CHINESE ESTATES (WINDSOR HOUSE) LTD v. ETERNAL ETHOS LTD

HCA 1655/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1655 OF 2011

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D E C I S I O N

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1. This is the Assessment of Damages hearing conducted following a breach of a tenancy agreement and pursuant to a judgment dated 31 January 2012 entered against the defendant.

2. Plaintiff is the registered owner of the Windsor House, Causeway Bay.

3. Pursuant to a tenancy agreement, the defendant as tenant of the plaintiff took possession of the premises known as G31 on ground floor of Windsor House (“the said premises”) at monthly rental of $140,000 for a term of 3 years commencing from 28 December 2007 to 27 December 2010 (both dates inclusive).

4. Clause 1 of the Tenancy Agreement provides, inter alia that the defendant covenants to pay rent, payable in advance without any deduction or set-off on the first day of each and every calendar month and shall pay on demand by way of rent interest on such unpaid rent and other moneys due from the defendant under the terms and provisions of the Tenancy Agreement from the due date until payment at the rate of three per cent per annum above the rate from time to time quoted by the HongKong and Shanghai Banking Corporation Limited as its prime rate or best lending rate for Hong Kong Dollars in Hong Kong (“the HSBC Prime Lending Rate”).

5. The tenancy agreement stipulates that the defendant shall also pay monthly sum of $8,876.00 as service charges (exclusive of rates) and monthly $1,268 as promotion levy in advance on the first day of each calendar month.

6. It also provides that the defendant shall pay rates charged on the premises quarterly in advance and shall be or be deemed to be payable on the first day of January, April, July and October.

7. Clause (7)(a)(i) of the Tenancy Agreement provides that should the rent, service charges, rates or other outgoing or damages payable shall be unpaid in arrears for 8 days after the same shall have become payable, it shall be lawful for the plaintiff to re-enter the premises and deposit paid shall be absolutely forfeited to the plaintiff as and for liquidated damages and not as penalty.

8. The same also provides that all costs and expenses of and incidental to any demand for rent or any other sum payable under these presents or actions or distraint for recovery of the same shall be paid by the defendant on a full indemnity basis and shall be recoverable from the defendant as a debt.

9. In the Statement of Claim, plaintiff claims that in breach of the Tenancy Agreement and despite the request of the plaintiff, the defendant has failed to pay rentals since 1November 2008, service charges and promotion levy since 1 October 2008 and interest thereon since 19 August 2008 and that in repudiatory breach of the Tenancy Agreement, the defendant without any prior consent or permission of the plaintiff, had on or about 9 February 2009 by way of letter purportedly surrendered the possession of the premises by returning the 2 sets of eight (8) keys of the premises to the plaintiff who thereafter exercised its right of re-entry on 13 March 2009.

10. Plaintiff alleges that as at 13 March 2009, ie the day when plaintiff exercised their right of reentry, the defendant is indebted to the plaintiff in the sum of $695,193.61 being the aggregate sum of outstanding rent, service charges, rates and promotion levy.

11. Plaintiff says further that there is a balance security deposit and reinstatement deposit due to be refunded to the defendant by the plaintiff in relation to a tenancy affecting another shop in Windsor House in sum of $262,152.24 and that after applying the same towards payment of the said sum of $695,193.61, the sum of $433,041.37 is still outstanding from the defendant.

12. In the Statement of Claim, the plaintiff is claiming further loss of rent, service charges, rates and promotion levy from 14 March 2009 to 27 December 2010 in sum of $3,283,136.98 and interest thereon at rate of 3% above prime rate or best lending rate for Hong Kong Dollars in Hong Kong quoted by Hongkong and Shanghai Banking Corporation.

13. As defendant did not file any notice of intention to defend, on 31 January 2012 plaintiff entered final and interlocutory judgment against the defendant

(1) in sum of $583,391.67;

(2) interest on the sum of $433,041.37 at the rate of 3 per cent per annum above the HSBC Prime Lending Rate from 28 September 2011 to the date hereof and thereafter at judgment rate until payment;

(3) damages for loss of rent, service charges and rates and promotion levy to be assessed; and

(4) damages representing legal costs and expenses to be assessed on indemnity basis.

14. In fact, $583,391.67 represents the total of the said sum of $433,041.37 and interest thereon up to 13 March 2009.  Interest period in Appendix 2 of the Statement of Claim ends on 13 March 2009, the interest period for paragraph (2) of the judgment should therefore commence from 14 March 2009.

15. Plaintiff’s solicitor should seek to amend the judgment under the slip rule as this is clearly a typographical mistake.

16. On date of assessment of damages hearing, the defendant still failed to turn up.

17. In support of the claim for damages, Cheng Tse Wing, Senior Leasing Officer of the plaintiff gave evidence.  She had previously on 7 February 2014 served a witness statement.

18. For the purpose of this assessment hearing, the court needs to assess the damages payable to the plaintiff under paragraphs 3 and 4 of the judgment.

19. It is trite law that in case of breach of contract, the innocent party affected is under a duty to mitigate its loss.

20. In her submission, Ms M Li, counsel for the plaintiff recognized that in assessing contractual damages for breach of the tenancy agreement, it is established that loss of rental that would otherwise have been payable to the landlord but for the repudiatory breach by the tenant is recoverable by the landlord.  She referred this court to the case of Wing Siu Co Ltd v Goldquest International Ltd (unreported, HCA 3183/2001 and HCA 4145/2001, 18 August 2006) where Master de Souza said

“7. An aggrieved landlord’s entitlement to damages for wrongful repudiation of a tenancy agreement following general contractual principles is well established in cases such as Hop Woo Cheung Enterprises Ltd v Intergroup Industries Ltd [1982] HKC 436 and Sano Screen Mfrs v J & R Bossini [2000] 3 HKC 216. He can legitimately anticipate in the measure of damages to be awarded, such damages as 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: Chitty on Contracts, 29^th Ed. Vol. 1, at 26-094. He is, accordingly, expected to act reasonably and to take such steps as are necessary to re-let the vacant premises at a market rent: Merry “The Hong Kong Tenancy Law”, 4^th Ed. At page 167-168. However, it falls upon the errant party to establish that mitigation has not taken place: Chan Annie v Lau Wai Kwong [1984] 1 HKC 231, 235G-H; Lai Hon Ming v Fong Wai Ching HCPI 994/2001, 21 Oct 2002, unreported.

8. The duty to mitigate is not onerous as the landlord is not required to do anything other than in the ordinary course of business: Chitty at 26-095; MacGregor on Damages 16^th ed. Paras. 322-323.” (Emphasis added.)”

21. It was said that for the setting of an asking headline rental, the plaintiff was entitled to do so in anticipation of the bargaining process during negotiation with the prospective tenant.

22. Plaintiff said in case of Wing Siu Co Ltd, the plaintiff there pursued a high headline rent in a falling market and the premise was only taken up by a new tenant some 31 months later.  At issue was whether the plaintiff should have set a lower asking rent as part of their reasonable mitigation.  The learned Master accepted the plaintiff’s evidence regarding potential deleterious effect of lowering rental on a single unit to below market rent:

“15. ……As a whole-building landlord, such an approach would impact on rent reviews, renewals and new lettings of other premises. The plaintiff was duty bound to do not more than was reasonably necessary to market the premises. Taking any steps that may have an adverse consequence on the rental tone of the building is not to be expected of the plaintiff in my considered view.”

23. In the present case, the plaintiff had rented the said premises to third party on 1 November 2010, i.e. 20 months after the defendant surrendered possession of the said premises.

24. According to Cheng, defendant surrendered possession by delivering keys of the said premises to the plaintiff on 9 February 2009, plaintiff waited till 13 March 2009 to “exercise their right of re-entry”.

25. It is Cheng’s evidence that after defendant moved out, they had engaged the service of their own leasing officers and other estate agents to let the said premises to third party but unsuccessful.

26. Although the plaintiff had previously been renting the said premises at roughly $100 per sq ft, Cheng said the plaintiff had been asking for $150 per sq ft in this process.

27. Cheng, when asked what was the best offer for the said premises before it was let out in November 2010 said she had no record of offers.  This is very strange.

28. When asked if there was any offer to rent the said premises before November 2010, Cheng replied she had no idea.

29. The court was further told that after the defendant vacated from the said premises, the adjoining shop spaces in turn had their tenancy not renewed and in the end, 10 odd adjoining shop spaces including that of the said premises were rented to this third party in November 2010.  Cheng said this decision to let out a number of shops to this third party only occurred in year 2010.

30. Though it is accepted that plaintiff is not expected to ask for rental lower than market price, as it would affect the market rental of the whole Windsor House and that the plaintiff, though under a duty to mitigate can ask for a higher rental in anticipation of bargain, there must be a limit to the setting of this asking rental.  In the present case, existing rental is set at $100 per sq ft but the plaintiff is asking for $150.  Plaintiff’s witness is unable to tell of any offer in the 20 months’ waiting time.

31. I find the asking price of $150 per sq ft in the circumstance totally unreasonable as it must have been far excess of the prevailing market rent.  In fact, in November 2010, it had only been rented out at $38.5 per sq ft (though the total area let out is bigger).  The offer at $150 per sq ft is, in my view, unreasonably high, the lack of receipt any offer to coupled with the fact that the said premises was later let out together with 10 odd other adjoining tenements.

32. On evidence before me, the plaintiff has only been able to satisfy me that loss to the plaintiff, so far as loss of rental, loss of rates, loss of promotion levy and loss of service charges are concerned, arising from repudiatory breach of the defendant ends on 31 October 2009 and not further.

33. I am not satisfied that any loss of rental, service charges, promotion levy, rates for the period after 30 October 2012 results from the repudiatory breach by the defendant.

34. Accordingly, under paragraph 3 of the judgment, the damages is assessed as follows: -

(a)   Loss of rent (at rate of $140,000 per month)

Period	Amount (HK$)
14/03/2009 to 31/03/2009	81,290.32
01/04/2009 to 31/10/2009	980,000.00
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Subtotal:	1,061,290.32

(b)   Loss of service charge (at rate of $8,876 per month)

Period	Amount (HK$)
14/03/2009 to 31/03/2009	5,153.81
01/04/2009 to 31/10/2009	62,132.00
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Subtotal:	67,285.81

(c)   Loss of rates

Period	Amount (HK$)
14/03/2009 to 31/03/2009	2,390.00
01/04/2009 to 30/06/2009	13,800.00
01/07/2009 to 30/9/2009	13,800.00
01/10/2009 to 31/10/2009	3,250.00
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Subtotal:	33,240.00

(d)   Loss of promotion levy (at rate of $1,268 per month)

Period	Amount (HK$)
14/03/2009 to 31/03/2009	736.26
01/04/2009 to 31/10/2009	8,876.00
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Subtotal:	9,612.26

(e)   Interest of loss of rent

Charge Period	Interest Periods	Number of Days	Interest Amount (HK$)
14/03/2009-31/03/2009	01/03/2009-31/01/2012	1067	19,010.80
01/04/2009-30/04/2009	01/04/2009-31/01/2012	1036	31,789.58
01/05/2009-31/05/2009	01/05/2009-31/01/2012	1006	30,869.03
01/06/2009-30/06/2009	01/06/2009-31/01/2012	975	29,917.80
01/07/2009-31/07/2009	01/07/2009-31/01/2012	945	28,997.25
01/08/2009-31/08/2009	01/08/2009-31/01/2012	914	28,046.26
01/09/2009-30/09/2009	01/09/2009-31/01/2012	883	27,094.79
01/10/2009-31/10/2009	01/10/2009-31/01/2012	853	26,174.25
			___________
Subtotal:			221,899.76

(f)   Interest for loss of service charges

Charge Period	Interest Periods	Number of Days	Interest Amount (HK$)
14/03/2009-31/03/2009	01/03/2009-31/01/2012	1067	1,205.28
01/04/2009-30/04/2009	01/04/2009-31/01/2012	1036	2,015.46
01/05/2009-31/05/2009	01/05/2009-31/01/2012	1006	1,957.09
01/06/2009-30/06/2009	01/06/2009-31/01/2012	975	1,896.79
01/07/2009-31/07/2009	01/07/2009-31/01/2012	945	1,838.42
01/08/2009-31/08/2009	01/08/2009-31/01/2012	914	1,778.11
01/09/2009-30/09/2009	01/09/2009-31/01/2012	883	1,717.81
01/10/2009-31/10/2009	01/10/2009-31/01/2012	853	1,659.44
			___________
Subtotal:			14,068.40

(g)   Interest of loss of promotion levy

Charge Period	Interest Periods	Number of Days	Interest Amount (HK$)
14/03/2009-31/03/2009	01/03/2009-31/01/2012	1067	172.19
01/04/2009-30/04/2009	01/04/2009-31/01/2012	1036	287.92
01/05/2009-31/05/2009	01/05/2009-31/01/2012	1006	279.58
01/06/2009-30/06/2009	01/06/2009-31/01/2012	975	270.97
01/07/2009-31/07/2009	01/07/2009-31/01/2012	945	262.63
01/08/2009-31/08/2009	01/08/2009-31/01/2012	914	254.01
01/09/2009-30/09/2009	01/09/2009-31/01/2012	883	245.40
01/10/2009-31/10/2009	01/10/2009-31/01/2012	853	237.06
			___________
Subtotal:			2,009.76

(h)   Interest of loss of rates

Charge Period	Interest Periods	Number of Days	Interest Amount (HK$)
14/03/2009-31/03/2009	01/01/2009-31/01/2012	1126	589.84
01/04/2009-30/06/2009	01/04/2009-31/01/2012	1036	3,133.54
01/07/2009-30/09/2009	01/07/2009-31/01/2012	945	2,858.30
01/10/2009-31/10/2009	01/10/2009-31/01/2012	853	607.61
			___________
Subtotal:			7,189.29

Total of a + b + c + d + e + f + g + h = $1,416,595.60

35. Plaintiff is also asking for damages representing legal costs and expenses to be assessed on indemnity basis.  As Clause 7(a)(1) of the tenancy agreement clearly provides for all costs and expenses of and incidental to any demand for rent or any other sum payable under these presents or actions or distraint for the recovery of the same shall be paid by the tenant on a full indemnity basis and shall be recoverable from the tenant as a debt, I see no reason why cost of this action (including that of assessment of damages) on indemnity basis should not be made.

36. Coming to the assessment of this head of damages, as far as costs of the present action is concerned, the plaintiff had produced an invoice from their solicitors, S Y Wong & Co, where it is stated that plaintiff’s solicitors is charging agreed costs of $35,000 for the action.  I allow the sum as this is very reasonable taking into consideration of the work done up to the assessment of damages hearing and the consequential work.

37. Coming to the counsel fee in this bills, plaintiff claimed 2 counsels fees, including both Ms M Li here and another counsel.  The court is not assisted as to how the other counsel was involved in the present action.  Ms Cheng, the only witness for the plaintiff was unable to assist this court when asked as to how this invoice came about.

38. I will award in full only the counsel fee of Ms M Li in sum of $12,000 as claimed.

39. The claimed photocopying charges etc in sum of $1,000 is also allowed.

40. The total costs allowed for this action is therefore $48,000.

41. Needless to say, interests on cost would be allowed for at judgment rate from date of judgment till date of payment.

42. As for cost of for the distraint actions, plaintiff produced receipts and statement in support.

43. In court, plaintiff waived $325 in Distraint No 2582 of 2008 and $575 in Distraint No 3498 of 2008 but claim $1,869 in Distraint No 385 of 2009 and $586 in Distraint No 1034 of 2009 totalling $2,455.  The plaintiff is awarded the same with interest thereon from date of judgment till payment at judgment rate.

44. Plaintiff claimed also reinstatement costs.  In the witness statement by Cheng, plaintiff said defendant did not deliver the said premises in a bare shell as agreed and provided for in the tenancy agreement.  They said as a result they had incurred reinstatement cost.

45. In the witness statement, she referred to Clause 5(i)(i) of the tenancy agreement.

46. This court noticed however that plaintiff did not in the Statement of Claim plead such a claim.

47. It is also not covered by the judgment dated 31 January 2012 and I am unable to award any sum for reinstatement although I am willing to make such an award had the same been pleaded.

SUMMARY

Damages assessed under paragraph 2 of judgment

48. $1,416.595.60 with interests at judgment rate from date of judgment till date of payment.

Damages assessed under paragraph 3 of judgment

49. $50,455 (total of $48,000 + $2,455) with interests at judgment rate from date of judgment till date of payment.

50. This court noted that Ms M Li counsel for the plaintiff has failed to address this court on the cash deposit of $450,432.00 paid by the defendant to the plaintiff under the tenancy agreement.  In enforcing the judgment in including the award assessed under paragraphs 2 and 3 of the judgment the plaintiff has to give credit to the defendant the said $450,432.00.

51. The defendant here had paid the deposit pursuant to clause 7(i)(i) of the tenancy agreement.

52. The same states that at the expiration or sooner determination of the term hereby created if the tenant shall have paid all rent, service charges and other moneys payable hereunder and if there shall be no breach of any of the said covenants, restrictions, stipulations and conditions on the tenant’s part to be observed and performed the landlord will repay to the tenant within thirty (30) days after the tenant shall have surrendered to be landlord vacant possession of the premises the said sum without any interest thereon but if there shall be any money due to the landlord, the landlord may apply such deposit towards payment of such sums due, and if there shall be any breach of any of the said covenants, restrictions, stipulations and conditions on the part of the tenant the landlord shall pay or apply the said deposit or such part thereof as shall be required towards remedying such breach insofar as this may be possible without prejudice to any of the landlord’s rights or remedies hereunder provided.

53. Accordingly, after adjustment to awarded sums under paragraphs 2 and 3, the defendant shall pay the plaintiff the sum of $1,016,618.60 (being $1,416,595.60 + $50,455 - $450,432) with interests at judgment rate from date of judgment to date of payment.