PURTON INVESTMENT LTD. v. HUI PING KAM

1989 No. A4174

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. The Plaintiff commenced these proceedings against the Defendant by a writ dated 31st July 1989. No notice of intention to defend was filed and on 24th August 1989, default judgment was obtained by the Plaintiff for arrears of rent and management fees as well as interest on the arrears at the contractual rate up to the date of judgment and thereafter at judgment rate. The Plaintiff also obtained interlocutory judgment for mesne profits, air-conditioning/management charges and interest thereon to be assessed.

2. The Defendant was absent at the assessment. Only one witness, Chan Cheung Shing, a supervisor of the property management section of a JLW Management Services Ltd. ("JLW"), the plaintiff's agent as well as the managing agent of the building in question, was called to give evidence.

3. The Defendant became the tenant of the Plaintiff's predecessor-in-title in respect of the Pasement, Union Park Centre, 771-775 Nathan Road, Kowloon, by a lease dated 1st December 1987 ("the Lease"). The tenancy was for a period of 2 years expiring on 10th June 1989. Rental and air-conditioning/management charges were at the respective rates of $55,000.00 and $3,000.00 per month. By an assignment dated 14th April, 1989, the Plaintiff became the owner of the whole building in which the suit premises were part of. Notice to quit dated 15th April 1989 was served on the Defendant terminating the tenancy on 15th October 1989 i.e. after the contractual period of the Lease. Since April 1989, the Defendant had fallen in arrears of rents and air-conditioning/management charges. It is unclear from the evidence as to when the Plaintiff exercised its right of forfeiture of the tenancy, but such would have been exercised latest by the issuance of the writ herein.

4. The Plaintiff claims mesne profits and air-conditioning charges between 1st August 1989, the day after the issuance of the writ herein; and 10th October 1989, the date of recovery of possession of the premises via the bailiff under a writ of possession. Mesne profits were claimed at the rate of $55,000.00 per month i.e. the same rate as per the Lease. Air-conditioning/management charges were claimed at an increased rate of $4,553.10.

5. As the contractual period of the Lease would have expired on 10th June 1989, the tenancy was in fact continued thereafter until the expiration of the notice of termination on 15th October 1989 under Part V of the Landlord and Tenant (Consolidation) Ordinance, Cap.7. Pursuant to S.122(4) of the Ordinance rent would remain at the same rate for the prolonged period of the tenancy. In the premises, the contractual monthly rental payable at the time of the forfeiture on 31.7.1989 would remain at $55,000.00. I find the Plaintiff's claim that mesne profits should be at the same rate of $55,000.00 per month for August 1989 and thereafter to be reasonable and accept such as the appropriate rate. However, P.W.1 did say in evidence that in fact the Defendant had actually moved out by the end of September 1989. He confirmed that there was nothing to prevent the Plaintiff from physically entering the suit premises thereafter, but for the fact that it was thought that it would be more appropriate to wait for the bailiff to enter the premises first. I find the plaintiff's delay in waiting for execution by the bailiff when they could have recovered vacant possession of the suit premises themselves without any difficulty to be unreasonable. Any loss occasioned by such a delay would be too remote and not recoverable. I therefore award mesne profits in the total sum of $110,000.00 for the period between 1st August 1989 and 30th September 1989.

6. The Plaintiff sought to justify the increase in air-conditioning/management charges by relving on the provisions contained in Part II of the Second Schedule to the said Lease. The said provisions provided:-

7. The tenant's obligation was to pay a sum "as shall reasonably be required" for the provision of services which shall be $3,000.00 until otherwise demanded by the landlord. The landlord could only demand an increase on specific grounds such as increase of utilities costs at any time, and for increase in operating costs every twelve months. The demand must be accompanied by an explanatory note though the landlord's assessment of the amount to be increased shall be final. P.W.1 said the said charges were in fact increased by JLW to $4,553.10 per month, and the Defendant was notified of such on 27th June 1989. The Defendant had fallen in arrears of such charges since 1st June 1989. Demand for the arrears was sent on 31st July 1989.

8. Pursuant to S.122(4) of Cap. 7, the prolonged period of the tenancy after 10th June 1989 would be, inter alia, "upon such of the covenants, conditions and other terms of the original tenancy as are appropriate to a month to month tenancy". I accept the said provisions in the Second Schedule to Part II of the said Lease to be appropriate to a monthly tenancy and are applicable to the said prolonged period of the tenancy. However, the letter dated 27th June 1989 referred to in paragraon 9 of the Statement of Claim and by P.W. 1 was not produced. There is no evidence that the said notice was accompanied by any explanatory memorandum. No justification for the increase was pleaded though paragraph 9 of the Statement of Claim did refer to it being calculated on the basis of "$1.00 per square foot (gross) with effect from 1st August 1989"; and that "the said premises have a gross floor area of 4,533.1 square feet."

9. P.W.1, however, did try to give justification for the increase in evidence. He said the said charges were collected directly by JLW, as the managing agent for the building, from the tenant. The landlord had no obligation to the managing agent for such charges save to reimburse it for any deficit in the accounts. JLW adopted a rather unusual system for collection of such charges. It only collected such charges from the tenants of occupied units. No charges would be demanded from the landlord in respect of vacant units. So, in fact, if there is no deficit the tenants alone would share all the expenses of the services provided to the building by JLW. Furthermore, P.W.1 also said, at first, that the charges were increased after they had prepared a budget which showed that the money collected from the tenants were insufficient. "It was insufficient because when we compared with other buildings, the fee for Union Park is too low", said P.W.1. Then P.W.1 said the increase was based on estimates. Upon further clarification with the witness, it transpired that at the material time 3 floors of the said building, i.e. first to third floors, were unoccupied. Had they been occupied, over $20,000.00 could have been collected from the tenants in respect of air-conditioning/management charges. For the material period, the deficits ranged from $3,678.53 to $8,535.62 per month only. P.W.1 thus concluded that, JLW would not have suffered any deficit for the material period had those 3 floors been let out and charges were collected in respect of those units. In the premises, the Plaintiff, as landlord, would not have been asked by JLW to reimburse it for any deficit despite the failure of the Defendant to pay for the said charges if those said 3 floors had been let out. P.W.1 confirmed that the Plaintiff would not have to pay any deficit to JLW had there been full occupancy. Thus, in fact, the shortfall giving rise to the alleged need to increase the tenant's contributions to the air-conditioning/management charges in respect of the material period arose substantially from the fact that the landlord was not charged anything in respect of the vacant units. The uncollected charges in relation to the vacant units would make up roughly about one-third of the total expenditures for the material period. It is to be noted that JLW, the persons deciding on the increase in the said charges, also acted at all material times as agent of the landlord in looking after the tenancy matters.

10. By reason of matters aforesaid, I am not satisfied that there had been any "increase in the operating costs" which reasonably justified any requirement for an increase in the said charges from August 1989 and during the material period. The Plaintiff's claim for air conditioning/management charges at an increased rate thus failed. Air-conditioning/ management charges at the original stipulated contractual rate of $3,000.00 is also not recoverable by the Plaintiff from the Defendant. After the forfeiture of the prolonged tenancy, the Plaintiff's claim for air-conditioning/management charges must necessarily be founded on a claim for damages it suffered as a result of the wrongful occupation of the premises by the Defendant and not on a breach of covenant. The evidence clearly established that the Plaintiff is not under any direct liability as owner/landlord to pay JLW any air-conditioning/ management charges in respect of the Defendant's occupation of the said premises during the period in question. The only obligation was to pay the deficit. And the deficit resulted mainly because a not insubstantial part of the building were vacant. And P.W.1 confirmed that the Plaintiff would not have to pay any deficit, despite the failure by the Defendant to pay his share of the said charges, had there been full occupancy of the other floors. I find the claim for such damages too remote and not to be recoverable by the Plaintiff.

11. The Plaintiff's solicitor is unable to refer me to any autoority where interest was awarded for mesne profits. In view of the nature of the claim, being a claim for the wrongful occupant's use and enjoyment of the land, no interest should be awarded under S.48 of the Supreme Court Ordinance, Cap.4 or the common law. The Plaintiff's claim for interest on the mesne profits thus failed.

12. The plaintiff is thus to be awarded the total sum of $110,000.00 as mesne profits. Deposit in the sum of $110,000.00 ought to have been refunded to the Defendant within thirty days after the termination of the tenancy under clause (2) of Section IX of the said Lease. No credit was given to this sum of deposit in the Statement of Claim. I, therefore, will gave to hear solicitor for the Plaintiff on the matter of the deposit before certifying the amount to be further awarded to the plaintiff. I will also hear the Plaintiff on the question of costs.

13. Dated this 5th day of December, 1989.