DCCJ 2012/2010
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 2012 OF 2010
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BETWEEN
CHINA RESOURCES PROPERTY MANAGEMENT LIMITED
Plaintiff
and
MAX MERIT LIMITED
Defendant
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Before : Deputy District Judge Joseph Chung in Court
Dates of Hearing : 23 and 24 April 2012
Date of Judgment : 18 July 2012
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JUDGMENT
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Introduction
1. These proceedings arise from the defendant’s lease of Shops 15 and 16 (“the Shops”) and licence to use the Outside Seating Area of the Shops (“the OSA”), 1st Floor, Causeway Centre (also known as “The Sanlitun”), No 28 Harbour Road, Wanchai, Hong Kong. The OSA is an undercover open area outside the Shops. The plaintiff is the owner of both the Shops and the OSA.
2. By a Tenancy Agreement dated 21 December 2009, the plaintiff let the Shops to the defendant for the period between 15 April 2009 and 14 April 2010 (“Defendant’s Lease”). Pursuant to the Defendant’s Lease, the defendant was only permitted to use the Shops to operate a sandwich shop under the trade name of “The Big Apple Alfresco”. Under the Defendant’s Lease, the defendant had deposited HK$133,455.30 representing 3 months rent and management fees to secure its due observance and performance of the terms and conditions of the Defendant’s Lease (“the Deposit”).
3. By a letter of acceptance signed by Ms Hui Yuet Ngor on behalf of the defendant on 20 March 2009, the plaintiff granted a licence to the defendant to use the OSA for the same period as the Defendant’s Lease ie 15 April 2009 to 14 April 2010 (“the Licence”). The defendant used the OSA as a seating area for its customers.
4. The plaintiff’s claim is that in breach of the Licence, when the defendant vacated the Shops and the OSA at the end of the Defendant’s Lease and the Licence on 14 April 2010, the defendant failed to properly reinstate the OSA in accordance with the Licence. The plaintiff claims HK$140,000 representing its costs of properly carrying out the reinstatement works.
5. The defendant denies the plaintiff’s claim and counterclaims the return of the balance of the Deposit, HK$70,203.36 after taking into account the defendant’s outstanding rent, rates and management fees for the Shops due under the Defendant’s Lease. The defendant does not dispute that it is in arrears of rent, rates and management fees of HK$63,251.94 for the period between 1 March 2010 and 14 April 2010. The plaintiff’s response to the defendant’s counterclaim is that as the defendant was in default of its obligations to make various payments under the Defendant’s Lease, the plaintiff is entitled to forfeit the Deposit as liquidated damages.
PARTIES’ RESPECTIVE CASE
6. The plaintiff’s claim arises out of the damage to 14 aluminum ceiling panels in the OSA (“Ceiling Panels”) which according to the plaintiff, the defendant was obliged to but had failed to reinstate pursuant to the Licence when it vacated the OSA on 14 April 2010.
7. Prior to the defendant taking up the Shops and the OSA in April 2009, a company called The Big Apple Sandwich Shop Limited (“Big Apple”) occupied the Shops and the OSA between 15 April 2004 and 14 April 2009 under a similar arrangement as between the plaintiff and the defendant ie Big Apple leased the Shops from the plaintiff and used the OSA under a licence granted by the plaintiff. The Shops were leased to Big Apple under 2 Tenancy Agreements – the first one was dated 14 April 2004 for the period 15 April 2004 to 14 April 2007 (“the Big Apple 1st Lease”) and the second one was dated 20 April 2007 for the period 15 April 2007 to 14 April 2009 (“the Big Apple 2nd Lease”). Both the Big Apple 1st and 2nd Lease confined the use of the Shops to operating “The Big Apple Alfresco”. Although on the available documentary evidence, I was only able to find a letter of acceptance signed by Big Apple dated 4 June 2004 in respect of the plaintiff’s grant of a licence for Big Apple to use the OSA for the term of the Big Apple 1st Lease, there appears to be no dispute that Big Apple continued to use the OSA for the term of the Big Apple 2nd Lease as a licensee.
8. The effect of the defendant coming into the picture in April 2009 was to take over the business of Big Apple in the operation of “The Big Apple Alfresco” at the Shops and the OSA.
9. On the evidence, Ms Hui Yuet Ngor (who is a director of the defendant and its only witness in the trial) was at least a director of Big Apple since the Big Apple 1st Lease in 2004. It is also apparent from the evidence that whilst Big Apple was operating “The Big Apple Alfresco”, Ms Hui had significant involvement in the day-to-day operation of the business.
10. The main thrust of the defendant’s case is that Big Apple is the party responsible for the damage to the 14 Ceiling Panels. The defendant alleges that it was Big Apple which had damaged those Ceiling Panels during the term of the Big Apple 1st Lease and therefore the defendant should not liable to the plaintiff. In its defence and counterclaim, the defendant pleads that of those 14 Ceiling Panels, Big Apple:-
(1) made openings in 6 Ceiling Panels to install ceiling fans (“Ceiling Fans”) and spotlights (“Spotlights”); and
(2) punctured holes in 8 Ceiling Panels to install folding glass doors at the OSA. Those folding glass doors were subsequently dismantled and removed by Big Apple in 2007 due to objections from the Lands Department.
11. In respect of the 8 Ceiling Panels, the defendant also pleads in its defence and counterclaim that in early 2007 when the folding glass doors were removed by Big Apple, and as the Big Apple 1st Lease was soon to expire (on 14 April 2007), as a condition to renewing the Big Apple 1st Lease, the plaintiff required Big Apple to repair the 8 Ceiling Panels. According to the defendant, Big Apple repaired the 8 Ceiling Panels to the satisfaction of the plaintiff which then renewed Big Apple’s lease of the Shops ie the Big Apple 2nd Lease.
12. There is no dispute that after the defendant took over the Shops and the OSA in 2009, it continued to use the Ceiling Fans and Spotlights that were installed by Big Apple.
13. The plaintiff submits that regardless of whether it was Big Apple or the defendant which had caused the damage to the 14 Ceiling Panels, the defendant was obliged to reinstate those Ceiling Panels to the condition as provided for in the Licence. The plaintiff relies on clauses 5 and 18 of the Licence which provide as follows:-
(1) by clause 5:-
“The designated portion of OSA shall only be used for temporary placing of tables, chairs umbrellas and items for the purpose of outdoor restaurant seating accommodation. All items placed in the designated portion of OSA must be readily removable. We undertake not to erect or install or allow to be erected or installed any structure or fixtures of a permanent nature in the designated portion of OSA .” (emphasis added)
(2) by clause 18:-
“Upon the termination of this license by whatsoever manner, we shall forthwith vacate from the designated portion of OSA and remove all items placed thereat and reinstate the same to its original bare shell state and forthwith cease to use the designated portion of OSA. Should we fail so to do, your company shall have the absolute right to remove the items and reinstate the same at our costs and expenses and we shall indemnify your company and/or the Landlord against all claims and liabilities arising from our breach of this clause.” (emphasis added)
14. The plaintiff submits that pursuant to clause 18 of the Licence, the defendant was obliged to reinstate the OSA to “its original bare shell state” meaning without fixtures, fittings and furniture. According to the plaintiff, this required the defendant to replace the 14 damaged Ceiling Panels.
15. The plaintiff’s second argument is that the defendant was in breach of clause 5 of the Licence in allowing the Ceiling Fans and Spotlights to be installed which were not readily removable and were structures or fixtures of a permanent nature.
16. The defendant’s case is that under clause 18 of the Licence, the defendant was only required to reinstate the OSA to the state when it took over the OSA from Big Apple in April 2009. Further, the defendant denies that the Ceiling Fans and Spotlights were not readily removable and that they were structures or fixtures of a permanent nature within the meaning of clause 5 of the Licence.
17. It is pertinent to note that prior to vacating the OSA on 14 April 2010, the defendant had dismantled the Ceiling Fans and Spotlights and carried out repair works to 6 of the 14 damaged Ceiling Panels ie those damaged by the installation of the Ceiling Fans and Spotlights (the defendant did not repair the remaining 8 Ceiling Panels as the defendant claims that Big Apple had already repaired the same to the satisfaction of the plaintiff in April 2007 as mentioned in paragraph 11 above). To explain its repair works in the light of the defences raised in paragraph 16 above, the defendant claims that it carried out the repair works in “ignorance of its rights”. The plaintiff’s case is that the defendant’s repair works were far from satisfactory and that the only way to reinstate the Ceiling Panels was to replace the same which the plaintiff did in May/June 2010 and had allegedly incurred HK$140,000 (the subject-matter of these proceedings). Apart from the above defences, the defendant also takes issue on the necessity to replace the damaged Ceiling Panels and the costs of such replacement. In respect of the former line of attack, the defendant claims that shortly after it vacated the Shops and the OSA in April 2010, the plaintiff carried out major refurbishment works to The Sanlitun which included replacing the ceiling panels for the whole of The Sanlitun. The defendant pleads in its defence and counterclaim that it was therefore a “waste of costs” for the plaintiff to have incurred HK$140,000 to replace the 14 Ceiling Panels.
18. The parties have filed an agreed statement of issues in dispute dated 19 December 2011. Having considered the parties’ pleadings, I take the view that the key issues that I am required to determine to dispose of these proceedings are:-
(1) whether the defendant was in breach of clause 18 of the Licence in failing to replace the 14 damaged Ceiling Panels;
(2) whether the defendant was in breach of clause 5 of the Licence in allowing the Ceiling Fans and Spotlights to be installed in the OSA;
(3) if the defendant was in breach of clauses 5 and/or 18 of the Licence, whether the defendant is liable to pay the plaintiff its costs of replacing the Ceiling Panels of HK$140,000 or any part thereof; and
(4) insofar as the counterclaim is concerned, whether the plaintiff is entitled to forfeit the Deposit as liquidated damages for the defendant’s breach of the Defendant’s Lease in failing to pay rent, rates and management fees.
Defendant’s objections to the admissibility of various of the plaintiff’s documents
19. During the first day of trial, the defendant raised objections to the admissibility of various documents of the plaintiff. Those documents can be categorised as follows:-
(1) photographs of the OSA taken by the plaintiff (“Disputed Photographs”); and
(2) various documents relating to the conversion project for The Sanlitun (“Disputed Project Documents”). Those documents consist of minutes of site meeting on 4 June 2010 and 15 October 2010 and an approved quotation for the works in respect of the conversion project dated 9 June 2010.
20. In short, the crux of the defendant’s objection is that the above documents were disclosed by the plaintiff late in the day.
21. Although discovery is a continuing obligation and supplemental lists of documents have to be filed from time to time to fulfill such obligation, a litigant giving late discovery should anticipate his opponents complaining about the same. It behoves a litigant giving discovery at the eleventh hour to provide the court and the other side with full and accurate information as to the reasons including inter alia , why the documents were not disclosed earlier (see Hong Lok School Ltd & Others v Chow Sai Yiu & Others [2003] 2 HKLRD 782 in which the need for an affidavit to account for such lateness was accepted).
Disputed Photographs
22. The Disputed Photographs consist of photographs taken by the plaintiff of:-
(1) the damaged 8 Ceiling Panels when the defendant vacated the OSA on 14 April 2010; and
(2) the Ceiling Panels after the plaintiff carried out the replacement works in May/June 2010.
23. The defendant objects to the admissibility of the Disputed Photographs as evidence on the grounds that they were not previously disclosed and that it is not clear who took the photographs and where they were taken.
24. The Disputed Photographs were not disclosed in the plaintiff’s lists of documents filed on 8 April 2011, 18 April 2012 and 19 April 2012. It appears that the photographs were first disclosed to the defendant when the plaintiff included them in the draft indices for the trial bundle which were delivered to the defendant on 13 April 2012 at the defendant’s registered office. Ms Hui, on behalf of the defendant, claims that she did not receive the draft indices.
25. I do not know whether such manner of disclosure was deliberate or otherwise. Whichever way it was, the plaintiff’s manner of disclosure is unsatisfactory. Order 24 of the Rules of the District Court sets out how a party should formally and properly disclose documents. I see no reason why the plaintiff should not have complied with Order 24. The plaintiff has not offered any proper explanation (in particular, by way of affidavit) for its non-compliance and for its failure to promptly disclose the photographs especially when the same were produced by the plaintiff some two years ago, in 2010. That said, the lack of good reason for late discovery is only one of the factors that I have to consider in deciding whether to exercise my discretion in allowing the Disputed Photographs to be admitted as evidence. The discretion whether to allow further evidence is a general one in which all the circumstances have to be taken into account. Ultimately, it is a balancing exercise and the court must exercise its discretion in a fair manner having regard to all the circumstances and the explanation given.
26. Ms Kay Seto, counsel for the plaintiff submits that the defendant’s complaint as to who took the Disputed Photographs and where they were taken merely goes to the weight to be attached to those photographs. I do not agree. In my view, the defendant’s complaint is in substance, also an objection to the photographs being admitted as hearsay evidence under Section 47(1) of the Evidence Ordinance (Cap 8).
27. According to the plaintiff, its staff within the management office took the Disputed Photographs. No explanation has been offered by the plaintiff as to why the person who took the photographs was not called to give evidence at the trial. In my view, the absence of that person at the trial would prejudice the defendant. There are pertinent and legitimate questions which the defendant requires to ask the person who took the photographs. Without his presence at the trial, the defendant would be deprived of the opportunity to cross-examine the person on where and how the photographs were taken. This is particularly significant as the plaintiff relies on the photographs to support its case that the defendant had failed to properly reinstate the Ceiling Panels.
28. For the above reasons, I rule that the Disputed Photographs to be inadmissible. In doing so, I have also taken into account of the factors set out in Section 49(2) of the Evidence Ordinance on the weight to be attached to hearsay evidence which have an indirect bearing on the assessment of whether the exclusion of a piece of hearsay evidence would be prejudicial to the interests of justice (see Cheung Wei Man Vivien & anor v Centaline Property Agency Ltd & Ors [2004] 1 HKC 692).
Disputed Project Documents
29. The defendant’s objection to the Disputed Project Documents is that they were only disclosed immediately before the trial in the plaintiff’s supplemental and 2nd supplemental lists of documents filed on 18 and 19 April 2012. The defendant claims that it did not have sufficient time to consider and to seek professional advice on those documents for the trial.
30. Again, the plaintiff has not produced any affidavit to explain why such documents were disclosed so late in the day. It is pertinent to note that as with the Disputed Photographs, the Disputed Project Documents came into existence some 2 years ago, in 2010. Ms Seto’s explanation for this is that the documents were disclosed as part of the plaintiff’s continuing discovery obligations and that it was only shortly before the trial and after obtaining “other legal advice” did the plaintiff realise that it had to disclose the Disputed Project Documents. I do not accept the plaintiff’s explanation. The plaintiff had been legally represented since it first pursued its claim against the defendant in April 2010. It is the duty of the solicitors representing the plaintiff to ensure that their client’s case is properly prepared before the case is set down for trial.
31. Having said that and as I have mentioned above, the lack of good reason for late discovery is only one of the factors that I have to consider in deciding whether to allow the Disputed Project Documents to be admitted as evidence. I have to carry out a balancing exercise taking all the circumstances into account.
32. In the course of her submissions, Ms Seto said that the plaintiff does not need to rely on the Disputed Project Documents as they do more than to supplement the oral evidence of Mr Alex Chan, a director of the plaintiff and the plaintiff’s only witness.
33. Having read the Disputed Project Documents, I accept the defendant’s argument that it requires professional assistance to properly understand those documents. The Disputed Project Documents give quite detailed account of the site activities to be and have been carried out for the refurbishment works to The Sanlitun. As a result of the plaintiff’s late disclosure, the defendant has been deprived of the opportunity of seeking professional assistance to properly comprehend the documents.
34. In the light of Ms Seto’s submissions referred to in paragraph 32 above and taking all the circumstances into account, in all fairness, I have decided to exercise my discretion against admitting the Disputed Project Documents as evidence.
WHETHER THE DEFENDANT WAS IN BREACH OF CLAUSE 18 OF THE LICENCE?
Defendant’s obligations under clause 18
35. There appears to be no dispute between the parties that “bare shell” state under clause 18 of the Licence means in a state of no fixtures, fittings or furniture. The real issue between the parties is what is meant by “original” bare shell state. The defendant’s position is that under clause 18, reinstating the OSA to its “original” bare shell state meant that it was only obliged to reinstate the OSA to the state when it took over the same from Big Apple in April 2009. The plaintiff takes issue as to this.
36. In order to properly construe the meaning of “original” under clause 18, it is necessary in this case to look at the surrounding circumstances in which the Licence was made.
37. According to Mr Alex Chan, Big Apple and the defendant are closely related and appear to have the same alter ego. Mr Chan said in his oral evidence that whether it was Big Apple or the defendant, the plaintiff had at all times, only been dealing with Ms Hui. Ms Hui does not deny this.
38. It is apparent from the documentary evidence that from the outset, Ms Hui had on behalf of both Big Apple and the defendant, executed the core documents for the lease and licence of the Shops and the OSA:-
(1) the Big Apple 1st Lease;
(2) the letter of acceptance dated 4 June 2004 in respect of the licence granted by the plaintiff to Big Apple to use the OSA during the term of the Big Apple 1st Lease;
(3) the Big Apple 2nd Lease;
(4) the Licence;
(5) the plaintiff’s offer letter to the defendant dated 3 March 2009 in respect of the lease of the Shops (which culminated in the Defendant’s Lease) counter- signed by Ms Hui on behalf of the defendant and Big Apple (“Confirmation Letter for the Defendant’s Lease”); and
(6) the Defendant’s Lease.
39. Ms Hui was evidently a key player in the operation of “The Big Apple Alfresco” business whether through Big Apple or the defendant. In addition to the matters referred to in paragraphs 37 and 38 above, in her evidence, Ms Hui was able to provide a detailed account of what Big Apple had installed in the OSA at the start of the Big Apple 1st Lease in 2004. It is also apparent from the evidence that Ms Hui was closely involved in the matters giving rise to these proceedings (which I shall explain below).
40. Mr Chan’s evidence is that during the negotiations of the renewal of the Big Apple 2nd Lease, Big Apple requested the plaintiff to accept the defendant as its substitute under the renewed tenancy for the Shops and licence for the OSA with a view to continuing “The Big Apple Alfresco”. Mr Chan also said that during the negotiations, Ms Hui on behalf of the defendant agreed to take on the responsibilities of Big Apple. The defendant has not challenged such evidence. Mr Chan’s evidence is also supported by the Confirmation Letter for the Defendant’s Lease (which as I have mentioned above was counter-signed by Ms Hui on behalf of both Big Apple and the defendant). According to the Confirmation Letter for the Defendant’s Lease:-
(1) the defendant agreed to use the Shops exclusively for operating “The Big Apple Alfresco” (clause 2);
(2) Big Apple authorised the plaintiff to transfer the deposit of HK$95,111.10 maintained under the Big Apple 2nd Lease to the Defendant’s Lease as part of the Deposit and that the defendant would pay the balance of the Deposit of HK$38,344.20 (this was ultimately incorporated as clause 15 of the Defendant’s Lease) (clause 10); and
(3) the defendant agreed to take over the existing decorations, fittings and fixtures of Big Apple and that the defendant would be responsible for dismounting all the decorations, fittings and fixtures and reinstating the Shops to a bare shell condition at the termination of the Defendant’s Lease (clause 14).
41. It could be inferred from the above that during the term of the Defendant’s Lease and the Licence, Ms Hui was simply continuing the “The Big Apple Alfresco” business under a different corporate entity.
42. Against the above circumstances, in my judgment, “original” bare shell state under clause 18 of the Licence must mean the state of the OSA at the time when the same was handed over to Big Apple on 14 April 2004 ie at the start of the Big Apple 1st Lease. This interpretation is consistent with clause 14 of the Confirmation Letter of the Defendant’s Lease which was made shortly before the Licence. As I have mentioned in paragraph 40(3) above, under clause 14, the defendant agreed to take over the Shops with the existing decorations, fittings and fixtures of Big Apple, the defendant also agreed to dismantle all such decorations, fittings and fixtures and reinstate the Shops to a bare shell condition at the end of the Defendant’s Lease.
43. In my view, if the defendant’s interpretation of “original” were correct, this would lead to the absurd result that the defendant was under the obligation to reinstate the Shops to the state when Big Apple took over the Shops in April 2004 but that the defendant was only required to reinstate the OSA to the state when it took over the same from Big Apple in April 2009. It must not be forgotten that the Shops and the OSA were leased and licenced together to the defendant such that it could use the Shops and the OSA together to operate “The Big Apple Alfresco”. It would not make sense if the required standard of reinstatement were different for the Shops and the OSA.
44. For the reasons above, I interpret clause 18 of the Licence to require the defendant to reinstate the OSA to the bare shell state when Big Apple took over the same in April 2004.
45. Despite the defendant’s plea in its defence and counterclaim that it was only obliged to reinstate the OSA to the state when it took over the same from Big Apple in April 2009, the defendant’s conduct at the material time does not support such a case. From the evidence, it appears to me that at all times, the defendant was well aware of its obligations and had accepted that when it vacated the OSA, it was required to reinstate the OSA to the state when Big Apple took over the same in April 2004.
46. Prior to the defendant vacating the Shops/OSA, between 10 and 13 April 2010, the defendant carried out reinstatement works which included repairing the 6 Ceiling Panels damaged by the installation of the Ceiling Fans and Spotlights (although not to the satisfaction of the plaintiff). If the defendant genuinely believed that it was only obliged to reinstate the OSA to the state when it took over the same from Big Apple in April 2009, in my judgment, the defendant would not have repaired the 6 Ceiling Panels as the Ceiling Fans and Spotlights were already in place at the time when the defendant took over the OSA in April 2009.
47. Further, in the defendant’s letter to the plaintiff dated 14 April 2010 (date of defendant vacating the Shops and OSA), the defendant said:-
“We (Max Merit Limited) have completed the reinstatement work of the above premises. But part of the repaired aluminum board in the public area are not accepted by your leasing department. Please be understand that we are just a small company cannot afford to fully satisfy your special requirement. In order not to interfere your Sanlitun Sustainable Renovation Work. Would you please consider our situation and hope you can deduct part of our deposit as compensation for your company.”
48. It is apparent from the above defendant’s 14 April letter that the defendant knew that it was obliged to reinstate the OSA to the state when Big Apple took over the same in April 2004. If the defendant really believed that it was only required to reinstate the OSA to the state when it took over the same from Big Apple in April 2009, in my judgment, the defendant would have disputed the plaintiff’s demands to properly reinstate the damaged Ceiling Panels. All the defendant said was that it was not able to fulfil the “special requirement” of the plaintiff and suggested the plaintiff to deduct compensation for the damaged Ceiling Panels from the Deposit.
49. Ms Hui’s explanation for the defendant’s removal of the Ceiling Fans and Spotlights and repair of the 6 Ceiling Panels was that this was done on a “without prejudice basis”. From the documentary evidence, the defendant appears to have only raised this for the first time by its letter to the plaintiff’s solicitors of 6 May 2010. The defendant’s letter was written almost one month after the plaintiff’s letter to the defendant dated 15 April 2010 informing the defendant that its reinstatement works to the 14 damaged Ceiling Panels remained outstanding. Further, it is apparent that the defendant’s 6 May letter was only prompted by the letter from the plaintiff’s solicitors to the defendant dated 30 April 2010 giving the defendant an ultimatum to properly reinstate the damaged Ceiling Panels by 8 May 2010.
50. In my judgment, if the defendant had in fact carried out the repair works on a without prejudice basis, no doubt the defendant would have raised this when the plaintiff delivered a written quotation no 2010/CWC/Shop15&16/003(2)(Q)BW/KC to the defendant for replacing the 6 damaged Ceiling Panels on 24 March 2010 or at the latest, when the plaintiff issued its above letter of 15 April 2010. During cross- examination, Ms Hui suggested that she had told Ms Karen Cheung of the plaintiff at the time of the plaintiff’s 24 March quotation that the defendant would carry out the repair works on a without prejudice basis. I have not seen any documentary evidence of this. If there were such oral communications, in my view, the defendant would have recorded this in writing at the latest by its above letter to the plaintiff dated 14 April 2010.
51. Further, the defendant’s claim that it carried out the repair works to the damaged 6 Ceiling Panels on a without prejudice basis is inconsistent with its pleaded case and Ms Hui’s witness statement that the repair works were carried out in “ignorance of its rights.”
52. At this juncture, I would mention that having heard Ms Hui’s evidence, I have found her to be evasive. Ms Hui’s evidence in many respects, contradict the contemporaneous documents and is evidently self-contradictory. Further, during cross-examination, on a number of occasions, which I have referred to in this judgment, Ms Hui sought to introduce new arguments which were not raised or are inconsistent with her witness statement and the defendant’s defence and counterclaim both of which have been verified by Ms Hui with a statement of truth. I find myself unable to rely on Ms Hui’s evidence. Contrast with Mr Alex Chan, the plaintiff’s witness, I find his evidence to be supported by the contemporaneous documents. For this reason and having seen his demeanor in Court, I prefer Mr Chan’s evidence where it conflicts with the defendant’s evidence.
Whether the 14 damaged Ceiling Panels were within the OSA?
53. There is no dispute that the 6 Ceiling Panels which were damaged by the installation of the Ceiling Fans and Spotlights were within the OSA. However, during the trial, the defendant suggested that the 8 Ceiling Panels damaged by the previous installation of the folding glass doors were not within the OSA. The basis of this argument is that the defendant claims that it is not clear whether the OSA used by Big Apple was the same as that used by the defendant. I find this argument to be implausible. In the defence and counterclaim and Ms Hui’s witness statement, the defendant accepted that the 14 Ceiling Panels were within the OSA. Further, the defendant has not adduced any evidence to support its present contention that the 8 Ceiling Panels were not in fact within the OSA.
54. For the above reasons, I find that the 14 damaged Ceiling Panels were within the OSA.
Whether the defendant was obliged to replace as opposed to repair the damaged Ceiling Panels?
55. The defendant disputes the reasonableness of the plaintiff insisting on replacing (as opposed to repairing) the damaged Ceiling Panels. In order to determine this issue, it would be necessary to consider the 6 Ceiling Panels damaged by the Ceiling Fans and Spotlights and the 8 Ceiling Panels damaged by the previous installation of the folding glass doors, separately.
56. As I have mentioned earlier, there is no dispute that the defendant had carried out repair works to the damaged 6 Ceiling Panels (although not to the plaintiff’s satisfaction). According to Ms Hui, when the openings in the 6 Ceiling Panels were made (for installation of the Ceiling Fans and Spotlights) during the Big Apple 1st Lease, the cored portion was maintained and kept above the relevant Ceiling Panel. Ms Hui said that when the defendant’s contractor carried out the repair works in April 2010, it welded the cored portion to the Ceiling Panel and then spray painted over.
57. According to Mr Chan, if the defendant had merely attached objects to the Ceiling Panels, this would not have necessitated the replacement of the Ceiling Panels. However in this case, as the defendant had cored holes in the Ceiling Panels, this will require replacing the Ceiling Panels as no matter how one seeks to repair the same (as opposed to replace), there would remain markings of the previous opening made and would become obvious with time.
58. The plaintiff has not adduced any photographs on the state of the repair works done by the defendant for the 6 Ceiling Panels. However, Mr Chan referred this court to the defendant’s various close-up photographs of the Ceiling Panels allegedly taken on 10 April 2010 ie during the repair works. In the 10 April photographs, the outer rim of the cored portion after the same had been welded back onto the Ceiling Panel is clearly visible. Ms Hui suggested that this was because the photographs were taken whilst the repair works were in progress and has referred to the defendant’s photographs taken on 14 April 2010 after the completion of the repair works and when the defendant vacated the OSA. The markings are not apparent from the 14 April photographs. During his evidence in-chief, Mr Chan criticised the photographs as not being clear as to where they were taken and that they are in any event unhelpful as they were taken at a distance. I accept Mr Chan’s criticisms. Even if I were to accept that the 14 April photographs were taken at the OSA, as these photographs were taken at a distance, it is not clear from the photographs as to whether the markings to the Ceiling Panels remained visible or not after the repair works. Ms Hui has not explained why she took the 10 April photographs at a close-up range but chose to take the 14 April photographs at a distance. I attach little weight to the defendant’s 14 April photographs. In coming to this view, I have also taken into account the fact that during cross- examination of Mr Chan, the defendant had adduced two of the original 14 April photographs and that Mr Chan identified two markings on those photographs which Ms Hui had initially been unable to identify but later said in her evidence were pre-existing and have nothing to do with the defendant/Big Apple. The alleged markings are not visible to me. In any event, even if there are such markings, there is no evidence to show whether the markings were pre-existing or due to the defendant/Big Apple.
59. I prefer to rest my judgment in respect of this issue on the parties’ communications documented in the contemporaneous documents. It is evident from those communications that the markings to the Ceiling Panels remained visible after the defendant’s repair works. In the plaintiff’s letter to the defendant dated 15 April 2010 referred to above (ie letter issued immediately the day after the defendant vacated the OSA), the plaintiff complained that the defendant’s welding and repaint works were unsatisfactory and that the damaged areas remained visible. Visible markings on the Ceiling Panels would obviously not be acceptable to the plaintiff as this would affect the overall appearance of The Sanlitun.
60. For the above reasons, I find that the defendant’s repair works to the damaged 6 Ceiling Panels were defective and that in order to reinstate the OSA to its original bare shell state pursuant to clause 18 of the Licence, the defendant had to replace those damaged Ceiling Panels.
61. As to the 8 Ceiling Panels damaged by the previous installation of the folding glass doors, the defendant pleads in its defence and counterclaim that in 2007 when Big Apple was negotiating the renewal of the Big Apple 1st Lease (which became the Big Apple 2nd Lease), as a condition of that renewal, the plaintiff required Big Apple to repair the 8 Ceiling Panels. The defendant claims that Big Apple had repaired the 8 Ceiling Panels to the satisfaction of the plaintiff as the plaintiff and Big Apple subsequently entered into the Big Apple 2nd Lease. The plaintiff denies this.
62. Apart from a mere assertion by Ms Hui in her witness statement and subject to what I have to say below, the defendant has not adduced any evidence to support its allegation. I note amongst the documentary evidence that there was a letter from the plaintiff to Ms Hui of Big Apple dated 5 February 2007 in which the plaintiff said:-
“貴我兩司簽署之三里屯15、16號鋪之租約將於2007年4月14日到期，閣下也向本人表達了續租的意願，但有如下幾點我司要向 貴司指出：
1> 2004年4月，我司為了三里屯整體在夜晚能處於營業狀態，特在租約中與 貴司約定，貴司在晚上的收鋪時間必須不早於22:00，我司考慮到 貴司在晚上營業的困難，給予了 貴司租金上的特別折扣。然根據我司的統計，貴司從未遵守過上述的約定，違反了有關合約的精神。
2> 貴司在鋪外的雜物較多，影響了三里屯的整體環境。而且有些擋風的屏風等違反了地政處的有關規定。
3> 貴司破壞了三里屯公共地方的鋁板、地面地磚等公共設備。
如 貴司欲想績約，必須檢討並改正上述有關問題，另外，我司也不再給 貴司任何優惠，將租金調整為HK$40000/月 (不包括管理費、差餉及WAIVER FEE)，由於貴司對公共設備破壞較多，我司要求將押金特別增加港幣10萬元。如閣下沒有異議，我司將準備一份2年期的租約供雙方簽署，如有疑問，可聯繫本人…。”
63. My reading of this letter is that the plaintiff would renew the lease provided that Big Apple was prepared to repair the 8 Ceiling Panels. In my judgment, if satisfactory completion of repairing the 8 Ceiling Panels were a pre-condition to renewing the lease, the plaintiff would have said so expressly. The letter did not say when the defendant was required to carry out the repair works. That there was no such pre-condition is reinforced by the fact that the letter goes on to provide that if Big Apple had no comments on the plaintiff’s suggestion, the plaintiff would proceed to prepare a new lease for the parties to execute. It is clear from this that if there were any pre-condition, it was only in respect of the defendant giving comments on the plaintiff’s suggestion of repairing the damaged Ceiling Panels and not satisfactory completion of the repair works.
64. As with the damaged 6 Ceiling Panels, it is evident from the plaintiff’s letter to the defendant dated 15 April 2010 that the 8 damaged Ceiling Panels remained improperly repaired (if at all) when the defendant vacated the OSA in April 2010. For the reasons set out above, I find that pursuant to clause 18 of the Licence, the defendant was obliged to also replace the damaged 8 Ceiling Panels.
65. For the above reasons, I find that the defendant was in breach of clause 18 of the Licence in failing to replace the 14 damaged Ceiling Panels.
Whether the defendant was in breach of clause 5 of the Licence?
66. Given that I have found the defendant in breach of clause 18 of the Licence, it is strictly not necessary for me to determine whether the defendant was also in breach of clause 5 of the Licence. However, given that this forms part of the plaintiff’s case, I set out my findings below.
67. The plaintiff’s case is that the defendant was in breach of clause 5 by allowing the Ceiling Fans and Spotlights to be installed in the OSA which according to the plaintiff, are not readily removable and are structures or fixtures of a permanent nature. Before I consider this, as a preliminary observation, the plaintiff’s claim under clause 5 can only relate to the damaged 6 Ceiling Panels and not to the remaining 8 Ceiling Panels as by the time the defendant took over the OSA, the folding glass doors which caused the holes in the 8 Ceiling Panels had already been removed.
68. There are two obligations in clause 5:-
(1) the defendant agreed to only use the OSA for temporary placing of items which were readily removable and for outdoor restaurant seating accommodation; and
(2) the defendant undertook not to erect or install or allow to be erected or installed any structure or fixture of a permanent nature in the OSA.
69. In my view, the plaintiff’s claim for the damaged 8 Ceiling Panels does fall into either of the obligations under clause 5. The plaintiff appears to accept this.
Were the Ceiling Fans and Spotlights structures?
70. In Hobday v Nicol [1944] 1 All ER 302 at 303, Humphreys J held that a structure “is anything which is constructed; and it involves the notion of something which is put together, consisting of a number of different things which are so put together or built together, constructed as to make one whole”. Applying this description in the context of clause 5 of the Licence, in my judgment, a “structure” denotes objects such as a wall, partition or slab. This is reinforced by the fact that clause 5 differentiates between a “structure” and a “fixture” (which I will discuss below).
71. For the above reasons, I am unable to accept the plaintiff’s contention that the Ceiling Fans and Spotlights were structures within clause 5 of the Licence.
Were the Ceiling Fans and Spotlights fixtures?
72. Traditionally, an object brought onto land was classified as either a chattel or fixture. In Elitestone Ltd v Morris and Another [1997] 1 WLR 687, the House of Lords avoided this traditional twofold distinction and adopted a three-fold classification:-
“An object which is brought onto land may be classified under one of three broad heads. It may be (a) a chattel; (b) a fixture; or (c) part and parcel of the land itself. Objects in categories (b) and (c) are treated as being part of the land.”
73. Referring to Holland v Hodgson (1872) LR 7 CP 328, the House of Lords in Elitestone held that in deciding which category an object fell into, one would need to look at the circumstances of each case, and mainly two factors, the degree of annexation to the land and the object of the annexation.
74. In the Court of Appeal decision of Berkley v Poulett and others [1977] 1 EGLR 86, Scarman LJ took the view that the purpose of the annexation is the dominant factor and the degree of annexation is only a reminder that there must be some degree of physical annexation before a chattel can be treated as part of the land. Scarman LJ said in his judgment (at page 88):-
“…a degree of annexation which in earlier times the law would have treated as conclusive may now prove nothing. If the purpose of the annexation be for the better enjoyment of the object itself, it may remain a chattel, notwithstanding a high degree of physical annexation . Clearly, however, it remains significant to discover the extent of physical disturbance of the building or the land involved in the removal of the object. If an object cannot be removed without serious damage to, or destruction of, some part of the realty, the case for its having become a fixture is a strong one. The relationship of the two tests to each other requires consideration. If there is no physical annexation there is no fixture. Quicquid plantatur solo solo credit . Nevertheless an object, resting on the ground by its own weight alone, can be a fixture, if it be so heavy that there is no need to tie it into a foundation, and if it were put in place to improve the realty. Prima facie , however, an object resting on the ground by its own weight alone is not a fixture: see Megarry and Wade , p 716. Conversely, an object affixed to realty but capable of being removed without much difficulty may yet be a fixture, if, for example, the purpose of its affixing be that ‘of creating a beautiful room as a whole’ (Neville J in In Re Whaley [1908] 1 Ch 615 at p 619). And in the famous instance of Lord Chesterfield’s Settled Estates [1911] 1 Ch 237 Grinling Gibbons carvings, which had been affixed to a suite of rooms 200 years earlier, were held to be fixtures. Today so great are the technical skills of affixing and removing objects to land or buildings that the second test is more likely than the first to be decisive. Perhaps the enduring significance of the first test is a reminder that there must be some degree of physical annexation before a chattel can be treated as part of the realty. ” (emphasis added)
75. Scarman LJ’s decision in Berkley was followed in the Court of Appeal decision of Botham & Ors v Tsb Bank Plc (1997) 73 P&CR D1.
76. In Yu Yiu Kong Samuel v Kobylanski Stephen Andre DCCJ 15371/2000 (unreported, 11July 2001), His Honour Judge Andrew Cheung (as he then was) held that a ceiling fan was a chattel. In Connie Frances Haines v Cheung Hing Cheong HCPI 551/2000 (unreported, 8 May 2006), Deputy High Court Judge Muttrie took the view that a ceiling light was not a fixture.
77. Having considered the above authorities and for the following reasons, I come to the view that the Ceiling Fans and Spotlights were not fixtures but chattels.
78. According to Ms Hui, Big Apple installed the Ceiling Fans in the OSA to provide its customers with a more comfortable environment during the hot summer. Ms Hui also said that Big Apple had installed the Spotlights to provide better illumination in the OSA. In my view, the installation of the Ceiling Fans and Spotlights were temporary and merely for the operation of “The Big Apple Alfresco”. It was not intended to be a permanent or lasting improvement to the OSA. Ms Seto submitted that as the Ceiling Fans and Spotlights were connected to the AC mains via electric wires placed above the Ceiling Panels, it follows that the Ceiling Fans and Spotlights were not temporary structures. I am unable to accept this submission. In my judgment, the fact that the Ceiling Fans and Spotlights were connected to the AC mains is neither here nor there. Regardless of whether the Ceiling Fans and Spotlights were chattels, fixtures or that they form part of the land, they had to be connected to the AC mains for operation. Absent such connection would defeat the purpose of the Ceiling Fans and Spotlights.
79. During cross-examination, Ms Seto suggested to Ms Hui that the Ceiling Fans and Spotlights were not readily removable. Although at one stage, Ms Hui accepted this, Ms Hui later explained that it would not be difficult for a registered contractor to dismantle the Ceiling Fans and Spotlights. I accept Ms Hui’s explanation.
80. In coming to the view that the Ceiling Fans and Spotlights were not fixtures, I have also taken into account the fact that the dismantling of the same would (and in fact did) damage the Ceiling Panels. However, taking all the circumstances into account as referred to in paragraphs 78 and 79 above, I take the view that the Ceiling Fans and Spotlights can only be chattels.
81. In the light of my above findings, I conclude that the defendant was not in breach of clause 5 of the Licence.
Whether the plaintiff was justified in replacing the ceiling panels given the major refurbishment works to The Sanlitun?
82. The defendant contends that it was unreasonable for the plaintiff to have replaced the 14 damaged Ceiling Panels as not long after the defendant vacated the Shops and the OSA in April 2010, the plaintiff commenced major refurbishment works to The Sanlitun.
83. According to Mr Chan, the purpose of the refurbishment works in The Sanlitun was mainly to re-partition the shops and improve the electrical and mechanical services so as to upgrade the overall class of dining at The Sanlitun. Mr Chan said that at the initial stages of the refurbishment works, there was no intention to replace the ceiling panels and that it was not until September 2010 (which was approximately 5 months after the defendant vacated the Shops and the OSA in April 2010) that the possibility of replacing all ceiling panels in The Sanlitun was considered and work completed during the first/second quarter of 2011. I accept Mr Chan’s evidence and I do not find it to be unreasonable for the plaintiff to have replaced the damaged 14 Ceiling Panels given that the replacement works well preceded the plaintiff’s decision to replace all the ceiling panels in The Sanlitun.
Quantum of plaintiff’s claim
84. As I have found the defendant to have breached the Licence, I now turn to the question of quantum.
85. The plaintiff’s claim for HK$140,000 is based on its actual costs incurred in engaging VK Decoration Company (“VK Decoration”) to replace the 14 damaged Ceiling Panels in May/June 2010. According to the quotation from VK Decoration dated 5 May 2010 (no VK-2934), the unit price for installing new and original 800 x 2400mm aluminum ceiling panel was HK$10,000. The defendant claims that such costs are excessive. In support of this, the defendant produced a quotation from Perfect Profit Building Materials International Company Limited (“Perfect Profit”) dated 23 June 2010 (“Perfect Profit’s Quotation”) in which Perfect Profit quoted a total of HK$63,760 for replacing 17 panels (ie averaging HK$3,750/panel). Neither party has adduced quantum expert evidence.
86. Ms Seto relies on clauses 8, 12 and 18 of the Licence to seek a full indemnity for the costs incurred by the plaintiff in replacing the damaged Ceiling Panels. By clause 8, the defendant undertook to fully indemnify the plaintiff against all actions, claims, costs and suits arising out of the defendant’s breach of the Licence. By clause 12, the defendant agreed that all unauthorised alteration work, installation and placement of items in the OSA would be subject to the plaintiff’s right of removal at the defendant’s costs.
87. In my judgment, only clauses 8 and 18 are applicable as clause 12 is clearly concerned with the plaintiff’s right of removal during the term of the Licence and not after termination.
88. I accept Ms Seto’s submissions that pursuant to clauses 8 and 18 of the Licence, the defendant is liable to indemnify the plaintiff its costs of replacing the 14 damaged Ceiling Panels of HK$140,000. In any event, I do not find the replacement costs to be unreasonable.
89. Mr Chan said in his evidence that the Ceiling Panels were tailored made from specifically designed moulds and were not readily available in the market. According to Mr Chan, for the reasons above, the plaintiff had to engage VK Decoration to do the replacement works as VK Decoration was the contractor which carried out the original renovation work to The Sanlitun when it opened in 2000. Mr Chan also explained that there were increased costs in carrying out the replacement works as VK Decoration had already disposed of the original moulds to fabricate the Ceiling Panels and thus had to prepare new moulds. I accept Mr Chan’s explanation. In coming to the view that the replacement costs of HK$140,000 were reasonable, I have also considered Perfect Profit’s Quotation. However, for the following reasons, I place little weight on that quotation.
90. It is of significance that the defendant only obtained Perfect Profit’s Quotation after the plaintiff had commenced these proceedings on 10 June 2010. As I have mentioned in paragraph 50 above, on 24 March 2010, the plaintiff delivered a quotation to the defendant for the replacement of 6 of the damaged 14 Ceiling Panels (at unit cost of HK$10,000). In the plaintiff’s letter to the defendant dated 15 April 2010 (also referred to in paragraph 50 above), the plaintiff again mentioned that the unit cost of replacing the Ceiling Panels was HK$10,000. In the plaintiff’s solicitors’ letter to the defendant dated 18 May 2010 giving final notice that should the defendant fail to carry out the replacement works, the plaintiff would carry out the same at the defendant’s costs, the plaintiff again told the defendant that the unit cost of the replacement was HK$10,000. Despite the plaintiff’s correspondence, it is apparent from the contemporaneous documents before me that at no time did the defendant dispute the plaintiff’s costs of replacing the Ceiling Panels until it produced Perfect Profit’s Quotation after the commencement of these proceedings. The purpose of the quotation is telling. Ms Hui said in her evidence that after receiving the plaintiff’s solicitors’ 18 May letter, she did try to contact Mr Chan and Ms Karen Cheung by telephone regarding the costs of the replacement works. I have not seen any documentary evidence of this.
91. Further, Perfect Profit’s Quotation is evidently not a complete quotation covering all items of work and materials for the replacement works. The Quotation covers the supply of materials and labour cost and specifically excludes the provision of metal scaffolding. It is not clear what the labour cost relate to as Ms Hui said in her evidence that Perfect Profit would only supply the ceiling panels and the defendant had to engage another contractor to carry out the installation.
92. It is also not clear from Perfect Profit’s Quotation as to whether the ceiling panels proposed would be the same as the damaged Ceiling Panels. Ms Hui said that she was told by the person who prepared Perfect Profit’s Quotation that they were the same. This is mere hearsay. The defendant has not called the person who made the Quotation to give evidence. For this reason and for the reasons mentioned in paragraph 52 above, I attach little weight to Ms Hui’s evidence on this.
93. In its defence and counterclaim, the defendant has also alleged that the replaced 14 Ceiling Panels were old or used panels. In support of this, the defendant has adduced various close-up photographs of ceiling panels taken on 16 June 2010 (ie after the plaintiff had carried out the replacement works) purportedly showing the wear and tear condition of the ceiling panels. Mr Chan complains that given the close range from which these photographs were taken, he is unable to identify where they were taken. I accept this. The defendant has not adduced any evidence of the vantage points from which the photographs were taken. Although the photographs do show markings on the ceiling panels, it does not necessary follow that the replaced Ceiling Panels were not new. I prefer to rest my judgment on the contemporaneous documents in particular, VK Decoration’s Quotation and invoice dated 5 June 2010 (no IN-1597) referring to the replacement of new and original aluminum ceiling panels to be carried out at the Shops which I believe meant the OSA as Mr Chan had confirmed that there were no Ceiling Panels in the Shops.
94. For the above reasons, I do not find that the plaintiff had replaced the Ceiling Panels with old or used ones.
95. I now turn to the last topic, the defendant’s counterclaim.
Defendant’s counterclaim
96. The defendant’s counterclaim relates solely to the Defendant’s Lease. The defendant counterclaims HK$70,203.36 representing the balance of the Deposit after taking into account the defendant’s arrears of rent, rates and management fees of HK$63,251.94 for the period between 1 March 2010 and 14 April 2010. From the plaintiff’s reply and defence to counterclaim, the plaintiff’s case on what is in arrears appears to be slightly different. The plaintiff claims that the defendant is in arrears of rent, management fees and air-conditioning charges. Whatever may be the nature of the outstanding sums, there is no dispute that the defendant is in arrears of HK$63,251.94 under the Defendant’s Lease.
97. The issue in the counterclaim is whether the plaintiff is entitled to forfeit the Deposit as liquidated damages for the defendant’s breach of the Defendant’s Lease in failing to make the various payments.
98. Pursuant to the Defendant’s Lease:-
(1) by clause 3, the defendant agreed to pay rent, rates electricity charges and management fees without any set off or deduction;
(2) by clause 5(1):-
“If at any time during the Term:-
(a) the rent hereby agreed to be paid or any part thereof shall be unpaid for fifteen days after the same shall become payable (whether legally or formally demanded or not); or
(b) the Tenant shall fail or neglect to observe or perform any of the agreements, stipulations terms and conditions herein contained and on the Tenant’s part to be observed and performed; or
(c) the Tenant (being an individual) shall become bankrupt or (being a corporation) shall go into liquidation whether compulsory or voluntary (save the voluntary liquidation of a solvent company for the purposes of amalgamation or reconstruction) or (being a firm or partnership) shall have its Business Registration cancelled or shall otherwise become insolvent or make any composition or arrangement with creditors or shall suffer any execution to be levied on the Property or otherwise on the Tenant’s goods or effects,
then and in any such case it shall constitute wrongful repudiation of this Agreement on the part of the Tenant and it shall be lawful for the Landlord at any time thereafter to accept the said wrongful repudiation and to re-enter the Property or any part thereof in the name of the whole and/or terminate the supply of air-conditioning and other service to the Property whereupon the this tenancy shall absolutely cease and determine but without prejudice to any right of action of the Landlord in respect of any outstanding breach or non- observance or non-performance of any stipulations terms and conditions herein contained and on the Tenant’s part to be observed and performed and also without prejudice to the Landlord’s right to deduct all loss damage and proper expense thereby incurred from the Deposit paid by the Tenant in accordance with clause 8 hereof and also without prejudice to the right of the Landlord to claim against the Tenant for all loss and damage that it may have suffered as a result of the breach or non-observance or non-performance by the Tenant as aforesaid including but not limited to the loss and damage that it may have suffered due to the early termination of this Agreement effected by and incidental to the acceptance of wrongful repudiation and exercise of the aforesaid right of re-entry by the Landlord. For the avoidance of doubt, notwithstanding any statutory or common law provision to the contrary, the acceptance of the aforesaid wrongful repudiation and the exercise of the aforesaid power of re-entry by the Landlord thereby terminating this Agreement prior to the expiry of the Term shall not affect the right of the Landlord to claim against the Tenant for loss and damages or otherwise that it may have suffered in relation to the period of the unexpired Term after the said termination which right of the Landlord shall survive the said termination. The Landlord shall also be entitled to forfeit the Deposit hereinafter defined as liquidated damages and not as penalty.” (emphasis added)
(3) by clause 9(a):-
“The Tenant shall on the signing hereof pay to and maintain at all times during the Term with the Landlord the Deposit, which shall at all times be the aggregate of three months’ rent and management fees, to secure the due observance and performance by the Tenant of agreements stipulations terms and conditions herein contained and on the Tenant’s part to be observed and performed. The Deposit shall be retained by the Landlord throughout the Term free of any interest to the Tenant and not as trust of any nature whatsoever with power for the Landlord, without prejudice to any other right or remedy hereunder to deduct therefrom the amount of any cost expense loss or damage sustained by the Landlord as a result of any non-observance or non-performance by the Tenant of any such agreements stipulations terms or conditions and/or to apply the Deposit to remedy any breach of any of the Tenant’s covenants and conditions in this Agreement and to indemnify consequential costs and losses arising therefrom including legal costs. Subject as aforesaid and to Clause 10 hereof, a sum equivalent to the Deposit shall be refunded to the Tenant by the Landlord within thirty (30) days after the expiration or sooner determination of the Term and the delivery of vacant possession of the Property to the Landlord or within thirty (30) days of the settlement of the last outstanding claim by the Landlord against the Tenant in respect of any breach, non-observance or non-performance of any of the agreements, stipulations terms or conditions and on the part of the Tenant to be observed and performed whichever is the later.”
99. Ms Seto submits that pursuant to clause 5(1), the plaintiff is entitled to forfeit the Deposit. In my judgment, under clause 5(1), the plaintiff’s right to forfeit the Deposit only arises where the plaintiff accepts the defendant’s repudiatory breach and exercises its right to re-enter in the event of the defendant failing to pay rent for more than 15 days or its failure to comply with the terms and conditions of the Defendant’s Lease or the defendant’s insolvency (which is not relevant here). Although the defendant may have committed a repudiatory breach in failing to make various payments totalling HK$63,251.94 under the Defendant’s Lease, I do not understand the plaintiff’s case to be (and nor is there evidence before for me to suggest this) that the plaintiff had accepted such repudiation and that it had exercised its right to re-enter. In my judgment, the defendant had simply vacated the Shops following the expiration of the Defendant’s Lease. Clause 5(1) is therefore not applicable.
100. Apart from clause 5(1), there does not appear to be any other forfeiture provision in the Defendant’s Lease. However, Ms Seto has referred me to paragraph 19 of the Confirmation Letter for the Defendant’s Lease which provides that should the defendant fail to comply with the terms and conditions of the Letter (which included provisions for payment of rent, rates, management charges and utility charges), the plaintiff is entitled to forfeit the Deposit. Paragraph 19 has clearly been overridden by the provisions of the Defendant’s Lease. Clause 17 of the Defendant’s Lease provides that the entire agreement between the plaintiff and the defendant is set out in the Defendant’s Lease and shall not be modified by any discussion or correspondence preceding the Defendant’s Lease.
101. Under clause 9(a) of the Defendant’s Lease, the plaintiff held the Deposit as security for the defendant’s due observance and performance of the Defendant’s Lease and to apply the Deposit to remedy any breach of the Defendant’s Lease by the defendant. On this analysis, it follows that the plaintiff is not entitled to forfeit the Deposit. The plaintiff is liable to return the the balance of the Deposit of HK$70,203.36 (after taking into account the defendant’s arrears of various payments under the Defendant’s Lease of HK$63,251.94). I therefore allow the defendant’s counterclaim.
Conclusion
102. As I have found in favour of both the plaintiff and the defendant in their respective claim and counterclaim, I order as follows:-
(1) the defendant shall pay the plaintiff in the sum of HK$140,000 with interest at prime plus 1% from the date of the writ of these proceedings, 10 June 2010;
(2) the plaintiff shall pay the defendant in the sum of HK$70,203.36 with interest at prime plus 1% from the date of the counterclaim, 24 November 2010;
(3) the defendant shall pay the plaintiff’s costs of its claim with certificate for Counsel; and
(4) the plaintiff shall pay the defendant’s costs of its counterclaim.
103. Orders as to costs and interest shall be on nisi basis.
(Joseph Chung)
Ms. Kay Seto instructed by Liu, Chan and Lam for the plaintiff
The defendant appeared in person by its director, Ms Hui Yuet Ngor