TAM KOK HUNG AND ANOTHER v. WONG WING

DCCJ 4211/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4211 OF 2009

--------------------

--------------------

JUDGMENT

--------------------

1.  This is the trial of the claim by the plaintiffs in DCCJ 4211/2009 (“the plaintiffs”) against the defendant in the same action (“the defendant”) for breach of a tenancy agreement.

BACKGROUND AND NATURE OF THE PLAINTIFFS’ CLAIM

2.  The plaintiffs are and were at all material times the registered owners of the property known as Flat C, 21/F, Block 1, Metro Harbour View, No 8 Fuk Lee Street, Kowloon, Hong Kong (“the Property”).

3.  By a written tenancy agreement dated 3 April 2008 (“the Tenancy Agreement”), the plaintiffs let the Property to the defendant for 2 years commencing from 15 April 2008 at the monthly rent of HK$16,500.  It was an express term of the Tenancy Agreement that both the plaintiffs and the defendant shall have the right to terminate the Tenancy Agreement after the first 12 months of the two-year term by giving to the other party one month’s prior notice of their/her intention to do so (“the Break Clause”).

4.  In or around March 2009, the plaintiffs and the defendant orally agreed to adjust the rent from HK$16,500 down to HK$12,500 with effect from 16 April 2009 (“the Oral Agreement”).

5.  The Oral Agreement was evidenced by a written note signed by the plaintiffs and the defendant dated 16 March 2009 (“the Written Note”).  The Written Note cited the fact that both parties had agreed to adjust the rent of the Property from HK$16,500 to HK$12,500 effective from 16 April 2009 to 15 April 2010. Significantly, the Written Note was captioned “Ref: Adjustment of new rent” and made no mention whatsoever of any other changes to the terms of the Tenancy Agreement.

6.  Apart from the reduction in rent, it is the plaintiffs’ case that all other terms of the Tenancy Agreement remained in force as between the plaintiffs and the defendant including the Break Clause.

7.  On 24 July 2009, the plaintiffs entered into a sale and purchase agreement (“the SPA”) with the plaintiffs in DCCJ 624/2010 (“the Purchasers”) to sell the Property at the price of HK$4,580,000 with the completion date scheduled on 4 December 2009.  Time was in every respect of the essence of the SPA and the SPA required vacant possession of the Property to be delivered to the Purchasers upon completion.

8.  Pursuant to the terms of the Tenancy Agreement, the plaintiffs gave notice of termination to the defendant by way of a letter dated 30 July 2009 through their solicitors.  By another letter dated 31 August 2009 from the plaintiffs’ solicitors to the defendant’s solicitors, the plaintiffs requested the defendant to deliver vacant possession of the Property on or before 14 October 2009.

9.  However, in breach of the Tenancy Agreement, the defendant refused to deliver vacant possession of the Property to the plaintiffs on 14 October 2009.  In fact, vacant possession of the Property was not delivered by the defendant to the plaintiffs until 14 April 2010.

10.  As a result of the defendant’s breach of the Tenancy Agreement, the plaintiffs were unable to perform their obligations under the SPA and the sale and purchase under the SPA fell through.

11.  On 22 February 2010, the Purchasers commenced DCCJ 624/2010 against the plaintiffs claiming, inter alia, damages for breach of the SPA, interest and costs.

12.  The plaintiffs’ claim against the defendant in this action is basically asking her to reimburse the sums incurred in DCCJ 624/2010 (ie both their own costs in defending that action and the damages, interest and costs paid to the Purchasers).  The plaintiffs claim the following heads of damages:-

(1)  The sum of HK$346,677, being damages which the plaintiffs were held liable to pay to the Purchasers under the order of Her Honour Judge Mimmie Chan dated 24 March 2011 made in DCCJ 624/2010.

(2)  The sum of HK$222,525, being the Purchasers’ indemnity costs incurred in DCCJ 624/2010 and interest on such costs.  By the order of Her Honour Judge Mimmie Chan dated 27 June 2011 in DCCJ 624/2010, the plaintiffs were ordered to pay enhanced interest on the judgment sum at the rate of 4% above judgment rate, indemnity costs and interest on costs at the rate of 2% above judgment rate from 20 August 2010 until payment, on the ground that the amount awarded in favour of the Purchasers under the judgment in that action was higher than the sum comprising a Sanctioned Offer made by the Purchasers on 23 July 2010. By a consent order dated 6 December 2011 in DCCJ 624/2010, the said indemnity costs and interest on costs payable by the plaintiffs to the Purchasers were agreed at HK$222,525.

(3)  The sum of HK$29,633, being the said enhanced interest on the judgment sum as stated in (2) above.

(4)  The costs incurred by the plaintiffs in defending DCCJ 624/2010.

THE DEFENDANT’S CASE

13.  The defendant’s case is that in the light of falling market rents in March 2009, she intended to exercise the Break Clause and rent a flat with lower rent elsewhere.  Before signing the Written Note, it was orally agreed in a telephone conversation in March 2009 between the plaintiffs and the defendant’s agent/friend, Mr Leung Ho Yin (“Leung”), that in addition to the reduction in rent, the Break Clause would not be exercised by the parties during the period when the new rent was payable.  The defendant therefore objected to vacating the Property on being informed of the sale, and so reply to the plaintiffs on 20 August 2009 through solicitors.

14.  At paragraph 5(b) of the Amended Consolidated Defence and Counterclaim dated 5 July 2011, the defendant’s defence was pleaded as follows:

“The defendant avers that in or about March 2009, after the defendant having indicated to the plaintiffs her intention to exercise the Break Clause, the 1^st named plaintiff had an oral discussion with the defendant regarding reduction of rental of the premises.  It was finally agreed that the rental of the Premises would be reduced from HK$16,500 to HK$12,500 per month and the security deposit would be reduced from HK$33,000 to HK$25,000 in consideration of the defendant continuing to rent the Premises under the Tenancy Agreement and both the defendant and the plaintiffs would not exercise the Break Clause up to the end of the term of the Tenancy Agreement (“the New Rent Deal”).”

ANALYSIS OF EVIDENCE

15.  It is accepted by the defendant at trial that in fact she never spoke to the plaintiffs in March 2009 when the Oral Agreement was made. She instructed Leung, a friend of hers, to discuss with the plaintiffs the possibility of reducing the monthly rent from HK$16,500 to HK$12,500.  The defendant’s account of what was discussed was simply what Leung told the defendant over the telephone.

16.  I agree with Mr Vincent Chen, counsel acting for the plaintiffs at trial, that it is therefore the evidence of Leung which is most material. According to paragraph 3 of Leung’s witness statement dated 9 January 2012, which was adopted as his examination-in-chief at trial, he told the 1^st named plaintiff during a telephone conversation in around March 2009 that the defendant intended to exercise the Break Clause and terminate the Tenancy Agreement to take advantage of the falling rental market, unless there was a reduction in rent, in which event the defendant would “consider” continue renting for one more year.  The 1^st named plaintiff immediately agreed to a reduction in rent to HK$12,500 in order to retain the defendant, and said that he would reduce the agreement into writing to confirm.  Leung told the defendant of the Oral Agreement subsequently.

17.  I think paragraph 3 of Leung’s witness statement, which contained the whole of his evidence on the Oral Agreement, is worth quoting in full:-

“在當日的電話中，本人十分直接地向譚先生［the 1^st named plaintiff］表示當時香港的房價及租金下跌了很多，在該物業附近租住一個面積相約的單位只需要港幣12,500元左右，該物業的租金相對太貴，所以汪小姐［the defendant］打算在租約 “死約” 期後退租，改租一個租金較平的單位，除非譚先生願意減租，汪小姐才會考慮再租一年；譚先生即時表示願意減租至港幣12,500元以挽留汪小姐，並說會直接聯絡汪小姐書面簽署作實。本人把此消息轉述予汪小姐後，並沒有再跟進事件。”

18.  Nowhere in his evidence did Leung mention that there was any discussion with the 1^st named plaintiff on the question of the exercise of the Break Clause during the second year of the term.  For the reduction in rent, it appears from Leung’s evidence that the only consideration moving from the defendant was for her not to immediately exercise the Break Clause, but would instead “consider” to continue to lease the Property for another year. According to the evidence of Leung as quoted above, there was no agreement by the defendant not to exercise the Break Clause during the second year of the term under the Tenancy Agreement.  There is certainly no evidence of any discussion with the 1^st named plaintiff as to whether the plaintiffs would be entitled to exercise the Break Clause during the second year of the term.  On this basis alone, the defendant’s allegation of the “New Rent Deal” under paragraph 5(b) of the Amended Consolidated Defence and Counterclaim must fail because there is simply no evidence to support the existence of such an agreement.

19.  I also agree with Mr Chen that the parties’ intentions are further illustrated by the Written Note.  It is clear from the title “Ref: Adjustment of new rent” that the subject matter of the discussion in March 2009 was to adjust the rent.  The exclusion of the operation of the Break Clause during the second year is also not recorded in the Written Note.

20.  Moreover, I have considered the following circumstantial evidence in rejecting the defendant’s case:-

(1)  If there was the so-called New Rent Deal, the defendant would not have signed the Written Note signifying her agreement to the contents therein.  The defendant would have immediately called Leung and/or the 1^st named plaintiff to ask why the New Rent Deal was not recorded in the Written Note. Admittedly, she did nothing of the sort but put her signature onto the Written Note agreeing to the content.

(2)  If there was the New Rent Deal and she knew that she had a right to be in possession of the Property for the whole of the second year of the term, she would not have allowed those persons allegedly the friends of the 2^nd named plaintiff to inspect the Property in July 2009.

(3)  If there was the New Rent Deal, when the 2^nd named plaintiff texted the defendant telling her that the Property had been sold, the defendant would have responded immediately saying that she had an oral agreement with the plaintiffs.  But in fact she did nothing but waited for 2 to 3 days more.  It was only when the 2^nd named plaintiff took the initiative to call her did she mention that there was an oral agreement entitling her to stay.

21.  In conclusion, for the reasons stated above, I have no hesitation in making a finding of fact that there was no agreement between the plaintiffs and the defendant that they would not exercise the Break Clause during the second year of the term under the Tenancy Agreement.

LOSS AND DAMAGE

Remoteness of loss

22.  Mr Wilfred Tsui, counsel acting for the defendant, submitted that the loss suffered by the plaintiffs was not in the reasonable contemplation of the parties when the Tenancy Agreement was made and thus the alleged damages are too remote to be recoverable.  I do not agree.

23.  The learned editors of Chitty on Contracts, 30^th edition, Vol 1 at para 26-054 stated as follows:

“The principles laid down in Hadley v Baxendale, above, have been interpreted and restated by the Court of Appeal in 1949 in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd and by the House of Lords in 1967, in Koufos v C. Czarnikow Ltd (the Heron II). The combined effect of these cases may be summarized as follows: A type or kind of loss is not too remote a consequence of a breach of contract if, at the time of contracting (and on the assumption that the parties actually foresawthe breach in question), it was within their reasonable contemplation as a not unlikely result of that breach……”.

24.  In the present case, under cross-examination, the defendant admitted that:-

(1)  The plaintiffs never promised the defendant that they would not sell the Property within the next 2 years.  In fact, whether the plaintiffs would sell the Property or not was not discussed when they entered into the Tenancy Agreement.

(2)  As at 3 April 2008 (ie the date of the Tenancy Agreement), the defendant was a joint owner, together with her mother, of a property in a development known as the Fairview Garden at Tai Po Road, and the defendant understood that it was within the legal right of a property owner to sell his/her properties at any time.

(3)  The defendant understood that it was possible to sell a property even though there was a tenancy agreement attached to it.

(4)  The defendant understood that it was possible for the property owner to sell the property during the period where both parties had the right to terminate the tenancy (ie “於生約期間”).

(5)  The defendant understood that during the period when both parties had the right to terminate the tenancy (ie “於生約期間”), each party could tender one month’s notice to terminate the tenancy.

(6)  The defendant also understood that if, after the property owner had tendered notice to terminate the tenancy, the tenant refused to move out, the property owner might face litigation brought by the purchasers to which the property had been sold.

25.  Based on the above evidence, it is clear that the loss and damage in this case are not too remote a consequence of the defendant’s breach of the Tenancy Agreement, in that the plaintiffs being sued by the Purchasers was within the defendant’s reasonable contemplation as a not unlikely result of her refusal to move out of the Property after the same had been sold.

Duty to mitigate loss

26.  In the Amended Consolidated Defence the defendant has not pleaded any failure to mitigate on the part of the plaintiffs other than the failure to sell the Property in the rising market within 6 months after regaining possession from the defendant.  This point has been conceded as untenable in paragraph 13 of the defendant’s Opening Submissions and was not pursued by the defendant at trial.

27.  However, in the same paragraph of the defendant’s Opening Submissions, the defendant stated that “D will however continue to take issue that Ps should have mitigated on other matters, including the amount of the damage awarded, interests and costs”.  It should be noted that notwithstanding the defendant’s stated position, no questions were put to either the 1^st named plaintiff or the 2^nd named plaintiff on the topic of mitigation when they gave evidence at trial.

28.  It is trite law that the onus of proof on the issue of mitigation is on the defendant.  If she fails to show that the plaintiffs ought reasonably to have taken certain mitigating steps, then the normal measure will apply (see:  McGregor on Damages, 18^th edition, at para 7-019).

29.  In this case, no evidence has been adduced by the defendant to challenge the course taken by the plaintiffs in defending DCCJ 624/2010 brought by the Purchasers against the plaintiffs.  No questions had been put to either the 1^st named plaintiff or the 2^nd named plaintiff on this issue.  Clearly, the defendant has failed to show that the plaintiffs ought reasonably to have taken other steps to mitigate their loss and damage.

30.  Further, it has not been suggested to the plaintiffs’ witnesses by the defendant that the plaintiffs ought to have accepted the Sanctioned Offer from the Purchasers or that the decision not to accept the Sanctioned Offer was unreasonable.  I agree with Mr Chen that in the absence of any objection from the defendant to the reasonableness of these steps taken by the plaintiffs, the court cannot test the reasonableness of these steps in a vacuum.  There is no basis for the court to come to the conclusion that it was unreasonable for the plaintiffs not to accept the Sanctioned Offer.

31.  Finally, the costs and interest on costs actually paid by the plaintiffs to the Purchasers were in the agreed amount of HK$222,525 (rather than the costs being taxed on an indemnity basis pursuant to the order of Her Honour Judge Mimmie Chan dated 27 June 2011).  The defendant has not challenged that the plaintiffs acted unreasonably in entering into this agreement on costs.  I agree that no reduction should be made by the court to this sum.

CONCLUSION AND ORDER

32.  For the reasons stated hereinabove, the plaintiffs claim against the defendant in DCCJ 4211/2009 should be allowed.

33.  I give judgment in favour of the plaintiffs against the defendant for the sum of HK$573,835.00 (ie HK$346,677.00 + HK$222,525.00 + HK$29,633.00 – HK$25,000.00, being rental deposit forfeited by the plaintiffs for which credit should be given).

34.  On the above judgment sum I will award interest to the plaintiffs at 1% above HSBC’s best lending rate from the dates when the individual payments were made by the plaintiffs until judgment, and thereafter at the judgment rate until payment.

35.  I also give judgment in favour of the plaintiffs against the defendant for damages, being the costs incurred by the plaintiffs in defending the Purchasers’ claim in DCCJ 624/2010 (on an indemnity basis) to be assessed.  I further direct that such damages be assessed by a Master under Order 37, rules 1 and 1A of the Rules of the District Court, Cap 336.

36.  The counterclaim by the defendant is dismissed.

37.  The plaintiffs shall have the costs of this action against the defendant, including any costs reserved (if any).  Costs shall be taxed, if not agreed, with certificate for counsel.

38.  The above orders as to interest and costs are nisi and shall become absolute in the absence of any application with 14 days to vary the same.

39.  Lastly, I thank counsel on both sides for their helpful assistance in this matter.