FORDTIME INDUSTRIAL LTD v. YIP SHING LAM t/a TRADITIONAL CHINESE NOODLE

LDPE 757/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO LDPE 757 OF 2012

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ASSESSMENT OF MESNE PROFITS

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Background

1.  This is the hearing of the assessment of mesne profits concerning the respondent’s use of the property known as Cockloft C on the Upper Part of the Ground Floor, Tsuen On Building, Nos 20-24 Lo Tak Court, Tsuen Wan (“Cockloft C”) after the tenancy agreement between the parties expired on 30 April 2011.

2.  The background and history of this case can be found in the judgment of this Tribunal dated 9 October 2013 (“Possession Judgment”), decision dated 7 February 2014 (“Review Decision”) and decision dated 23 May 2014 (“Leave Decision”) as well as in the decision of the Court of Appeal (“CA”) dated 25 July 2014 (“CA Decision”).  The abbreviations used in these previous judgment/decisions will be adopted in this assessment decision.

3.  In short, this Tribunal had found after trial in the Possession Judgment (§17-32) that the T/A between the applicant and the respondent is a valid one concerning Cockloft C with the floor slab being removed.  Upon expiration of the T/A, the respondent had been holding over without paying any rent or mesne profits (§47).  It is ordered in the Possession Judgment (§55-56) that the respondent should deliver vacant possession of Cockloft C to the applicant and to pay the applicant mesne profits from 1 May 2011 till delivery up of vacant possession.  Assessment of mesne profits is adjourned pending valuation report to be filed.

4.  The respondent applied for a review of the Possession Judgment and it was found in the Review Decision that the subject matter of the T/A was a Cockloft with the floor slab being removed and the parties were well aware of the fact that Cockloft C was rented out without a floor slab (§6-7).  The application for review was dismissed.

5.  The respondent applied for leave to appeal against the Review Decision which is also dismissed.  In the Leave Decision, this Tribunal confirmed its ruling that the subject matter is the Cockloft C with walls and ceiling but with the floor slab being removed (§13).

6.  And on the application by the respondent for leave to appeal, CA upheld the findings of this Tribunal on the subject matter of the T/A and found the applicant in effect denied itself the use of the airspace over Cockloft C with the floor slab removed for a price (§21-24).  The leave to appeal application was dismissed by CA.

7.  Upon the application by the applicant, a writ of possession was issued on 30 October 2014.  Notice to Occupier to Quit was posted up at the entrance of Cockloft C on 1 December 2014 (B/290).  As found in the Possession Judgment, there is an opening between Shop 1 and Shop C from the main road with a flight of staircase leading up to the common landing of Cockloft A to D and each Cockloft has its own doorway from the common landing (§7).  On 1 December 2014, the applicant discovered that a brick wall (“the Wall”) was built behind the door of Cockloft C preventing access or inspection of the Cockloft C (photo at B/273).

8.  By a letter dated 2 December 2014 (B/306), the respondent notified the applicant that it was free to take possession of Cockloft C with immediate effect.  The applicant caused a check on Cockloft C and found the Wall was still there.  The applicant then instructed its solicitors to send a letter dated 3 December 2014 (B/307) stating the fact about the Wall which was built by the respondent, denied vacant possession had been handed up and demanded such to be removed.

9.  By a letter dated 13 January 2015 (B/313-314), the respondent replied and said that :

(a)  neither this Tribunal nor the CA has made any order requiring the respondent to demolish the Wall;

(b)  vacant possession of Cockloft C had been delivered by dismantling all the pipes or ducts that were previously occupying Cockloft C on 2 December 2014; and

(c)  the Wall was built in or around mid-2012 by the respondent after an inspection carried out by representatives of the Buildings Department (“the BD”) since the doorway to Cockloft C had never been approved by the BD and had to be sealed, hence the respondent was not in a position to demolish the Wall as requested by the applicant.

10.  Solicitors for the respondent had also wrote to the BD on 13 January 2015 (B/330-331) seeking confirmation from the BD as to whether approval is required to demolish the Wall in order to create an access doorway as required by the applicant. The BD replied on 20 January 2015 (B/332) that the BD is processing the respondent’s request and will inform him the outcome in due course.  Despite further letters sent by the respondent (B/333 & 335), the last reply from the BD dated 10 July 2015 is that the request is still in process.  As at the date of this hearing, there is still no reply from the BD in answer to the letters of the respondent.

11.  On 6 March 2015, the applicant arranged for a contractor to demolish the Wall and the demolition work completed on 7 March 2015 (photo at B/357-371).  On 9 March 2015, the bailiff sent a letter to the applicant’s solicitors stating that the bailiff had delivered possession of the Cockloft C to the applicant on 9 March 2015.

12.  The applicant found a sewage/drainage pipe inside Cockloft C and such was removed by the respondent 2 or 3 days after 11 March 2015 upon the request of the applicant.  The applicant then arranged contractors to rebuild the floor slab of Cockloft C.

13.  The issue in dispute at this hearing is :

(a)  the date of delivery up of vacant possession, 9 March 2015 or 2 December 2014; and

(b)  the rental valuation regarding Cockloft C, assessed as a void space without the floor slab or as a Cockloft with floor slab.

Date of Vacant Possession

14.  Mr Lau for the applicant submitted that given the existence of the Wall which was built by the respondent which prevented an access to Cockloft C, this deprived the applicant of its right to actual unimpeded physical enjoyment of Cockloft C so no vacant possession had been delivered when the Wall was still there. Vacant possession was only delivered to the applicant by the bailiff on 9 March 2015 after the Wall was being demolished.

15.  Mr Nip for the respondent contended that the vacant possession order sought has to be read and understood in the context of the very specific case run by the applicant at the trial on liability.  The only allegation is occupation by the respondent by having A/C ducts and pipes in Cockloft C and it was never the pleaded case that the respondent failed to deliver vacant possession of Cockloft C by refusing to demolish the Wall.  The existence of the Wall was within the knowledge of the applicant in 2013 yet no amendment of pleadings had been sought.  It is too late now for the applicant to change its case on the meaning of “vacant possession”.  And had the applicant raised this at the trial in 2013, there would be ample time for the respondent to raise this with the BD in late 2012 or 2013 and could well have received a written response by now; the respondent is deprived of the opportunity to doing so and is clearly prejudiced in this regard.  Furthermore, the CA had found that the nature and ambit of the order for delivery up of vacant possession in this case is that the respondent is not allowed to occupy the airspace above the kitchen area (§29) and the ducts or pipes installed by the respondent which were occupying the airspace above the kitchen area must be removed.  Any suggestion that the scope of the order of delivery up would also involve the demolition of the Wall is clearly inconsistent with the ruling of the CA and amounts to a rewriting of the court’s order.  So, by removing the ducts or pipes and giving notice to the applicant, vacant possession had been delivered on 2 December 2014.

16.  I agree with the applicant’s contention that the Wall prevents the applicant from enjoying the Cockloft C and vacant possession cannot be handed back to the applicant before the Wall is being demolished.  So vacant possession should only be delivered on 7 March 2015 and not on 9 March 2015 or 2 December 2014.

17.  Mr Lau for the applicant had relied upon the judgment of Cumberland Consolidated Holdings Limited v Ireland [1946] 1 KB 264 in his submission.  This case had in fact been adopted by the court of appeal in Hong Kong.  According to the findings in the case of Toho Limited and Ng Sik Yu CACV 36/2004 (unreported, 29 October 2004), “the right to vacant possession means actual unimpeded physical enjoyment of the wall.  The impediment does not mean any impediment but one which substantially prevent or interferes with the enjoyment of the right of possession of a substantial part of the property” (at §11). 

18.  The plaintiff in Toho Limited had let the external wall of the columns and the space in between for the length of about 12 feet to the defendant named as the wall space in the judgment.    The defendant had erected a structure (the original stall) against the external side of the wall space for his business. On 15 March 2002, the defendant demolished the original stall and erected a new stall at a location of about 2.5 inches away from the wall space.  The plaintiff claimed that the demolition carried out by the defendant was in breach of the terms of the tenancy agreement and the defendant had failed to pay the monthly rent since 20 January 2002.  The plaintiff further claimed that the new stall precluded the plaintiff from letting out the wall space to other tenants and the trading activities of the defendant in the new stall had caused nuisance and annoyance to the plaintiff.

19.  The CA had said the followings and found no vacant possession of the wall space had been delivered by the defendant :

“In this case, the wall space let to the defendant is on the external wall of the property. If the defendant is to deliver vacant possession of the wall space let to him then has to do so in a way which will enable the plaintiff to have unimpeded use of that space. By demolishing the original stall, the defendant would, of course, have provided the plaintiff with unimpeded access and use of the wall space. However, by erecting the new stall in front of the wall space, the defendant in effect prevented the plaintiff from using that part of the external wall of the property. While the new stall is an independent structure away from the exterior wall, the gap in between this stall and the exterior wall is only about 2.5 inches. The plaintiff cannot gain access to the external wall of his property through that thin gap. This thin gap between the wall space and the new stall is meaningless in the context of giving vacant possession. Although the new stall is on government land, it substantially prevents and interferes with the plaintiff’s enjoyment of the right of possession of a substantial part of its property. If the principle on the giving of vacant possession is recognised and applied, then on no account can it be said that vacant possession had been given by the defendant.” (At §13)

20.  In a gist, the CA found that the defendant in Toho Limited had ceased using the wall space rented and yet no vacant possession had been delivered since further action, ie the erection of the new stall though an independent structure away from the exterior wall, had prevented the plaintiff from gaining access to the wall space.  I found such a fact is analogous to our case here. Even though the respondent had removed the ducts or pipes inside Cockloft C and ceased using the airspace as such, by building the Wall, this had prevented the applicant from gaining access to Cockloft C.  Applying the findings in Toho Limited, the respondent cannot be said to have delivered vacant possession since the applicant’s enjoyment of the right of possession of Cockloft C had been deprived.

21.  I do not agree with Mr Nip that the order of vacant possession should specify how and what amounts to vacant possession.  Neither should the applicant be required to specify in its pleadings as to what the respondent should do to deliver vacant possession.  Whether in a given case the tenant has in fact delivered up vacant possession is a question of fact.  The question is whether the landlord could occupy the rented premises without difficulty or objection.  By delivery up of vacant possession, the tenant must ensure that the landlord can do so without obstruction.  When making the order for vacant possession, it would not be necessary for the court or the landlord to pinpoint every alleged act in delivering vacant possession.  In the present case, the respondent was all along using the Cockloft C was a fact not in dispute at the trial on liability hence the applicant was alleging vacant possession had not been delivered upon expiry of the T/A and asked for an order for vacant possession.  It is the occupation by the respondent that matters and I don’t think in any case like this, the landlord should name the specific act of occupation.  And adopting the findings above about vacant possession, one would expect the respondent to demolish the Wall and allow the applicant to occupy the Cockloft C without difficulty.  Under such circumstances, why would it be necessary for the applicant to raise the same at the trial on liability.

22.  And even though the CA in the CA Decision had found that all the respondent needs to do in delivery up of vacant possession is to cease its occupation of the airspace, I found the fact that the respondent had built the Wall inside the Cockloft C is in a way still in occupation of the airspace.  In the case of Cumberland (supra), the English Court of Appeal found the vendor had failed to give vacant possession in a contract of sale of land when there were rubbish, in the form of many sacks of cement which had hardened in the property at completion.  The Wall is something not inside the Cockloft C but subsequently built by the respondent.  The respondent left the Wall inside Cockloft C, I fail to see how this is not an occupation by the respondent.

23.  As for the respondent’s allegation that the Wall was being built on the instructions of the BD and the demolition of the same required consent of the BD as well, I do not accept his evidence.    The respondent did not impress me to be a truthful and honest witness.  The allegation that a representative of the BD requested the respondent to seal the doorway of Cockloft C is just a bare assertion by the respondent.  One would be surprised not to see any building order or anything in writing from the BD for this.  And in the course of cross-examination, the respondent even said that the door was not there at the time he purchased Shop 1 on the ground floor in 2002 and someone installed the door without his knowing and he only discovered the same during a renovation in mid-2012.  This is something never raised during the trial on liability when the lay-out of the upper ground floor where the cocklofts located is one of the disputed issue before this Tribunal in the determination as to whether the Cockloft C did exist.  Nor had this been raised in the witness statement of the respondent filed for the purpose of this hearing.  If the door was never there and was originally a wall, would it not be crucial to support the respondent’s case for the door to be sealed?  In any event, there is nothing confirmed from the BD that the demolition of the Wall requires its consent so I cannot see how the respondent can make use of this as an excuse not to demolish the same and prevented the applicant from taking vacant possession.

24.  Having said so, I do not agree with the applicant that vacant possession is only delivered upon the bailiff’s letter dated 9 March 2015.  As stated above, the applicant had managed to get back vacant possession and regained control of Cockloft C by the time the Wall was being demolished which completed on 7 March 2015.  The applicant did not have to wait for the bailiff to confirm such a fact to amount to delivery up of vacant possession.  The contention that vacant possession is only handed up till confirmation by the bailiff is misconceived.

Rental Valuation

25.  Parties had engaged a joint valuation expert, Mr Siu to assess the mesne profits from 1 May 2011 to 7 March 2015.  Mr Siu was instructed to assess the market value of Cockloft C on two different basis, namely as a void space and as a cockloft with floor slab.  His assessment is that as a void space, the market rental for the period from 1 May 2011 to 7 March 2015 should be $194,000 (“Assessment I”) whilst as a cockloft, the market rental for the same period should be $405,000 (“Assessment II”) (B/221).

26.  The parties had no argument over the assessed sum and the only dispute is to the basis of the assessment, ie should it be assessed as a void space or as a cockloft with floor slab.

27.  Quoting the CA Decision, Mr Lau for the applicant submitted that:

“... the CA’s decision is that the subject matter of the tenancy is not just the void space. The respondent is willing to pay the monthly rental to ensure the Cockloft floor slab was not rebuilt by the landlord thus affecting his food business. Further, the subject matter also involves reinstatement of the floor slab on termination of tenancy by the respondent. The monthly payment is to compensate the applicant for the (sic) not to rebuild the floor slab and rent the Cockloft with the floor slab to other person on the market.

It is therefore clear that the parties entered into the tenancy and the respondent pay for market rental of Cockloft C to compensate the landlord as if the Cockloft was with floor slab, but the respondent made a special condition that the floor slab should not be rebuild during the tenancy period and he promised to reinstate so on termination of the tenancy. Accordingly, in measuring the loss suffered by the landlord, ie the mesne profits, the court should consider the factual matrix and the context and award damages or mesne profits to compensate the landlord as if the Cockloft was with a floor slab.” (At §32-33 Closing Submissions)

28.  Mr Nip for the respondent submitted that there are generally 2 alternative basis for measuring mesne profits, the restitutionary approach and the compensatory approach (Hill & Redman’s Law of Landlord and Tenant at page 5184-5191).  Assessment II should not be adopted since the applicant had adduced no evidence of any actual loss suffered and damages based on the construction of the floor slab, an illegal structure, cannot possibly said to be reasonably foreseeable in the present case.  Instead, the respondent made use of the airspace to house the ducts and pipes instead of occupying Cockloft C as one with any floor slab and that was the extent of the benefit which he derived from the use of the airspace.  So, the sum put forward under Assessment I should be awarded.

29.  I agree with the respondent that the restitutionary approach should be adopted in the assessment of mesne profits in this case and Assessment I should be adopted in the assessment of mesne profits.

30.  The following principles from the Hill & Redman’s is relevant:

“A[5185] ... The basic premise underlying the calculation of mesne profits, as with any other claim in trespass, is that a trespasser shall not to make use of another person’s land without properly compensating that landowner for that use. Mesne profits may be calculated on a restitutionary basis, seeking to identify the extent to which the former tenant has been unjustly enriched by his occupation.

A[5187] ... In making that assessment of what the tenant would pay, it is essential to identify and consider what benefits it receives, because the object of the exercise is to identify the benefit to the tenant of the wrong it is committing.

A[5191] ... Thus, the landlord cannot have both restitutionary damages and damages quantified by reference to his actual losses without there being double recovery.  However, there may be situations where the landlord’s losses outstrip the benefit to the tenant of the trespass... In circumstances where the actual losses suffered by the landlord outstrip any sum that might have been agreed in the hypothetical negotiation, the landlord is entitled to have compensation awarded by reference to these actual losses.  If this method is adopted, the landlord is entitled to recover damages for all reasonably foreseeable losses naturally arising out of the tenant’s failure to deliver possession.”

31.  I also found the judgment of Orient Bright International Ltd v Hiang Kie Hong Kong Ltd [2005] 2 HKC relied upon by Mr Nip is on the point.  It is found by Madam Justice Le Pichon that “regardless of the position with common law damages, the plaintiff’s claim here is essentially for mesne profits, which is measured by the value of the accommodation to the trespasser, rather than the actual loss to the landlord” (at page 669-G).

32.  Adopting the principles quoted above, the mesne profits in this case should be assessed on the basis of the benefits the respondent had acquired as a result of his holding over upon expiry of the T/A.  The benefit must be by reference to the use of the Cockloft C by the respondent.

33.  As stated above, the subject matter of the T/A is a cockloft without the floor slab so the use by the respondent must be a cockloft without a floor slab.  In the CA Decision, it is also found that the respondent was to pay for the right to maintain as a void space what used to be Cockloft C during the whole term of the tenancy (§20).  By remaining in occupation after the expiry of the T/A, the respondent had been unjustly enriched by the wrongful use of the Cockloft C, the use is a use without the floor slab.  So this should be the basis for the assessment of damages suffered by the applicant.  There is no evidence to show that the applicant had suffered actual losses that outstripped the mesne profits recoverable based on the use of the respondent so as to justify the compensatory approach.  On the contrary, Mr Chung who testified for the applicant confirmed that even though the floor slab had been reinstated now, such would be removed upon conclusion of this hearing.  This tends to rebut the argument of the applicant that he suffered losses to rent out the Cockloft C with the floor slab being reinstated.

Order

34.  It is ordered that :

(a)  The respondent should pay the applicant mesne profits from 1 May 2011 to 7 March 2015 in the total sum of $194,000;

(b)  Costs order nisi that costs of the assessment of mesne profits be no order as to costs.  Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.