REAL MAKER DEVELOPMENT LTD v. COBOW CONTRACTING & ENGINEERING CO LTD

DCCJ6607/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6607 OF 2004

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J U D G M E N T

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Introduction

1.  The Plaintiff (“P”) is the registered owner/landlord of Workshops Nos.3 and 16, 1/F, Block A, Yau Tong Industrial City (“Building”), Kowloon (“Workshop 3” and “Workshop 16”, collectively “Workshops”). The Defendant (“D”) was the tenant of Workshops.

2.  P claims for (a) the sum of HK$211,001.90 being arrears of rent, management fee, rates, government rent, water charges less the rental deposit and refund of rates and government rent (“Arrears”) and interest on arrears of rent calculated up to 30^th November 2004, and (b) further interest on arrears of rent (HK$140,312.90) at 1.5% per month (ie daily interest of HK$70.16) from 1^st December 2004 to the date of judgment. The aforesaid claims for interest are collectively called “Interest”.

3.  D denies P’s claim except for arrears of management fee, government rent, rates and water charges of HK$10,150.42. Mr Ng, counsel for D, concedes that judgment could be entered in P’s favour against D for such sum.

4.  P applies for summary judgment for Arrears and Interest by summons dated 28^th February 2005.

5.  The following matters are not in dispute :

(a)	By a written tenancy agreement dated 22nd November 1999 between Sino Real Estate Agency Limited (“SREAL”) on P’s behalf as landlord and D as tenant (“Tenancy Agreement”), P let Workshops to D for industrial purpose for one year from 1st August 1999 to 31st July 2000 at a monthly rental of HK$26,850.00 (exclusive of rates, management fee and other outgoings) payable in advance on the 1st day of each and every calendar month.
(b)	Upon expiry of the fixed term of Tenancy Agreement, P (through SREAL) by letter dated 20th July 2000 (“Letter”) offered renewal of D’s tenancy on the principal terms set out therein. D confirmed/accepted such terms by signing thereon on 31st July 2000.
(c)	The principal terms set out in Letter included the following :

        

Tenancy Term (Clause 1)	:	1 year commencing on 1st August 2000 and expiring on 31st July 2001 (both days inclusive)
Rent (Clause 2)	:	HK$26,850.00 per month (exclusive of rates, government rent and building management fee)
Deposit (Clause 6)	:	HK$70,342.00 being new deposit (equivalent to 2 months’ rental and 3 months’ management fee) (“Deposit”)
Contract Terms (Clause 11)	:	Similar to the existing Tenancy Agreement in the format as usually used and adopted by P

(d)	Letter provides inter alia that “… if [D fails] to execute the formal Tenancy Agreement …, [P] shall at its absolute discretion, proceed … to stamp this Agreement and deem the formal Tenancy Agreement as having been signed and enforceable against the parties hereto according to its terms hereto …”
(e)	The formal tenancy agreement envisaged in Letter was not signed.
(f)	Pursuant to Letter, D continued to occupy Workshops after 31st July 2000 under a tenancy pursuant to Letter (“New Tenancy”).
(g)	Despite a contrary plea in the Defence and Counterclaim, Mr Ng accepts that the terms/conditions of Tenancy Agreement are applicable to New Tenancy as incorporated by and pursuant to Letter.
(h)	Part V of the Landlord and Tenant (Consolidation) Ordinance Cap.7 (“Ordinance”) applied to Workshops.
(i)	No notice under section 122(1)(b) of Ordinance was served by either party on or before 31st July 2001.
(j)	On 10th August 2001, SREAL sent an offer letter to D (“10/8/02 Letter”) offering renewal of D’s tenancy of Workshops.
(k)	D and its associated companies issued a removal notice to their customers giving notice that its Hong Kong offices would be relocated to a new address in Quarry Bay with effect on 2nd January 2002 (“Removal Notice”).
(l)	D’s solicitors wrote to P on 15th November 2004 demanding P to (i) produce evidence in support of the outstanding sums due from D to P, (ii) cease interfering with Mr Lai Tin Cheung Alaric (“Lai”) and his wife through debt collecting agents (“Agents”) and (iii) refund Deposit.
(m)	By a letter dated 25th November 2004 from SREAL’s solicitors to D’s solicitors, it was denied that D had surrendered vacant possession of Workshops on 31st July 2001, which denial was supported by P’s 4/1/02 Fax (see below). D was demanded to pay the then outstanding amounts in respect of Workshops together with interest thereon within the next 4 days.
(n)	D’s solicitors by their letter dated 7th December 2004 denied the authenticity of P’s 4/1/02 Fax (see below) and demanded inspection of such fax. They further reiterated that D had surrendered possession of Workshops on 31st July 2001 and denied D’s liability to pay the then outstanding Arrears and Interest. They also demanded refund of Deposit.
(o)	SREAL’s solicitors by letter dated 14th December 2004 referred inter alia to the clauses in Tenancy Agreement for demanding interest and forfeiting Deposit.
(p)	D’s solicitors by letter dated 15th December 2004 again demanded inspection of P’s 4/1/02 Fax (see below) which D suspected to be forged. They threatened to report to the police on suspected crime and further asserted thatP was not entitled to claim interest by reason of its own delay until 27th August 2003 in making demands against D via Agents.
(q)	D’s Lai inspected the original of P’s 4/1/02 Fax (see below) on 11th March 2005.
(r)	Stamp duty on Letter was paid on 23rd February 2005.

P’s case

6.  P filed the affirmations of Mr Leung Chi Pun Ricky (“Leung”), credit manager of Sino Land Company Limited, and Ms Chan Yuk Ching (“Chan”), SREAL’s officer, dated 28^th February and 12^th May 2005 respectively in support of the application.

7.  Chan has been working as SREAL’s officer at Building since 1990. SREAL was the estate agent for owners of about 300 units of Building and it looked after the leasing of such units. Chan’s main duties were to negotiate/discuss new leases/ renewals for units managed by SREAL.

8.  Chan explained that when a new tenant entered into a new lease, the management office of Building (“MO”), ie Sino Estates Management Limited (“SEML”), would normally handle the hand-over of the leased premises to the tenant. Conversely, MO would also handle the hand-over of possession of the premises by the tenant upon termination of the tenancy. In most cases, SREAL’s representatives would be present and normally MO would prepare and keep records of the hand-over of possession.

9.  Chan denied that such hand-over would be done in an informal manner as Lai alleged (see below). For example, when D ceased occupation of Workshop No.A17 of Building, a repossession checklist was compiled/kept by MO (“Other Checklist”). It was dated 21^st February 2001 and signed on D’s behalf by a Mr Yeung Ka Keung (“Yeung”) with D’s round company chop affixed thereto.

10.  D did not give up possession of Workshops on/after 31^st July 2001. 10/8/02 Letter was for formalising D’s continued occupation of Workshops. Following such letter, Chan telephoned to tell Lai D should not continue to use Workshops indefinitely and asked when D would leave. Chan reminded Lai that D was in arrears of rent. Between July 2001 and January 2002, Chan also made various telephone calls to Lai asking him to indicate clearly whether D would continue to rent or to quit Workshops and urging D to pay the arrears of rent.

11.  By a fax dated 4^th January 2002 to SREAL (“P’s 4/1/02 Fax”), D referred to the telephone conversation between Lai and SREAL’s Ms Cathy Chan (who, by reason of her communications with Lai as described in the affirmations,is presumably Chan) that afternoon and confirmed it would surrender possession of Workshops to SREAL on 7^th January 2002. In P’s 4/1/02 Fax D also requested for a statement of account relating to Deposit. The header of such fax showed a facsimile machine imprint as follows :

“04-JAN-2002 16:50 FROM COBOW GROUP    TO       23673304          P.01” (1^st Header).

23673304 was SREAL’s fax number (“Fax Number”).

12.  Removal Notice shows a similar header with a facsimile imprint as follows :

          “04-JAN-2002 16:50 FROM COBOW GROUP  TO       23673304 P.02” (“2^nd Header”).

Chan said Removal Notice was received by fax with P’s 4/1/02 Fax on 4^th January 2002.

13.  D delivered vacant possession of Workshops to SREAL on 7^th January 2002. D’s Yeung attended the hand-over of possession of Workshops as evidenced by 2 repossession checklists signed by Yeung and kept by MO (“Checklists”). MO’s staff informed Chan that Yeung wrote the words “Yeung Ka Keung K-135257(1)”, the date “7-1-02” and the signature.

14.  After the original Checklists were passed from MO to SREAL, SREAL noted they did not have D’s company chop. A member of SREAL contacted D and it was agreed that SREAL would fax Checklists (4 pages) to D to complete the record by affixing its company chop to the same. D faxed back 1 signature page of Checklists with D’s company chop affixed close to Yeung’s signature (“Checklist Fax”). The header of Checklist Fax (“3^rd Header”) showed a facsimile machine imprint indicating that it was the last of 4 pages faxed from SEML on 11^th January 2002 to Fax Number. There was another facsimile machine imprint at 3^rd Header showing that Checklist Fax was sent on 12^th January 2002 (Saturday) at “12:52” hours “FROM COBOW GROUP TO 23673304” ie Fax Number.

15.  The words “TO: MR LEE” were written at the top of the faxed copy of Checklist Fax. Mr Lee was SREAL’s leasing staff. Next to such annotation was an original blue stamp of “RECEIVED 14 JAN 2002” and original handwritten words “→NWH”. “NWH” referred to SREAL’s manager, Mr Ng Wai Hong. Chan believed the stamp/initials were affixed/written by SREAL’s staff on 14^th January 2002 (Monday) for Mr Ng’s perusal of Checklist Fax after receipt by fax.

16.  Chan denied D sent D’s 4/1/02 Fax (see below) to P.

17.  D failed to pay Arrears from 1^st August 2001 to 7^th January 2002.

18.  On/abut 20^th February 2002, SREAL sent a payment advice to D addressed to its old Wanchai address giving a breakdown of the then outstanding Arrears and Interest and demanding payment of the same.

19.  On/about 3^rd April 2002, SREAL sent a letter to D addressed to its old Wanchai address requesting settlement of the then outstanding arrears (referred to as mesne profits rather than as rent) up to 7^th January 2002. The letter referred to previous telephone conversations between D and Chan “with regard to the postponement in surrender of [Workshops]”. Checklists were said in the letter to be enclosed for D’s reference.

20.  As no payment was received from D, P’s agent SREAL by a letter to D dated 14^th August 2002 (“14/8/02 Letter”) requested D to make payment for all amounts then outstanding in respect of Workshops together with interest within 7 days but to no avail. Copies of 14/8/02 Letter was sent to D’s 4 addresses and 3 of such copies were returned. As window envelopes were used, Chan was unable to say which copies were returned. But she believed the unreturned copy was the one addressed to D’s new Quarry Bay address as stated in Removal Notice.

D’s case

21.  D filed Lai’s affirmation dated 12^th March 2005 to oppose the application.

22.  D was/is at all material times carrying on the business of building contractor and interior design. The parties’ relationship began in 1996 when D looked for premises to store its tools and stock-in-trade (“Storage”). Dsigned an offer letter with SREAL acting on P’s behalf for a short-term agreement to rent Workshop 16 for non-domestic use for 7 months and 15 days from 17^th December 1996 to 31^st July 1997. D also obtained short-term licences of other workshops at Building from SREAL acting on P’s behalf for Storage.

23.  Lai claimed that upon expiry of the short-term agreement for leasing Workshop 16, P renewed such tenancy with D on 2 occasions until 31^st July 1999. In fact, exhibits to Lai’s affirmation showed 3 renewals as evidenced by 3 offer letters from SREAL which were dated 21^st July 1997 (for the period from 1^st August 1997 to 31^st January 1998) and 16^th January 1998 (for the period from 1^st February 1998 to 31^st July 1998) and undated (for the period from 1^st August 1998 to 31^st July 1999).

24.  D’s business required a lot of space for Storage from time to time. P and D therefore entered into Tenancy Agreement and later Letter over Workshops, which were used by D for Storage and not as D’s place of business.

25.  Both parties entered into New Tenancy for a term of one year from 1^st August 2000 to 31^st July 2001 on the principal terms set out in Letter. After D signed Letter, a staff of SREAL orally informed Lai that P was not prepared to enter into any formal tenancy agreement in order to save legal costs and that Letter shall be treated as the tenancy agreement between the parties in respect of Workshops.

26.  To cope with D’s business development in Hong Kong and PRC, D moved its production line (previously sub-contracted to sub-contractors) from Hong Kong to Guangzhou, PRC. Since 2001 D rented a warehouse of about 10,000 sq ft in Guangzhou, PRC for D’s production and Storage. D decided not to renew New Tenancy.

27.  D delivered vacant possession of Workshops to P by delivering the keys to SREAL’s MO at Ground Floor of Building on P’s behalf on 31^st July 2001. All rent, rates and management fee of Workshops up to 31^st July 2001 had been duly paid.

28.  Throughout the past 5 years, the hand-over of possession for units at Building rented/licensed by D was done through SREAL in an informal manner without any dispute. SREAL never issued any formal receipt to D for surrender of possession of such leased/licensed units.

29.  Despite expiry of New Tenancy and D’s surrender of vacant possession of Workshops, Chan telephoned Lai on several occasions to enquire whether D had any further interest in renting units at Building.

30.  SREAL (on P’s behalf) issued 10/8/01 Letter to D offering renewal of the tenancy of Workshops at an attractive rate of HK$17,900.00 per month (ie 34% discount off the old rate). Lai told Chan D had no pressing need to look for other storage space but would let her know if D’s further development requiredstorage space in Hong Kong. During such telephone conversation, Lai urged Chan to render a settlement account statement up to 31^st July 2001 in respect of the outstanding payments relating to Workshops payable by D (“Account”).

31.  D did not know how Removal Notice came to be in P’s/SREAL’s possession. In any event, Removal Notice only concerned relocation of D’s office from Wanchai to Quarry Bay and had nothing to do with Workshops that were used for Storage. There was no need for D to issue any removal notice to its customers for leaving Workshops. P knew very well that Workshops were not D’s place of business and D had not used Workshops as an office.

32.  P failed to provide Account. Lai was also getting annoyed with Chan’s telephone calls. So he decided to send a message to SREAL to stress that D had no interest in the offer at all and to demand for Account as soon as possible. He therefore sent a fax dated 4^th January 2001 to SREAL (“D’s 4/1/02 Fax”). D’s 4/1/02 Fax referred to the telephone conversation between Lai and Chan that afternoon, confirmed again that D had “no interesting to renew the agreement for [Workshops]” and requested “a final account statement for [Workshops] ASAP”.

33.  Lai said that having checked D’s internal record, D “had only sent out one page facsimile message to [P] on 4^th January 2002, that is, [D’s 4/1/02 Fax]”. He believed P’s 4/1/02 Fax was manufactured by P/SREAL and not genuine. D would call forensic evidence at the trial.

34.  The transmission report of D’s 4/1/02 Fax exhibited to Lai’s affirmation showed that 2 pages were faxed to Fax Number on 4^th January 2002 at 16:50 hours and the status was “OK” (“Transmission Report”).

35.  Despite D’s 4/1/02 Fax, P/SREAL did not provide Account to D.

36.  In 2002 Lai was fully occupied in D’s development in the PRC market and did not follow up on the matter.

37.  Lai, his wife and D never received 14/8/02 Letter. P and SREAL had Fax Number and all along communications between the parties were by fax. It was odd that 14/8/02 Letter was sent by ordinary post.

38.  D never received any demand for payment of the alleged arrears of rent or other payments from P/SREAL until August 2003 when Lai and his wife (also D’s director) received letters from an unknown person and various telephone calls from a male claiming to be Agent appointed by P/SREAL demanding payment of all outstanding sums due to P/SREAL in relation to Workshops.

39.  Lai was surprised since D had surrendered possession of Workshops to P on (and paid all rent, rates and management fee up to) 31^st July 2001. After setting off against Deposit that was still retained by P, there ought to a balance payable to D in respect of Account. Lai immediately telephoned SREAL and spoke to Leung who claimed to be responsible for SREAL’s leasing matters. Lai protested against the unfounded demands by Agent appointed by SREAL whereupon Leung assured Lai he would follow up on the matter and let D have Account together with supporting documents. But Leung failed/refused to provide the relevant information.

40.  Lai then became fully occupied with the fast expansion of D’s business in PRC, Thailand, Dubai and Guam and had to travel frequently. He paid no further regard to the matter until Agent emerged again in August 2004.

41.  On/about 21^st August 2004, Lai and his wife again received a letter and numerous telephone calls from Agent demanding payment of all outstanding sums due to P/SREAL. Lai considered the demands outrageous, unfounded and unlawful. He and his wife felt there was imminent danger to their lives and properties and they would not tolerate the situation any further. Lai’s wife reported the incidents to the police on/about 4^th September 2004 and gave a statement to the police on 22^nd September 2004. Lai telephoned Leung and made a strong complaint against SREAL/P. He also demanded Leung to let him have Account without further delay.

42.  On about 4^th November 2003, the management office of the building where Lai and his wife resided informed Lai that 3 Chinese males who claimed they were to collect outstanding payments attempted to attend Lai’s residence but were refused by the management office. Lai and his wife did not owe any party money, so they believed these Chinese males were Agents.

43.  On 5^th November 2004, Lai telephoned Leung and reiterated that D had delivered vacant possession of Workshops to P on 31^st July 2001 and that any outstanding sums due to D should be limited to miscellaneous charges relating to Workshops. Lai requested for Account and supporting documents from P for the alleged outstanding sums. After such telephone conversation, Leung faxed a “Schedule of Indebtedness as at 01-September-2004” (“Schedule”) to D and claimed for the alleged Arrears and Interest after deducting Deposit.

44.  Lai was surprised by P’s unfounded demands. He telephoned Leung to complain and declined to settle the account as stated in Schedule. He also consulted D’s solicitors.

45.  In view of P’s unreasonable demand, failure to produce evidence in support of the alleged Arrears and Interest, and numerous threats to Lai and his wife, D’s solicitors wrote to P on 15^th November 2004 demanding P to (a) produce evidence in support of alleged outstanding sums due from D to P, (b) cease interfering with Lai and his wife through Agents, and (c) refund Deposit.

46.  D denied liability for Arrears and Interest. Lai noted that Schedule and 14/8/02 Letter referred to mesne profits, which suggested that P regarded D as a trespasser rather than a tenant and that P acknowledged the termination of D’s contractual right to occupy Premises from 1^st August 2001 onwards.

47.  D also counterclaims for refund of Deposit and seeks to raise a defence of set-off based on such counterclaim. Alternatively, D claims that if it were liable to P for Arrears, P is not entitled to any interest occasioned by its own delay in claiming against D and by its failure to provide relevant proof despite D’s requests and demands.

Order 14 principles

48.  Mr Ng and Mr Kwan, counsel for P, have no dispute on the relevant principles for summary judgment applications.  A plaintiff may invoke the procedure under Order 14 of the Rules of the District Court where there is no valid defence to his claim, or otherwise a triable issue. The rationale is set out in Hong Kong Civil Procedure 2004 Vol.1, para.14/4/1 at p.159 :

"The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in case in which the defendant clearly has no defence to the plaintiff's claim: Man Earn Ltd v. Wing Ting Fong [1996] 1 H.K.C. 225. "Order 14 proceedings for summary judgment when there is no defence to a claim are an important feature of the legal process.  It enables plaintiffs in cases where there is no defence to obtain expeditious summary judgment to avoid unnecessary delay.  When applied for, it is for the defendant to show that there is a triable issue or an arguable defence if he is to be allowed his day in court.  To deny him his day in court, if he shows a triable issue or an arguable defence, is indeed a fearful injustice.  On the other hand, if he has no defence and he obtains leave to defence, equally, there is injustice to the plaintiff." Per Mortimer J.A. in Manciple Ltd. v. Chan On Man [1995] 3 H.K.C. 459 at 466.  The machinery of O.14 works on the basis that if the plaintiff's application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed."

49.  In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155, Godfrey J noted that it was not appropriate to embark on a mini-trial of the action on affidavit evidence.  The court should ask itself the question whether what the defendant says is credible or believable.  If so, he must have leave to defend; if not, the plaintiff is entitled to summary judgment.

50.  Mr Ng cited the judgment of Stock J (as he then was) in Tong Nai Kan v Francis Cheung King Fung HCA8587/98 (unreported, 13^th April 1999) which endorsed the aforesaid principles and added the following : “If the defence asserted is less than probable but more than shadowy, then unconditional leave should be granted; where shadowy, then it may be appropriate to grant conditional leave.”

Analysis

(a) Core issue

51.  As is apparent from counsel’s submissions, the core dispute turns on whether D was in occupation of Workshops from 1^st August 2001 and 7^th January 2002 or whether D delivered vacant possession of Workshops to P on 31^st July 2001 (“Core Issue”).

52.  If no triable issue or arguable defence is raised in respect of Core Issue, then P will succeed in its contention that D must have remained in occupation of Workshops until 7^th January 2002 pursuant to the statutory continuance of New Tenancy since no notice to quit was issued by either party. It then follows that D is liable for Arrears. Mr Ng has not raised any substantive challenge to the quantum of Arrears although he disputes Interest. But more of that later.

53.  If a triable issue or arguable defence is raised in respect of Core Issue so that the case should proceed to trial, leave to defend should be granted subject to the question whether the defence is so shadowy that conditions should be imposed.

54.  I now turn to the assertions by the parties on Core Issue, which are diametrically opposite. P contends that D delivered up possession of Workshops on 7^th January 2002 and D claims that it did so on 31^st July 2001.

(b) P’s and D’s 4/1/02 Faxes

55.  In support of its contention, P relies on P’s 4/1/02 Fax and Checklists as well as Leung’s/Chan’s affirmation evidence that explained how these documents came into being.

56.  In respect of P’s 4/1/02 Fax, Lai claims that (a) it is a forged document fabricated by P/SREAL to falsely support P’s present claim against D and (b) D only faxed D’s 4/1/02 Fax to P (“4/1/02 Fax Defence”). In respect of Checklists, there is no evidence from D to challenge their authenticity but Mr Ng submits there is apparent doubt on the face of Checklists as to whether they were created at the same time when possession of Workshops was delivered to P (“Checklist Defence”).

57.  D’s claim of forgery and fabrication of evidence is a serious allegation. The standard of proof is still on the balance of probabilities but the court will not find such allegation established unless the supporting evidence is strong, compelling and cogent. As Lord Denning LJ summarised in Hornal v Neuberger Products Ltd [1957] 1 QB 247, 258 : “The more serious the allegation the higher the degree of probability that is required : but it need not, in a civil case, reach the very high standard required by the criminal law.” Although I remind myself that I am now dealing with an Order 14 application and need not (and should not) decide whether 4/1/02 Fax Defence will be believed, the seriousness of the allegation and the nature/quality of the available supporting evidence are relevant considerations in assessing the credibility or believability of the assertions.

58.  In my view, 4/1/02 Fax Defence is incredible and not believable. The following analysis shows that P’s contention is well supported by objective documentary evidence adduced by D :

(a)	Leung’s/Chan’s affirmations stated that P received P’s 4/1/02 Fax and Removal Notice by fax on 4th January 2001.
(b)	1st and 2nd Headers respectively on P’s 4/1/02 Fax and Removal Notice show facsimile machine imprints indicating they were sent on 4th January 2002 at “16:50” hours (ie 4:50 pm) from Cobow Group (of which D was a member) to Fax Number (ie to SREAL).
(c)	The imprints of “P.01” and “P.02” respectively on 1st and 2nd Headers show that P’s 4/1/02 Fax and Removal Notice were the 1st and 2nd pages of the aforesaid facsimile transmission.
(d)	Lai accepted that Removal Notice is genuine.
(e)	Transmission Report plainly indicates that D faxed 2 pages to Fax Number (ie to SREAL) on 4th January 2002 at “16:50” hours and that the fax status was “OK”, which I understand to mean that the facsimile transmission was successful.
(f)	Thus D’s internal document (ie Transmission Report) corroborates and supports P’s case that D faxed 2 pages to P at precisely 4:50pm on 4th January 2002.
(g)	The weight of P’s contention is strengthened by the fact that P produced P’s 4/1/02 Fax under cover of the letter from P’s solicitors dated 25th November 2002 before service of Lai’s affirmation exhibiting Transmission Report. There is no evidence that P hadany prior knowledge that P’s 4/1/02 Fax would match the particulars contained in Transmission Report.

59.  Lai inspected the original P’s 4/1/02 Fax on 11^th March 2005. Other than his assertion that he did not sign such fax and that D will call forensic evidence at the trial, Lai was unable to identify any other aspect that suggested D’s 4/1/02 Fax was not genuine.

60.  Mr Kwan argued that although a copy of P’s 4/1/02 Fax was sent to D’s solicitors on 25^th November 2004 in support of P’s contention that D only delivered up possession of Workshops on 7^th January 2002, the reply letter from D’s solicitors dated 7^th December 2004 merely denied that D had ever sent P’s 4/1/02 Fax to P and made no mention of the existence of D’s 4/1/02 Fax. I am not persuaded that this argument supports P’s contention because in the letter from D’s solicitors to P dated 15^th November 2004 (which elicited a reply by way of the letter of 25^th November 2002 from P’s solicitors), it was said that “[despite D’s] refusal to renew the said tenancy, [SREAL] had repeatedly called [D] and invited [D] to consider entering into a new tenancy agreement with [P] until January 2002 when [D] expressly refused the same in writing” (my emphasis). This, I believe, refers to D’s 4/1/02 Fax. I am not convinced that D’s solicitors never mentioned D’s 1/4/02 Fax prior to Lai’s affirmation.

61.  However, despite D’s solicitors having alluded to D’s 4/1/02 Fax in their initial letter to P, I find D’s/Lai’s claim that D sent D’s 4/1/02 Fax to P incredible and unbelievable in light of objective and uncontroverted documentary evidence :

(a)	Lai said he had checked D’s internal records and noted D had sent out one page facsimile message to P on 4th January 2002 which was D’s 4/1/02 Fax. Mr Ng in his submissions underlies this fact by pointing out it was so expressly stated on D’s 4/1/02 Fax as follows : “Total Page(s) : 1 (including this)”.
(b)	Lai confirmed Transmission Report was the one for D’s 4/1/02 Fax.
(c)	Lai did not explain why, when D only sent one page of D’s 4/1/02 Fax to P on 4th January 2002, Transmission Report indicated D successfully transmitted 2 pages to P.
(d)	Mr Ng submits it might have been possible that Removal Notice was also transmitted. However, this submission is unsupported by evidence and is in fact different from Lai’s affirmation evidence that he did not know how Removal Notice came to be in P’s/SREAL’s possession. I bear in mind that Lai so stated after he had checked D’s internal records.
(e)	In the end, Mr Ng accepts that there is no apparent reconciliation in respect of the contradiction between D’s 4/1/02 Fax and Transmission Report (both of which were disclosed and relied on by D) referred to in (c) above. D also has not been able to satisfactorily explain why, if P’s 4/1/02 Fax were a fabrication, the particulars contained in Transmission Report would so perfectly corroborate P’s case in respect of P’s 4/1/02 Fax and Removal Notice and contradict D’s 4/1/02 Fax.

62.  Mr Kwan makes 2 further arguments in respect of P’s and D’s 4/1/02 Faxes :

(a)	Mr Kwan points out that D’s 4/1/02 Fax stated “[D has] no interesting to renew the agreement for [Workshops]”. He argues that if New Tenancy had been terminated by D’s delivery up of vacant possession of Workshops on 31st July 2001, there would have been no question of “renewing” the tenancy more than 5 months after such termination.
	Mr Ng reminds me that in writing D’s 4/1/02 Fax D did not yet have the benefit of legal assistance and advice, hence one cannot read too much into the choice of the word “renew”. I note that the use of the word “interesting” in D’s 4/1/02 Fax shows an imperfect command of the English language. Further, previous dealings between P and D in relation to licences/leases of Workshops and other workshops at Building often refer to renewals. So considered, it is not possible to regard the inference that Mr Kwan suggestsis an irresistible one in the context of an Order 14 application.
(b)	Mr Kwan submits that D’s attitude in relation to P’s 4/1/02 Fax should be contrasted with Lai’s/his wife’s/D’s response to Agents’ interference. It is said that in the latter situation, despite it being essentially a civil matter, Lai/his wife had no hesitation in reporting the matter to the police. On the other hand, despite D’s assertion of fraud/forgery in respect of P’s 4/1/02 Fax and despite threats to report to the police in correspondence from D’s solicitors, there is no evidence that D has reported the alleged fraud/forgery, which must be a criminal matter, to the police. Mr Kwan submits that the reasonable inference is that D’s allegation is untrue.
	Mr Ng submits that Lai’s affirmation evidence in relation to the disturbance by and receipt of letters/documents from Agents were threatening and intimidating. He notes that Agents even attended the building where Lai and his wife resided. Mr Ng says it is no wonder they considered their personal safety to be at stake and wished to (and did) report to the police. The claim of fraud/forgery, though serious, was a done act and not as personally threatening. It also poses no risk of continuance.
	I bear in mind that Lai only inspected the original of P’s 4/1/02 Fax in March 2005 and that D is currently contesting the present claim under legal advice. In my view, it is unnecessary and inappropriate at the Order 14 stage to speculate on Lai’s subjective intention or decision under legal advice on whether to report or not report to the police. Suffice to say that I am unable to draw any irresistible inference that Lai told a lie as a result of lack of evidence as to whether D has reportedthe claimed fraud/forgery to the police.

63.  However, even without the support of these 2 further arguments, P has been able to show that D has not made out a credible or believable argument in relation to D’s 4/1/02 Fax.

(c) Checklists

64.  In respect of Checklist Defence, Mr Ng does not have an easy task since D has not adduced any countervailing evidence against Checklists and Other Checklists. Mr Ng at one stage suggests D was handicapped given that P had the last word (ie Chan’s affirmation in reply). The order of Acting Registrar R Yu dated 14^th March 2005 provides that after P’s affirmation in reply, “no further affirmation [is] to be filed and served without leave of the Court”. However, even up to the hearing before me, D has not applied for leave to file affirmation to answer Chan’s affirmation and Mr Ng has not sought to adjourn the hearing to adduce further evidence. In the end, Mr Ng decides not to pursue this submission.

65.  As an initial point, Mr Ng points out that Chan’s affirmation reveals that her main duties were to negotiate/discuss new leases and renewals. It appears she was not an eye-witness to SREAL’s repossession of Workshops on P’s behalf on 7^th January 2002.

66.  In my view, although Chan was not an eye-witness to the hand-over of possession of Workshops on 7^th January 2002, she (as SREAL’s officer since 1990) knew of SREAL’s and SEML’s practice and has reviewed P’s 4/1/02 Fax, Removal Notice as well as Other Checklist and Checklists retained by SEML. After 31^st July 2002 and prior to 7^th January 2002, Chan said she personally liaised with Lai to press for delivery of possession of Workshops or renewal of tenancy and to chase for payment of arrears of rent. Therefore, it cannot be said that she does not have personal knowledge that D has not delivered possession of Workshops to P on 31^st July 2001.

67.  Mr Ng submits there is an odd feature in Checklists. Checklists and Other Checklists are in standard printed form. Mr Ng points out that Other Checklist shows a handwritten check or tick against each relevant property item presumably to show that such item was checked and that its condition was acceptable. This is contrasted with Checklists where the boxes against similar property items were left blank. Mr Ng suggests this shows that the hand-over of possession of Workshops was not done at the same time when Checklists were prepared.

68.  I find this argument speculative. What Mr Ng asks the court to do by this argument is to speculate on the apparent difference between Other Checklist and Checklists and then conclude that the reason for the apparent difference must be that the hand-over of possession of Workshops did not take place on 7^th January 2002 ie the date written on Checklists. In my view, this is a wholly insufficient basis for drawing such inference. First, Checklists and Other Checklist deal with different properties and plainly re-possession of Workshops and Workshop No.A17 of Building was done at different times. Secondly, there is no challenge to P’s evidence that Yeung was D’s representative and that he signed Checklists and Other Checklist. Thirdly, irrespective of whether Yeung himself inserted the date of “7-1-02” beneath his signature on Checklists (although Chan believed Yeung did so), there is no evidence that Yeung/D made any protest. Indeed, Checklist Fax shows that when D faxed it back to P, it must have been aware that the date of 7^th January 2002 was marked thereon. Fourthly, no plausible reason has been given as to why, if New Tenancy had been terminated and possession of Workshops had already been handed-over to P on 31^st July 2001, P as well as SEML would request execution of Checklists more than 6 months later on 7^th January 2002 and D would entertain such request at all.

69.  Such assertion is even more incredible in face of P’s unchallenged evidence that D’s Yeung attended the hand-over of possession of Workshops as evidenced by Checklists and that at SREAL’s request D actually affixed its company chop to Checklist Fax and faxed the same back to SREAL after 7^th January 2002. 3^rd Header clearly shows that Checklist Fax was faxed to Fax Number (ie to SREAL) from Cobow Group (of which D was a member) on 12^th January 2002. Further, upon receipt of Checklist Fax, SREAL’s staff put a date stamp on the document and marked it for his manager’s perusal. On D’s case, there is magic to the date of 7^th January 2002 and no explanation why Checklists and Checklist Fax were done in January 2002.

70.  Further, the existence of Checklists and Other Checklist plainly contradicts Lai’s affirmation evidence that “all along [hand-over of possession of workshops at Building by D] was done through SREAL in an informal manner throughout the past 5 years …… and SREAL had never issued any formal receipt to [D] for the surrender of possession of the leased or licensed units”.

71.  There is some dispute between the parties in relation to 14/8/02 Letter. P claims that it was issued and at least one copy (likely to have been sent to D’s new Quarry Bay address) has not been returned. It is therefore suggested that D has received such letter in which case D should have known of P’s stance as early as in 2002. D claims that it has never received such letter. Mr Kwan quite rightly does not rely on 14/8/02 Letter for the Order 14 application in light of the aforesaid dispute. Indeed, neither counsel refers to such letter to in the submissions.

72.  In the circumstances, I find D’s defence arguments incredible and unbelievable. I do not consider there is any reason for this matter to proceed to trial.  I refer to the wise words of Megarry V-C in Lady Anne Tennant v Associated Newspapers Group Ltd [1979] FSR 298 as cited in Hong Kong Civil Procedure 2004 (supra) para.14/4/3 at p.160 : “A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to a sufficient reason for refusing to enter judgment for the plaintiff.  You do not get leave to defend by putting forward a case that is all surmise and Micawberism.” 

73.  In respect of the quantum of P’s claim, as discussed above, Mr Ng does not raise any positive challenge for Arrears. I find there is no arguable defence in respect of Arrears and summary judgment ought to be given.

74.  P claims Interest pursuant to clause 4(a)(ii) of Tenancy Agreement (as incorporated by clause 11 of Letter) which provides inter alia that in the event of default in payment of rent on the due date, D shall further pay to P on demand interest on the amount in arrears at the rate of 1.5% per month calculated from the due date until the date of payment as liquidated damages and not as penalty.

75.  Mr Ng claims that such provision amounts to a penalty and not liquidated damages due to the extravagant rate of interest. He refers to Chitty on Contracts 29^th ed. (2004) Vol.1 para.26-110 at pp.1490-1491 which sets out the succinct summing up of the law by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, 86-88 as follows :

“	1.	Though the parties to a contract who use the words ‘penalty’ or ‘liquidated damages’ may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The court must find out whether the payment stipulated is in truth a penalty or liquidated damages …
	2.	The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.
	3.	The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not at the time of the breach.
	4.	To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive.  Such are :
		(a)	It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.
		(b)	It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid …
		(c)	There is a presumption (but no more) that it is a penalty when ‘a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and other but trifling damage’
		On the other hand :
		(d)	It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequence of the breach are such as to make precise pre-estimation almost an impossibility.  On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties.”

76.  Mr Ng relies on Lord Dunedin’s point 4(a) to say that the contractual rate of interest on arrears in Tenancy Agreement is extravagant but he does not go so far to say it is unconscionable. He also suggests that the amount of accrued Interest is disproportionate to Arrears claimed.

77.  Neither counsel refers to any local precedent authority. The Court of Final Appeal in Polyset Ltd v Panhandat Ltd [2002] 5 HKCFAR 234 gave a detailed analysis of the law on penalties. Bokhary PJ said at p.248 that :

“As far as liquidated damages and penalties are concerned, the law is fairly well settled in its fundamental aspects. Contracts often specify the sum payable in the event of breach. Even if the sum so specified is described as liquidated damages, it may be seen upon examination to have been fixed as a threat to be held over a party's head with a view to compelling him to perform. If so, the specified sum will be regarded as a penalty and therefore not recoverable. And the innocent party will be awarded damages assessed according to his actual loss. In order for the specified sum to be recoverable as liquidated damages, one condition must be met. It is that such sum, judged by the position at the time when the contract was made, represents a genuine effort by the parties to pre-estimate the loss which the innocent party would suffer in the event of breach. Compensation according to a genuine pre-estimate of loss is the purpose which liquidated damages are meant to serve.”

78.  Waung J in Re Mandarin Container & ors [2004] 3 HKLRD 554, 557-560 (a case dealing with default interest) regarded the “Dunlop” approach as the high water mark of modern penalty jurisprudence “as thereafter the limited application of the penalty jurisdiction (based on relief granted by the Courts of Equity) was emphasised by the courts”. Waung J analysed the post-Dunlop authorities and concluded that “the modern approach to penalty clauses is to look at whether in respect of a commercial contract, the disputed provision can be said to be unconscionable or oppressive by reason of its being extravagant, exorbitant or excessive and that the court should be slow to find terms agreed by the parties to be in terrorem rather than genuine agreement providing for fixed formula of loss”.

79.  It is well established that the question of whether clause 4(a)(ii) of Tenancy Agreement is a penalty is to be judged at the time of making of the contract, ie at the time when the parties executed Tenancy Agreement and/or Letter.

80.  In my view, the purpose of an award of interest for arrears of rent in a tenancy agreement is to compensate the landlord for being kept out of its money. Where the tenant is in arrears of rent, hewill have use of such monies throughout the default period and can have earned interest on it. There is no justification for a defaulting tenant to keep the interest so earned while denying the landlord’s entitlement to interest earned during that period. As regards the rate of interest, it should reflect the theoretical cost to the landlord of borrowing the sums withheld and the fact that the tenant has deteriorated into an inferior credit risk situation (see Komala Deccof & Co SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219, Polyset Ltd v Panhandat Ltd FACV28/2000 (unreported, 25^th April 2002) and Re Mandarin Container & ors (supra at p.562)).

81.  Given that a tenancy term extends over a period of time with potential movement of the aforesaid theoretical borrowing cost, it is sensible for the parties to agree beforehand on an agreed formula for interest rate for the period of default. There is no evidence before me of the commercial rate of interest forthe aforesaid theoretical borrowing cost. I cannot say the contractual rate of interest at the rate of 1.5% per month (or 18% pa) is extravagant or out of proportion to the range of loss which might likely be incurred.

82.  Mr Ng next argues that although Arrears accrued since 2001/2002, P failed to provide Account to D despite requests and only chose to commence proceedings in December 2004. In the circumstances, D should not be liable for interest on arrears of rent caused by P’s own delay. There is no doubt that P commenced its present claim within the limitation period. P claims that even before commencement of the present legal proceedings, Chan has chased Lai for payment of arrears of rent. Further, even on D’s case, Lai claimed that P engaged Agents in 2003 to recover the outstanding sums. I see no justification for the allegation of unwarranted delay. In any event, D resisted P’s claim and to date refused to make payment of Arrears or any part thereof, so the delay (if any) does not have any material effect on the outcome.

83.  I therefore conclude that D has raised no triable issue in relation to P’s claim for Interest.

Conclusion

84.  I therefore grant summary judgment to P in D’s favour in the sum of HK$211,001.90 with interest on the sum of HK$140,312.90 at the rate of 1.5% per month (ie daily interest of HK$70.16) from 1^st December 2004 to the date of judgment and further interest at judgment rate from the date of judgment to the date of payment.

85.  P seeks costs on a full indemnity basis pursuant to clause 4(r) of Tenancy Agreement as incorporated by clause 11 of Letter. I see no reason why costs should not follow event. I therefore make a costs order nisi that D do pay P costs of the action, including this application for summary judgment, together with all costs reserved (if any) on a full indemnity basis to be taxed if not agreed with certificate for counsel.

Publication of this judgment

86.  Pursuant to Practice Direction 25.1, I request the parties to make written representations on the release of this judgment for publication within the next 7 days. If there is no objection or response within such time period, I propose to grant permission for this judgment to be published.