HILLSBOROUGH HOLDINGS LTD v. CHEUNG YEE WO

DCCJ4822/2016

[2018] HKDC 976

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.4822 OF 2016

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ASSESSMENT OF DAMAGES

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1.  This is an assessment of damages arising from the breach of 2 written tenancy agreements both dated 14 Feb 2014 (the 2 agreements) regarding shops 250 (the 1^st shop) & 251 (the 2^nd shop) (collectively the 2 shops) on 2/F of Causeway Place (the Mall).

2.  On 30 Sept 2016, the plaintiff commenced these proceedings against the defendant for breach of the 2 agreements.

3.  No notice of intention to defend having been filed, final and interlocutory judgment was entered on 6 Dec 2016 (the judgment) against the defendant for (1) the sum of $121,537.99; and (2) interest on the sum of $117,175.24 at 3% p.a. above HSBC prime lending rate from 9 Mar 2016 to the date of the judgment and thereafter at judgment rate until payment.

4.  By paragraphs (3) and (4) of the judgment, damages for breach of the 2 agreements and damages representing costs on indemnity basis remain to be assessed.

5.  The said assessment of damages (AOD) first came before me in March 2018. The defendant was unrepresented and absent. This court was not satisfied with notification of the AOD hearing to the defendant and adjourned it to Aug 2018.

6.  On 4 July 2018, on plaintiff’s ex parte application, substituted service of the adjourned AOD hearing date to the defendant was granted by this court.

7.  At the adjourned AOD hearing date, the plaintiff was represented by counsel Ms Miranda Li (Ms Li). The defendant remained unrepresented and absent. But this court was satisfied on the 5^th affirmation of Li Kai Chi that the order of substituted service had been complied with and therefore proceeded with the hearing in defendant’s absence as requested by Ms Li.

8.  Ms Li adopted and elaborated on her written opening dated 21 Mar 2018 which set out plaintiff’s divers heads of claim, interest and costs order sought.

9.  Ms Li called plaintiff’s leasing officer, Mr Chin Ho Wing (Mr Chin), as her only factual witness, who adopted his witness statement filed 30 Nov 2017. Mr Chin afterwards answered questions of this court and Ms Li re-examined thereafter.

10.  After closing plaintiff’s case, Ms Li made comprehensive oral closing submissions on behalf of the plaintiff. I am grateful for her assistance.

Analysis

11.  I have carefully and fully considered all evidence, submissions and authorities before me. This court has, among others, considered the inherent probabilities of plaintiff’s evidence, its internal and/or external consistency and/or inconsistency, and has also watched out for the absence, if any, of material evidence or document in plaintiff’s case or Mr Chin’s witness statement.

Documentary evidence

12.  Having so considered in the above manner, this court accepts and give full weight to the contents of the documents in the assessment bundle before me.

Evidence of Mr Chin

13.  First, this court observed that Mr Chin did not personally handle the re-letting of the 2 shops nor made decisions regarding their re-letting terms. This shortcoming affects the weight one puts on, if not the credibility of, his evidence.

14.  For example, the 2 vacancy lists of the Mall for the months of Jan & Feb 2016 produced before this court were made by plaintiff’s senior leasing officer i.e. one Ms Chan named at the bottom of these lists and a superior of Mr Chin. Mr Chin was, he admitted, only informed of the matters after the event.

15.  Secondly, this court observed that some of Mr Chin’s evidence was bare assertion without supporting documents or detailed particulars thereof, which could have been easily forthcoming.

16.  For instance, Mr Chin claimed that the asking rents of the 2 shops were made in line with prevailing monthly rents of “new lettings” and “renewed lettings” on 2/F of the Mall “ranging from $10,000 odd to $30,000 odd”. Absent documentary proof or detailed particulars of these “new and renewed” lettings, I do not accept such bare assertion, not to mention that Mr Chin himself did not make the decision regarding such asking rents.

17.  Thirdly, on questioning by this court, Mr Chin claimed that his leasing manager Mr Tong had in regular weekly meeting held in Dec 2015 orally fixed a “bottom-line” monthly rental of $10,000 for the 2 shops. This is, I note, a material piece of evidence which did not appear at all in lengthy witness statement of Mr Chin. 

18.  This court declines to accept the above piece of evidence claimed by Mr Chin for the first time in the box, all the more so Mr Chin said at paragraph 32 of his witness statement that “landlord like the plaintiff do not want to readily disclose our ‘bottom-line’ rent to people who are not so genuinely interested in a unit”. Had there been a “bottom-line” monthly rent of $10,000 for the 2 shops, Mr Chin could have stated so in his witness statement but he did not.

19.  Fourthly, I do not think that the plaintiff had offered to re-let the 2 shops since their repossession on 9 Dec 2015 as alleged by Mr Chin. Had it been the case, vacancy list of the Mall for the month of Dec 2015 with the 2 shops included therein would, I think, have been produced. Mr Chin agreed that no such list was prepared at all.

20.  The suggestion by Mr Chin in the box that the 2 shops would, in Dec 2015, be offered for letting on telephone enquiry by estate agents and/or prospective tenants is, I think, an excuse that is contradicted by plaintiff’s practice of preparing vacancy list for the purpose of publicizing shops in the Mall for letting.

21.  The reinstatement works referred to below[1] by way of purported explanation from Mr Chin in the box are, I think, no obstacle to plaintiff offering the 2 shops for letting in Dec 2015 (and preparing such Dec 2015 vacancy list including the 2 shops) if it saw fit to do so. Apparently, the plaintiff, said Mr Chin, gave priority to letting of other shops than the 2 shops in Dec 2015.

22.  Nevertheless, some other aspects of Mr Chin’s evidence were supported by documentary evidence adduced before me. And some of his evidence and explanation has, I think, the support of inherent probabilities as well.

23.  All things considered, this court is only prepared such of his evidence set out in the next section below.

Findings of facts

24.  On my assessment above, I find the facts as follows.

25.  At all material times, the plaintiff was the owner of the Mall consisting of G/F, M/F, 1/F and 2/F of Hong Kong Mansion, Nos.1-1L Yee Wo Street, Nos.1-7 Patterson Street, Nos.2-10 Great George Street, Hong Kong.

26.  At the material times, the 2^nd floor of the Mall consisted of around 75 shops, whose gross sizes were mostly around 200 square feet. The same floor plan of 2/F of the Mall is annexed to the 2 agreements. The 1^st shop has a gross size of 196 square feet whereas the 2^nd shop has only 166 square feet. They are adjoining shops but the wall separating the two was not demolished.

27.  By the 2 agreements, the plaintiff let the 2 shops to the defendant for the same term of 2 years 1 month and 15 days from 15 Jan 2014 to 29 Feb 2016 as a retail shop for men’s fashion using the same shop/business name.

28.  In fact, the 2 agreements were renewal of defendant’s previous tenancy of the 2 shops. The 2 shops were handed over to the defendant as early as on 7 Dec 2010 (with the 1^st shop in a “bare shell” condition and the 2^nd shop on an “as is” condition[2]) with such structures, fixtures and fittings specified in a handover form of even date signed by the defendant (the handover form). By a remark thereof, the defendant is required to reinstate the 2 shops to “bare shell” condition on the sooner determination of the tenancy agreement concerned.

29.  By the 2 agreements, the defendant agreed to pay the plaintiff: -

(1)  monthly rent of $14,159 per month for the 1^st shop and $13,841 per month for the 2^nd shop;

(2)  service charges at $1,958 per month for the 1^st shop and $1,914 per month for the 2^nd shop; and

(3)  quarterly rates charged on the 2 shops as assessed by the government.

30.  By their terms, the 2 agreements require the defendant “to yield up” the 2 shops at their “sooner determination … in good clean substantial and proper repair and condition” and “to remove at the [tenant]’s sole expenses all fixtures, fittings, additions, partitions, floor coverings, erections, and alterations…”. In the event of defendant failing to do so, it shall on demand forthwith pay to plaintiff all costs and expenses of such reinstatement, restoration or making good[3].

31.  The 2 agreements have the usual re-entry clause for failure to pay rent and for other breaches.

32.  According to the 2 agreements, all costs and expenses including legal costs (on full indemnity basis) incurred by plaintiff in demanding rent and other charges payable and in exercising its remedies or in any actions or distraint for their recovery shall be paid by defendant and shall be recoverable from him as a debt or deductible from any deposit held by the plaintiff[4].

33.  The defendant was further required by the 2 agreements to pay to, and did pay[5], the plaintiff security deposit in the respective sums of $52,401 and $50,565 (the 2 deposits). In the event of any money due to the plaintiff, the plaintiff may apply the 2 deposits towards payment of such sums due, without prejudice of its other rights or remedies under the 2 agreements[6].

34.  For full or detailed wordings of the aforesaid provisions, the 2 agreements should be referred to.

35.  Starting from 2015, as Mr Chin admitted, the local retail trade suffered a decline with more and more Mainland visitors turning to be day-trip shoppers of daily necessities. The leasing situation in the Mall was also affected and the plaintiff was fully aware of that “qualitative” change at the material times since 2015.

36.  In breach of the 2 agreements, the defendant defaulted in payment of rent and service charges of the 2 shops since 1 Aug 2015 and rates thereof since 1 Oct 2015. As a result, as plaintiff’s leasing officer with duties of, inter alia, recovery of unpaid rent, Mr Chin first became involved with the 2 shops as from Aug 2015.

37.  In order to recover rent etc. due under the 2 agreements, the plaintiff took out distraint actions DCDT Nos.2511 & 2513 of 2015. Some goods and chattels were seized from the 2 shops by bailiff on 23 Nov 2015 (and Mr Chin was present on that occasion) and their auction took place on 30 Nov 2015.

38.  The proceeds of $3,684 from DCDT No.2511 of 2015 (the distraint action) were insufficient to cover the expenses of the distraint action. After deducting the said proceeds, the plaintiff was out of pocket in the sum of $9,097.6 in the distraint action.

39.  The proceeds realized from DCDT No.2513 of 2015 was $26,484. After deducting expenses of the said action in the 2 sums of $2,651 and $250, the plaintiff applied the balance of $23,583 towards payment of rent payable by the defendant for the 1^st shop for the period from Aug to Sept 2015.

40.  In further breach of the 2 agreements, the defendant deserted and abandoned the 2 shops without plaintiff’s prior consent in or after Sept 2015. The plaintiff eventually re-entered the 2 shops on 9 Dec 2015 peacefully and recovered their possession.

41.  Upon repossession, it was found (I accept Mr Chin’s oral evidence to this effect) that the defendant had, in breach of the 2 agreements, failed to yield up the 2 shops in good clean and proper condition, and to remove fixtures, fittings, additions, floor covering, and erections thereof, and failed to reinstate them to “bare shell” condition as required in the handover form.

42.  On about 10 Dec 2015, plaintiff’s management company invited 10 contractors to submit tenders to carry out works to reinstate the 2 shops (the reinstatement works). On about 16 Dec 2015, 4 tenders with prices ranging from $35,000 to $70,200 were received and the lowest tender submitted by one Ngai Shing Engineering Company Limited (Ngai Shing) was selected. The scope of the reinstatement works can be seen from the tender documents dated 15 Dec 2015 filled up and signed on behalf of Ngai Shing.

43.  Ngai Shing had carried out the reinstatement works and its invoice dated 1 Feb 2016 in respect of the same in the sum of $33,600 was duly settled by the plaintiff.

44.  Despite recovering possession of the 2 shops since 9 Dec 2015, the plaintiff did not, I find, offer them for re-letting in the month of Dec 2015.

45.  By its vacancy list of the Mall for the month of Jan 2016 prepared by one Ms Chan, plaintiff’s senior leasing officer, the plaintiff offered to let the 1^st shop at monthly rental of $15,000, and the 2^nd shop at monthly rental of $14,000, for 2-year term with 14 days of rent-free period. The date for delivering vacant possession of the 2 shops was stated “to be determined”.

46.  By its vacancy list of the Mall for the month of Feb 2016 also prepared by the said Ms Chan, the plaintiff continued to offer to let the 2 shops on the same terms as those stated in its Jan 2016 list, except that their vacant possession was stated to be “available today”.

47.  The persons to be contacted[7] for enquiries for the shops offered in the 2 lists for letting do not include Mr Chin and he was not himself responsible for answering/handling such queries/lettings.

48.  By distributing the above 2 vacancy lists through various means and by engagement of real estate agencies, the plaintiff marketed to re-let the 2 shops on the terms of the said 2 lists in the 2 months of Jan & Feb 2016.  But the 2 shops were not let out until the expiry dates of the 2 agreements i.e. 29 Feb 2016.

Applicable principles

49.  I have had regard to all authorities drawn to my attention by Ms Li, especially the judgment of Master de Souza in Wing Siu Co. Ltd. v Goldquest International Ltd., unreported, HCA 3183 & 4145/2001, 18 Aug 2006, where the law was succinctly summarized at para.7 – 8 thereof as follows:

“An aggrieved landlord’s entitlement to damages for wrongful repudiation of a tenancy agreement following general contractual principles is well established …. He can legitimately anticipate in the measure of damages to be awarded, such damages as reflecting the rental, service charges, rates and reinstatement cost stipulated in the tenancy and therefore payable were the agreement to be permitted to run its full course, subject always to a duty to minimize his loss…. He is, accordingly, expected to act reasonably and to take such steps as are necessary to re-let the vacant premises at a market rent… However, it falls upon the errant party to establish that mitigation has not taken place….

The duty to mitigate is not onerous as the landlord is not required to do anything other than in the ordinary course of business:…”

Plaintiff’s heads of claims

1) expenses of the distraint action

50.  On the facts I find above, I accept that the out-of-pocket expenses incurred by the plaintiff in the distraint action, though itself a futile exercise, is recoverable from the defendant by way of a debt under such provision of the agreement at paragraph 32 above.

51.  I allow the claimed sum of $9,097.6 in full.

2) costs of the reinstatement works

52.  I also accept that, on the facts I find above, these expenses are recoverable from the defendant under such provision of the agreement at paragraph 30 above.

53.  Considering the invitation for tenders and the acceptance of the lowest tender of Ngai Shing above, I find the claimed amount of $33,600 reasonable and allow it in full.

3) loss of rent, service charges & rates after re-entry

54.  On the facts I find above and applying the principles above, these losses are, I agree, recoverable at law from the defendant, subject to plaintiff’s duty to mitigate its loss.

55.  While the burden is on the wrongful party to establish failure to mitigate, on Mr Chin’s admissions, I think the plaintiff had failed to act reasonably in not offering to re-let the 2 shops immediately after their repossession on 9 Dec 2015.

56.  On the facts I find, this is one simple and easy step that the plaintiff could have done. On top of such matters at paragraph 21 above, one notices that, in Jan & Feb 2016 vacancy lists of the Mall, the plaintiff even offered other shops of the Mall for letting with “future” dates of giving vacant possession.

57.  The offering of the 2 shops in Dec 2015 for letting does not, one thinks, cause any prejudice to plaintiff (indeed, Mr Chin mentioned none) and gave, I think, an additional choice for prospective tenants of the Mall in the interest of all parties, including the defendant. This is a step that it ought, I find, to have done in its ordinary course of business and it had failed to so do.

58.  But, for reasons to be stated below, had the plaintiff taken this reasonable step, on the evidence before me, I am not satisfied that it could have successfully re-let the 2 shops on a date earlier than 29 Feb 2016 and thus reduced the amount of loss of rents, services charges and rates for the 2 shops it sought to recover.

59.  As from Jan 2016, on the facts I find above, the plaintiff, I think, had taken reasonable steps to market the 2 shops for re-letting by such means at paragraph 48 above.

60.  While the monthly rentals of the 2 shops in the Jan & Feb 2016 vacancy lists were higher than those in the 2 agreements, on all the materials before me, I do not think the plaintiff can reasonably be faulted on that for the following reasons.

61.  By way of background, I do bear in mind the “qualitative” change of market since 2015 at paragraph 35 above. And, by Jan 2016, as said by Mr Chin in the box, the vacancy ratio on 2/F of the Mall was “relatively high”, as evidenced by 11 shops available for letting[8] out of a total of around 75 units on that floor.

62.  Nevertheless, the said monthly rentals of the 2 shops in the 2 lists are only slightly greater than those in the 2 agreements.

63.  Secondly, whether they were fixed in line with monthly rentals of “renewed” and “new” lettings of 2/F units of the Mall at the material time or not, compared to those of other shops on 2/F of the Mall also offered for letting in the 2 lists, the monthly rentals sought for the 2 shops were, one notices, the lowest in absolute term and also the lowest per square feet of gross size[9].

64.  That said, such lowest monthly rentals sought for the 2 shops, I find from the oral evidence of Mr Chin, were due, I think, in large part to their unfavorable locations on 2/F of the Mall (Mr Chin put it as “below average” in the box). As explained by him, more often than not, shoppers turned right outside shop No.257 to leave 2/F of the Mall and thus avoided visiting the 2 shops.

65.  Moreover, I accept Mr Chin’s evidence that the said monthly rentals sought for the 2 shops were mere asking prices and thus negotiable. They may be lowered if interested tenants come forward to approach the plaintiff. That makes commercial sense to me and I accept it (despite I do not accept Mr Chin’s alleged “bottom-line” monthly rental of $10,000 for the 2 shops).

66.  While one notices from comparing Feb 2016 vacancy list against Jan 2016 list that the plaintiff had seen fit to reduce considerably the monthly rentals sought for other shops on 2/F of the Mall but maintain in Feb 2016 the same monthly rentals sought for the 2 shops in Jan 2016, the latter remained the lowest in absolute term and also the lowest per square feet of gross size in Feb 2016^[10].

67.  Given that the 2 shops had only been offered for letting a mere one month as from Jan 2016, the plaintiff cannot, I think, be reasonably faulted for not reducing the monthly rentals sought for them in the month of Feb 2016, all the more so they were mere asking prices and negotiable.

68.  All in all, I think it likely that the 2 shops were stuck by their “unfavorable” locations in an “unfavorable” market. Had the plaintiff offered them for re-letting earlier than it did, the result would likely be no different from what it was by 29 Feb 2016.

69.  For the above reasons, I allow in full plaintiff’s 3 claimed amounts on this head as particularized at para 34(1) - (3) of Mr Chin’s witness statement (i.e. $75,870.97 + $10,491.87 + $4,743.93), making a total of $91,106.77.

Summary

70.  Hence, giving credit for the 2 deposits still held by the plaintiff in the 2 sums of $52,401 and $50,565, the total amount of damages the defendant is liable to pay the plaintiff pursuant to paragraph (3) of the judgment is $30,838.37, calculated as $91,106.77+ $33,600 + $9,097.6 - $52,401 - $50,565.

Disposition

71.  I therefore enter final judgment in plaintiff’s favour against the defendant in the sum of $30,838.37, together with interest thereon at 6% p.a. from 30 Sept 2016 to the date of judgment and thereafter at judgment rate until payment.

Costs

72.  Costs normally follow the event. Despite the relatively small amount of damages I arrive at this AOD, I see nothing to depart from such general rule.

73.  Ms Li fairly did not seek costs against the defendant on indemnity basis as provided for in the 2 agreements at paragraph 32 above or pursuant to paragraph (4) of the judgment, and left it to the discretion of this court. Considering the result of my assessment and the amount of costs claimed in plaintiff’s statement of costs dated 6 Aug 2018, I accept Ms Li’s suggestion of making summary assessment of the costs of AOD.

74.  I therefore order the defendant to pay the plaintiff the costs of AOD, inclusive of all reserved costs and the costs of the 2 hearings before me, and I summarily assess them in the sum of $50,000.

75.  Finally, I order that the service of this AOD by inserting an advertisement of the same in Hong Kong Commercial Daily, a Chinese newspaper published and circulating in Hong Kong, shall be good and sufficient service of the same and that service shall be deemed to have been effected on the day of publication of the said advertisement, and I order plaintiff’s solicitors to insert such advertisement within 56 days from the date hereof and to file an affirmation proving the same within 28 days of such publication.