RICH TARGET PROPERTIES LTD v. TREASURE RING LIMITED TRADING AS YAN OI NURSING HOME NO.1 BRANCH AND ANOTHER

HCA 1174/2016

[2025] HKCFI 2341

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1174 OF 2016

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BETWEEN

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J U D G M E N T

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BACKGROUND

1.  This is a water seepage case.

2.  The Plaintiff (“P”) is the owner of the First Floor (“1/F”) of Wealthy Garden (“Building”) in Tsuen Wan. The 2^nd Defendant (“D2”) is the owner of part of the Second Floor (“2/F”) which is immediately above 1/F. The remaining part of the Second Floor is occupied by the Hong Kong Jockey Club to operate a betting branch (“HKJC Premises”).

3.  Between June 2001 and March 2012, the 1^st Defendant (“D1”) was the tenant of 1/F. Its initial landlord was Karley Development Limited (“KDL”). In April 2010, P purchased 1/F from KDL with the benefit of D1’s tenancy agreement with KDL on a 2-year term ending on 31 March 2012 (“TA”). Since then, P became D1’s landlord, until the tenancy ended on 31 March 2012.

4.  In October 2002, D1 started to rent 2/F from the then owner KDL. In September 2004, D2 purchased 2/F from KDL and became D1’s landlord. D1 and D2 (collectively “Ds”) are owned and controlled by Ms Wong Shiu Ling (“Wong”).

5.  D1 operated an elderly home on 1/F and 2/F under the name of “Yan Oi Nursing Home” (“Yan Oi”) and “Yan Oi Nursing Home Branch No.1” (“Yan Oi No.1”) respectively. Wong ran the elderly home business with the assistance of her son-in-law, Mr Scott Young (“Young”). Yan Oi and Yan Oi No.1 operate under their separate elderly home licence from the Social Welfare Department (“SWD”).

6.  The floor area of 1/F and 2/F is around 25,000 square feet and 15,000 square feet respectively. They were used as arcade shops prior to D1’s occupation. They had to be re-fitted, with installation of electricity, water, plumbing, fittings and fixtures, fire safety system and equipment, and kitchen, before D1 could operate an elderly home.

7.  From 1 April 2012, P let 1/F to a new tenant (“New Tenant”),[1] which operates an elderly home on 1/F. D1 continues to operate the 2/F elderly home until today.

8.  Prior to occupying 1/F, the New Tenant was operating an elderly home in a nearby shopping arcade. There were about 80 residents. In around 2011, the SWD required a change of land use with the Lands Department. This was not possible when the landlord owned the shopping arcade units only but not the common corridor or pathways. The New Tenant therefore had to relocate the elderly home because there was difficulty in renewing the elderly home licence.

9.  P and the New Tenant are both controlled by Ms Irene Luk Ngai Ling (“Luk”).[2] They are related companies in that Luk held shares in both of them.[3] They are managed by the same group of staff.

10.  Luk and Wong were long-time friends and business partners. Luk’s close relationship extended to Wong’s daughter and her husband, Young. Luk called Young her “god-son”. At one point Luk and Young ran a joint venture for an elderly home business. However, there was a falling out in 2009/2010 when Luk alleged Young to be stealing money from the joint venture business and she reported the matter to the Police. Luk eventually withdrew the complaint. Young sold his interest in the joint venture to Luk. Luk claimed that her relationship with Wong and Young has turned sour since then and she could not trust them anymore.

11.  P’s case is that after the New Tenant (Luk) took over 1/F, it (she) discovered that foul water plastic pipes (“Pipes”) penetrating from 2/F through 13 locations on the ceiling of the 1/F kitchen, corridor, laundry room and some of the rooms, leading to water seepage in various spots on the ceiling. This caused rusting and concrete spalling. The partitions and ceilings of some rooms became mouldy and had to be replaced and repainted. Nauseous smell was emitting from the Pipes. A part of 1/F had to be cordoned off pending repair. This reduced the bed spaces available in the elderly home operated on 1/F.

12.  P contends that the Pipes are unauthorized building works. They were installed without the approval of the Buildings Department (“BD”), and were not recorded in the approval building plans.

13.  P claims that after discovery of the water seepage problems, in about the first week of April 2012, P (acting through Luk) and Ds (acting through Wong) reached an oral agreement (“Oral Agreement”) on the following terms:

(1) Ds would remove the Pipes at their own costs and expenses within a few months. Since the removal of the Pipes would lead to the relocation of the 2/F toilets, it was agreed that Ds would carry out the removal works once the SWD approved the work plan to be submitted by Ds promptly;

(2) Pending the above, to enable the New Tenant to use 1/F to operate an elderly home, Ds would at their own costs and expenses replace the Pipes with red cast-iron pipes which would be acceptable by the SWD;

(3) Ds would carry out proper waterproofing works on 2/F where the toilets are located, and would not use the toilets for bathing in the meantime;

(4) Ds would pay a “usage fee” of $100,000 (“Usage Fee”) to P each month for allowing the Pipes to occupy and penetrate through the ceiling of 1/F until they are removed; and

(5) The Usage Fee would be set off against the rental deposit of $752,000 (“Rental Deposit”) under the TA. The balance (if any) would be released to D1 upon completion of the removal of the Pipes to P’s satisfaction; and

(6) P would first take back possession of 1/F, and withhold taking legal action against Ds for the time-being.

14.  In June 2012, the white plastic Pipes were replaced by red cast- iron ones. However, P contends that in breach of the Oral Agreement, Ds failed to remove the Pipes and rectify the water seepage problem. P claims against Ds for the following:

(1) Damages for:[4]

(a) breach of the Oral Agreement (in addition to or in lieu of specific performance);

(b) breach of the TA (in addition to or in lieu of specific performance);

(c) negligence, nuisance and trespass;

(d) breach of the Deed of Mutual Covenant (“DMC”) of the Building, section 14 of the Buildings Ordinance (Cap 123) (“BO”), and section 34H of the Building Management Ordinance (Cap 344) (“BMO”);

(2) Lien upon damages – this was not pursued at trial;

(3) Injunction to compel Ds to take steps at their own costs to prevent water leakage from 2/F to 1/F and to remove the Pipes; or alternatively, to allow P to conduct such works in case of Ds’ failure to do so at P’s costs to be reimbursed by Ds, and/or damages in lieu of injunction;

(4) Declaration that P be entitled to use the Rental Deposit to set off and settle part of the Usage Fees; and

(5) Indemnity to protect P against all claims from third parties and consequential loss of business.

15.  Ds deny the Oral Agreement, water seepage, or that the Pipes were unauthorized building works. They claim that KDL had given prior approval for the installation of the Pipes. They deny liability to P’s claims, including any liability for reinstatement works and damages. D1 further counterclaims for the return of the Rental Deposit.

THE PIPES

16.  Elderly homes in Hong Kong are regulated by the SWD. The operator of an elderly home must obtain approvals and licences from different government departments before it could start its business. The location and layout plan have to be approved by the SWD before any renovation work is to commence. After renovation is completed, the operator has to apply for a licence from the SWD.

17.  In June 2001, D1 leased 1/F from KDL for a term of 3 years. Pursuant to the tenancy agreement, D1 submitted to KDL drawings of the works to be carried out on 1/F for approval. Separately, D1 applied for an elderly home licence from the SWD. The layout plans were submitted to the SWD for approval. After renovation work was completed, inspectors from the SWD, BD, Department of Health and Fire Services Department inspected 1/F to check that all works were done in accordance with the layout plans and statutory requirements. The SWD then granted a licence to D1 to operate Yan Oi, which started operation in October 2001.

18.  In October 2002, D1 leased 2/F from KDL for a term of 3 years. D1 followed the same steps set out in [17] above to obtain a SWD licence for Yan Oi No.1, which started operation in February 2003.

19.  The Pipes served 2/F exclusively. They were connected to the toilets, laundry room and the floor drain of the kitchen on 2/F. They went through the 2/F floor slab onto the soffit of the 1/F ceiling, merged with pipes extending from the toilets of the HKJC Premises on one end, and ended at the vertical sewage pipes of the Building.

20.  Wong claims that as far as her knowledge goes, the Pipes were either put in by the developer at the building stage prior to D1’s occupation of 2/F, or were installed during D1’s renovation of 2/F with the approval of KDL and the relevant government departments.

21.  Mr Neal Clough, who appeared for Ds,[5] contends that while 2/F was being renovated, the operation of Yan Oi on 1/F continued without interruption. It is very unlikely that 1/F could continue to fully operate its elderly home when the Pipes were being laid and the 1/F ceiling soffit was being punctured. It follows that the Pipes were already coming through from 2/F to 1/F prior to D1’s renovation of 2/F.

22.  There is however no evidence on the impact (if any) on the operation of Yan Oi during the renovation of 2/F. Insofar as Ds may wish to rely on the matters set out in Young’s witness statements, since he was not called to give evidence at trial I shall disregard them.

23.  In any event, there is no dispute that prior to D1’s occupation, 2/F was used as an amusement game centre. By comparing the 2/F floor plan attached to D1’s tenancy agreement with KDL for 2/F and the current 2/F floor plan, it is evident that D1’s renovation involved building a kitchen, laundry room and new toilets and shower booths, and the relocation of the orientation of some of the existing toilet units and wash basins.[6] New pipes channeling water discharged from these new fittings must have been built. It is therefore more likely than not that the Pipes were installed as part of D1’s renovation of 2/F prior to its occupation.

24.  The Pipes are not shown in BD’s approved building plans. BD’s approved drainage schematic diagram, relied upon by Ds, indicates that drainage pipes from the 2/F toilets are designed to go past the 1/F ceiling soffit ending at a vertical pipe leading to the ground level. As pointed out by Mr Andrew Mak who appeared for P,[7] the fact that the diagram foreshadowed drainage pipes running down from 2/F over the ceiling of 1/F and eventually to the main pipe does not give a freehand to Ds lay the Pipes across the 1/F ceiling as they wish. Mr Mak also submits, rightly so, that the diagram does not show any shower units or floor drain of the kitchen on 2/F. It is clear that the diagram – as its name suggests – serves to indicate the overall scheme on how the drainage pipes on 2/F are meant to be connected to the main vertical pipe, and does not support Ds’ case that the as-built Pipes were approved by the BD.

25.  Next, Ds contend that the Pipes are exempted works that do not require BD’s approval.

26.  Exempted works under the BO[8] (prior to the introduction of the minor works control system (“MWCS”) in 2010) include, inter alia:

(1) building works (other than drainage works, ground investigation in the scheduled areas or site formation works) in any building that do not involve the structure of the building: section 41(3);

(2) drainage works in any building that do not involve the structure of the building: section 41(3A)(a).

27.  Dr Eddie Lam (P’s liability expert) opined that the Pipes were not exempted works because they involve the structure of the Building. Specifically:

(1) Openings through the 2/F floor slab have to be constructed so that the Pipes could penetrate to the 1/F ceiling soffit. This will affect the structural performance of the slab.

(2) The BD required the openings through the 2/F floor slab to be two-hour fire-resistant as indicated in the drainage layout plan. If the openings do not provide the required fire protection to the openings, it will affect the structure.

28.  Dr Lam added that if all drainage works are considered by the BD to be exempted works, it would not have been necessary to show the drainage pipes in the drainage layout plan. This suggests that at least for the construction of some drainage pipes, depending on the circumstances, it may involve structural works to the building.

29.  Mr David Chan (Ds’ liability expert) opined that whether forming an opening on the floor slab involves a structural change depends on the degree of the drilling, the size and number of openings and their spacing. It is up to professionals to provide a qualitative evaluation based on the actual circumstances.

30.  Mr Chan accepted that he had not measured the size, depth and spacing of the 13 openings on the 2/F floor slab through which the Pipes extended to the 1/F ceiling soffit. It was only his estimate that the individual downpipe is about 80 to 100 mm. He did not know the actual spacing of the openings: he claimed that they “should be quite far apart”. He also did not confirm whether the openings fulfil the 2-hour fire-resistant requirement as observed by Dr Lam.

31.  Given Mr Chan’s limitation in his evaluation, Ds have failed to prove, on a balance of probabilities, that the Pipes qualify as exempted works under the BO.

32.  Both Dr Lam and Mr Chan made reference to the MWCS introduced under the Building (Minor Works) Regulation (Cap 123N). The MWCS came into operation in December 2010. Building works that qualify as minor works may be carried out by qualified building contractors without the need to obtain prior approval of plans and consent from the BD. Minor works are classified under Class I, Class II and Class III in accordance with their scale, complexity and risk to safety. Both experts opined that the change of the Pipes in June 2012 from white plastic to red cast-iron ones qualifies as minor works. Their difference lies in whether it is within Class III (in Mr Chan’s view) or Class II/III (in Dr Lam’s view) works. Class II works involve the main pipe of a building, and contractors qualified for Class II works can also undertake Class III works (but not the other way round) because Class II is more stringent. In terms of carrying out the works, there is no difference. Both Class II and Class III works require notification to the BD after their completion.

33.  It does not appear that the application of the MWCS is of relevance to the present dispute. The MWCS does not have the effect of legitimizing unauthorized building works prior to its implementation. It is also not relevant to whether the construction of the openings in the 2/F floor slab for the Pipes to go through are structural works.

34.  As to Ds’ reliance on the inspection and approval by the government departments leading to the SWD’s grant of an elderly home licence for the operation of Yan Oi No.1, there is no evidence on the materials presented to the departments in the licence application, or the extent of the inspection involved in the process. The fact that the licence was granted after inspection does not advance Ds’ case.

35.  Whether KDL approved the Pipes is immaterial. Mr Clough advanced no argument as to how any such approval “runs with the land” and binds D1 as the successor-in-title to KDL for 1/F, particularly when KDL granted the approval qua landlord of 2/F, not 1/F. In any event, Ds have adduced no evidence on how the approval was sought from KDL.

36.  In conclusion, I find that the Pipes are unauthorized building works. They were installed by D1 as part of the renovation of 2/F prior to the operation of Yan Oi No.1. When D2 purchased 2/F from KDL in 2004, D2 (through Wong who also controlled D1) knew of the existence of the Pipes, and permitted them to remain on 2/F until today.

37.  It appears that the Pipes are no longer in use since 2015 and they were re-routed and re-located to the external walls of the Building. Wong said this came about because Luk instructed contractors to seal off one downpipe passing through the 2/F floor slab to the 1/F ceiling. As a result, foul water was coming out from the 2/F toilet water closets and flooded the floor. Wong reported the matter to the Police.

38.  When Wong was asked why she did not tell P that Ds had stopped using the Pipes and P could remove them, Wong said “what I felt at that time was that [Luk] intentionally caused troubles for me. Well, I thought no matter what I was going to do or what I did, no matter what explanation I offered, [Luk] would not accept”.

THE TRANSFER AGREEMENT

39.  In around 2009, Wong (on behalf of D1) discussed with KDL about purchasing 1/F for $49,800,000. In early 2010, Wong was informed by KDL that a third party approached KDL to purchase 1/F. Wong did not know that this third party was Luk. In the end, Luk made an offer to KDL at $68,000,000, which KDL accepted, with completion by 31 March 2011.

40.  Luk said she was reluctant to make known to Wong that she owned P which purchased 1/F from KDL and had effectively became D1’s landlord, by reason of their poor relationship (see [10] above).

41.  Luk said it was only towards the end of 2011, when Wong called her to ask whether she had bought 1/F, that she told Wong she was the owner of 1/F. Wong said it was Luk who approached her in February 2011 to discuss the handing over of 1/F, and told her that she intended to use 1/F to operate her own elderly home. At that time, she thought Luk had bought 1/F through acquiring the shares of KDL.

42.  What is not in dispute that after discussion, Luk and Wong executed a Chinese agreement titled “荃灣富麗花園院舍轉讓協議書” (“Transfer Agreement”) relating to the handover of 1/F on the expiry of the TA. KDL was named as Party A with Luk as its “guarantor” (擔保人). D1 was named as Party B with Wong as its “guarantor” (擔保人).

43.  The Transfer Agreement provided as follows:

(1) Clause 1: Upon expiry of the TA, D1 shall return 1/F to KDL (乙方於租期屆滿後將上址交還甲方).

(2) Clause 2: D1 agreed to provide 8 categories of documents before 20 February, all relating to the operation of the elderly home on 1/F (“Transfer Documents”). This is to facilitate the new operator (i.e. P) applying for an elderly home licence from the SWD for 1/F.

(3) Clause 3: Upon mutual agreement, D1 could remove items (from 1/F) that are necessary for D1.

(4) Clause 4: It was not necessary for D1 to clear the premises or pay rent during the reinstatement period. If D1 did not move out by the end of March, it could renew the tenancy on a half-monthly basis. KDL agreed not to increase the rent if the renewed tenancy does not exceed 1 month. D1 has to give 1-week notice for the tenancy renewal (甲方同意乙方無須清拆現場，亦無須支付清拆時段租金。乙方如3月尾未能遷出，可以半個月半個月續租（甲方同意如續租期不多於一個月，上址不會加租，但續租與否乙方必須早一個星期通知）).

(5) Clause 5: KDL shall return the 2-month rental deposit in the total sum of $752,000 within 2 weeks after D1 moved out. D1 needed not pay the rent for the last month (甲方會於乙方遷出後二星期退還余下二個月的按金，總數是港幣柒拾伍萬貳仟元正（最后一個月租金不付）).

44.  Luk signed on behalf of KDL. Wong signed on behalf of D1. The date of signing was handwritten as 15 February 2011. Wong said in her oral evidence that she was the one who dated it.

45.  I note that Wong claimed that she had made a report to the Police complaining about Luk’s lack of authority to represent KDL in signing the Transfer Agreement, after Ms Suen Wai (a director of KDL) confirmed in December 2015 that Luk was not authorized by KDL at any time to act on its behalf. Ms Suen made a witness statement for Ds but was not called to give evidence at trial. Wong said that Ms Suen asked for a loan from Wong and her daughter in the sum of $500,000 and $300,000 respectively. Whilst Ms Suen did not directly ask for money to be Ds’ witness, Wong ceased to have contact with her since then.

46.  Nothing turns on whether Luk had authority to act for KDL. Whilst the Transfer Agreement named KDL as Party A, this was clearly meant to be an agreement between the new owner of 1/F (acting through Luk) and D1 (acting through Wong) on the handover of 1/F upon the expiry of the TA on 31 March 2012.

47.  Luk claimed that the Transfer Agreement was signed in February 2012. Wong claimed that it was signed in February 2011 (as dated). Wong said that it could not have been signed in February 2012 because that would leave her with little time before the expiry of the TA to make arrangement with the SWD regarding the 160 residents in the elderly home operated on 1/F. I find that the Transfer Agreement was likely than not signed in February 2012:

(1) This is supported by the screenshot of P’s computer server showing that the draft Transfer Agreement was modified on 14 February 2012.

(2) This is also consistent with the contents of a letter written by Young to the SWD dated 17 January 2012 proposing future arrangement of the elderly residents at Yan Oi after the expiry of the TA. The letter referred to “multiple recent discussions with the new landlord” (近日同新業主的多次洽談). This does not sit well with any discussion between Luk and Wong as early as February 2011.

(3) If Wong had agreed in February 2011 to surrender 1/F upon the expiry of the TA on 31 March 2012, it made little sense for D1 to still decide to enter into an agreement with the SWD in November 2011 (4 months prior to the expiry of the TA) committing to provide additional elderly bedspaces in Yan Oi to the SWD, with a 3-month termination notice period requirement – this effectively meant one month into the agreement, D1 would already have to give notice of termination to the SWD, knowing that it had agreed to surrender 1/F to Luk by 31 March 2012.

48.  Luk said that the Transfer Agreement was cancelled a few days after signing. She said that she was informed by one Mr Chan who was in the same trade of running elderly homes that Wong may not have the authority to act on behalf of D1 which was going through the process of initial public offering. She therefore arranged to meet Wong less than 10 days after the Transfer Agreement was signed to have it cancelled. Wong refused to meet Luk, but suggested that each of them tear up their own copy of the Transfer Agreement.

49.  I find Luk’s account of events incredible. Luk claimed that she was not on good terms with Wong by reason of her dispute with Young on their joint venture business. In Luk’s own words, “I never trusted [Wong]. She told lies all the time”. Indeed, if Wong had signed the Transfer Agreement without authority to act on behalf of D1 (as Mr Chan purportedly told Luk), Wong would have cheated Luk. Luk also claimed that the reason why she had asked to meet Wong face-to-face to cancel the Transfer Agreement was because “theoretically, each of us has to cross it out and then sign on it in order to have it cancelled”. Yet, Luk was content to cancel the Transfer Agreement simply by tearing up her own copy (and believing that Wong would do the same). Luk did not insist on having the cancellation recorded in writing. This made no sense at all.

50.  Luk claimed Wong did not deliver the Transfer Documents pursuant to clause 2 of the Transfer Agreement. Wong said that she had done so. It is not necessary for me to come to a finding. Neither Luk nor Wong is seeking to enforce the Transfer Agreement. Its performance is immaterial. What is relevant is that the Transfer Agreement (which I find had not been cancelled as Luk alleged), in particular its clause 4, provided a useful backdrop to gauge the credibility of the Oral Agreement reached in less than two months later, to which I now turn.

THE ORAL AGREEMENT

51.  It is common ground that Luk and Wong held discussions on the handover of 1/F in April 2012 and reached some form of oral agreement between them. The question is what was agreed between them.

52.  It is P’s pleaded case that pursuant to the Oral Agreement, Ds agreed to remove the Pipes at their own costs and expenses “within a few months” (from April 2012). Luk’s witness statement (and her oral evidence at trial) claimed that it was agreed that Ds had to remove the Pipes “within 3 months”. Luk said that she was the one who imposed the 3-month period, no more and no less. She offered no explanation as to why the Statement of Claim made no reference to 3 months. The Statement of Claim also pleaded that Ds would carry out the removal works after the SWD approved the work plan submitted by Ds. In her oral evidence, Luk said that Wong had to remove the Pipes within 3 months from April 2012, with no reference to any SWD approval.

53.  Luk said that she set a 3-month period for Wong to remove the Pipes because Luk had to put up a false ceiling on 1/F to complete the renovation work and apply for a licence from the SWD. If Wong did not complete the dismantling of the Pipes in 3 months’ time, “it would cause me a lot of troubles”. If Wong was going to dismantle the Pipes after the false ceiling was done, “I would be put in a very difficult position”.

54.  The Pipes were not removed. Yet Luk decided to put up a new false ceiling, on the understanding that it would have to be taken down later to enable Wong to honour her promise to remove the Pipes.

55.  Before putting up the false ceiling, Luk took no steps to ascertain from Wong when (or indeed whether) she would remove the Pipes, except claiming to have made phone calls to Wong and Young (and Luk said they both hung up on her) and sending Wong a demand letter in December 2012 (“Demand Letter”).

56.  Luk said on one occasion she managed to get hold of Wong through an estate agent. That was at least 1 year-odd up to 2 years after the Demand Letter. Wong told her that the Pipes had been re-routed already. Luk therefore instructed a plumber to dismantle/seal off the downpipes passing through the openings on the 1/F ceiling soffit. Luk took no steps to ask Wong to remove the Pipes. She did not check whether the Pipes had indeed been re-routed, claiming that she had no access to 2/F.

57.  As regards the Usage Fee, Luk said that she proposed the sum to Wong. She decided on the figure herself. “The purpose was to make [Wong] feel hurt or suffer because of the amount”. She believed having to pay $100,000 a month “was really costing [Wong] a fortune”.

58.  The Oral Agreement was not reduced into writing. This is despite Luk’s claim that she and Wong were not on good terms. Luk claimed that since she was holding the Rental Deposit, there was no need to put down the Oral Agreement in writing.

59.  I have no hesitation in rejecting Luk’s account of events as being incredible. Her oral evidence was inconsistent with her pleadings. It also made no sense:

(1) for Luk and Wong to agree to first replace the Pipes with red-cast iron ones and then remove them, all to take place within 3 months;

(2) for Luk to put up a false ceiling before Wong removed the Pipes on the understanding that the false ceiling would have to be taken down later;

(3) for Wong to agree to the Usage Fee which Luk arbitrarily imposed on her, having already agreed to remove the Pipes within 3 months at Ds’ own costs and expenses;

(4) for Luk not seeing the need to reduce the Oral Agreement into writing despite her strong distrust in Wong, particularly when it contained very important terms such as removal of the Pipes at Ds’ own costs and setting off the Rental Deposit against the Usage Fee (of an amount that “hurts” Wong);

(5) for Wong to agree to remove the Pipes, when less than two months ago Luk and Wong had agreed under the Transfer Agreement that D1 did not need to clear the premises.

60.  Ds deny the Oral Agreement. Wong said that all that Luk required her to do during the handover of 1/F in April 2012 was to replace the white plastic Pipes with red cast-iron ones and remove partial sundries on 1/F for her to apply for an elderly home licence from the SWD. Since she wanted to get back the Rental Deposit as soon as possible, she agreed to engage Luk’s contractor to replace the Pipes, with the expenses incurred to be deducted from the Rental Deposit. The contractor completed the works in June 2012. However, in February 2013, the contractor told Wong that he had not been paid by Luk. Wong therefore settled his fees.

61.  Wong engaged another contractor to remove the unwanted sundries from 1/F. This was completed in mid-April 2012.

62.  Wong confirmed receipt of the Demand Letter, which made reference to D1’s obligation to dismantle the Pipes, and the deduction of the Usage Fee from the Rental Deposit. Wong said that she complained to Luk by telephone about the contents of the letter. She did not engage lawyers to respond to the Demand Letter or commence legal action to recover the Rental Deposit, because “in principle, I am not a person who likes to argue with others or like to take out legal actions”. Incidentally, Wong only counterclaimed for refund of the Rental Deposit after Luk commenced this action in 2016.

63.  Wong added that she would never have agreed to pay the Usage Fee, which was totally out of proportion compared to the monthly rental of $376,000 which D1 was paying KDL under the TA for the entire 25,000 square feet of premises on 1/F.

64.  I accept Wong’s evidence. Her account of events made sense and was consistent with the Transfer Agreement.

65.  I am alive to the fact that the contents of the Demand Letter appear to support Luk’s case on the existence of the Oral Agreement. It was relatively contemporaneous, in that it was issued 8 months after the handover of 1/F. That said, I do not consider the Demand Letter to be of sufficient weight to counteract against the incredibility in Luk’s account of events as analyzed in [59] above. The contents of the Demand Letter are therefore no more than self-serving assertions by Luk.

66.  In conclusion, I find that:

(1) The Oral Agreement, on terms alleged by Luk, did not exist;

(2) Wong did not agree to remove the Pipes;

(3) Rather, Luk and Wong agreed that Wong only had to change the material of the Pipes from white plastic to red cast-iron, which Wong did by June 2012; and

(4) Wong did not agree to the payment of the Usage Fee, or its deduction from the Rental Deposit.

67.  Since Luk agreed that there was no need for Wong to remove the Pipes, P’s complaints about breach of the Oral Agreement, TA, DMC, BO and BMO, or nuisance, negligence and trespass, must all fall away insofar as the existence of the Pipes is concerned. There is also no basis for P to charge the Usage Fee. Luk is at liberty to remove the part of the Pipes within 1/F if she so wishes, at any time and at her own expenses.

WATER SEEPAGE AND CAUSE

68.  I accept that there is evidence showing signs of water seepage in various parts of 1/F, in particular the ceiling, since at least December 2012,[9] as evidenced by invoices issued from contractors on repair works done on water stains and repairing concrete spalling on the ceiling. The problem appeared to be recurring. Based on the invoices, repair works to the 1/F ceiling were conducted in June 2013, December 2013, July 2014 and August 2015. The water seepage problem appeared to be subsiding over time, as shown by the reduction in the size of the area on the ceiling requiring repair works as recorded in the invoices, and the decreasing frequency of the repair works over the years.

69.  In October 2015, P engaged Ms Lau Shan La of Hong Kong Survey Limited to conduct a survey of the water seepage problem on 1/F. Ms Lau recorded signs of water seepage in 5 areas of 1/F on the ceiling of the corridor and kitchen. She also conducted an infra-red scanning of the external walls of the Building outside 1/F, and did not observe any area of exceptionally low temperature which is suggestive of water seepage.

70.  In May 2016, Ms Lau conducted a second survey of 1/F, and noted signs of water seepage on the ceiling of the toilet and laundry room.

71.  Ms Lau was not called an expert identified in the court order granting leave to adduce expert evidence. Her two reports are admitted as records of inspections conducted by her and her observations. Her opinion on the cause of the water seepage shall be disregarded.

72.  Also in May 2016, the New Tenant complained to P about extensive concrete spalling from the ceiling of one of the toilets of 1/F. It is artificial to describe this as a complaint from the New Tenant, when there is no real distinction between P (the landlord) and the New Tenant which are both controlled by Luk and managed by the same group of staff. In any event, repair works on the ceiling were conducted.

73.  In September 2016, P’s expert Dr Lam conducted inspection of 1/F. He recorded signs of water seepage at the soffits of the laundry room, kitchen and a number of wards, and also the toilet area. Repair works were conducted in January 2017.

74.  In February 2018, Ds’ expert Mr Chan had a joint inspection with Dr Lam on both 1/F and 2/F. He conducted a second and third joint inspection with Dr Lam in April and June 2019. A further joint inspection with Dr Lam and Fugro Technical Services Limited (“Fugro”) was made in September 2019. Fugro is a laboratory jointly appointed by P and Ds to conduct tests for water seepage on 1/F and 2/F. It conducted water ponding tests and drain flow tests – both using a fluorescent tracer dye – at 7 locations on 2/F (identified as TA-01 to TA-07 in the court order granting leave for expert evidence). Visual inspection, UV lamp survey and surface moisture measurements were then conducted at the ceiling of 1/F before and after the water tests. Fugro rendered its report in September 2020. The test results in Fugro’s report also formed the basis of the joint expert report prepared by Dr Lam and Mr Chan in November 2020.

75.  In May 2018, P engaged contractors to conduct repair works to rectify concrete spalling on 1/F.

76.  In May 2020, there was concrete spalling in the laundry room of 1/F. Temporary repairs were undertaken by P’s contractors.

77.  The water seepage problem on 1/F had been largely contained by September 2020. Luk’s last complaint was about concrete spalling in August 2021, which was repaired in the following month.

78.  The sum total of the experts’ opinion and various test results is that none of the tests conducted yielded a positive result which pointed to 2/F being the source of water seepage on 1/F. This includes the Fugro tests conducted in 2019, a dye-water test conducted by the Joint Office of the BD and Food and Environmental Hygiene Department in September 2015 (in response to a complaint by the New Tenant), and water ponding tests conducted by an external consultant (ISS Building Consultancy Limited) appointed by the Joint Office (results in February 2016).

79.  I appreciate that one may not necessarily infer there is no water leakage even where there are cumulative negative test results, particularly in the absence of evidence on how the Joint Office and its external consultant had conducted the tests. The fact remains that there is no test result in support of P’s case that 2/F is the source. At the risk of stating the obvious, it does not follow from the occurrence of water seepage on 1/F that it emanated from 2/F.

80.  Mr Mak highlighted the following parts in the Fugro tests:

(1) TA-04: during the drain flow tests, there was leakage of dye water observed in the floor of the toilet. Mr Chan suggested that this may be the result of overspill of dye water, but he was not at the spot when the test was conducted. Dr Lam was there and he said there was no overspill. In any event, this was at best a leakage within the floor area of 2/F, and does not support leakage through the floor slab to 1/F.

(2) TA-05: dyed water was observed to have spilled out from the test area through the door kerb of the doorway. Again, this was at best a leakage within the floor area of 2/F, and does not support leakage through the floor slab to 1/F.

(3) TA-06: both experts agreed that before and after ponding, the protimeter showed a high reading on the test surface, which suggested a high surface moisture content. However, Dr Lee explained that protimeter was introduced to measure moisture on wood. When used on concrete, the readings can fluctuate sharply and are less reliable. Also, given the protimeter reading was high both before and after ponding, one cannot say that the tested area has become more wet after ponding. The protimeter reading is inconclusive as to the source of the water seepage.

(4) TA-07: when flooding the floor of the toilet/shower room, water leaked from the partitions to the corridor. Again, this was at best a leakage within the floor area of 2/F, and does not support leakage through the floor slab to 1/F.

81.  Mr Mak also made the point that the drain flow and ponding tests are inconclusive on a negative test result. The dye test is not always successful. A failure to record its presence in the damp zone cannot be taken as definite evidence against the suspected source. See Chau Wai Hung v Lam Tak Chuen [2024] HKCFI 2031 at [55], quoting from the Professional Guide to Water Seepage Investigation, Diagnosis, Testing & Reporting in Residential Building (2014 ed.) published by the Hong Kong Institute of Surveyors. The lack of visible fluorescent dye is not in itself detrimental to P’s claim. The court will take into account all the available evidence when determining if P has come up to proof.

82.  I have no quarrel with the above proposition in general, but there must still be some evidential support that the source of water seepage in 1/F emanated from 2/F. To illustrate the point, in Chau Wai Hung, the court held that the dye test was inconclusive and went on to find that the water seepage originated from the defendant’s premises based on another test, namely the Microwave Test: see [68]-[77].

83.  There is an important conceptual distinction between a test result which is negative, and a test result which is inconclusive:

(1) Where the purpose of the test is to determine whether water seepage comes from a particular source (such as the dye test), a positive result would indicate that the water does come from that source. On the other hand, a negative result would normally (and one may say, logically) indicate that the water does not come from that source.

(2) A negative result may be inconclusive if there is some plausible explanation on the specific facts of the case as to why no conclusion as to the source of the water can be drawn from the negative result. For instance, there may be extraneous environment factors which led to a negative result on the dye test, even though the water seepage does come from the suspected source. An example would be where the dye is unable to penetrate through the membrane of the floor slab or the ceiling underneath.

(3) It is wrong to brush aside a negative result as inconclusive where no such explanation is available. Otherwise, it would be a “heads I win, tails you lose” situation where a positive result vindicates the plaintiff’s case that the water comes from a certain source, but the defendant cannot rely on a negative result to vindicate its case that the water does not come from the source. This cannot be right.

(4) In short, there must be a proper basis for a negative result to be treated as inconclusive. It is wrong to assume or treat all negative results as inconclusive results, even if there is no plausible explanation as to why no conclusion can be drawn from the negative result.

(5) In the present case, P has failed to articulate any explanation (let alone a plausible one) on the specific facts of this case as to why the negative result is inconclusive. That being so, the negative result is prima facie evidence that the water seepage does not come from 2/F.

84.  Mr Mak’s argument essentially boils down to this. The affected areas on 1/F are immediately below parts of 2/F with a water source: namely, the toilets, shower units and kitchen floor drains. They are also far from the external walls of the Building. There is no suggestion of any other water source. The inference to be drawn is therefore the source of the water seepage would be 2/F.

85.  I am unable to accept Mr Mak’s submissions.

86.  There is no presumption that water seepage is necessarily caused by the flat above. P bears the burden of proof to establish, on a balance of probabilities, that the source of water was 2/F. Hence, it is not for Ds to find out or identify the correct source of water seepage, or to prove that its origin did not come from 2/F.

87.  With the above as the starting point, there is nothing in this case which points to 2/F as being the only possible source of the water seepage. It does not appear that the experts have directed their mind to the question of other possible source of water seepage, and crucially to conduct tests to verify this. In the premises, to invite the court to make the inference as Mr Mak suggests is to invite conjecture.

88.  Mr Mak argued that D’s expert Mr Chan has not suggested any other water seepage sources or causes. This is revering the burden of proof. It is for P to prove that the source of water seepage is 2/F, and not for Ds to prove a negative, i.e. the source of water seepage is not 2/F.

89.  Mr Mak then complained about Ds delaying the testing on 2/F. Specifically, between February 2018 (when Ds engaged Mr Chan as their liability expert) and April 2019 (when the parties consented to the expert directions), there was disagreement between P and Ds on whether TA-05 and TA-07 should be tested by the experts. At one stage, Ds took the view that they should be excluded, because they are not included in the 5 areas of water seepage pleaded in the Statement of Claim. This held up all the tests in other proposed test areas on 2/F. P took out an expert directions summons in January 2019 that included TA-05 and TA-07. Ds eventually agreed to include TA-05 and TA-07, and this led to a consent summons being taken out in April 2019. Joint inspections by the experts took place in April, June and September 2019, and Fugro’s inspection took place in November and December 2019. Mr Mak contended that Ds “sought to prolong the legal process and hinder the testing of potential sources of leakage”. The inference must be that “water continued to leak at least from TA-05 and TA-07 such that Ds were adamant that it shall not be tested, and to further delay the matters so that repairs could be done to avoid liability, and perhaps even to maximise damage to P through the delay”.

90.  I am unable to accept Mr Mak’s submissions. With respect, what he submitted is wild speculation, rather than proper inference with evidential basis. Even if the delay allegation is true (which I need not determine for present purposes), there is a logical gap between Ds’ “prolonging” the legal process and “hindering” the testing (in Mr Mak’s words), and a conclusion that because of such delay, it could be shown that the water seepage stemmed from 2/F. Further and in any event, if P considered Ds were unreasonably delaying the testing, P could have applied for expert directions much earlier.

91.  Mr Mak invited the court to draw adverse inference against Ds for not calling Young (who had made two witness statements for Ds) to give evidence at trial. Young was in charge of the operation of Yan Oi No.1 and any repair work that was conducted on 2/F, including the re-routing of the Pipes in 2015 ([37] above).

92.  I fail to see any basis for doing so. There is no presumption that an adverse inference is to be drawn whenever a witness is not called to give evidence. There must first be a case to answer before an inference can be drawn that the witness would not have assisted in answering the prima facie case. A failure to call a witness cannot transform a party’s unsatisfactory evidence into satisfactory evidence.

93.  In the present case, P bears the burden of proving that the source of water seepage is 2/F. There is no such evidence produced by P, when all the test results do not support P’s case. In the absence of a prima facie case, P is not entitled to ask the court to draw an adverse inference that Ds’ failure to call Young to explain the extent of repair works on 2/F (if any) would tend to prove its case.

94.  For the above reasons, I find that P has failed to discharge its burden of proving that 2/F is the source of water seepage on 1/F. It must follow that P’s claims against Ds must be dismissed in their entirety.

QUANTUM

95.  For completeness, I address the issue of quantum below, on the basis that Ds are found liable for the water seepage on 1/F.

96.  P claims to have suffered the following losses as a result of the water seepage:

(1) Loss of the Usage Fee;

(2) Loss of rental income;

(3) Repair costs and expenses; and

(4) Surveyor’s fees.

97.  It is said that these losses are recoverable in contract (for breach of the Oral Agreement, DMC and TA) and/or in tort (for trespass, nuisance, and/or negligence). I will deal with each head of loss in turn.

(I) Loss of Usage Fee

98.  P claims that, under the Oral Agreement, Ds agreed to pay the Usage Fee for allowing the Pipes to occupy and penetrate through the ceilings of the 1/F until the Pipes are completely removed.

99.  P’s case is that the Usage Fee is recoverable from Ds’ breach of the Oral Agreement. Since I have found that the Oral Agreement does not exist, I reject P’s contractual claim for the Usage Fee.

100.  Tortiously, P’s case seems to be that it is entitled to mesne profits for trespass in the sum of the Usage Fee. It is trite that where a trespasser has made valuable use of someone else’s land, the landowner is entitled to damages measured as what a reasonable person would have paid for the right of user. In circumstances where I have found that the Oral Agreement does not exist, I have no evidential basis to find that the Usage Fee is a sum that a reasonable person would have paid for keeping the Pipes at the ceilings the 1/F. I reject P’s tortious claim for the Usage Fee as well.

(II) Loss of rental income

101.  On P’s pleaded case:

(1) Pursuant to the tenancy agreement entered between P and the New Tenant in 2012, the New Tenant and P agreed that the rent for 1/F would be:

(a) $630,000 per month for the first term (i.e. from 1 April 2012 to 30 September 2016);

(b) $819,000 per month for the second term (i.e. from 1 October 2016 to 30 September 2018); and

(c) $982,800 per month for the third term (i.e. from 1 October 2018 to 30 September 2020).

(2) However, since 1 April 2012, due to the water seepage, the New Tenant had been unable to use part of 1/F as rooms for the elderly home, and had demanded compensation from P and also threatened to take out legal action against P.

(3) In order to mitigate its loss, P agreed with the New Tenant that it would provide abatement of rent (and payment for inference with the New Tenant’s quiet enjoyment) in the total sum of $160,000 since September 2012.

(4) In around mid-2016, P gave notice to the New Tenant stating its intention to exercise the contractual option to renew the tenancy and to increase the rent by 30% from $630,000 to $819,000 with effect from 1 October 2016.

(5) However, the New Tenant insisted that it would not agree to any rent increase until the unauthorized alteration works (i.e. the Pipes) were removed. Again, in order to mitigate its loss (which would be incurred by leaving 1/F empty), P agreed with the New Tenant to renew the tenancy at the then existing rent of $630,000.

(6) But for the Pipes, P would have received additional rental income for 1/F: (a) $189,000 per month between 1 October 2016 and 30 September 2018 (the agreed rent increase for the second term); and (b) $352,000 per month between 1 October 2018 and 30 September 2020 (the agreed rent increase for the third term).

102.  It is trite that, where a plaintiff justifiably incurs expenses with a view to avoiding or reducing his loss, those costs are in principle recoverable, provided that they are reasonable in the circumstances. This is a situation where the doctrine of mitigation serves as a source of rights for the plaintiff to increase his recovery, as opposed to the usual situation where the defendant avails of the same as a defence to contend that certain avoidable losses are irrecoverable.

103.  Accordingly, in order to successfully claim for losses incurred in mitigation, P must satisfy the court that the steps it took were reasonable having regard to the damage that was otherwise likely to be suffered. As Mr Clough rightly submitted, this is a matter of P proving its loss. It follows that, in the present case, the onus falls on P to show that the lost rental income was reasonably incurred in the circumstances.

104.  Contrary to Mr Mak’s submissions, whether Ds have pleaded a failure to mitigate is irrelevant in the present case. P is using the doctrine of mitigation as a “sword” to increase its recovery. It is for P to plead and prove its loss. It is only if Ds seek to use the doctrine as a “shield” from claims for avoidable losses (which they do not) that it ought to be pleaded in the defence. The Court of Appeal’s decision in Master Yield Ltd v Ho Foon Yung Anesis & Ors (CACV 67/2012, 10 June 2013), which P cites, concerns a situation where the doctrine of mitigation is used as a shield and therefore does not apply to the present case.

105.  I am not satisfied that P has discharged its burden of showing that the loss of rental income was reasonably incurred in its effort to mitigate:

(1) The key issue, as P has pointed out, is whether the rental deductions were a “reasonable estimate” of the “likely amount” of loss which the New Tenant would suffer as a result of the Water Seepage: Armstead v Royal & Sun Alliance Insurance Co Ltd [2025] AC 406 at [36]. If the answer is “no”, it is difficult to see how P can be said to have acted reasonably by agreeing to the rental deductions.

(2) As Lord Leggatt and Lord Burrows observed in Armstead at [41], the fact that the terms of an agreement were not negotiated between commercial parties at arm’s length might have evidential significance, as it may be said that in a case of this kind no inference can be drawn merely from the circumstances in which the agreement was made that its terms were reasonable as between the parties to it.

(3) At the material time: (a) P and the New Tenant were related parties; (b) it was Luk who called the shots on behalf of P and the New Tenant as to how much rent was payable by the latter to the former; (c) there was therefore an air of unreality and artificiality in contending that the New Tenant “demanded” P for compensation – this is in effect the left hand speaking to the right hand; (d) P and the New Tenant had no bargaining, let alone at arm’s length negotiations, before fixing the amount of the rent abatement;[10] and (e) no valuation was sought by P to ascertain the diminution in rental value of 1/F (or the New Tenant’s loss of profits) attributable to the water seepage.

(4) In these circumstances, the mere fact that P and the New Tenants agreed to the amounts of rental deductions does not support an inference that such amounts were an reasonable estimate of the New Tenant’s loss. It is incumbent upon P to point to more specific evidence to demonstrate the reasonableness of such deductions.

(5) As to the first term (i.e. from 1 April 2012 to 30 September 2016), I am not satisfied that monthly rental deductions in the sum of $160,000 were reasonable:

(a) Luk said in her witness statement that the rent abatement of $160,000 was based on (i) 25 bed spaces had to be cordoned off due to the water seepage; (ii) the net profits attributable to each lost bed space were $6,500 per month; and (iii) the total amount of lost profits suffered by the New Tenant as a result of the water seepage was therefore $162,500 per month.

(b) However, in her oral evidence, she claimed that she “really don’t know how it came about”, even when she was referred to her witness statement.

(c) In any event, there is no objective and independent evidence showing that the net profits for each lost bed space were in fact $6,500 per month. I note that this figure is disputed in that, according to Wong, such profits were only around $2,000 as of September 2019.

(d) P also relies on the valuation evidence from the quantum experts to show that the market rents of comparable properties were similar (or lower) than the rents charged by P at the material time.

(e) Such reliance is however misplaced. In order to show that the monthly rental deductions of $160,000 were a reasonable estimate of the New Tenant’s loss, the valuation evidence should relate to the diminution in rental value attributable to the water seepage, rather than simply the prevailing rental value of the 1/F and its comparators.

(f) In the premises, P has not adduced sufficient evidence to show that the monthly rental deductions in the sum of $160,000 were a reasonable estimate of the New Tenant’s loss.

(6) As to the second term (i.e. from 1 October 2016 to 30 September 2018), I am not satisfied that monthly rental deductions of $349,000 were reasonable:

(a) The amount of $349,000 is said to consist of two sums: (i) the sum of $160,000, being the same rental abatement as in the first term; and (ii) the sum of $189,000, being the rental increase that P was entitled to charge under the 2012 tenancy agreement but which the New Tenant allegedly refused to pay.

(b) As to the sum of $160,000, I have already found that P fails to show that it was a reasonable estimate of the New Tenant’s loss in the first term. There is no evidence which would lead me to come to a different conclusion for the second term.

(c) It follows that P also fails to show that the total monthly rental deductions of $349,000 (being an even greater sum than $160,000) was a reasonable estimate of the New Tenant’s loss.

(d) P contends that it would incur transaction costs if the tenancy with the New Tenant was cancelled (or not renewed). However, there is no basis to assume that the New Tenant would repudiate the tenancy (and breach the 2012 tenancy agreement) even if P had offered rental deductions to cover a reasonable estimate of the New Tenant’s loss. Any amount in excess of this amount should be irrecoverable. It therefore remains incumbent on P to show that the amount it claims represents such a reasonable estimate. P has failed to do so.

(7) As to the third term (i.e. from 1 October 2018 to 30 September 2020), I am not satisfied that monthly rental deductions in the sum of $512,800 were reasonable. Again, this amount consists of (a) the same rental deductions of $160,000 as in the first and second terms; and (b) the sum of $352,800, which was the rental increase that P was entitled to charge under the 2012 tenancy agreement but which the New Tenant allegedly refused to pay. For the same reasons as stated above, P has failed to show that $512,800 was a reasonable estimate of the New Tenant’s loss in the third term.

(8) As to the fourth term (i.e. from 4 October 2020 to September 2024), I am not satisfied that monthly rental deductions of $20,000 were reasonable. There is no evidential basis for finding that this sum was a reasonable estimate of the New Tenant’s loss. P only goes so far as to say that “[t]he evidence shows that water leakage problem had now been contained largely, although [P] still suffered some loss” and that “HK$20,000/month is not an unreasonable figure”. This falls short of positive evidence that the rental deductions were in fact reasonable.

106.  In its closing submissions, P contends that it is entitled to the difference in the market rent and the actual rent that the Plaintiff was able to charge their tenant and/or loss of convenience or alternative use. P is however only entitled to loss of rental income which is attributable to the water seepage. There is no expert evidence on this; nor are the actual rental deductions reflective of such loss for the reasons stated above. Accordingly, I reject P’s alternative claim.

107.  Insofar as P’s tortious claims are concerned, P appears to claim loss of rental income as damages for nuisance, negligence, and trespass. I reject these claims on the same basis that P has failed to show that the rental deductions are reasonable in the circumstances, as it is required to do in order to claim mitigation expenses.

(III) Repair costs and expenses

108.  P has adduced documentary evidence to show that it incurred repair costs from April 2012 to May 2018 in the amount of $1,251,300 as a result of the water seepage. Contrary to Ds’ submissions, the mere fact that P did not complain to Ds about the water seepage since April 2012 (or that P had not demanded repair costs from Ds) does not mean that such costs were not in fact incurred.

109.  Accordingly, had I concluded that Ds were liable to P for the water seepage on 1/F, I would have allowed P’s claim for repair costs in the amount of $1,251,300.

110.  I disallow P’s claim for future repair costs in the amount of $605,000. The need for any future repair (and the quantum proposed) is entirely speculative, when it is P’s case that the water seepage problem has been largely contained since September 2020.

(IV) Pre-action surveyor’s fees

111.  P seeks to recover surveyor’s fees in the sum of $51,000, and cites Lam Sik Heung Perdita v Siu Yuet Kwan (DCCJ 2424/209, 17 October 2012) to show that this is a recoverable head of loss. In the event that Ds are found liable to P for the water seepage, I would allow such claim as part of P’s recoverable damages.

DISPOSITION

112.  I dismiss P’s claims against Ds in their entirety.

113.  I enter judgment on D1’s counterclaim against P in the sum of $752,000 representing the Rental Deposit, with interest at HSBC prime rate +1% from the date of the counterclaim (29 July 2016) until judgment, and thereafter at judgment rate until full payment by P.

114.  Costs should follow the event. I make a costs order nisi that P pays the costs of Ds in this action, including all costs reserved (if any), to be taxed if not agreed, with certificate for two counsel. In the absence of any variation by summons within 28 days from the date of judgment, the costs order nisi shall become absolute.

115.  I thank counsel for their assistance.