CHEER CITY PROPERTIES LTD. and Another v. LUNG TIN INTERNATIONAL LTD. and Another

1995 No. A12804

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. The Plaintiffs are owners of office premises at 4001, Central Plaza (the office). The office was let to the 1st Defendant for a period of 3 years. The 2nd Defendant was permitted to occupy and use the office at the same time, there being a link between the two Defendants. Upon expiry of the agreement, the Defendants held over and became trespassers. The 1st Defendant vacated the office a month later. The Plaintiffs then entered into negotiations with the 2nd Defendant with a view to concluding a new tenancy agreement for the office. The negotiations came to nothing. The 2nd Defendant was finally evicted from the office about 4 months after the 1st Defendant had left. The Plaintiffs now claim against the 1st Defendant for damages for breach of its obligation to deliver up vacant possession or for trespass, and against the 2nd Defendant for trespass.

2. The principal issue which falls to be determined is whether, by entering into negotiations with the 2nd Defendant, the Plaintiffs somehow prejudiced their rights against the Defendants.

3. The facts are not in dispute. Central Plaza Management Company Limited acted as agent for the Plaintiffs. I will call it the agent. Its manager, Lo King Wai (Mr. Lo), actually dealt with the Defendants. The 2nd Defendant was introduced as a prospective tenant in about October 1992. Mr. Lo conducted negotiations with Xiong Xiao Ping (Mr. Xiong), who was then a director of both Defendants, and Hedda Chu (Ms. Chu) who was a director of the 2nd Defendant. When terms for a tenancy agreement had almost been reached, Mr. Lo was told that the tenancy agreement would be taken by the 1st Defendant for business reasons. In the meantime, a deposit was paid by the 2nd Defendant.

4. A formal tenancy agreement for 3 years was signed on 31st December 1992 expiring on 19th November 1995. The rent was $198,036.00 per month plus service charges of $20,903.80 per month and payment of Government rates.

5. On 28th April 1995, the Plaintiffs through the agent gave the 1st Defendant notice that the tenancy was to be terminated on 19th November 1995. Shortly after, they offered a further lease for 3 years at an increased rent. There was no direct response by the 1st Defendant to this offer. According to Mr. Xiong, however, not long before the agreement was due to expire, the 1st Defendant entered into negotiation with the agent to take over premises on the 36th floor of the same building from an existing tenant. With the agreement of the agent, the negotiations were successful. I am not clear as to the precise legal arrangements but it appears that the tenancy was either assigned to the 1st Defendant or the existing tenant was allowed to terminate its existing agreement. At all events, the 1st Defendant was able to vacate the office on 19th December 1995 and move to the new office on the lower floor.

6. In the meantime, the agreement had expired on 19th November 1995. Thereafter, the 1st Defendant was holding over until 19th December and the 2nd Defendant remained in occupation of the office. Both Defendants became trespassers.

7. As a result, on 11th December 1995, the Plaintiffs issued a writ against the 1st Defendant for vacant possession and mesne profits.

8. Then, by letter on 19th December, Mr. Xiong on behalf of the 1st Defendant notified the agent that the 1st Defendant would vacate the office that day and that any outstanding expenses and cost of reinstatement could be deducted from the rental deposit (which amounted to $437,879.60). Mr. Xiong, in fact, spoke to Mr. Lo on the telephone that day. Mr. Lo noted on the 1st Defendant's letter that while the 1st Defendant would move out that day, the 2nd Defendant (a sister company) would continue to occupy the office until it had made a decision. Mr. Lo did not complete the note but agreed that the decision was probably whether or not to vacate the office or try and negotiate a new tenancy.

9. In fact, on 23rd December, the 1st Defendant paid the agent $382,599.62 by way of arrears of rent and other charges and the amount of one month's rent and charges as mesne profits for the period 19th November to 19th December.

10. On 21st December, following a complaint from Ms. Chu, Mr. Lo went to the office. It was apparent to him that furniture and other items had been removed from the office. That, of course, was consistent with Mr. Xiong's indication that the 1st Defendant was moving to premises on another floor. It is in any event not now in dispute that, after 19th December, the 2nd Defendant remained in occupation of the office. While Mr. Lo was visiting the office, Ms. Chu indicated that the 2nd Defendant was interested in taking a tenancy of the office. Ms. Chu explained, however, that because she needed to leave Hong Kong on business, because of the forthcoming holidays and because of the need to consult her partners, she needed time before she could confirm whether the 2nd Defendant would go ahead with a new agreement. Mr. Lo, out of commercial considerations, indicated that he would consider a lease with the 2nd Defendant.

11. The 2nd Defendant was not asked to vacate the office. Instead, there were ongoing negotiations, principally by telephone.

12. According to Mr. Xiong, it had been agreed between the Defendants that the 2nd Defendant would remain in the office and be responsible for paying rent. At Mr. Xiong's request, the 2nd Defendant on 29th December reduced this arrangement into writing in which it confirmed that it would be responsible for rent after 20th December.

13. Although it was not part of Mr. Lo's evidence on behalf of the Plaintiffs, Mr. Xiong said that the 1st Defendant was pressed to deliver vacant possession of the office. This matter was passed to the 1st Defendant's solicitors who, on 7th February 1996, wrote to the 2nd Defendant giving notice, inter alia, that the 2nd Defendant should quit and deliver up vacant possession of the office on/or before 19th February.

14. It appears that the 2nd Defendant came to the conclusion that it would like to take a tenancy of about half of the office space. To this end, it had submitted fitting out plans to the agent. Then, on 26th February, the 2nd Defendant wrote to Mr. Lo asking for the new tenancy to be finalized. On 4th March, the agent replied saying that the landlords would not consider sub-dividing the office and suggesting that the 2nd Defendant contact the agent about other available premises.

15. On 13th March, the agent's solicitors wrote to the 2nd Defendant advising it that it had been occupying the office without consent or permission since 20th November and that, while the 1st Defendant would be held liable for failure to deliver vacant possession, the 2nd Defendant was nonetheless a trespasser. The solicitors gave notice that the 2nd Defendant should vacate the office on 16th March and pay $806,866.65 by way of mesne profits.

16. There was no response by the 2nd Defendant. In order to try and prevent the 2nd Defendant from continuing to use the office, the agent installed an additional lock on the main door in order to regulate the comings and goings of the 2nd Defendant's staff and to restrict the 2nd Defendant to moving out its possessions. On 30th March, the agent's solicitors wrote again to the 2nd Defendant notifying it of the action that had been taken, but advising that the Plaintiffs would not re-enter until further notice. On 9th April, the solicitors wrote again to the 2nd Defendant notifying that the Plaintiffs would re-enter on 14th April and that the 2nd Defendant was to vacate the premises on 13th April. This letter was copied to the 1st Defendant through its solicitors. It was the first formal notice to the 1st Defendant of what had been taking place between the Plaintiffs and the 2nd Defendant.

17. As a result of that letter, the Plaintiffs recovered possession of the office on 13th April. Subsequently, the 2nd Defendant was joined as a party to these proceedings by the Plaintiffs and made a Third party by the 1st Defendant. In the Third party proceedings, judgment was obtained by the 1st Defendant for damages to be assessed upon the conclusion of the trial of the main action.

18. The 2nd Defendant chose to take no part in this trial. It is interesting to note that in its defence, which was filed earlier in the proceedings, it claimed that it had never occupied the office. Mr. Xiong, who although he is no longer a director of the 1st Defendant remains a director of the 2nd Defendant, said without reservation that the 2nd Defendant occupied the office throughout the period which is under consideration in this case. It is no longer in dispute that the 2nd Defendant was in the office until 13th April 1996.

19. It is the 1st Defendant's case that it is not liable to the Plaintiffs for the trespass of the 2nd Defendant after 19th December 1995 because the 2nd Defendant's possession of the office was with the consent and knowledge of the Plaintiffs and that the 2nd Defendant had been given an implied licence. It is accepted by the Plaintiffs that, if the 2nd Defendant had indeed been in occupation of the office under licence, the 2nd Defendant ceased to be a trespasser and the Plaintiffs' claim against both Defendants must fail.

20. For the 1st Defendant, it was submitted that until 13th March 1996, almost 3 months after the 1st Defendant vacated the office, there was no demand by the Plaintiffs to the 2nd Defendant for possession of the office. Throughout that period, the Plaintiffs were happy to negotiate with the 2nd Defendant with a view to concluding a new tenancy agreement. The Plaintiffs were plainly happy for the 2nd Defendant to continue to remain in the office. The conclusion to be drawn, therefore, is that a licence was extended to the 2nd Defendant. It was argued that the fact that a writ was issued against the 1st Defendant; that at one stage the 1st Defendant was chased by the Plaintiffs for vacant possession; and that a quotation for reinstatement work was given to the 1st Defendant do not negate the granting of a licence.

21. The 1st Defendant relied upon two particular authorities. Lambert v. Roberts [1981] 2 All ER 15 was somewhat surprisingly a road traffic case. The question was whether the licence which police officers had to be on private property had been withdrawn or revoked by the occupier. At p.19, Donaldson L.J. said:

"There can be no doubt that in the absence of a locked gate or some notice such as 'police keep out', police officers, like all other citizens, have an implied licence to enter on a driveway and to approach the door of a dwelling house if they have, or reasonably think that they have, legitimate business with the occupier."

22. Mr. Wong, for the 1st Defendant, emphasised "legitimate business". The 2nd Defendant, he said, had legitimate business with the Plaintiffs until it was formally asked on 13th March to vacate the office.

23. In Wilfred Isaac v. Hotel de Paris Limited [1960] 1 WLR 239, the appellant was allowed into occupation of premises in order to establish a bar and with the intention of a formal agreement being concluded with the respondent. Relations between the parties broke down. In holding that the respondent was entitled to possession of the premises, the Privy Council held that the relationship between the parties had been one of licensor and licensee. By analogy, Mr. Wong submitted that the 2nd Defendant was allowed to stay in the office for the purpose of negotiations. It would have been surprising if the Plaintiffs had not tolerated the 2nd Defendant remaining as a potential tenant under licence pending the joint objective being attained.

24. The 1st Defendant also complained that, because the 1st Defendant was not kept in touch with what was going on, it was not aware of its increasing liability for mesne profits should the negotiations fall through. By the end of February 1996, mesne profits would have amounted to between $600,000.00 and $700,000.00.

25. The answer to the final complaint is that, assuming the 1st Defendant to be liable, the court can, if it thinks that a landlord has taken too long over such negotiations, debar the landlord from recovering the full amount of mesne profits that would otherwise be payable. It is the 1st Defendant's position that, if it is at all liable to the Plaintiffs, then the Plaintiffs failed properly to mitigate their damage by taking too long before seeking to evict the 2nd Defendant. It is accepted on the part of the Plaintiffs that a tenant's position may be protected in this way.

26. I can quite see the force of the 1st Defendant's main argument. I am persuaded, however, on the balance of probabilities that no licence was extended to the 1st Defendant. The Plaintiffs acted with considerable promptitude in issuing a writ against the 1st Defendant for possession of the office. The issue of that writ, together with the Plaintiffs' acceptance of possession from and payment of mesne profits by the 1st Defendant, made their position clear. The Plaintiffs wanted possession of the office so that they could re-let it at the current and substantially increased market rate. As in Westminster City Council v. Basson [1990] 62 P & CR 57, I am unable to find that the Plaintiffs' subsequent conduct in relation to the 2nd Defendant ever negated that clearly demonstrated intention.

27. It seems to me wholly appropriate that a landlord should be given the opportunity to negotiate with an erstwhile tenant, sub-tenant or other occupier who is holding over in order to conclude a mutually satisfactory agreement without prejudicing his right to require vacant possession from the tenant if negotiations prove unsuccessful. Such a procedure makes commercial sense. Indeed, this was the attitude adopted by Mr. Lo who took the view it is better to try and negotiate than evict. In such circumstances, in the absence of a clear indication on the part of a landlord that he is waiving his right to vacant possession, in my judgment mere negotiation with the tenant or other occupier of the premises who is holding over does not extend a licence to that person, particularly when a writ for possession has been issued.

28. I turn then to the 1st Defendant's claim that the Plaintiffs failed properly to mitigate. The 1st Defendant complains that the Plaintiffs first took far too long over the negotiations; and second, did not act as quickly as they might have done to evict the 2nd Defendant.

29. There is no evidence against which I can objectively measure what is a reasonable period to allow for negotiation. The better part of 3 months elapsed before the Plaintiffs demanded possession from the 2nd Defendant, and a further month elapsed before the Plaintiffs actually recovered possession. Altogether, therefore, the Plaintiffs seek damages for almost 4 months.

30. In my view, notwithstanding the Christmas and New Year holidays which intervened, the Plaintiffs did allow the negotiations to drag on too long. The fact that Ms. Chu needed time to consult her partners is neither here nor there. If pressed by Mr. Lo, she could no doubt have come up with an early decision. Eviction of a trespasser, however, is a more delicate matter. It is not something that can be carried out in a heavy handed manner, particularly in an office building of this nature.

31. In all the circumstances, I am of the view that the Plaintiffs should have expedited the negotiations so that a decision one way or the other was forthcoming earlier. I am therefore prepared to allow the Plaintiffs damages for 2-1/2 months only.

32. The office was let on the basis of $36 per square foot. Between September 1995 and March 1996, office space on the 39th, 40th and 41st floors of the same building was let at between $42.5 and $50 a square foot. The rate depended upon the size and configuration of the space to be let, its relationship to the lifts and the outlook from the building. The office was of a substantial size and was placed on the best side of the building. It would have fetched a rent therefore towards the upper end of the range of rents. I accept, however, that the market was beginning to fall and that the highest rent of $50 a square foot was obtained in September 1995. I determine, therefore, that rent would have been fixed on the basis of $48 a square foot.

33. There will be judgment for the Plaintiffs against the 1st Defendant for damages based on mesne profits and other charges for a period of 2-1/2 months. Although I find the market rate for the office to be $48 a square foot, the Plaintiffs in their Statement of Claim particularised their damage on the basis of $46.25 per square foot. Calculation of damages must therefore be on that basis. I leave it to the parties to calculate the precise amount for insertion in the judgment. In calculating that amount, credit will have to be given for the rental deposit still held by the Plaintiffs.

34. I also give judgment for the Plaintiffs against the 2nd Defendant for damages for trespass. Those damages will cover the whole period of the 2nd Defendant's use and occupation between 19th December 1995 and 13th April 1996. For that period, the Plaintiffs claim $1,110,246.16. There will be judgment for that amount less the amount of the rent deposit.

35. As between the Defendants, I assess the damages payable by the 2nd Defendant to the 1st Defendant as the sum calculated to be payable by the 1st Defendant to the Plaintiff.

36. I make an order nisi that the Plaintiffs should have their costs against the Defendants.

37. I will hear the parties if necessary as to any order for costs which I should make between the Defendants.