ROCO INVESTMENT LTD AND ANOTHER v. RICH GAINER INTERNAITONAL LTD

DCCJ 2067/2021

[2023] HKDC 912

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2067 OF 2021

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ASSESSMENT OF DAMAGES

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INTRODUCTION

1.  This is the hearing of assessment of damages suffered by the plaintiffs as a result of the defendant’s breach of tenancy agreement between the parties.

2.  The plaintiffs were the landlords, and the defendant was the tenant, of Suite 1506 on 15^th Floor of Two Chinachem Exchange Square, No 338 King’s Road, Hong Kong (the “Suite”).

3.  On 23 June 2021, the plaintiffs obtained final and interlocutory judgment against the defendant, whereby the defendant was ordered to pay the arrears of rent and other outstanding charges plus interests incurred up to 11 February 2021 (ie the date of the plaintiffs’ acceptance of the defendant’s repudiation of the tenancy agreement).

4.  It was also adjudged that further damages for the defendant’s breach were to be assessed. This assessment hearing was held in pursuance of the latter part of the judgment.

5.  In the present assessment, the plaintiffs claimed damages under the following heads:-

(1)  reinstatement costs;

(2)  loss of rent from 12 February 2021 (ie the day after the plaintiffs’ acceptance of the defendant’s repudiation of the tenancy agreement) to the end of the tenancy agreement on 30 November 2021 (the “said period”);

(3)  loss of management fees and air-conditioning charges in the said period; and

(4)  loss of government rates in the said period.

6.  At the conclusion of the assessment hearing, I reserved my decision, which I now hand down.

THE PARTIES’ RESPECTIVE CASE

7.  The plaintiffs are the registered owner of the Suite. The plaintiffs and the defendant entered into a tenancy agreement on 5 June 2019 (the “Tenancy Agreement”) for a fixed term of 2 years commencing on 1 December 2019 and expiring on 30 November 2021, at a monthly rent of HK29,118.

8.  Pursuant to Clause (ii) of Part IV of the Schedule of the Tenancy Agreement, the defendant was required to pay management fee and air-conditioning charges at the monthly rate of HK$5,190.60. The management fee and air-conditioning charges were subject to adjustment from time to time by the manager.

9.  It is the plaintiffs’ case that the management fee and air-conditioning charges under the Tenancy Agreement was increased to HK$5,697 per month since 1 January 2021.

10.  Further, pursuant to Clause 5.2(b) of the Tenancy Agreement, the defendant was required to indemnify the plaintiffs on demand against all government rates.

11.  It is the plaintiffs’ case that in breach of the Tenancy Agreement, the defendant had failed to pay rent, management fees, and air-conditioning charges since 1 November 2020. It had also failed to pay government rates since 1 January 2021.

12.  Further, the defendant unilaterally returned the key of the Suite to the plaintiffs without the plaintiffs’ consent on 25 January 2021.

13.  In breach of Clause 5.8(a) of the Tenancy Agreement, the defendant had failed to reinstate the Suite to “bare shell” condition.

14.  By their solicitors’ letter dated 11 February 2021, the plaintiffs accepted the defendant’s wrongful repudiation of the Tenancy Agreement.

15.  As a result of the defendant’s breach of the Tenancy Agreement, the plaintiffs had to engage contractors to carry out reinstatement works for the Suite.

16.  According to the plaintiffs, the reinstatement works completed on 31 August 2021, and the Suite was listed on the vacancy list for office of the Chinachem Group (of which the plaintiffs form part) on 1 September 2001.

17.  The Suite was not leased out as at the original end date of the term of the Tenancy Agreement.

18.  During the assessment hearing, counsel for the defendant confirmed to the court that the only dispute between the parties is in relation to mitigation of loss. In particular, the defendant submits that there had been delay on the plaintiffs’ part in (i) confirming the reinstatement works and (ii) marketing the Suite.

19.  The plaintiffs contended that they have taken reasonable steps to mitigate their loss.

20.  At the assessment hearing, the plaintiffs called Ms Ng Pik Kwan (“Ms Ng”), the Officer – Leasing of the Chinachem Group as a factual witness.

APPLICABLE LEGAL PRINCIPLES

21.  The law regarding a landlord’s entitlement in case of a tenant’s wrongful repudiation of a tenancy agreement is well-established and not disputed by the parties.

22.  The applicable principles have been summarised as follows in Bonny Ace Limited v The Athletic Co, Limited [2022] HKDC 1309, at §21:-

(1)  Where a landlord accepts a tenant’s wrongful repudiation of a tenancy agreement, the landlord “can legitimately anticipate in the measure of damages to be awarded, such damages reflecting the rental, service charges, rates and reinstatement costs stipulated in the tenancy and therefore payable were the agreement to be permitted to run its full course, subject always to a duty to minimize his loss”.[1]

(2)  A landlord is expected to act reasonably and to take such steps as are necessary to re-let the vacant premises at market rent. However, the burden falls upon the defendant to establish that mitigation has not taken place.[2]

(3)  The duty to mitigate is not onerous, and the landlord is not required to do anything other than in the ordinary course of business. The burden is on the tenant to show that damages had not been mitigated.[3]

23.  With these principles in mind, I now turn to the plaintiffs’ various heads of claim in the present case.

DISCUSSION

24.  Most of Ms Ng’s oral evidence was supported by documentary evidence. Having observed her testify in the witness box, I find her a credible witness and accept her evidence in full.

(1) Reinstatement costs

25.  The Tenancy Agreement required the defendant to reinstate the Suite to “bare shell” condition at the end or sooner termination of the Tenancy Agreement. There is no dispute that the defendant had failed to do so.

26.  Notwithstanding the above, it is Ms Ng’s evidence that the plaintiffs had tried to lease the Suite out in its then existing condition before deciding to reinstate the Suite. It was only when it became apparent that there was no one interested in renting the Suite in its then existing condition that the plaintiffs engaged contractors to reinstate it.

27.  Further, the plaintiffs had obtained quotations from 4 contractors for carrying out the general reinstatement works before deciding to engage the contractor with the lowest fee quote.

28.  The defendant does not contend that the reinstatement costs, whether for the general reinstatement works or the fire services system reinstatement works, was not reasonable.

29.  By reason of the above, I accept that the plaintiffs have discharged their duty to mitigate the damages resulting from the reinstatement works.

30.  The reinstatement costs which the plaintiffs have suffered is HK$66,943, being general reinstatement costs of HK$49,500 plus fire services system reinstatement costs of HK$17,443.

31.  I therefore award the amount of HK$66,943 to the plaintiffs under the head of reinstatement costs.

(2) Loss of rent

32.  It is Ms Ng’s evidence that it is the plaintiffs’ normal practice that for premises which have not been reinstated by a tenant who has terminated the tenancy agreement before the expiry of the term, the plaintiffs would first try to lease the premises out in its existing condition. It is only if the plaintiffs are unable to lease the premises out in its existing condition after around 3 months that they would then reinstate the premises to “bare shell” condition.

33.  It is Ms Ng’s unrefuted testimony that the above practice was adopted in the leasing of the Suite. After accepting the defendant’s wrongful repudiation of the Tenancy Agreement, the plaintiffs had listed the Suite on the plaintiffs’ internal vacancy list so that when prospective clients or their agents called to enquire about available premises, the plaintiffs’ staff would inform them about the availability of the Suite if it fulfills the clients’ requirements.

34.  Ms Ng explained that the plaintiffs did not list the Suite on the external vacancy list until after the reinstatement works were completed because its condition was poor prior to the reinstatement works. Upon enquiry, the leasing staff of the plaintiffs would first inform prospective clients and their agents of the condition of the Suite so that they would know what to expect when they came to view the Suite.

35.  Otherwise, if the Suite was listed on the external vacancy list, property agents may bring their clients to view the Suite directly and they may not be satisfied with the condition of the Suite if they had not been previously advised of its poor condition.

36.  Ms Ng confirmed that this is the standard practice which is applicable to all premises in poor condition.

37.  Further, Ms Ng testified that no real potential tenant had come forward to express their interest in renting the Suite after the same was listed on the internal vacancy list for around 2 to 3 months.

38.  That was the reason why the plaintiffs had decided to reinstate the Suite in June 2021 before marketing the same again.

39.  The reinstatement works were confirmed on 8 June 2021 and completed on 31 August 2021. The plaintiffs immediately listed the Suite on the external vacancy list on 1 September 2021 after the reinstatement works had completed.

40.  By reason of the above, I accept that the plaintiffs have discharged their duty to mitigate the damages by first trying to lease the Suite out in its then existing condition and only confirming the reinstatement works in June 2021 after it had become apparent that no one was interested in renting the Suite.

41.  In the circumstances, I do not accept the defendant’s argument that there had been delay on the plaintiffs’ part in confirming the reinstatement works.

42.  Given that the reinstatement works completed on 31 August 2021 and the plaintiffs immediately released the Suite into the market on 1 September 2021, I also do not accept the defendant’s argument that there had been delay on the plaintiffs’ part in marketing the Suite.

43.  In any event, as the plaintiffs pointed out in their opening submissions, no evidence has been adduced by the defendant to challenge the reasonableness of the steps taken by the plaintiffs to mitigate their loss.

44.  In the circumstances, the loss of rent from 12 February 2021 to 30 November 2021 is HK$279,740.79, being (HK$29,118/month x 9 months) + (HK$29,118/month ÷ 28 days/month x 17 days).

45.  I award the amount of HK$279,740.79 to the plaintiffs under the head of loss of rent.

(3) Loss of management fees and air-conditioning charges

46.  In respect of the claim relating to the loss of management fees and air-conditioning charges under the Tenancy Agreement, the plaintiffs claim a total sum of HK$54,731.89, being charges at the revised rate of HK$5,697 per month between 12 February 2021 and 30 November 2021, ie (HK$5,697 per month x 9 months) + (HK$ HK$5,697 per month ÷ 28 days/month x 17 days).

47.  The revised monthly management fee and air-conditioning charges were part of Ms Ng’s unrefuted evidence in her witness statement.

48.  In the circumstance, I allow the loss of the management fees and air-conditioning charges as claimed by the plaintiffs in full.

49.  I therefore award the amount of HK$54,731.89 to the plaintiffs under the head of loss of management fees and air-conditioning charges.

(4) Loss of government rates

50.  I accept that the loss of government rates is recoverable where a tenant has wrongfully repudiated the tenancy.

51.  The plaintiffs only claim loss of government rates for the period of 1 October 2021 to 30 November 2021. The figures appeared in Ms Ng’s calculation are supported by the relevant Quarterly Demand Schedule for Rates issued by the government.

52.  I therefore award the sum of HK$1,210.05, being (HK$3,825 per quarter - rates concession of HK$2,000) ÷ 92 days/quarter x 61 days, to the plaintiffs as the loss of government rates.

SUMMARY

53.  To conclude, the plaintiffs’ damages is assessed at HK$402,625.73, the details of which are as follows:-

	Item	Amount (HK$)
(1)	Reinstatement costs	66,943.00
(2)	Loss of rent	279,740.79
(3)	Loss of management fees and
	air-conditioning charges	54,731.89
(4)	Loss of government rates	1,210.05
		_________
	Total:	402,625.73

INTEREST

54.  The plaintiffs shall be entitled to interest on the said sum at prime plus 1% from the date of Writ (ie 4 May 2021) to the date of this assessment and thereafter at the judgment rate to the date of payment.

COSTS

55.  I order the defendant to pay the plaintiffs’ costs of the action, which is summarily assessed at HK$45,000, and to be payable forthwith.