SHINY BRIGHT INTERNATIONAL LTD v. IBO JEWELRY MANAGEMENT LTD AND ANOTHER

HCA 693/2016

[2018] HKCFI 912

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.693 OF 2016

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ASSESSMENT OF DAMAGES

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1.  The 1^st defendant is a tenant of the plaintiff who has breached the tenancy agreement dated 17 October 2013 in respect of the premises known as Ground Floor, No. 42 Lee Garden Road, Hong Kong (“the Tenancy Agreement”) (“the Shop”) by repudiating it on 13 February 2015, which repudiation was accepted by the plaintiff.

2.  The term of the Tenancy Agreement was 2 years commencing on 17 September 2013 and ending on 16 September 2015.

3.  The 2^nd defendant was the guarantor who by a Deed of Guarantee dated 17 October 2013 guaranteed the 1^st defendant’s due performance of, and liability under, the Tenancy Agreement.

4.  An Amended Interlocutory Judgment on Admission was duly entered against both defendants on 23 May 2016 with damages to be assessed.

5.  This is the assessment of damages.

6.  The 1^st and 2^nd defendants act in person but do not appear today to contest.  In fact, since 23 June 2016 they have been absent in all 4 of the directions hearings held herein.  The affirmation of service deposed that two sealed copies of the Notice of Appointment for Assessment of Damages dated 20 November 2017 have both been duly posted on 21 November 2017 to respectively the address for service of the 1^st defendant and the usual or last known address of the 2^nd defendant and a supplemental affirmation confirmed that these notices have not been returned.  I am satisfied that the 1^st and 2^nd defendants have due notice of today’s assessment hearing.  I therefore proceed with this assessment in their absence.

7.  The plaintiff calls Ms. Cheung Mei Ling Cynthia, its Property Investment Assistant, as a witness whose witness statement filed on 6 July 2017 is admitted as her evidence in chief.  As the defendants do not appear to contest and I see no reason otherwise, I accept her evidence in full.

8.  Her evidence is that the plaintiff and the 1^st defendant agreed to adjust the rent downwards from HK$330,000 a month to HK$300,000 a month for a period of 6 months between 17 December 2014 to 16 June 2015.

9.  However, despite this adjustment, the 1^st defendant failed to pay the rent since 17 December 2014.

10.  Then by a letter dated 13 February 2015, the 1^st defendant notified the plaintiff its decision to unilaterally terminate the Tenancy Agreement early and in the same letter returned the keys of the Shop.  The plaintiff accepted this repudiation by its solicitors’ letter dated 18 February 2015.

11.  It is trite that a repudiation, when accepted, is an act of breach terminating the agreement.  I therefore find that on 13 February 2015 the Tenancy Agreement was terminated by breach, and the plaintiff is entitled to recover any sum due under the Tenancy Agreement prior, and any damage and loss subsequent, to that date.

SUMS DUE BEFORE 13 FEBRUARY 2015

12.  I accept Ms. Cheung’s evidence that the sums set out in paragraphs 13 to 18 below were due under the Tenancy Agreement as on 13 February 2015 but were unpaid.  I assess and award them in the amounts as follows.

Rent

13.  Rent for 1 month (17 December 2014 to 16 January 2015) at the adjusted rate of HK$300,000 and for another 28 days (17 January 2015 to 13 February 2015; HK$300,000 x 28/31) apportioned as HK$270,967.74, totalling HK$570,967.74, were unpaid.

14.  To be deducted therefrom was the deposit in the sum of HK$520,000 paid by the 1^st defendant under Clause (1) Section IX of the Tenancy Agreement.  I therefore assess under this head the balance in the sum of HK$50,967.74.

Government rates

15.  Under Clause (2) in Section II of the Tenancy Agreement, government rates payable in respect of the Shop were to be paid by the 1^st defendant.

16.  Government rates in the sum of HK$33,450 were not paid by the 1^st defendant from 1 October 2014 to 31 December 2014.  The same between 1 January 2015 to 13 February 2015 (44 days) apportioned as HK$16,353.33 (HK$33,450 x 44/90) were also not paid.  They total to HK$49,803.33.

Interest up to 13 February 2015

17.  Under Clause (1)(b) in Section VIII of the Tenancy Agreement (“the Interest Clause”), the 1^st defendant was liable to pay to the plaintiff interest at 3% above the best lending rate of HSBC “if the Rent and/or any other sums payable hereunder or any part thereof shall be in arrears for fourteen (14) days after the same shall become payable… from the date upon which the same shall have become payable until the date of payment…”.

18.  The plaintiff claims such interest up to 13 February 2015 for the above unpaid rent and government rates in the total sum of HK$16,091.89.  Detailed calculations according to the said rate in respect of such sums from their respective due dates were shown in the Table exhibited to the witness statement of Ms. Cheung.  I am satisfied that the calculations are accurate and I award the said sum.

Interest on unpaid remainder of deposit not allowed

19.  Pursuant to the Interest Clause, the plaintiff further claims interest from 17 October 2013 to 13 February 2015 on the balance of deposit in the sum of HK$470,000 not paid by the 1^st defendant. Such interest was calculated to be HK$49,961.64.

20.  Under Clause (1) of Section IX, the 1^st defendant shall

“… on the signing hereof deposit with the Landlord the sum or sums specified in Part V of the Schedule (“the Deposit”) to secure the observance and performance by the Tenant …which Deposit and other deposits (if any) paid by the Tenant shall be held by the Landlord throughout the currency of this Tenancy Agreement free of any interest to the Tenant with the right for the Landlord … to deduct therefrom …”.(my emphasis).

21.  Thus, quite clearly under the above clause, the Deposit was to be deposited with the plaintiff to be held by it as a security free of interest.  That notwithstanding, Mr. Lam for the plaintiff submits that the Deposit is required to be “paid” to the plaintiff and therefore should trigger the interest liability under the Interest Clause.

22.  The Interest Clause, in my view, is applicable to sums owed to, and the beneficial interest of which are meant to pass to, the plaintiff, whether for its own use or for the discharge of certain liabilities relating to the Shop that the plaintiff has to discharge but the 1^st defendant is liable to pay under the Tenancy Agreement, like government rates for example.  In my view, it is not applicable to the deposit of a security to be held by the plaintiff free of interest for a specific purpose and for a specific time, such as the Deposit.

23.  I therefore find that the 1^st defendant is not liable to pay the said claimed interest in the sum of HK$49,961.64.

DAMAGE AND LOSS AFTER 13 FEBRUARY 2015

24.  It is well established that a landlord accepting a tenant’s repudiatory breach is entitled to damages to be determined by general contractual principles.  Such damages would generally include rent and any other amount stipulated in the tenancy agreement for the remaining term which the landlord would have received but for the repudiation, subject to a duty to mitigate loss (See, for example, Sano Screen Manufacturers Limited v J & R Bossini Trading Limited [2000] 3 HKC 216, Wing Siu Company Limited v Goldquest International Limited HCA4145/2001 18 August 2006).

25.  The duty to mitigate is not an onerous one as the landlord is not required to do anything other than in the ordinary course of business.  That usually would entail that he takes such steps as are reasonable to re-let the vacant premises at market rent (Wing Siu Company Limited v Goldquest International Limited HCA4145/2001 supra).

Plaintiff’s claim

26.  The plaintiff now claims

(a)  Loss of profits totalling HK$2,222,142.86 being the rent that it would otherwise have received for the remainder of the term, i.e. from 14^th February 2015 to 16 September 2015, calculated as follows :

i.  At the adjusted rent of HK$300,000 a month for 4 months and 3 days from 14 February 2015 to 16 June 2015, totalling HK$1,232,142.86; and

ii.  At the rent of HK$330,000 a month for 3 months from 17 June 2015 to 16 September 2015, totalling HK$990,000.

(b)  Government rates totalling HK$87,314.07 that it would otherwise have received from the 1^st defendant for the same remainder term, calculated as follows :

i.  From 14 February 2015 to 31 March 2015 (46 days out of 90) : HK$33,450 x 46/90 = HK$17,096.67;

ii.  From 1 April 2015 to 30 June 2015 : HK$38,000; and

iii.  From 1 July 2015 to 16 September 2015 (78 days out of 92) : HK$38,000 x 78/92 = HK$32,217.40.

(c)  Reinstatement fee in the sum of HK$29,000.

(d)  Advertisement fee in the sum of HK$69,600.

Plaintiff has mitigated its loss

27.  In paragraphs 10 to 20 of her witness statement, Ms. Cheung deposed to the various steps and efforts of the plaintiff taken immediately after the 1^st defendant’s repudiation to attempt to re-let the Shop, and the various enquiries received.

28.  In gist, in March to August 2015 the plaintiff has placed advertisements in 2 local newspapers for a total of 25 days and has attached posters outside the Shop to inform passers-by that the Shop was available for let.

29.  The plaintiff received 4 telephone enquiries, 2 of them from real estate agencies.  The plaintiff also received a written but unsigned offer from a large local estate agency company but learned upon follow-up telephone calls that the prospective tenant was no longer interested.

30.  From 24 August 2015 to 18 September 2015, the plaintiff made arrangements for an estate agent from Hong Kong Property to station himself inside the Shop from 2:30 to 5:30 pm to market the Shop.

31.  In these advertisements, posters and enquiries, the plaintiff has not set any base rent.

32.  One prospective tenant did make an offer but was rejected by the plaintiff as the rent offered was HK$30,000 a month only.

33.  In the valuation report from Memfus Wong Surveyors Limited filed on 19 July 2017, it was opined that the market rent of the Shop as on 14 February 2015 for a term of 2 years exclusive of rates, government rent and management fee was HK$187,000.00 a month.  It is therefore very clear that the plaintiff was reasonable in rejecting the offer mentioned in paragraph 32 above.

34.  All these efforts to re-let the Shop during the remaining term of the Tenancy Agreement were unsuccessful.  It was only until in November 2015 that the plaintiff was able to let out the Shop for a short term tenancy of 3 months at the rent of HK$103,000.00.

35.  Having considered the plaintiff’s steps and efforts, I find that the plaintiff has taken reasonable steps to attempt to re-let the Shop so as to mitigate its loss, albeit unsuccessful.

Loss of profits and government rates

36.  The plaintiff therefore is entitled to claim the rent it would otherwise have received for the remainder term as its loss of profit, as set out in paragraph 26(a) above.  For the same reason, the plaintiff is entitled to claim as loss the government rates that it would otherwise have received from the 1^st defendant but for the repudiation, as set out in paragraph 26(b) above. 

Reinstatement fee

37.  Under Clause (24) in Section III of the Tenancy Agreement, the 1^st defendant was obligated to reinstate the Shop. Ms. Cheung’s evidence is, which I accept, that HK$29,000 was incurred by the plaintiff for which the 1^st defendant had agreed to pay, and did try to pay by a cheque.  The cheque however was dishonoured and this sum is still owing.

38.  I therefore hold that the 1^st defendant is liable to pay this reinstatement fee of HK$29,000.

Advertisement fee

39.  As mentioned, the plaintiff has placed advertisements in 2 local newspapers for a total of 25 days. The advertisement fee, as verified by documents, were HK$69,600 in total.

40.  Where expenses are incurred in reasonably attempting to mitigate loss, even when the mitigation steps are unsuccessful, such expenses are recoverable as loss (§26-102, Vol.1, 32 ed., Chitty on Contracts).

41.  I therefore allow this sum of HK$69,600.

Summary

42.  Having thus assessed, the 1^st and 2^nd defendants are liable to pay the plaintiff’s claim for :

(a) sums due as on 13 February 2015 in the total sum of HK$116,862.96;

(b) damages for 1^st defendant’s breach in the total sum of HK$2,408,056.93;

(c) interest on the said sum of HK$116,862.96 at the contractual rate of best lending rate of HSBC plus 3% from 14 February 2015 to today and at judgment rate thereafter until payment in full; and

(d) interest on the said sum of HK$2,408,056.93 at prime rate plus 1% from the date of writ to today and at judgment rate thereafter until payment in full.

43.  I also order on nisi basis that the plaintiff shall have the costs of this assessment with certificate for counsel, which will be made absolute after 14 days from today unless there is an application to vary.

44.  I thank counsel for his assistance rendered to the court.