SHAHDAN LTD. v. WONG KOK SAN

1994 No. A1038

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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1. On the 28th February 1994, upon no notice of intention to defend being given by the Defendant, final and interlocutory judgment was given to the Plaintiff for possession of Shop Unit 2011 on the second floor on the podium of Park Lane Square, Nos. 132-134 Nathan Road and Nos. 1-23 Kimberley Road, Kowloon. The Defendant was also ordered to pay the following sums:

(a) The sum of $169,557.50;

(b) Accrued interest of $4,027.28 on the sum in (a);

(c) Mesne profits at rate of $30,000.00 per calendar month from 1st February 1994 to the date of delivery of vacant possession of the said property;

(d) Further interest on the sum of $169,557.50 @ 9.5% per annum from 1st February 1994 until 28th February 1994 and thereafter at the judgment rate until payment;

(e) Management fees and air-conditioning charges and advertising contribution at the total rate of $2,253.00 for month from 1st February 1994 to the date of delivery of vacant possession of the said premises;

(f) Rates from 1st April 1994 to the date of delivery of vacant possession of the said premises;

(g) Damages for repudiation of the tenancy agreement including all costs and expenses incurred by the Plaintiff on a full indemnity basis to be assessed.

2. The Defendant surrendered possession of the Shop Unit 2011 on 27th January 1994 and made part payment of the judgment debt, in the sum of $185,845.99 by cashier order, that is, all the quantified sums plus interest until payment in November 1994. As a result items (a), (b), (c), (d), (e) and (f) have been satisfied.

3. This assessment of damages was heard by Master P.H. O'Donnell on 14th and 15th December 1995 and 24th and 25th April 1996 during which 158 pages of evidence was transcribed. The last day of the assessment was taken up with written submissions delivered by Counsel for the respective parties. The Master has read the transcript of evidence, his own notes and the submissions of Counsel for the parties.

4. The Plaintiff, Shahdan Limited, is the owner and landlord of Park Lane Square, a shopping centre at the junction of Kimberley Road and Nathan Road, Tsimshatsui. The Defendant, WONG Kok San, took up a tenancy of Shop Unit 2011 on the second floor of Phase II of Park Lane Square after being told by either Louis LEUNG or Alan WONG, or both, that 80% of Park Lane Square, Phase II had been let out to some well-known brand-name companies in Hong Kong. Some pressure was applied on the Defendant to decide quickly if he was to take up a tenancy in Park Lane Square. It could be described that he was given a "hard-sell" by the agent or agents acting for the sole-agents, Jones, Lang & Wootton. Regardless, the Defendant took up a 3-year-tenancy to operate from 8th July 1993 to 7th July 1996 to lease Shop Unit 2011 for $30,000.00 per month plus other charges.

5. The Defendant says he spent $200,000.00 to decorate Shop Unit 2011 over 20 days and took up the tenancy to sell clothes therefrom sometime in July 1993. Over the first 6 months of the tenancy the Defendant found that neither 80% nor 70% of Park Lane Square (as claimed by Jones, Lang & Wootton in their advertising brochure) had been let out to prospective tenants. There were problems in attracting sufficient customers to the second floor of Park Lane Square despite a cinema being sited on that floor. Complaints were lodged with the landlord by most of the tenants of shop units in Park Lane Square about not being told the truth about the occupancy rate. The shop tenants even aired their grievances in the local press when there was no satisfactory response from the landlord. The Defendant only signed his tenancy agreement on 8th November 1993 and paid deposit money in the sum of $101,223.00. Eventually the landlord agreed to reduce rent by 30% from July to September 1993 to tenants who had paid up all outstanding rent. The landlord refused to extend the rent discount period.

6. In late November and early December 1993 the Defendant became aware that the landlord had decided to demolish Phase I of Park Lane Square, and had served eviction notices on all tenants in Phase I giving them 6 months to leave. This was the final straw which broke the camel's back as far as the Defendant, as tenant of Shop Unit 2011, was concerned. Phase I of Park Lane Square gave direct access to clientele from Nathan Road. With the demolition of Phase I there was only an entrance to Phase II from Kimberley Road. From the evidence it appears there was a substantial change in the share holding of the Plaintiff in the latter part of 1993 and an apparent sudden decision to demolish Phase I of Park Lane Square. There was a variety of estimates given by different witnesses but the best conclusion seemed to be a period of 3 months between the Plaintiff's decision to demolish Phase I and the service of eviction notices on the tenants of Phase I. As a direct result of Plaintiff's decision to demolish Phase I, there followed a mass exodus of tenants from Phase II of Park Lane Square.

7. The 2 principal issues in this assessment of damages were:

(1) Whether the Plaintiff had taken reasonable steps to mitigate his loss in the attempts made to relet Shop Unit 2011;

(2) Whether the Plaintiff's decision to demolish Phase I of Park Lane Square at a late stage was a novus actus interveniens to deprive the Plaintiff from further damages from the vacating tenants of Phase II as damages which are too remote and thus unrecoverable.

8. Turning to the first issue, what steps were taken to relet in this case Shop Unit 2011? The evidence was that the vacancy was entered in the agent's Vacancy List with many other shop units from Park Lane Square and notices posted on vacated premises in Park Lane Square. Despite the downturn in the retail market since the last quarter of 1994, it is hard to accept that no prospective tenant has been shown this shop unit since 1st February 1994 until today, that is, over a period of 2 years and 3 months. The Plaintiff retained Jones, Lang & Wootton as sole-agents for letting the retail space in Park Lane Square, but it appears the landlord has not received value for its money in doing so. Evidence relating of handouts, radio spots and seasonal promotions are so much balderdash, if at the end of the day no more tenants were found for Phase II, in general, and Shop Unit 2011, in particular. Of course, it was difficult to relet premises on the second floor of Phase II but not impossible. The Plaintiff as landlord could have reduced the rent significantly and instructed other agents to attract retail tenancy interest in Park Lane Square. It appears that neither the landlord through its agency Larcom nor Jones, Lang & Woothon were prepared to do anything out of the ordinary to attract renewed interest from retail tenants in Park Lane Square. One gets the impression everybody involved is sitting on their hands until Phase I has been completed. The conclusion that I reach, is neither the Plaintiff as landlord, nor its agents Larcom or Jones, Lang & Wootton has taken reasonable steps to relet Shop Unit 2011.

9. Turning to the second issue of whether the demolition of Phase I of Park Lane Square can be considered a novus actus interveniens to make further damages too remote and unrecoverable so far as existing tenants of Phase II were concerned it appears that neither the Plaintiff nor the Defendant had in mind the demolition of Phase I when the terms of the tenancy agreement were drawn up in June/July 1993, but that the Plaintiff must have had same in mind when the Tenancy Agreement was signed on 8th November 1993. For whatever reason, it was decided by the Plaintiff to proceed with the demolition of Phase I and all the consequences arising therefrom. The chief consequence of that decision is that Park Lane Square is deprived of public access for shoppers from and to Nathan Road and is limited to the entrance from Kimberley Road. It is this Master's view that the lack of access from and egress to Nathan Road has been the crucial and deciding factor in the failure to let in the first place, or to relet, as in the case of Shop Unit 2011, the many empty shop units in Phase II of Park Lane Square. The party responsible for this state of affairs is the Plaintiff as a consequence of his decision to demolish Phase I. The Plaintiff must stand by its decision and can hardly expect to recover from the Defendant for the full term of the tenancy agreement. Doing the best I can in unusual circumstances, the Defendant will be held liable for rent and other charges from 1st February 1994 until 30th June 1994 when I understand from the evidence that the demotion of Phase I commenced, and when I presume that the access and egress to Nathan Road was cut off to tenants and customers of shop units in Phase II of Park Lane Square or shortly thereafter. I specifically find that any further damages after this date, 30th June 1994, are too remote and unrecoverable.

10. Now that I have determined the period for which the damages are to run, I will look at the amount of rent which should be claimed over that period. Mr. Eddie Shiu Kiu LAI, the valuer from Richard ELLIS, called for the Plaintiff, assessed the monthly rental as $27,900.00 and the Chesterton Petty Ltd. report of A.V. Togher, for the Defendant, assessed the sum of $27,000.00 as the month rental. I propose to resolve the difference by taking the mean of $27,450.00 as the monthly rent.

11. The only other issue of note on this assessment is whether or not the rental deposit of $101,223.00 paid by the Defendant should be deductible from the damages awarded. Counsel for the Defendant relies on the unreported Court of Appeal decision in The World Realty Limited & Kwan Ngar Yin Civ. App. No. 150 of 1986 for the proposition that the rental deposit should be deducted from any award this Court makes. For his part Counsel for the Plaintiff submits there can be no deduction of the rental deposit by way of set-off unless the Defendant has raised a defence of set-off or a counterclaim in relation to the return of the rental deposit. Since Defendant has defaulted in filing any notice of intention to defend in this case he has not raised any defence of set-off or a counterclaim for return of the rental deposit with the Court. Counsel for the Plaintiff also points out that Clause 5 (8) (a) of the Tenancy Agreement provides that it was only if The Tenant (Defendant) has paid up all rent and other charges and if there has been no breach of any terms of the tenancy agreement on the part of the tenant would the landlord (Plaintiff) be liable to refund the rental deposit. As there has been a repudiatory breach of the Tenancy Agreement, the Plaintiff is under no liability to refund the deposit and Defendant has no claim for any refund. This Master accepts the submission of Counsel for the Plaintiff and finds accordingly that the Defendant is not entitled to any refund of the rental deposit.

12. Damages awarded are summarised as follows:

13. Interest on the total damages from the date of this decision on this assessment at the judgment rate until payment. Costs of this assessment to the Plaintiff on an indemnity basis with a certificate for Counsel.

P.H. O'Donnell

Master