FRANKFURT LTD v. KWAN CHING ON JOE

DCCJ 1760/2009

IN  THE DISTRICT  COURT  OF  THE

HONG  KONG  SPECIAL  ADMINISTRATIVE  REGION

CIVIL  ACTION  NO. 1760 OF 2009

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JUDGMENT

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Case Summary

1.  This is an assessment of damages payable by the Defendant to the Plaintiff.

2.  The Plaintiff’s claim is for breach of a tenancy agreement dated 23 November 2007 (the “Agreement”) for the premises known as Portion of Shop 122 (now known as Shop 122(b)) on the 1^st Floor (Level 3) of Kwai Chung Plaza, Nos. 7-11 Kwai Foo Road, New Territories, Hong Kong (the “Premises”).

3.  The Plaintiff was the landlord and the Defendant was the tenant under the Agreement.

4.   The Defendant was represented by Messrs Lau, Chan & Ko (the “Defendant’s Solicitors”) in this action until 6 May 2009 when the Defendant filed a Notice to Act in Person.

5.  The Defendant’s Solicitors had filed an Acknowledgment of Service of Writ of Summons for the Defendant on 22 April 2009 giving notice of intention to defend.

6.  However, no defence was filed or served by the Defendant after the Defendant filed the Notice to Act in Person.

7.  Interlocutory Judgment was entered against the Defendant for the Plaintiff’s claim on 22 June 2009 with damages to be assessed (the “Interlocutory Judgment”).

8.  The Plaintiff issued Notice of Appointment of Assessment of Damages (the “Assessment Notice”) on 6 July 2009 returnable on 4 August 2009.

9.  The Assessment Notice was served to the Defendant by ordinary post on 7 July 2009 to the Defendant’s address for service stated in his Notice to Act in Person.  Affirmation of service was filed on 8 July 2009.

10. The Defendant did not attend the hearing on 4 August 2009.  Directions for assessment of damages were given at the said hearing and the hearing was adjourned to 5 October 2009 for further directions (the “Order”).

11. The Order was served to the Defendant by ordinary post on 14 August 2009 to the Defendant’s address for service.  Affirmation of service was filed on 17 August 2009.

12. At the hearing on 5 October 2009, the Court set down the hearing for assessment of damages in this case for 22 December 2009 (the “Hearing Order”).

13. The Hearing Order was served to the Defendant by ordinary post on 27 October 2009 to the Defendant’s address for service.  Affirmation of service was filed on 22 December 2009.

14. The Defendant did not file any document nor take any further step.  The Defendant also did not attend the assessment of damages hearing on 22 December 2009.

15. I am satisfied that notice for the assessment of damages hearing on 22 December 2009 has been duly given to the Defendant.  It is the Defendant’s own choice not to attend the assessment of damages hearing.  In the premises, I decide to proceed with the assessment of damages in this case in the absence of the Defendant.

The Plaintiff’s Claim

16. The Plaintiff claims the following sums against the Defendant in the Statement of Claim:

(1)    Arrears of rent from 24 October 2008 to 2 February 2009 in the sum of $50,000.

(2)    Loss of rentals from 3 February 2009 to 22 March 2009 in the sum of $49,355.

(3)    Shortfall in rentals from 23 March 2009 to 23 November 2009 in the sum of $57,857.

(4)    Legal costs for demanding rental in the sum of $3,000.

(5)    Arrears of electricity charges from 5 August 2008 to 2 January 2009 in the sum of $5,238.

17. The Plaintiff agrees to give credit to the deposit paid by the Defendant to the Plaintiff under the Agreement in the sum of $90,000.

18. The net amount claimed in the Statement of Claim is $75,450.

19. At the assessment of damages hearing, Mr. Chen representing the Plaintiff confirms that the Plaintiff will not pursue its claim for legal costs for demanding rental.

Evidence of the Plaintiff

20. The Plaintiff calls its director, Miss Grace Luk (“Miss Luk”), to testify at the assessment hearing.  The Plaintiff also calls Mr. James Cheung (“Mr. Cheung”), a surveyor as its expert witness.

21. Miss Luk’s evidence is that the Plaintiff and the Defendant entered into the Agreement for letting the Premises to the Defendant for two years from 24 November 2007 to 23 November 2009 at a monthly rent of $30,000 (inclusive of rates, government rent, air-conditioning charge and management charge) (the “Contract Rent”).

22. On or about 1 November 2008, the Plaintiff agreed to reduce the rental for the Premises to $25,000 per month (the “Reduced Rent”) for a period of three months from 24 October 2008 to 23 January 2009 (the “Reduced Rent Period”).  The reduction was conditional upon the Defendant’s observance and performance of the terms of the Agreement.

23. The parties signed a supplemental agreement on 1 November 2008 (the “Supplemental Agreement”) to record the aforesaid rent reduction agreement. (Page 70 of the trial bundle)

24. Clause 3 of the Supplemental Agreement has the following provision in Chinese:

〝租客同意減租後嚴格遵守租約之各項條款，如租客於租期内違反租約條款，則業主有權隨時撤消此減租協議及有權追收之前所減之租金〞.

25. After signing of the Supplemental Agreement, the Defendant only paid the Reduced Rent for the period from 24 October 2008 to 23 November 2008 but failed to pay further rent for the Premises thereafter.

26. The Plaintiff through its solicitors sent a demand letter to the Defendant on or about 14 January 2009 demanding the Defendant to pay arrears of rent, the difference between the Contract Rent and the Reduced Rent and unpaid electricity charges.  No payment was received.

27. On or about 24 January 2009, the Defendant unilaterally vacated the Premises and returned the keys of the Premises to the Plaintiff.

28. Miss Luk said that The Defendant’s aforesaid acts amounted to wrongful repudiation of the Agreement.  The Plaintiff accepted the Defendant’s said repudiation on or about 2 February 2009 by a letter sent by the Plaintiff’s solicitors to the Defendant.

29. Miss Luk said that the Plaintiff was entitled to recover the difference between the Contract Rent and the Reduced Rent for the whole Reduced Rent Period on top of the Plaintiff’s claim for arrears of rent.

30. Miss Luk agreed at trial that the amount of arrears of rent from 24 October 2008 to 2 February 2009 (including the difference between the Contract Rent and the Reduced Rent for the Reduced Rent Period) should be $49,677.00 instead of $50,000.00 claimed in the Statement of Claim.

31.  After accepting the Defendant’s repudiation of the Agreement, the Plaintiff advertised once in a Chinese newspaper and engaged two estate agents to find new tenant for the Premises.

32. A new tenant for the Premises was secured on or about 15 March 2009 at a monthly rent of $22,800 (inclusive of rates, government rent, air-conditioning charge and management charge) with a rent free period from 15 March 2009 to 22 March 2009 (Pages 78 to 90 of the trial bundle).

33. Miss Luk said that the Plaintiff suffered loss of rental from 3 February 2009 to 22 March 2009 at the rate of $30,000 per month and suffered further loss of rental at the rate of $7,200 per month from 23 March 2009 to 23 November 2009 being the remaining term of the Agreement.

34. Miss Luk agreed that the amount of loss of rentals from 3 February 2009 to 22 March 2009 should be $49,252 instead of $49,355 claimed in the Statement of Claim.

35. Miss Luk said that the air-conditioning charge and management charge for the Premises was $978 per month and the rates and government rent was $1,354 per month.

36. Miss Luk said that there was separate electricity meter for the Premises and that the amount claimed was the actual charges for electricity used at the Premises.

37. Mr. Cheung has been engaged in property valuation since 1993 and has been a registered surveyor since 1999.

38. Mr. Cheung had conducted a valuation survey on market rent for the Premises as at 1 January 2009 and had prepared a valuation report (Pages 27 to 58 of the trial bundle).

39. Mr. Cheung’s opinion was that as at 1 January 2009 the market rent for the Premises was $19,500 per month (exclusive of rates, government rent and management fees).

40. Mr. Cheung said that the market rent had dropped by about 1% from January to March 2009.

41. Mr. Chen submits that the Plaintiff has acted reasonably in mitigating its loss by taking immediate actions to find new tenant for the Premises after the Plaintiff accepted the Defendant’s repudiation of the Agreement.

42. Mr. Chen says that after added back the management charge, air-conditioning charge, rates and government rent to the market rent proposed by Mr. Cheung, the market rent for the Premises as at January 2009 was about $21,832 per month and the market rent had fallen by 1% from January to March 2009.

43. Mr. Chen submits that the rent for the new tenancy secured by the Plaintiff in the sum of $22,800 per month was above the then market rent.

Findings

44.  I accept Miss Luk’s evidence that the Defendant had failed to pay rent for the Premises from 24 November 2008 onwards.

45. I find that the Plaintiff is entitled to its claim for arrears of rent from 24 November 2009 to 2 February 2009.

46. I find that the Defendant was in breach of the Supplemental Agreement and the Plaintiff is entitled to recover from the Defendant the difference between the Contract Rent and the Reduced Rent for the Reduced Rent Period.

47. I accept Mr. Cheung’s evidence and find that the market rent for the Premises in January 2009 was $19,500 and that the market rent had fallen by about 1% from January to March 2009.

48. I accept that the Plaintiff had taken reasonable actions to mitigate its loss and the rent secured by the new tenancy is not below the market rent at the material times.

49. I find that the Plaintiff is entitled to its claims for loss of rental from 3 February 2009 to 22 March 2009 and shortfall in rental for the remaining term of the Agreement from 23 March 2009 to 23 November 2009.

50. Clause 2(b) of the Agreement requires the tenant to “pay and discharge punctually during the said term all charges for electricity, water, gas, telephone rental and other outgoings now or at any time hereafter consumed exclusively by the Tenant and chargeable in respect of the said premises”.

51. I accept Miss Luk’s evidence that the Defendant had failed to pay electricity charges for the Premises from 5 August 2008 onwards.

52. I assess that the damages suffered by the Plaintiff due to breach of the Agreement by the Defendant in this case is $162,024 which includes the following items:

(1)    Arrears of rent from 24 October 2008 to 2 February 2009 (including the difference between the Contract Rent and the Reduced Rent for the Reduced Rent Period) in the sum of $49,677.

(2)    Loss of rentals from 3 February 2009 to 22 March 2009 in the sum of $49,252.

(3)    Shortfall in rentals from 23 March 2009 to 23 November 2009 in the sum of $57,857.

(4)    Outstanding electricity charges for the Premises before termination of the Agreement in the sum of $5,238.

53. After giving credit to the deposit in the sum of $90,000 held by the Plaintiff under the Agreement, the net amount payable by the Defendant to the Plaintiff is $72,024.

54. I make an order nisi for the Defendant to pay to the Plaintiff interest on the sum of $72,024 at judgment rate from date of Writ to the date of Interlocutory Judgment and thereafter also at judgment rate until payment in full.

55. I also make a costs order nisi against the Defendant in favour of the Plaintiff for the assessment of damages proceedings.

56. The Plaintiff has instructed counsel to attend the assessment of damages hearing.  Mr. Chen applies for counsel certificate.

57. This is not a complex claim.  The Defendant has not filed any document or witness statement to contest the Plaintiff’s case.  The Defendant also has not adduced any expert evidence to dispute the Plaintiff’s expert evidence.  I do not consider that appearance of counsel is necessary to assist the Court to assess the damages payable by the Defendant to the Plaintiff in this case.  In the premises, I do not grant counsel certificate.

58. The above orders nisi shall become absolute after 14 days from the date hereof unless any party shall apply to vary the said orders within this 14 days period.