FAR EAST RENT-A-CAR LTD v. FAVOUR LINK INTERNATIONAL LTD

DCCJ 1206/2023

[2026] HKDC 336

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1206 OF 2023

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BETWEEN

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JUDGMENT

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1.  This is my judgment for a dispute between the plaintiff (“P” / “Avis”) and the defendant (“D” / “Regal”) over a set of lease and licence agreements which they agreed had been breached by D during Covid.

2.  Before I go into the undisputed facts, I must draw the parties’ attention to what was said by Professor Ross Cranston, a former judge of the High Court of England and Wales, in Judging (OUP, 23 October 2025, p.199 onwards, under the sub-heading “Fact-Finding”), as follows: -

“… Rather than assessing whether evidence is truthful from the manner in which it is given, it is now recognized that the judge must focus on its content and consider whether it is consistent with other evidence, including the witness’s previous evidence, and with known or probable fact… If there are documents, these can be invaluable in establishing facts, especially with documents prepared before the dispute arose or documents unconnected with the dispute…”

3.  Numerous local authorities, including Hu Lan v David Golden [2023] HKCFI 873 (§36, per Deputy Judge Herbert Au-Yeung, as he then was), expressed similar views, suitably emphasizing the great importance of contemporaneous documents in the judicial fact-finding process.

4.  In a commercial or landlord-and-tenant case where one of the parties (such as P in our case) claimed “loss of profits”, it is almost never good enough for a director of the litigant to come to Court to give her own estimation of loss orally, without first producing all contemporaneous pre-litigation documents (such as tax returns, audited accounts, signed official receipts, money transfer records, commercial contracts, etc). Whilst some litigants conducting cases involving informal intra-family arrangements or ancient history may well be forgiven for failing to be helpful in producing relevant documents, the same cannot be said for litigants conducting cases like the present one, where material contemporaneous documents were not lost but “buried” for no valid reason. Since litigation is an inherently risky activity – see Mr Justice Lightman “Litigation: The Last Resort” (2004) New Law Journal 185 and Pacific Ace Finance Limited v Delay & Another [2023] 4 HKC 424 [2023] HKDC 611 (§31, per Deputy Judge Kenneth KY Lam) – it is not my wish that P or D should ever have to litigate again. If a litigant such as P or its associates must use litigation as its means of dispute resolution, it must also take its disclosure obligations in law seriously, and be helpful to the Court itself.

5.  In the present case, I agree with §9 of D’s closing submissions that P plainly failed to disclose or produce not just a few but a plethora of highly material documents, and that was just unhelpful.

6.  I hope all litigants who elect to use litigation as their means of dispute resolution can take their disclosure obligations seriously.

Undisputed Facts

7.  At all material times, D was the operator of a hotel at 71 Mody Road, Tsim Sha Tsui, Kowloon, Hong Kong (“the Hotel”). The Hotel had a shopping arcade with several floors. D had full authority to deal with all shops in the shopping arcade in such way as it saw fit, including by letting or licensing them to external tenants such as P.

8.  For all practical purposes, one Paliburg Estate Agents Limited (“PEAL”) was D’s estate agent. It had full authority to act on behalf of D to deal with matters relating to all shops in the Hotel.

9.  P was a corporation in the car-rental business, operating as a franchisee under the well-known brand-name “Avis”. Since around 2014, P had a director called Connie Tai (“Connie”). Connie gave live evidence under oath in this matter, during which she accepted, as was the truth, that she failed to produce many documents at this trial[1]. Connie was a daughter of another director of P also surnamed Tai. Under D’s cross-examination, Connie accepted she was an experienced businesswoman[2].

10.  For a number of years, P was a tenant of some of the shops in the Hotel. The following lease and licence agreements vis-à-vis P’s usage of those shops (“the Agreements”) were valid and effective at time of their execution: -

(1) Agreement for P’s usage of Shop Nos.G06-G08 from 1 December 2020 to 30 November 2022 (“the G06-G08 Agreement”) at HK$50,000 per month for the first year and HK$65,000 per month for the second year.

(2) Agreement for P’s usage of Shop No.B113 from 1 December 2020 to 30 November 2022 (“the B113 Agreement”) at HK$7,000 per month.

(3) Agreement for P’s usage of Shop No.B110 from 30 July 2021 to 30 November 2022 (“the B110 Agreement”) at HK$7,000 per month.

11.  P paid D a total of HK$368,310 as deposits (“the Deposits”) for its usage of the above shops (“the Premises”).

12.  P paid its rent to D until D suspended its collection for reasons set out below.

13.  In early 2022, the Hong Kong Government implemented the Community Isolation Facility Hotel Scheme (“the CIF Scheme”) which provided isolation accommodation for people tested positive for Covid but showed no or mild symptoms. The CIF Scheme commenced on 12 March 2022, and D chose to take part in the same. Just shortly before the starting date of the CIF Scheme, by letters dated 1 March and 10 March 2022 (“the March 2022 Letters”), PEAL, acting on behalf of D, requested P to move out of the Premises until further notification. The key parts of the March 2022 Letters read: -

“We act for Favour Link International Limited, the Landlord of the Premises. To combat the fifth wave outbreak of Covid-19 epidemic, the government has implemented the Community Isolation Facility (CIF) Hotel Scheme. This scheme aims to provide accommodation to isolate people who test positive for Covid-19 but have no or mild symptoms. Regal Kowloon Hotel (“RKH”) is selected as one of such Hotels commencing tentatively on 12th March 2022. The scheme will be lasted for 3 months, subject to the further review by the government. All Tenants at RKH are required to move out on or before 11th March 2022 until further notification from the Landlord. In order to compensate your loss due to the CIF Hotel Scheme, the Landlord is preparing to waive the existing rent, air-conditioning charges, management fees and government rates, tentatively from 12^th March 2022 to 11^th June 2022 (both days inclusive) as a concessional arrangement.”

14.  By 11 March 2022, P moved out of the Premises. Since then, P stopped paying anything to D vis-à-vis the Premises.

15.  Upon moving out of the Premises, P also took the following steps (“the Relocation”): -

(1) Renting 503A & 503B, Harbour Crysal Centre, No.100 Granville Road, Tsim Sha Tsui, Kowloon (“the New Office”) at a monthly rent of HK$35,000, with a term of 1 year from 10 March 2022 to 9 March 2023; and

(2) Renting G14-G15, G/F, Peninsula Centre, No.67 Mody Road, Tsim Sha Tsui, Kowloon (“the New Shop”) at a monthly rent of HK$45,000, with a term from 1 April 2022 to 30 September 2022.

16.  On 11 June 2022, D ceased to participate in the CIF Scheme.

17.  On 12 June 2022, D started its participation in the Designated Quarantine Hotel Scheme (“the DQH Scheme”).

18.  On 29 November 2022, P returned the relevant keys to D.

19.  P did not reinstate or clean up the Premises, but commenced this action on 22 March 2023, serving its Statement of Claim (“SoC”) on 25 April 2023, claiming a refund of the Deposits in the sum of HK$368,310 plus damages for breach of the Agreements “in a sum of HK$2,903,597.00 or such sum as this Honourable Court may award”.

P’s Case

20.  P claims that D’s breach of the quiet enjoyment clauses in the Agreements was repudiatory, and P accepted that repudiation.

21.  For damages, §15 of P’s SoC pleaded the following sums:

Particulars	Amount
Extra rental costs as a result of the Relocation and incidental costs	HK$285,123
Costs in moving	HK$11,428
Costs for telecommunication, computer, security and like items as a result of the Relocation	HK$49,845
Decoration fees and equipment installed at the New Office and the New Shop	HK$264,397
Loss of profits	HK$2,292,804
Total:	HK$2,903,597

22.  At §37 of P’s opening, P suggested that in calculating P’s loss of profits this Court should “tolerate a level of uncertainty”, citing Karmer, The Law of Contract Damages (3^rd Edition, Hart Publishing), p.476.

D’s Case

23.  D accepted it breach the Agreements but maintained its breach was not repudiatory, and that even if it was, P affirmed the Agreements by clear words or conduct, relying on Ramsbury Properties Ltd v Ocean View Construction Ltd [2025] 1 WLR 924 (Privy Council), Commissioners of Crown Lands v Page [1960] 2 QB 274, Sunbroad Holdings Ltd v A80 Paris HK Ltd [2022] HKCFI 2251 (Deputy Judge Simon Leung) and Chitty on Contracts, §28-057, and the like. For P’s non-disclosure, D cited my own observations in Chan Cham Pong Cedric v Too Ka Man [2019] HKDC 971 (Deputy Judge Kenneth KY Lam).

24.  On the basis that the Agreements subsisted until their natural expiry date of 30 November 2022, D counterclaimed for the following loss and damage:

Particulars	Amount
Unpaid rent and other charges vis-à-vis P’s usage of the Premises from 12 June 2022 to 30 November 2022	HK$498,000
Damages for P’s failure to reinstate and clean up the Premises	HK$43,750
Total:	HK$541,750

25.  D properly accepted that all of the above should be subject to P’s set-off vis-à-vis the Deposits in the total sum of HK$368,310.

26.  D argued P should at most be entitled to damages in the total sum of HK$267,264.50.

The Issues

27.  The issues before me are:

(1) Whether D’s breach of the quiet enjoyment clauses in the Agreements was repudiatory and if so, whether P accepted the repudiation or affirmed the Agreements by its words or conduct (“Issue 1”); and

(2) What should be the quantum of damages (“Issue 2”).

Witnesses

28.  Two factual witnesses gave live oral evidence:

(1) Connie; and

(2) Mr Terence Wai (“Terence”), a director of PEAL.

Assessment of Evidence

29.  The general principles on the assessment of evidence are well-known and had been appropriately summarized in Li Chun Pong Raymond v Li Maggie Hang Yung [2024] HKDC 1211 (Deputy Judge Kenneth KY Lam). I apply the exact same principles in this case.

Evidence of Connie

30.  Connie had previously prepared two witness statements. She adopted them and was cross-examined.

31.  In gist, Connie’s evidence set out various reasons upon which P claimed that D was in repudiatory breach. Her evidence further asserted that P suffered losses, but at no point did she refer to the material tax returns, audited accounts, money transfer records, commercial contracts, etc, which according to her was due to her inexperience, as opposed to dishonesty[3]. I say at once I reject her explanations for her non-disclosure of key financial documents, as P was represented by solicitors throughout, and it was highly unlikely that she did not know the Court would need to see the key financial documents to verify her bare assertions. There was no uncertainty – P had those key financial documents but it inappropriately buried them. This was, as I had mentioned above, unhelpful. In her evidence, Connie provided her personal and subjective speculation as to why P’s revenue dropped, but her own analysis was unhelpful given her lack of appropriate qualifications and the absence of essential raw data. Connie was not a profit projection expert and no one suggested otherwise. Connie was asked why a letter signed by her said “We will return to RKH”, if P had accepted D’s repudiation of the Agreements, and her explanation was simply incomprehensible. It is clear to me the wording used in that letter showed both P and D knew P should only be leaving the Hotel temporarily, and that P had irrevocably affirmed the Agreements by clear words. I do find the contemporaneous letter which said “We will return to RKH” more reliable than Connie’s oral evidence at the trial. The word chosen was “will” and not “hope” or “plan”[4]. Various other contemporaneous documents also directly contradicted Connie’s oral evidence. By way of example, some of them said “after we officially move back to Regal Kowloon Hotel” or “as usual”, which contradicted Connie’s evidence[5]. Such contradictions were so obvious I am surprised Connie and P saw fit to push forward P’s case in the way as they did, when they should have realized, with or without taking competent legal advice, that P’s case must be evidentially and legally unsustainable.

Evidence of Terence

32.  Terence had previously prepared two witness statements. He adopted them[6] and was cross-examined.

33.  In gist, Terence said that to his knowledge and understanding, P never treated the Agreements as terminated as P had repeatedly indicated to PEAL through various means of communications that P wished to move back to the Premises. Terence’s evidence is logical. It is supported by the contemporaneous documents. I accept the same as reliable and true.

Issue 1

34.  In my view, having carefully considered all evidence, whether D’s breach of the Agreements was repudiatory or not is a red-herring, since the contemporaneous documents showed beyond all doubts that P affirmed the Agreements. Documents with phrases such as “after we officially move back to Regal Kowloon Hotel” and “as usual” spoke for themselves[7]. As a matter of law, that affirmation was irrevocable. See Chitty on Contract (36^th Edition, 2026), §28-057, which says, correctly, that: -

“Affirmation irrevocable – Once the innocent party has elected to affirm the contract, and this has been communicated to the other party, then the choice becomes irrevocable. There is no need to establish reliance or detriment by the party in default. Thus the innocent party, having affirmed, cannot subsequently change its minds and rely on the breach to justify treating itself as discharged…”

35.  The above being the evidence and the law, we can go directly to Issue 2, which is on quantum.

Issue 2

36.  On quantum, I say at once that in my view, P’s reliance on, or usage of, Karmer, The Law of Contract Damage, was misconceived. What the author meant by “uncertainty” related to the forward-looking nature of the assessment of damages for breach of contract. The question of “what could have happened” had the counterparty performed all of its obligations in the contract would of course carry with it a certain degree of uncertainty, but that was not the problem with P’s case here. The problem with P’s case is that P had all key financial documents in its possession but chose to bury them. As I had previously said in Chan Cham Pong Cedric v Too Ka Man [2019] HKDC 971 by reference to what Yuen JA had said in L v C [2007] 3 HKLRD 819 at §191(2), where a party has been guilty of failing to make full disclosure, she cannot complain if uncertainties are determined against her favour. P cannot act in serious breach of its own disclosure obligations in law and then rely on its own wrongdoing in its own submissions. Since P buried key financial documents and hid them from my consideration, the inference I draw is that those documents, if produced, would have harmed P’s interests, and that was why they were not disclosed or produced to me. I should and I do assess quantum on that basis.

37.  For the dollar-and-cent analysis, D helpfully lodged a revised Scott Schedule before the start of the trial, which I examined. I agree with D’s position in the Scott Schedule and adopt the same. By way of example, P’s claim for extra rental costs was flawed because its calculation ignored the voluntary rent reduction offered by D and accepted by P, and P failed to establish that the New Office and the New Shop were comparable to the Premises. The alleged loss of profits was not proven, not due to uncertainty but because P chose to hide all key financial documents from me, and I am of the view that in most likelihood there was no causative loss of profits at all. Even if there was a drop in revenue, since P chose to hide its franchise contract and its tax returns or audited accounts from me, I am not satisfied that the alleged drop in revenue translated into any drop in profit[8]. Even if it did translate into a drop in profit, I would not be satisfied that was caused by D’s breach of the Agreements instead of other possible factors (such as the HKSAR Government’s general policy in managing Covid, or a change of consumer behaviour due to Covid). D fairly accepted that certain sums, such as the extra stamp duty or moving costs paid by P, were correct and recoverable. Adopting D’s figures in the Scott Schedule for the reasons set out above, my assessment is that the quantum of damages payable by D to P should be HK$46,867.50 + HK$11,428 + HK$14,632 + HK$161,837 = HK$234,764.50.

38.  As my finding of fact is that P affirmed the Agreements such that the Agreements continued to subsist until their natural expiry date, the unpaid rent and unpaid reinstatement costs, etc., are recoverable as per D’s counterclaim for the same. On D’s calculation that would be HK$498,000 + HK$43,750 = HK$541,750. Subtracting the Deposits in the total sum of HK$368,310 from it, the sum payable by P to D is HK$173,440.

Disposition

39.  I noticed D pleaded set-off[9]. In the circumstances of this case, I accept that plea and simply order D to pay HK$61,324.50 to P. Since the net amount is so small, it seems disproportionate to hear the parties on the question of pre-judgment interests, as the costs for hearing and determining that question would in most likelihood be much larger than the quantum of any pre-judgment interests award. I would order no pre-judgment interests but order post-judgment interests at the judgment rate.

40.  On costs, D submitted via §69 of D’s closing submissions that “if the Court’s determination is substantially in line with that advocated by the Defendant, costs should be awarded to the Defendant”. P submitted via §49 of P’s closing submissions that P should have costs and Certificate for Counsel. I am of the view that for this case, trying to determine who is the real overall winner would be difficult, though I noticed the parties spent most of their time in Court arguing over disputed issues which, as it turned out, were determined in D’s favour, so one may say D should be considered the real overall winner. At the end of the day, however, “event” is not the only relevant consideration.

41.  As I had mentioned in Li Chun Pong Raymond v Li Maggie Hang Yung [2024] HKDC 1211 (Deputy Judge Kenneth KY Lam), Order 62 rule 5 of the Rules of the District Court (Cap 336H) explicitly provided that the Court in exercising its discretion as to costs shall, to such extent as may be appropriate, take into account the conduct of the parties, including whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; the manner in which any party has pursued or defended his case or a particular allegation or issue; whether a plaintiff exaggerated his claim; and conduct before, as well as during, the proceedings. It seems to me that for this case these “rule 5 considerations” are substantially more important.

42.  P claimed HK$2,903,597 but was awarded HK$61,324.50. P did exaggerate its claim by HK$2,842,272.50. It was wholly unreasonable for P to have resisted D’s case that P affirmed the Agreements by conduct, when the contemporaneous documents showed that to be the case. P buried key financial documents and hid them from the Court, when P was legally represented throughout and would have been properly advised on its legal obligation to disclose all relevant documents caught by the Peruvian Guano test – see Estate of Lam Chun Sing v Shui Dian Bao Air Conditioning Ltd [2024] 4 HKLRD 708 [2024] HKDC 1510. By sharp contrast, D’s conduct in this litigation was exemplary, admitting and conceding all issues which should be admitted or conceded, only contesting those issues which should be contested.

43.  I take into account the conduct of the parties as set out above, and the fact that some of the issues raised had some complexity justifying the engagement of Counsel, and grant an order nisi that costs of this action, inclusive of the counterclaim and all costs previously reserved, be paid by P to D, to be taxed with Certificate for Counsel if not agreed. This order shall become absolute unless a party takes out a formal summons, by 4 pm on Monday 9 March 2026, for it to be varied.

Final Remarks

44.  I thank Ms Li and Mr Kwan, as well as those instructing them, for their most able assistance.