WAN'S INVESTMENT LTD v. VAST YEAR LTD AND ANOTHER

DCCJ 5982/2020

[2023] HKDC 976

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5982 OF 2020

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ASSESSMENT OF DAMAGES

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INTRODUCTION

1.  The 1^st defendant is a tenant of the plaintiff who has breached the tenancy agreement dated 17 December 2017 in respect of the premises known as Ground Floor, the Lamma Centre, No 15 Parkes Street, Kowloon (the “Tenancy Agreement”) (the “Shop”) by repudiating it on 10 November 2019, and the repudiation was accepted by the plaintiff.

2.  The term of the Tenancy Agreement was 3 years commencing on 17 November 2017 and ending on 16 November 2020.

3.  The 2^nd defendant was the guarantor who by a Guarantee dated 17 December 2017 guaranteed the 1^st defendant’s due payment of the monthly rental and other payments and charges payable under the Tenancy Agreement.

4.  Interlocutory Judgment was entered against both defendants on 30 April 2021 with damages to be assessed.

5.  This is the assessment of damages.

6.  The 1^st and 2^nd defendants act in person but do not appear today to contest. In fact, since the commencement of these proceedings, they have been absent in all hearings.

7.  I am satisfied that the 1^st and 2^nd defendants have due notice of today’s assessment hearing. I, therefore, proceed with this assessment in their absence.

8.  The plaintiff calls Ms Wan Kwok Ling Bonnie (“Wan”), its director, as a witness. Her witness statement filed on 6 December 2021 is admitted as her evidence in chief. Ms Wan also answered questions raised by me.

9.  I accept that Ms Wan’s evidence is inherently plausible, and is consistent with the documentary evidence. I accept her evidence.

10.  In gist, her evidence is that the 1^st defendant requested for a 50% rent relief in late August 2019, but the request was refused by the plaintiff. The 1^st defendant then defaulted in the payment of rent, management fee and government rate since 1 September 2019. The 1^st defendant repudiated the Tenancy Agreement by unilaterally surrendering vacant possession together with the key to the plaintiff on 10 November 2019.

11.  The plaintiff regarded the non-payment of rent for two months and the unilateral surrendering of the Shop amounted to a fundamental breach of the Tenancy Agreement, and the plaintiff accepted this repudiation on 10 November 2019.

12.  In order to mitigate its loss, the plaintiff entered into a new tenancy agreement with a new tenant for a monthly rent of $86,000 commencing on 8 June 2020. A rent-free period from 8 June 2020 to 23 July 2020 was granted to the new tenant.

13.  It is trite that a repudiation, when accepted, is an act of breach terminating the agreement. I therefore find that on 10 November 2019 the Tenancy Agreement was terminated by breach, and the plaintiff is entitled to recover the sum due under the Tenancy Agreement.

THE CLAIM

14.  In the present proceedings, the plaintiff claims for the outstanding rents, management fee and government rates, up to the end of the term of the lease under the Tenancy Agreement.

15.  The plaintiff claims damages for 2 periods:

(a)  from 1 September 2019 to 7 June 2020 (the “Pre-New Tenancy Period”), and

(b)  from 8 June 2020 to 16 November 2020 (the “Remaining Period”).

Unpaid rent, management fees and rates for the Pre-New Tenancy Period

16.  For the period from 1 September 2019 to 10 November 2019, the defendant was still in possession and occupation of the Shop, and should be liable for the rent, management fees and rates as agreed under the Tenancy Agreement.

17.  For the period from 11 November 2019 to 16 November 2020, which is after the plaintiff has accepted the defendant’s repudiation of the Tenancy Agreement by prematurely vacating the Shop, the plaintiff is prima facie entitled to the rent, management fees and rates which it would otherwise have received from the defendant, subject to the duty to mitigate.

18.  It is well established that a landlord accepting a tenant’s repudiatory breach is entitled to damages to be determined by general contractual principles. Such damages would generally include rent and any other amount stipulated in the tenancy agreement for the remaining term which the landlord would have received but for the repudiation, subject to a duty to mitigate loss (See, for example, Sano Screen Manufacturers Limited v J & R Bossini Trading Limited [2000] 3 HKC 216, Wing Siu Company Limited v Goldquest International Limited HCA 4145/2001 18 August 2006).

19.  The duty to mitigate is not an onerous one as the landlord is not required to do anything other than in the ordinary course of business. That usually would entail that he takes such steps as are reasonable to re-let the vacant premises at market rent (Wing Siu Company Limited v Goldquest International Limited HCA 4145/2001 supra).

Plaintiff has mitigated its loss

20.  Ms Wan deposed to the steps the plaintiff took after the 1^st defendant’s repudiation to attempt to re-let the Shop when questioned by me.

21.  In gist, Ms Wan’s evidence is that since November 2019, more than 20 to 30 real estate agents in the area contacted the plaintiff after they found out that the Shop has closed down. The plaintiff then asked each of them to find a new tenant.

22.  Due to the poor market condition at the time, despite the fact that the plaintiff had informed all the real estate agents that the rent was negotiable and it would consider any offer, no prospective tenants were interested, and they did not receive any offer.

23.  Efforts to re-let the Shop during the bulk of the remaining term of the Tenancy Agreement were unsuccessful. Only in June 2020 was the plaintiff able to let out the Shop at the rent of HK$86,000 per month, and by the provision of a rent-free period from 8 June 2020 to 22 July 2020.

24.  I accept Ms Wan’s evidence that the reduced rent for the new tenancy agreement was the best market rent obtainable at the material time, as it was the plaintiff’s only offer. I also accept Ms Wan’s evidence that it was always the case that a rent-free period of around two months would be granted for tenants for this type of Shop.

25.  Having considered the plaintiff’s efforts, I find that the plaintiff has taken reasonable steps to attempt to re-let the Shop so as to mitigate its loss, albeit unsuccessful for a lengthy period of time.

26.  The plaintiff is therefore entitled to recover the unpaid rent, management fees and government rates from in Pre-New Tenancy Period: see calculation in paragraph 19 of the SoC.

Rent for the Remaining Period

27.  The plaintiff claims (1) the full rent during the rent-free period and (2) the difference in rent under the Tenancy Agreement and the New Tenancy Agreement in the sum of HK$44,000 per month after the rent-free period.

28.  Given my above findings, I am satisfied that the plaintiff is also entitled to recover the loss of rent in the Remaining Period: see calculation in paragraph 19 of the SoC.

Security Deposit

29.  The 1^st defendant has paid security deposits in the total sum of HK$526,708, and such security deposits ought to be deducted from the judgment sum.

SUMMARY

30.  Accordingly, I assess the total amount of the plaintiff’s damages in the total sum of $1,129,748 ($1,656,456 minus $526,708).

INTEREST

31.  The plaintiff asked for pre-judgment interests calculated from the date of the writ to the date of assessment at judgment rate.

32.  In considering the award of pre-judgment interest, I bear in mind that interests are awarded to the plaintiff to compensate for being kept out of the money the defendant should have paid. I would award pre-judgment interests from 6 November 2020 at 1% above the prime rate (that being the standard commercial rate) until the date of this decision. The plaintiff shall be entitled to interests at judgment rate thereafter until full payment.

COSTS

33.  Costs should follow the event. The plaintiff has submitted a Statement of Costs dated 14 July 2023. On a broad-brush approach, having regarded the complexity and nature of the case, I fix the plaintiff’s costs at $65,000.

DISPOSITION

34.  I make the following orders:

(a)  The 1^st and 2^nd defendants do pay to the plaintiff damages in the sum of HK$1,129,748 together with interests accrued thereon at 1% above the prime rate of HSBC from 10 November 2020 to the date of this decision, and thereafter at judgment rate until full payment.

(b)  Costs of this action, including costs of this assessment of damages, be summarily assessed at HK$65,000 and be paid by the 1^st and 2^nd defendants to the plaintiff forthwith.

(c)  The plaintiff do effect service of this Assessment of Damages to the 2^nd defendant by inserting an advertisement in a Chinese newspaper published and widely circulating in Hong Kong within 35 days hereof, and the service effected in such a manner shall be deemed to be good and sufficient service to the 2^nd defendant, and the plaintiff do file an affirmation of service within 28 days of such publication.