BONNA ESTATES CO LTD v. KINGDOM DEVELOPMENT CO LTD t/a FORNARI

HCA 19182/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 19182 OF 1998

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J U D G M E N T

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1. The Plaintiff in this action sought arrears of rent and associated charges from the Defendant, its erstwhile tenant. The Plaintiff also sought redress in terms of the provisions of the Tenancy Agreement which had originally governed their relationship and sought damages for loss suffered by the Defendant's refusal to sign a new Tenancy Agreement and its purporting, unilaterally, to surrender the tenancy.

2. The Defendant did not attend the trial. Originally it was represented but the solicitors had been granted leave to cease to act on 28 March 2000. Prior to trial the court was advised by someone claiming to speak for Defendant that no one would appear for Defendant.

3. The Plaintiff had 3 witnesses, the contents of whose witness statements had been ordered to stand as evidence in chief. That order was maintained at trial. Leave was granted to the Plaintiff to call one of its witnesses, Mr Chan Hin Tung, the Assistant Property Manager of Plaintiff's agent, to give additional oral evidence about the usual course of dealing between the Plaintiff and the Defendant vis-à-vis renewal of the tenancy and details of how the various charges and interest claimed had been calculated.

4. The facts, which were not in the main disputed, showed that the Plaintiff had been letting the suit premises, a shop, to the Defendant since 1986. The last formal Tenancy Agreement had run from 1 May 1996 to 30 April 1998. Before it concluded the parties negotiated a new tenancy, the terms of which were set out in a letter of intent dated 19 March 1998. Both parties signed that letter and the Defendant paid the Plaintiff $2,904.00, being the balance required to bring the existing deposit ($303,090.00) to the agreed new level ($305,994.00).

5. The new tenancy was to run from 1 May 1998 to 30 September 1999. As had been the practice between the parties a formal agreement was drawn up and sent to the Defendant. However the Defendant refused to sign saying that business was not good and the company might have to close. When the Plaintiff advised that this was not acceptable and that the letter of intent would be stamped the Defendant said it would leave the matter to the Plaintiff. The Defendant did not give any form of notice, or negotiate any surrender, but continued to operate its business in the suit premises.

6. Rent and charges for May 1998 were paid by the Defendant, but from June 1998 no rent or charges were paid despite the Defendant's continuing to operate the shop. Four demand letters were ignored by the Defendant. A few days after the Plaintiff had begun distraint proceedings in the District Court, the Defendant abandoned the premises and removed the stock on the 31 July 1998. Since that time no repayments were made by the Defendant.

7. On 3 August 1998 the Defendant sent the keys by messenger to the Plaintiff and left them with the Plaintiff, who neither consented to their return, nor acknowledged receipt. The Defendant, in its defence, contended that the return of the keys was evidence of surrender of the tenancy from 1 August 1998. Clearly that was not legally a surrender of the tenancy because there was no element of mutual agreement, nor any evidence of consent by the landlord that the tenancy be brought to an end in that manner.

8. The Plaintiff submitted that although no formal agreement was signed after the letter of intent, the details set out in the previous tenancy agreement were still in force, those terms being held over. Having considered the evidence I am satisfied that that was the case. The practice described by Mr Chan Hin Tung made it clear that the parties followed the practice they had adopted since 1986; a letter of intent would be followed by a formal agreement in the landlord's standard form.

9. That the Defendant intended to follow the usual practice is confirmed by its paying the increase in the deposit, in continuing to operate the shop and in paying the rent and charges for May 1998. The Defendant was authorized to carry on as tenant and affirmed its intention to do so by those actions. The terms and conditions of the immediately preceding agreement continued to apply to the tenancy in the absence of any expressed contrary intention, insofar as they were consistent with the terms in the letter of intent.

10. As the provisions of the previous agreement applied, the Defendant was subject to Clause 5(a)(i) and (ii) thereof. Clause 5(a)(i) provided that if the rent was in arrears for 15 days or more the Plaintiff was entitled to re-enter the premises and determine the tenancy. The Plaintiff accepted the Defendant's repudiation of the tenancy and re-entered on 15 August 1999. The same clause provided that in the circumstances described the deposit was forfeited to the landlord as and for liquidated damages and not as penalty, but without prejudice to the landlord's right to claim any further damages which he had or might sustain.

11. Clause 5(a)(ii) provided that if there was default of payment of rent the tenant should pay to the landlord, on demand, interest on the amount in arrears, at 2% per month from the day payment became due until payment.

12. The Plaintiff having re-entered the suit property sought a replacement tenant but had difficulty in doing so because of the economic downturn. Eventually a tenant was found but at a rent reduced by about 25%. In addition a rent holiday had to be given for the first month of the new tenancy which began on 1 September 1998. No air-conditioning charges were paid for the period of the rent holiday, although other regular charges and rates were payable. That tenant is still in occupation.

13. The Plaintiff submitted that the damages were the lost rents for the unexpired portion of the tenancy together with the unpaid rates, licence fees, management and air conditioning charges up to 1 October 1998. Mr Chan Hin Tung, the Assistant Property Manager of the Plaintiff's agent, gave details of these losses and produced to the court a list of the amounts outstanding together with the interest thereon computed to the day before trial, a copy of which is annexed and marked "A".

14. He also advised that the Defendant had been given credit in the sum of $11,610.00 for rates paid by the Defendant for the first quarter of 1998, which payment the HKSAR government had forgiven.

15. Having considered the evidence and heard the submissions of Plaintiff's counsel and after considering the defence filed and the statement of Miss Maizy Chan for the Defendant, I am satisfied that the Plaintiff has established its case against the Defendant, on the balance of probabilities, and that it has made out its claim for loss on the basis of the tenancy agreement that ran from 1 May 1996 to 30 April 1998.

16. The Defendant is liable under the provisions of Clause 5(a)(i) and (ii) of that agreement to forfeit the deposit and to pay interest on the amount of rent and charges outstanding. In addition I am satisfied that the Plaintiff has made out its claim for damages as prayed.

17. I find that the amounts outstanding and the damages are as per the amounts calculated in the list produced to court by Mr Chan Hin Tung.

Judgment is entered for the Plaintiff in the sum of $671,364.91

being the rent and charges outstanding prior to repudiation of the tenancy, including interest at 2% to date of trial and the rental deposit.

Interest on unpaid rent and charges to run at 2% from 23 May 2000 until payment in full as per Clause 5(a)(ii) of the Tenancy Agreement.

Damages including interest to 22 May 2000 are assessed in the sum of $588,914.31.

Interest on the sum of $437,938.71 to run at judgment rate from 23 May 2000 until payment in full.

Costs of the action be to the Plaintiff.

Liberty to apply.