SILVERCORD LTD v. KING POWER CORPORATION LTD AND ANOTHER

DCCJ 4721/2020

[2024] HKDC 925

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4721 OF 2020

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ASSESSMENT OF DAMAGES

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Procedural Background

1.  This is an assessment of damages arising out of a breach of tenancy agreement.

2.  The Plaintiff is the registered owner of the premises known as Shop No G23 on the Ground Floor, Silvercord, 30 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong (the “Premises”)

3.  The 1^st Defendant is the tenant of the Premises under a tenancy agreement dated 26 September 2018 (the “Tenancy Agreement”), with the 2^nd Defendant as the guarantor. The Tenancy Agreement has a fixed term of 2 years commencing on 15 September 2018 and ending on 14 September 2020.

4.  Under the Tenancy Agreement, the 1^st Defendant was responsible to pay the monthly rent, service charges and rates. Since July 2019, the 1^st Defendant has failed to pay monthly rent, service charges and rates, and has later abandoned the Premises on 10 September 2019. The Plaintiff has treated the 1^st Defendant’s failure to pay rent and surrendering the Premises unilaterally as repudiatory breaches of the Tenancy Agreement.

5.  On or around 10 September 2019, the Plaintiff instituted distraint proceedings (Action No DCDT 2705/2019) (the “Distraint Action”) but only a small value of goods were seized and realised. On 29 November 2019, the Plaintiff has recovered possession of the Premises.

Procedural Background

6.  On 4 September 2020, the Plaintiff commenced the present action against the 1^st and 2^nd Defendants claiming inter alia the arrears of rents and damages for the breach of the Tenancy Agreement.

7.  Interlocutory judgment is entered against the 1^st and 2^nd Defendants on 17 August 2022 and 30 August 2022 respectively (the “Interlocutory Judgment”), on the basis that the 1^st and 2^nd Defendants failed to give any notice of intention to defend.

8.  On 20 October 2022, the Plaintiff issued a Notice of Appointment of Assessment of Hearing of Damages. Directions were given as to trial. Despite that all subsequent court orders were sent to the 1^st and 2^nd Defendants, they did not file any documents or witness statements for purposes of assessment of damages. At the hearing of assessment of damages, both the 1^st and 2^nd Defendants were absent at the hearing.

9.  The Plaintiff’s solicitors have filed an affirmation of service on 12 December 2023. I am satisfied that, the 1^st and 2^nd Defendants had been properly notified of the hearing and I proceed with the hearing in their absence.

The Plaintiff’s Case

10.  Under the Interlocutory Judgment, it was adjudged that, the 1^st and 2^nd Defendants shall pay the Plaintiff: -

(a)  The sum of HK$ 470,757.82;

(b)  Interest on the sum of HK$ 386,365.84 at the rate of 3% per annum above the HSBC prime lending rate from 19 June 2020 to the date hereof and thereafter at judgment rate until payment;

(c)  Damages to be assessed; and

(d)  Damages representing costs to be assessed on indemnity basis.

11.  Counsel for the Plaintiff confirms at the hearing that, the orders set out as (a) and (b) in the above represent the arrears of rent, service charges and rates up to the date of repossession (which is 29 November 2019), and the interests accrued thereon. The rental deposit paid by the 1^st Defendant under the Tenancy Agreement has already been deducted and accounted for in the said orders in the Interlocutory Judgment.

12.  At this hearing, I am concerned with the assessment of damages set out in the orders (c) and (d) in the above. The Plaintiff seeks the following heads of damages to be assessed: -

(1)  Loss of monthly rent, service charges, and rates for the period from 30 November 2019 to 14 September 2020;

(2)  Costs of reinstatement and locksmith;

(3)  Net costs of the Distraint Action;

(4)  Costs to be assessed on an indemnity basis.

The Plaintiff’s Evidence

13.  The Plaintiff called Ms Shek Yuen Lan, its Assistance Leasing Manager (“Ms Shek”) to give evidence at the hearing of assessment of damages. She adopted her witness statement filed on 16 May 2023 as evidence-in-chief and answered the Court’s questions.

14.  As a whole, I am of the view that Ms Shek is an honest and reliable witness. Her evidence is also supported by contemporaneous records and relevant documents. I accept her evidence in its entirety.

15.  In gist, Ms Shek’s evidence is that: -

(1)  As part of her job duties, she was responsible for handling the matters related to the tenancy of the Premises and the recovery of the Plaintiff’s loss under the Tenancy Agreement.

(2)  In breach of the Tenancy Agreement, the 1^st Defendant was late in paying rent and service charges of June 2019 and has failed to pay the interests accrued. It has then failed to pay the monthly rent, service charges and rates since 1 July 2019.

(3)  Further in breach of the Tenancy Agreement, the 1^st Defendant has unilaterally abandoned the Premises on 10 September 2019.

(4)  The Plaintiff accepted the repudiation by the 1^st Defendant and exercised its rights of re-entry. The Plaintiff eventually recovered possession of the Premises on 29 November 2019.

(5)  Because of the 1^st Defendant’s breach of the Tenancy Agreement, the Plaintiff has suffered loss and damage.

(6)  On 28 February 2020, the Plaintiff’s solicitors wrote to the 1^st and the 2^nd Defendants demanding for the settlement of arrears of rent and damages on or before 6 March 2020. Despite the said demand, the 1^st and the 2^nd Defendants failed to settle any part of the demand or to make any offer to the Plaintiff to settle the same.

16.  In that context, I now turn to each of the heads of damages.

Loss of monthly rent, service charges, and rates

17.  The relevant legal principles are trite. Counsel for the Plaintiff referred this Court to Wing Siu Company Limited v Goldquest International Limited (unrep, HCA 3183/2001 & 4145/2001, 18 August 2006) at §§7-8.

18.  It is well established that a landlord would be entitled to damages for wrongful repudiation of a tenancy agreement following general contractual principles. Such damages would generally include rent, service charges, rates and reinstatement costs stipulated in the tenancy agreement for the remaining term which would be payable if the lease was to be permitted to run its full course, subject to the landlord’s duty to mitigate its loss.

19.  Counsel for the Plaintiff specifically addressed the Court on mitigation of loss. I accept the Plaintiff’s submissions that, the duty to mitigate is not an onerous one as the landlord is not required to do anything other than in the ordinary course of business. That would usually entail that he takes such steps that are reasonable to re-let the vacant premises at market rent.

20.  It is submitted that, the Plaintiff has made extensive efforts to secure another tenant to mitigate its loss.  According to the evidence of Ms Shek, the Plaintiff has offered to lease out the Premises since 27 February 2020 at least up until the end of the term under the Tenancy Agreement. She stressed that, the Plaintiff has started to put out offers to let out the Premises well before the reinstatement works are completed in April 2020.

21.  The Plaintiff has publicised the vacancy lists (which included the Premises) by distributing emails to various estate agencies since 27 February 2020. The Plaintiff has produced the vacancy lists distributed, which show that the asking rent was initially HK$100,000 per month and was later reduced to HK$80,000 from since 18 June 2020.

22.  Despite that the asking rent were much lower than the monthly rent under the Tenancy Agreement, the Plaintiff was still unable to find a replacement tenant. Ms Shek explained that, it was largely due to the outbreak of the COVID-19 pandemic and social distancing policies in early 2020, which caused retail shops to close down and rental market to become stagnant.

23.  I have considered the Plaintiff’s evidence. Although the efforts taken by the Plaintiff to let the Premises were in vain, I find that the Plaintiff has taken reasonable steps to re-let the Premises and mitigate its loss. The Plaintiff is therefore entitled to recover the monthly rent, service charges and rates for the remainder of the term of the lease.

24.  The Plaintiff claims the loss of monthly rent, service charges and rates from after the date of repossession, meaning from 30 November 2019, up to the end of term under the Tenancy Agreement on 14 September 2020.

25.  The claim for rental income loss as pleaded and substantiated on the evidence is at HK$ 1,662,500.01. It is calculated at the monthly rate of HK$ 175,000.00 (which is the minimum monthly rent under Part I of the Third Schedule of the Tenancy Agreement) for the period from 30 November 2019 to 14 September 2020.

26.  The claim for loss of service charges is HK$ 153,081.10, calculated at the monthly rate of HK$ 16,113.80 (as set out under Part III of the Third Schedule of the Tenancy Agreement) for the said period.

27.  As for rates, the Plaintiff claims HK$ 64,854.34. The claim is supported by documentary evidence and therefore should also be recoverable in full.

Costs of reinstatement and costs of locksmith

28.  Under Clause 5(h)(I) of the Tenancy Agreement, the 1^st Defendant is required to yield up the Premises in good, clean, substantial and proper repair and condition and in bare shell condition.

29.  The 1^st Defendant abandoned the Premises unilaterally on 10 September 2019 and failed to reinstate the Premises as required under the Tenancy Agreement. The Plaintiff therefore claims for the costs of reinstatement and costs of locksmith.

30.  In this regard, Ms Shek’s evidence is that: -

(1)  On 29 November 2019, the Plaintiff issued a Notice of Re-entry to the 1^st Defendant. As the Plaintiff did not have keys to the Premises, a locksmith was employed at HK$ 700 for the Plaintiff to re-enter the Premises.

(2)  Upon re-entering the Premises, the Plaintiff had to undertake reinstatement of the Premises to restore its condition. Reinstatement works are needed, including inter alia the removal of fixtures, fittings and the roller shutter, floor, wall and ceiling finishes, installing glass panels and doors and replacing the marble floor tiles.

(3)  The Plaintiff’s management company has sent out invitations to various contractors inviting them to provide quotations for carrying out the reinstatement works.

(4)  The Plaintiff engaged Ngai Shing Engineering Company Limited (“Ngai Shing”) for the reinstatement works as it has given the best offer of HK$ 202,500 amongst the 6 quotations received.

(5)  The reinstatement work was completed on 10 April 2020 and the final amount payable was HK$ 192,375.

31.  At the hearing, Ms Shek referred to the invoice issued by Ngai Shing produced by the Plaintiff and confirmed that the sum of HK$ 192,375 was paid by the Plaintiff.

32.  I have also considered the contemporaneous records produced by the Plaintiff, which includes the tender documents, the invoices and quotations received, and photos of the Premises taken at the time when the Plaintiff re-entered the Premises.

33.  I accept that the Plaintiff has incurred costs of reinstatement in the sum of HK$ 192,375 and costs of the locksmith of HK$ 700. I find that the Plaintiff is entitled to recover those costs incurred as damages arising out of the 1^st Defendant’s breach. The sums claimed are reasonable and should be allowed in full.

Net Costs of the Distraint Action

34.  The Plaintiff seeks recovery of the costs and expenses incurred for the Distraint Action under Clause 7(a)(I) of the Tenancy Agreement.

35.  The Plaintiff has produced relevant documents showing the costs and expenses incurred in the Distraint Action including inter alia auctioneer’s expenses, security guard fees, stamp duty, commission and conveyance fees. Ms Shek’s evidence is that, only a small amount of goods and chattels were seized from the Distraint Action and they were of little value. The amount claimed is HK$ 51,539.10 which is the net costs of the Distraint Action.

36.  On the evidence before me, I accept that those costs and expenses stated were incurred by the Plaintiff and the net costs of the Distraint Action should be recoverable. I allow the claimed sum of HK$ 51,539.10 in full.

Conclusion

37.  Accordingly, I assess the damages of each head with the amount set out as follows:-

	Item	Amount
(a)	Loss of monthly rent for the period from 30/11/2019 to 14/09/2020	1,662,500.01
(b)	Loss of service charges for the period from 30/11/2019 to 14/09/2020	153,081.10
(c)	Loss of rates for the period from 30/11/2019 to 14/09/2020	64,854.34
(d)	Costs of reinstatement	192,375.00
(e)	Costs of locksmith	700.00
(f)	Net costs of the Distraint Action	51,539.10 ____________
	TOTAL:	2,125,049.55 ==========

38.  As such, I award damages assessed in the total sum of HK$ 2,125,049.55 to the Plaintiff.

Interests

39.  Counsel for the Plaintiff asks pre-judgment interest on the damages awarded from the date of the writ to the date of this judgment at such rate subject to the Court’s broad and unfettered discretion.

40.  I note from the Re-amended Statement of Claim dated 29 June 2022 (the “RASOC”) that, the Plaintiff seeks interest on the loss of rent, service charges and rates as pleaded under paragraph 22 of the RASOC. However, the Plaintiff did not seek interest in the RASOC on the rest of the heads of damages, being costs of reinstatement and locksmith, and net costs of the distraint action. I consider that this Court is bound by the relief sought in the RASOC. Therefore, I would only order pre-judgment interest on the heads of damages (a) to (c) set out in paragraph 38 in the above.

41.  As for the interest rate, I grant the usual pre-judgment interest rate at 1% per annum above best lending rate of HSBC from the date of writ to the date of judgment.

42.  Therefore, I find that, the Plaintiff is entitled to interest on the sum of HK$ 1,880,435.45 at the rate of 1% per annum above best lending rate of HSBC from the date of writ to the date of this judgment, and thereafter at judgment rate until payment in full.

43.  In respect of the heads of damages (d) to (f) set out in paragraph 38 in the above, I find that the Plaintiff is nevertheless entitled to post-judgment interest and I shall so order.

44.  I order that the Plaintiff be awarded interest on the sum of HK$ 244,614.10 at judgment rate from the date of this judgment until payment in full.

Costs

45.  The Plaintiff claims costs of the present proceedings as a debt on a full indemnity basis pursuant to Clause 7(a)(I) of the Tenancy Agreement. At the hearing, I have expressed my reservation that, as the Court has the full power and unfettered discretion to award costs, the assessment of costs should not be circumvented by claiming costs as damages.

46.  Counsel for the Plaintiff fairly acknowledges that, a contractual right to costs cannot displace the Court’s discretion to award costs, citing Gomba Holdings (UK) Ltd and Others v Minories Finance and Others (No. 2) [1993] Ch 171 at 193H-194B. In that connection, counsel for the Plaintiff then submits that, costs should be summarily assessed on an indemnity basis to reflect the contractual entitlement under the Tenancy Agreement. I accept that the Plaintiff is entitled to have costs of this action to be assessed on an indemnity basis.

47.  Having considered the Statement of Costs later submitted by the Plaintiff, I find that the amount of costs claimed reasonable and I allow it in full. As such, I summarily assess the Plaintiff’s costs of this action at HK$ 62,260.

48.  Lastly, I thank counsel for his assistance to this Court.