ZETA ESTATES LTD v. THE 8th ESTATE WINERY LTD AND ANOTHER

DCCJ 946/2016

[2018] HKDC 789

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 946 OF 2016

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JUDGMENT

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1.  This case concerns the failure on the part of the 1^st defendant to reinstate the leased premises known as All That Workshop No 5 on 3^rd Floor and Flat Roof of Harbour Industrial Centre, No 10 Lee Hing Street, Hong Kong (the “Premises”) upon its return and to pay for its outstanding rent, management fee, rates and interests on late payments.

2.  As no notice of intention to defend had been given by the defendants, by a final and interlocutory judgment dated 4 May 2016, it was adjudged against the 1^st and 2^nd defendants that:-

(a)  The sum of $610.72 together with interest thereon at the rate of 8% per annum from 1 March 2016 to the date hereof and thereafter at judgment rate until payment;

(b)  Damages for remedial and reinstatement costs to be assessed;

(c)  Damages for the 1^st defendant’s breach of the tenancy agreement dated 2 November 2013 to be assessed;

(d)  Damages for the 2^nd defendant’s breach of the letter of guarantee dated 16 October 2013 to be assessed; and

(e)  Costs.

3.  By an amended order dated 16 January 2017, it was ordered, inter alia, that the Plaintiff do have leave to set aside the final and interlocutory judgment dated 4 May 2016 against the 2^nd defendant.

4.  This is therefore an assessment of damages payable by the 1^st defendant to the plaintiff and a trial of the action against the 2^nd defendant.

5.  The defendants basically put the plaintiff to strict proof on liability and/or damages, save that the 2^nd defendant disputed on the obligation to reinstate certain items. 

Procedural history

6.  The procedural history of the case can be summarized as follows:-

(a)  By an order dated 22 November 2017, it was ordered by Registrar Ho, inter alia, that this action be set down on 13 June 2018 at 9:30 am.  The representative of the 1^st defendant attended the hearing in person and was informed of the trial date;

(b)  By a separate order dated 22 November 2017, it was ordered by Registrar Ho, inter alia, that this action be set down on 13 June 2018 at 9:30 am. The representative of the 2^nd defendant attended the hearing in person and was also informed of the trial date;

(c)  By an order made at the PTR (only concerned the 2^nd defendant) on 13 April 2018, it was ordered by Her Honour Judge Winnie Tsui that the trial shall be commenced on 13 June 2018 at 9:30 am.  The 2^nd defendant was absent in the hearing; and

(d)  By the 9^th affirmation of service of Ng Siu Tong dated 12 June 2018, it was affirmed that the hearing bundle, chronology, the plaintiff’s opening submissions with authorities, all marked with the trial date, were served on the registered address of the 1^st defendant and the last known address of the 2^nd defendant.  It was also affirmed that the order dated 13 April 2018 by Her Honour Judge Winnie Tsui was served on the 2^nd defendant.

7.  Both defendants did not appear on the first day of the trial.  Counsel for the plaintiff invited the court to proceed with the trial in the defendants’ absence.  By reason of the above, I am satisfied that both defendants had been notified of the trial, and their conduct demonstrated their lack of intention to participate further in these proceedings.  I am therefore prepared to proceed with the trial in the absence of the defendants pursuant to Order 35 rule 1(2) of the RDC: Lionway Investments Ltd v Stack Electronics Asia Ltd (unreported; HCA 1272/2011; Recorder Pow SC; 8 August 2013).

8.  On the second day of the trial, clarification was sought from the legal representatives of the plaintiff as to its evidence concerning quantum.  I granted leave to the plaintiff to file and serve an affirmation providing further evidence on the issue of quantum.  I also granted leave that the affirmation filed by the plaintiff be admitted without calling the deponent.

The plaintiff’s case

9.  I have considered the evidence as contained in the witness statement of Au Wing Yee, an assistant sales and leasing manager of the plaintiff, and her live evidence given in the trial.  I accept her evidence, which is in line with documentary evidence.  I also note that the documentary evidence adduced before me is inherently plausible and consistent with one another.  I am satisfied, on balance of probabilities, that the plaintiff has proved its case.  In particular, I make the following findings:-

(a) At all material times, the plaintiff was and is the landlord and registered owner of the Premises, and the 1^st defendant was the tenant of the Premises.  The 2^nd defendant was a director of the 1^st defendant up to 1 December 2017 who executed a letter of guarantee dated 16 October 2013 in favour of the plaintiff (the “Guarantee”);

(b) By a tenancy agreement dated 2 November 2013 entered into between the plaintiff and the 1^st defendant (the “Tenancy Agreement”), the Premises was leased to the 1^st defendant for industrial use as workshop and ancillary accommodation for non-domestic use for a term of 2 years from 1 October 2013 to 30 September 2015.  As to the reinstatement of the Premises upon the delivery of the vacant possession to the plaintiff, the Tenancy Agreement provides:-

“At the expiration or sooner determination of this Agreement to deliver up to the Landlord vacant possession of the Premises in its original state and in such good repair and condition as aforesaid together with any additional erection alterations or improvements which the Tenant may with the consent of the Landlord as aforesaid have made upon or in the Premises and which the Landlord in his absolute discretion may be willing to retain without payment of any compensation for such additional erection alterations or improvements. The Tenant shall be entitled to remove its own trade fixtures subject to making good all damage to the decoration within the Premises and within the building caused by such removal to the satisfaction of the Landlord.” (clause 2(cc))

“…… At the expiration or sooner determination of this Agreement, the Tenant shall at his costs and expenses reinstate the Premises as the Landlord may direct to a bare shell condition and make good all damage as may be caused thereby to the satisfaction of the Landlord.” (clause 1 of the Third Schedule)

(c) By the Guarantee, the 2^nd defendant guaranteed and undertook to the plaintiff the due payment of the rent together with rates, management fees and all other charges and outgoings payable by the 1^st defendant in respect of the Premises and the due performance and observance of the terms and conditions of the Tenancy Agreement by the 1^st defendant.  In default thereof, the 2^nd defendant shall assume primary liability, to an unlimited extent, of and shall on demand pay to the plaintiff the outstanding payment payable by the 1^st defendant in respect of the Premises including payment in arrears and the amount of loss and damages that may be suffered by the plaintiff arising from the failure of the 1^st defendant to perform and observe any of the terms and conditions of the Tenancy Agreement;

(d) On 29 September 2015, the 1^st defendant vacated the Premises and sent a notice of vacancy of the Premises to the plaintiff’s agent, Chinachem Agencies Limited, without the plaintiff’s consent;

(e) Upon re-entering the Premises, the plaintiff found that the 1^st defendant failed to keep the Premises in good repair and condition and to reinstate the Premises into its original bare shell condition;

(f) Further, the 1^st defendant has also been late in paying rent, management fees and rates since March 2015 as set out in §12 of the Statement of Claim;

(g) Despite requests by the plaintiff, the 1^st defendant has failed to pay to the plaintiff the rent, management fees, rates and interests in the amount of $86,250.72.  Having set off the security deposit placed by the 1^st defendant with the plaintiff in the amount of $85,640, there is still an outstanding balance due to the plaintiff in the amount of $610.72;

(h) The plaintiff has also incurred the costs of reinstatement in the total sum of $142,000 (having deducted cost of reinstating the floor tiles and utilities of the toilet of the Premises).  The reinstatement carried out by the plaintiff concern matters the 1^st defendant is obliged to carry out under the Tenancy Agreement; and

(i) In the circumstances, the plaintiff has suffered a total loss of $142,610.72.

Applicable legal principle

10.  It is summarized in Wing Siu Co Ltd v Goldquest International Ltd (unreported; HCA 3183 & 4145/2001; Master de Souza; 18 Aug 2006) at §§7-8 that:-

“An aggrieved landlord’s entitlement to damages for wrongful repudiation of a tenancy agreement following general contractual principles is well established …… He can legitimately anticipate in the measure of damages to be awarded, such damages as reflecting the rental, service charges, rates and reinstatement cost stipulated in the tenancy and therefore payable were the agreement to be permitted to run its full course, subject always to a duty to minimize his loss …… He is, accordingly, expected to act reasonably and to take such steps as are necessary to re-let the vacant premises at a market rent …… However, it falls upon the errant party to establish that mitigation has not taken place …… The duty to mitigate is not onerous as the landlord is not required to do anything other than in the ordinary course of business ……”

Damages

11.  The defendants have not disputed the plaintiff’s calculation as to the outstanding rent, management fees, rates and interests.

12.  The 2^nd defendant only disputed certain items concerning the re-instatement of the Premises.  Based on the findings above, after deducting the cost of reinstating the floor tiles and utilities of the toilet of the Premises, the remaining reinstatement carried out concern matters the 1^st defendant is obliged to carry out under the Tenancy Agreement.  The defendants also do not dispute the cost for each item of reinstatement.

13.  The defendants do not suggest that the plaintiff has failed to mitigate its loss.  I am satisfied that the plaintiff has reasonably mitigated its loss, including its reinstatement of the windows of the Premises to aluminium frames (at a lower cost) rather than the original iron frames.

Disposition

14.  By a final and interlocutory judgment dated 4 May 2016, it was adjudged, inter alia, that the 1^st and 2^nd defendants do pay the plaintiff the sum of $610.72 together with interest thereon at the rate of 8% per annum from 1 March 2016 to the date hereof and thereafter at judgment rate until payment.

15.  By an Amended Order dated 16 January 2017, it was ordered, inter alia, that the plaintiff do have leave to set aside the final and interlocutory judgment dated 4 May 2016 against the 2^nd defendant.  In other words, the interlocutory and final judgment against the 1^st defendant remains.

16.  I therefore grant judgment in favour of the plaintiff against the 2^nd defendant, being liable jointly and severally with the 1^st defendant, in the sum of $610.72 with interest thereon at the rate of 8% per annum from 1^st March 2016 to the date hereof and thereafter at judgment rate until payment.

17.  I also grant judgment in favour of the plaintiff against the 1^st defendant and 2^nd defendant, being liable jointly and severally, in the sum of $142,000. 

18.  I order that interest of the said sum of $142,000 be paid by the defendants at prime rate plus 1% per annum from the date of the writ to the date of judgment, and from then onwards at judgment rates until payment.

19.  I also order that costs of this action, including all costs ordered to be reserved, be paid by the defendants to the plaintiff.  I have summarily assessed the amount of costs payable by the defendants to the plaintiff at $164,329.

20.  I thank Ms Pang for her assistance.