CHOI, JEREMY CHAK MING AND OTHERS v. SZETO, SHING CHAK RONALD AND ANOTHER

HCA 1529/2022

[2025] HKCFI 280

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1529 OF 2022

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J U D G M E N T

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A.  Introduction

1.  This is the hearing of an assessment of damages of the plaintiffs’ claim against the defendants arising from the latter’s breach of a sale and purchase agreement (the “Agreement”)  and an addendum thereto (the “Addendum”)  entered into between the parties on 9 June 2022 for the sale and purchase of FIT LAB Hong Kong Limited (“FIT LAB”)  and FIT LAB Group Limited (“FIT LAB Group”)  (collectively, the “Companies”).

2.  Under the Agreement and Addendum, the defendants (as purchasers)  were obliged to enter into new personal guarantees in place of those provided by the plaintiffs for the Companies’ existing leases and bank loans, or otherwise procure the discharge of the existing leases and bank loans.  The defendants have failed to perform any such obligations. 

3.  Pursuant to an unless order made by Master Hui on 10 October 2023, the defendants’ respective Defence and Counterclaim were struck out following their failure to file and serve their respective affirmations in opposition to the plaintiffs’ summons dated 21 September 2023 applying for summary judgment. 

4.  On 4 December 2023, Master D To ordered that interlocutory judgment be entered against the defendants with damages to be assessed. 

5.  On 21 May 2024, a bankruptcy order was made against the 2^nd defendant on a petition filed by herself.  By Master Maurice Lam’s order dated 24 July 2024 (made by consent), leave was granted to the plaintiffs to proceed with the present action against the 2^nd defendant.  

6.  On 16 September 2024, the plaintiffs filed the Notice of Appointment of Assessment of Damages. 

7.  The defendants were unrepresented and absent from the hearing of assessment of damages on 3 January 2025.  They have not filed any witness statement or list of documents. 

8.  The plaintiffs’ solicitors’ clerk filed an affirmation of service on 24 September 2024 affirming that the Notice of Appointment of Assessment of Damages has been posted to the last known address of the respective defendants and personally served on the Official Receiver.  

9.  By a letter dated 10 December 2024, the Official Receiver indicated that she did not intend to take part in the hearing. 

10.  By reason of the above, I was satisfied that sufficient notice of the hearing had been given to the defendants and the Official Receiver and it was appropriate to proceed with the hearing in their absence. 

B.  BACKGROUND

11.  Pursuant to the Agreement and Addendum, the plaintiffs agreed to sell and the defendants agreed to purchase the business of the Companies. 

12.  The Agreement contains inter alia the following clauses:

a.  Clause 3.7, which provides that:

“The Buyer [i.e. the defendants] agrees to act as a new guarantor for the bank loans stated in Clause 9D and for the leases stated in Clause 9C(2)  & (3). The Seller [i.e. the plaintiffs] shall assist in providing all necessary documents in relation to the change of personal guarantees application, whereas the Buyer shall perform relevant procedures to complete the change of personal guarantees. In case the change of personal guarantees fail to complete due to third-party factors (e.g. rejection from the Banks), the Seller and the Buyer may re-negotiate in good faith the terms, conditions, consideration and related matters in relation to the transactions contemplated in the Agreement.”

b.  Clause 3.8, which provides that:

“The Buyer [i.e. the defendants] shall repay the amount of bank loan and operating expenses during the process of and/or upon the completion of shares transfer and change of bank loan guarantor…”

13.  The Addendum provides that:

“Pursuant to Clauses 3.7 and 3.8 [of the Agreement], the Buyer [i.e. the defendants] agrees to act as a new guarantor for the Bank Loans stated in Clause 9D and the Buyer undertakes and warrants to repay the amount of Bank Loan and operating expenses during the process of and/or upon the completion of share transfer and change of Bank Loan guarantor with the purpose to release the Seller [i.e. the plaintiffs] from all liabilities incurred in the Bank Loan stated in Clause 9D hereof. However, in case the Bank refuses to release the Seller [i.e. the Plaintiffs] from being the guarantor and the seller’s liability as the guarantor is still continue and subsist but both the seller and the Buyer still agree to proceed with this contract, the Buyer will jointly and severally, voluntarily and without any prior condition, agree to indemnify the Seller any loss suffered from his continue being the guarantor under the contract hereof. This Clause shall survive after conclusion of this contract. The Buyer’s liability for the leases stated in Clause 9C(2)  & (3)  remains unchanged.”

14.  Details of the leases referred to in Clause 9C of the Agreement which form the subject matter of the present action (the “Leases”)  are as follows:

	Lessee	Landlord	Lease Address	Date of Lease	Term/ Rent	Guarantors
1 (“KT Lease”)	FIT LAB Group	Kwok Kee Metal Work Limited (“Kwok Kee”)	7/F, Kwok Kee Group Centre, 107 How Ming Street Kwun Tong (“KT Premises”)	12.10.2021	1.11.2021-31.10.2024 HK$128,715/ month	P1 & P3
2 (“SW Lease”)	FIT LAB	Double Jade Limited (“Double Jade”)	3B, Teda Building, 87 Wing Lok Street, Sheung Wan (“SW Premises”)	22.11.2021	1.12.2021-30.11.2024 HK$50,592/ month	P1 & P3

15.  Details of the bank loans referred to in Clause 9D of the Agreement which form the subject matter of the present action (the “Bank Loans”)  are as follows:

	Borrower	Lender	Date of Loan Agreement(s)	Loan Amount/ Interest Rate	Guarantors
1 (“1st BOC Loan”)	FIT LAB	Bank of China (Hong Kong Limited)  (“BOC”)	14.5.2020 & 20.5.2021	HK$3,840,000 2.5% p.a. below the HKD prime rate payable per month	P1, P2, P3 & P4
2 (“2nd BOC Loan”)	FIT LAB	BOC	14.9.2021	HK$2,160,000 2.5% p.a. below the HKD prime rate payable per month	P1 & P3
3 (“3rd BOC Loan”)	FIT LAB Group	BOC	19.5.2020 & 18.5.2021	HK$4,000,000 2.5% p.a. below the HKD prime rate payable per month	P1, P2, P3 P4 & P5
4 (“HSB Loan”)	FIT LAB	Hang Seng Bank Limited (“HSB”)	21.12.2018	HK$1,012,500 0.35% payable per month	P1, P3 & P4

16.  Despite repeated demands and requests by the plaintiffs, the defendants have failed and/or refused to:

a.  enter into any new personal guarantees in place of the existing guarantees for, or otherwise procure the discharge of, the Bank Loans and Leases, in breach of Clause 3.7 of the Agreement and the Addendum; and/or

b.  repay the amount of Bank Loans, in breach of Clause 3.8 of the Agreement and the Addendum.

C.  APPLICABLE LEGAL PRINCIPLES

17.  It is trite that “where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed”: see Robinson v Harman(1848)  1 Exch 850 per Parke B at 855.  See also Chitty on Contracts (35^th ed), §30-024.

18.  The above normal measure of damages is however subject to the plaintiff’s duty to mitigate its losses.  The onus of proof on the issue of mitigation is on the defendant. See Park Avenue Toys Ltd v Candy Novelty Works Ltd(unrep, HCA 11135/1997, 23 August 2004)  per DHCJ Saunders at §§43-46.

D.  THE PLAINTIFFS’ WITNESS

19.  Although each of the plaintiffs prepared a witness statement, the witness statements of the 2^nd to 6^th plaintiffs merely adopt the contents of the 1^st plaintiff (“Mr Choi”)’s witness statement. 

20.  During the hearing, the plaintiffs only called Mr Choi as their witness. 

21.  Mr Choi gave evidence that the bank loans set out in Clause 9D of the Agreement are the Bank Loans which form the subject matter of the plaintiffs’ claim and that the reference to “Loan Principal and Interests” under Clause 9D should be to the outstanding amount due under the respective Bank Loans. 

22.  Mr Choi also gave evidence that pursuant to Clause 8B of the Agreement, given the defendants’ breaches of the Agreement, the defendants should compensate the plaintiffs by paying a sum equal to the amount of deposit paid under Clause 3.1.  The plaintiffs have therefore kept the deposit paid by the defendants. 

23.  I find Mr Choi a credible witness and accept his evidence. 

E.  THE PLAINTIFFS’ CLAIMS

24.  The plaintiffs claim the following heads of damages. 

E1.  Liability under the KT Lease

25.  On 29 December 2022, Kwok Kee (being the landlord under the KT Lease)  commenced the proceedings in HCA 1841/2022 against FIT LAB Group, claiming, inter alia, delivery up of vacant possession of the KT Premises, a sum of HK$411,146.03 and arrears of rent / mesne profits at the rate of HK$128,715 per month from 1 January 2023 until vacant possession of the KT Premises was delivered up. 

26.  On 3 March 2023, following FIT LAB Group’s default in defending the action, Kwok Kee obtained Final and Interlocutory Judgment and Order against FIT LAB Group. 

27.  However, as a result of FIT LAB Group’s failure to pay the judgment debt, on 22 December 2023 Kwok Kee commenced another set of proceedings in HCA 2080/2023 against the 1^st plaintiff on the basis of the guarantee provided by him for FIT LAB Group’s liability under the KT Lease.  It is Kwok Kee’s case in HCA 2080/2023 that it had recovered possession of the KT Premises on 21 July 2023. 

28.  In HCA 2080/2023, Kwok Kee claimed against the 1^st plaintiff for inter alia:

a.  A liquidated sum of HK$1,686,636.20 (being the judgment debt in HCA 1841/2022 in the sum of HK$411,146.03, arrears of rent / mesne profits and outstanding outgoings until 21 July 2023 with interest thereon accruing up to 7 December 2023); and

b.  Further loss and damages in the sum of HK$2,934,589.85 being loss of rental, rates and government rent for the unexpired term of the KT Lease (ie until 31 October 2024). 

29.  To mitigate his loss, on 15 January 2024, the 1^st plaintiff through his legal representatives signed a Consent Order with Kwok Kee’s solicitors whereby the parties agreed to stay the proceedings upon the 1^st plaintiff’s payment of a sum of HK$1,277,938.38 in full and final settlement of Kwok Kee’s claims in HCA 2080/2023 (the “Tomlin Order”).  The 1^st plaintiff made such payment on 19 January 2024. 

30.  I am satisfied that the 1^st plaintiff’s agreement to the Tomlin Order and payment of the sum of HK$1,277,938.38 to Kwok Kee was reasonable in the circumstances. 

E2.   Liability under the SW Lease

31.  In relation to the SW Lease, on 12 January 2023, Double Jade’s solicitors issued a letter to FIT LAB demanding payment of a sum of HK$171,428.70, being the rent, management fees and government rates owed by FIT LAB under the SW Lease as at 11 January 2023. 

32.  On 31 March 2023, Double Jade’s solicitors issued a further demand letter to FIT LAB and gave notice of its right to re-enter the SW Premises and terminate the SW Lease. 

33.  Although the plaintiffs have not paid any damages to Double Jade, first, the defendants have not challenged the damages in the amount of HK$171,428.70 due to Double Jade.  

34.  Secondly, through their counsel, the 1^st and 3^rd plaintiffs offered an undertaking to the Court that they will account to Double Jade any damages recovered from the 1^st and/or 2^nd defendants in respect of the SW Lease. 

35.  In the premises, following iRiver Hong Kong Limited v Thakral Corp (HK)  Limited[2008] 4 HKLRD 1000 at §§76-78, I am satisfied that such a quantified sum should be included as damages to be awarded to the 1^st and 3^rd plaintiffs. 

E3.  Liability under the BOC Loans

36.  As set out above, the Companies had entered into the 1^st BOC Loan, 2^nd BOC Loan and 3^rd BOC Loan with BOC (collectively the “BOC Loans”).[1]

37.  By letters dated 15 February 2023 issued by Messrs Anthony Chiang & Partners, BOC claimed the following sums which remained outstanding under each of the BOC Loans as at 1 February 2023 plus interest thereon at 11.875% per annum until full payment:

	Relevant BOC Loan	Principal Loan Amount	Guarantors	Amount outstanding as at 1 February 2023
1	1st BOC Loan	HK$3,840,000	P1, P2, P3 & P4	HK$3,223,147.05
2	2nd BOC Loan	HK$2,160,000	P1 & P3	HK$2,204,674.57
3	3rd BOC Loan	HK$4,000,000	P1, P2, P3, P4 & P5	HK$3,357,444.66
Total outstanding amount (as at 1 February 2023):				HK$8,785,266.28

38.  Subsequently, BOC agreed to waive the outstanding default interest and accept the following amounts in full and final settlement of the relevant plaintiffs’ liability as guarantors under each of the BOC Loans: 

	Relevant BOC Loan	Amount outstanding as at 1 February 2023	Guarantors	Settlement sum proposed by BOC on 24 March 2023
1	1st BOC Loan	HK$3,223,147.05	P1, P2, P3 & P4	HK$3,224,626.09
2	2nd BOC Loan	HK$2,204,674.57	P1 & P3	HK$2,205,688.00
3	3rd BOC Loan	HK$3,357,444.66	P1, P2, P3, P4 & P5	HK$3,358,985.32
Total outstanding amount (as at 1 February 2023):				HK$8,789,299.41 (“Settlement Sum”)

39.  On or around 4 April 2023, in mitigation of their losses, the relevant plaintiffs paid the following sums (totalling the Settlement Sum)  by way of cashier orders to discharge their respective liability under the relevant BOC Loans:

	Relevant BOC Loan (sought to be discharged)	Relevant Settlement Sum	Date of Cashier Order	Amount of Payment	Payor
1	1st BOC Loan	HK$3,224,626.09	4.4.2023	HK$1,612,313.04	P1
			4.4.2023	HK$1,612,313.05	P2
2	2nd BOC Loan	HK$2,205,688.00	4.4.2023	HK$2,205,688.00	P1
3	3rd BOC Loan	HK$3,358,985.32	4.4.2023	HK$1,343,594.13	P1
			4.4.2023	HK$2,015,391.19	P2
Total:				HK$8,789,299.41 (ie the Settlement Sum)

40.  I am satisfied that the respective plaintiffs’ payment of the Settlement Sum was reasonable in the circumstances. 

E4.  Liability under the HSB Loan

41.  In respect of the HSB Loan, by letter dated 17 January 2023, HSB demanded payment of a sum of HK$277,072.23 outstanding under the HSB Loan as at 16 January 2023.  

42.  By a letter dated 30 March 2023, HSB requested a settlement amount of HK$280,634.63 for discharging the HSB Loan. 

43.  On or around 6 April 2023, in mitigation of their losses, the 1^st plaintiff, as one of the guarantors for the HSB Loan, paid a sum of HK$280,634.63 to HSB by way of a cashier order dated 4 April 2023. 

44.  I am satisfied that the 1^st plaintiff’s repayment of the HSB Loan was reasonable in the circumstances.  

F.  CONCLUSION

45.  I am satisfied that the plaintiffs’ claims are supported by contemporaneous documents and the evidence of Mr Choi. 

46.  For the reasons above, I find that by reason of the defendants’ breaches of the Agreement and Addendum, the respective plaintiffs have suffered the following loss and damages:

	Subject Matter	Amount (HK$)	Plaintiff involved
1	KT Lease	1,277,938.38	P1
2	SW Lease	171,428.70	P1 & P3
3	1st BOC Loan	1,612,313.04	P1
		1,612,313.05	P2
4	2nd BOC Loan	2,205,688.00	P1
5	3rd BOC Loan	1,343,594.13	P1
		2,015,391.19	P2
6	HSB Loan	280,634.63	P1

47.  In summary:

a.  The 1^st plaintiff has suffered loss and damages in the sum of HK$(1,277,938.38 + 1,612,313.04 + 2,205,688 + 1,343,594.13 + 280,634.63), ie HK$6,720,168.18.

b.  The 2^nd plaintiff has suffered loss and damages in the sum of HK$(1,612,313.05 + 2,015,391.19), ie HK$3,627,704.24.

c.  The 1^st and 3^rd plaintiffs have undertaken to account to Double Jade, to whom they are liable, the damages to be recovered from the 1^st and/or 2^nddefendants in respect of the SW Lease in the sum of HK$171,428.70.

48.  I therefore make the following Order:

(i)  The defendants do pay the 1^st plaintiff the sum of HK$6,720,168.18;

(ii)  The defendants do pay the 2^nd plaintiff the sum of HK$3,627,704.24; and

(iii)  The defendants do pay the 1^st and 3^rd plaintiffs the sum of HK$171,428.70.

49.  The Court allows interest on the above sums at the rate of prime rate plus 1% from 10 November 2022 (being the date of the Writ of Summons)  to the date of judgment, and thereafter at judgment rate until payment. 

50.  The Court also orders that costs of the Notice of Appointment of Assessment of Damages and the hearing thereof be to the plaintiffs, to be taxed if not agreed, with certificate for counsel.