CHINA TRAVEL HIP KEE GODOWN HONG KONG LTD v. ASIARAY ADVERTISING MEDIA LTD

HCA 2564/2017

[2021] HKCFI 628

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2564 OF 2017

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J U D G M E N T

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1.  This is an action that arose out of a License Agreement whereunder the Defendant was licensed to use the Signboard on the outer wall of the Plaintiff’s godown. The Defendant claims that the view to the Signboard was obstructed and the commercial value of the Signboard was adversely affected. The Defendant gave notice and terminated the Licence Agreement pursuant to the termination clause.

2.  The Plaintiff claims that the obstruction was “fleeting” and the commercial value of Signboard was not affected.  The Plaintiff seeks damages for repudiation. The Defendant contends that the Plaintiff had failed to mitigate its loss and counterclaims for return of the deposit.

Undisputed facts

3.  The facts in this section are taken from the helpful summary in the Decision of HH Judge KW Wong in DCCJ 1950/2016, 30 August 2017, when he dealt with the Defendant’s application for summary judgment on its counterclaim and striking out of the Plaintiff’s claim, before this case was transferred to the Court of First Instance.

4.  The Plaintiff is the owner of the property known as China Travel Hip Kee Godown No. 2, No 1, Cheong Hang Road, Hunghom, Kowloon (“Godown”) near the Cross-Harbour Tunnel (“the Tunnel”). The Signboard is one of 4 signboards and is a front-lit billboard structure on the external façade of the Godown between the 8^th floor and its roof facing certain roads leading to the Tunnel.

5.  The Defendant is in the business of media and advertisement.

6.  By the Licence Agreement dated 12 December 2014, the Plaintiff granted a licence to the Defendant to use the Signboard for advertising purpose for a term of 3 years commencing from 16 January 2015 at the monthly fees of H$128,000, HK$160,000 and HK$185,000 for respectively the 1^st, 2^nd and 3^rd year.  It was understood that the Defendant would then sub-let to its customers for shorter terms at a higher fee.

7.  Pursuant to Clause 3(8) of the Licence Agreement, a sum of HK$320,000 as deposit was paid by the Defendant to the Plaintiff.  On completion of the term of the Agreement, the deposit was to be returned within 7 days of full payment of all monies required to be paid under the Licence Agreement and provided that there was no prior breach of the Licence Agreement on the part of the Defendant.

8.  Clause 5(6) of the Licence Agreement provided that if there was any obstruction which affected (presumably, adversely,) the commercial value of the Signboard for advertisement purpose, the Defendant was entitled to serve on the Plaintiff a one-month written notice to terminate the Licence Agreement[1].

9.  It is the Defendant’s case that starting from mid-December 2015, a crane appeared in front of the Signboard, partially obstructing the Signboard when viewed from roads Tunnel-bound.  The crane was situated in a construction site for an MTR railway project near the Godown.

10.  On 23 February, 2016, the Defendant through its solicitors served a Notice on the Plaintiff pursuant to Clause 5(6) to terminate the Licence Agreement with effect from 28 March 2016.  The licence fee had been paid by the Defendant up to 28 March 2016.

11.  The Plaintiff instituted the present action on 27 April 2016, initially claiming outstanding licence fees up to April 2016.

12.  On 31 May 2016, the Defendant filed and served a defence and counterclaim denying liability and asking for return of the deposit.

13.  On 13 June 2016, the Plaintiff through its solicitors accepted the Defendant’s purported repudiation of the Licence Agreement.  The statement of claim was amended accordingly to claim for loss and damages represented by loss of licence fee as from 29 March 2016.

14.  In its amended defence and counterclaim, the Defendant denies the repudiation and claims that the Plaintiff had failed to mitigate its loss.

Issues

15.  The existence of the crane is not disputed.  At the trial, Mr Ho, counsel for the Plaintiff, concedes that there was obstruction of the Signboard.  Accordingly, the remaining issues are:

(1)  Whether the obstruction of the Signboard affected the commercial value of the Signboard as an advertising display; and

(2)  If the Defendant’s termination was wrongful, whether the Plaintiff had mitigated its loss?

The evidence

16.  There were 2 witnesses on each side.  Only the Defendant’s witness Ms Tsui Pong Wing was cross-examined.  The Plaintiff’s witnesses only came into the picture after the Licence Agreement was terminated and so they did not have personal knowledge of what led to the termination.

17.  Mr Ho criticizes the Defendant for not calling Mr Gregory Lo (head of the marketing team) and the team members as witnesses.

18.  Mr Ho also refers to His Honour Judge KW Wong’s comments in his Decision about eg customers giving excuses and that there should be examination of the market conditions thoroughly.  He submits that the Defendant’s state of evidence has not become better by the time of the trial and that it still relies on the bare hearsay evidence of its witnesses.

19.  I am unable to accept Mr Ho’s contentions.  The threshold tests for an O.14 and strike-out application are low whereas, here, the standard of proof is on balance of probabilities.  Here, the Court has the full circumstances from which to make findings of facts and draw inferences.  Without disrespect, it is thus not necessary to refer to His Honour Judge Wong’s Decision.

20.  This case does not turn on a witness’s credibility.  None of the witnesses have been challenged as being unreliable.  Rather, this case relies heavily on contemporaneous documents, especially the photos taken at various locations and on different dates; I place great weight on them.

Issue 1: Whether the obstruction of the Signboard affected the commercial value of the Signboard as an advertising display

21.  I agree with Mr Ho that the burden is on the Defendant to justify the invocation of Clause 5(6).  In that respect, the Defendant’s evidence can be classified under 4 categories:

(1)  Photos to show that the obstruction in itself affected the commercial value of the Signboard;

(2)  That after appearance of the crane, the Defendant only managed to procure one customer (Dr Morita) for placing advertisement on the Signboard for 5 weeks from 19 February to 27 March 2016 at a much lower price ($2,605 per day) compared to the period before the crane appeared (ranging between $3,929 and $10,643);

(3)  That other than Dr Morita, no customer had placed orders for the Signboard for the 2016 timeslots, even though the Defendant had reduced the rates; and

(4)  An email dated 3 June 2016 from the Defendant’s customer (“OMD email”) stating that OMD had other choices of outdoor signboards instead of having to tolerate a view with a crane in front of it which affected the aesthetic sense of the advertisement as a whole.

22.  Mr Ho challenges each of these categories.  He submits that the moving crane created fleeting (not fixed) obstructions only.  He also challenges the cause for the reduced daily rates.

23.  In respect of category 1, the photos showed the obstruction before and after the Notice was issued.  There was no photo from the Plaintiff for the period before the issue of the Notice to rebut the Defendant’s evidence. The last photo showing presence of the crane was taken on 31 October 2016.  So the obstruction has continued for at least 7 months from termination of the Licence Agreement.

24.  As Mr Isaac Chan (counsel for the Defendant) has set out in Annex 1 to his written submission, the photos show that the crane substantially obstructed the Signboard when viewed from Hong Chong Road (a usual spot of traffic congestion before vehicles entered the Tunnel and hence a major selling point for the Signboard) and from other major thoroughfares.

25.  Whilst the obstructions were fleeting, I do not agree with Mr Ho that they had no adverse effect on the commercial value of the Signboard.  The obstructions occurred at frequent intervals.  Drivers, passengers and pedestrians (from longer distance) would take fleeting glances of the Signboard.  The fleeting obstructions could turn a person’s attention away from the Signboard.

26.  Further, any fleeting obstruction would affect the aesthetic value of the advertisements and block important information like the commercial slogan, product image or even contact details.  That, in turn, would be a disincentive to advertisers.

27.  Mr Ho’s challenge on category 1 is unsustainable.

28.  As to category 2, Mr Ho challenges the lack of documentary evidence leading to the license fee agreed with Dr Morita.  He points out that Ms Tsui has acknowledged that there necessarily would be a written contract and possibly email correspondence on negotiation with Dr Morita.  Mr Ho invites the Court not to accept at face value the drop in license fee as evidence of the commercial value being affected.

29.  Mr Ho further submits that even based on the Defendant’s figures, the average daily rate had varied with month/season. The Defendant’s own records for the period between 14 September 2015 and 11 October 2015 (before appearance of the crane) showed the daily rate to be $3,929, compared to the target daily rate of $15,285 in the Defendant’s Media Rate Card 2015.  The reason for the low rate charged of Dr Morito could be anything other than the blockage. 

30.  In my view, disclosure of the negotiation records of the Defendant and Dr Morito may assist in deciding the true cause for the low rate charged. However, non-disclosure is not fatal to the Defendant’s case.  Prima facie, the daily rate represented a significant 30% drop from the prior lowest rate of $3,929.

31.  Ms Tsui admitted that the license fees could vary, depending on season or general economic climate (eg pandemic).  However, she testified there was no special reason for the drop in license fee for that period.  The Plaintiff has not suggested otherwise.  Ms Tsui’s evidence is credible, especially when considered in the light of the category 3 evidence.

32.  In respect of category 3, the Plaintiff has not challenged the Defendant’s lack of customers after Dr Morito’s term. 

33.  Interestingly, the Plaintiff itself was unable to lease out the Signboard for about 20 months since the date of termination, until it was leased out together with 3 other adjacent signboards for a month in December 2017.  This strongly supports the Defendant’s case that the obstruction adversely affected advertisers’ interest in the Signboard.

34.  In respect of category 4, Mr Ho points out that the OMD email was sent well after the termination date.  He submits that that email was self-serving and was created specifically for the purpose of this litigation.  Mr Ho suggested to Ms Tsui during her cross-examination that the Defendant had asked OMD to send this email, although there was no evidence in support.

35.  Ms Tsui explained during cross-examination that even after termination of the Licence Agreement, the Defendant had tried to find customers for the Plaintiff in June 2016.  This evidence was credible.

36.  In any case, even if the OMD email was written at the instigation of the Defendant, it was no different from a witness statement from OMD.  There was no suggestion that the sender was not telling the truth.  In fact, the circumstantial evidence strongly suggested that they were stating the obvious.

37.  In the light of paragraphs 21-36 above, it was plain that customers were not willing to place advertisements on the Signboard even at a reduced price due to the obstruction by the crane.

38.  Mr Ho submits that the Defendant has not adduced expert evidence to show that the market rental of the Signboard had been adversely affected by the obstruction.

39.  Expert evidence does contain an element of educated guess.  It is but one piece of evidence for the Court to weigh.  In the present case, the evidence of what actually happened on both sides as to drop in commercial value of the Signboard was overwhelming.  I do not see how the existence of expert evidence (or lack of it) could contradict the state of the evidence.

40.  In summary, I find that the obstruction had adversely affected the commercial value of the Signboard as an advertising display.  This is sufficient to dispose of the case.

Issue 2: Mitigation by the Plaintiff

41.  I deal with this issue for the sake of completeness in case I am wrong in my finding under issue 1.

42.  The Plaintiff seeks damages for the loss in license fees from 29 March 2016 to 30 November 2017, in the total sum of $3,478,500.

43.  The advertising agents that the Plaintiff’s ex-employee, Li Yi Xing, contacted expressed little interest.  None of those agencies expressed that the asking rent for the Signboard was too high or that the crane blocked the Signboard. 

44.  Eventually,

(1)  On 20 July 2017, POAD signed a Memorandum of Agreement with the Plaintiff’s representative on the condition that the Plaintiff agreed to grant POAD the sole and exclusive right as agent of all 4 signboards up to 31 December 2017. However, of the 4 signboards, the Signboard remained un-let.

(2)  On 23 November 2017, POAD and Ma Pak Leung Co Ltd signed a contract with China Travel Logistic & Trading Co Ltd (authorized representative of the Plaintiff) to lease all 4 signboards at a combined monthly rental of $810,000 for one month in December 2017.

45.  Even on its own evidence, the Plaintiff has not shown keenness to re-let or taken reasonable steps to mitigate its loss:

(1)  The Plaintiff had not started to seek new customers until June 2016.  It was already 3 months after the termination had taken effect.

(2)  Even if the Plaintiff’s duty to mitigate had only started in June 2016 when it accepted the repudiation, there were only 3 approaches to customers in 2016 – in June, July and October.

(3)  The Plaintiff had not advertised on the Signboard itself that advertising space was available.

(4)  The Plaintiff next approached a Gold Peak Industries Holding Ltd in March 2017 and then POAD 3 months later after Gold Peak expressed no interest in the Signboard.  There was no reason why the Plaintiff could not approach more than one advertising entity at the same time.

(5)  The Defendant named 2 other advertising agents that the Plaintiff could have, but had not, approached.

(6)  With regard to POAD, it appears that the Plaintiff merely invited POAD to submit a tender but did not offer a price to POAD.

46.  In summary, even if the Defendant had repudiated the Licence Agreement, the Court would not award the damages claimed to the Plaintiff.

Conclusion

47.  I find that there was obstruction of the Signboard which adversely affected its commercial value as an advertising display.  The Defendant was entitled to invoke Clause 5(6) to terminate the Licence Agreement.  There being no prior breach, the Defendant was entitled to return of the deposit under Clause 3(8).

48.  I therefore order as follows:

(1)  The claim is dismissed;

(2)  There be judgment on the counterclaim such that the Plaintiff shall return the deposit of $320,000 to the Defendant forthwith;

(3)  On a nisi basis, costs shall be paid by the Plaintiff to the Defendant, to be summarily assessed on 25 March 2021 in the absence of agreement; and

(4)  The Defendant shall lodge and serve its costs statement by 18 March 2021.  The Plaintiff shall lodge and serve its grounds in opposition by 25 March 2021.

49.  I thank counsel for their assistance.  Their very focussed approach has greatly shortened the trial time.