SILVERCORD LTD v. HIGH PERFORMANCE SPORTS LTD

HCA 1774/2018

[2020] HKCFI 1800

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1774 OF 2018

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JUDGMENT

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Introduction

1.  This is the hearing for assessment of damages suffered by the Plaintiff qua landlord in respect of the Defendant’s breach of the “Tenancy Agreement” dated 30 July 2014 concerning a shop premises in Tsim Sha Tsui (“the Premises”). 

2.  The Defendant is absent from the hearing.  Ms Miranda Li, for the Plaintiff, informs me that the Defendant has been absent throughout, and has never participated in, these proceedings. Having read the affirmations of service, I am satisfied that the Plaintiff has kept the Defendant informed of the progress of these proceedings by serving the relevant documents on the Defendant.  In particular, I note the Notice of Appointment for Assessment of Damages, the hearing bundle and the Plaintiff’s Opening have been served on the Defendant.  I therefore proceeded with the hearing in the Defendant’s absence.  

Material facts

3.  The material facts may be summarized as follows. 

4.  Under the Tenancy Agreement, the Defendant agreed to lease the Premises for a fixed term of 3 years between 20 September 2014 and 19 September 2017, both days inclusive. The minimum monthly rent was HK$680,615.  If the Defendant’s monthly gross revenue x 12.5% exceeded the minimum monthly rent, the Defendant would pay the difference on top of the minimum monthly rent.  The Defendant was also responsible for paying monthly service charges, rates and utilities. 

5.  By letter of 25 May 2016, the Defendant informed the Plaintiff that it was “in the process of handing over” the Premises.  Notwithstanding the Plaintiff’s objection, the Defendant unilaterally returned the keys to the Premises to the Plaintiff.  In addition, the Defendant stopped paying the rent and service charge since May 2016 and the rates since July 2016.  Despite repeated demands from the Plaintiff to repay the outstanding sums, the Defendant failed and/or refused to do so. 

6.  On 19 May 2016, the Plaintiff instituted distraint proceedings but no valuable goods and chattels were seized.  The Plaintiff incurred HK$1,738.60 in the process.  On 14 October 2016, the Plaintiff re-entered the Premises peacefully and recovered possession. 

7.  On 31 July 2018, the Plaintiff issued the present action against the Defendant claiming for debts and damages for breach of the Tenancy Agreement.  On 13 November 2018, the Plaintiff obtained default judgment against the Defendant in the following terms:

(a) The sum of HK$4,400,788.60, being the outstanding rent, service charge and rates in arrears as at 14 October 2016. 

(b) Interest on the sum of HK$4,021,025.66 at the rate of 3% per annum above the HSBC Prime Lending Rate from 13 September 2017 to the date of the default judgment and thereafter at judgment rate until payment. 

(c) Damages for breach of the Tenancy Agreement to be assessed. 

(d) Damages representing costs of this action to be assessed on an indemnity basis.  

8.  I am concerned with assessment of the quantum payable by the Defendant to the Plaintiff under the orders I have described at paragraphs 7(c) and (d) above.  More specifically, the Plaintiff’s present claims may be summarized as follows:

(a) Loss of rent, service charge and rates since 15 October 2016 up to and including 19 September 2017 and unpaid electricity charge between 8 June and 15 September 2016. 

(b) Costs of the distraint action.

(c) Interest.

(d) Costs of this action.

Legal principles

9.  Where a landlord accepts a tenant’s repudiation, the landlord is entitled to recover damages reflecting the rent of the unexpired portion of the tenancy agreement, service charges, rates and reinstatement costs.  This is subject to a duty on the landlord to mitigate, and the landlord is expected to act reasonably and to take such steps as are necessary to re-let the vacant premises at market rent. The duty to mitigate is not onerous, and the landlord is not required to do anything other than in the ordinary course of business.  The burden rests on the tenant to show that damage has not been mitigated.  See: Chan Annie v Lau Wai Kwong [1984] HKC 231 at 235G-H (Mantell J); Wing Siu Co Ltd v Goldquest International Ltd (HCA 3183 & 4145/2001, 18 August 2006) at §§7-8 (Master de Souza). 

Rent

10.  Ms Lai Kit Yan, the Plaintiff’s witness, explained in her statement that the Plaintiff had endeavoured to re-let the Premises since July 2016, but despite best efforts, the Premises was not leased out until June 2017 when the Plaintiff and one of its existing tenants entered into a “Replacement Tenancy Agreement” in respect of the Premises for a fixed term of 3 years, with a 45-day rent free period, from 12 December 2016 to 11 December 2019, both days inclusive.  Ms Lai ascribed the time taken to re-lease the Premises, the less favourable rental terms (including the lower minimum monthly rent and the rent-free period) under the Replacement Tenancy Agreement to the downturn in the retail market at the material time. 

11.  I accept the Plaintiff’s evidence, which shows it has discharged its duty to mitigate its loss.  I also accept the method of calculation put forth.  Briefly, from 15 October 2016 up to the end of the rent-free period the Plaintiff claims the minimum monthly rent of HK$680,615 under the Tenancy Agreement, and thereafter up until the end of the Tenancy Agreement, the Plaintiff claims the difference between the aforesaid minimum monthly rent and the minimum monthly rent under the Replacement Tenancy Agreement of HK$255,000. 

12.  Ms Li tells me the total sum amounts to HK$5,614,591.81, which I take as correct.  I hold that the Defendant is liable to the Plaintiff for that sum. 

Service charge

13.  The Plaintiff claims the monthly service charge in the sum of HK$37,525.80, set out in Part III of Schedule III to the Tenancy Agreement, for the period from 15 October 2016 up until the commencement of the Replacement Tenancy Agreement.  The original sum claimed is HK$71,420.07.  This morning Ms Li tells me there has been a calculation error as the Plaintiff overlooked the fact that the monthly service charge stipulated under the Replacement Tenancy Agreement was higher than that in the Tenancy Agreement.  Taking that fact into account, Ms Li tells me the total sum claimed should be HK$35,704.58, which I take as correct.  I also hold that the Defendant is liable to the Plaintiff for that sum pursuant to clause 5(a)(I) of the Tenancy Agreement. 

Rates

14.  The Plaintiff claims rates payable between 15 October 2016 up until the commencement of the Replacement Tenancy Agreement.  The evidence shows the quarterly rates for the financial year between April 2016 and March 2017 was HK$93,000 with a concession of HK$1,000.  Apportioning that sum to the time claimed, I accept the Defendant is liable to the Plaintiff for the sum of HK$58,000 pursuant to clause 5(b) of the Tenancy Agreement. 

Electricity charge

15.  The Plaintiff claims a sum of HK$3,159 representing unpaid electricity charge between 8 June and 15 September 2016, which it says the Defendant is liable to pay pursuant to clause 5(d) of the Tenancy Agreement. 

16.  Ms Lai explains in her evidence this morning that the charge were incurred because of the spotlights left on the shopfront of the Premises.  I am satisfied that the sum is payable by the Defendant to the Plaintiff.  

Costs of the distraint action

17.  Clause 7(a)(I) of the Tenancy Agreement provided that “[a]ll costs and expenses including any legal costs and fees (on a full indemnity basis) incurred by the Landlord in demanding payment of the Rent, the Service Charges and other charges payable hereunder (if the Landlord elects to demand) and in exercising its rights and/or remedies or in any actions or distraint for recovery of the same or in attempting to do so shall be paid by the Tenant and shall be recoverable from the Tenant as a debt or be deductible by the Landlord from any deposit held by the Landlord hereunder.”

18.  Accordingly, I am satisfied that the Defendant is liable to the Plaintiff for HK$1,738.60, being the costs and stamp duty of the distraint action resulting from the Defendant’s breach of the Tenancy Agreement. 

Summary of damages

19.  Ms Li informs me that the Plaintiff still retains the security deposit in the sum of HK$4,308,844.80 and the reinstatement deposit of HK$152,000 that the Defendant had paid to it pursuant to the Tenancy Agreement.  She fairly accepts they should be used to set off the Plaintiff’s claim for damages.  I accept her calculation and assess the Plaintiff’s damages at HK$1,252,349.19. 

	HK$
Rent	5,614,591.81
Service charge	35,704.58
Rates	58,000
Costs and stamp duty of distraint action	1,738.60
Electricity charges	3,159
Less security deposit	4,308,844.80
Less reinstatement deposit	152,000
Total:	1,252,349.19

Interest

20.  Pre-judgment interest is pleaded at paragraph 15(d) of the Statement of Claim.  The interest rate pleaded is 3% per annum above the HSBC prime rate.  That rate is stipulated in the Habendum Term of the Tenancy Agreement.  In the circumstances, I see no reason why I should not adopt the contractual interest rate. 

21.  Ms Li asks for pre-judgment interest, at the contractual interest rate, from the date of the writ (ie 31 July 2018) up to the date of judgment and thereafter at judgment rate.  I see no reason why I should not accede to the order suggested.

Conclusion

22.  For these reasons, I order that the Defendant do pay the Plaintiff damages in the sum of HK$1,252,349.19 together with interest on such sum from 31 July 2018 to the date of this judgment at 3% per annum above the HSBC prime rate and thereafter at judgment rate until payment in full. 

23.  In terms of costs of this action, the Plaintiff should have its costs assessed on an indemnity basis.  That is what the default judgment ordered.  It is also what the Plaintiff is entitled to under clause 7(a)(I) of the Tenancy Agreement.  Ms Li asks for summary assessment.  Having considered the statement of costs and bearing in mind the relevant principles, I assess the Plaintiff’s costs of this action at HK$71,090.