire, either the boss or Mr Li Pak-ling would have had some recollection of it. I do not detect any real discrepancy in Mr Li Pak ling's evidence that he only searched the relevant file. Mr Li consulted no other colleagues. There was no need for it.

15. I accept the evidence of these witnesses for the defendants. I find that the defendants did not receive the said Chinese registered letter. There can be no real possibility of the Chinese registered letter, if received, having been mishandled, misfiled or otherwise misplaced with this evidence of search. Thus, the Chinese registered letter, even if posted as alleged, was not delivered to or received by the defendants. This finding would not be determinative in the crucial issue between the plaintiff and the defendants as to whether the plaintiff had sent the Chinese letter by registered post. Evidence of non-delivery and non-receipt would nevertheless have some bearing on the issue.

16. Mr Law of the plaintiff was allegedly instructed to mail the Chinese registered letter. Understandably, he was unable to give the number of letters, ordinary or registered, posted by him for the defendants and other affiliated companies. He did not mail letters for Mr Cheng on a regular basis and in fact, he rarely served Mr Cheng in that capacity. He explained that he had a reasonably good impression of the incident because Mr Cheng instructed him specifically to post a letter by registered post, a letter described by Mr Cheng as concerning a tenancy matter and being important. He was alleged to have been further instructed to post the letter in priority. In addition, he was asked by Mr Cheng to produce for his inspection the postal receipt. In the course of the conversation, it was claimed that the address of the addressee was mentioned by Mr Cheng, and from past personal experience of handling documents and delivering letters to the addressee, Mr Law was aware that the letter was to go to the landlord of the plaintiff's rented premises. All this, so Mr Law maintained, enabled him to retain a reasonably vivid memory of the incident. It is noteworthy that Mr Cheng did not refer to any of these other instructions. As a matter of fact, Mr Cheng would have the court believe that the staff instructed to post the letter by registered mail was not under any special instructions to show him the postal receipt. That was done, according to Mr Cheng, merely in consequence of company policy and standing practice.

17. Mr Law recalled having shown the postal receipt to Mr Cheng on his return, and then gave the receipt to Miss Tse of the accounts office for reimbursement. But in Mr Law's affirmation filed on the 24th June 1989, he stated that he had handed the postal receipt to Mr Cheng himself.

18. Mr Law claimed that he was asked by Mr Cheng "to go to the post office" to make a check. That was not well supported by Mr Cheng's version which only claimed Mr Law as having been consulted on the particular post office the used, but Mr Law had even then no recollection. Mr Law told the court that he frequently used the Central or Tsimshatsui Post Offices but that he could have posted the Chinese registered letter elsewhere in another Post Office in the course of his daily delivery or chores. It is inconceivable that Mr Cheng could have asked Mr Law to go to "the" or any particular post office to "check out if the letter was actually directed". It would have been more in line for Mr Cheng, if that be the truth, to instruct Mr Law to ascertain first which was "the" post office. That could well be just imprecise instructions, but without knowledge as to the particular Post Office concerned and without the postal receipt, it would have been highly improbable for Mr Cheng to instruct Mr Law to waste any time on such a futile exercise. Mr Cheng himself did not say that he had directed Mr Law to go to any post office for making an enquiry, and Mr Law himself did not tell the Court that he had himself in fact sought information from any post office. However, to be fair, there was a suggestion made on instructions of the plaintiff in the letter to the Post Master much later in time from the plaintiff's solicitors dated the 30th June 1989, that enquiries had been made from Post Offices in Tuen Mun, Tsuen Wan, Kowloon Central and Tsimshatsui. We know not the actual source in the plaintiff company for that suggestion and the manner in which or by whom these alleged enquiries were made.

19. Mr Law told the Court he could not remember the date but readily affirmed the given date of posting, the 26th May 1987 as typed in by the plaintiff's solicitors. He could not even remember the year - 86, 87 or 88 - in which the Chinese registered letter was allegedly despatched. A registered letter sent by the plaintiff to the defendants in January 1988, Exh. P5, was conceded by Mr Law as possibly being one which might have been posted by him or the one in question.

20. Mr Fenton, counsel for the plaintiff made a valid point that Mr Cheng, if he had instructed Mr Law to check, could not have likely given instructions for searching that registered letter in January 1988, which had been received by the defendants.

21. The evidence of specific instructions given to Mr Law is not well supported by the evidence of Mr Cheng. These are matters on which Mr Law heavily relied. It is, therefore, doubtful whether such instructions had in fact been given, particularly on Mr Law's concession that he could not say whether P5 "was or was not the letter (he) told (the Court) about in the evidence that Mr Cheng said it concerned tenancy and was an important letter". Mr Law was said to have been asked later to identify the Post Office concerned, if not also asked to make enquiries. If Mr Law had received such detailed instructions for despatch, if these instructions had been given in May, if there had been a later attempt in the office search in high summer and if Mr Law had been approached in the subsequent enquiry and involved in the following post office investigation, much of which was relied upon to fix him with a vivid memory, it would have been inconceivable that he could not even recall the year or could not at least say that the Chinese registered letter was not the one in "P5" sent in winter.

22. Mr Law's version cannot be evidence satisfactory enough to found a conclusion that there was in fact such a posting. However, Mr Law's unsatisfactory testimony would not preclude the plaintiff from establishing, through Mr Cheng, the alleged posting.

23. Mr Cheng's evidence is that he gave specific instructions for a letter to be posted by registered mail and he was shown and inspected the postal receipt when the staff returned. Mr Cheng further told the court that his notebook on his desk contained a reminder for sending out the notice of option for renewal or extension. The notebook had been used since 1985, but the Court was told that it could not be found in the recently relocated Tsimshatsui office of the plaintiff. Wherever the truth lies, the fact remains that the Court is left without the benefit of any corroborative entry.

24. Mr Cheng had spoken to Mr Li Pak-ling on a number of occasions as regards electricity supply to the rented premises and rental arrears, although according to Mr Cheng, unpleasant conversations on arrears were mostly had with Miss Tse, now Mrs Cheng. But, in May/June 1987, the plaintiff was desirous of acquiring more units in the Yick Shiu Industrial Building, and Mr Cheng negotiated terms with Mr Li Pak-ling. As a result of negotiations in May, a one-year tenancy for a 4th Floor unit commencing from the 1st July 1987 was procured at the rate of $2 per sq. ft. In June 1987, another tenancy was negotiated between Mr Cheng and Miss Tse and Mr Li Pak-ling for a Ground Floor unit. This negotiated tenancy was successfully obtained to commence for a year from the 1st June 1987 at the unit rate of $3. Therefore, from beginning to end, there was fairly regular personal contacts between Mr Cheng and Mr Li Pak-ling. Contact must have been more constant in the tenancy negotiations in May and June. Mr Cheng found it strange in not getting any response to the Chinese registered letter and contacted and spoke to an unidentified Mr Lee in the defendant companies. That is an extraordinary assertion. If Mr Cheng had entertained any doubt as to the identity of that Mr Lee on the other end of the line, he should have sought clarification. When the demand made was unreasonable and conversation had become strained, he should have asked to speak to Li Pak-ling.

25. Mr Cheng claimed to have been minded to discuss and have discussed the position regarding renewal of the tenancy, but at no time did he refer to the Chinese registered letter, nor did he ever suggest that the plaintiff had validly exercised its option under the current Tenancy Agreement. Mr Cheng said this by way of explanation :

"Contents of the letter were in connection with the renewal and I did not pay particular attention to that letter. So when I spoke to him, we were on the topic of renewal of tenancy."

Both counsel found it difficult to understand this answer. To be fair to Mr Cheng, I suppose he might well be trying to offer the explanation that he had assumed delivery of the Chinese registered letter in due course of post and that since the Chinese registered letter was for a renewal, he focused on renewal as a topic, losing sight of the importance of having to make any reference to the despatch of the Chinese registered letter or the exercise of the option. That might well be plausible until the conversation from the unidentified Mr Lee over the telephone turned hostile. The unidentified Mr Lee was making a demand, and Mr Cheng never made a point that rental was beyond discussion after the valid exercise of the plaintiff's option. Mr Cheng did not press for the signing of a new agreement. Mr Cheng's reaction was inconsistent with the attitude of a director of a company which had exercised an option by posting a Chinese registered letter in compliance with a provision of its Tenancy Agreement.

26. The unidentified Mr Lee demanded $3.20 and he even had the audacity to taunt Mr Cheng that if the plaintiff found the rate unacceptable, it had "the right not to lease it". Mr Cheng allegedly insisted on a strict adherence to the provision of the current Tenancy Agreement, but he did not seem to insist as of right on the revised rental. Admittedly he only argued about the rental rate. Mr Cheng even pleaded with the unidentified Mr Lee that at the suggested $3.20 per sq. ft., rental would be too high for the plaintiff's factory to carry. There was also no reason for Mr Cheng to volunteer the hardship element of the plaintiff's $1 million factory installations. It is true that Mr Cheng kept on repeating that the parties must follow the price in the Tenancy Agreement, the option price, but he never asserted as an entitlement the plaintiff's right to a particular rate of rental on its alleged valid exercise of an option. It is tolerably clear, as Mr Cheng himself summed up, that he was throughout arguing over rental. Apart from his pleas, all he could come up with, in anger, was sarcastic remarks, such as "Haven't you got it wrong?" and "On the other hand, if the price dropped below $1.50, would you be agreeable to have a decrease of the price as well?". He even told the Court that the plaintiff might have considered a more moderate demand from the unidentified Mr Lee.

27. The plaintiff had just secured comparable premises in Yick Shiu Industrial Building on the 4th floor for a year commencing the 1st July 1987 at the unit rate of $2 per sq.ft. Negotiations for that took place in May. And even for the Ground Floor premises negotiated in June, it was $3 per sq. ft. Mr Cheng did not raise such lower rates in protest or retort during these alleged conversations with the unidentified Mr Lee. He explained that there was no warrant for him to confront Mr Lee with these lower rates because he had already secured $1.50 per sq.ft. in the plaintiff's exercised option. That answer is in sharp contrast to his claim of ignorance as to the plaintiff's legal right. Mr Cheng was finally driven to agree that if he had been reminded by anybody or anything at all and if he had not been so frustrated, he would have brought up that recently negotiated $2 unit rate. In re-examination, Mr Cheng sought to elaborate that the tenancy agreements for the units on the 4th floor and ground floor were to commence in the middle of 1987 whilst the extension was to run from 1st January 1988 with all the uncertainties over the future rental. This additional explanation advanced in re-examinaion did not appear to be a distinction previously appreciated by Mr Cheng.

28. The plaintiff sought legal advice, and their solicitors' letter to the defendants was caused to be sent on or about the 10th August 1987. Mr Cheng's explanation as to why solicitors had not been immediately consulted after the June conversation was that he did not believe the situation to be a problem. That obviously is unacceptable. That letter of the 10th August 1987, sounded as if the plaintiff had already anticipated the loss of the Chinese registered letter in the post. The last sentence in paragraph 2 of that letter reads :-

"For your easy reference, we now send you herewith a further copy of our client's notice to you which is self-explanatory."

However, I accept the submission from Mr Fenton, counsel for the plaintiff that liberally read, the letter could have been couched in such terms without any adverse implications.

29. When instructions were given for the postal receipt to be searched in the office and accounts office of the plaintiff, instructions were allegedly given to a messenger or a staff whose name Mr Cheng could not now recollect due to lapse of time. Mr Cheng himself did not make a search under the pretext that the box containing the receipt were kept in an unclean toilet. Receipts would normally be put in a box which, when full, would be stored in the storeroom, part of the lavatory. Mr Cheng offered no explanation as to why the box could not be taken from the storeroom or toilet for an inspection elsewhere in comfort. Mr Cheng was also not able to name the person who had actual custody of these receipts although Mrs Cheng, then Miss Tse, was in charge of the accounts of the plaintiff. For whatever reasons, the Court did not have the assistance from any accounts office staff or book entries.

30. The contents of the conversation between Mr Cheng with the unidentified Mr Lee and Mr Cheng's reaction and attitude are wholly inconsistent with any exercised option to extend. There is no evidence elsewhere which would corroborate, support or reinforce the bald assertions of Mr Cheng that he gave personal instructions for the Chinese registered letter to be posted and that he himself inspected the postal receipt.

31. Mr Cheng sought to excuse his attitude and reaction by his ignorance of the plaintiff's legal right. Mr Cheng had allegedly been cautious enough to note down on his desk diary the date for the despatch of the option notice. He could not have been completely oblivious of its significance. Further, Mr Li Pak-ling told the Court that even later in the middle of July when he pressed Mr Cheng of the plaintiff for arrears, Mr Cheng enquired then as to whether the defendants would insist on the plaintiff serving a six months' advance notice for exercising its option. According to Mr Li Pak-ling, since he had not the Tenancy Agreement right in front of him and was therefore unsure of its terms, he simply advised Mr Cheng "to follow" the Tenancy Agreement. Mr Cheng denied having so enquired from Mr Li. I have little hesitation in preferring Mr Li's version.

32. Much play was made of the affirmation of a solicitors' clerk filed on the 2nd June 1989 on behalf of the plaintiff for seeking an adjournment. References made therein to the absence of vital witnesses from Hong Kong do seem to be inaccurate. But it is difficult to assess the impact of this statement related by a clerk in the solicitors' firm, particularly when the clerk himself was not called to give evidence on the circumstances in which legal advice was proffered, instructions were taken and the draft affirmation was prepared.

33. In conclusion, I find as a fact that the plaintiff did not post the Chinese letter as alleged by registered post or at all. I hold that therefore, the option to extend as provided for in the Tenancy Agreement between the plaintiff and the defendants has not been exercised. The plaintiff's action must therefore fail and the defendants succeed in their Counterclaim for possession and mesne profits. I make an order for possession of the suit premises in favour of the defendants against the plaintiff. I assess mesne profit at the rate of $139,000 per month. With or without a stay, I would leave the adjustments to the parties for the final award. I would also award half the average prime rate, say 5% per annum, for interest for the whole period on the balance to be paid. The defendants should have costs of this action and on the Counterclaim. I so make orders nisi.