Yung Kee Co v. Cheung So Yin Kee

HCA005171/1982

Action No. 5171 of 1982

IN THE HIGH COURT OF JUSTICE

BETWEEN

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Coram: Deputy Judge Mr. Denis Chang, Q.C.

Date of Delivery of Judgment: 30th September 1983

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Headnote

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Tenancy Agreement - alleged Frustration - destruction of premises by fire at tail-end of tenancy.

The tenant claims the return of rental deposit in the sum of $120,000/- upon destruction by fire of premises consisting of two low-rise buildings built on land let to him under a Tenancy Agreement for a fixed term of four years and which contained a clause imposing on the tenant responsibility for reinstating the premises to its original state (in the event of damage) except where the premises are demolished or destroyed by "any storm, earthquake, fire, riot, war or acts of God." There was no rental suspension clause. A fire destroyed the premises less than three months before the contractual expiry date.

Plaintiff's claim dismissed with costs.

Counterclaim by landlady based on provision of contract for payment of property tax in event of tenant being more than 5 days late - landlady on the facts held to have waived clause and counterclaim dismissed with costs.

Action No. 5171 of 1982

IN THE HIGH COURT OF JUSTICE

BETWEEN

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Coram: Deputy Judge Mr. Denis Chang, Q.C.

Date: 30th September 1983

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JUDGMENT

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1. This is a claim by a tenant for the return of rental deposit in the sum of $120,000 on the ground that the Tenancy Agreement has come to a premature end by frustration. The alleged frustrating event is the destruction of the premises by a fire which occurred less than three months before the expiry date of a four-year tenancy.

2. The defence admits the fire but denies there was any frustration. Since the last three months' rent have not been paid, and the monthly rental was $40,000 a month exclusive of rates, the landlady seeks to set off the rental in arrears against the deposit in total extinguishment of the claim.

3. There is a counterclaim on something quite separate. I propose to deal with that later.

4. The Tenancy Agreement stipulated that the monthly rental was payable in advance on the 1st day of each month.It expressly imposed on the tenant responsibility for reinstating the premises to its original state (in the event of damage) except where "the premises are demolished or destroyed by any storm, earthquake, fire, riot, war or acts God." It did not, however, contain any provision for the suspension of rental in the event of destruction of the premises by any of the causes referred to.

The Property Let; the Portions Sub-let

5. The property let comprised a piece of land at Un Chau Street, Shamshuipo, Kowloon of some 7,000 square feet in area on which were erected buildings designated as Blocks A, B and C. It is not disputed, and the evidence shows, that the so-called Block A was in fact the ground floor of a low-rise building fronting the street and had a number of shop spaces; Block B was in reality the first and only other floor of the same building. Behind it was a low single-floor building designated as Block C which was not divided into units and was, as the landlady put it, "only one large ground floor." There was a drive way leading to the rear building from the street at the time of the letting but this was later turned into a covered area by the tenant and used as an additional shop space.

6. It is likewise not in dispute, and the evidence shows, that the buildings, together with the converted drive-way, covered practically the whole site. They were referred to collectively as Nos. 290-296 Un Chau Street and this is why, I think, the Plaintiff's witness Mr. Tam Chung Yue ("Mr. Tam") said in his evidence there were "four units or numbers" i.e. Nos. 290, 292, 294 and 296. The land is registered in the Land Office as New Kowloon Inland Lot No. 3653.

7. A photograph has been put in by consent of the parties market Exh. "E" The landlady was not able to say when it was taken except that it was some time before the fire. She did not avert to the date 26th April 1979 written on the back thereof. The photograph shows a front portion of the two storeyed building with a facade that had all the signs of wear and tear, although nothing turns on this. The buildings were erected in the 1950's.

8. The Tenancy Agreement was in Chinese: see Exh. "D" (certified translation Exh. "Da"). The four-year term created was expressed to run from 1st July 1978 to end of June 1982, with a rent-free period of 64 days for the tenant to do decoration works commencing on 1st May 1978. There was a very wide user clause, permitting the tenant to "operate all kinds of lawful transactions and manufacturing business" and allowing the tenant's "clerks, workers and relatives" to live in the premises. There was no covenant against sub-letting.

9. Pursuant to the Agreement the tenant was let into occupation, carried out some decoration works and proceeded to sub-let most of the premises. Mr. Tam ran the business. He was, at the time of the fire, the "proprietor" of Yung Kee Company (the Plaintiff) but is now a manager of the "Yung Kee Sewing Machine Company". This, presumably, is the name of the limited company (incorporated to take over almost all the Plaintiff's assets) referred to in the correspondence at pp. 9-15 of Agreed Bundle "A". No point was taken that Mr. Tam, as the proprietor at the relevant time, should have sued in his own name trading as Yung Kee Company and his precise relationship with the Plaintiff was not explored.

10. I find, as a fact, that by the time of the fire the tenant was retaining only about 1/8th of the premises for the use of the sewing machine business, the rest having been sub-let to quite a few people, some on periodic tenancies, others on fixed terms.  Except for a small portion on the upper floor which was sub-let for domestic use, the two-storeyed building was' used for commercial purposes and the rear block was sub-let and used as a furniture work-shop. Mr. Tam was getting, in all, some $60,000per month from the sub-letting. He employed at least one person to look after the property and to collect the rent. Because the sub-letting was profitable he would have sought a renewal of the tenancy upon its expiry but for the fire.

11. Clause 1 of the Tenancy Agreement, in part, provides the "if both parties agree, a new tenancy will be entered into and Party B (i.e. the tenant) will have priority to rent the said premises...". Counsel on both sides appearing before me accepted that no legally enforceable option to renew was granted to the tenant upon the expiration of the term since everything was conditional on mutual agreement. They proceeded on the basis that all the tenant had was a mere hope of renewal and neither sought to rely on the so-called "priority to rent" as a relevant factor in their arguments.

The Fire; its Aftermath

12. The fire occurred on 6th April 1982. Mr. Tam was in Mainland China at the time but went to the scene as soon as he returned on the 8th. He said he found that "there were only some walls standing there". The landlady, who did not visit the site until about a fortnight after the fire, was not too sure about the exact condition of the premises. She said, however, that the facade of the two-storeyed building was still there after the fire but "the inside" was burnt down but was not sure whether the roof had caved in. As for the rear block her impression was that the fire had burned through the roof.

13. There is no dispute that the Building Authority promptly applied to the District Court and obtained a Closure Order which posted at the premises the very next day after the fire and the buildings were fenced off by the police. The Order, Exh. "B", was made under Section 27 of the Buildings Ordinance Cap. 123 on the ground that the buildings were dangerous or likely to become dangerous. It had the effect, until superseded by the service of a notice of expiry, of closing the buildings to everybody except those allowed in by special permission. Such permission was obtained by Mr. Tam in mid-April for the purpose of retrieving belongings (Exh. "C"). He went in under the watchful eye of a police officer and stayed for some ten minutes or so. That was the only time he went into the site after the fire.

14. On the evidence, I find as a fact that the fire destroyed the buildings, making them wholly uninhabitable and unusable during the remaining period of the stipulated term for any purpose permitted or contemplated under the Tenancy Agreement.

15. Further, so long as the Closure Order remained in force access to any part of the land for the purpose of any beneficial use was effectively barred and I find, as a fact, that the Closure Order remained in force right up to and beyond the end of June 1982. It was not until September 1982 that the structures were demolished and the site cleared at the instance of the landlady who had, following her visit to the scene of the fire in the latter half of April, appointed an architect to do what was necessary, including putting up hoardings at the site and inviting tenders for the demolition works. The site is now let out by the landlady as an open-air carpark.

16. It is not entirely clear when the demolition work actually began or whether the landlady could have had the site cleared earlier.

The Plea of Frustration

17. The plea of frustration was, on the Plaintiff's side, raised almost immediately after the fire and was, almost as quickly, denied by the Defendant (see correspondence at pp. 9-15 of "A"). The writ herein was issued about two weeks before the expiry date of the stipulated term.

18. Both sides accept that neither had any obligation to rebuild the premises upon destruction by fire, the tenant having been expressly exempted from liability for re-instatement in such an eventuality and the landlady not having expressly undertaken to repair or to rebuild: see Hill & Redman's Law of Landlord & Tenant 17th Edition Vol. 1, p. 235.

19. Mr. Chong, however, on behalf of the Plaintiff submits that the rent ceased to be payable upon the happening of the fire which brought catastrophic ruin to the premises. This, he says, resulted in such a total loss of use of the property during the remainder of the stipulated term that all further prosecution of the venture became impossible. The fire, he argues (although not in so many words) brought the tenancy abruptly to a dead end, with nothing more to look forward to by way of beneficial enjoyment on the part of the tenant since any attempt to salvage further use in the aftermath of the fire would, because of the shortness of time, only be an exercise in futility. Justice, he says, requires that the tenant be relieved of the prima facie absolute obligation to pay rent.

20. Mr. Chan, for the Defendant, submits that the action is m misconceived. The subject-matter of the letting, he says, was not the buildings as such but the land on which, as it happened, erected buildings. He refers to the Tenancy Agreement (see Exh. "D" and the translation "Da") the opening paragraph of which reads: Party A is willing to let New Kowloon Inland Lot No. 3653, Un Chau Street, Shamshuipo, Kowloon to Party B for lawful commercial purposes. The estimated area is 7,000 square feet and on the said lot there are...Blocks A, B and C...".  He further says that there is no or no sufficient evidence from which the court can infer that what remained of the buildings could not be demolished, the Closure Order lifted, the site cleared and the land put to some use by the tenant before the expiry of the term. Neither the landlady's architect nor anybody from the Public Works Department has been called to describe the condition of the premises, the works that were needed and the time that would be required for clearance and, he says, it is not for the Court. to speculate. In any event, he suggests, a loss of use of eleven weeks in a four-year-term was quite insufficient to work a frustration, bearing in mind the beneficial enjoyment the tenant already had by way of physical occupation, and even more so, by way of the profitable sub-letting. Neither authority nor principle, he submits, compels the court to place all the risks of a fire on the landlady's shoulders when the tenant himself did not stipulate for rental suspension in the eventuality that happened.

The Law

21. Much of the argument turns on the case of National Carriers Ltd. v. Panalpina (Northern) Ltd. [1981] 1 ALL E.R. 161. There, the House of Lords decided an important point of principle which they had left unresolved 35 years previously: can the doctrine of frustration ever apply to put an end to a lease? IN Cricklewood Property and Investment Ltd v. Leighton's Investment Trust [1945] A.C. 221, Viscount Simon L.C. and Lord write thought that it could, the second lord Russell of killowen and lord Goddard thought that it never could, and Lord Porter reserved his opinion but all agreed that it did not apply to the facts of the case. The Court of Appeal in the Cricklewood case [1943] KB 493 had, however, held that the doctrine could not apply to leases and until modified by the House of Lords that remained the law in England.

22. In National Carriers, only the third Lord Russell of Killowen thought that the doctrine could never apply to a lease simpliciter, although he was prepared to accept the possibility of frustration of a lease that has been granted as a subordinate and incidental part of a larger commercial adventure which itself is frustrated and although he would reserve consideration of cases of physical destruction of "flying leaseholds" (e.g. where a flat on an upper floor of a multi-storeyed building is let out and the entire building is destroyed) and of the total disappearance of the site owing to some vast convulsion of nature. Lord Hialsham of St. Marylebone L.C., Lord Wilberforce, Lord Simon of Glaisdale and Lord Roskill all delivered closely reasoned speeches in which they took a more flexible approach and held that the doctrine of frustration could apply to a lease, though it rarely would, and did not apply to the case before them. There, during the fifth year of a ten year lease of a purpose-built warehouse, the only vehicular access was closed by the City Council owing to the dangerous condition of a derelict "listed" building in the same street. The warehouse was thus rendered totally useless as long as the closure lasted.The closure was originally expected to last about a year. This was later revised to The House of Lords, however, held that the tenant had not even raised a triable issue that the leas v was frustrated and was, according liable to b pay the rent.

23. I have also been referred to the earlier case of Matthey v. Curling [1922] 2 A.C. 180 where towards the end of a 21 yr. lease of a house and acting under the Defence of the Realm Regulations, took possess ion of the demised premises and used a part of it for housing German prisoners of war. The lease had only some 14 months to run. It contained covenants, in the usual form, by the lessee, to repair, to deliver up in repair, to insure, and in the event of the house being destroyed or damaged by fire at any time during the term forthwith to expend the insurance money in rebuilding. Towards the last month of the tenancy the house was completely destroyed by fire. On the facts, the House of Lords, affirming the Court of Appeal, held that the lessee was not excused from paying the last quarter's rent or from performing the repairing covenants. It is interesting to note that although Matthey v. Curling was decided before Cricklewood, Atkin L.J. in the Court of Appeal (at pp. 199-120 of the same report as that relating to the House of Lords' decision) was already expressing the view, albeit tentatively, that the mere fact that a lease grants a term of years is not conclusive against the application of the doctrine of frustration. In concluding that the doctrine did not apply to the case on its facts he took into account inter alia, "the period of military possession compared with the whole term." Both he and Bankes L.J., however, appeared to be looking for an implied term as the basis for the doctrine of frustration (pp. 185-186, 199-120).

24. When Matthey v. Curling reached the House of Lords, eviction by title paramount was apparently the only real point relied upon as relieving the tenant of the absolute covenant to pay rent and impossibility of performance was relied upon in relation in relation to the covenant to repair. Both defences failed in the House as they had failed in the Court of Appeal. In answer to the argument that the rent should at least be apportioned between the portion occupied by the military authorities and the portion still beneficially enjoyed, Lord Atkinson said that even in the case of destruction by fire of a dwelling house (with grounds around) there would be no apportionment rent between the house and the grounds and he referred, with apparent approval, to Monk v. Cooper (1727) 2 Stra. 763 where a lease contained a covenant to repair premises except where they were destroyed by fire. The lessee pleaded that they should be relieved from payment of rent because, before the beginning of the year for which the rent was claimed, the premises were destroyed by fire and they were not rebuilt by the landlord during the whole year. The plea was demurred to and was held to be bad. Marshall v. Schofield (1882) 52 L.J. (Q.B.) 58 was to the same effect.

25. The Matthey v. Curling and Monk v. Cooper line of cases is relied upon in the following passage by the learned editors of Halsbury's Laws of England 4th Edition Vol. 27, para. 240:

"Effect on rent of damage by fire. In the absence of express stipulation, the destruction of premises by fire does not suspend the tenant's liability to pay rent, and, even though the landlord has received the insurance money and refuses to rebuild, the rent continues to be payable throughout the residue of the term. This is so notwithstanding that there is a covenant to repair by the tenant which contains an express exception of damage by fire. Where the landlord has the duty to insure, whether by covenant or as a matter of practice, the lease often contains a proviso for suspending the rent while the premises are uninhabitable by fire."

26. Other cases cited by the learned editors in support of the above propositions include Baker v. Holtpzaffell (1811) 4 Taunt 45, (1811) 18 Ves, 115 and Belfour v. Weston (1786) 1 Term Rep. 310. In the footnote, however, the learned editors have added:-

"It remains to be seen whether these decisions will be reconsidered in the light of National Carriers Ltd. v. Panalpina........"

27. I am respectfully of the opinion that a distinction must be drawn between, on the one hand, a suspension of rental which, speaking generally and apart from statute, can be achieved only by express stipulation and, on the other hand, permanent cessation of rental following upon a frustrating event. I am of the view that it is no longer (if it ever was) the law that in the absence of express stipulation, the destruction of premises by fire will never ever result in the tenant being relieved of any further obligation to pay rent. It will so result if on the facts of the particular case the destruction by fire works a frustration of the contract.

28. Frustration occurs "whenever the law recognises that, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do": Lord Radcliffe in Davis Contractors Ltd. v. Fareham Urban District Council (1956) A.C. 696 at 729. This classic formulation, which really looks to the bargain between the parties and involves the construction of the contract, was accepted by the Judicial Committee of the Privy Council in the case of Wong Lai-ying & Others v. Chinachem Investment Co. Ltd. (1980) H.K.L.R. 1 at 7. There it was held that various sale and purchase agreements in respect of flats to be built in the mid-levels of Hong Kong Island were frustrated as a result of the 18th June 1972 rainstorm disaster involving a catastrophic landslip. Lord Scarman in that case also referred to Lord Wright's summary of the law in Denny, Mott & Dickson Ltd. v. James B. Fraser & Co. Ltd.: " ... when frustration occurs, it is automatic, and... its legal effect depends not on the intention of the parties or even on their knowledge as to the event, but on its occurrence in such circumstances as to show it to be inconsistent with the further prosecution of the adventure.... The event is something which happens in the world of fact, and has to be found as a fact by the judge. Its effect on the contract depends on the meaning of the contract, which is matter of law. Whether there is frustration or not in any case depends on the view taken of the event and of its relation to the express contract by 'informed and experienced minds.'"

29. The Tenancy Agreement in the present case, which was drafted by the landlady's side and was not drawn up by lawyers, did not deal with fire separately from other agents of destruction but lumped it together with any storm, earthquake, riot, war or acts of God - any of these events, if resulting in destruction of the premises, would exempt the tenant from the express obligation to re-instate the premises. On a construction of the contract, I cannot say that the parties, by not providing for cessation or suspension of rental in any of the eventualities referred to, have thereby impliedly excluded the doctrine of frustration from ever applying in the event of destruction of the premises by any of the causes mentioned.That provision only qualified the obligation to re-instate and it could be argued that the failure to deal with the rental situation, if anything, actually made room for, rather than excluded, the doctrine from operating. Had there, for example, been a rental suspension clause a situation could arise where the rent would simply be suspended by operation of the contract for as long as the contract provided without the contract being put to an end by- frustration by operation of law.

30. This does not of course mean that there would be frustration if and whenever the premises were destroyed by fire or on the happening of any of the other events. In my judgment, an important, though not the only significant, factor in the present case is the time element.

31. This fire occurred at the tail-end of a four-year tenancy. This means that, on the one hand, the tenant had really nothing worthwhile to look forward to by way of beneficial enjoyment, so total was the disruption and so different was the case from one in which, for example, there was a brief interruption of access because of street closure during the currency of a tenancy with still a substantial term to run (where it would be meaningful to talk about "interruption" and "resumption" of contractual performance). On the other hand, speaking generally, the closer one gets to the end of the contract, the more difficult it is to say: "This is not what I bargained for". A point may be reached where one has already substantially got what-one bargained for. In other words, the question of executed performance, whilst it may be only marginally relevent or should be ignored in certain cases, can be significant in a case like the present where what is at issue is not impossibility of performance of any particular contractual obligation by any of the parties but whether, on the facts, the law should by discharging both parties relieve one party of his prima facie absolute obligation to pay rent in a fixed term tenancy that is drawing to a close in circumstances where it cannot be said that the entire substratum or subject-matter had disappeared.

32. In National Carriers, Lord Simon of Glaisdale(at p. 180 f-h) expressly y said that he would not "entirely exclude executed performance as a relevant factor" He was there dealing generally with cases where performance of a contract is "interrupted" and a comparison has to be made between the period of interruption and the outstanding period for performance. He was not specifically directing his mind to a "tail-end" situation where, in my view, executed performance can become more than marginally relevant. He spoke of the need to make a quantitative as well as a qualitative judgment as regards what relation the likely period of interruption bears to outstanding period for performance. In the present case, I have to assess the effect of the loss of use in the dying months of the tenancy in relation to the entirety of the term and the contract as a whole.

33. In so doing I must also have "proper regard" to the fact that an interest in land was involved (Lord Wilberforce in the National Carriers, p. 173 a-b) and the point that whilst that does not exclude the doctrine of frustration from applying and flexibility is called for, the occasions where it does apply to leases or tenancy agreements are rare.

34. I also bear in mind that the juridical bases for the doctrine have been variously expressed (a) as a juristic device by which the rules as to absolute contracts are reconciled with a special exception which justice demands (b) as an implied term (c) as a matter of construction of the contract (d) as related to the removal of the foundation of the contract and (e) as a total failure of consideration.

35. Following the speeches of their Lordships in National Carriers and the opinion of the majority of the House, I would respectfully not accept the last basis ("total failure of consideration") as providing an adequate foundation because a contract can be frustrated even when there no total failure of consideration although this supposed basis serves as a useful reminder of the relevance of executed consideration. I would respectfully adhere to the classic formulation of Lord Radcliffe which I have cited, which is also the formulation preferred by Lord Hailsham and Lord Roskill in National Carriers, although Lord Roskill thinks that the doctrine is principally concerned with the incidence of risk and Lord Simon of Glaisdale would place particular emphasis on the doctrine as a juristic device to achieve justice: see also Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497, 510.

36. In the light of all the above considerations and on the facts I have come to the view, not without some reluctance, that the Tenancy Agreement was not frustrated. I find, as a fact, that the destruction of the premises in the present case at the tail-end of the tenancy is not a frustrating event. I also find, as a matter of construction and of law, that its effect on the contract is to leave it unaffected and afoot until the expiration of the term and so the interest in land created thereunder subsisted till term date. The rent therefore continued to be payable. In my judgment justice does not demand that the tenant be relieved both of the obligation to reinstate the premises upon its destruction by fire and of payment of rental in all the circumstances of this case, in particular when the loss of beneficial use under the contract is only, at most, eleven weeks. So, in my view, whether one approaches this matter in terms of what is just, or as a matter of construction or implied term, or in relation to executed performance, or as a matter of allocation of risks, or by taking a broad overall view, the plea of frustration fails.

37. I should make it clear that, despite the rather unsatisfactory state of the evidence as to what, if anything, could be done by the tenant to clear the site, I am inclined to take a broad and realistic view and find that it was unlikely that the tenant would have been able in the fire- even assuming he had the legal right to pull down the structures without rebuilding them and was minded to take the initiative of doing so at his own risk and expense - to salvage any or any worthwhile use of the site for himself or his subtenants prior to the contractual term date. Mr. Tam, in fact, never consciously applied his mind to the possibility, if any, of salvaging some use of the land prior to the term date. Everything, he said, was in a mess: he had lost his goods and, I find, the sub-tenants were going after him for return of their deposits. Two of them subsequently sued him in the District Court and he apparently admitted liability and asked for time to pay. He said, and I believe him, that he ceased collecting rent from the sub-tenants after 6th April 1982.

38. One can sympathise with him although of course his position was not necessarily identical with those of his subtenants: the duration and terms of the letting might have been different and the portions occupied were, in some cases, on the first floor and, in any event, it is not for me to say whether he was right to have admitted liability.

39. I would dismiss the tenant's claims with costs.

The Counterclaim

40. The amount counterclaimed by the landlady has been reduced, by agreement between the parties, to $7,100. 1 shall briefly this came explain-how this came about.

41. The rent was payable in advance on the 1st of each month exclusive of rates as mentioned above but the tenant was already late in his s payments almost right from the beginning. In the months of August to December 1978 elusive he did not pay until just before or a few days after the 20th of the month . The position was not much different in the months complained of 1979 (i.e. January, March, April, May, October and December 1979) except that in March he did not pay until around the 30th. Over the greater part of 1980 the tenant was likewise over 14 days late, paying his rent closer to the middle of the month than the 20th (no complaint being made of the month of May). The overall picture improved somewhat in 1981 and no complaint is made in respect of April, September, October and November of that year. In 1982 the tenant was paying around the middle of the month until April when he ceased paying altogether because of the fire. It is not in dispute that the tenant was late in his payments in respect of a toral of 33 months (not including April - June 1982).

42. The landlady says she is entitled to be compensated for all these late payments. She alleges that the Tenancy Agreement made it clear that the tenant had only 5 days' grace if he did not pay after the 6th day y the month he must pay the property tax in respect of the premises. According to the translation at p 5 of Bundle A, the clause reads: "If the tenant pays the rent 5 days after it is due, the Property Tax shall be borne by the tenant." So she has in her counterclaim sought to recover $60,480.00 being the amount of the property tax calculated at the rate of $1,680.00 per month or alternatively damages for breach of the agreement.

43. The tenant has pleaded three points in answer. First he says that the property tax clause was not in the Agreement when he signed it. Second and in the alternative he says that it was in it was in the nature of a penalty. Third he says that the landlady has waived her rights.

44. During the trial I was informed by Counsel for both sides that they had come to an agreement to dispose of the matter thus: if the court finds that the clause was part of was part of the contract (whether originally inserted or subsequently be awarded by way of agreed compensation for loss of interest for the delayed payments, it being conceded that the clause as such was a penalty. The parties have made it plain that I am not asked to consider whether, apart from the agreement reached between Counsel, the landlady would have been entitled to interest or damages.

45. The position is somewhat unusual but on the balance of probabilities I find, as a fact, that the disputed provision was part of the contract and that it was there when the tenant signed it at the landlady's place of business and in the presence of his wife and his father-in-law (neither of whom was called to give evidence) as well as of the landlady and her helper and foki one Mr. Yung Kwem. It is not disputed that two copies of the Tenancy Agreement were signed, an original (Exh. D, translation Da) which was given to and kept by the tenant and a-carbon copy (Pp 1-3, translation p.4-7 of Bundle   "A") which was kept by the landlady.

46. The disputed clause appears on both copies. It is written under "remarks" in Chinese on the extreme left of the first page of the Agreement in a firm legible hand in ballpoint of a different and clearer shade of blue from the rest of the writing on that and the other pages except for the figures in Chinese script (giving various dates) and that part of the document containing the signatures and description and identity of the parties. I find that these figures and the signatures were filled in at the same time after the body of the agreement had been written out by the landlady's helper. The ballpoint ink used resembles that in the disputed clause which, I- find, was also written in the hand of Mr. Yung Kwem at about the same time as the figures in Chinese script were filled in and before the parties signed the Agreement.

47. Mr. Tam sought to explain the presence of the disputed clause on his copy by suggesting that it must have been filled in after his signature and between the day when he signed the agreement and the next day when he said he was given a copy. He said the reason for the one day delay was because the landlady wished to have the agreement stamped. Neither copy in fact bears any stamp although in is not for this reason that I find myself unable to accept his evidence on this aspect of the case. The disputed clause stands out clearly and I think it was unlikely that the landlady would insert the provision without telling him as he alleges particularly when Mr. Tam admits that the landlady was apparently very concerned about punctual payment of rental and that at the time of the contract she repeatedly told him of the need to be prompt. He tried to retract that admission but eventually conceded that the landlady did tell him to be prompt. He also admitted that she did "at one stage at an early part of the tenancy press for early payment of rent."

48. I should add in passing that the carbon copy retained by the landlady was not an exact copy in every respect in the sense that the figures in Chinese script were filled in directly (in the same clear blue ball-point ink as in original copy) without the use of any carbon paper; the signature portion was likewise filled in directly, as was a clause in identical terms to the disputed clause, also in the same hand.This was to be expected as it would be awkward to have to position the documents to produce a good carbon copy when filling in the spaces. Someone has also date the carbon copy (which date does not appear in the original) and the landlady has also added (in a rather unsteady hand) in her own copy the date in Chinese script ''1978 25th July'' which was, she said, the date when she inspected the premises after the decoration works.

49. This old lady - she is aged 84 - gave evidence in much clearer and far more satisfactory manner in relation to the signing of the Agreement than Mr. Tam (aged 45). As for Mr. Yung Kwen, he was the third and only other witness: he was not of any real help to the court because although in chief he said that nobody asked him to and he did not add anything to the Agreement after the documents were signed he was very quick to disclaim any memory of the whole incident when cross-examined.

50. The facts subsequent to the signing of the Agreement relevant to the Counterclaim are a little more difficult to establish. It is clear, and I find, that the landlady pressed for prompt payment when at an early stage of the tenancy Mr. Tam first fell into arrears. I find that Mr. Tam did inform the landlady that he was in financial difficulties; that he occasionally visited her at home, mostly during or around festival time, bringing with him customary gifts because he says and I accept that he wanted to pay respects to the old lady with whom he was getting along fine and also that he was feeling rather guilty about being so frequently in arrears; that the good old lady returned gifts, again in customary fashion, whenever he visited her. Now whilst in general I prefer the old lady's evidence to that of Mr. Tam there is one piece of evidence from Mr. Tam which I think has such a ring of truth about it that I think must be true: the old lady when asking him to be more punctual said words to the effect that if he could pay early, please could he do so and not "delay too long". This picture of the old lady willing in some measure to accommodate the tenant is far more consistent with the known facts t than the suggestion that she brought up the point of the property tax clause every time he visited her. On the totality of the evidence I find that upon discovering that the tenant did have some difficulty in paying promptly and when these payments fell into a certain pattern (albeit late) she deliberately chose not to make a fuss about it, acquiesced in it and in effect gave time to the tenant to pay without attaching any penalty or referring to the penalty in the contract.

51. I would therefore gently refuse to accept that part of her evidence insofar as she suggested that during his visits to her she asked him to pay the property tax. She might honestly have thought she did refer or must have referred to it "on a few occasions" but I note how quickly she added, and repeated, "I did not think it was nice to be long-winded about it". I think that she did not really say much apart from the usual pleasantries on such social occasions. She was a picture of tolerance as the years went by. When asked why she did not ask the tenant to pay property tax at the time when he fell into arrears she replied: "It is very difficult in the goodwill and human sense." After all, the tenant was paying his monthly rent, albeit late. I find that she was willing to let go of the penalty and did in fact do so by her conduct. Her suggestion that she was only waiting to deduct from the deposit is, I find, an afterthought. She had never until these proceedings informed the tenant of the amount of the property tax and she had never hitherto demanded payment or sent the tenant any of the property tax demand notes or payment receipts.I find it is too late for her to go back to the original position, in short that she has "waived" the penalty and her rights, if any associated therewith. I would dismiss the counter claim with costs.

Representation:

Mr. K.M. Chong instructed by Wing-Sum Lo & Co. for Plaintiff

Mr. Jerome Chan instructed by Tang & So. for Defendant