CONTENDER LTD v. GLOBAL SONIC LTD

HCA 2894/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 2894 OF 2003

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J U D G M E N T

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1. This is an assessment of damages following the entry of final and interlocutory judgment against the defendant on 15 September 2003 with costs of the action on an indemnity basis.  The suit was undefended throughout.  No notice of intention to defend was ever filed.  To their credit, the plaintiff, through its solicitors, has kept the defendant informed of the progress of the action, serving notices of the various hearings upon the defendant. 

2. A brief statement of the relevant facts of the plaintiff’s undisputed case is in order.  The plaintiff as landlord and the defendant as tenant entered into a tenancy agreement for the leasing of premises known as Shop G3, Ground Floor, Hotel Miramar Shopping Arcade, Tsim Sha Tsui, Kowloon.  The tenancy agreement was exhibited in these proceedings as P1.  Pursuant to the tenancy dated 1 September 2001, the plaintiff agreed to let and the defendant to rent the premises in question for business purpose for three years beginning on 1 September 2001 and ending on 31 August 2004. 

3. It can be seen from the tenancy agreement that the parties have undertaken various separate obligations.  Specific to the defendant were the obligations to pay rent, air-conditioning charges, management fees, promotional contribution, and rates.  In addition, there was also an obligation upon the defendant to reinstate the premises following the conclusion of the tenancy by effluxion of time

4. The rent reserved in the tenancy agreement covered two periods.  For the first two years, the defendant was required to pay a monthly rental of $277,708.00.  At the commencement of the third year, the reserve rent stipulated would increase to $310,000.00 per month.  The relevant provision in the tenancy agreement is Clause 3(1), Part 1 of the 3rd Schedule. 

5. There was, as I have indicated, also a requirement on the part of the defendant to pay an air-conditioning charge of $6,086.30 per month.  That is similarly covered under Clause 3(2), Part 2 of the 3rd Schedule.  The duties to meet management fees, promotional contribution and rates are to be discovered in Clause 3(2) of the tenancy agreement and the relevant portions of the 3rd Schedule. 

6. As happened, the defendant failed to pay rates since July 2002; rent, management fee and air-conditioning outgoings since January 2003; and promotional contribution from December 2002. 

7. In February 2003, the defendant ceased to carry on business at the suit premises and purported to return the keys of the premises to the plaintiff on 15 February 2003.  This was without the prior consent of the plaintiff.  On 27 February 2003, the plaintiff, under cover of letter, informed the defendant that it viewed the defendant’s conduct as tantamounting to a repudiation of the tenancy agreement, which the plaintiff accepted. 

8. This present suit then began on 4 August 2003.  As indicated earlier, default judgment was obtained for final and interlocutory judgment against the defendant. 

9. In support of its case, the plaintiff has produced a number of exhibits and called two witnesses, PW1 Fung Leung-kai Sammy, and PW2 Wong King-sang.  Mr Fung was, at the material time, a senior leasing officer of Henderson’s Real Estate Agency Limited, acting as agent handling tenancy agreements on behalf of the plaintiff.  I believe he has since left the employ of the company but has returned to continue with his evidence before me.  Neither witness was cross-examined.  They gave clear and concise evidence - in particular, Mr Fung - of the extent of the damages suffered by the plaintiff and the steps taken following the repudiation of contract by the defendant to mitigate loss. 

10. I accept their evidence as being credible and trustworthy.  I shall, of course, deal with the question of mitigation in due course.

11. The law is straight-forward.  Upon a breach of contract, the innocent party is entitled to recover such damages as would fairly represent the loss of bargain and any consequential loss that are not too remote as flowing from that breach.  The premises were eventually re-let under a new tenancy agreement to PCCW HKT Limited and the plaintiff therefore seeks to recover the shortfall in rental which it would have received in full had the defendant continued to abide by its obligation under the three-year tenancy agreement until the contractual expiry date. 

12. If any authority is required for the principle of assessment in this case, one needs only to refer to the Hong Kong Tenancy Law, 4th Edition, 2003 at page 167 which Mr Yim, Counsel, has drawn my attention to in his written submissions.  It reads:

“Once the tenant has left possession of the premises, there can be no mesne profits but can the landlord sue for damages for breach of the covenant to pay rent, that is, loss of the net rent of the balance of the term of the lease?  Where the lease has ended because the landlord has justifiably treated the tenant’s conduct (e.g. repeated failure to pay rent and/or abandonment of the premises) as a repudiatory breach which is accepted, such loss is recoverable:  the landlord should mitigate his loss by re-letting at a market rent within a reasonable time claiming any shortfall between the old and the new rents, plus any other consequential loss as damages for breach of contract.” 

13. The premises, as I have said, were fairly soon after these events re-let to PCCW HKT Limited on 18 June 2003.  The new tenancy arrangement can be seen in Exhibit P3.  A customary rent-free period of two months was given to the new tenant. 

14. I am satisfied that the plaintiff has acted expeditiously, reasonably and fairly in mitigating its loss see Exhibit P5.  In any event, failure to mitigate is an onus which befalls the person who raises it - usually the defendant in this case - but the defendant has not appeared.  In any event, it is incumbent on the court when assessing damages, to ensure that only such reasonable damages as naturally flowing from the breach of contract should be awarded.  To do otherwise would not strike a fair balance between the parties, however ill-advised it was of the defendant to have caused the breach in the first place. 

15. I find that the plaintiff has satisfied the court that timely and proper steps have been taken to mitigate its loss.  The fact that a tenant was found in PCCW HKT Limited before too long was certainly indicia of such mitigating conduct on its behalf.

16. The new tenant has contracted to pay rent of $190,000.00 per month for the first year and, for the second year, $210,000.00 per month.  Air-conditioning charges under the new contract would come to $5,778.00 per month.  Management fees payable by PCCW HKT Limited amounts to $4,279.20 each month.   Promotional contribution would be equivalent to 1 per cent of the monthly rent and that is what the new tenant would have to pay.  Rates of $26,400.00 per quarter chargeable by Government is also an obligation undertaken by PCCW HKT Limited. 

17. Before embarking on an assessment of the damages which the defendant should be held accountable for, I think it is apt now to deal with the question of reinstatement.  As I have said, the evidence adduced by the plaintiff adequately and clearly covers what occurred. 

18. The plaintiff has had to engage two contractors to reinstate the premises before it was re-lettable to a new tenant.  Exhibit P4 collectively provides proof of the expenses that the plaintiff has had to incur to effect reinstatement.  That comes to a total sum of $54,876.00.  I adjudge that to be payable.

19. In dealing with the other heads of damages touching upon the failure to pay rent, rates, management fees, air-conditioning charges, and promotional contribution, I would refer to the very clear and concise table that counsel has provided in his written submission.  I have looked at the figures and the calculation seems to me to be correct and consistent with the evidence.  Accordingly, I adopt, without any alteration, the calculation that counsel has provided to the court.  That table I will now repeat for the purpose of this judgment. 

20.  Rent

Rent from 28 February 2003 to 31 August 2004 will be calculated thus: 

[HK$277,708.00 x (1/28 + 6 months) + HK$310,000.00 x 12 months] - [the new rent, i.e. HK$190,000.00 x (29/30 + 9 + 1/31) months + HK$210,000.00 x (1 + 30/31) months] = HK$3,083,144.63.

21. Rates 

For rates from 28 February 2003 to 1 July 2003, the calculation is as follows:

[HK$9,250.00 x (1/28 + 1 month) + HK$8,800.00 x (3 + 1/31 months)] = HK$36,264.23.

22. Management Fees 

Management fees from 28 February 2003 to 1 July 2003:

[HK$4,279.20 x (1/28 + 4 + 1/31 months)] = HK$17,407.66.

23. Air-conditioning Charges 

Air-conditioning charge from 28 February 2003 to 1 July 2003:

[HK$6,068.30 x (1/28 + 4 + 1/31 months)] = HK$24,685.68.

24. Promotional Contribution 

This item covers a period from 28 February 2003 to 31 August 2004 and may be calculated thus:

[HK$2,777.08 x (1/28 + 6 months) + HK$3,100.00 x 12 months] - [HK$1,900.00 x 12 months + HK$2,100.00 x (1 + 30/31) months] = HK$27,029.40. 

25. In sum, the plaintiff should therefore be entitled to damages of $3,243,407.60.  This amount, of course, is made up of the various amounts that I have given above including the costs of reinstatement mentioned earlier. 

26. That is the amount of damages that I will assess in this case as payable by the defendant.  However, I understand that the plaintiff is holding cash deposit amounting to $903,451.74 and the plaintiff intends to set that off against the judgment ordered herein.  The amount that I adjudge the defendant to have to pay the plaintiff upon assessment is HK$3,243,407.60.  This amount is, of course, over and above the judgment previously entered against the defendant in favour of the plaintiff. 

27. The defendant not having appeared in these proceedings, the plaintiff, through Miss Chan its solicitor, has indicated that it would be prepared to accept by way of costs for the entire suit, including the costs of the assessment, a sum of $47,294.00.  This amount, of course, is less than the costs as set out in the bill which was submitted to me yesterday by fax. 

28. The plaintiff is clearly entitled to the costs of the assessment.  Costs of the action had previously been ordered.  To avoid taxation, I therefore order that the plaintiff shall have its costs against the defendant for the entire suit including the cost of assessment in the sum of $47,294.00.

29. There is, of course, also the question of interest that should be paid on the amount that I have assessed.  The tenancy agreement between the parties to this suit provides for 1 per cent over prime for default of paying rent.  I consider that a fair order would be that the plaintiff shall have interest on the sum adjudged today at judgment rate from the date of the service of the writ until full payment.