XCHRX BRILLIANT WELL DEVELOPMENT LTD. v. J & R BOSSINI INTERNATIONAL LTD.

HCA 19509/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 19509 OF 1998

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J U D G M E N T

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1. The Plaintiff is the owner of a shop ("the premises") located on the ground floor of the Imperial Hotel building in Nathan Road, Kowloon. The Defendant was the tenant of the premises under a tenancy agreement for a period of two years commencing on 15 April 1997.

2. The parties executed a written tenancy agreement ("the Agreement") by which the rental was to be $385,000.00 per month exclusive of rates and charges. By a supplemental agreement between the parties entered into in March 1998 the rental for the period 1 April - 30 September 1998 was reduced to $330,000.00 per month exclusive of rates and charges.

3. The material parts of the Agreement included the following provisions :-

Section II Clauses 1, 2 3 and 4(a)

4. The Defendant was to pay promptly when due rental and charges for air-conditioning, rates, taxes, outgoings, water, electricity and telephone.

Section II Clause 5

5. If the Defendant should fail to make any payment required to be made under the Agreement the Plaintiff was entitled to levy daily interest at the rate of 2.5 percent per month from the due date to the date of payment.

Section V Clause 22

6. Any willful suspension of business without the Plaintiff's knowledge or consent would constitute a material breach entitling the Plaintiff to determine the tenancy forthwith.

Section VIII Clause 1

7. If the Defendant was in arrears of rental or any other payment due or were to suspend business without the Plaintiff's consent or were to breach or non-perform in respect of any of its obligations under the Agreement, the Plaintiff would be entitled to re-enter and terminate the lease without prejudice to the Plaintiff's right to forfeit the deposit and enforce any other rights of action that it may have arising out of the Defendant's breach or non-observance or non-performance and without prejudice to its power to deduct any amounts owing from the deposit.

Section IX Clause 1

8. The Plaintiff may terminate the Agreement and forfeit the deposit upon any breach or non-observance or non-performance by the Defendant without prejudice to its other remedies under the Agreement.

Section XI Clause 3

9. Any condonation by the Plaintiff would not act as a waiver to the enforcement of its rights under the Agreement.

10. It is not in dispute that the Defendant did not pay rental or outgoings for the months of September, October and November 1998.

11. The Plaintiff says that despite persistent demands the Defendant delayed payment until an arrangement was made for the Plaintiff's messenger to collect the overdue rental at the premises on 7 November 1999. During the night of 6/7 November 1999 the Defendant vacated the premises without the Plaintiff's knowledge or consent. On 7 November 1999 the Plaintiff received a faxed letter from the Defendant stating that the premises were no longer required and would be returned to the Plaintiff. On 9 November 1999 the Defendant returned the keys to the premises to the Plaintiff.

12. The Defendant says by affirmations filed on its behalf that it has reached an oral agreement with the Plaintiff that the premises were to be surrendered on 6 November 1999 and that the deposit would be applied towards rental due up to that date. At the hearing, counsel for the Defendant conceded that by its action in vacating the premises on 6 November the Defendant had repudiated the Agreement and that the Plaintiff was entitled to damages.

13. At the hearing it was common ground that liability was not in issue and that the only matter then outstanding was the quantum of damages for breach.

14. Upon receiving possession of the premises, the Plaintiff took immediate steps to re-let the property as soon as possible. The Plaintiff says that it placed the property with numerous estate agents seeking a rental of $250,000.00 per month. The Plaintiff wanted, so far as possible, to find a new tenant within two weeks. The placements yielded two offers on 18th and 20th November. The Plaintiff accepted one of these and entered into a licence agreement commencing on November 1999 with Cheer Pacific Limited for a three month licence at a licence fee of $120,000.00 per month. That licence was subsequently renewed for a further three months until May 2000.

15. The Plaintiff therefore quantifies damages as the difference between the rental under the Agreement and the licence fee. They also claim the agency fee paid.

16. The Defendant says that damages should be assessed only after a full hearing of the issues and the opportunity to cross-examine the Plaintiff's witnesses.

17. The Plaintiff applied for summary judgment. At the hearing Master Jones made an order in terms of the application and ordered that final judgment be entered for the Plaintiff in the sum of $1,214,283.10 and costs. The amount is made up of the rent differential plus charges for rates and electricity. The Defendant now appeals against that Order.

18. The basis of the Defendant's appeal is that the Plaintiff's acceptance of the licence fee was unreasonable and suspicious. The Defendant has produced a report from a surveyor which purports to show that the premises could have been let for a much higher amount and that the rental value was $278,000.00 per month in November 1998 and $267,000.00 in February 1999. The Defendant also casts aspertions on the Plaintiff's wish to re-let within two weeks and to achieve a desirable tenant mix in the building.

19. The Defendant concedes that it ought to be liable in any event for a sum of damages of $508,549.80 being first, the rental differential between the rent under the Agreement and the surveyor's higher estimate figure, and secondly the agency fee, rates and electricity claimed. The Defence says that any further claim for damages should be assessed only after hearing full evidence.

20. The crux of the Defendant's argument is whether the surveyor's figures should be accepted as amounts that the Plaintiff could and should have achieved given due effort and diligence, and whether the Plaintiff's licence terms were reasonable given all the circumstances.

21. I have been referred to the case of Banco de Portugal v. Waterlow 1932 AC 452 and to the passage at page 506 which deals with reasonableness. In the context of this case I am satisfied that the Plaintiff acted appropriately in the emergency situation which the Defendant caused and that the remedial measures taken are not unreasonable simply because the Defendant suggests that a higher figure might have been possible, particularly since the circumstances of that possibility are themselves uncertain.

22. It has not been asserted that the Plaintiff acted in bad faith by knowingly or deliberately accepting a lower figure just to enable it to seek damages from the Defendant. Indeed, given the undisputed fact that no rental had been paid for three months and that the Christmas and lunar new year seasonal shopping periods were fast approaching, it would not be difficult to accept that the Plaintiff would be anxious to re-let as soon as possible.

23. The Defendant proceeds on the basis that the surveyor's valuation represents the actual market value of the premises. It is submitted by counsel that the absence of contradictory evidence from the Plaintiff must lead the Court to accept the figures as correct. I am unable to accept that contention. The report makes it clear that the figures assume a willing landlord and a willing tenant. There is no evidence of a willing tenant at that level. Indeed the Plaintiff's placement with eight estate agents resulted in only two offers, the higher of which was accepted. A closer scrutiny of the comparables offered by the surveyor do not give rise to the certainty that he seeks to convey in his figures for the premises. It is necessary to compare like with like. Thus, for example, rentals for two shops in the Hyatt Hotel dropped by about 17 percent in the two weeks from 15 May - 1 June 1998; rentals for two shops in the Holiday Inn Golden Mile Hotel show a difference of about 25 percent for the identical rental period commencing on 1 July 1999; whilst rentals for two shops in Mirador Mansion show a difference of about 34% between February and July 1999. There is also no indication of whether any rent free periods were built into the rentals shown in paragraph 8.03 of the report or indeed if there were any prolonged periods of vacancy prior to the commencement of the leases shown. It is for the Defendant's expert to have clarified these issues in his report, not for them to be discovered only through cross-examination.

24. In the circumstances I am driven to the conclusion that the Plaintiff acted reasonably in seeking a new tenant or licensee and that it was not unreasonable for it to accept the eventual licensee when it did and at the figure agreed upon. I therefore am unable to conclude that any triable issue has been raised that requires further investigation or that damages should be assessed after a trial.

25. It follows that I reject the argument of the Defendant that interest should not be ordered on the damages assessed. By Section II Clause 5 of the Agreement the parties agreed that the Plaintiff should be entitled to interest in respect of any payment due under the Agreement. The damages ordered arise directly from the Defendant's failure to comply with its obligations under the Agreement. By Section VIII Clause 1 the Plaintiff is entitled to enforce its rights of action arising out of any breach or non-observance or non-performance of the Defendant. In my view the damages are encompassed by those provisions. The rate of interest ordered by Master Jones is lower than that provided for by the Agreement but counsel for the Plaintiff submits that the Plaintiff does not seek any interest beyond the Order.

26. The Defendant has paid a sum of $1,439,437.83 into Court as a condition for the stay pending appeal ordered by Acting Registrar Chan. I make an order nisi that the sum now found due by the Defendant to the Plaintiff should be paid out to the Plaintiff. Any amount in excess of that sum should be returned to the Defendant.

27. I further make an order nisi that the costs of this appeal should be to the Plaintiff.