YUN KEE KITCHEN LTD v. LUK KWAN AND ANOTHER

HCMP 5/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 5 OF 2009

(On an Intended Appeal from DCCJ 4904/2006 and
DCCJ 90/2007(Consolidated))

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(Consolidated pursuant to the Order of Master K.W. Wong
made on the 26^th day of January 2007)

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REASONS FOR JUDGMENT

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Hon. Yuen JA (giving the judgment of the court):

1.  This is an application for leave to appeal from a judgment of District Judge Lok given on 23 September 2008.  Leave was refused by the judge and by Tang V-P on paper.  At the conclusion of the hearing, we dismissed the application and indicated that written reasons will be handed down.  These are our reasons.

Background

2.  The Defendants were the owners of a building.  They rented out the ground floor to the Plaintiff for a period of 3 years starting November 2005.  The Plaintiff used it as an annexe for its restaurant which was in an adjacent building.  The annexe was used as a VIP room and attached karaoke room.  Food from the Plaintiff’s restaurant was taken to the guests in the annexe.

3.  Water leaked from the podium above the annexe starting in November 2005.  The judge found that the annexe could still be used to a certain extent from January to March 2006 but that the situation deteriorated to the point that the Plaintiff was justified in stopping operations in April 2006.  For a period thereafter the parties were engaged in protracted discussions through their respective solicitors regarding inspection and responsibility for undertaking repairs.  The Plaintiff also made a complaint to the Food and Environment Health Department which undertook inspections.  The Plaintiff eventually undertook repairs and resumed operation of the annexe in January 2007, 10 months after stopping operations.

Proceedings

4.  The Plaintiff sued the Defendants for an injunction and damages for loss of profit and the cost of repairs. 

5.  The Defendant filed a Defence and Counterclaim for arrears of rent.  It was common ground that the Defendants had not received the rent ($24,000 per month) for the 28 months from 1 June 2006 to date of trial (September 2008).

6.  A number of issues were raised at trial which the judge dealt with in his judgment. 

Judgment

7.  In his judgment the judge held that the Plaintiff was entitled to loss of profit from the annexe for the period of 10 months from April 2006 to January 2007 and he accepted the Plaintiff’s evidence that the net loss of profit was $30,000 a month (para. 17).  He also found that the cost of repairs was $31,000.  Therefore the Plaintiff was entitled to net profits of $300,000 for that period of 10 months  and $31,000 as costs of repairs.

8.  As I have said, it was common ground that the Defendants had not received rent at $24,000 per month for the 28 months from 1 June 2006 to date of trial (September 2008).  The total figure would be ($24,000 x 28 mos) = $672,000. 

9.  To calculate the set-off, the judge adjusted the claim for the Plaintiff’s  net profits to arrive at gross profits of $54,000 for the 10 months ($540,000).  He then deducted this sum and the cost of repairs from the arrears of rent, arriving at $101,000 ($672,000 - $540,000 - $31,000).

Application for leave to appeal

10.  In the draft Notice of Appeal, the Defendants do not dispute the judge’s calculations or the award for cost of repairs but they seek to challenge the judge’s award of loss of profit. 

Grounds 1,2 and 6

11.  Grounds 1, 2 and 6 of the draft Notice of Appeal are concerned with the judge’s finding that the net profit from the annexe was $30,000 a month.

12.  The Defendants argue first that this was a bare assertion from the Plaintiff as the judge had rejected the accountant’s report which sought to support the Plaintiff’s claim for a larger sum.  The assessment in that report was on the basis of dividing the total takings by the total number of seats in the adjoining restaurant and the annexe, and then applying that to the number of seats in the annexe.  In his judgment the judge rejected that approach as the annexe was not used regularly. 

13.  However that was not the only evidence on loss of profit.  In the course of cross-examination of Mr Yik the Plaintiff’s director, the Defendants’ then counsel directly asked Mr Yik to estimate the net profit from the annexe (Transcript p.61-D).  It was then that Mr Yik gave the figure of $30,000 a month (Transcript p.61-E).  The judge then asked Mr Yik a series of questions on this figure (Transcript p.61-62), but the Defendants’ counsel  did not further challenge it.  The judge found that Mr Yik was a reliable witness and awarded damages on that evidence.  

14.  So whilst it is true that the figure of $30,000 a month had not appeared in Mr Yik’s Witness Statements and may have caught the Defendants by surprise, this evidence was given in reply to a question from the Defendant’s counsel who invited Mr Yik to make such an estimate.  If the Defendants wished to challenge this figure, they could have done so by further cross-examination , and they might even have asked for an adjournment for further discovery if necessary.  They did not do so.  Accordingly the judge was entitled to accept this piece of evidence. 

15.  The Defendants also argued that the net profit of $30,000 should have been smaller because other than rent for the annexe, the judge should have taken into account staff salaries and various expenses.  In this respect the judge was entitled to accept the Plaintiff’s evidence that the food for the annexe was provided in the nature of “take-away” from the adjoining restaurant and there were no additional staff salaries for the annexe.  Other outgoings such as electricity etc had already been taken into account when making deductions from the turnover of $110,000 a month (Transcript p153-U).   

16.  The Defendants also argued that the judge had found that the annexe could still be used in January - March 2006 but the Plaintiff’s own evidence was that there was a drop of business of 50% and 80% during that period.  They therefore argued that the judge should not have accepted that the Plaintiff would have been able to continue making the same amount of net profit of $30,000 a month after November - December 2005. 

17.  The short answer to this point is that the judge found that there was nothing to substantiate Mr Yik’s estimate of the drop in business of 50% - 80% (para. 21).  That was the reason why the judge declined to make an award for the period before April 2006.  Implicit in this was the judge’s acceptance that the Plaintiff had continued to make a net profit of $30,000 a month until the annexe had to be closed in April 2006.

18.  As for the Defendants’ argument that the audited accounts showed that gross profit for the year ended March 2007 was greater than March 2006, with respect I do not understand the point.  Takings vary from year to year for all sorts of reasons.

19.  Finally as to the alleged discrepancies in the evidence (the use of the VIP room and the question of odour), the judge was entitled to prefer the evidence of the Plaintiff to its expert, who was not called to provide expert evidence on the use of the room or the presence of odour.

20.  In conclusion the above arguments are essentially attacks on the judge’s findings of fact.  It is well-established that an appellate court would not likely interfere with a trial judge’s findings of fact.  Accordingly we do not see any realistic prospect of success on these grounds.

Ground 3

21.  Ground 3 is concerned with the mitigation of damages.  The water leakage was in the karaoke room.  The judge held that a sensible businessman would have tried his best to make use of the VIP room even if the karaoke room could not be used (para. 20).  Therefore the Defendants argue the judge was wrong to have found that the Plaintiff was entitled to close down the annexe completely and to lodge a claim for damages accordingly. 

22.  The judge had found that the availability of the karaoke room was important to the VIP guests (para. 19).  Reading para. 20 of the judgment carefully, the judge was in fact saying that the Plaintiff had no option but to close down the annexe (“ As there was no guarantee that the Plaintiff would be able to recover any damages from the Defendants, a sensible businessman should have tried his very best to make some use of the [VIP] room ... and yet the Plaintiff had to close down its operation in the Premises altogether ...”).  There was no inconsistency in the judgment.  Accordingly we do not see any realistic prospect of success on this ground.

Grounds 4 and 5

23.  The Defendants also argued that the Plaintiff was guilty of failure to mitigate in waiting to carry out repair work and there were other methods of repair which did not require the Plaintiff to trespass on the Defendants’ property.  It seems to be implicit that the Defendants accept the judge’s finding that the Plaintiff could not be expected to institute legal proceedings for an injunction (para. 24).

24.  In light of the evidence this argument has no realistic prospect of success and is unattractive.  It is clear from the evidence that there were protracted discussions between the parties through their solicitors up to September 2006.  During this period the Defendants did not commit themselves to undertaking repairs nor did they categorically refuse to do so, so the Plaintiff’s reluctance to expend money itself to undertake repairs on the Defendants’ property is perfectly understandable.  As for the period from September 2006 to the end of the year, the Plaintiff had lodged a complaint to the food health authorities in June 2006 with a view to the authorities issuing an order to the Defendants to undertake repairs.  This was obviously a less expensive remedy for the Plaintiff.  However the inspections were not finished until the end of the year.  Finally, although there were other methods of repair without involving trespass, they were more expensive (Transcript p.71-T – p.72-C).  The judge was entitled to find on that evidence that the Plaintiff had acted reasonably in holding off incurring expenses to undertake repairs until after the end of the year 2006.  That is a finding of fact, an appeal against which would not have a realistic prospect of success.

Ground 7

25.  Finally the Defendants complain that they should have been awarded the costs of 2 summonses taken out by the Plaintiff (the first, to strike out the witness statement of the 1^st-named Defendant’s son and the second, to call the 1^st-named Defendant to attend court to give evidence).

26.  Costs are in the discretion of the trial judge .  The judge found that the Plaintiff was entitled to issue those summonses as it was not until the first day of trial that there was medical evidence that the 1^st- named Defendant was suffering from dementia and thus could not personally give evidence, with the result that it fell to her son to have to give hearsay evidence (see the Decision given on 18 December 2008).  We see nothing at all to suggest that the appellate court should interfere with the judge's exercise of discretion.   

Order

27.  For these reasons, we dismissed the application for leave to appeal.