Chee Yuen Industrial Co. Ltd. v. Global Wise Engineering Ltd.

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. HCA 7058 OF 1999

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J U D G M E N T

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Background

1. This is an assessment of damages following the entry of final and interlocutory judgment against the defendant in favour of the plaintiff dated 27 May 1999.

2. For the sake of convenience, I shall refer to the parties simply as the plaintiff and the defendant, both being companies incorporated in Hong Kong.

3. By its writ, the plaintiff sues as landlord of a premises known as Ground Floor of On Cheung Factory Building, No. 19 Tai Yip Street, Kwun Tong, Kowloon (the property).

4. The circumstances giving rise to this suit can be shortly stated. The plaintiff and the defendant entered into a tenancy agreement dated 24 October 1999, by which the plaintiff agreed to let as tenant, the property to the defendant as tenant for a period of two years commencing 21 July 1997 and expiring on 20 January 2000. The rent reserved under the tenancy agreement was $48,000 per month, payable at the beginning of each month, such rental being exclusive of management fees rates and government rent.

5. In breach of the tenancy agreement, the defendant unilaterally intimated, through its solicitors on 16 April 1999, that it was no longer prepared to continue in occupation of the premises. At the same time, the keys to the premises as well as vacant possession were surrendered. Because of the unexpected early termination of the tenancy, the plaintiff, in order to mitigate its loss, was required to look elsewhere for a tenant. Efforts in that direction were undertaken before and prior to 20 April of last year, apparently without immediate success. The plaintiff's intention was to re-let as quickly as possible the property to a new tenant at the available market rental.

6. Being charged with the duty to mitigate its damages, the plaintiff eventually appointed a property agent, Tai Shing Hong Property Agency, and through the efforts of this agent, the property was successfully re-let but at a reduced rental of $45,708 per month. This second tenancy agreement has also been exhibited and I am satisfied on the evidence of Mr Simon Poon, the sole witness for the plaintiff, that because of the repudiation of the contract of tenancy by the defendant, the plaintiff has clearly suffered damages.

7. In this assessment, damages totalling $156,659.34 are claimed. Mr Poon described the damages as falling under several distinct heads. The first item of damages claimed is in respect of the loss of bargain following the wrongful repudiation by the defendant. That consists essentially of the loss of rental for the period between 16 April 1999 and 21 June 1999, both dates being inclusive, and the shortfall in rental represented by the difference between the rental reserved in the breached contract and the subsequent tenancy. The shortfall is calculated for the period between 22 June 1999 and 20 January 2000 when the contract in question would have expired by natural effluxion of time.

8. I accept Mr Poon's figures as I accept his calculation as to how those figures have been arrived at in respect of the loss of rental and the shortfall in the rental.

9. The next item concerns outstanding management fee which is particularised in the evidence as $375. That has been adequately explained. In respect of the government rates and government rent, that too, I accept was payable by the defendant under the agreement.

10. Although the defendant yielded vacant possession on 16 April 1999, the obligation of the later tenant under the subsequent tenancy contract did not arise until 7 May 1999. Therefore, it would be appropriate for the plaintiff to turn to the defendant when seeking to recover compensation for the pro rata rates and government rent paid by it on behalf of the defendant for the period between 16 April 1999 and 7 May 1999.

11. The final two items claimed are the agent's commission which amounts to half the new rent and legal costs. The former has been claimed at $22,854. The legal costs were legitimately incurred in respect of the preparation of the second tenancy agreement.

The law

12. It is trite law that damages for breach of contract would be calculated upon the basis of the damage and loss flowing from that breach.

13. Insofar as money can compensate the plaintiff, the position has always been that the plaintiff should be placed in the same position it would have been had the contract not been broken and had been fully performed (see Chitty on Contract).

14. The various items of loss now being pursued against the defendant I find are legitimate damages and loss flowing naturally from the breach of that tenancy agreement and, therefore, fall within the contemplation of the parties as being properly recoverable upon wrongful termination of contract.

15. In the circumstances of this case, it is plain to me that the plaintiff has taken reasonable and timely steps to mitigate its loss, and it was by dint of its industry that the property was re-let without the property being kept vacant for an undue period of time.

16. It is, of course, incumbent upon the plaintiff to mitigate its loss, and it is a factor which was recognised by the plaintiff almost as soon as the breach of the contract was brought to its attention.

17. On the evidence, such as it is uncontested by the defendant who is absent today despite proper service upon it, I am satisfied to find that the amount claimed in total sum of $156,659.34 is the amount which is fully recoverable against the defendant. That is the quantum which I assess to be the damages suffered by the plaintiff and that is the amount which it is ordered that the defendant shall pay.

(Discussion re costs)