HILLSBOROUGH HOLDINGS LTD v. CHAN HANG HO COSCO

DCCJ3024/2016

[2018] HKDC 911

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.3024 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 a written tenancy agreement dated 15 May 2014 (the agreement) in respect of shop No.121 on 1/F of Causeway Place (the shop).

2.  On 23 June 2016, the plaintiff commenced these proceedings against the defendant for breach of the agreement.

3.  No notice of intention to defend having been filed, final and interlocutory judgment was entered on 24 Aug 2016 (the judgment) against the defendant for (1) the sum of $67,106.76; and (2) interest on the sum of $62,874.81 at 3% p.a. above HSBC prime lending rate from 23 Mar 2016 to the date of the judgment and thereafter at judgment rate until payment.

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

5.  By order of Registrar Ho dated 24 Aug 2017, discovery by way of list of document and filing of witness statement as to quantum was ordered.

6.  On 7 Sept 2017, the plaintiff filed and served its list of documents.

7.  On 30 Nov 2017, the plaintiff filed and served the witness statement of Chin Ho Wing (Mr Chin), plaintiff’s leasing officer, dated 29 Nov 2017.

8.  By another order of Registrar Ho dated 14 Dec 2017, this action was set down for assessment of damages (AOD) on 29 May 2018.

9.  On the AOD hearing before me, the plaintiff was represented by counsel Ms Catherine Xiao (Ms Xiao). The defendant was unrepresented and absent. But I am satisfied on the affirmation of service before me and undertaking given by plaintiff’s solicitors[1]that the defendant had been duly notified of the hearing date and served with, inter alia, the assessment bundle such that I proceeded with the hearing in defendant’s absence as requested by Ms Xiao.

10.  Ms Xiao adopted and elaborated on her written opening submissions dated 23 May 2018 which set out plaintiff’s divers heads of claim, interest and costs sought.

11.  Mr Chin was the only factual witness called by plaintiff. He gave his evidence in punti and adopted his witness statement as his evidence-in-chief. He afterwards answered questions of this court and Ms Xiao was allowed to re-examine.

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

Analysis

13.  I have carefully and fully considered all evidence, submissions and authorities before me.

14.  It must be stressed that, despite plaintiff’s evidence went unopposed, the burden on proof remains on the plaintiff to prove its case on the balance of probabilities by adducing credible and reliable evidence. And the plaintiff should not take for granted that its evidence adduced would be accepted in any event.

15.  This court has, among others, considered the inherent probabilities of plaintiff’s evidence, their internal and/or external consistency and/or inconsistency, and has also watched out for absence, if any, of material evidence or document.

Documentary evidence

16.  Having so considered, this court is prepared to accept the contents of the documents before me but, as I shall explain below, not all of them are relevant to the matters to be decided.

Evidence of Mr Chin

17.  There are 2 observations of Mr Chin’s evidence that this court would make.

18.  First, as was made clear at para 1 of his witness statement, he was overall responsible for “recovery” of plaintiff’s loss from the defendant leading to these proceedings.

19.  Hence, for the major part of plaintiff’s claim regarding loss of rent, service charges and rates since plaintiff’s re-entry into the shop on 31 July 2015, Mr Chin was not the one who made the material decisions regarding its re-letting and the pricing etc. thereof and he himself did not personally handle its marketing and, as such, he did not have personal knowledge or involvement thereof.

20.  Indeed, Mr Chin, he admitted, was also not involved in letting of the shop to the defendant, and of its letting to the tenants of its earlier tenancy (the previous tenants).

21.  The aforesaid matters do affect the weight this court can put on, if not the credibility of, the evidence of Mr Chin, who claimed to explain many material decisions made by plaintiff’s management (senior than him) at the material times, which decisions he only came to know by e.g. reading data after the events.

22.  Secondly, Mr Chin saw fit to put in 5 pages of plaintiff’s internal email[2] purporting to show numerous site visits by his colleagues to 9 other malls reaching out potential retail tenants and promoting the re-letting of the shop “during” the material times. On careful reading of them, save for one single visit on 7 Oct 2015 which falls within our relevant period, the rest of them were not conducted during the material re-letting period of the shop and, hence, they are utterly irrelevant for the purpose of this AOD.

23.  Such manner of putting irrelevant evidence before this court as if they are relevant does, I think, more harm than good to plaintiff’s case (and this court does not accept such evidence at para 22d) of Mr Chin’s witness statement). It must be made clear that this court remains at all times vigilant to scrutinize each and every aspect of plaintiff’s case even though it went unopposed.

24.  At the same time, this court observed that much, not all, of Mr Chin’s evidence was supported by documentary evidence adduced before me (such absence of supporting document would be alluded to below). And some, not all, of his evidence and explanation has the support of inherent probabilities as well.

25.  All things considered, this court is prepared such of Mr Chin’s evidence set out in the next section below.

Findings of facts

26.  On my assessment of the totality of plaintiff’s evidence above, I find the facts as follows.

27.  At all material times, the plaintiff was the owner of a shopping mall by name of “Causeway Place” in Causeway Bay (the Mall), consisting of, inter alia, shops and restaurant at G/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.

28.  At the material times, the 1^st floor of the Mall consisted of shops only and there were altogether around 85 shops. Their size was all relatively small. A floor plan of 1/F of the Mall is annexed to the agreement[3] and produced before this court. The shop is one of these small shops and it had a gross area of 238 square feet.

29.  Since 2014, there has been a decrease of Mainland tourists visiting Hong Kong and the local retail trade has witnessed a declining trend. The plaintiff has experienced difficulties in seeking replacement tenants for quite a number of units in the Mall.

30.  By an earlier tenancy, the shop was let by the plaintiff to the previous tenants as a retails shop selling shoes for 2 years from 9 Sept 2011 to 8 Sept 2013 (the earlier tenancy) at a monthly rental of $35,000. After its expiry, no replacement tenant was found, and the shop was left vacant, for as long as 6 months.

31.  By the agreement dated 15 May 2014, the plaintiff managed to let the shop out to the defendant for a term of 2 years from 31 Mar 2014 to 30 Mar 2016[4] as a retail shop for cosmetics and skin care. In return, the defendant agreed in the agreement to pay the plaintiff: -

(1)  monthly rent of $17,500 per calendar month (i.e. it was only half of the monthly rental of the earlier tenancy. It was below the prevailing market rent and the plaintiff agreed to it in order to reduce the number of vacant units in the Mall);

(2)  service charges at $3,375 per calendar month; and

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

32.  The agreement requires the defendant “to yield up” the shop at its “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 the defendant failing to do so, it shall on demand forthwith pay to the plaintiff all the costs and expenses of such reinstatement, restoration or making good[5].

33.  The agreement has the usual re-entry clause for failure to pay rent and other breaches. It further provides that 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 the defendant and shall be recoverable from him as a debt or deductible from any deposit held by the plaintiff[6].

34.  The agreement also requires the defendant to pay to the plaintiff security deposit totaling $67,725 (the deposit). In the event of any money due to the plaintiff, the plaintiff may apply the deposit towards payment of such sums due, without prejudice of its other rights or remedies under the agreement[7]. And the deposit was duly paid by the defendant to the plaintiff in Mar 2014.

35.  For full or detailed wordings of the aforesaid provisions, the agreement should be referred to.

36.  On 31 Mar 2014, the shop was handed over to the defendant in a “bare shell” condition[8] with such structures, fixtures and fittings specified[9] 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 shop to the same condition on the sooner determination of the agreement.

37.  In breach of the agreement, the defendant defaulted in payment of rent and service charges since May 2015 and rates since July 2015.

38.  In an attempt to recover its rent due under the agreement, the plaintiff took out distraint action DCDT No.1683 of 2015 (the distraint action). Some goods and chattels were seized from the shop by bailiff on 17 July 2015 and their auction took place on 24 July 2015. The proceeds from the auction were insufficient to pay even the auctioneer’s expenses. After giving credit for all proceeds, the plaintiff was out of pocket in the sum of $13,190.4 in the distraint action[10].

39.  In further breach of the agreement, the defendant abandoned the shop without plaintiff’s prior consent in or about July 2015. The plaintiff eventually re-entered the shop on 31 July 2015 peacefully and recovered possession of the shop.

40.  Upon repossession, it was found that the defendant had, in breach of the agreement, failed to yield it up in good clean and proper condition, and to remove all fixtures, fittings, additions, floor covering, and erections, and failed to reinstate it to its conditions as stated in the handover form[11].

41.  Plaintiff’s management company therefore invited 10 contractors to submit tenders for works to reinstate the shop to its conditions as stated in the handover form (the reinstatement works), whose scope was set out in the tender form[12]. On 7 Aug 2015, 5 tenders ranging from $10,300 to $68,300 were received and the lowest tender submitted by one Creative Design & Decoration Company Limited (Creative)[13] was accepted.

42.  Creative carried out the reinstatement works in Oct 2015 and completed them within 2 weeks in late Oct 2015. The shop was restored to its original conditions in the handover form[14]. And Creative’s invoice in respect of the reinstatement works in the sum of $10,300 was duly settled by the plaintiff.

43.  Notwithstanding repossessing the shop as early as on 31 July 2015, it was not until Oct 2015 that the plaintiff offered to re-let it through estate agents and by distributions of vacancy lists through various channels[15]. The reinstatement works, Mr Chin admitted in the box, did not prevent the plaintiff from offering to re-let the shop between 1 Aug 2015 and 30 Sept 2015.

44.  Notwithstanding the below-market-rate monthly rental of $17,500 in the agreement, the plaintiff offered in Oct 2015 to re-let the shop for 2-year term (with 14-day rent-free period) at a monthly rental of $30,000 (i.e. about $126 per square feet) and maintained the said offer until 2 Dec 2015. The shop was not let out during the said period from Oct 2015 to 2 Dec 2015.

45.  At the end of the day, after negotiations, the plaintiff decided to accept the offer of, and entered into, a 3-month licence of the shop for the purpose of retail sales of gift items from 15 Dec 2015 to 14 Mar  2016[16] at a monthly licence fee of $3,000 (inclusive of rates and service charges) and a deposit of $6,000 for the licence made by one Madam Tsoi Siu Ying (Mdm Tsoi) on 2 Dec 2015 as per the terms of plaintiff’s letter to her dated 24 Nov 2015 (the licence). In March 2016, the same two parties entered into another licence of the shop on the same material terms of the licence, except for a longer term of 6 months from 15 Mar 2016 to 14 Sept 2016.

Applicable principles

46.  I have had regard to 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

47.  On the facts I find above, I agree with Ms Xiao that the out-of-pocket expenses incurred by the plaintiff in the distraint action, though a futile exercise, is recoverable from the defendant by way of a debt under such provision of the agreement at para 33 above.

48.  I allow the claimed sum of $13,190.4 in full.

2) costs of the reinstatement works

49.  I also agree with Ms Xiao that, on the facts I find above, these expenses are recoverable from the defendant under such provision of the agreement at para 32 above.

50.  Considering the invitation for tenders and the acceptance of the lowest tender of Creative above, I find the claimed amount of $10,300 reasonable and allow it in full.

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

51.  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.

52.  It falls upon the defendant to establish that mitigation has not taken place in the circumstances of this case. No contrary evidence was adduced by the defendant but can it be shown from plaintiff’s own evidence that mitigation in some way had not been taken up on the facts I find above?

53.  Bearing in mind that plaintiff’s duty is nothing other than to act reasonably in the ordinary course of business, I accept that the plaintiff had taken reasonable steps to market (re-let) the shop as from Oct 2015 by such means I accept at para 43 above.

54.  I should point out no vacancy lists for the months of Jan, Feb and Mar 2016 were produced before me to verify plaintiff’s continued marketing of the shop for tenancy after entry of the licence in Dec 2015. But it should take no great effort for plaintiff, and it was also in plaintiff’s financial interest, to continue doing so and I see no reason to think otherwise in this case.

55.  However, on Mr Chin’s own admission, I think the plaintiff had failed to act reasonably in not offering to re-let the shop immediately after its repossession on 31 July 2015. On Mr Chin’s evidence, the plaintiff could have easily offered to re-let the shop as from 1 Aug 2015 and there was no obstacle preventing that.

56.  Mr Chin purported to explain in the box that this commercial decision was made in order to let current vacant units of the Mall to be let first and, therefore, the re-letting of the shop was deferred pending other lettings first.

57.  I do not find this explanation reasonable. Were Mr Chin in a position to explain as he purported to do, which I doubt, the plaintiff has not adduced documentary evidence[17] to prove the vacancy situation of the Mall in Aug & Sept 2015 and Mr Chin had not particularized on the extent of vacancy situation in these 2 months.

58.  Judging from the vacancy list for Oct 2015, which showed 11 vacant units, including the shop, out of 85 units on 1/F of the Mall available for immediate letting, the situation in Oct 2015 was not that serious for 1/F of the Mall.

59.  Indeed, in Nov & Dec 2015 vacancy lists, the plaintiff even offered units of the Mall for letting before they became vacant i.e. with future dates of availability.

60.  The offering of one additional unit i.e. the shop for letting since Aug 2015 does not, one thinks, cause any prejudice to plaintiff (indeed, Mr Chin could point to none) and gave, I think, an additional choice for prospective tenants and licensees of the Mall in the interest of all parties, including the defendant.

61.  With respect, this is one simple and easy step that the plaintiff ought to have done in its ordinary course of business and it had failed to do so on its own evidence.

62.  Moving to plaintiff’s offering of the shop for tenancy at a  monthly rental of $30,000 since Oct 2015, I accept Ms Xiao’s submissions that the plaintiff cannot reasonably be faulted for that rental amount.

63.  I do bear in mind that the market was falling at the material times and, for that reason, the monthly rental of the agreement i.e. $17,500 was half of the earlier tenancy.

64.  But I accept Mr Chin’s evidence that the said month rental of $30,000 offered for the shop was fixed in line with prevailing existing rent of similar units and the overall portfolio of the Mall. He was on this point supported by the vacancy lists for Oct, Nov & Dec 2015 so far as vacant units on 1/F of the Mall are concerned.

65.  For example, looking at the Oct 2015 vacancy list, the 11 vacant units on 1/F of the Mall were offered from $102 to $135 per square feet, or at a monthly rental from $22,000 to $34,000. Those of the shop at the higher end of these two ranges (i.e. $126 per square feet or $30,000 per month) were explainable, I accept Mr Chin’s evidence, by its location, shape, and length of frontage etc. as compared to other vacant units on 1/F of the Mall.

66.  It must, however, be said that Mr Chin had not produced documentary proof of the range of rental for the remaining 60 odd existing lettings on 1/F of the Mall in Oct 2015 (he said in the box that there was, in Oct 2015, no more than 10 licence on 1/F of the Mall). But I see no reason for the plaintiff to offer its vacant units at the Mall at rentals higher than its existing lettings in a falling market.

67.  As the owner of the Mall, the plaintiff, I agree with Ms Xiao, is entitled to have regard to potential deleterious effect on other existing lettings of the Mall on rent reviews, renewals and new lettings were it to lower the monthly rental offered for the shop to a figure below $30,000: see para 15 of Wing Siu Co. Ltd., supra. This consideration makes commercial sense to me and I accept the explanation of Mr Chin to that effect, though he did not make such commercial decision.

68.  I further accept Mr Chin’s evidence that these rental amounts offered for the vacant units on the vacancy lists was mere asking prices. They are negotiable and may be lowered if interested prospective tenants come forward to approach the plaintiff. It also makes commercial sense to me that the plaintiff was unwilling to disclose its bottom line unless the other side showed genuine interest on its units.

69.  Though Mr Chin did not specifically say so, the production of vacancy lists for Nov & Dec 2015, with additional vacant units being added and amendment of their available dates due to, say, licence, I accept from Mr Chin, being granted for shops Nos.158 & 158A on 1/F of the Mall[18], indicated to me that the vacancy situation of the Mall, though it had worsened over the months as admitted by Mr Chin, was kept under, at least, monthly review by plaintiff.

70.  Hence, I do not think that the plaintiff can reasonably be faulted for maintaining the same monthly rental of $30,000 offered for the shop from Oct 2015 to 2 Dec 2015, which period was, after all, relatively short.

71.  In addition, one could not, I think, reasonably complain that the plaintiff saw fit to enter into the licence with Mdm Tsoi (and extend it) as it did on Dec 2015 (and in Mar 2016).

72.  Though the monthly fee of the licence i.e. $3,000 could not even cover fully the service charges for the shop under the agreement i.e. $3,375, the licence, I agree, reduced the overall vacancy in the Mall and improved its image to the world (though the plaintiff would not, I accept from Mr Chin and for obvious commercial reason, take the initiative of offering its units of the Mall for licence and it was Mdm Tsoi who took the same).

73.  By reason of the short duration of the licence, the plaintiff could, one thinks, continue marketing the shop for tenancy and re-let it soon should interested tenant came forward[19]. And the shop became attractive for prospective licensee[20] who was not prepared to make the commitment, and investment, for a long-term tenancy. Such flexibility worked to the advantage of all, including the defendant in mitigating the loss of the plaintiff.

74.  And I was prepared to accept Mr Chin’s evidence that none enquired, inspected or showed interest on the shop from Oct 2015 to 2 Dec 2015, and the same lack of interest persisted during the term of the licence. Were it otherwise, the plaintiff would likely, I think, not have entered the licence with Mdm Tsoi and extended it as it did.

75.  For the above reasons, subject to my finding at para 55-61 above, I would have allowed in full plaintiff’s 3 claimed amounts on this head as particularized at para 36a)-c) of Mr Chin’s witness statement (i.e. $128,887.1 + $24,062.58 + $9,282.12) and then give credit for the deposit in the sum of $67,725.

76.  For my findings at para 55-61 above, considering the strong interest shown by Mdm Tsoi in getting an extension of the licence for 6 months, had the plaintiff offered the shop for re-letting as from 1 Aug 2015, I think it likely that the licence, or similar one, could have been entered into at least one month earlier than it did. I therefore decided to deduct a sum of $3,000 from the amounts claimed by plaintiff on this head to reflect this failure to mitigate.

77.  Hence, I award the sum of $91,506.8 under this head i.e. $128,887.1 - $3,000 + $24,062.58 + $9,282.12 - $67,725.

Summary

78.  According, the total amount of damages payable by the defendant to the plaintiff is $114,997.2, calculated as $91,506.8 + $10,300 + $13,190.4.

Disposition

79.  I therefore enter final judgment in plaintiff’s favour against the defendant in the sum of $114,997.2.

Interest

80.  I further award interest at the said judgment sum at 6% p.a. from 23 June 2016 to the date of judgment and thereafter at judgment rate until payment as sought by Ms Xiao.

Costs

81.  The agreement, I agree with Ms Xiao, obliges the defendant to pay plaintiff’s legal costs on full indemnity basis at para 33 above and I see no reason not to hold the defendant to what he has agreed and what para (4) of the judgment provided for.

82.  Hence, I order the defendant to pay the plaintiff on an indemnity basis the costs of AOD, inclusive of all reserved costs and the costs of this hearing before me together with certificate of counsel. Considering the statement of costs prepared by plaintiff’s solicitors dated 24 May 2018 before me, I summarily assess such costs payable by the defendant in the sum of $55,000.