HUGE TREASURE LTD v. JADESPRING LTD

HCA 1875/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1875 OF 2011

_________________________

_________________________

AND

HCA 1880/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1880 OF 2011

_________________________

_________________________

(Consolidated pursuant to the Order of Master R. Yu
dated 30 November 2011 with HCA 1875/2011 being the leading action)

_____________

D E C I S I O N

_____________

The Application

1.  This is the hearing of the defendant’s summons taken out on 14 October 2014 seeking leave to:

a. File and serve a supplemental witness statement of Kie Chuen Pui Rita regarding any continuing loss suffered by the defendant as a result of a House of The Mount Austin, No. 8 Mount Austin Road, The Peak, Hong Kong ("Property") being left vacant since 14 September 2013 and the steps taken by the defendant to mitigate its loss.  Such supplemental witness statement shall be filed one month before the trial commences;

b. File and serve a joint supplemental expert report to give expert evidence on the market valuation of the rental of the Property in October 2014.  Such joint supplemental expert report shall be filed one month before the trial commences.

2.  The plaintiff opposes these applications and seeks costs against the defendant.

3.  However, one day before this hearing, in the afternoon, the defendant made another application by way of summons dated 23 January 2015 to amend the Re-amended Defence and Counterclaim.  The significant amendment for the present application is paragraph 35 where the defendant counterclaims the loss of rental up to 30 September 2020.

4.  The parties are legally represented.[1]

The Fact

5.  The following are the brief facts of this case:

(1) On 4 October 2011, the parties entered into a tenancy agreement ("Tenancy Agreement") in relation to the Property.

(2) The parties also entered into a further supplemental tenancy agreement in relation to the Property on 4 October 2011.

(3) Under the Tenancy Agreement, the defendant agreed to let and the plaintiff agreed to rent the Property.

(4) The dispute relates to allegations of repudiation and termination of the Tenancy Agreement with respect to the option to renew clauses ("Renewal Clauses"): see clause (7) in Part 3 of the Schedule to the Tenancy Agreement.  On 26 October 2011, the plaintiff’s former solicitors issued a letter to the defendant alleging that the defendant had repudiated the Tenancy Agreement, which repudiation the plaintiff purportedly accepted.

(5) On 2 November 2011, the plaintiff delivered vacant possession of the Property to the defendant.  On that same day, the defendant’s solicitors issued a letter to the plaintiff’s former solicitors, in which the defendant stated that the unilateral delivery of vacant possession by the plaintiff amounted to repudiation, which was accepted by the defendant.

(6) Under the Renewal Clauses in the Tenancy Agreement, the first envisaged renewal date is 4 October 2014, and the second envisaged renewal date is 4 October 2017.

(7) Subsequent to the plaintiff’s delivery of vacant possession, the defendant managed to enter into a tenancy agreement with a third party in respect of the Property.  The new tenancy was however terminated by the third party on 13 September 2013, and the Property has been left vacant thereafter.

The Issues of Dispute

6.  The main issues of dispute between the parties are which party was in breach of the Tenancy Agreement and whether the innocent party is entitled to damages and if so entitled, whether or not it has mitigated the loss.

7.  This morning the defendant has applied for amendment of the Re-amended Defence and Counterclaim. This issue can be disposed of briefly.

8.  This application is on the basis that the plaintiff’s expert has made the report on the basis that the plaintiff would exercise its right of options, making the full length of the contract up to 2020.  The plaintiff opposes this amendment on the ground that the defendant has no legal basis to plead the proposed amended case because the plaintiff has not pleaded that it would or it had exercised its right of renewal of the options.  The defendant simply has no right to claim for damages for the options, which right belongs to the plaintiff only.

9.  Both counsel agree that the expert report cannot replace the pleadings.  This is the trite law for civil pleadings.  The expert evidence is to support the parties’ pleaded cases.  The plaintiff agrees that it has not pleaded in its Statement of Claim for the loss of the right of the renewal options in the Tenancy Agreement.  The plaintiff further indicates that it will make an application for amending the pleadings in due course.

10.  However, the defendant is not entitled to rely upon the plaintiff’s error to make an application for leave to make the proposed amendment.  The application has to be dismissed.

11.  I shall now proceed to consider the defendant’s other applications for the supplemental witness statement and the supplemental expert report.

The Defendant’s Reasons for Application

12.  The plaintiff and the defendant exchanged witness statements on 23 May 2014.  Pursuant to the Order dated 24 September 2014, a supplemental witness statement of Kie Chuen Pui Rita was filed on behalf of the defendant on 17 October 2014 deposing to the continuing loss suffered by the defendant as a result of the Property having been left vacant since 14 September 2013, and the steps taken by the defendant to mitigate its loss.

13.  Pursuant to the Court’s Order dated 21 March 2014, the respective experts instructed by the plaintiff and the defendant are required to prepare and file a joint report with the Court opining on the following issues:

a. The market valuation of the rental of the Property in question from the date of the termination of the Tenancy Agreement to 2 December 2011 (i.e. the date before the new tenancy started on 3 December 2011).

b. The market valuation of the rental of the Property in question when it was being leased to the new tenant for the period from 3 December 2011 to 13 September 2013.

c. The market valuation of the rental of the Property in question from 14 September 2013 (i.e. the date following the expiry of the new tenancy referred to in paragraph (b) above) to the end of the 3-year term under the Tenancy Agreement (i.e. 3 October 2014).

14.  The defendant invites this Court to exercise its discretion to grant leave for it to file a further supplemental witness statement one month before the trial commences and to direct the parties’ experts to file a joint supplemental expert report.

15.  The defendant submits that in assessing the quantum of damages claimed by a party, the Court should be apprised of what has actually happened (e.g. whether and if so to what extent loss has been suffered by the party, and whether the party has reasonably mitigated its loss), rather than rely simply on estimates or projections.  This is particularly so when the relevant evidence is, or is expected to become, available, relying upon the majority decision of the House of Lords in Golden Strait Corp. v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353, 371.

16.  The defendant submits that factual evidence as to the continuing loss suffered by the defendant as a result of the Property being left vacant since 14 September 2013 (which, on the defendant’s case, was caused by the plaintiff’s breach of the Tenancy Agreement) and the steps taken by the defendant to mitigate its loss are relevant to the Court’s assessment of damages at trial.  The defendant therefore seeks leave to file further evidence one month before the trial commences so that the Court can be apprised of the most up-to-date evidence which will quantify the defendant’s loss and demonstrate its continuing efforts to mitigate.

17.  The first renewal date under the Tenancy Agreement is 4 October 2014, which is a relevant date of assessment by the parties’ experts in the joint report.  As the joint report was filed on 20 August 2014, the experts’ opinion therein as to the market valuation of the rental of the Property in October 2014 could only have been based on estimates and projections.  The defendant therefore also seeks leave for a joint supplemental expert report to be filed to address the actual situation regarding the market rental of the Property in October 2014.  It is submitted that, where evidence as to the actual market situation for the valuation of the rental of the Property is available, the Court has every reason to have regard to such evidence, as opposed to only projections and estimates.

18.  It is for those reasons above that the defendant seeks the Court’s leave for the supplemental witness statement and the supplemental joint expert report.

The Plaintiff’s Grounds of Opposition

19.  The plaintiff opposes the defendant’s Summons on the following bases:

(1) The defendant has already been given sufficient opportunity to deal with the matters raised by this Summons in the first supplemental witness statement of Ms Kie and the joint report;

(2) Further evidence is unreasonable, disproportionate and plainly unwarranted expense – given the evidence already before the Court; and

(3) The matters raised are, in law, irrelevant to the pleaded cases of the parties.[2]

Discussion

20.  As to issue (1) and issue (2), the plaintiff complains that the witness had already given her supplemental witness statement, which was filed on 17 October 2014.  In her supplemental witness statement, the witness said that since October 2013, on behalf of the defendant, she had contacted and liaised with numerous real estate agents and she had sent more than 1000 pages emails to the agents.  The emails had covered up to October 2014.  She further said that she would continue to liaise with the agents in order to find a qualified tenant for the property and she considered that there would be a need for her to file further statement and to file the supplemental joint expert report near the trial.[3]  In the Re-Amended Defence and Counterclaim, the defendant claimed, among other things, loss of rentals and/or shortfall in rentals for any difference between the rentals under the Tenancy Agreement and the rental under any subsequent tenancy agreement from 14 September 2013 to 3 October 2014[4]  It is therefore obvious that the defendant counterclaims against the plaintiff for damages of loss of rental up to 3 October 2014.  There is no basis, either factual or legal, to support the defendant’s application for supplemental witness statement.

21.  The defendant’s application for supplemental witness statement should be dismissed accordingly.

22.  As to the supplemental joint expert report, the plaintiff submits that the assessment of damages should be made on the date of breach of the contract.  It is therefore not necessary to take into consideration the events after the breach.  This is, of course, subject to the exceptions as set out in the authority of The Golden Strait Corp case[2007] 2 AC 353 per Lord Bingham citing the relevant authorities.  But this is not one of those exceptions.

23.  The Golden Strait Corp case is an illustrative example why the court should adopt the other date different from the date of breach of the contract.  In this case, there was a clause 33 in the charterparty, which allowed the charterer not to perform the contract if war broke out.  The war did break out, rendering the contract to terminate.  Such period was, for the compensatory principle as Lord Scott called it at paragraph 38, excluded for the assessment of damages.

24.  As the pleaded case now stands, the plaintiff is right to say that absent exceptional circumstances, the date for the assessment of damages should be the date of breach of the contract.  Supplemental expert report is therefore not necessary.

25.  The plaintiff has also brought into consideration the concept of proportionality in that the difference of the market value between the existing expert report and the proposed supplemental expert report is for the period of six weeks.  It is incumbent upon the defendant to satisfy this Court that there should be significant difference in market rent and the cost for preparing the supplemental expert report is proportionate to the advantage of the parties.  The defendant has not shown the Court such difference and the cost for making the supplemental expert report.

26.  For those reasons, the defendant’s application for supplemental expert report is also dismissed.

Costs and Order

27.  As to the costs of the applications, this Court has taken note that the estimated time for the hearing of the summons dated 14 October 2014 alone, not to mention the late application for amendment, of 30 minutes is grossly underestimated.  The hearing has lasted for over two hours. Having taken into consideration of the above and the fact that the proposed application for amendment was caused by the plaintiff’s stance as demonstrated in the joint expert report, the appropriate costs, as assessed under O.62, r.9A should be $65,000 to be paid by the defendant to the plaintiff within 14 days from the date hereof.

28.  The Court shall now make an order in terms as follows:

a. The defendant’s application for re-re-amending the Defence and Counterclaim be dismissed;

b. The defendant’s summons dated 14 October 2014 for the supplemental witness statement and the supplemental joint expert report be dismissed;

c. The cost for the summonses and for today’s hearing (with counsel certificate) is as per paragraph 27.