Kin Tong Land Investment Co Ltd v. Capella Ltd
Read the full judgment text of DCCJ 3495/2017 on BabelCite. This District Court judgment was delivered on 25 January 2019.
1. This is the hearing of assessment of damages arising out of the defendant’s breach of an agreement for lease entered into with the plaintiff in July 2016 (“the Agreement”).
Cited by 5 cases · Cites 3 cases
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DCCJ 3495/2017 [2019] HKDC 65 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 3495 OF 2017 -------------------------
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--------------------------------------------- ASSESSMENT OF DAMAGES --------------------------------------------- Introduction 1.This is the hearing of assessment of damages arising out of the defendant’s breach of an agreement for lease entered into with the plaintiff in July 2016 (“the Agreement”). Procedural history 2.On 3 August 2017, the Writ was issued. Since no notice of intention to defend had been given, on 26 October 2017, final and interlocutory judgment was entered against the defendant ordering it to pay (1) a sum of HK$13,365, which represents the amount of a bounced cheque issued by the defendant for paying part of the security deposit under the Agreement; and (2) loss and damages for breach of such agreement to be assessed (“the Judgment”). 3.It was only after the Judgment had been entered then the defendant appointed a law firm, C.F. Lee & Co, to represent it in this action. The plaintiff’s solicitors served the notice of appointment of assessment of damages dated 13June 2018 on the defendant’s solicitors. However, on 26June 2018, C.F. Lee & Co took out a summons to apply to cease to act for the defendant, and leave was granted. The defendant has been acting in person since then. 4.Both parties filed and served their respective witness statements and lists of documents pursuant to Registrar Ho’s order of 2 October 2018. 5.Mr. Caleb Chan, the defendant’s director (“Mr. Chan”), attended court and represented the defendant at this hearing. The Background 6.There is no issue between the parties as to the following facts and matters. 7.The plaintiff is the registered owner of the premises situate at Unit A, 19th Floor, Queen’s Centre (“the Building”), Nos.58-64 Queen’s Road East, Wanchai, Hong Kong (“the Premises”). It was incorporated under a joint venture between the Chinachem Group and Asiasec Group. 8.In July 2016, Chinachem Agencies Limited on the plaintiff’s behalf on one side, and Mr. Chan on the defendant’s behalf on the other entered into the Agreement in respect of the Premises. Under the Agreement, the Premises shall be let to the defendant for commercial use as an office. The tenancy shall be for a term of two years commencing from 1 August 2016 and expiring on 31 July 2018 at a monthly rent of HK$13,365 exclusive of rates, management fees and other outgoings. The rent would be payable in advance on the 1st day of each calendar month without any deduction. 9.The Agreement also provided that:-
10.According to clause 26 of the Agreement, the defendant had to sign the formal tenancy agreement, and pay up the said balance of security deposit on or before 29 July 2016. 11.The Cheque was bounced upon presentation, and the bank notified the plaintiff of the dishonoured cheque on 25 July 2016. The defendant neither signed the formal tenancy agreement nor paid up the said balance of security deposit as scheduled or at any time thereafter. 12.The plaintiff also lodged the Agreement with the Stamp Duty Office for stamping by paying the full stamp duty amount of HK$769 so as to enforce the terms of the Agreement against the defendant to claim for its loss and damages. 13.By way of their letter dated 19 August 2016, the plaintiff’s solicitors wrote to the defendant demanding the latter to pay up the bounced cheque amount and to compensate all the plaintiff’s loss and damages, and indicating that by reason of its conducts the defendant had evinced an intention not to be bound by the Agreement which amounted to repudiation of the same. In the letter, the plaintiff’s solicitors also intimated to the defendant their client’s acceptance of such repudiation. 14.In mitigating their loss and damages, within a week or two after the aforesaid letter had been sent out, the plaintiff engaged various estate agents to list the Premises in the market for lease with an asking rent of HK$13,365 per month. That aside, the plaintiff had also published notices in South China Morning Post during the period between 25 August 2017 and 17 February 2017 advertising that there was a vacant unit of 495 sq ft in the Building (i.e. referring to the Premises) immediately available for lease at an attractive rent. 15.Eventually, on or about 9 March 2017, the plaintiff managed to lease out the Premises to a substitute tenant (i.e. Hong Kong Charity Association Limited) for a term of two years from 20 March 2017 up to 19 March 2019 at the same monthly rent of HK$13,365 (exclusive of rates, management fees and air-conditioning charges and other outgoings) with one month’s rent-free period from 20 March 2017 to 19 April 2017. The plaintiff’s claim 16.In this assessment exercise, the plaintiff originally claimed for the following loss and damages:-
17.After exchanges with the Bench in the course of her opening submission, Ms Pang Mei Ngan (solicitor appearing for the plaintiff) fairly conceded that in the aforesaid claim for loss and damages, credit should be given to the bounced cheque amount of HK$13,365, for which the plaintiff had already obtained judgment. As pointed out above, such amount represented a portion of the security deposit which the defendant was obliged to pay under the Agreement. If an authority is needed in this regard, it can be found in Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234.[1] 18.Further, Ms Pang also confirmed with the court that the plaintiff would now only claim for half of the stamp duty, i.e. HK$384.50 in line with the defendant’s obligation under the Agreement. 19.Ms Pang therefore indicated to the court that the plaintiff’s claim for the loss and damages would be revised accordingly by virtue of the above two matters. The defendant’s stance 20.At the outset of the hearing, the court also explored with Mr. Chan as to what aspects of the plaintiff’s claim that the defendant was actually taking issues with in this assessment exercise because he did not make this clear in his witness statement filed on 24 August 2018. 21.As can be discerned from Mr. Chan’s submission, the defendant’s objection is mainly twofold:-
Issue 1 22.Issue 1 is a non-point arisen out of the defendant’s misconception about the Agreement’s legal effect. 23.By its legal nature, the document which both parties signed in July 2016 (i.e. the Agreement formed by the plaintiff’s letter of offer duly signed and accepted by the defendant[2]) is an agreement for lease. It contains all the essential elements of contract by which one party agrees to grant and another agrees to take the lease. The terms therein are sufficiently certain to be legally binding and enforceable. See : Woodfall on Landlord and Tenant (2018 edition), v1, para 4.001; Merry, Hong Kong Tenancy Law, 6th ed, at p 25. As pointed out above, the Agreement in particular also spells out at its clause 26 the date when the formal tenancy agreement was to be signed, and the said balance of the security deposit to be paid, and the consequences for their non-compliance. 24.Under common law, two remedies for breach of agreement for lease are generally available to the injured party in line with the general principles of contract: (1) an action to recover damages for the breach; and (2) an action to compel specific performance of the contract. Damages are calculated on the basis the injured party should be put in the positon in which he would have been if the contract had been performed.[3] 25.Owing to the defendant’s breach in failing to take up the lease as per the terms of the Agreement (which I find also amount to repudiation of the same on the evidence before me and the plaintiff had duly accepted such repudiation by their solicitors’ letter of 19 August 2016), the plaintiff is entitled to recover the rents, management fees and air-conditioning charges, and rates which it would otherwise (but for the breach) have received from the defendant for the term of the lease subject to the deduction of any loss it could avoid by taking reasonable steps to mitigate (which I find to be equivalent to those sums which the plaintiff obtained from the substitute tenant in the re-letting in this case). See also : World Light Limited v MegaSuper Market Limited [2018] HKCFI 2864 per Fung J at paras 28-30. I shall return to the point of mitigation later in the discussion of Issue 2 below. 26.Upon reasonable construction of the Agreement as a whole and in context, I am also of the view that one of the purposes of clause 26 is to preserve the plaintiff’s common law remedy for seeking damages against the defendant when it exercised its right to terminate the Agreement pursuant thereto. The relevant part of clause 26 provided thus:-
27.Clause 26 also allows the plaintiff to forfeit any portion of deposit the defendant had already paid under Agreement in the event the defendant failed to sign the formal tenancy agreement and pay up the balance of the security deposit for the purpose of taking up the lease. And such forfeiture would not prejudice the plaintiff’s right to claim for all the loss and damages arising from the termination caused by such breach (which in this case also amounted to repudiation of the Agreement). 28.In Polyset (supra), Bokhary PJ at para 10 said that:-
29.Ribeiro PJ at paras 67 and 68 also held that:-
30.Although Polyset is a sale and purchase of land case, the general principles concerning deposit as enunciated by my Lords in the above passages would, in my respectful view, be equally apposite in an agreement for lease context as in the present case. I am also satisfied that, upon proper construction of the Agreement, the security deposit mentioned therein also serve the purpose of deposit (in its proper legal sense) as being an earnest which guaranteed performance of the contract of which the defendant had made purported partial payment by way of the Cheque. 31.For completeness sake, I should also mention that although there are some subordinate clauses in clause 26 which made references to ‘the previous Tenancy Agreement’. This is an obvious draftsman’s blunder as it is common ground between the parties that the defendant was a completely new tenant to the plaintiff. The earlier clause 20(a) of the Agreement also provides that the Premises will be delivered (by the Landlord) to the Tenant in ‘bare-shell’ condition, and this clearly shows that the defendant had not at any time occupied the Premises, nor was the Agreement made for renewal of any previous tenancy. As a matter of principle and proper construction of clause 26, these obvious errors would certainly not prevent this court from giving proper legal effect to such clause as so construed in paras 26 and 27 above. 32.In any event even without clause 26, in my judgment, the plaintiff would still be entitled under common law to recover their loss and damages as caused by the defendant’s repudiation of the Agreement though giving credit to the judgment sum already awarded in relation to the defendant’s bounced cheque for the partial payment of deposit in this case. Issue 2 33.In my judgment, Issue 2 would boil down to whether the plaintiff had taken reasonable steps to mitigate its loss and damages in the circumstances of this case. In particular, whether it is reasonable for the plaintiff not considering the defendant’s purported offer after it had accepted the defendant’s repudiation of the Agreement. 34.In Park Avenue Toys Ltd v Candy Novelty Works Ltd (unrep, HCA 11135 of 1997, 23 August 2004), Saunder J succinctly summarized the principles on mitigation of damages at paras 43-46 :
35.I would respectfully adopt these principles to determine the issue of mitigation in this case. 36.I heard evidence from Mr Tam Wai Koon (“Mr Tam”), the head of the plaintiff’s leasing department. His account of events is credible and tallies with the contemporaneous documents produced in the hearing bundle. His evidence remains intact after cross-examination and I accept his evidence. 37.In particular, Mr Tam in his testimony explained why the plaintiff refuse to consider the defendant’s purported ‘offer’ made on 23 and 24 August 2016 through its estate agent. 38.In gist, this was owing to the defendant’s bad track record of failing to honour its cheque and reneging its promises made under the Agreement. The plaintiff thus had great concerns as to whether the defendant could make payment of rents punctually and duly perform the other tenancy obligations if a new lease was entered into with the defendant. 39.Having carefully surveyed all the evidence before me, I find it reasonable for the plaintiff to refuse considering the defendant’s purported ‘offer’ under the circumstances of this case. In my judgment, Mr Tam’s explanation makes commercial sense and sounds reasonable. Objectively speaking, the due performance of any new tenancy obligation by the defendant would hinge on its financial ability and trustworthiness to abide by the contract. One essential obligation would doubtless be the obligation to pay rent and other fees and charges it would be responsible for. And yet, the defendant had countermanded the Cheque (even of one month’s rent only) without informing the plaintiff about the reason why it did so according to the evidence before me. 40.Although Mr. Chan said in his witness statement that on or around 29 July 2016, the defendant asked its estate agent (which he identified as one Mr. Paul Chan of Golden Land Realty Limited) to request the plaintiff to postpone the deadline for signing the formal tenancy agreement, and Mr. Gipsy Yung (the plaintiff’s leasing officer) turned down their request. But Mr. Tam testified that he had in fact made enquiry of such matter with Mr. Yung, and Mr. Yung denied there was any estate agent (including Mr. Paul Chan of Golden Land Realty Ltd) making such request on the defendant’s behalf. 41.In this regard, I prefer Mr. Tam’s evidence and reject Mr. Chan’s. I find Mr. Chan’s evidence incredible and unreliable. First, he materially changed his account at trial by saying that after he asked its estate agent to request the plaintiff to postpone the deadline for signing the formal tenancy agreement, the defendant did not receive any response from the plaintiff. As such, the defendant then countermanded the Cheque on or about 25 July 2016. 42.But upon further questioning by the Court why he said in his witness statement that the defendant told the estate agent only on or around 29 July 2016 to postpone the deadline. In other words, it seems that in his earlier account the defendant had asked the estate agent to postpone the deadline after rather than before it countermanded the Cheque. Mr. Chan then changed his version again by saying that Mr. Yung in fact gave them a reply but without committing as to whether the plaintiff would agree to postpone or not. 43.Not only that this sounds odd for the plaintiff’s leasing officer to give such an ambivalent response in the circumstances when the plaintiff had apparently much stronger bargaining power than the defendant, Mr. Chan flatly contradicted himself because as pointed out above, he said earlier in his witness statement that Mr Yung actually turned down their request for the postponement of the deadline. In light of the aforesaid, I find Mr. Tam’s evidence in this regard to be more probable (and which I accept): Mr Paul Chan of Golden Land Realty Limited in fact already informed Mr. Yung in early August 2016 that the defendant would not rent the Premises anymore and hence would not sign the formal tenancy agreement[4]. 44.Against this backdrop and in light of my findings, if a new tenancy agreement in respect of the Premises was to be entered into with the defendant in these circumstances, I think the plaintiff would effectively be asked to bear an unreasonable risk given the previous irresponsible attitude adopted by the defendant which would naturally arouse the plaintiff’s legitimate doubts about the defendant’s financial soundness and sustainability in keeping its rental payment obligations over a period of 24 months, as opposed to, say, an one off transaction of sale of goods. Also, the defendant cannot really produce any evidence showing any material change of circumstances since their last repudiation of the earlier agreement that could allay the plaintiff’s concerns. See : Tung Guan Company Pte Ltd v Jih Dong Enterprises Ltd [1992] 2 HKLR 225, per Hooper J at pp.247-248. 45.Apart from the aforesaid, the purported ‘offer’ also stipulated that the new tenancy would commence on 18 November 2016[5], and this means the plaintiff would be asked to wait for another three months before the new tenancy could begin[6]. So, even leaving other matters aside, the plaintiff would suffer about 3.5 months’ loss of rent by leaving the Premises vacant just to wait for the defendant’s ‘proposed new tenancy’ to commence. Any interim short-term tenancy granted to a third party during the waiting period does not seem commercially viable since the Premises was in a bare-shell condition which would not be ready for use as office without substantial renovation. 46.The plaintiff’s position was rendered even more vulnerable or disadvantageous if one observes that the defendant’s letter of ‘offer’ was in fact marked ‘subject to contract’. In other words, the defendant did not actually intend to be bound by sending such purported ‘offer’ to the plaintiff unless and until a formal contract is drawn up.[7] There was in truth no firm offer put on the table by the defendant at the time. As long as negotiations are proceeding ‘subject to contract’, the defendant was entirely free to withdraw at any time[8]. 47.For completeness sake, I should also mention that although the Premises was only eventually rented out in March 2017, the standard of reasonable behavior as expected from the plaintiff is not high given that the defendant is the admitted wrongdoer who created a difficult situation for the plaintiff to face with in the first place. The steps as taken by the plaintiff in engaging the estate agents and advertising the property for lease, and eventually re-letting the Premises to Hong Kong Charity Association Limited are in my view normal and usual steps as would be expected from a reasonable landlord to mitigate its loss in the circumstances. For completeness sake, the one month rent-free period granted to the substitute tenant would also appear to be reasonable. First, this is part and parcel of the deal as negotiated with the substitute tenant. Second, it would understandably take quite some time to renovate the Premises to turn it from a bare-shell condition into an office with basic facilities to operate. Third, the same length of rent-free period was in fact also provided to the defendant under the Agreement, and the term of lease (2 years) and monthly rent (HK$13,365 per month) for the two leases are the same. 48.By looking at the issue in the round, I find the plaintiff had taken reasonable steps to mitigate its loss and damages in this case. Conclusion 49.In light of the aforesaid, I find that as a result of the defendant’s breach of the Agreement, the plaintiff is entitled to fully recover from the defendant its revised claim for loss and damages[9] in the total sum of HK$106,192.55 which quantum are also corroborated by the plaintiff’s supporting documents and properly justified in the circumstances of this case. The breakdown of such figure is set out below:-
Disposition 50.Due to the above reasons, final judgment is entered in the plaintiff’s favour in respect of their loss and damages assessed in the sum of HK$106,192.52 together with interest thereon at 1% per annum above HSBC’s best lending rate from time to time from the date of Writ (i.e. 3 August 2017) until the date hereof and thereafter at judgment rate until payment. Costs 51.The Costs should normally follow the event. I also make a costs order nisi that save and except for the costs already covered under the Judgment dated 26 October 2017, costs of these proceedings, including previously reserved costs (if any), be paid by the defendant to the plaintiff, to be taxed if not agreed. This costs order nisi shall become absolute in the absence of any application to vary the same within 14 days from the date of this order.
Ms Pang Mei-ngan of Messrs. Ford, Kwan & Co., for the plaintiff The defendant appeared in person [1] See also : paras 28 and 29 below [2] Bundle, p76 [3] Woodfall, paras. 4.088 and 4.090 [4] Tam’s witness statement, para 10 [5] Bundle, pp 182, 184 [6] Under the Agreement, the commencement date of the lease was 1 August 2016 [7] Woodfall, para 4.008 [8] Woodfall, para 4.009 [9] See : paras 16-19 above [10] This sum represents the part payment of the security deposit under the Agreement (see : para 17 above) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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