Formalex Ltd. v. Abdoolally Ebrahim & Co. (H.K.) Ltd.

DCCJ14886/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 14886 OF 2000

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J U D G M E N T

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1. On 24 October last I delivered judgment in this matter but, having regard to the way in which I dealt with the plaintiff's claim, I decided that the proper manner in which to proceed with the counterclaim was to allow the parties time to consider the terms of the judgment first and then to give them the opportunity of addressing me further on the counterclaim before I pronounced on that.

2. This they have done and I now propose to deliver judgment on the counterclaim which forms part of my judgment in the action as a whole, and which therefore must be read together with my judgment of 24 October.

3. The counterclaim seeks:

(1) damages to be assessed;

(2) an order that alleged breaches of clauses 4(a) and 4(b) of the lease be purged by rectifying poor water pressure at the flat. This part of the claim has been abandoned and therefore requires no further consideration;

(3) costs of repair to the premises;

(4) interest;

(5) further and/or other relief;

(6) costs.

4. I have been addressed on the measure of damages for the landlord's failure to provide air-conditioning that functioned for a period of eight months; that is to say, from February 2000 until 14 September 2000 when the system was repaired and back in working order.

5. There is also a claim for specific expenditure by the defendants to put right items resulting from the failure of the air-conditioning system. To these matters I will return in a moment.

6. Having regard to the apportionment in the judgment on the claim, it seems to me that if I were to award the defendant damages on the counterclaim, I should discount those damages by 35 per cent being the percentage attributable to the defendant's failure to properly maintain the air-conditioning system.

7. The most important matter to determine is the appropriate measure of damages for the plaintiff's to provide a functioning air-conditioning system which I have already found to have failed by virtue of fair wear and tear as to 65 per cent, with the balance being attributed to a breach of the defendant's repairing and maintenance obligations in respect of that system.

8. It seems to me that the best way to approach this is to adopt the measure of damages applied by the courts for a landlord's breach of a repairing covenant. The parallels to this factual situation are obvious. The landlord let these premises with central air-conditioning. The tenant was obliged to keep the system in repair, fair wear and tear excepted.

9. I have already drawn attention to the relevant clauses in the lease which relate to these obligations. As a result of fair wear and tear and lack of maintenance by the tenant in the proportions found by me, the system broke down and the value and comfort that was provided by the air-conditioning was no longer available to the tenant.

10. Whilst this problem was ongoing in the course of 2000, the Lands Tribunal had been asked to fix a rent for the premises as from 16 April 2000 at the prevailing market rent. This was done by the tribunal, inter alia, on the basis that the air-conditioning was in "a normal reasonable state" (see paragraph 5 of the tribunal's judgment dated 5 June 2001). The rent was fixed at $95,750, a reduction from its previous level of $110,000.

11. I get particular assistance from the English Court of Appeal's decision in Calebar Properties Limited v Stitcher [1984] 1 WLR 287. In that case, the landlords had been held to be in breach of their covenant to repair. Water had leaked into the premises. The damp had got so bad that the tenant and her husband had to find alternative accommodation until the problem had been eliminated and the resulting damage put right, and also redecoration had to be carried out.

12. The Court of Appeal held that the fundamental principle to be applied in measuring and assessing the defendant's (the tenant's) damages was to restore her, so far as money could, to the position she would have been in had there been no breach of the covenant.

13. In applying that principle, the court held that the judge had properly assessed damages on the evidence as presented to him as the difference between the value the flat would have had to the defendant (the tenant) in the condition it was, and the value the flat would have had to the tenant if the landlords had fulfilled their obligations under the repairing covenant, which they had refused to do.

14. Griffiths LJ (as he then was) held that the damages in such a case should include the cost of redecoration, a sum to compensate for the discomfort, loss of enjoyment and health involved in living in the damp and deteriorating flat, and any reasonable sum spent on providing alternative accommodation after the flat became uninhabitable (see page 299F).

15. It is not necessary for me to attend to the particular factual details of that decision. Suffice it to say that there are material differences in the facts of that case and the present one, but it seems to me that the court's reasoning on principle is one that should be applied here based on the particular facts of this case and in the light of my findings as appear in my judgment on the claim.

16. In this matter, the repairs were ultimately done by the landlord, they initially having refused to carry them out for a period of many months resulting in no air-conditioning during the long and hot summer in 2000. Much of the defendant's complaint relates to the discomfort caused to Mr Ebrahim and his family. They had to endure the hot and humid conditions without air-conditioning.

17. In the course of the argument, I drew attention to the fact that the defendant (the tenant) is a limited company, and not Mr Ebrahim himself. A question then arises as to whether an inanimate entity, such as a limited company, can be compensated in such circumstances for the physical discomfort suffered by its nominated occupant, or should Mr Ebrahim have been joined for these purposes as a party in the counterclaim so as to make this head of damages recoverable?

18. In Calebar Properties Limited v Stitcher (supra) the tenant was an individual. It seems to me that on principle such damages are not recoverable by the company. It saying this, I have in mind cases such as Jarvis v Swan Tours [1973] 1 QB 233 where Mr Jarvis was able to claim damages for a disappointing holiday and all that went with that on behalf of himself and his family.

19. But in those types of cases the breaches by the other contracting party were such as to impinge on the innocent party as an individual. This type of inconvenience cannot be suffered by a limited company and so, it seems to me, that I should not include any element of compensation for distress and inconvenience and so forth in this case as it is constituted, without Mr Ebrahim as a party. I must assess the defendant's losses on the counterclaim as its losses qua tenant and qua, a tenant that is a limited company. Its losses therefore can only be pecuniary losses.

20. It entered into a lease for a luxury flat with central air-conditioning. It had no air-conditioning system from April until September 2000 and, in addition, one that was not working properly since February 2000.

21. In this regard, one needs to consider the facts as found by me in the judgment on the claim. It is clear that not all was well with the system from mid-1999 and Mr Ebrahim was complaining about that to the landlords. Some remedial works were attempted at the tenant's expense for which there is a separate claim for $13,460, to which I will come presently.

22. The landlords then came to inspect in June 2000 and the works did not get going until August 2000. Applying Calebar Properties Limited v Stitcher (supra), it seems to me that I must assess the value of the flat to the tenant without the air-conditioning, as compared to its value as contracted for with functioning air-conditioning, subject to the 35 per cent discount.

23. I have not been presented with any valuation evidence, but this is not simply a valuation exercise of the type performed in the Lands Tribunal in assessing the prevailing market rent. Mr Nasir says, and I agree, that realistically speaking nobody would wish to rent a flat of this type in Hong Kong with malfunctioning air-conditioning, and indeed no landlord would attempt to offer it for rent without a working system.

24. In the absence of precise valuation evidence, I propose to do my best on all the available evidence to perform the exercise required of me as set out in Calebar Properties Limited v Stitcher. Of course, it should be remembered that notwithstanding the lack of air-conditioning the tenant still retained the benefit of a large well-appointed flat with all the amenities that Estoril Court provides. I propose to approach the matter broadly.

25. Although the air-conditioning system was clearly sub-standard by February 2000, the cooler weather at that time of year would not have affected the situation very much. It broke down completely in April. The hot weather started in May. The usefulness and amenity value provided by the air-conditioning system would have been needed from May until 14 September, a period of four and a half months, when it was recommissioned.

26. I will assess damages for these four and a half months at $12,000 per month, which makes $54,000. For February, March and April, I take a lesser figure of $8,000 per month, making an additional amount of $24,000, giving a total of $78,000.

27. There is also a claim for $13,460 which is the cost of damage to carpets, cupboards, woodwork, furniture and fittings, the re-insulation of the chiller pipe, and for cleaning the condenser, the replacement of a solenoid valve and the repair of the drain pan insulation and consequential decorations. This claim, which is evidenced in the agreed bundle at pages 36, 38 and 40, is the result of the, by then, defective air-conditioning system in 1999. Of that I am amply satisfied.

28. This amount must be added to the $78,000, giving a total of $91,460, which must be discounted by 35 per cent for the reasons that I have already given, which produces a net amount of $59,449 on the counterclaim. Accordingly, there must be judgment on the counterclaim in this sum.

29. This sum must be set off against the plaintiff's judgment on the claim, leaving a balance over in favour of the defendants in the sum of $4,149 for which they must have judgment. That is the net effect of the judgment.

30. I will hear the parties on costs but, given the outcome where, for all practical purposes, neither party has substantially succeeded, I would have thought that the appropriate order for costs is to let these lie where they have fallen and say no order for costs on the claim and the counterclaim. But, as I say, that is a highly provisional view and I will hear the parties in respect of that.

31. Before I leave this matter, I would like to say that given the outcome, where both parties have gone to the trouble and cost of expensive litigation of what was always likely to produce modest rewards given the figures, and to have only their legal fees to show for it, I regret that some hard-headed common sense had not prevailed at the outset before a point of no return had been reached and before the litigation, in effect, turned into a contest over the costs of the action.

Argument on Costs and Interest:

32. There are two outstanding matters which follow on from the judgment that I have just delivered: firstly, the question of interest and, if I may say so, the parties have very sensibly taken the view that, given the overall outcome, it simply would not be profitable for them to pursue their respective claims for interest. That was certainly my provisional view of that and so I will not be awarding interest, although pleaded, on either the claim or the counterclaim.

33. The more difficult aspect concerns the issue of costs and I can quite see that the joint costs here may well exceed $1 million before the incidence of taxation so that this is a very substantial item. That is very much what I had in mind when I added the footnote to my judgment.

34. There are a number of possibilities here. One would be to award the plaintiff its costs on the claim and similarly the defendant its costs on the counterclaim and then allow the matter, if it could not be agreed, to proceed to what would probably be an expensive and at times complicated taxation. That is one course.

35. The other course would be to say that where the defendants have fortuitously got their noses ahead on quantum and achieved a little over $4,000 overall, then they should have their costs of the action as a whole. Let me say straight away that that is not a course that has really been strongly pressed upon me by Mr Nasir on behalf of the defendant, and I think rightly so. That simply would not properly reflect the justice of the situation.

36. There is then the other view, which was my provisional approach, which is to say that there should be no order as to costs. There are also other slightly different approaches which were canvassed in the judgment of Hale J (as she then was) in the case of Universal Cycles Plc v Grange Briar Limited, a decision of the Court of Appeal in England. The judgment has been shown to me, taken from a computer database dated the 8 February 2000.

37. When one stands back, having regard to everything that has been said so well by both Mr Chiu and Mr Nasir, I am driven to the conclusion that the just order is to say that the costs should lie where they have fallen.

38. Both parties have had their successes and their failures in this litigation and have effectively come out just about even in monetary terms and I think even on the merits overall.

39. With regret that is the order that I make. I say, with regret, because at the end of the day, it has left both parties in terms of dollars and cents, out of pocket. But I take the view that that is the correct order.

40. I shall also say, for completeness, that there will be certificate for counsel in respect of the plaintiff's costs.

41. There will be no order for costs on the claim, no order as to costs on the counterclaim.