STAR PLAY DEVELOPMENT LTD v. GLORY GOLD LTD t/a KAM HO SEAFOOD RESTAURANT AND ANOTHER

HCA 1186/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1186 OF 2006

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REASONS FOR JUDGMENT

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1. On 2 June 2009 I gave judgment for the plaintiff against the 1^st defendant in the sum of HK$5,983,786.05 with interest thereon at the rate of 1% above the best lending rate of HSBC from 3 June 2006 to the date of judgment and at the judgment rate after that until payment.

2. I also gave judgment for the plaintiff against the 2^nd defendant in the sum of HK$1,195,064.52 with interest thereon at the rate of 1% above the best lending rate of HSBC from 3 June 2006 to the date of judgment and at the judgment rate after that until payment.

3. I also ordered that:

(1) the 1^st defendant do pay the plaintiff the costs of the plaintiff’s claim against the 1^st defendant to be taxed if not agreed; and

(2) the 2^nd defendant do pay the plaintiff the costs of the plaintiff’s claim against the 2^nd defendant to be taxed if not agreed.

4. I indicated at the time that reasons in writing would be provided.  These are my reasons.

5. At the trial the plaintiff was represented by counsel and solicitors.  The 1^st defendant did not appear at the trial.  The 2^nd defendant appeared in person and made submissions at the outset.  He was prepared to consent to judgment on the plaintiff’s claim against him as guarantor in the total sum of HK$1,195,064.52.  The 2^nd defendant, however, was concerned with the plaintiff’s claim for interest and costs.  The 2^nd defendant chose to absent himself from the trial after the first morning.

6. The 1^st defendant filed and served a defence and counterclaim.  As the 1^st defendant did not appear at the trial to prosecute its counterclaim, I dismissed the counterclaim and gave judgment to the plaintiff on the counterclaim with costs to the plaintiff against the 1^st defendant.

7. At all material times the plaintiff was and is the registered owner of Hollywood Plaza at 610 Nathan Road, Kowloon.  Hollywood Plaza is a multi-storey commercial building in Mongkok with a 3-storey shopping centre with restaurants.

8. The plaintiff was the landlord of the premises on the 2^nd floor of the Hollywood Plaza (“the premises”) which was let to the 1^st defendant for the running of a Chinese restaurant there.

9. By a tenancy agreement dated 19 November 2003 (“the tenancy agreement”) the premises were let by the plaintiff to the 1^st defendant for a term of six years from 1 July 2003 to 30 June 2009 at the basic monthly rent of HK$550,000 from 1 July 2003 to 30 June 2006 and HK$600,000 from 1 July 2006 to 30 June 2009 on the terms and conditions set out therein.  Apart from the basic monthly rent the 1^st defendant was also liable to pay the plaintiff the turnover rent which shall be a sum equivalent to 10% of the monthly gross receipts in excess of and over HK$4,500,000.

10. The parties to the tenancy agreement were the plaintiff as landlord, the 1^st defendant as tenant and the 2^nd defendant as guarantor.

11. By clause 5(b) the 2^nd defendant unconditionally and irrevocably guaranteed, as principal obligor, the payment by the 1^st defendant of the rent, rates, government rent, management expenses, utility and other charges and outgoings and payments payable under the tenancy agreement and the due performance and observance by the 1^st defendant of the terms and conditions of the tenancy agreement in the sum up to HK$1,000,000.  Under the tenancy agreement the maximum sum that the 2^nd defendant was liable to indemnify the plaintiff was HK$1,000,000.

12. Apart from the tenancy agreement a number of licence agreements were also entered into whereby licences were granted to the 1^st defendant as follows:

(1) to use a store room by the licence agreement made on 28 July 2003 (“exhibit P2”) on the terms and conditions contained therein;

(2) to use a space on the flat roof of the 5^th floor of the building for installing the 1^st defendant’s fuel tank, oil separator and exhaust system and related installation and a space on the flat roof of the 5^th floor and a space on the external wall from the 5^th floor to the roof floor of the building for installing the 1^st defendant’s chimney and related installations by the licence agreement dated 31 October 2003 (“exhibit P3”) on the terms and conditions contained therein;

(3) to display a signboard at the display wall at the entrance lobby by the licence agreement made on 4 November 2003 (“exhibit P4”) on the terms and conditions contained therein;

(4) to use a space on the external wall of the building for installing the 1^st defendant’s signage by the licence agreement made on 17 March 2004 (“exhibit P5”) on the terms and conditions contained therein;

(5) to use a storeroom by the licence agreement made on 18 May 2004 (“exhibit P6”) on the terms and conditions contained therein; and

(6) to erect a signage of the 1^st defendant’s restaurant at a specified location by the licence agreement dated 26 January 2005 (“exhibit P8”) on the terms and conditions contained therein.

13. The 2^nd defendant was also a party to the licence agreements exhibits P3 and P5 as guarantor.  By clause 15 of those licence agreements the 2^nd defendant irrevocably undertook to indemnify the plaintiff up to HK$200,000 for damages and losses sustained and suffered by the plaintiff arising from or caused by any breach or non-performance or non-observance of any of the agreements, covenants, terms and conditions contained therein to be performed or observed by the 1^st defendant.

14. I heard evidence from Yan Kam Fai (“Yan”), senior manager of the leasing and management department of Hang Lung Real Estate Agency Ltd. which was responsible for the leasing of Hollywood Plaza including the premises.  I found him to be an honest, credible and reliable witness who told me the truth.  I have no hesitation in accepting his evidence.

15. On the evidence I am satisfied and find that as from 1 April 2005 the 1^st defendant failed to pay to the plaintiff a total sum of HK$2,465,355 which it was required to pay by clauses 4(a) to (d) of the tenancy agreement.

16. By paragraph 4 of its defence the 1^st defendant pleaded that the failure to pay rent was solely caused by the plaintiff “having invited direct and closed business competition, the facts of which are averred in paragraphs 5 to 9 herein below”.

17. Essentially the 1^st defendant relies on a representation made on 28 May 2003 before the plaintiff and the 1^st defendant entered into the tenancy agreement that the plaintiff “would not rent out the upper floor of the [premises], that is, the 3^rd floor of Hollywood Plaza…….. to those who would run the same business of Cantonese restaurant as that of the 1^st defendant” (“the representation”).

18. By the particulars (a) under paragraph 8 of the defence of the 1^st defendant, it is pleaded that wrongfully and in breach of the representation in or about March 2004 the plaintiff decided to let the 3^rd floor of Hollywood Plaza to another operator known as Hoi Tin (Asia) Harbour Restaurant to run the same business of the 1^st defendant despite the 1^st defendant’s complaints.

19. It is also pleaded by paragraph 8 of the defence that in breach of the covenant to permit the 1^st defendant to have quiet possession and enjoyment of the premises during the term without any interruption by the plaintiff under clause 6(a) of the tenancy agreement the plaintiff wrongly evicted the 1^st defendant from the possession, use and occupation of the premises as particularized therein.  These include allegations that on 29 and 30 June 2005 the plaintiff wrongfully sent 6 notices of termination to terminate the 6 licence agreements and the disconnection of the fuel supply of the restaurant and the wrongful regaining of possession of the premises by the plaintiff from the 1^st defendant on 11 July 2005.

20. The 1^st defendant alleges that it has suffered loss and damage in the total sum of HK$9,576,100 as pleaded and particularized at paragraph 9 of the defence.  The 1^st defendant counterclaimed this sum alternatively, damages to be assessed.  By paragraph 18 of the defence the 1^st defendant denied that it is liable to the plaintiff by reason of its counterclaim.  By paragraph 19 it relied on its counterclaim to set-off the plaintiff’s claim.

21. As I have said, the 1^st defendant’s counterclaim was dismissed with costs to the plaintiff as the 1^st defendant did not appear at the trial to prosecute the same.

22. The 1^st defendant’s allegations have been denied by the plaintiff.

23. It is for the 1^st defendant to adduce evidence of the pleaded factual allegations which are in issue.  The 1^st defendant has failed to adduce any evidence in support of its pleaded case.

24. By clause 7(a)(i) of the tenancy agreement it was agreed that if the rent or any other sum payable by the 1^st defendant under the tenancy agreement be in arrears for 15 days it shall be lawful for the plaintiff at any time thereafter to re-enter upon the premises and the tenancy agreement shall absolutely determine.

25. There is no doubt that the 1^st defendant did not pay rent and the other sums payable by it under the tenancy agreement as from 1 April 2005.

26. By the letter from the 1^st defendant’s then solicitors Messrs C. P. Cheung & Co. dated 9 July 2005 to the plaintiff’s solicitors it was admitted that the 1^st defendant did not tender rent to the plaintiff “for the past few months” although it was asserted that licence fees were tendered.  It was also stated that the 1^st defendant “has encountered cash flow difficulty to pay the rent of [the premises] which was solely caused by your client to invite direct and closed business competition”.  Thus there is a clear admission that the 1^st defendant has failed to pay rent for the premises.

27. I would also observe that a claim for damages for misrepresentation would not afford the 1^st defendant any reason not to pay rent and the other sums payable to the plaintiff under the tenancy agreement.

28. By clause 2 of the tenancy agreement the monthly rental was payable on the first day of each and every calendar month “without deduction and without set-off whatsoever”.  By Part IV of the First Schedule it was also provided that the rent was payable “without any deduction and without any set-off whatsoever”.

29. By clause 4(b) all rates were payable quarterly in advance “without any deduction or set-off” within the months of January, April, July and October.  By clause 4(c) a monthly sum towards the costs, charges and expenses for the maintenance and management of the building was payable in advance “without any deduction or set-off”.  By clause 4(d) a monthly sum towards the costs, charges and expenses for the maintenance and supply of air-conditioning chargeable in respect of the premises was payable in advance “without any deduction or set-off”.

30. Although the 1^st defendant alleged that it suffered loss and damage in the sum of HK$9,576,100 and counterclaimed the said sum in its counterclaim, it seems to me to be plain, and I so find, that in view of the clear express terms of the tenancy agreement the 1^st defendant was obliged to pay the rent and the other sums payable by it under the tenancy agreement without any deduction or set-off.

31. As the 1^st defendant failed to pay the rent and the other sums that the plaintiff was entitled to the plaintiff accepted the repudiation of the tenancy agreement on the part of the 1^st defendant.  I so find.  In my judgment the plaintiff lawfully exercised its right of re-entry under clause 7(a)(i) of the tenancy agreement.  On the evidence, which I accept, the plaintiff regained possession of the premises on 11 July 2005.  I so find.

32. The plaintiff’s case is that all 6 licence agreements were also lawfully terminated pursuant to the notices of termination dated 29 and 30 June 2005 (exhibits P10 and P10A).  The 4 licence agreements being Exhibits P2, P4, P6 and P8 each contain a provision providing for the termination of the licence or the delivery of vacant possession by the service of one month’s notice in writing.  I am satisfied and find that by the service of the notices of termination the said licences were terminated on 1 August 2005.  As regards the other 2 licence agreements namely exhibits P3 and P5, by clause 11(a) it was expressly agreed that the licence agreement “shall immediately and automatically be terminated if [the 1^st defendant] ceases to be the tenant of [the premises] for whatever reason or if [the tenancy agreement] is terminated or forfeited for whatever reason…..”.  The tenancy agreement was terminated on 11 July 2005 as I have found.  That being so, I find that these 2 licence agreements were automatically terminated.

33. I find that the plaintiff lawfully terminated the tenancy agreement and the 6 licence agreements and that the plaintiff is entitled to damages against the 1^st defendant for breach of the same.

Quantum of damages

34. The plaintiff claims arrears of rent and other charges for the period from 1 April 2005 to 10 July 2005 up to the termination of the tenancy in the total sum of HK$2,465,355.

35. Yan gave evidence, which I accept, that as at 10 July 2005 the 1^st defendant failed to pay the total sum of HK$2,465,355 to the plaintiff under the tenancy agreement made up as follows:

Rental payment at the rate of HK$550,000.00 per month from :
1/4/2005 to 30/4/2005	HK$550,000.00
1/5/2005 to 31/5/2005	HK$550,000.00
1/6/2005 to 30/6/2005	HK$550,000.00
1/7/2005 to 10/7/2005	HK$177,419.40	HK$1,827,419.40
Air-conditioning charges at the rate of HK$110,000.00 per month from :
1/4/2005 to 30/4/2005	HK$110,000.00
1/5/2005 to 31/5/2005	HK$110,000.00
1/6/2005 to 30/6/2005	HK$110,000.00
1/7/2005 to 10/7/2005	HK$35,483.90	HK$365,483.90
Management fees at the rate of HK$50,000.00 per month from :
1/4/2005 to 30/4/2005	HK$50,000.00
1/5/2005 to 31/5/2005	HK$50,000.00
1/6/2005 to 30/6/2005	HK$50,000.00
1/7/2005 to 10/7/2005	HK$16,129.10	HK$166,129.10
Rates from 1/4/2005 to 10/7/2005	HK$94,322.60
Rates adjustment from 1/4/2005 to 30/6/2005	HK$12,000.00	HK$106,322.60
	TOTAL :	HK$2,465,355.00

36. The plaintiff also claims loss of rental income and rates.  On the evidence, in order to mitigate its damages the plaintiff let the premises to another tenant on 12 August 2005 for 3 years from 1 September 2005 to 31 August 2008 at the basic rent of HK$470,000 per month.  The plaintiff claims full loss of rental income and rates from 11 July 2005 to 31 August 2005 and partial loss of rental income from 1 September 2005 to 30 June 2006.  The total claim under this head is HK$5,156,258 made up as follows:

Complete loss of rental income at $550,000 per month from 11/7/2005 to 31/8/2005	$372,580.60 (from 11/7/2005 to 31/7/2005)  $550,000 (August 2005)
Partial loss of rental income at $(550,000-470,000) per month from 1/9/2005 to 30/6/2006 (ie 10 months)	$800,000.00
Partial loss of rental income at $(600,000-470,000) per month from 1/7/2006 to 31/8/2008 (ie 26 months)	$3,380,000.00
Rates at the rate of HK$96,000 per quarter from 11/7/2005 to 31/8/2005	$53,677.40
TOTAL	$5,156,258.00

37. I am satisfied that the plaintiff has reasonably mitigated its damages by letting the premises to the new tenant Skyford Enterprises Ltd on the terms and conditions in the agreement exhibit P12 in a relatively short period of time after termination of the tenancy agreement.  Although the offer that it accepted was not the highest offer, it seems to me on the evidence of Yan, which I accept, that in accepting the new tenant for the premises the plaintiff considered the background of the new tenant and its proposed business plan in arriving at a decision to accept that tenant’s offer.  I am satisfied that the plaintiff has reasonably mitigated its damages by letting the premises to Skyford Enterprises Ltd.

38. The plaintiff also claims reinstatement and removal costs.  By clause 4(x) of the tenancy agreement the 1^st defendant was liable at its own cost to reinstate the premises upon termination of the tenancy.  As the 1^st defendant failed to reinstate the premises it seems to me, and I so find, that the plaintiff is entitled to claim the reinstatement and removal costs that it has incurred.  On the evidence the plaintiff incurred such costs in the total sum of HK$554,000.

39. By clause 7(a) (ii) of the tenancy agreement the 1^st defendant was obliged to pay interest on overdue payments at the rate of 5% per annum above the best lending rate of HSBC.  The sum claimed for interest is the total sum of HK$43,629.39 for the period from 1 February 2005 to 31 May 2005.  On the evidence of Yan and exhibit P16, I am satisfied that the plaintiff is also entitled to claim the said sum for interest on overdue payments for the period from 1 February 2005 to 31 May 2005.

40. The plaintiff also gives credit in respect of the rental deposit it has received in the sum of HK$2,276,100 and the sum of HK$184,614.40 being the net proceeds of sale received by the plaintiff in respect of a distraint action against the 1^st defendant.  I am satisfied that credit should be given to the 1^st defendant for the said sums which amount to HK$2,460,714.40.

41. I am satisfied that the plaintiff is entitled to damages against the 1^st defendant for breach of the tenancy agreement in the total sum of HK$5,758,527.99 made up as follows:

Rent and other charges in arrears	$2,465,355.00
Loss of rental income and rates	$5,156,258.00
Reinstatement and removal costs	$554,000.00
Overdue interest	$43,629.39
LESS rental deposit and proceeds of sale in distraint action	$2,460,714.40
TOTAL	$5,758,527.99

42. In addition to damages for breach of the tenancy agreement the plaintiff also claims damages for breach of 2 licence agreements namely, exhibit P3 and P8.

43. Under exhibit P3 the plaintiff claims arrears of licence fees from 1 April 2005 to 2 July 2005 in the sum of HK$3,064.52, and reinstatement costs in the sum of HK$192,000 amounting to HK$195,064.52.  I am satisfied on the evidence that the plaintiff is entitled to claim this sum.

44. Under exhibit P8 the plaintiff claims arrears of licence fees from 1 July 2005 to 2 July 2005 in the sum of HK$193.54 and reinstatement costs in the sum of HK$30,000 amounting to HK$30,193.54.  I am also satisfied on the evidence that the plaintiff is entitled to claim this sum.

Conclusion

45. I am satisfied that the plaintiff is entitled to judgment against the 1^st defendant in the total sum of HK$5,983,786.05 made up as follows:

(a)	for breach of the tenancy agreement	HK$5,758,527.99
(b)	for breach of the licence agreement exhibit P3	HK$195,064.52
(c)	for breach of the licence agreement exhibit P8	HK$30,193.54
	TOTAL	HK$5,983,786.05

46. The plaintiff is also entitled to interest on the said sum.  In his submissions, Mr Lam, for the plaintiff, submitted that the plaintiff was now only claiming interest on the said sum from the date of the writ 3 June 2006 until judgment at 1% above the best lending rate of HSCB.  I am satisfied that the plaintiff is also entitled to judgment for interest as claimed.

47. The 2^nd defendant as guarantor under the tenancy agreement is liable to the plaintiff to the maximum amount of HK$1,000,000.  Under the licence agreement exhibit P3 he is also liable as guarantor to the maximum amount of HK$200,000.  The total amount claimed against the 2^nd defendant is HK$1,195,064.52 under the tenancy agreement and exhibit P3.  The 2^nd defendant indicated at the first day of trial that he was prepared to consent to judgment for this sum.  I am satisfied that the plaintiff is entitled to judgment against the 2^nd defendant for the said sum.

48. Mr Lam also submitted that the plaintiff was now claiming interest on the said sum at 1% above the best lending rate of HSBC from the date of the writ 3 June 2006 to judgment and thereafter at judgment rate until payment.  I am satisfied that the plaintiff is also entitled to judgment against the 2^nd defendant for interest as claimed.

49. As costs should follow the event, I am also satisfied that the plaintiff is entitled to costs against the 1^st and 2^nd defendants.

50. For the above reasons, I gave judgment to the plaintiff and made the orders as set out above at paragraphs 1 to 3.