HILLSBOROUGH HOLDINGS LTD v. WONG YEE MAN

DCCJ 5206/2018

[2020] HKDC 920

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5206 OF 2018

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ASSESSMENT OF DAMAGES

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INTRODUCTION

1.  This is an assessment of damages arising out of the breach of a tenancy agreement entered between the plaintiff and the defendant.  The plaintiff is the landlord, and the defendant the tenant. 

2.  In absence of notice of intention to defend, the plaintiff obtained a final and interlocutory judgment against the defendant, whereby the defendant was required to pay the arrears of rent and other outstanding charges plus interests incurred up to 26 October 2016 (the date of re-entry).  It was also adjudged that damages for the defendant’s breach were to be assessed.  In pursuance of the latter, this assessment hearing was held.

3.  In the present proceedings, the plaintiff claimed damages under the heads of (i) the costs of the related distraint action, (ii) the loss of rents, and (iii) the reinstatement costs.

4.  At the hearing, the plaintiff was represented by Ms Fontanne Chu of counsel.  The defendant, who was not legally represented, did not attend the hearing.  That said, I was satisfied that notice of hearing had been sent to the defendant’s last known address by ordinary post, by leaving the same at her last known address, and by placing an advertisement in a local Chinese newspaper[1]. In pursuance of the order made by Master WY Ho dated 21 August 2020, such mode of service was deemed to be good and sufficient service on the defendant. Accordingly, I decided to proceed with the hearing in the defendant’s absence.

5.  At the conclusion of the assessment hearing, I said I would hand down a written decision on 14 October 2020 at 4:30 pm, and counsel’s attendance was dispensed with.  This is my decision.

ANALYSIS OF EVIDENCE

6.  During the hearing, Ms Chu produces a 3-page document entitled “Handing Over of Premises to Tenant”, which was not included in the hearing bundle.  This document set out the conditions of the Premises when it was handed over to the defendant under the previous tenancy agreement on 27 April 2015.  Having considered the contents of this document, I granted leave to the plaintiff to rely on it at the assessment hearing[2]. 

7.  Having considered the contents of all the documents placed before me, I am prepared to give them full weight.  I find that they are inherently plausible and consistent with one another.

8.  At the assessment hearing, Ms Chu called the plaintiff’s senior leasing officer, Ms Chan Ching Yan, as factual witness.  Ms Chan adopted her witness statement filed on 8 May 2020 as examination in chief and confirmed the accuracy of the documents attached thereto.  Ms Chan also answered questions raised by me and thereafter was re-examined by Ms Chu. 

9.  I accept that Ms Chan’s oral evidence was supported by the documentary evidence and inherently plausible.  Having observed her testifying in the witness box, I find her to be a credible witness.  I accept her evidence as set out in the plaintiff’s case below.

THE PLAINTIFF’S CASE

10.  The plaintiff is the registered owner of the premises known as Shop No 219 on the 2^nd Floor of Causeway Place, Causeway Bay, Hong Kong (“the Premises”).  According to Ms Chan, the Premises is located in the “main corridor” where more customers are attracted[3].  The location of the Premises is relevant in the context of fixing its rent by comparables.

11.  Before entering the subject tenancy agreement, the defendant had been an existing tenant of the Premises since 27 April 2015[4].

12.  The plaintiff and the defendant entered the subject tenancy agreement on 22 March 2016 for a fixed term of 2 years commencing from 1 February 2016[5]. Clauses referred to in this Decision are the clauses of the said tenancy agreement.

13.  Pursuant to clauses 5(a) and 5(b), the defendant was required to pay monthly rent of $19,000 and service charges in the sum of $2,025, as well as the government rates[6].

14.  Furthermore, clause 5(h)(i)[7] provides that the defendant was required:-

“To yield up the Premises quietly at the expiration or sooner determination of the term in good clean substantial and proper repair and condition … and to remove at the Tenant’s sole expense all fixtures, fittings, additions, partitions, floor coverings, erections, and alternations … and to re-instate restore and make good any damage caused by such removal or re-instatement to the Landlord’s satisfaction.”

15.  The same clause also provides that:-

“… the Tenant shall re-instate restore and make good the Premises or any part thereof requiring to be re-instated restored or made good and in the event of the Tenant failing so to do the Tenant shall on demand forthwith pay to the Landlord all the costs and expenses of such re-instatement restoration or making good.”

16.  Clause 7(a)(i)[8] provides that:-

“If the rent or any part thereof or the Services Charges or any other charges payable hereunder or any part thereof shall be in arrears for eight (8) days after the same shall have become payable … it shall be lawful for the Landlord at any time thereafter to re-enter the Premises or any part thereof in the name of the whole and thereupon this Tenancy Agreement shall absolutely determine and the deposits paid by the Tenant to the Landlord shall be absolutely forfeited to the Landlord as and for liquidated damages and not as a penalty but without prejudice to any right of action by the Landlord in respect of any outstanding breach or non-observance or non-performance by the Tenant of any of the terms of this Tenancy Agreement.”

17.  Under the same clause[9], it is also provided that:-

“All costs and expenses including legal costs (on full indemnity basis) incurred by the Landlord in demanding payment of the rent the Service Charges and other charges payable hereunder … and in exercising its rights and/or remedies or in any actions or distraint for recovery of the same or in attempting to do so shall be paid by the Tenant and shall be recoverable from the Tenant as a debt or be deductible by the Landlord from any deposit held by the Landlord hereunder.”

18.  Under clause 7(g)(i), the defendant was required to pay, and was transferred from the deposit held by the plaintiff under the previous tenancy agreement, security deposit in the sum of $65,700[10].  It is also provided under this clause that:-

“… if there shall be any breach of any of the said covenants, restrictions, stipulations and conditions on the part of the Tenant the Landlord shall pay or apply the said deposit or such part thereof as shall be required towards remedying such breach insofar as this may be possible without prejudice to any of the Landlord’s rights or remedies hereunder required.”

19.  Finally, clause 7(h) provides that:-

“The Tenant shall take over the Premises on a ‘bare shell’ basis together with such fixtures and fittings supplied by the Landlord … If alternations or additional works are undertaken within the Premises by consent of the Landlord, the Tenant shall reinstate the respective alternations or additional works … on the expiry or sooner termination of this Tenancy Agreement.”

20.  In breach of the tenancy agreement, the defendant failed to pay rent since 1 August 2016, service charge since 1 September 2016, government rates since 1 July 2016, and interests for late payments accrued between March 2016 and July 2016[11].  According to Ms Chan, the defendant had abandoned and deserted the Premises without prior consent or permission of the plaintiff[12].

21.  In an attempt to recover its rent due under the agreement, the plaintiff took out a distraint action under DCDT 3153 of 2016 to arrange the seizure and auction of goods and chattels of the defendant in the Premises.  Auction was taken place on 19 October 2016[13].  The gross sale proceeds of the seized goods and chattels amounted to a sum of $9,800[14].  Having incurred the bailiff expenses ($12,016[15]), auctioneer expenses ($4,406[16]) and stamp duty ($250[17]), the plaintiff suffered net loss in the sum of $6,872 (ie, $12,016 + $4,406 + $250 - $9,800).

22.  The plaintiff re-entered the Premises and recovered possession thereof on 26 October 2016[18].

23.  Since the defendant failed to yield up the Premises in a good, clean and proper condition, the plaintiff had to engage contractors to reinstate the Premises.  According to Ms Chan, the plaintiff’s management company had sent out tender invitation to 10 construction companies inviting them to submit quotations for the reinstatement works.  Five quotations were received, and the lowest offer made by a construction company named Fu Yuen in the sum of $26,500 was accepted[19]. The plaintiff’s management company also charged an additional 10%, namely $2,650, as its administrative fee, which was provided for under clause 5(f)(III)[20]. The sub-total of the reinstatement costs therefore amounted to $29,150 (ie $26,500 + $2,650).

24.  The reinstatement work started on 21 November 2016 and finished on 25 November 2016[21].

25.  Since 19 October 2016, the plaintiff offered to lease out the Premises for a two-year term at a monthly rent of $17,000, with 14 days’ rent-free period[22]. It is Ms Chan’s evidence that, although the rent was set $2,000 lower than the tenancy agreement, the amount was in fact in line with the then prevalent rent of similar properties and the overall portfolio of the mall[23].  The plaintiff’s offer was published through real estate agencies, through vacancy lists distributed by fax, email and by hand, as well as by making cold-calls to potential tenants[24].  The plaintiff experienced difficulties in finding replacement tenancies for the Premises because of the decline of retail trade in recent years.  No replacement tenancy had ever been found as of the end of the term of the tenancy agreement[25]. 

26.  Accordingly, the Premises was left vacate from 27 October 2016 (namely the next day of the plaintiff’s re-entry) to 31 January 2018 (namely the end of the term of the tenancy agreement) – a total period of 15 months and 5 days.

27.  According to the statement of claims, the plaintiff claimed damages to be assessed under the heads of loss of rent, service charges and rates in the sum of $326,087.95, the reinstatement costs of $29,150, and the distraint costs of $6,872[26].

LEGAL PRINCIPLES

28.  The law regarding a landlord’s entitlement in case of a tenant’s wrongful repudiation of a tenancy agreement is well-established.  In a recent case[27], Master Queenie Lau has succinctly summarized the same as follows:-

“22. Where a landlord accepts a tenant’s repudiation, the landlord is entitled to recover damages reflecting the rent of the unexpired portion of the tenancy agreement, service charges, rates and reinstatement costs.

23. This is subject to a duty on the landlord to mitigate, and the landlord is expected to act reasonably and to take such steps as are necessary to re-let the vacant premises at market rent.  The duty to mitigate is not onerous, and the landlord is not required to do anything other than in the ordinary course of business. The burden rests on the tenant to show that damage has not been mitigated.”

29.  This statement of law is in line with the authorities referred to me by Ms Chu[28].

DISCUSSION

(1) Costs of the distraint action

30.  As mentioned in paragraph 17 above, clause 7(a)(i) provides that all costs and expenses including legal costs (on full indemnity basis) incurred by the plaintiff in, among others, distraint for its recovery shall be paid by the defendant.  As Ms Chan explained, although the expenses in the distraint action exceed the sale proceeds, it was the common practice of the plaintiff to proceed with the auction and this was indeed recommended by the Bailiff[29]. I agree with Ms Chu’s submission that such an action was the common practice of the plaintiff and reasonable.  I hold that the net expenses incurred by the plaintiff in the distraint action is recoverable against the defendant.

31.  In such circumstance, I would allow the claimed sum of $6,872 in full.

(2) Loss of rent, service charges & rates since re-entry

32.  Based on the legal principles set out in paragraph 28 above, I first find that the losses of rent, service charges and rates are recoverable at law from the defendant, subject to the plaintiff’s duty to mitigate.

33.  As noted above, the duty to mitigate is not onerous and the landlord is not required to do anything other than in the ordinary course of business.  In the present case, it is Ms Chan’s evidence that the rent for the replacement tenancy was set at $2,000 below the subject tenancy agreement.  It was explained that the plaintiff decided to rent out the Premises at lower rent in order not to minimize the deleterious effect on the portfolio of the mall.  Given the location of the Premises, I am satisfied that the rent so set was analogous to shops with similar size.  I accept that the plaintiff’s effort in procuring a replacement tenancy was reasonable.  In my view, the plaintiff has discharged its duty to mitigate.

34.  I would therefore allow the loss of rent of 15 months and 5 days at $288,064.52 (ie, ($19,000 x 5/31 months) + ($19,000 x 15 months)).  I would also allow the loss of service charge in the same period at the sum of $30,701.61 (ie, ($2,025 x 5/31 months) + ($2,025 x 15 months)).

35.  I note that there is a discrepancy between the figures of the loss of government rates in the statement of claim ($7,321.82)[30] and those in Ms Chan’s witness statement ($6,018.15)[31]. Ms Chu explained in her opening submissions that the figures stated in the statement of claim did not take into account the government concession of rates.  I accept this explanation.  I would allow the sum stated in Ms Chan’s witness statement.

36.  Accordingly, the sub-total under this head is $324,784.28 (ie, $288,064.52 + $30,701.61 + $6,018.15).

(3) Costs of the reinstatement works

37.  I accept Ms Chan’s evidence that the defendant had failed to yield up the Premises in a good, clean, and proper condition, and as a result, it was necessary for the plaintiff to engage a contractor to carry out reinstatement works.

38.  I also accept that, as mentioned in paragraph 15 above, such reinstatement costs are recoverable from the defendant under the tenancy agreement.  Having considered the condition of the Premises[32] and the items of works done by the contractor[33], I am satisfied that the works done were reasonable and necessary to reinstate the Premises to its “bare shell” condition as stipulated under the tenancy agreement (see paragraph 19 above).

39.  Having considered the invitation for tenders and the acceptance of the lowest offer, I find that the claimed amount of $29,150 reasonable.  I would allow the amount in full.

(4) Total amount of losses

40.  Accordingly, the total amount of the plaintiff’s losses is $360,806.28 (ie, $6,872 + $324,784.28 + 29,150).

41.  The plaintiff agreed to apply the security deposit of $65,700 towards the said sum of losses.  I would therefore assess the plaintiff’s losses in the sum of $295,106.28 (ie, $360,806.28 - $65,700). Final judgment is to be entered in the plaintiff’s favour at the said amount.

INTERESTS

42.  It is noted that the plaintiff averred in the statement of claim that the defendant was under covenant in clause 1 to pay interest on the unpaid rent and other monies due at the rate of 3% above the prime rate as quoted by HSBC[34].

43.  That being said, I agree with Ms Chu that the starting point for awarding pre-judgment interest rate is the commercial rate (which is 1% above the best lending rate)[35]. Ms Chu confirmed in her opening that the plaintiff would only seek pre-judgement interests at the rate of 1% above the HSBC prime rate from the date of the Writ of Summons (16 November 2018) up to the date of this assessment.  I would award pre-judgment interests accordingly.

44.  There also be post-judgment interest at judgment rate until full payment.

COSTS

45.  Costs should follow the event.  Ms Chu submits that, in pursuance of clause 7(a)(i), the plaintiff should be entitled to costs on indemnity basis.  According to the plaintiff’s statement of costs, the amount of its costs incurred was $60,260.

46.  However, even on indemnity basis, I cannot see any justification to engage a separate counsel for advice and perusal of documents (Item E1).  Since this assessment hearing only takes a little more than an hour, corresponding reduction is also made in item D4.

47.  Accordingly, by summary assessment, I fix the plaintiff’s costs at $55,000.

DISPOSITION

48.  For the above reasons, final judgment is entered in the plaintiff’s favour against the defendant in the sum of $295,106.28, together with interests accrued thereon at 1% above the prime rate of HSBC from 16 November 2018 to the date of this assessment, and thereafter at the judgment rate until full payment.

49.  I also order that the defendant do pay the costs of this action, as well as this assessment of damages, summarily assessed at $55,000, payable forthwith.

50.  Lastly, I wish to express my gratitude to Ms Chu for her helpful assistance to this court.