WORLD LIGHT LTD v. MEGASUPER MARKET LTD

HCA 3267/2016

[2018] HKCFI 2864

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3267 OF 2016

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J U D G M E N T

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1.  The Plaintiff as landlord is suing the Defendant as tenant for arrears for rent and damages for refusal to enter into possession under an agreement for lease.

2.  The Defendant is absent at the trial, after refusal by the Master to grant leave to act in person upon the ceasing to act by its solicitors since 20 December 2017.  The Counterclaim was struck out pursuant to O 25, r 1C(6), RHC at the Pre-Trial Review on 5 September 2018.

Background

3.  The Plaintiff is the registered owner of Shop No 109, 1/F, Green Code Plaza, 1 Ma Sik Road, Fanling, New Territories (“the Premises”). On 10 July 2014, the Defendant signed an Offer to Lease prepared by the Plaintiff and tendered it to the Plaintiff’s agent Henderson Real Estate Agency Ltd (“Henderson”).  Under the Offer to Lease, the Defendant offered to rent the Premises from the Plaintiff for a fixed term of three years, with monthly rent at $110,000 exclusive of government rates, management fee, air‑conditioning chares and promotion levy.  There was a rent free period of six months.  The Defendant paid a preliminary rental deposit of $220,000 upon the signing of the Offer to Lease.

4.  At the time of the signing of the Offer to Lease by the Defendant, the building in which the Premises were situated was still under construction and no vacant possession could be delivered immediately.

5.  The salient terms of the Offer to Leave can be summarized as:

(1)   Clause 10   Commencement of the Term

The lease commencement date shall be the 7^th day from the date of the written notice by the Plaintiff to the Defendant that the Occupation Permit has been issued and vacant possession of the Premises is ready for delivery (“Commencement Date”).

(2)   Clause 12    Vacant Possession

Vacant possession of the Premises shall be delivered to the Defendant on the Commencement Date subject to Clause 15 and 16.

(3)   Clause 16   Signing of the Tenancy Agreement

If the Offer to Lease is accepted by the Plaintiff, the Defendant undertakes and agrees to execute the formal Tenancy Agreement within seven days after the same is sent to the Defendant or its solicitors.  If the terms of the formal Tenancy Agreement cannot be mutually agreed between the parties, the Offer to Leave shall be treated as a final and binding document. 

If the Defendant fails to duly execute the formal Tenancy Agreement in compliance of the Offer to Lease, the Plaintiff may either (i) deem the formal Tenancy Agreement which incorporated the terms and conditions in the Offer to Lease to constitute the entire Tenancy Agreement between the parties; or (ii) terminate the Offer to Lease and forfeit the preliminary rental deposit paid without prejudice to the right to claim any further damages.

(4)   Clause 20(U)   Special Condition

The Defendant agrees that the Offer to Lease supersedes all previous agreement whether parol or in wiring express or implied between the parties.  No warranties or representations whatsoever relating to the Premises or the obligations of the Plaintiff whether express or implied have been made by the Plaintiff or any third party on its behalf.  If any warranty or representation express or implied has been made, the same is withdrawn or deemed to have been withdrawn immediately before the signing of the Offer to Lease.

6.  On 16 July 2014, Henderson wrote to the Defendant stating that the Offer of Lease had been accepted by the Plaintiff and a copy of the Offer to Lease signed by the Plaintiff was attached.  The Offer to Lease was signed by the Henderson as agent for the Landlord on 15 July 2014.  The Offer to Lease was duly stamped on 4 August 2014.

7.  On 1 September 2015, solicitors for the Defendant wrote to Henderson that the Defendant has sent the Offer to Lease in June 2014, but despite repeated requests, the Plaintiff had failed or refused to accept or sign the Offer to Lease, or if the Offer to Lease was accepted or signed, it had not been returned or communicated to the Defendant.  Since there was no binding agreement on both parties, the deposit of $220,000 should be returned to the Defendant within 14 days.

8.  On 12 October 2015, Mr Chan, director of the Defendant, wrote to Henderson that since the Occupy Central incident in 2014, the retail business in all sectors had dropped sharply.  When the Defendant rented the Premises in June 2014, oral information was given by Henderson’s staff that there would be two large scale tenants at the shopping centre, and possession would be delivered around the end of the year.  However, there was delay in the delivery, and the tenants mentioned had not moved in.  The Defendant wished the Plaintiff could consider the hardship of the Defendant and return the deposit of $220,000.

9.  On 5 November 2015, the solicitors for Henderson wrote to the Defendant giving notice under Clause 10 of the Offer to Lease that vacant possession of the Premises was ready for delivery and the tenancy shall commence on 12 November 2015.

10.  On 10 November 2015, the solicitors for Henderson wrote to the Defendant requesting the Defendant to sign the formal Tenancy Agreement and to pay the balance of the rental deposit of $110,000.  It was never done by the Defendant.

11.  On 4 May 2016, the solicitors for the Plaintiff wrote to the Defendant stating that the Defendant had failed to execute the formal Tenancy Agreement and pay the second rental deposit, and demanding them to do so within seven days.

12.  On 19 May 2016, the Defendant wrote to the solicitors for the Plaintiff, stating that the Defendant had never signed any formal tenancy agreement with the landlord, and never taken possession of the Premises.  The Defendant had long since ceased operation.  In mid-October 2015, they had indicated to Mr Yu, Assistant General Manager of the Leasing Department of the Plaintiff, that since the issuance of the Certificate of Compliance was delayed for some time and the date delivery of the Premises could not be estimated, and the Defendant had planned to cease operation, they had given oral notice to cancel the tenancy with the landlord, and to put the Premises on the rental market, with the return of the deposit of $220,000.

13.  On 20 May 2016, solicitors for the Plaintiff wrote to the Defendant stating that they have accepted the Defendant’s wrongful repudiation without prejudice to the Plaintiff’s rights to claim damages against the Defendant.

Plaintiff’s Case

14.  The Plaintiff’s case is that the both the Plaintiff and the Defendant have signed the Offer to Lease and it is a binding agreement.  Notwithstanding that the Defendant has refused to execute a formal tenancy agreement, the terms of the Offer to Lease are deemed to be the terms of the lease itself.  The Defendant has refused to pay the second rental deposit and enter into possession of the Premises.  The Plaintiff has accepted the Defendant’s repudiation and are suing for damages (details as set out in the section on quantum below).

Defendant’s Case

15.  The Defendant submitted that the Offer to Lease was not a binding agreement by reason of lack of certainty, or it was not accepted by the Plaintiff, or if accepted, the Plaintiff was in breach of an implied term to deliver vacant possession within reasonable time, or alternatively, the offer was revoked by the Defendant on 1 September 2015. The Defendant also relied on rescission on the ground of misrepresentation as mention in para 8 above, and also the oral representation by Mr Yu, Assistant General Manager of the Plaintiff that the Defendant would be released from its obligation in performing any tenancy agreement.

Discussion

16.  Miss Leung, for the Plaintiff, submitted that the evidence showed the Offer to Lease was signed by both the Defendant and the Plaintiff and a copy was sent to the Defendant, and it was intended to be a binding agreement.  The Offer to Lease began with the clause:-

“We (‘the Tenant’) hereby offer to lease from you (“the Landlord”) [the Premises] on the following principal terms and conditions and subject to the payment of rent and other charges and fees and amount as set out in this Offer to Lease:-”

and concluded with:-

“We understand agree and agree that this Offer to Lease is not binding unless and until the same is duly accepted by the Landlord.”

17.  It is noted that the mechanism of an offer by the intended tenant to be accepted by the landlord was completed on the facts of this case.  The terms also provided that the terms in the Offer to Lease shall be deemed to be the terms of the lease in the event that no formal Tenancy Agreement was entered into.  I can see no reason why it was not intended to be binding agreement notwithstanding that no formal Tenancy Agreement was executed by the Defendant. 

18.  Miss Leung submitted that the Offer to Lease contained all the essential terms for an agreement for lease: the identity of the landlord and tenant, the premises to be leased, commencement and duration of the term, rent and other considerations to be paid (Halsbury’s Laws of Hong Kong, Vol 36 para 235.057). 

19.  At the time of the signing of the Offer to Lease by the Defendant and the Plaintiff, the entire shopping centre was still under construction.  It is not surprising that the term could not contain a specific date for the commencement of the lease.  Instead, the Offer to Lease provided that commencement of the tenancy was seven days from the notice by the Plaintiff that the occupation permit had been issued. 

20.  It is noted that although the notice itself did not mention occupation permit, it did refer to Clause 10 of the Offer to Lease which provided for the mechanism for commencement.

21.  In One Queen Co Ltd v Chan Siu Lam & anor [1989] 1 HKC 146, the 1^st defendant let the premises to the 2^nd defendant for a period of three years expiring on 15 December 1988.  On 2 December 1986, the 1^st defendant entered into an agreement with the plaintiff for the grant of a reversionary lease.  Clause 2 stated that the parties shall execute the lease in the specified form within seven days after receipt by the intending tenant notice in wiring by the intending landlord that all the terms and conditions as set out in clause 5 of the agreement have been fulfilled and the lease is ready for execution.  Clause 5 of the agreement stated that it was conditional on the obtaining of vacant possession by the 1^st defendant by 31 March 1989 or such later date as might be agreed by the plaintiff.  Clause 6 of the agreement stated that it was the mutual understanding of both parties that the existing tenant might continue to hold over the premises after the expiration of the existing lease, provided however, the 1^st defendant shall procure the eviction of the existing tenant from the premises on or after 16 December 1988.  The 2^nd defendant remained in occupation after the expiry of the lease, but the 1^st defendant took no steps to obtain vacant possession for the plaintiff.  The plaintiff commenced proceeding seeking specific performance of the agreement, and alleged a conspiracy by the two defendants.  The plaintiff obtained an interlocutory that the 1^st defendant comply with clause 6 of the agreement.  The 1^st defendant obtained an order striking out the conspiracy claim.  Both parties appealed. 

22.  On appeal, the 1^st defendant argued that agreement was not valid as it was conditional on certain events, alternatively, it was void for uncertainty because there was no commencement date for the lease.  The Court of Appeal held that the agreement was for a reversionary lease.  The condition of obtaining possession by the 1^st plaintiff was not precedent to the making of a binding contract but precedent to performance.  Although there was no identifiable date, there was an identifiable event from which the term was to start.  If the plaintiff obtained specific enforcement of the covenant in the agreement, he would acquire a fixed date, ie recovery of vacant possession, from which the reversionary lease could ultimately run.

23.  I agree that One Queen Co Ltd v Chan Siu Lam is applicable to the present case.  The building was under construction at the time of the signing of the Offer to Lease, and there could be no immediate possession of the Premises.  The notice to enter into a formal Tenancy Agreement after the Occupation Permit had been issued and the Premises was ready for delivery provided an identifiable event for commencement of the lease.  It was specifically enforceable by the Defendant.  Hence, the agreement for lease in future is not void for uncertainty.

24.  Miss Leung pointed out that as the Defendant was absent at the trial, the issues as to the implied terms of delivery of vacant possession within a reasonable time and misrepresentation as to intended time of delivery and the intended tenants of the shopping centre would fall aside. 

25.  The alleged oral misrepresentation as to delivery of vacant possession around end of 2014 and the tenants likely to be renting would depend on the evidence from the Defendant, where there was none.

26.  As to implied term delivery of vacant possession within a reasonable time, the Offer to Lease was in relation to a building under construction, the commencement of the lease was dependent on the issue of the Occupation Permit and the Premises being ready for delivery.  Miss Leung pointed out that the building upon the issue of Occupation Permit was still a bare shell and fitting up works had to be done for delivery of possession to be ready.  I agree that in the absence of evidence on the background of the making of the agreement for lease in future, there is no basis for what is reasonable time to be implied.

27.  In the premises, I am satisfied that the Plaintiff has proved its case for breach and the Defendant was not entitled to revoke its offer on 1 September 2015.

28.  I now move onto quantum.  The claim falls into two parts:

(1)   arrears of rent and other fees and charges from the commencement date on 12 November 2015 (7th day from the notice to enter into the formal Tenancy Agreement) to the acceptance by the Plaintiff of the Defendant’s repudiation on 20 May 2016; and

(2)   damages for failure to enter into possession.

29.  The Plaintiff has a duty to mitigate its damages.  It accepted the Defendant’s repudiation after six months into the commencement of the lease.  As there was a rent free period of six months and I find that the pending of six months was not unreasonable. 

30.  Thereafter, the Plaintiff re-let the premises to a third party at a higher rent of $135,000 per month commencing 1 October 2016 (with one month’s rent free period), but for a shorter period of two years until 30 September 2018.  The lead period of three months before successful re‑letting does not seem to be excessive.  The rent free period for October 2016 under the re‑letting was occasioned by the repudiation and is reckoned as damages.  The rental income from the re-letting must be set-off against the Plaintiff’s claims for the term of the Offer to Lease. 

31.  After the expiry of the new lease, there was still a two months’ period before the expiry of the term under the Offer to Lease.  The Premises were vacant pending another new letting.   I find that the two months lead time pending notional re-letting is also not unreasonable.

32.  Hence, the calculation is as follows:

		HK$	HK$
Outstanding arrears
Rent from 12/11/2015 to 20/05/2016 [$110,000.00 x (19/30 + 5 + 20/31) months]		$690,634.41
Management fee from 12/11/2015 to 20/05/2016 [$55,872.60 x (19/30 + 5 + 20/31) months]		$350,795.82
Air-conditioning charges from 12/11/2015 to 20/05/2016 [$29,095.92 x (19/30 + 5 + 20/31) months]		$182,678.58
Rates from 12/11/2015 to 20/05/2016 [$5,500.00 x (19/30 + 5 + 20/31) months]		$34,531.72
Promotion levy from 12/11/2015 to 20/05/2016 [$2,200.00 x (19/30 + 5 + 20/31) months]		$13,812.68	$1,272,453.21
LESS:	Rental Deposit		($220,000.00)
	Rent free from 12/11/2015 to 11/05/2016 [$110,000.00 x (19/30 + 5 + 11/31) months]		($658,698.93)
	Rates concession from 01/04/2016 to 20/05/2016 [$333.33 x (1 + 20/31) months]		($548.38)
Balance of outstanding arrears			$393,205.90
Loss and damage
Rent from 21/05/2016 to 31/10/2016 [$110,000.00 x (11/31 + 5) months]		$589,032.26
Rent from 01/09/2018 to 11/11/2018 [$110,000.00 x (2 + 11/30) months]		$260,333.33
Management fee from 21/05/2016 to 30/09/2016 [$55,872.60 x (11/31 + 4) months]		$243,316.16
Management fee from 01/10/2018 to 11/11/2018 [$55,872.60 x (1 + 11/30) months]		$76,359.22
Air-conditioning charges from 21/05/2016 to 30/09/2016 [$29,095.92 x (11/31 + 4) months]		$126,708.04
Air-conditioning charges from 01/10/2018 to 11/11/2018 [$29,095.92 x (1 + 11/30) months]		$39,764.42
Rates from 21/05/2016 to 30/09/2016 [$5,500.00 x (11/31 + 4) months]		$23,951.61
Rates from 01/10/2018 to 11/11/2018 [$5,500.00 x (1 + 11/30) months]		$7,516.67
Promotion levy from 21/05/2016 to 30/09/2016 [$2,200.00 x (11/31 + 4) months]		$9,580.65
Promotion levy from 01/10/2018 to 11/11/2018  [$2,200.00 x (1 + 11/30) months]		$3,006.67	$1,379,569.03
LESS:	Rates concession from 21/05/2016 to 30/06/2016 [$333.33 x 11/31 month + $333.34]		($451.62)
	Rates concession from 01/07/2016 to 30/09/2016		($1,000.00)
	Profit rent from 01/11/2016 to 31/08/2018 [$135,000.00 - $110,000.00) x 22 months]		($550,000.00)
			$828,117.41

33.  As to interest, Clause 20(N) of the Offer to Lease provided for a contractual interest at 0.05% per day on the arrears of rent and the various charges and levy until full payment. 

34.  Due to an oversight, interest on the arrears of rent has not been pleaded for the period from the commencement of the term of the lease on 12 November 2015 to the acceptance of the repudiation on 20 May 2016, but only pleaded from the expiry of the re-letting from 1 September 2016 until the end of the lease.  The Plaintiff is content not to claim interest for the arrears of rent for the unpleaded period but only for the latter period.  Interest on the arrears for the other charges and levy has been pleaded in full and will be so awarded.  The contractual interest is calculated on a daily basis as per schedules submitted (excluding any interest on interest), and the sums will be reflected in the minutes of Judgment.

35.  As to damages, interest will be on the usual commercial rate of 1% above the prime from the date of the Writ of Summons until judgment, thereafter at judgment rate until payment.

36.  Interest on the judgment rate will be awarded on all sums from the date of judgment until payment.

Costs

37.  I ordered that the Defendant do pay the Plaintiff costs of these proceedings (including all costs reserved, if any), to be taxed if not agreed.

38.  Lastly, I am grateful to Miss Leung for her helpful submissions.