CHINACHEM FINANCE CO LTD v. KONG WAI KUEN

DCCJ1589/2017

[2018] HKDC 1070

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.1589 OF 2017

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ASSESSMENT OF DAMAGES

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1.  On 30 Mar 2017, the plaintiff commenced these proceedings to recover from defendant damages for breach of a written tenancy agreement dated 24 Aug 2015 (the Agreement) regarding shop No.1B, G/F, (the Shop) (Tuen Mun Paris London New York Cinema Shopping Centre), Hong Lai Garden (the Centre), Tuen Mun.

2.  On 13 July 2017, notice of intention to defend not having been given, interlocutory judgment was entered against the defendant for damages to be assessed.

3.  The assessment of damages (AOD) first came before this court for hearing in Mar 2018. The defendant was absent. This court was not satisfied that the defendant was duly notified of the hearing and re-fixed it to 29 Aug 2018.

4.  On 7 June 2018, on plaintiff’s ex parte application, this court made an order of substituted service.

5.  At the re-fixed AOD hearing, the defendant, unrepresented, remained absent. Having read 6^th affirmation of Mok Chu Fai and satisfied that the order of substituted service has been complied, this court proceeded with the hearing in the absence of defendant as requested by Ms Pang of plaintiff’s solicitors (Ms Pang).

6.  Ms Pang adopted her written opening dated 9 Mar 2018 and proceeded to call Mr Cheung Ka Chun (Mr Cheung), plaintiff’s deputy general manager, as plaintiff’s only factual witness. Mr Cheung adopted his witness statement filed 31 Oct 2017 as evidence-in-chief, clarified on one matter[1] with my leave and thereafter answered my questions. Ms Pang re-examined thereafter. After closing plaintiff’s case, Ms Pang made oral closing submissions on behalf of the plaintiff.

7.  For obvious reason, no evidence was adduced by the defendant before me. Indeed, by order of Registrar Ho dated 6 Sept 2017, for default in filing list of documents on quantum and witness statements as to quantum within prescribed time, the defendant had been deemed to have elected not to adduce documentary evidence on quantum and evidence on quantum from factual witness.

Assessment of evidence

8.  This court accepts the contents of the documents produced in the assessment bundle and give them full weight. This court is also prepared to accept such evidence of Mr Cheung supported by documents so produced.

9.  However, certain parts of Mr Cheung’s evidence are hearsay evidence by way of alleged oral reports to him from his junior, Ms Cynthia Cheung (Cynthia), Assistant Sales & Leasing Officer in the Leasing Department of plaintiff’s group of companies.

10.  While hearsay remains admissible at law, no weight, or limited weight, may be given to them in all the circumstances of a case. This applies equally to AOD.

11.  For this case, Cynthia should preferably be called to give oral evidence and/or relevant documentary evidence, if available, should be produced as proof.

12.  All things considered, I accept such evidence of Mr Cheung as indicated below.

Findings of facts

13.  On my assessment of the evidence above, I find the material facts as follows.

14.  At all material times, the plaintiff was the owner of the Centre, including the Shop. The Centre at all material times consisted of a total of 60 odd ground floor units, some of them relatively large in size and some relatively small in size, like the Shop having 200-300 square feet. A plan of the Centre was annexed to the Agreement to indicate the location of the Shop.

15.  By the Agreement, the plaintiff let the Shop to the defendant for commercial use as a retail shop selling Taiwanese drinks[2] for 3 years from 3 Aug 2015 to 2 Aug 2018 at a monthly rent of $15,000 (with 14-day rent-free period from 3 Aug 2015 to 17 Aug 2015). In addition to monthly rent, the defendant agreed to pay to the plaintiff 1) monthly management fees at $500[3]; 2) monthly air-conditioning charges at $606[4]; 3) rates on a quarterly basis[5].

16.  The Agreement has the usual re-entry clause for failure to pay rent and other charges or for other breaches[6].

17.  A security deposit of $48,818 was paid by the defendant to the plaintiff pursuant to the Agreement[7]. The defendant also paid a decoration deposit of $7,500[8].

18.  For detailed wordings of its terms, the Agreement should be consulted.

19.  In about Apr 2016, Mr Cheung joined the plaintiff as Deputy General Manager.

20.  On 26 Nov 2016, in wrongful breach of the Agreement, the defendant unilaterally deserted the Shop and returned its keys to the manager of the Centre. On 27 Nov 2016, the plaintiff re-entered the Shop and recovered its possession.

21.  The defendant had managed to pay the plaintiff rent, management fees and air-conditioning charges of the Shop up to 30 Nov 2016 and rates assessed on it up to 31 Dec 2016.

22.  By letters dated 5 & 12 Jan 2017 from plaintiff’s solicitors, the plaintiff accepted defendant’s repudiation of the Agreement and sought damages over $279,000 (after giving credit for security and decoration deposits).

23.  As from Dec 2016, the plaintiff offered to re-let the Shop at the asking monthly rental of $15,000 decided by Mr Cheung by engaging estate agents, including Tony Property Agency Company (the Agent), and by putting up advertisements of vacant units (including the Shop) for letting at Oriental Daily News (the Newspaper). Such advertisements in the Newspaper were put up as from 6 Dec 2016 and repeated in Jan, Feb, Mar & May 2017.

24.  At the material times, matters such as liaising with estate agents, answering telephone queries from potential tenants and arranging for inspection of the Shop were not handled personally by Mr Cheung but by his junior, Cynthia, Assistant Sales & Leasing Officer in the Leasing Department of plaintiff’s group of companies, who was required to report to Mr Cheung for, among others, decisions to be made by him on negotiation and conclusion of lease.

25.  Mr Cheung heard no indication of interest for the Shop by prospective tenant from Cynthia by way of report as from Dec 2016 until Cynthia reported to him in about May 2017 about interest expressed by Ng Ming Luen and Wu Xinhua (the New Tenants) introduced by the Agent.

26.  Between Dec 2016 and May 2017, Mr Cheung maintained the same asking monthly rental of $15,000 for re-letting the Shop.

27.  After some negotiation, the plaintiff and the New Tenants entered into a written tenancy agreement of the Shop dated 31 May 2017 (the New Agreement).

28.  By the New Agreement, the plaintiff let the Shop to the New Tenants for selling computer accessories and for computer repair for a term of 2 years from 4 May 2017 to 3 May 2019 at a monthly rent of $15,000, a monthly management fee of $540, a monthly air-conditioning charges of $658 and quarterly payment of rates then assessed at $2,400.

29.  As from 1 Mar 2017, the monthly management fees and air-conditioning charges of the Shop had already increased to $540 and $658 respectively. The rates of the Shop had also increased to $2,085 and $2,400 in the 1^st and 2^nd quarters of 2017 respectively (with concession of $1,000 each for these 2 quarters).

30.  At the request of the New Tenant, a 1-month rent-free period from 4 May 2017 to 3 June 2017 was granted by the plaintiff in the New Agreement.

31.  Prior to the conclusion of the New Agreement, the plaintiff had on 30 Mar 2017 commenced these proceeding, seeking to recover damages over $275,000 representing rent, management fees, air-conditioning charges and rates for the remaining term of the Agreement (after giving credit for security and decoration deposits) and $64,800 for defendant’s default to reinstate the Shop[9]. The latter claim of reinstatement costs was not further pursued by the plaintiff because the New Tenants had to carry out renovation works to the Shop and did not require the plaintiff to reinstate the Shop to its original state for handing over to them.

Plaintiff’s claims

32.  The plaintiff seeks to recover loss of rent of the Shop from 1 Dec 2016 to 3 June 2017 i.e. up to the expiry of rent-free period in the New Agreement. It also sought management fees and air-conditioning charges of the Shop from 1 Dec 2016 to 3 May 2017 i.e. the date preceding the 1^st payment date of these fees & charges under the New Agreement. Finally, it sought pro rata payment of rates assessed on the Shop from 1 Jan 2017 to 3 May 2017.

33.  This court has considered all authorities referred to by Ms Pang. The applicable legal principles are trite and are not repeated herein.

34.  The various heads of damages claimed by the plaintiff are, I agree with Ms Pang, recoverable at law, subject to it mitigating its losses and the burden is on the defendant to show that the plaintiff had failed to mitigate its losses.

35.  On the facts I find, I am satisfied that the plaintiff had taken reasonable steps soon after re-entry of the Shop to re-let the Shop to reduce its losses.

36.  Though no interest was shown for the Shop from Dec 2016 to May 2017, there is nothing more before me to indicate that the asking monthly rental of $15,000 decided, and maintained, by Mr Cheung during such period was unreasonable. It was the same to that in the Agreement. And the New Tenants also agreed to pay the same in the New Agreement after negotiation. The total period that the Shop was left vacant is not that relatively long. And the market, I accept from Mr Cheung, was relatively stable at that time.

37.  As for plaintiff’s granting 1-month rent-free period to the New Tenants in the New Agreement, considering that the latter had to carry out renovation works to the Shop to make use of it, I find it reasonable for the plaintiff to grant it (14-day rent-free period was also found in the Agreement) and I accept Mr Cheung’s evidence that it was common for plaintiff to grant it on request.

38.  Hence, I do not think that the plaintiff has failed to mitigate and I allow its claims in full for the amounts sought and particularized at paragraph 19 of Mr Cheung’s witness statement (after giving credit for security and decoration deposits held by plaintiff).

Summary

39.  The total amount of damages the defendant is liable to pay the plaintiff on my assessment is therefore $42,604.63.

Disposition

40.  Accordingly, this court enters final judgment in plaintiff’s favour against the defendant in the sum of $42,604.63, together with interest thereon at 6% p.a. from 30 Mar 2017 to the date of judgment and thereafter at judgment rate until payment.

41.  I differ from Ms Pang’s submissions on the exercise of my discretion on pre-judgment interest rate, as I think 1% above prime rate should be sufficient to compensate the plaintiff for the loss of use of its money in this commercial case.

Costs

42.  Costs normally follow the event. I see nothing to depart from this general rule. I make an order nisi that the defendant do pay the plaintiff the costs of AOD, including all reserved costs and costs of the 2 hearings before me. I accede to Ms Pang’s invitation to make a summary assessment[10]. Having regard to plaintiff’s statement of costs dated 29 Aug 2018, I assess them in the total sum of $65,000.

43.  Finally, I order that service of this AOD by inserting an advertisement of the same in the Newspaper shall be good and sufficient service of the same to the defendant and that service shall be deemed to have been effected on the day of publication. I order plaintiff’s solicitors to insert such an advertisement within 56 days from the date hereof and to file an affirmation of service within 28 days of such publication. The costs order nisi shall become absolute should none applies in writing to vary it within 28 days of such publication.