EASTLORD DEVELOPMENT LTD. v. BROADWAY PHOTO SUPPLY LTD.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF MESNE PROFITS

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1. This assessment is pursuant to a judgment entered by consent on 19th August 1989 in favour of the Plaintiff for possession of the premises in question and mesne profits thereon from 1st May 1989 to 31st July 1989.

2. The suit premises are the ground, mezzanine and first floors of No.529 Hennessy Road, Hong Kong and consist of shop premises, with storage or other commercial space on the mezzanine floor, and on the first floor, although this is officially designated as domestic.

3. Insofar as it is relevant to this assessment, and to some extent it may be, the history of the matter is as follows.

4. The Defendant company was the tenant of the premises which it held under a tenancy agreement for business purposes from the Plaintiff's predecessor in title.

5. A notice to quit dated 11th October 1988 was served on the Defendant terminating the tenancy with effect from 30th April 1989.

6. On 24th January 1989 the premises were assigned to the Plaintiff with the benefit of the tenancy agreement and the notice to quit.

7. The Defendant failed to vacate the premises on 30th April 1989 and these proceedings were accordingly commenced on 9th May 1989.

8. As is usual in these cases, both parties have instructed surveyors to prepare valuations of the premises; but what is unusual is the wide divergence of opinion on those valuations. The Plaintiff's surveyor puts the market rental for the period in question at $190,000 a month, the Defendant's surveyor puts it at $120,000. It is therefore necessary to see how these figures are arrived at and which, if any, can be relied on.

9. Both surveyors have sought to calculate a value per square foot, and to multiply that by the total gross floor area, with a different value for each floor. It is undisputed that these shop premises are in an excellent position commercially, being in a busy street in Causeway Bay, near two MTR station exits and with a heavy flow of pedestrian traffic every day.

10. The Plaintiff's surveyor, Mr. Peter Cheung, has calculated his basic unit rent per square foot for the ground floor of the premises at $210, principally by drawing comparisons between this and three other properties all in a new building, Causeway Bay Plaza, a short distance away in the same street, for which he has calculated a rent per square foot of $285, $288 and $182 respectively, which he has then adjusted to take account of it being a new development with central air-conditioning and better location. The suit premises on the other hand are in an old building built some 30 or 40 years ago with no modern conveniences such as central air-conditioning.

11. I have to say at the outset that I find Mr. Cheung's calculation based on these comparables unconvincing, and unsatisfactory as a mean of calculating a market rental for the suit premises.

12. The two buildings are totally different, one being a new development and the other being old and, frankly, somewhat run down. The new building is in a vastly superior location at the end of the block with streets on three sides and an MTR exit in the building. The difference is such that I do not accept that the obviously higher rents in the new building can be used to calculate the rent of the old by adopting artificial and arbitrary percentage decreases.

13. In any event, the figures given by Mr. Cheung in his report of 2nd November 1989 are themselves suspect, as the gross floor areas were obtained verbally from a manager of the building, and I am satisfied from evidence of the Defendant's surveyor, Mr. Wilkinson, that these may be extremely inaccurate.

14. Mr. Wilkinson, on the other hand, has taken as his comparable a similar building to the suit premises, a few yards away in the same street, number 519.

15. His evidence was that this was the subject of a tenancy agreement, also in respect of the ground, mezzanine and first floors, dated 1st August 1989 at a rent of $180,000 per month, from which, by a process he describes as "de-valuing", he arrives at a ground floor rental per square foot of $108.70, with that for the mezzanine floor of $36.20 and the first floor $27.20.

16. These figures are arrived at by way of a convoluted calculation, which I am told is a usual method among surveyors, and starting with a ground floor area of 1,020 square feet. This area itself cannot be right, as I am told the site areas are more or less identical and the plan of the suit premises clearly shows a depth of building of 55 feet and a width of 16 feet 3 inches, a total of 893.75 square feet, making Mr. Wilkinson's figures inaccurate by a least 14%. He then adjusts the figures as applied to the premises in question by varying percentages to take account of the fluctuations in rentals following the events in China on June 4th 1989.

17. While I accept Mr. Wilkinson's vast experience in this field, I cannot believe that this method also produces anything but an artificial and suspect figure.

18. I should add that he also took into account in his calculations the fact that there was an outstanding order from the Building Authority requiring the Plaintiff to remove a number of illegal structures, the most important of which was an extension to the ground floor over the rear yard, and an internal staircase. The removal of these would reduce the usable floor area and the convenience of access to the upper floors. Mr. Wilkinson's comparable property appeared to have similar structures, but he was unable to say whether they were legal or illegal.

19. The only other matters raised in evidence which may be relevant to this assessment were, firstly, the fact that a written offer had apparently been made to the Plaintiffs to rent the premises at $180,000 per month in a letter dated 13th March 1989; an offer which was not immediately taken up by the Plaintiff, for reasons I find difficult to accept, and which therefore cast some doubt on the genuineness of the offer; and secondly, a series of negotiations between the Plaintiff and Defendant between February and May 1989 when the Plaintiff apparently offered to renew the tenancy at $140,000 per month, which was refused by the Defendant in view of the outstanding matter of the illegal structures.

20. My task in this assessment is to arrive at the "market rental value" of the property; this being the normal measure of damages for trespass, which an action for mesne profits essentially is.

21. In so doing I do not have to take into account a period during which the property might not have been let, might be subject to a rent-free period for a new tenant to renovate the premises, or might be vacant during works under the Building Authority order.

22. This principle was clearly set out by Megaw L.J. in Swordheath Properties v. Tabet [1979] 1 W.L.R. 285 at p.288 where he says:

"It appears to me to be clear, both as a matter of principle and of authority, that in a case of this sort the Plaintiff, when he has established that the Defendant has remained on as a trespasser in residential property, is entitled, without bringing evidence that he could or would have let the property to someone else in the absence of the trespassing Defendant, to have as damages for the trespass the value of the property as it would fairly be calculated; and, in the absence of anything special in the particular case it would be the ordinary letting value of the property that would determine the amount of the damages."

23. It is a matter of common sense that, should the property be vacant and non-rent producing for a period before a new tenancy, the fact of the Defendant's wrongful occupation merely delays that period, and it would be totally unjust for the Defendant to have any benefit from such a notional period when it has had the full use of the premises for the period in question for its business.

24. What then is the market rental or "ordinary letting value" of these premises.

25. From what I have said above I am not assisted in any great measure by the calculation of the two surveyors. I do not consider the offer of a rental of $140,000 per month to the Defendant to be an accurate guide - there must be a considerable benefit to a landlord in a continuous tenancy to an otherwise good tenant without the risk of a break between tenancies. And I have some doubts about the offer of $180,000 per month.

26. However, from the evidence adduced, I believe the best guide is provided by Mr. Wilkinson's comparable, No.519 Hennessy Road.

27. This was let from 1st August 1989 at a rent of $180,000 per month.

28. It was Mr. Wilkinson's evidence that the rental market had "died" following the events of June 4th 1989, and by August rents were still considerably less than before June.

29. That would mean that if the rent of his comparable was fixed in May 1989 it would have been even higher.

30. Taking into account the obvious similarities between the suit premises and the comparable, and considering them in the light of identical business use, it is apparent to me that there is little to choose between them from the point of view of a prospective tenant wishing to do business there.

31. I propose, therefore, to take the figure at which the comparable was let in August 1989, and by applying a similar figure to the suit premises in May 1989, consider I have made sufficient allowance for any discrepancy in usable floor area, which is in any event largely cancelled out by the other similarities and the use to which the premises can be put.

32. I therefore assess the market rental for the period to be $180,000 per month and give judgment for this sum for the Plaintiff with costs to be taxed and a certificate for counsel.