SHEK PING CHEUNG DANIEL AND OTHERS v. PRINCE WINNER LTD

HCA 113/2022

[2023] HKCFI 3342

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 113 OF 2022

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J U D G M E N T
(on assessment of damages)

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A.  Introduction

1.  The Plaintiffs commenced this action in respect of a commercial tenancy dispute over the premises known as ALL That piece or parcel of ground situate lying and being at Kowloon and registered in the Land Registry as Kowloon Inland Lot No 8643 Together with the messuage, building and erection constructed thereon known as No 182 Nathan Road, Kowloon, Hong Kong (the “Premises”).

2.  In short, the Plaintiffs’ case is that the Defendant had failed and/or refused to pay rent and rates stipulated in the tenancy agreement in respect of the Premises (the “Tenancy Agreement”) since 1 April 2020 and 1 January 2020 respectively. By letter dated 26 August 2021, the Plaintiffs informed the Defendant that they accepted the wrongful repudiation of the Tenancy Agreement and terminated the same without prejudice to their rights to claim against the Defendant for all outstanding arrears and loss and damage.

3.  On 8 October 2021, the Defendants surrendered possession of the Premises. The Plaintiffs commenced the present action to recover the mesne profits from 1 September 2021 to 8 October 2021 and government rates in arrears from 1 October 2021 to 31 December 2021 as well as damages for breach of the Tenancy Agreement.

4.  On 12 April 2022, the Plaintiffs obtained Final and Interlocutory Judgment (the “Judgment”) against the Defendant. Pursuant to the Judgment, the Defendant was ordered to pay to the Plaintiffs:-

(1)  The sum of HK$1,521,390.19 being the mesne profits from 1 September 2021 to 8 October 2021 and government rates in arrears from 1 October 2021 to 31 December 2021, together with interest thereon at the rate of 8% pa from 27 January 2022 to the date of Judgment and thereafter at judgment rate until payment;

(2)  Damages to be assessed;

(3)  Costs of the action to be taxed.

5.  The assessment of damages was fixed to be heard before me on 12 December 2023.

6.  Despite the Defendant’s absence at the hearing, I was satisfied on the 4^th Affirmation of Chan Kin Sun filed on behalf of the Plaintiffs that sufficient notice had been given to the Defendant of the hearing. It was therefore appropriate to hear the Plaintiffs’ evidence and submissions.

7.  This is my judgment on the assessment of damages.

B.  Material Factual Background

8.  The Plaintiffs were at all material times the registered owner of the Premises.

9.  The Plaintiffs and the Defendant entered into the Tenancy Agreement dated 28 January 2019, by which the Premises was let to the Defendant for the purpose not to use (1) the Ground Floor and the 1^st Floor of the Premises for any purpose other than shop and (2) the remaining part of the Premises (ie 2^nd Floor to 13^th Floors thereof) for any purpose other than hotel or guesthouse or other lawful purposes, for a fixed term of 5 years commencing from 1 March 2019 to 29 February 2024 (both dates inclusive) at the rent of HK$1,150,000 per month (exclusive of rates, management fee, utilities charges and other outgoings), payable in advance without any deduction or set off on the 1^st day of each calendar month.

10.  In breach of the Tenancy Agreement, the Defendant had failed and/or refused to pay rent since 1 April 2020 and rates since 1 January 2020. By letter dated 26 August 2021, the Plaintiffs informed the Defendant that they accepted its repudiation and terminated the Tenancy Agreement.

11.  On 8 October 2021, the Defendant surrendered possession of the Premises having settled all outstanding arrears of rent up to 31 August 2021 and arrears of rates up to 30 September 2021.

12.  The Plaintiffs accordingly commenced this action on 27 January 2022.

13.  As mentioned, on 12 April 2022, the Plaintiffs obtained the Judgment. Pursuant to the Judgment, the Defendant was ordered to pay inter alia the sum of HK$1,521,390.19 (the “Judgment Debt”).

14.  The Security Deposit of HK$3,450,000 had been set off against the Judgment Debt leaving a balance of HK$1,928,609.81.

C.  The Evidence

15.  For the purpose of this assessment, the Plaintiffs have filed the witness statement and supplemental witness statement on quantum of Ms Wang Mei Sze (“Ms Wang”), who is the Accounting Manager of Yau Shing Land Investment Company Limited (“Yau Shing”). Yau Shing is in turn, a company solely owned by the Plaintiffs, which is responsible for handling leasing matters in relation to the properties owned by the Plaintiffs.

16.  Ms Wang attended the assessment hearing on 12 December 2023. She adopted the contents of her witness statements and provided clarifications on the relevant matters to the Court.

17.  Apart from the above background matters, Ms Wang’s evidence essentially focused on two areas:- (1) first, the steps taken by the Plaintiffs in mitigation of loss; and (2) second, the loss and damage suffered by the Plaintiffs. A brief summary of her evidence is provided below.

C1.  Mitigation of Loss

18.  After the Plaintiffs had taken possession of the Premises, the Plaintiffs had made efforts to secure new tenant(s) by its estate agents including Jones Lang Lasalle Limited, Century 21 Group Limited (“Century 21”), Centaline Property Agency Limited and Midland Realty (Shops II) Limited (“Midland Realty”).

19.  On 10 May 2022, the Plaintiffs managed to re-let the Entrance on the Ground Floor, the First Floor and the Second Floor to the Thirteenth Floor of the Premises through Century 21 to Koalabeds Limited at a monthly rental of (1) HK$420,000 from 15 June 2022 to 14 June 2023 and (2) HK$530,000 from 15 June 2023 to 14 June 2025 with rent free periods from 15 June 2022 to 14 August 2022 and from 15 May 2023 to 14 June 2023 (the “1/F to 13/F New Tenancy Agreement”).

20.  Eventually, on 8 March 2023, the Plaintiffs also managed to re-let the Ground Floor of the Premises through Midland Realty to Ocean Fullness Limited at a monthly rental of HK$185,000 from 15 March 2023 to 14 March 2026 with rent free period from 15 March 2023 to 14 June 2023 (the “G/F New Tenancy Agreement”).

C2.  Loss and Damage

21.  On the above basis, and as set forth in Ms Wang’s witness statement and supplemental witness statement and clarified in her oral testimony, the Plaintiffs have quantified the loss and damage as follows.

22.  First, loss of rent from 9 October 2021 (ie upon recovery of possession of the Premises) to 29 February 2024 (ie the expiration date of the Tenancy Agreement) in the sum of HK$ 23,171,893.14.

(1)  Loss of Rent from 9 October 2021 to 14 June 2022 ie HK$9,439,892.48

Period	Amount
9 to 31 October 2021	HK$853,225.81(HK$1,150,000/31 x 23 days)
1 November 2021 to 31 May 2022	HK$8,050,000 (HK$1,150,000 x 7 months)
1 to 14 June 2022	HK$536,666.67 (HK$1,150,000/30 x 14 days)

(2)  Loss of Rent from 15 June 2022 to 14 August 2022 (ie during the rent-free period granted under the 1/F to 13/F New Tenancy Agreement ) in the sum of HK$2,282,688.17

Period	Amount
15 to 30 June 2022	HK$613,333.33 (HK$1,150,000/30 x 16 days)
1 to 31 July 2022	HK$1,150,000
1 to 14 August 2022	HK$519,354.84 (HK$1,150,000/31 x 14 days)

(3)  Loss of Difference in Rent between 15 August 2022 to 29 February 2024 (being the expiration date of the Tenancy Agreement) in the sum of HK$11,449,312.49 ie the difference between (i) HK$21,330,645.16 and (ii) the aggregate of HK$8,302,666 and HK$1,578,666.67.

(a)  Rent payable under the Tenancy Agreement from 15 August 2022 to 29 February 2024 in the total sum of HK$21,330,645.16

Period	Amount
15 to 31 August 2022	HK$630,645.16 (HK$1,150,000/31 x 17 days)
1 September 2022 to 29 February 2024 (including the rent free period from 15 May 2023 to 14 June 2023 under the 1/F to 13/F New Tenancy Agreement)	HK$20,700,000 (HK$1,150,000 x 18 months)

(b)  Rent payable under the 1/F to 13/F New Tenancy Agreement from 15 August 2022 to 29 February 2024 in the total sum of HK$8,302,666

Period	Amount
15 to 31 August 2022	HK$230,322.58 (HK$420,000/31 x 17 days
1 September 2022 to 30 April 2023	HK$3,360,000 (HK$420,000 x 8 months)
1 to 14 May 2023	HK$189,677.42 (HK$420,000/31 x 14 days)
15 to 30 June 2023	HK$282,666.66 (HK$530,000/30 x 16 days)
1 July 2023 to 29 February 2024	HK$4,240,000 (HK$530,000 x 8 months)

(c)  Rent payable under the G/F New Tenancy Agreement from 15 June 2023 (ie the expiration of the rent-free period) to 29 February 2024 in the total sum of HK$1,578,666.67 ie (16/30 days + 8 months) x HK$185,000

23.  Second, loss of rates from 1 January 2022 to 14 June 2022 in the total amount of HK$114,518.02.

Period	Amount
1 January 2022 to 31 March 2022	HK$74,815
1 April 2022 to 14 June 2022	HK$39,703.02 (HK$48,173/91 x 75 days)

24.  Third, costs incurred in reinstatement of the Premises in the total amount of HK$815,850. The breakdown of which is set out as follows.

Item	Amount
Inspection Fee	HK$4,500
Cleaning Fee	HK$12,000
Preparation of Water Analysis Report	HK$9,250
Repair and Replacement of Equipment ie fresh water pumps, waste water pumps and pumping station	HK$211,500
Replacement of water pipes and related equipment	HK$118,600
Repair for spalling concrete at the ceiling and roof-top	HK$460,000

25.  Fourth, the so-called miscellaneous costs and charges in the total amount of HK$940,441. The breakdown of which is set out as follows.

Item	Amount
Preparation of the Valuation Report by Larry H.C Tam & Associates Ltd	HK$93,276
Fire alarm transmission service	HK$8,965
Otis Elevator Inspection Charges from 1 November 2021 to 31 May 2022 and from 1 to 14 June 2022	HK$123,200 ie (HK$16,500 x 7 months + HK$16,500/30 x 14 days)
Commission payable to Century 21 for leasing out part of the Premises under the 1/F to 13/F New Tenancy Agreement	HK$530,000
Agency Fee payable to Midland Realty for the G/F New Tenancy Agreement	HK$185,000

26.  In the circumstances, the Plaintiffs have quantified the total loss and damage under Paragraph 2 of the Judgment to be HK$25,042,702.16.

D.  Assessment of Damages

27.  Where a landlord accepts a tenant’s repudiation, the landlord is entitled to recover damages reflecting the rent of the unexpired term 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 damages has not been mitigated: Silvercord Limited v High Performance Sports Limited HCA 1774/2018 (Unrep) 30.7.2020 at §9.

28.  If a defendant wishes to set up a positive case to show that the plaintiff failed to mitigate his loss or damage, such allegations must be specifically pleaded with supporting particulars: Hong Kong Civil Procedures 2024 Vol 1 at §18/8/28. In the present case, the Defendant has not put forward any positive case to raise the issue of failure to mitigate.

29.  Based on the unchallenged evidence of Ms Wang as set out above, I am satisfied that the Plaintiffs had taken reasonable step to mitigate their loss. In particular, the Plaintiffs had attempted to re-let the Premises at the first available opportunity through various steps taken including but not limited to distribution of marketing materials and appointment of agency companies.

30.  Whilst the time taken to re-let the Premises was quite long and the rent had also dropped rather substantially, I accept Ms Wang’s explanation that the general market sentiment at the time was bad due to the covid-19 pandemic. This is in particularly so given the nature of the use of the Premises is and was a guesthouse.

D1.  Loss of Rent from 9 October 2021 to 29 February 2024

31.  In the circumstances, I also accept Ms Wang’s evidence as clarified at the hearing and agree that the Plaintiffs have suffered loss of rent since recovering vacant possession of the Premises until the 29 February 2024 ie the expiration of the term of the Tenancy Agreement, taking into account the difference in rent after the execution of the 1/F to 13/F New Tenancy Agreement and the G/F New Tenancy Agreement.

32.  I therefore accept the amount as calculated by the Plaintiffs in full and assess the damages for the loss of rent to be HK$ 23,171,893.14.

D2.  The Loss of Rates From 1 January 2022 to 14 June 2022

33.  For the sake of completeness, I also accept the quantum calculated by the Plaintiffs in respect of the loss of rates from 1 January 2022 to 14 June 2022 (ie prior to the 1/F to 13F New Tenancy Agreement taking effect) being HK$114,518.02.

D3.  Costs Incurred In Reinstatement of The Premises

34.  In respect of the costs said to be incurred in the reinstatement of the Premises, the Defendant had an obligation to reinstate and yield up the Premises on the then “as is” basis in good clean and tenable condition pursuant to clauses 2(c) and 2(y) of the Tenancy Agreement. I am satisfied that the Plaintiffs are entitled to the inspection fee and the cleaning fee which are verified by respective invoices, debit notes and receipts.

35.  However, I am not satisfied that the Plaintiffs are entitled to the fees claimed for the preparation of Water Analysis Report. According to Ms Wang, the same had to be prepared to ensure the water quality was up to standard as the Premises had been vacant for some time. This in my view had nothing to do with the breach on the part of the Defendant.

36.  Likewise, I am not satisfied that the Plaintiffs are entitled to the various costs claimed for the repair and replacement. Whilst Ms Wang tried to suggest these costs had to be incurred because the Defendant had damaged or otherwise failed to keep the water pumps and pipes in good, clean and tenable repair and condition in breach of the Tenancy Agreement, the Plaintiffs have not put forward any evidence to support this mere assertion. In particular, the inspection fee was paid before and after the Defendant had surrendered the Premises back in October 2021 but the Plaintiffs only saw the need to deal with the so-called repair and replacement after May 2022 and April 2023. Further, not a word was put on record in any of the previous correspondence with the Defendant. When asked by the Court, Ms Wang frankly accepted that she could not recall and therefore could not assist.

37.  In the circumstances, I assess the damages for the costs incurred in restatement of the Premises to be HK$16,500 (ie the aggregate amount of the inspection fee and the cleaning fee).

D4.  The Miscellaneous Costs and Charges

38.  In respect of the miscellaneous costs and charges, I accept the Plaintiffs are entitled to claim the commission and agency fee for reletting the Premises as they are expenses incurred by the Plaintiffs in reasonably attempting to mitigate their loss: Chitty on Contract (35^th Ed) Vol 1 at §30- 123.

39.  However, I do not accept the costs incurred for the preparation of the Valuation Report are such expenses incurred in reasonably attempting to mitigating the Plaintiffs’ loss. As the Plaintiffs urge this Court to accept, the general market sentiment at the time was bad. More importantly, in the course of both written and oral submissions, the Plaintiffs also repeatedly emphasised that expert opinion or evidence of market rent is not relevant in this very case and asked this Court not to rely on the Valuation Report.

40.  For the sake of completeness, I accept the Plaintiffs are entitled to the costs for the fire alarm transmission service and Otis Elevator Inspection Charges as these were the utilities and charges that the Defendant would have to pay during the subsistence of the Tenancy Agreement pursuant to clauses 2(c) and 3(c) thereof. All these charges are verified by respective invoices and/or receipts.

41.  In the circumstances, I assess the damages for the said miscellaneous costs and charges to be HK$847,165 (ie the aggregate amount of the fire alarm transmission service, elevator inspection charges during the relevant period and the commission and agency fees paid for reletting the Premises).

E.  The Net Deposit Retained By The Plaintiffs

42.  The Plaintiffs had set off the security deposit in the sum of HK$3,450,000 retained by them as required under the Tenancy Agreement against the Judgment Sum set out in Paragraph 4(1) above, leaving a balance of HK$1,928,609.81 as the net deposit still retained by the Plaintiffs.

43.  The Plaintiffs accept that the said net deposit should be taken into account and that they should be at liberty to use the same to set off against any damages to which they are entitled.

F.  Interest

44.  Ms Cheung appearing on behalf of the Plaintiffs, seeks pre-judgment interest, at prime rate plus 1% from the date of the writ up to the date of judgment and thereafter at judgment rate. I see no reason why I should not accede to the order proposed by Ms Cheung.

G.  Conclusion

45.  In the circumstances, I make an order that:-

(1)  The Defendant do pay the Plaintiffs the amount of loss and damage being HK$24,150,076.16 (ie HK$ 23,171,893.14 + HK$114,518.02 + HK$16,500 + HK$847,165) together with interest on such sum at prime rate plus 1% from the date of writ (ie 27 January 2022) and thereafter at judgment rate until payment; and

(2)  The Plaintiffs be allowed to use the net deposit retained in the amount of HK$1,928,609.81 to set off against the aforesaid damages assessed by the court.

46.  Insofar as costs is concerned, there is no reason why costs should not follow the event. I make an order that costs of this assessment of damages summarily assessed at HK$90,000, be paid by the Defendant to the Plaintiffs forthwith.

47.  It remains for me to thank Ms Cheung for her assistance.