SANO SCREEN MANUFACTURERS LTD. v. J & R BOSSINI TRADING LTD.

HCA 12351/98 and HCA 12352/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12351 OF 1998

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J U D G M E N T

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1. On 15 June 2000, I ordered that the two actions be consolidated and do proceed as one action. In action no. 12351 of 1998 ("the 1st action"), the Plaintiff is Sano Screen Manufacturers Limited ("Sano") and in action no. 12352 of 1998 ("the 2nd action"), the Plaintiff is Tri-Star Fabric Printing Works Limited ("Tri-Star"). The Defendant is the same in both actions.

2. There is no issue between the parties that Sano, as landlord, let the premises known as Portion of 25th floor, Excelsior Industrial Building ("the said building"), 68-76, Sha Tsui Road, Tsuen Wan, New Territories, Hong Kong to the Defendant under a tenancy agreement dated 7 January 1997 made between Sano and the Defendant. This was for the term of three years and two months commencing from 1st October 1996 and expiring on 30th November 1999 at the monthly rental of $34,200. There is also no issue between the parties that Tri-Star, as landlord, let the whole of the 23rd and 24th floors of the said building to the Defendant under a tenancy agreement also dated 7th January 1997 made between Tri-Star and the Defendant. This was for the term of 3 years and 2 months commencing from 23rd September 1996 and expiring on 22nd November 1999 at the monthly rental of $114,000.

3. I am satisfied that under the tenancy agreements, the rent payable by the Defendant was exclusive of rates, management charges and other outgoings in respect of the tenanted premises during the term of the tenancies.

4. The rent, rates and management charges were paid initially by J R Bossini International Limited on behalf of the Defendant and subsequently by the Defendant itself. However, since May 1998, the Defendant stopped any further payments of rent, management and other charges to Sano and Tri-Star.

5. The Defendant has pleaded an oral agreement in its Defence and Counterclaim in both actions. This is in para. 3 and pleads as follows :

"By an agreement reached orally between the Defendant by Mr. Yuen Chi Wah, the Executive Officer of the Defendant for and on behalf of the Defendant and Mr. Stephen Shih, the director of the Plaintiff for and on behalf of the Plaintiff on 29th May 1998 during a telephone conversation between Yuen and Shih, it was agreed between the Plaintiff and the Defendant as follows :-

a. in consideration of the Defendant agreeing to return to the Plaintiff the suit premises before 30th June 1998, the Plaintiff and the Defendant agreed that the Plaintiff and the Defendant be mutually released from further performance of the respective terms and conditions and be discharged from their respective obligations under the tenancy agreement as from the date when possession is delivered to the Plaintiff on or before 30th June 1998; and

b. all arrears of rental and other outgoings payable by the Defendant under the tenancy agreement up to the date of delivery of vacant possession be deducted from the deposit paid under the tenancy agreement. "

Para. 4 pleads as follows :

"Acting in pursuance of the agreement reached between the Plaintiff and the Defendant pleaded in Paragraph 3 hereof, the Defendant duly delivered the keys of the suit premises to the Plaintiff by post on or about 12th June 1998."

As a consequence, the Defendant pleaded that the tenancies have been terminated by mutual agreement. The Defendant also counterclaims for a declaration that the tenancies have been terminated "pursuant to mutual consent and/or agreement reached between the parties as pleaded in Paragraph 3 hereof".

6. The only defence raised is that there was an oral agreement as alleged that the parties be mutually released from their obligations under the tenancy agreements and that all arrears of rent and outgoings be deducted from the deposits paid under the tenancy agreements.

7. The Defendant did not appear at the trial and has called no evidence in support of the said allegations made in the Defence and Counterclaim in both actions.

8. I heard evidence from Mr Stephen Shih Hing Wong who is a director of both Sano and Tri-Star. He denied that there was any agreement made with Mr Yuen of the Defendant as alleged in the Defences and Counterclaims or at all. His evidence was that since May 1998, the Defendant failed to pay rent and other charges under the tenancy agreements. When Sano and Tri-Star pressed the Defendant for payment of outstanding rent, management and other charges, Mr Shih was referred to Mr Yuen of the Defendant. He spoke to Mr Yuen who indicated that the Defendant was thinking of determining the tenancy agreements as business was not good. Mr Shih told Mr Yuen that the Defendant should comply strictly with the tenancy agreements and should not terminate the same unilaterally. He also told Mr Yuen that the properties were under mortgage and that Sano and Tri-Star required the rent from the Defendant to subsidise the mortgage payments so that Sano and Tri-Star would not allow the Defendant to terminate the tenancy agreements before the expiry of the original term.

9. Several days later, on or around 29th May of 1998, he noticed that the Defendant had still failed to pay the outstanding rent and charges under the tenancy agreements. He spoke to Mr Yuen again. Mr Yuen told him that due to the economic downturn the Defendant's business had turned bad and the Defendant would like to use the two months' deposit to set off the outstanding rent and to surrender the tenancies to Sano and Tri-Star. Mr Shih refused Mr Yuen's request and told him that the Defendant had to pay all outstanding rental and charges at once and that although the Plaintiff would not agree to the unilateral termination of the tenancy agreements, if he had any requests to make, they should be put in writing. Mr Shih refused the Defendant's request for early termination of the tenancy agreement.

10. Mr Shih's evidence was clear that he never made any agreement with Mr Yuen as alleged or at all for early termination of the tenancy agreements. Letters of demands were then sent. By letters dated 12th June 1998 from the Defendant to Sano and Tri-Star, the keys to the tenanted premises were returned to Sano and Tri-Star by registered post. Mr Shih said that the keys were received on 17th June 1998 and the postmarks of the envelopes enclosing the same show that the letters enclosing the keys were sent out on 16th June 1998. On receipt of the keys Mr Shih tried in vain to call Mr Yuen to set the record straight as it was alleged by Mr Yuen in the letters dated 12th June 1998 that there was an agreement between him and Mr Shih for early determination of the tenancies. The allegation was denied in the letters sent to the Defendant on 19th June 1998 by Talsec Limited as agents for Sano and Tri-Star. It has been also drawn to my attention that in the Defences and Counterclaims and in the letters dated 12th June 1998, the Defendant alleged that the oral agreement was made on 29th May 1998 but in the subsequent letter dated 16th July 1998 to solicitors for Sano and Tri-Star, the Defendant alleged that the agreement was made on 12th June 1998.

11. I have no hesitation in accepting Mr Shih as a witness of truth. I accept his evidence. I find that there was never an oral agreement made for early termination of the tenancies as alleged by the Defendant in its Defence and Counterclaim in both actions. I reject the defence raised. I am satisfied that the Defendant has been in breach of its obligations under the tenancy agreements. By delivering the keys to Sano and Tri-Star which were received on 17th June 1998, the Defendant was trying to terminate the tenancy unilaterally. There was never any intention on the part of Sano and Tri-Star to grant an early termination of the tenancies to the Defendant. The Defendant has, in my view, been plainly in breach of the tenancy agreements. In the circumstances, the return of the keys which were sent by registered post to Sano and Tri-Star and received by them on 17th June 1998 amounted, in my judgment, to a repudiation of the tenancy agreements.

12. As the premises were abandoned by the Defendant, Sano and Tri-Star tried to minimize its loss as was the evidence of Mr Shih. The evidence, which I accept, shows that a number of property agents were instructed on 24th June 1998 to let the properties, the subject matter of the tenancies, and they were informed that the premises were immediately available. In my judgment, the ordinary contractual principles of repudiation and acceptance of repudiation applies to a tenancy agreement. This is evident from the well-known cases of Highway Properties Ltd v Kelly, Douglas & Co Ltd (1971) 17 D.L.R. (3d.) 710 and Hop Woo Cheung Enterprises Ltd v Intergroup Industries Ltd [1982] HKC 436. And it is clear, in my judgment, that acceptance of repudiation by the innocent party is sufficient when there is an unequivocal act which is inconsistent with the subsistence of the contract (para 25-012 Vol. 1 Chitty on Contracts 28th Edn). By instructing a number of estate agents to let out the properties immediately on 24th June 1998, Sano and Tri-Star have, in my judgment, accepted the repudiation of the Defendant. Sano and Tri-Star are entitled to arrears of rent and other charges until 24th June 1998 and to damages thereafter, subject to a duty to mitigate damages. That is the position under the common law and apart from this, there is also the right to claim damages and costs under the express terms of the tenancy agreements, namely Cl. 5(a).

13. I am satisfied on the evidence, which I accept, that Sano and Tri-Star have discharged their duties to mitigage damages. They have done all that could reasonably be done. Due however, to the economic climate, they have been unable to let out all of the premises despite seeking assistance from a number of estate agents. The evidence of Mr Shih, which I accept, is that a portion of the tenanted premises on the 25th floor of the said building was only let out after the same was partitioned in September 1998 on the advice of estate agents. The rent received by Sano was a total of $271,440 up to the expiry of the term under the tenancy agreement, being $20,800 per month for 13 months.

14. The whole of the 24th floor was only let out in June 1996 and the total rent received by Tri-Star up to the expiry of the term under the tenancy agreement was $225,033.33, being $43,000 per month from 16th June 1999 to 22nd November 1999.

15. The 23rd floor of the said building was partitioned into Sections A and B on the advice of estate agents. The total rent received for Section A up to the expiry of the term in the tenancy agreement was $149,066.67, being $26,000 per month from 1st June 1999 to 22nd November 1999. The total rent received for Section B up to the expiry of the term in the tenancy agreement was $103,200, being $18,000 per month from 1st June 1999 to 22nd November 1999.

16. Thus, the total rent received by Tri-Star from the new tenants for both the 23rd and 24th floors of the said building was $477,300 ($225,033.33 + $149,066.67+$103,200).

17. I am satisfied that Sano and Tri-Star have done all that they could reasonably do to mitigate damages. I am satisfied that Sano is entitled to the arrears of rental and other charges from May 1998 to 23rd June 1998 and thereafter to damages as follows :

Arrears	$
Water	97.20
Rent	60,420.00 (34,200+26,220)
Rates	4,258.90 (1,539+1,539+1,179.9)
Management fees	16,600.00 (6,000+6,000+4,600)
Damages
Loss of rental	589,380.00 (7,980+the total of 34,200x17)
Rates	20,318.10 (359.1+19,959)
Management fees	97,400.00 (1,400+ the total of 6,000x16)
Special Damages
Partitioning costs	49,050.00
Estate agent's fee	8,700.00
Stamp duty	629.00
Less
Rent received from new tenant	271,440.00
Total	575,413.20
	========

From this sum must be deducted the deposit paid by the Defendant in the total sum of $68,400 leaving a balance of $507, 013.20.

18. I am also satisfied that Tri-Star is entitled to the arrears of rent and other charges from May 1998 to 23rd of June 1998 and thereafter to damages as follows :

Arrears	$
Water	98.00
Electricity	4,917.00
Rent	201,400.00 (114,000+87,400)
Rates	14,193.00 (5,130+5,130+3,933)
Management fees	55,333.33 (40,000+15,333.33)
Damages
Loss of rental	1,934,200.00 (26,600+1,824,000+83,600)
Rates	66,260.33 (1,197+65,063.33)
Management fees	319,333.34 (4,666.67+300,000+14,666.67)
Special Damages
Partitioning costs	37,200.00
Estate agent' fees	30,630.00
Stamp duty	2,185.30
Less
Rent received from new tenants	477,300.00
Total	2,188,450.30

From this sum must be deducted the deposits received in the total sum of $228,000 leaving a balance of $1,960,450.30.

19. There will be judgment for Sano in the sum of $507,013.20. There will be judgment for Tri-Star in the sum of $1,960,450.30. There will also be judgment for costs against the Defendant in both actions. Counsel asks for interest from the judgment date until payment at the judgment rate. There will be interest on the judgment sums from the date of judgment until payment at the judgment rate.