TAM KOK HUNG AND ANOTHER v. WONG WING

HCMP 2470/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 2470OF 2012

(ON AN INTENDED APPEAL FROM DCCJ NO. 4211 OF 2009
& DCCJ NO. 624 OF 2010 CONSOLIDATED)

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BETWEEN

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J U D G M E N T

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Hon Chu JA (giving the judgment of the Court) :

1. The defendant applies for leave to appeal against the Judgment of Deputy District Judge Wilson Chan given on 6 July 2012. Leave to appeal was refused by the trial judge on 19 October 2012.

The relevant facts

2.  By a tenancy agreement dated 3 April 2008 (“the Tenancy Agreement”), the plaintiffs let the suit property (“the Property”) to the defendant for a term of two years commencing from 15 April 2008 at the monthly rent of $16,500.  The Tenancy Agreement contained a break clause (“the Break Clause”) exercisable after the first 12 months of the two-year term by either party giving one month’s notice of his intention to do so.

3.  Shortly before the end of the first 12 months of the two-year term, the plaintiffs and the defendant reached an agreement (“the Oral Agreement”), which was evidenced by a written note, to reduce the rent to $12,500 commencing from 16 April 2009.  The defendant was not personally involved and did not speak to the plaintiffs in the negotiations leading to the Oral Agreement.  They were conducted between the plaintiffs and the defendant’s friend or agent, Mr Leung Ho Yin. 

4.  On 24 July 2009, the plaintiffs contracted to sell the Property with vacant possession.  Completion was scheduled for 4 December 2009.  By their solicitors’ letter dated 30 July 2009, the plaintiffs gave notice of intention to terminate the tenancy.  By another letter dated 31 August 2009, the plaintiffs’ solicitors requested the defendant to deliver up vacant possession by 14 October 2009.  The defendant did not vacate the Property until 14 April 2010.  As a result, the plaintiffs were unable to complete the sale of the Property and were sued by the purchasers for damages for breach of contract (District Court Action No. DCCJ624/2010).  Interlocutory judgment on liability was entered against the plaintiffs with damages to be assessed.  By Judgment dated 24 March 2011, the amount of damages that the plaintiffs were liable to the purchasers was assessed to be in the sum of $346,677.  As this was higher than the amount proposed by the purchasers in their sanctioned offer, the plaintiffs were further ordered on 27 June 2011 to pay enhanced interest on the judgment sum, indemnity costs and interest on costs.  The indemnity costs with interest were later agreed at $222,525.

5.  In DCCJ 4211/2009, the plaintiffs sue the defendant for breach of the Tenancy Agreement and claim damages and indemnity for the damages, interest and costs that they were liable to pay to the purchasers. The defendant disputes the claim, contending that it was agreed between the plaintiffs and Mr Leung that, apart from the reduction of rent, the Break Clause would not be exercised during the period when the new rent was payable.  The defendant also contends that the loss represented by the sums payable to the purchasers is too remote to be recoverable.  The defendant further counterclaims for the return of the rental deposit.

6.  By the Judgment handed down on 6 July 2012, the trial judge found as a fact that the agreement not to exercise the Break Clause did not exist. The trial judge further rejected the defence case that the plaintiffs’ loss is too remote.  After giving credit for the rental deposit held by the plaintiffs, he entered judgment for the plaintiffs in the sum of $573,835 and for further damages, being the costs incurred by the plaintiffs in defending the purchasers’ claim to be assessed, together with interest and costs.  The counterclaim was ordered to be dismissed.

The relevant legal principle

7.  Section 63A(2) of the District Court Ordinance, Cap. 336, provides:

“Leave to appeal shall not be granted unless the judge, the master or the Court of Appeal hearing the application for leave is satisfied that—

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

8.  “Reasonable prospect of success” means that the prospect of  the intended appeal succeeding must be “reasonable”, being more than “fanciful” but without having to be “probable”. 

The first ground of appeal

9.  The defendant puts forward four grounds of appeal.  The first ground relates to the trial judge’s finding that there was no agreement between the plaintiffs and the defendant that they would not exercise the Break Clause during the period that the new rent was payable.  In essence, the defendant says that there had been insufficient and wrong evaluation of the evidence.

10.  The finding in question is a finding of primary fact.  It is trite that the appellate court will only intervene with a trial judge’s conclusion on the facts when it is satisfied that it is plainly wrong, otherwise it should defer to the trial judge's conclusion even if in some doubt as to its correctness: Ting Kwok Keung v. Tam Dick Yuen & Another (2002) 5 HKCFAR 336 at para. 42.

11.  As the negotiations leading to the Oral Agreement were conducted by Mr Leung on behalf of the defendant, the trial judge is correct to look to Mr Leung’s evidence to see whether the defendant’s case is made out.  Since Mr Leung was not cross-examined, the focus will have to be on his witness statement which forms his evidence-in-chief.  Plainly, Mr Leung said nothing about having raised with the plaintiffs, let alone having agreed with them, that the Break Clause should not be exercised in the remaining 12 months of the tenancy.

12.  The defendant seeks to argue that paragraph 3 of Mr Leung’s witness statement (i.e. “除非譚先生願意減租，汪小姐才會考慮再租一年；譚先生即時表示願意減租至港幣12,500元以挽留汪小姐,…”)  shows that the agreement between Mr Leung and the plaintiffs includes the defendant staying for another year and not exercising the Break Clause.  We do not agree.  The words of Mr Leung do not suggest anything had been said about the Break Clause.  In addition, there was no elaboration by Mr Leung on this part of his evidence.

13.  The defendant also takes issue with the circumstantial evidence that the trial judge had taken into account in coming to the finding in question. It is said that the trial judge erred in not having regard to the defendant’s explanations on them and had further failed to rule on the credibility of the plaintiffs and of the defendant.  In our view, it is implicit from the trial judge’s reasoning (paragraph 20 of the Judgment) that he did not accept the defendant’s evidence and explanations, particularly with regard to the written note. 

14.  Ultimately, critical to the consideration of this issue is whether there is any evidential support for the agreement alleged by the defendant.  Given that Mr Leung’s evidence made no reference to the Break Clause, it simply cannot be said that the trial judge’s finding that there was no agreement not to exercise the Break Clause is plainly wrong. 

The second and third grounds

15.  The second and third grounds of appeal relate to the issue of remoteness of the plaintiffs’ loss in respect of the sums paid to the purchasers.  The trial judge referred to Chitty on Contracts (30^th edition), Vol. 1 para.26-054 and adopted it as the test for this issue, namely,

“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 …”

16.  While accepting the “not unlikely result” is a correct test, the defendant complains that there was an over-simplification of treatment of the law by the trial judge.  Several cases were cited and discussed in the written submission of Mr Tsui for the defendant. 

17.  In Hong Kong, the position with regard to remoteness of damages for breach of contract is authoritatively stated by the Court of Final Appeal in Chen & Another v. Lord Energy Limited (2002) 5 HKCFAR 297 at paras.20 to 30.  For the present purpose, it is sufficient to note that the Court of Final Appeal confirmed that the “not unlikely” test is a correct test for ascertaining what was within the reasonable contemplation of the partiesand that it is used to denote “a degree of probability considerably less than an even chance but nevertheless not very unusual and easily foreseeable” (per Koufos v. C. Czarnikow Ltd (“The Heron II”) (1969) 1 AC 350 at para. 383 A-B).  In our view, the trial judge did not err in adopting the “not unlikely” test.  

18.  The defendant further complains about the trial judge’s application of the test to the facts of the case. It is said that the loss in question did not arise from the natural course of things and that no knowledge of the special circumstances could be imputed to the defendant. 

19.  In the present case, what is at issue is whether it is within the reasonable contemplation of the defendant, as a tenant, that (i) the plaintiffs may during the term of the tenancy sell the Property with vacant possession; and (ii) if she fails to deliver up vacant possession upon the plaintiffs exercising the Break Clause to terminate the tenancy, the plaintiffs’ purchaser may sue the plaintiffs for damages.

20.  In concluding that the plaintiffs being sued by their purchasers is within the defendant’s reasonable contemplation as a not unlikely result of her refusal to vacate the Property after the plaintiffs had sold the Property, the trial judge had actedupon the evidence of the defendant under cross-examination (paragraph 24 of the Judgment).  Notably, the defendant accepted that it was possible for a landlord to sell his property during the period when either party could terminate the tenancy, and that if the tenant refused to move out after the landlord had given notice of termination, the landlord might face litigation brought by the landlord’s purchaser.  As held in Chen v. Lord Energy Limited at para.21, what is within the reasonable contemplation of the parties is a question of fact depending on the circumstances of the case and the information available to the parties at the relevant time.  On the basis of the evidence of the defendant, the trial judge is fully entitled to conclude that the purchasers’ claim against the plaintiffs is within the reasonable contemplation of the defendant.

21.  In his submission (paragraph 30), Mr Tsui referred to a variety of possibilities that the defendant as a tenant could also have understood “from a common sense angle”.   We do not consider the submission advances the defendant’s case.  Firstly, there is no evidential basis for saying that these were the defendant’s understanding.  Secondly, to the extent it is sought to be argued that what the defendant in cross-examination accepted would happen are no more than possibilities, what has to be proved is that it is within the reasonable contemplation of the parties that the event and the resultant loss might happen: see Chen v. Lord Energy Limited at para. 31. Thirdly, with regard to what the plaintiffs, faced with the claim from the purchasers, could or should have done, this aspect had been considered by the trial judge in the context of the duty to mitigate (see paragraphs 29 and 30 of the Judgment).  Put simply, there was no material before the court to enable it to say that the plaintiffs had acted unreasonably in not accepting the sanctioned offer.  What is now contended in paragraph 30(d) of the defendant’s submission was not or not properly raised before the trial judge.         

The fourth ground

22.  The fourth ground of appeal relates to the dismissal of the counterclaim.  The defendant argues that the trial judge erred in not adjudicating whether the plaintiffs were entitled to forfeit the rental deposit and further was wrong in dismissing the counterclaim when credit was given for the rental deposit in computing the judgment sum.

23.  In our view, the position is simply this. The trial judge had found the defendant to be in breach of the Tenancy Agreement by failing to deliver up vacant possession after being served with notice of termination. It follows that the plaintiffs were entitled to forfeit the rental deposit by way of liquidated damages: see clause 7 of the Tenancy Agreement.  It also follows that the counterclaim for the return of the rental deposit must fail and has been rightly dismissed.  In dismissing the counterclaim, the trial judge had adjudicated on the issue of forfeiture of the rental deposit in the plaintiffs’ favour. In computing the damages payable by the defendant to the plaintiffs, credit should be given forthe rental deposit, being liquidated damages already received by the plaintiffs.  There is no inconsistency between giving credit for the rental deposit and the dismissal of the counterclaim.

Conclusion

24.  For the reasons above, the defendant’s intended appeal has no reasonable prospect of success.  The application for leave to appeal is therefore dismissed with costs to the plaintiffs to be taxed if not agreed.

25.  As the application is totally without merit, we further order that the defendant may not under Order 59 rule 2A(7) of The Rules of the High Court, Cap. 4A request the determination to be reconsidered at an oral hearing inter partes.