HIGH YIELD LTD v. HOME ESSENTIALS (HK) LTD

LDPD 1638/2016

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPD 1638 OF 2016

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J U D G M E N T

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Background

1.  This case originated from an application for recovery of possession of the premises at Flat A, 25^th Floor & Roof thereof, Imperial Terrace, No. 356 Queen’s Road West, Hong Kong (“the Premises”) by the applicant as landlord on the ground that the respondent had failed to pay rent since 1January2016.

2.  By a tenancy agreement dated 5 January 2015 (“the Tenancy Agreement”), the Premises was leased to the respondent for the period from 1 January 2015 to 31 December 2017 at a rental of $40,000 per month inclusive of management fee, Government rates and rent.

3.  In the Notice of Application dated 8 August 2016, the applicant explained that the respondent owed a sum of $121,185.95 which included half month rental from December 2014 and outstanding revised security deposit and half of tenancy agreement stamping fee. In addition, the applicant was claiming cost/damages of $10,000 to re-paint the premises and $20,000 for agency leasing fee, both of which the applicant had to incur as a result of the early termination of the Tenancy Agreement. The applicant also claimed cost incurred for making this application.

4.  The respondent in response filed its Notice of Opposition on 16 August 2016 in which it disputed the amount claimed by the applicant by reference to the following:

	Amount Sought by Applicant	$121,185.95
Less:	½ August Rent*	$20,000.00
Less:	Security Deposit	$38,000.00
Less:	Value of Furniture Requested by Applicant on August 4, 2016	$63,112.00
	Balance Due to Applicant	$73.95

* According to the respondent, the keys to the Premises were handed back to the applicant on 15 August 2016 and therefore, the respondent should be liable for only half rent of that month.

5.  In gist, the respondent alleged that all those deductions were “proffered” by the applicant in the latter’s letter dated 4 August 2016.  Since the respondent’s business is home furniture retail and renting, the respondent suggested, its qualifications to assess the value are unrivalled. In addition, all the pricing given in the quotation are listed on websites and on display in the retail store of the respondent.

6.  In the Notice of Opposition, the respondent continued:

“Since the Applicant claims the entire month of August rental ($40,000), but the Applicant also demanded possession of the Premises, the option to terminate before the 18^th of August was preferred by Applicant. By handing over the keys and the Premises on the 15^th of August, the Applicant is only entitled to ½ the Monthly Rental for August, 2016 = $40,000 / 2 = $20,000.

Applicant’s letter of 4 August requests a charge of $15,000 for painting. However, the necessity to repaint the Premises did not result from any form of claim or dispute in the payment of the monthly rental. Since the Respondent resided in the Premises for 31.5 months, any repainting is under normal wear and tear.

Applicant asks that Respondent cover any and all costs associated with filing the Application. However, since Respondent is complying with the dates and terms, so filing of the Application was unnecessary. Therefore, Respondent is neither liable nor responsible for costs incurred.

......

Respondent will deposit the above reference $73.75 into the account of the Applicant on August 15, 2016 to satisfy any and all outstanding amounts.”

7.  Attached to this Notice of Opposition is a schedule entitled “Proposal for Derek Hinden” (“the Schedule”) which contained the table below. Derek Hinden (“Mr Hinden”) is the director of the applicant:

Room	Item	Brand	Retail	#	Total	Comments
Master Bedroom
	Helsinki Queen Gas Lift Bed	HE	13,500	1	13,500	Raised Storage; Brand New Item (less than 2 months)
	Queen Memory Foam Mattress	HE	7,200	1	7,200	New Item
Study
	White Tower Chair	HE	990	1	990	Existing Standard Item
Living Room
	Sienna Sectional Sofa	HE	24,000	1	24,000	Linen Fabric; Item is 15 months old
	Glass Coffee Table	HE	2,900	1	2,900	Nest of Tables (new)
	Oxford Professor Chair	HE	9,900	1	9,900	Black Leather Color (6 months old)
	Standing Light	HE	2,700	1	2,700	2 Years Old
	Noah Rug 200 x 300 in 100% New Zealand Wool	HE	15,000	1	15,000	2 Years Old
	Teak Side Table	HE	2,700	1	2,700	Reclaimed Teak; 2 years
Dining Room
	White Metal Bar Stools	HE	0	2	0	Leave at No Charge
	Warren Dining Bench	HE	3,500	0	0	Walnut legs with Emeila 2A Fabric
	Memo Dining Chairs	HE	0	0	0	Walnut legs with Emeila 2A Fabric
TOTAL		HKD		11	$78,890
Discount %					20%
Discount Amt					($15,778)
Total Due					$63,112
Date:	August 5, 2016
Delivery Date:	13-Aug-16
Address:	356 Queen’s Road W, 25A
Employee:	Christopher Exline
Authorised:	Christopher Exline

8.  The applicant’s letter dated 4 August 2016 as referred to in §5 above was also attached to the Notice of Opposition. The contents of the letter are recited below:

“Further to our last letter dated July 24^th 2016 and your subsequent failure to pay your rent for August as scheduled, this serves as formal notification of termination of your tenancy. In our last letter we informed you that you would need to vacate the property two weeks from the date of rental default (August 1^st 2016), out of courtesy we are giving you two weeks from today being Thursday August 18^th.

As if today your outstanding balance is HK$121,185.95. We shall be exercising clauses 3 and 14 of the Tenancy Agreement and pursue settlement via the Lands Tribunal if necessary.

Based on your payment history, in order to expedite the settlement process we propose the following financial remedy:

Your current outstanding balance is $121,185.95 less your security deposit ($38,000) equals $83,185.95.

We request that you leave the following furniture items in the apartment: the sofa, coffee table, bar stools (which you had already agreed to in lieu of the ones provided) the carpet, armchair, land and bed w/mattress). We will assign a value to these items based on your cost price – please provided this figure with proof to support it by Monday August 8^th. That figure will be discounted by $15,000, which is how much it will cost us to re-paint the apartment after you leave before the next tenant. This solution doesn’t cost you additional money, allows you to leave without incurring major moving costs and helps to reduce the outstanding amount that you owe us.

You will then settle the remaining balance in instalments of HKD 15,000/week, as you previously offered and promised to adhere to, until the full amount is paid off.

This proposal is not open to discussion. You have previously questioned the amount stated but we have records to support this. In light of your payment history, and commitments made to date, we believe this to be fair and reasonable. Should you fail to agree with the above proposal, or perform as stipulated, we shall file an application with the Lands Tribunal under the Landlord and Tenant (Consolidation) Ordinance Cap 7 under which the Tribunal can make orders for payment of rent, disposal of any property in the premises and payment of damages in respect of breach of the tenancy. We are confidant there will be a clear decision on this matter and any judgment against you will only result in additional costs. For this reasons we trust you will see the benefit in complying with the above and request your confirmation by tomorrow, Friday August 5^th.

Sincerely,

Derek Hinden, Director” (underline added)

9.  It is not disputed that Mr Christopher Exline (“Mr Exline”), Director of the respondent, did respond to the letter dated 4 August 2016. Instead of providing the cost price of the items to the applicant, Mr Exline referred to a similar proposal like the one as contained in his Notice of Opposition save that the discount near the bottom of the page was 10%, ie $7,889.

10.  Mr Hinden was dissatisfied.  He sent the following e-mail to Mr Exline at 15.15 on 5 August 2016:

“The terms of the offer are clear, we will assign a cost value to the furniture items remaining – supporting evidence needs to be provided to us by Monday. We will not consider anything more. To be clear, we are offering you this solution in order for you to reduce your outstanding debt and expedite achieving a final settlement. This is not our preferred course of action, frankly we would rather receive the money you owe us.

As for re-painting the apartment, this is a cost we are forced to incur as a result of your default on rental payments and subsequent tenancy termination therefore you are accountable for it. We have obtained a quote for this from our regular (long-standing) contractor as we have always ensured that the quality of our property be maintained.

You have until Monday August 8^th to provide the information request and accept our proposal or an application will be submitted with the Lands Tribunal. In the event that we do not arrive at an agreement you will be forced to vacate the premises by Thursday August 18^th as stated in our letter.....”

11.  Another e-mail from Mr Hinden to Mr Exline at 4.45 pm on 5 August 2016 is as follows:

“Once again you are attempting to talk yourself out of a situation that you are solely responsible for creating. It’s not an issue of assessing the value of the furniture, we’re simply telling you that we’re not prepared to give you more than your cost price for them (which is fair). As previously mentioned we’re attempting to help you find an expedited solution to this situation, we don’t actually want these items but see this as a quicker way of resolving this matter. That being the case there is no value (or justification) for us to pay any more. If you don’t see how this deal benefits you and insist on arguing this point so be it – I’ll follow through with what I’ve already started.

Read clause 3 of the tenancy agreement. We’ve always re-painted the apartment between tenancies and because we are forced to terminate your tenancy now it is a cost we will incur. As such we will claim it against you. Think it’s a stretch, we’ll see.

The only opportunity of reaching a settlement is per the terms I previously mentioned. The only thing we may make a concession on is the amount you pay towards the painting. If you agree to that and we can discuss realistic numbers then we may arrive at a solution otherwise please don’t bother contacting me again – I no longer have the desire or capacity to deal with you.” (underline added)

12.  An e-mail was further exchanged from Mr Exline who however refrained from providing cost price of the items to the applicant. It has been Mr Exline’s position that he should be better placed at assessing the value of the furniture since it was his stock and trade. He was referring to the prices as market value of the items stated in the schedule above which, he said, could be verified from the respondent’s website.

13.  Then the applicant filed its Notice of Application on 8 August as stated in his e-mail and so informed Mr Exline via WhatsApp on 11 August 2016 which also intimated that the applicant “will also act upon our final warning letter and notice of re-possession on August 18 (next Thursday) should this not get resolved beforehand”.  Mr Hinden also requested for viewing the Premises and WhatsApp messages were exchanged between the parties in the following days arranging the inspection on 15 August 2016. On 12 August 2016, nevertheless, Mr Exline suspected that the request for viewing was just an excuse for regaining access to the Premises.

14.  Then in the afternoon on 15 August 2016, Mr Hinden met Mr Exline at the lobby of the Premises as scheduled for showing the Premises to a prospective tenant.  Mr Exline just handed Mr Hinden a folder with the keys to the Premises therein, telling the latter that the respondent had moved out and that the furniture having been discussed was left there.  According to Mr Hinden, Mr Exline promptly left.

Appointment of Joint Expert & Disposal of Furniture

15.  Thus there was a dispute between the parties that whether there was an agreement that the respondent could leave those furniture items at the Premises to set off the rental in arrears. Another major issue was the value of the furniture items. There was a hearing before Deputy Judge Tracy Chan on 2 September 2016 when she ordered, inter alia, the parties to adduce expert evidence on valuation of the furniture in the Schedule by appointing a single joint expert, failing which the parties have to explain in writing as to the reason why such would not be practicable.

16.  On 13 September 2016, the applicant wrote to the Tribunal explaining the difficulty in finding an expert on valuation of furniture. The letter disclosed that Mr Exline would be willing to nominate the respondent to do it but it was obviously not desirable because of potential bias. The letter also stated:

“Most second-hand furniture is traded (among English speaking users) on websites such as Asiapat.com, Geoexpat.com and Craigslist. There is no official value for these items and price is determined by what buyers are willing to pay.

Based on our experience using these websites over the past 8 years, that is usually about 40—60% less than their original retail price.”

17.  On 22September 2016, the applicant informed the Tribunal that they had “received, and accepted, an offer to lease (the Premises) and require(d) that the Respondents furniture/decorative items (except for two bar stools which he agreed to leave at the start of the tenancy) be removed from the premises” because the lease would commence on 1 October 2016.

18.  The letter also referred to the respondent’s submission on 2 September 2016 that it had its own moving trucks and storage facility and therefore there should be no reason why the respondent could not accommodate such a request.

19.  This then became an Interlocutory Application filed by the applicant and the hearing took place before me on 30 September 2016. Mr Exline who appeared on behalf of the respondent maintained that the respondent had no objection to the applicant leasing out the Premises. Mr Exline further maintained the respondent’s position that the furniture items have now become owned by the applicant by reason of their agreement though the applicant denied. As the respondent no longer owned the furniture, the applicant would be at liberty to dispose of all the furniture left at the Premises. So I made my order accordingly.

Forfeiture of the Tenancy Agreement

20.  Clause 14 of the Tenancy Agreement provides that:

“... if the Rent and/or any charges payment by the Tenant hereunder or any part thereof shall be unpaid for seven (7) days after the same shall become payable (whether legally demanded or not) or if the Tenant shall commit a breach of any of the terms and condition herein contained, it shall be lawful for the Landlord at any time thereafter to re-enter the Premises whereupon this Agreement shall absolutely determine and the Landlord may deduct any loss or damage suffered by the Landlord as a result of the Tenant’s breach from the Security Deposit without prejudice to any other right of action or any remedy of the Landlord in respect of such breach of the Tenant.”

21.  Whereas it is theoretically possible for the applicant for the applicant to re-enter the Premises based on the above provision, the re-entry must be peaceful; otherwise, the applicant will be liable for prosecution under section 23 of the Public Order Ordinance. In addition, under section 119V(1) of the Landlord and Tenant (Consolidation) Ordinance, Cap 7, if the respondent does not leave the Premises and the entry is not justified, the applicant would be liable for unlawful eviction. Therefore, the fear of Mr Exline that the applicant would force into the Premises on viewing might be overemphasized. Indeed, Mr Exline himself reminded Mr Hinden via WhatsApp on 12 August 2016 that: “You cannot forcibly enter and reclaim the premises.”

22.  On the other hand, the forfeiture took notional effect on the applicant filing the Notice of Application on 8 August 2016 subject to the relief against forfeiture that may be granted by the Lands Tribunal under section 21F of the High Court Ordinance or otherwise. The relevant provisions of section 21F are:

“(3) if –

(a) the action does not cease under subsection (2); and

(b) the Court at the trial is satisfied that the lessor is entitled to enforce the right of re-entry or forfeiture,

the Court shall order possession of the land to be given to the lessor at the expiration of such period, but not being less than 7 days from the date of the order, as the Court thinks fit, unless within that period the lessee pays into court all the rent in arrear and such sum as the Court shall direct on account of the costs of the action.

(3A) ......

(4) The Court may extend the period specified under subsection (3) at any time before possession of the land is recovered in pursuance of the order under that subsection.

(5) Subject to subsection (6), if-

(a) within the period specified in the order; or

(b) within that period as extended under subsection (4),

the lessee pays into court-

(i) all the rent in arrear; and

(ii) the sum directed to be paid on account of the costs of the action,

he shall hold the land according to the lease without any new lease.”

23.  But in the present case, the order for possession has not been granted and the forfeiture was in effect suspended pending payment by the respondent.

Surrender by Operation of Law

24.  On the other hand, returning the keys to the Premises by Mr Exline to Mr Hinden on 15 August 2016 did not amount to delivering vacant possession of the Premises when the furniture items in the Schedule were left inside the Premises against the wish of the applicant. The conduct of the parties must unequivocally amount to an acceptance that the tenancy has ended.

25.  By reviewing the correspondence and WhatsApp exchanges between the parties since 4 August 2016, there was never an agreement as alleged by Mr Exline. It is right that Mr Hinden, on behalf of the applicant, had made an offer for the respondent to leave behind the furniture items as per the applicant’s letter of 4 August 2016, but it requires the items to be at cost value on which the respondent had never agreed. Instead, Mr Exline counter-offered the value of furniture in the Schedule at retail value subject to a discount of 10% on 5 August 2016 (which was later revised to 20% in the respondent’s Notice of Opposition dated 10 August 2016 and upon trial). In law, the counter-offer was equivalent to rejection of the offer by the applicant.

26.  On 12 August 2016, Mr Hinden also reminded Mr Exline by WhatsApp that: “I hope you are taking the necessary measures to move your stuff out by Thursday (ie 18 August 2016)”.

27.  Thus whether the returning of the keys to the applicant took effect as a surrender of the Tenancy Agreement by operation of law? Such an issue was considered in Oastler v Henderson (1877) 2 QBD 575, Artworld Financial Corp v Safaryan [2009] EWCA Civ 303 and more recently in Padwick Properties Limited v Punj Lloyd Limited [2016] EWHC 502 (Ch)  and Levett-Dunn & Others v NHS Property Services Limited [2016] EWHC 943 (Ch) where a number of propositions were enunciated:

(1)  Accepting back the keys without more will always be equivocal. As a matter of practicality and common sense, one party has to hold the keys to prevent an absurd situation in which they are passed back and forth because neither party wants to risk it being suggested that it has made an admission by holding them.

(2)  Any act of the landlord which is consistent with its rights under the lease, such as entering the premises to inspect or to repair them, will not in itself give rise to a surrender because, by definition, it is not inconsistent with the lease continuing.

(3)  Any further act of the landlord which amounts to protecting or preserving the property, such as taking security measures or doing necessary repairs, will not in itself give rise to a surrender because such self-help, necessary to preserve the landlord's interest in the value of his property, is a reasonable response to the tenant's evinced intention not to perform the obligations of the tenancy.

(4)  Any further act of the landlord referable to the landlord's seeking to re-let the premises will not necessarily give rise to a surrender by operation of law, as it is no more than what the landlord might reasonably be expected to do in the circumstance for the potential benefit of all parties. The landlord must be entitled to seek to mitigate the damage caused in reality (even if not yet technically in law so long as the lease remains extant) by the tenant's abandoning the lease, by seeking to obtain another tenant, without thereby losing his rights against the original tenant if he is unable to do so.

28.  Thus, as regards the latter, the respondent’s suggestion that the applicant immediately posted the Premises as available for lease to the general public through a variety of internet websites as a furnished option using the furniture left behind is neither here or there. I accept the Mr Hinden’s submission that he was only trying to mitigate its loss and this effort appears to be fruitful because, as stated in §17 above, a replacement tenant has been found at the same rent of $40,000 per month inclusive of management fee, Government rates and rent. A new tenancy agreement dated 28 September 2016 for a term of two years commencing from 1 October 2016 has been produced as evidence.

29.  The purported surrender of the Tenancy Agreement by the respondent by mere returning the keys on 15 August 2016 with the furniture remaining at the Premises was without consent of Mr Hinden or the applicant. I do not consider the respondent had delivered vacant possession of the Premises to the applicant on 15 August 2016. See, for example, Winsor Air Cargo Centre Limited v E-Commerce Logistics Limited, HCA 1465/2003 (unreported, dated 10 June 2004). I do not accept the argument by Mr Exline on behalf of the respondent that the applicant had accepted his repudiation by conduct as early as on 15 August 2016. See also [235.459] of Halsbury’s Law of Hong Kong, Vol 36, LexisNexis, 2014. The argument by the respondent that the applicant had not raised any issue or inquiry with the respondent after 15 August 2016 is neither here or there. In my view, the acceptance of the repudiation of the Tenancy Agreement by the applicant only occurred on 22 September 2016 when the applicant found the replacement tenant.

30.  In spite of the above, I note the applicant is content to claim the rental in arrears since 1 January 2016 to 15 August 2016 which is in the sum of $101,185.95.

Value of Furniture as Set-off

31.  Notwithstanding the lacking in agreement, Mr Hinden accepted that the furniture left behind by the respondent comprises valuable items. Mr Hinden further accepted that he had the furniture removed to storage pending sale instead of disposing them as rubbish although as at the date of trial, the purported sale was not yet successful.

32.  In this regard, I consider it is equitable to allow credit for the value of the furniture to set off part of the rentals in arrears by the respondent. While it is regretful that the parties cannot find an expert for valuing the furniture, the Tribunal had been experienced in valuing similar items particularly when dealing with compensation for losses under the Lands Resumption Ordinance, the latest being Yip Kui t/a Tai Wo Trading Co. v. The Secretary for Transport, LDMR 52 of 2000 (unreported, dated 18 September 2002).

33.  I have no evidence to dispute the value of the various furniture items in the Schedule as new and therefore the retail values suggested by the respondent are accepted in full. On the other hand, I agree with the Mr Hinden that second-hand furniture cannot be traded at as much as 80% or 90% as suggested by the respondent.  I further agree with Mr Hinden that second-hand furniture can only be sold about 40—60% less than their original retail price. See §15 above. This is consistent with the view of Lloyd R Manning, who, in his book Valuing the Small Business, Todd Publishing, Inc, 1993, stated at p50 that:

“THE 50% OF VALUE THEORY

Although not official, there is what is generally known among equipment buyers and sellers as the ‘Fifty Percent Rule’. It states that used equipment, on a global basis is worth fifty percent of its new replacement cost. This is an average taken for all equipment in a shop or factory, or wherever, the old and the new, the modern and the obsolete. That is fifty percent of present, no original replacement cost. To apply this method, sum up today’s cost to buy all of the equipment new. The present value is one half of that total.”

34.  Furthermore, I am not persuaded those furniture items in the Master Bedroom in the Schedule can be regarded as brand new when rental had fallen in arrears since January 2016 and the applicant had threatened to proceed with court proceedings. In any event, the respondent had not tried to mitigate his loss, if any, by agreeing to remove the valuable items on seeing the letter from the applicant dated 22 September 2016 knowing by then that the applicant did not want the furniture.

35.  Thus, in the absence of evidence to the contrary, I consider the 50% rule applies and determine the value of the furniture in the Schedule at $78,890 ÷ 2 = $39,445 say $40,000.  

Other losses

36.  In addition, the applicant claims all costs, expenses and other outgoings so incurred because of the default of the respondent. The applicant relies on Clause 3 of the Tenancy Agreement which states:

“... If the Tenant shall fail to pay the Rent within fourteen (14) days from the due date, the Landlord shall have right to institute appropriate action to recover the Rent and all costs, expenses and other outgoings so incurred by the Landlord in relation to such action shall be debt owed by the Tenant to the Landlord and shall be recoverable in full by the Landlord.”

37.  For the purpose of this claim, the applicant produced at Invoice issue by J’s Design House dated 2 October 2016 as follows:

ITEM	DESCRIPTION	QTY	UNIT PRICE	AMOUNT
(1)	To touchup & fix door handles.	1	350.00	350.00
(2)	To touchup & repaint wall, window sill-board & skirting.	1	12,000.00	12,000.00
(3)	To fix towel rail.	1	350.00	350.00
(4)	To repaint all the walls on roof.	1	8,500.00	8,500.00
(5)	To supply & replace toilet seat cover.	1	800.00	800.00
(6)	To provide labour & necessary material to fix existing damaged siding on roof.	1	3,000.00	3,000.00
(7)	To add grouting in bathroom & kitchen.	1	850.00	850.00
(8)	To supply & replace existing damaged parts for toilet flush water tank.	1	900.00	900.00
(9)	To cart away existing cabinet doors & fridge on roof.	1	500.00	500.00
(10)	To paint internal cabinet on roof.	1	2,000.00	2,000.00
(11)	To cart away existing damaged solid wood siding on roof.	1	1,600.00	1,600.00
			Total:	30,850.00

38.  At trial, Mr Hinden conceded that item (11) should be disregarded because it was caused by the typhoon as reported by the respondent. As a result of that, the applicant is claiming $29,250 instead but the respondent contends that items (4), (6), (9) and (10) are also related to the effect of the typhoon. In spite of this difference of opinion between the parties, I do not need to resolve it for the reasons below.

39.  Apart from this, the applicant also claims $20,000 for agency fee, $1,512 for storage of the furniture, $2,500 for the movers, $600 of cleaning etc.

40.  It is the applicant’s contention that the applicant would not have incurred any of these expenses if the respondent had not defaulted on rental payments, forcing it then to look for a replacement tenant before the Tenancy Agreement expires on 31 December 2017, ie some 16 months to go. The applicant submits these costs are items that were required, or requested by the new tenant.

41.  This is an obvious case resulted from a breach of contract by the respondent. Chapter 26 of Chittyon Contracts, 32^nd Edition, 2015 (“Chitty”), provides a comprehensive view of the law on damages for breach of contract. On the question of what damages are generally recoverable for breach of contract, para 26-110 of Chitty refers to the time-honoured rule in Hadley v Baxendale (1854) 9 Ex 341, at 354-355, where Alderson B said:

“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either as arising naturally, i.e., according to the natural course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. ...”

42.  Chitty at para 26-111 states that the principles laid down in Hadley v Baxendale have been interpreted and restated by the Court of Appeal in 1949 in Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd [1949] 2 KB 528 and by the House of Lords in 1967 in Koufos v C. Czarnikow Ltd (The Heron II) [1969] 1 AC 350 and continues:

“The combined effect of these cases may be summarised as follows: A type or kind of loss is not too remote a consequence of a breach of contract if, at the time of contracting (and on the assumption that the parties actually foresaw the breach in question), it was within their reasonable contemplation as a not unlikely result of that breach.”

43.  Also, by reference to Chitty para 26-032, the applicant is entitled to claim incidental losses, namely, reasonable costs incurred in mitigating the loss caused by the respondent’s breach or in otherwise dealing with the consequences of the respondent’s breach. Illustration of examples includes the recovery of the cost of substitute performance by a third party, the recovery of storage charges after the respondent refused to accept goods etc.

44.  However, by Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61 (HL), a claimant will not recover even losses that were not unlikely to occur in the usual course of things if a defendant cannot reasonably be regarded as assuming responsibility for losses of the particular kind suffered, and in particular, if such losses, viewed at the time when the contract was made, could be extensive, unpredictable, or beyond the parties’ control. In The Achilleas, Lords Hoffmann and Hope (with whom Lord Walker agreed) emphasised the underlying basis of remoteness, in that a defendant is only held liable for loss which it was the parties’ intention (objectively ascertained) that he should bear, as loss for which he has “assumed responsibility”, or which falls within the scope of his duty.

45.  The above principles were recently considered by the Hong Kong Court of Final Appeal in Richly Bright International Limited v De Monsa Investments Limited (2015) 18 HKCFAR 232. At §34, Mr Justice Ribeiro PJ and Mr Justice Fok PJ cited with approval Lord Walker’s following statement in The Achilleas at §69.

“...the underlying idea – what was the common basis on which the parties were contracting? – seems to me essential to the rule in Hadley v Baxendale as a whole. Businessmen who are entering into a commercial contract generally know a fair amount about each other's business. They have a shared understanding (differing in precision from case to case) as to what each can expect from the contract, whether or not it is duly performed without breach on either side. No doubt they usually expect the contract to be performed without breach, but they are conscious of the possibility of breach.”

46.  Again, in the absence of evidence to the contrary, I accept the amounts being claimed by the applicant at §§34-36. However, by reference to Clause 12 of the Tenancy Agreement, the respondent was supposed to:

“At its own cost and expenses to clean the blinds as and when necessary and to keep in good and tenantable repair and condition the said premises including all doors, glass window, shutters, locks and the sanitation and water apparatus and air-conditioning units hereof together with furniture fixtures and fitting (fair, wear and tear excepted) throughout the tenancy ...” (underline added)

47.  Mr Hinden conceded that most of the items in §34 were caught by “fair, wear and tear excepted” and in such regard, I consider that they are not compensable to the applicant because these are expenses which the respondent has never “assumed responsibility”, or which falls within the scope of his duty. To borrow the words fromLord Reid in Heron II at p 385 :

“In cases like Hadley v Baxendale or the present case it is not enough that in fact the plaintiff's loss was directly caused by the defendant’s breach of contract. It clearly was so caused in both. The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.”

48.  More particularly, this kind of expenses would become necessarily incurred by the applicant after the respondent had occupied the Premises for some 2 years and 7.5 months.

49.  On the other hand, I would allow the claim for the agency fee in the sum of $20,000 as well as the $600 for cleaning. I consider these two items fall under Chitty para 26-032 and, for instance, accord with the fees incurred in obtaining new premises in the case of compulsory acquisition as explained in Harvey v Crawley Development Corporation [1957] 1 All ER 882; [1957] 1 QB 485. Here, I note in particular that the applicant could only be able to secure a replacement tenant at the same rent of $40,000 per month payable by the respondent before.

50.  I would also allow $1,512 for storage of the furniture and $2,500 for the movers resulting from the breach. It would be unreasonable for the applicant to secure prospective purchasers of the furniture items within a short time when it only got my order for disposal on 30 September 2016. The respondent’s challenge that the description in “Standard Self Storage Agreement” submitted by the applicant does not accord with the full list of furniture in the Schedule is neither here or there if certain items had to be removed and the amount incurred is reasonable.

Conclusion

51.  In view of the above, the amount of rental in arrears together with damages resulting from the early repudiation of the Tenancy Agreement should be calculated as follows:

	Rental in Arrears Sought by Applicant	$121,185.95
Less:	½ August Rent	$20,000.00
Less:	Security Deposit	$38,000.00
Less:	Value of Furniture	$40,000.00
	Balance of Rental Due to Applicant	$23,185.95
Plus:	Agency Fee	$20,000.00
	Storage of Furniture	$1,512.00
	Cost of Movers	$2,500.00
	Cleaning	$600.00
	Total:	$47,797.95

52.  On this monetary claim, therefore, I order the respondent to pay the applicant the sum of $47,197.95.

Costs

53.  In addition, I determine the costs to the applicant in the sum of $800.