WINDSOR HOUSE LTD (formerly known as Chinese Estates (Windsor House) Ltd) v. SHINING SOURCE HOLDING GROUP (Hong Kong) LTD

HCA 3405/2016

[2019] HKCFI 279

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3405 OF 2016

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J U D G M E N T

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Undisputed Background

1.  By a tenancy agreement dated 29 May 2014 (“Tenancy Agreement”) (“T/A”) (B/42-80) entered into between the plaintiff (“P”) as the landlord and the Defendant (“D”) as the tenant, the P let to the D an office unit known as Room 3402A on the 34^th Floor of Windsor House, No. 311 Gloucester Road, Causeway Bay, Hong Kong (“the Premises”) for a fixed term tenancy of 3 years commencing from 5 May 2014 to 4 May 2017.

2.  The D covenanted to the following terms of the T/A: -

   (1)   to pay the monthly rent of HK$51,200 (Clause 5(a) & 3rd Schedule Part I) (B/45&70);

   (2)   to pay a monthly service charges of HK$8,530.50 (Clause 5(a) and 3rd Schedule Part II) (B/45 & 71);

   (3)   to pay government rates charged by the Government (Clause 5(b)) (B/45);

   (4)   All costs and expenses of and incidental to any demand for rent or any other sum payable under these presents or actions or distraint for recovery of the same shall by paid by the Tenant on a full indemnity basis and shall be recoverable from the Tenant as a debt (Clause 7(a)(i)) (B/60); and

   (5)   The D shall “yield up the Premises quietly at the expiration or sooner determination of the term in good clean substantial and proper repair and condition … and in bare-shell condition … in the event of the Tenant failing so to do to the satisfaction of the Landlord then the Tenant shall on demand forthwith pay to the Landlord all the cost and expenses of such re-instatement restoration or making good” (Clause 5(h)(i)) (B/51-52).

3.  The D had failed to pay the rent in November and December 2015 and the P instituted distraint action (Action No. DCDT 3631/2015) on 24 December 2015.  The D settled all arrears of rent and the P withdrew the distraint action leaving an outstanding stamp duty fee of HK$250.

4.  The D failed to pay the rent, service charges and rates since January 2016 again and the P instituted distraint action (Action No. DCDT 608/2016) on 19 February 2016 with seizure of goods and chattels at the Premises on 14 April 2016 and after auction held on 21 April 2016, proceeds of sale realized was HK$2,829.  Such proceeds realized was insufficient to cover the expenses incurred by the two distraint actions, namely HK$250 stamp duty in each of the distraint action, HK$12,465.9 being expenses of the distraint action in DCDT 608/2016 and HK$350 locksmith cost (details at B/21-22 with receipts and invoices at B/81-98), making a deficit of HK$10,486.90 ($12,465.9 + $250 + $250 + $350 - $2,829).   

5.  In the course of execution of the distraint action on 17 March 2016, it was discovered that the D had unilaterally parted with and deserted and abandoned the Premises and the bailiff had to break open the door of the Premises to gain entry on 14 April 2016.  The P re-entered the Premises and recovered possession of the Premises on the same day.

6.  Upon repossession, the P found that the D had failed to yield up the Premises in a good clean substantial and proper repair and bare-shell condition (photos taken on date of re-entry at B/103-111). The P had arranged for the reinstatement of the Premises to be done which includes fire service works, builder works, electrical works and mechanical ventilation and air conditioning work and incurred a total of HK$131,708 (receipts produced as Exhibit P1-P5 and photos of Premises after reinstatement at B/162-163).

7.  A letter was sent to the D on 17 August 2016 demanding for the settlement of the outstanding arrears and damages in respect of the Premises and interest.  The D failed to settle the same. Therefore, the P commenced this action against the D by Writ of Summons dated 22 December 2016 for: -

   (1)   Arrears of rent, service charges and Government rates from 1 January 2016 to 14 April 2016 in the total sum of HK$216,776.28 with interest as at 14 April 2016 at HK$14,146.26;

   (2)   Damages for early termination of the T/A with interest;

   (3)   Costs for the distraint action and the reinstatement work; and

   (4)   Costs incurred on a full indemnity basis.

8.  On 15 February 2017, the P obtained final and interlocutory judgment (“the Judgment”) (B/14) by reason that no notice of intention to defend having been given by the D.  In the Judgment, it is ordered that: -

   (1)   The D do pay the P the sum of HK$230,922.54 (§7(1) above) and interest on the sum of HK$216,776.28 at the rate of 3% per annum over the HSBC Prime Lending Rate from 1 December 2016 to the date hereof and thereafter at judgment rate until payment;

   (2)   Damages for breach of T/A to be assessed; and

   (3)   Damages representing costs to be assessed on indemnity basis.

9.  This is the hearing for assessment of damages.

10.  The D is unrepresented and absent at this hearing.  Having read the affirmation of service filed by the P on 17 January 2019, I am satisfied that all the relevant court documents and notice of assessment hearing had been duly served on the D and that the P had not received any return post.  Hence, I am satisfied that the D had been given sufficient notice of this assessment hearing and it is appropriate to proceed with the hearing notwithstanding the D’s absence.

Loss of Rent, Service Charges & Rates

11.  The P contended that, but for the breach on the part of the D, the P would have been entitled to receive rent and other charges since repossession (ie 15 April 2016) to the date when the T/A would have expired (ie 4 May 2017), hence claiming such loss as damages.

12.  Ms Cheng, the Leasing Manager of the P, testified that: -

   (1)   To mitigate the loss, the P had spent extensive efforts in the search for a replacement tenant including: -

   i.   Publicizing and marketing the premises to target tenants through more than 20 real estate agencies;

   ii.   Distributing promotional flyers and vacancy lists by email to target tenants; and

   iii.   Making cold calls to retail tenants of other shopping malls or retail complexes;

   (2)   Asking price at HK$74,448 (or $48 per square foot) from May 2016 to April 2017 and at HK$77,550 (or $50 per square foot) in May 2017.  In setting the asking rent, the P had taken into consideration the quality and location of the Premises, the prevalent rent of similar properties and the impact on rent reviews, renewals and new lettings of other premises in the entire building of Windsor House.  The asking price was in line with the prevalent rent of similar properties and the overall portfolio of the shopping mall.  Asking rent of other available office units in Windsor House were produced in support (B/113-123).  The P would indicate to a prospective tenant that the asking rent was negotiable if anyone indicated interest.  Such a practice is common in the commercial property market to minimize the deleterious effect that rental reduction on one property may have on other properties in the P’s portfolio;

   (3)   Despite all the efforts, the P was unable to re-let the Premises from 15 April 2016 to 4 May 2017; and

   (4)   The P suffered loss of rent, service charges and rates from 15 April 2016 to 4 May 2017 in the total sum of HK$788,300.80 as follows: -

   i.   Loss of rent = $648,313.12 (B/27-28 at §33)

   ii.   Loss of service charges = $108,016.25 (B/28 at §33); and

   iii.   Loss of government rates = $31,971.43 (B/28-29 at §33).

13.  It is trite law that an aggrieved landlord is entitled to damages for wrongful repudiation of a tenancy agreement, such damages as reflecting the rental, service charges, rates and reinstatement cost stipulated in the tenancy and therefore payable if the agreement is permitted to run its full course, subject always to a duty to minimize his loss.  The landlord is expected to act reasonably and to take such steps as are necessary to re-let the vacant premises at market rent.  However, it falls upon the errant party to establish that mitigation has not taken place (Wong Siu Co Ltd v Goldquest International Ltd (HCA 3183 & 4145/2001, unreported, 18 August 2006 at §7-8).

14.  And I also accept the submissions by Ms Li for the P that “the duty to mitigate is not onerous as the landlord is not required to do anything other than in the ordinary course of business (McGregor on Damages, 18^th ed. at §7-019).

15.  Having heard from Ms Cheng, I accept her evidence in full and agree that the P suffered loss of rent, service charges and rates since repossession on 15 April 2016 to the date when the T/A would have expired on 4 May 2017 if not for the repudiatory breach of the D in the early termination of the T/A.  And it is also my finding that the P had taken all reasonable steps and extensive efforts to promptly and duly mitigate the loss caused by the D’s repudiation of the T/A in the search for a replacement tenant.  Being the landlord of the entire office building of Windsor House, I accept that the P is entitled to consider the prevalent rent of similar properties in the same building in setting the market rent of the Premises and not to set the asking rent below the market rent to minimize the deleterious effect on the P’s portfolio of properties in the same building.

16.  I therefore allow the P’s claim in full for loss of rent, services charges and government rates as claimed from 15 April 2016 to 4 May 2017, ie HK$788,300.80 ($648,313.12 + $108,016.25 + $31,971.43).

Loss of Reinstatement Cost

17.  Ms Cheng testified that upon repossession of the Premises, it was discovered that the D had failed to yield up the Premises in a bare shell condition (ie same condition when D took possession) as required under the T/A, the P therefore incurred expenses to reinstate the unit to “good clean substantial and bare-shell condition”.  For the builder works, electrical works and mechanical ventilation and air conditioning work, tender was being called for and eventually selected the lowest tender for each head of works, making a total of HK$125,790.  And the installation of sprinkler system (fire services) was required in order to reinstate the same to its original location after alteration being made by D. The existing maintenance contractor of the fire services installation of the whole building was engaged since the cost of the installation was fairly low at HK$5,918.

18.  I accept the evidence of Ms Cheng that the D had failed to reinstate the Premises to bare-shell condition which is supported by the photographs and I also find that the P had to incur costs in the performance of the reinstatement works which are reasonable and necessary to reinstate the Premises to a condition as required under the T/A.

19.  I therefore allow the claim for loss of reinstatement costs in full.

Costs of Distraint Action  

20.  As the D had failed to pay the rent in November 2015 and January 2016, the P had instituted 2 distraint actions (DCDT 3631/2015 & DCDT 608/2016 refers) to arrange for the seizure and auction of goods and chattels of D in the Premises.  The 1^st distraint action was withdrawn upon the D settling all arrears and the 2^nd distaint action had generated proceeds of sale realized from the auction at HK$2,829.  After deducting the net proceeds against the expenses of the 2 distraint actions, there was a deficit of HK$10,486.90.

21.  I accept and find that costs of the distraint action is recoverable from the defendants under Clause 7(a)(i) of the T/A (B/60) and the amount claimed are reasonable.  I therefore allow the claim in full.

Quantum of Loss and Damages

22.  Based on the findings above, the total amount of loss and damages is set out as follows:

Head of Loss	Period Covered	Total Amount (HK$)
(1) Loss of Rent	15/4/2016 - 4/5/2017 at $51,200/month	$648,313.12
(2) Loss of Service Charges	15/4/2016 - 4/5/2017 at $8,530.50 per month	$108,016.25
(3) Loss of Government Rates	1/4/2016 - 31/3/2017 at 7,550 per quarter; & 1/4/2017 – 4/5/2017 at $7,850 per quarter	$31,971.43
(4) Loss of Reinstatement Costs	N.A.	$131,708.00
(5) Loss of Distraint Action	N.A.	$10,486.90
Total		$930,495.70

23.  The P agreed that the security deposit of HK$247,172.00 paid by the D should be set off against the award.

24.  Therefore, the total amount of loss and damages awarded to the P should be HK$683,323.70 ($930,495.70 - $247,172). I so ordered.

Interest

25.  The P asks for pre-judgment interest on the damages awarded at prime rate plus 1% from the date of writ to the date of judgment.

26.  I agree that prime rate plus 1% has been well-established by authorities to be the applicable pre-judgment rate from the date when the loss has accrued to the date of judgment (Tadjudin Sunny v Bank of America, CACV 12/2015, unreported, 20 May 2016 at §179).  I order that there be pre-judgment interest rate at prime rate plus 1% on the sum awarded (ie HK$683,323.70) from the date of the Writ to the date of Judgment and thereafter at judgment rate till payment.

Costs

27.  Costs should follow the event. A Statement of Costs for summary assessment is submitted at the end of this hearing.  In the Statement of Costs, the P claims the sum of HK$67,045 as costs in this action against the D.

28.  Having reviewed the Statement of Costs, I find the overall costs claimed appeared proportionate and each item is reasonably incurred and its costs is reasonable.

29.  I therefore summarily assessed the amount of costs payable by the D to the P in the sum of HK$67,045.  This is a costs order nisi.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days from today.