S.C. CHOW & ASSOCIATES LTD v. CHOW KIT MING t/a MODERN WORLD PRINTING DESIGN CO

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. This assessment of damages arises in two actions relating to commercial premises described as being Portion B2 of Factory/Godown Unit B, 9/F, Seapower Industrial Centre, 177 Hoi Bun Road, Kwun Tong. The claims are for loss of rental, management fees on the property and on the carpark, rates, electricity charges and water charges. The assessment is pursuant to the summary judgment under O.14 given in both cases on 13 March, 1996, for damages and interest to be assessed and costs to be taxed. The judgment in Action 4504/95 relates to the period from 18/2/95 to 17/5/95 (3 months), while the judgment in Action 8372/95 relates to the period from 18/5/95 to 17/11/96 (18 months). The amended statements of claim set out the particulars of the claim.

2. In both cases, the plaintiff filed its list of documents on 3 June, 1996, and the witness statement of Cheung hon ming on 4th September, 1996.

3. Serena S.W. LAU is the surveyor who prepared the rental valuation report to be found in the bundle at page 125 for the plaintiff. She gave evidence for the plaintiff as PWI.

4. The report states that Unit B2 "A" has a floor area of approximately 2,021 square feet, while Unit B2 "B" has a floor area of approximately 3,664 square feet. At page 133, she gives her opinion that the open market rental value of Unit B2 "A" as at 26/4/95 is $14,000 per calendar month with the terms and conditions mentioned in the existing tenancy agreement, while the open market rental value of Unit B2 "B" as at 26/7/95 is $30,000 per calendar month with the terms and conditions as mentioned in the existing tenancy agreement. In the "Remarks" section of the report, it is stated that "In arriving at our opinion of the open market rental value of factory/godown Unit B2 "B", we are of the view that a unit rate in range of $7.50 - $8.50 per square foot should be considered reasonable. As Factory/Godown Unit B2 "A" shares the same entrance as Factory/Godown Unit B2 "B", we have considered a discount in arriving at our opinion of the open market rental value. A unit rate in a range of $6.50 - $7.50 per square foot is considered reasonable."

5. The defendant called no expert evidence to rebut Ms. Lau's opinion. I accept Ms. Lau as an expert, and I accept the valuation produced by her.

6. Cheung hon-ming, is the marketing director of the plaintiff, and he gave evidence as to the breakdown of damages in both cases. With regard to the claim arising from the repair of the air conditioning found at page 104 of the bundle, he said that this was not yet incurred. The plaintiff sought a quotation for the repair, but the new tenant did not require the air conditioning, so the work had not been carried out but will done in due course. The air conditioning system was three years old at the commencement of the tenancy, and was maintained by the plaintiff, on the basis of an annual inspection. He said that the life expectancy of the air conditioning system, if operated in the normal and proper manner, was ten years. As to the advertising expenses, the defendant invited the plaintiff to advertise to find a new tenant, and the defendant agreed to pay the advertising fees, which totalled $22,869.

7. Mr. Cheung then gave evidence relating to the new tenancies with American Bonding Wire Limited and Henwick International Limited.

8. The defendant gave evidence. He referred to the damages claimed for the air conditioning repair, noting that the system was three years old at the commencement of the tenancy, and that the defendant had used it for four years, so that it was seven years old when the defendant left the premises. He said that the defendant had maintained the air conditioning system, and in August 1994 spent $30-40,000 on it, with the plaintiff paying half of the repair costs. He said this showed that the defendant regularly maintained the system. He said that the plaintiff wanted to charge the defendant for a lot of spare parts and materials for the air conditioning system, and that the plaintiff wants it in a better condition than before.

9. He then gave evidence of the defendant not being in a position to continue with the tenancy, and of attempting to negotiate with the plaintiff to discontinue the lease, suggesting that the defendant move out on 16 April, 1995. The defendant agreed to pay all the arrears, with the two-month rental deposit being set off. The defendant agreed to pay all the fees to re-let the premises. The plaintiff suggested that the defendant advertise the tenancy, and they did. The defendant moved out with the consent of the plaintiff. The plaintiff said that it would calculate the outstanding fees for electricity and management after it received the bills. When the defendant made 2 about the calculations, the plaintiff told them that they wanted payment of the other claims as well. The defendant would not have moved out if the plaintiff had not agreed to discontinuing the lease. The result is that the defendant did not breach the tenancy, and is not indebted to the plaintiff. In cross examination, the defendant was referred to the plaintiff's solicitors' letters to the defendant, at page 22-25 of the bundle. In response, the defendant said that he tried to settle the matter, and suggested paying $100,000, but the plaintiff asked for three months' rental. He agreed that there had been no settlement before 22.4.95 and no settlement on the day of the telephone conversation.

10. I accept the evidence of the plaintiff as to the breach of the tenancy, and of the claims arising from that. I am satisfied that the plaintiff incurred the costs it claims, and that it did its best to mitigate its loss under the tenancy. I am satisfied that the defendant was attempting to tailor the evidence to suit his case, and that no agreement was reached between the parties as to the settlement of the claims made by the plaintiff.

A 4504 of 1995

11. This action relates to the 3-month period from 18/2/1995 to 17/5/95.

12. The plaintiff re-let Portion B2 "A" to American Bonding Wire Limited for two years from 26/4/95, at a monthly rental of $14,905 (exclusive of rates). The re-letting agreement provided for a rent-free period from 26/4/95 to 15/6/95, so that no rental income was received in mitigation of loss for the period covered by this claim.

13. The plaintiff re-let Portion BS "B" to Henwick International Limited for two years from 26/7/95, at a monthly rental of $30,000 (exclusive of rates). The re-letting agreement provided for a rent-free period from 26/7/95 to 8/8/95, so that no rental income was received in mitigation of loss for the period covered by this claim.

14. The plaintiff gave evidence of the damages incurred due to the repudiation of the original tenancy agreement by the defendant as follows:-

15. The plaintiff produced the relevant documents in support of its claims, and I am satisfied that the plaintiff is entitled to an award of damages in this Action in the sum of $231,533.13 as claimed, and I make an order accordingly, together with interest at the judgment rate from the date of issue of the Writ until payment, together with the costs of the Action and of the assessment, to be taxed if not agreed.

A 8372/95

16. This action relates to the period from 18/5/95 to 17/11/96, being a period of 18 months.

17. The plaintiff claimed the following losses -

18. Evidence was given relating to re-instatement and re-letting expenses, and the plaintiff produced the relevant documents in support of these claims, which are as follows:-

19. From this figure is deducted a credit for rents received under the two re-lettings arranged by the plaintiff, one relating to Portion B2 "A" and one relating to Portion B2 "B," as follows:-

20. The defendant took issue with two of the claims made.

21. The first is the air conditioning repair. Having considered the evidence of the parties on the issue, in particular the fact that the air conditioning system was about seven years old at the end of the tenancy, I am satisfied that I should only award one-third of the expenses claimed for the repair of the air conditioning, that is, the sum of $11,800, being a reduction of $23,600.

22. The second issue is whether the defendant should be given a credit for the deposit of $130,000.

23. Counsel for the plaintiff submitted that -

          (i) the deposit under clause 7 of the Tenancy Agreement is for the purpose of securing the due observance and performance by the Tenant of the terms and obligations thereunder. Consequently, the plaintiff is not obliged to refund the deposit to the Defendant unless the Tenant duly observes and performs all the terms and obligations under the Tenancy Agreement. Due to the defendant's repudiatory breach of the Tenancy Agreement, the Tenant is not entitled to a refund of the deposit which should be forfeited without set off against the damages awarded to the Plaintiff.

          (ii) in the alternative that the defendant had not raised the defence of set off or a counterclaim with regard to the return of the rental deposit.

24. I was referred to the judgment of Master O'Donnell in the case of Shahdan Limited v. Wong Kok San, No. 1038 of 1994, where Master O'Donnell, having heard submissions, said -

          "For his part Counsel for the Plaintiff submits there can be no deduction of the rental deposit by way of set-off unless the Defendant has raised a defence of set-off or a counterclaim in relation to the return of the rental deposit. Since the Defendant has defaulted in filing any notice of intention to defend in this case he has not raised any defence of set-off or a counterclaim for return of the rental deposit with the Court. Counsel for the Plaintiff also points out that Clause 5(8)(a) of the Tenancy Agreement provides that it was only if the Tenant (Defendant) has paid up all rent and other charges and if there has been no breach of any terms of the Tenancy Agreement on the part of the Tenant would the Landlord (Plaintiff) be liable to refund the rental deposit. As there has been a repudiatory breach of the Tenancy Agreement, the plaintiff is under no liability to refund the deposit and the Defendant has no claim for any refund."

25. In the case before me, the defendant filed a defence which states that before any part of the rent and other outgoings fell due, he surrendered the property to the Plaintiff and the Plaintiff accepted such surrender. Further and in the alternative, that the demised property was surrendered to the Plaintiff by operation of law. He then went on to plead the particulars, that on or about 18th April, 1995, he returned the keys of the property to the Plaintiff who accepted them and thereafter resumed possession of the property. Accordingly, he denies liability to pay the sums claimed. Later, an amended statement of claim was filed.

26. In his decision, Master O'Donnell refers to the unreported Court of Appeal decision in The World Realty Limited & Kwan Ngar Yin, Civil Appeal No. 150 of 1986. In that case, the Court of Appeal allowed the appeal on the finding of law. The Court found that there was no surrender by operation of law and that the plaintiffs were entitled to judgment for arrears of rent, together with interest, management and air-conditioning fees.

27. The Court of Appeal said that "Until they forfeited the defendant's interest by service of the amended pleading the amount of rent and of management and air-conditioning fees accrued amounted to some $105,000. From that figure there falls to be deducted by way of set-off a deposit of $15,296 which the defendant, at the commencement of the term, had deposited with the plaintiffs as a guarantee of her obligations under the lease." The Court goes on to consider the defendant's claim for "a further set-off" by way of damages which was allowed in the nominal sum of $50. Although it is not specifically stated to be so, this suggests that a set-off by way of the deposit was pleaded.

28. However, Mr. Justice Kempster goes on to say that plaintiffs "made it plain that although the net sum which they might expect to recover on this appeal would be significantly greater having regard to the matters already canvassed the plaintiffs do not seek judgment in excess of $60,000. In these circumstances I would allow the appeal, set aside the judgment in favour of the defendant for $15,296 given on 7th November of last year and instead enter judgment for the plaintiffs as against the defendant in the sum of $60,000."

29. World Realty Limited & Kwan Ngar Yin, contains the unusual feature of a plaintiff limiting its claim to $60,000.

30. In the case before me, clause 7 provides that the deposit be held as a security for the performance of the terms and conditions of the lease, and further empowers the landlord to make a deduction from it of the amount of "any costs, expenses, loss or damage sustained as the result of non-observance or non-performance by the tenant."

31. At paragraph 18/8/16, page 304, of the White Book (1997 edition) it is said that "The defence of set-off and a counterclaim, of course, must always be specially pleaded." The defendant defence pleaded surrender of the premises, particularising the return of the keys to the plaintiff. The defendant appeared in person at the hearing of the O. 14 summons. On the facts of this case, and bearing in mind that the Rules provide that the defence of set-off be specially pleaded, I accept the plaintiff's submission that I should not give a credit to the defendant for the for the deposit of $130,000.

32. Other than the issue of the repair to the air conditioning, I am satisfied on the evidence as to the other claims made by the plaintiff. Accordingly, I make an award of $531,158.75, together with interest at the judgment rate from the date of issue of the Writ until payment, with costs of the Action and of the assessment to the Plaintiff, to be taxed if not agreed.

33. To summarize -

34. In Action No. 4505 of 1995, I make an award of $231,533.13, together with interest at judgment rate from the date of issue of Writ until payment, with costs of the Action and of the assessment to the Plaintiff, to be taxed if not agreed.

35. In Action No. 8372 of 1995, I make an award of $531,158.75, together with interest at judgment rate from the date of issue of the Writ until payment, with costs of the Action and of the assessment to the Plaintiff, to be taxed if not agreed.