FEMS INTERNATIONAL LTD v. CHIDAMBARAM VINAYAGA SUNDAEAM

1988, No A7493

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. This is a claim for mesne profits in respect of staff quarters which the Plaintiff provided for the Defendant and which the Defendant failed to vacate upon his dismissal by the Plaintiff.

2. There is no dispute that the Defendant was required to vacate the suit premises, known as Flat B, 25th Floor, Block A, Ning Yeung Terrace, 78A Bonham Road, Hong Kong on or before 31st October 1988. Similarly, it is common around that the Defendant did not vacate the suit premises until mid July of this year.

3. The Plaintiff obtained interlocutory judgment against the Defendant on the 19th April 1989 and inter alia he was ordered to pay mesne profits in respect of the suit premises.

4. Mr Abuja, the financial controller of the Plaintiff gave evidence as did the Defendant.

5. It is clear from their evidence, as well as the pleadings, that considerable personal animosity exists between the Plaintiff, acting through its directors, and the Defendant. There are substantial allegations of dishonesty and bad faith on both sides and both Mr. Abuja and the Defendant needed constant reminders, during the bearing of this assessment, that the role of this Court is to determine the quantum of mesne profits and not the rights and wrongs of the previous business relationship between the parties.

6. Briefly, the Plaintiff through a wholly owned subsidiary, bought the suit premises for $1,550,000.00 in 1987. The flat was a new one and its area amounted to 1,345 square feet. It did not have a parking space but had a swimming pool and a tennis court within the curtilage of the block.

7. After the Plaintiff's subsidiary purchased the suit premises it furnished the same and the Defendant occupied it.

8. In paragraph 2 of the statement of claim the Plaintiff stated that it rented the suit premises from its subsidiary at the monthly rental of $18,000.00 exclusive of rates, management fees and utility charnel. In support of that claim Mr. Abuja produced a bundle of rent receipts.

9. In my judgment, the rent receipts did not materially assist the Court one way or the other, for the simple fact of the matter is that no money ever chanced hands between the Plaintiff and its subsidiary. All that happened was that there were book entries between the two companies which purported to show a rental being paid of $18,000.00. The book keeping of the two companies appeared to me to fall somewhat short of good accountancy practice. However, be that as it may, the blame for this cannot be placed entirely at the door of the present management, for when the suit premises were purchased, and the book entries determined the Defendant, was the financial controller of the Plaintiff company.

10. He sought to persuade me that the entries were made at the direction of his directors. I accept that this may have been so but, equally. I am satisfied that the Defendant wholly approved of the arrangement.

11. Finally, by way of background, evidence was given that the suit premises have been disposed of recently for something over $2,000,000.00.

12. Hence, the Plaintiff's claim may be simply put. It rays that it had to nay $18,000.00 per month for the premises, this rental was approved by the Defendant and accordingly it should be able to recover it from the Defendant.

13. The Defendant's position is slightly more convoluted. His basic complaint is simply that he should not pay the Plaintiff anything until such time as the Plaintiff pays him what he perceives it owes him. Whilst not doubting the Defendant's strength of feeling in this aspect of the matter it has absolutely no bearing upon the present assessment.

14. When he gave evidence the Defendant sought to convey the view that as the $18,000.00 per month was a purely "paper" transaction between two associated companies he took very little interest in it. If that were his intention I can only say that he dismally failed. It is my assessment that the Defendant that he took a very close and personal interest in matters appertaining to the suit premises.

15. The Defendant submitted that a reasonable rental for the suit premises should be between $13,000.00 and $15,000.00 per month. He based the submission on the fact to that he vacated the suit premises in July he was able to rent a four bedroom flat of 1,870 square feet, with a car park for $15,000.00 per month. Hence, so his argument went, the mesne profits for the suit premises should be less, because the suit premises are smaller and do not have a car park.

16. In my judgment there is very simply no comparison between the two flats. The Defendant's present flat is in a relatively old building, in a less desirable area and without facilities, such as a swimming pool and tennis court. Further, the Defendant did not give, or call, evidence that the rental for his new flat is an oven market rental.

17. Also, he overlooked the fact that he willingly signed an agreement with the Plaintiff on 3rd July 1989 whereby in consideration of the Plaintiff not enforcing its judgment for possession ,be agreed to pay a monthly rental "to be decided by a director of the Plaintiff ... not exceeding $18,000.00 per month".

18. Hence one has the position, where when it suits the Defendant he does not object to agreeing to a rental of up to $18,000.00 per month, but when he has to pay it be considers that it should be somewhat less.

19. I have no information before me as to the value of the furniture in the suit premises so I will treat it as being only of nominal value in assessing the mesne profits.

20. The suit Premises are 1,345 square feet in area, thus, at a rental of $18,000.00 per month the premises would, cost approximately $13.50 per square foot which in today's property market, seems to me to be eminently reasonable for a flat in a modern block with good facilities in a prime mid-levels residential area.

21. Similarly, if one approaches the question by looking at the return on capital, and taking the current value of the flat at $2,000,000.00, a rental of $18,000.00 presents a return of just under 11%. Again this is not an unbeard of return on capital in Hong Kong on the property market.

22. Thus, whilst there is no evidence from a qualified valuer, in my judgment however one approaches the assessment of mesne profits the Plaintiff's claim for $18,000.00 per month is reasonable and accordingly I award it that figure.

23. The period for which the Defendant will pay mesne profits is from the 1st November 1988 to 15th July 1989 and I calculate it to be $153,000.00. In addition thereto the Plaintiff will have its costs of the assessment.

24. Dated this 27th day of November 1989.