Palliser Investments Ltd v. Vickwood Ltd and Another
Read the full judgment text of HCA 2145/2016 on BabelCite. This High Court CFI judgment.
1. This is the hearing for assessment of damages for outstanding rent and expenses suffered by the plaintiff in relation to breaches of a commercial tenancy agreement. The plaintiff was the Landlord, who was represented by Mr Avery Chan of counsel.
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HCA 2145/2016 [2019] HKCFI 1484 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2145 OF 2016 ________________________ BETWEEN
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_______________ J U D G M E N T _______________ A. INTRODUCTION 1.This is the hearing for assessment of damages for outstanding rent and expenses suffered by the plaintiff in relation to breaches of a commercial tenancy agreement. The plaintiff was the Landlord, who was represented by Mr Avery Chan of counsel. 2.The 1st defendant was the tenant. The 2nd defendant was the guarantor for the 1st defendant. Both 1st and 2nd defendants were not legally represented during the hearing, but they were represented by Mr Wai, who was acting in person. Mr Wai is himself the 2nd defendant, who is also the director of the 1st defendant. 3.After the hearing, I reserved my decision pending the written closing submissions of Mr Wai and of Mr Chan. B. BACKGROUND OF THE TENANCY AGREEMENT AND GUARANTEE 4.The tenancy agreement was dated 12 May 2014 (the “Tenancy Agreement”). It concerns the plaintiff’s property at Shop G12, Ground Floor, Site 11, Whampoa Garden, Hung Hom (the “Premises”). 5.Prior to the formal execution of the Tenancy Agreement, the 1st defendant agreed to rent the Premises by signing a letter of offer on 11 March 2014. The 1st defendant paid the plaintiff a deposit in the sum of HK$496,008.00 on 6 March 2014. The deposit later increased to HK$496,506.00. 6.Under the Tenancy Agreement, the 1st defendant rented the Premises for a term of 2 years from 17 March 2014 to 16 March 2016. The 2nd defendant executed a guarantee in favour of the plaintiff (the “Guarantee”) on 12 May 2014. He guaranteed the performance and observance by the 1st defendant of the terms of the Tenancy Agreement. The 2nd defendant undertook to bear any outstanding rent or sums that the plaintiff may recover from the 1st defendant. 7.Since September 2015, the 1st defendant had failed to pay the rent and charges due under the Tenancy Agreement. 8.By a letter dated 7 October 2015, the plaintiff accepted the repudiation of the Tenancy Agreement by the 1st defendant and re-entered the Premises on 9 October 2015. C. THE PRESENT ISSUE 9.On 18 August 2016, the plaintiff commenced the present proceedings. On 18 October 2016, the plaintiff applied for summary judgment against the 1st defendant and the 2nd defendant. 10.Pursuant to the Order of Master K H Hui dated 14 November 2016, interlocutory judgment was entered against the 1st defendant and the 2nd defendant on liability. 11.The issue to be determined at this hearing is “what and how much damages may be recovered by the plaintiff against the 1st defendant under the Tenancy Agreement and against the 2nd defendant under the Guarantee”. D. LEGAL PRINCIPLES 12.The damages recoverable by a landlord for a tenant’s wrongful repudiation of a tenancy agreement include damages reflecting the rental, service charges, rates and reinstatement costs if the agreement is permitted to run its full course, subject to a duty to mitigate its loss: see Windsor House Ltd v Shining Source Holding Group (Hong Kong) Ltd [2019] HKCFI 279 at paragraph 13. 13.A landlord is expected to act reasonably and to take such steps as are necessary to re-let the vacant premises at market rent. However, the burden falls upon the defendant to establish that mitigation has not taken place: see The Hong Kong Housing Authority v Super Happy Investment [2018] HKCFI 2674 at paragraph 27. 14.The duty to mitigate is not an onerous one as the landlord is not required to do anything other than acting in the ordinary course of business: see Wing Siu Co v Goldquestion International (HCA 4145 and 3183/2001, unreported, 18 August 2006) at paragraph 8. 15.In Sano Screen Manufacturers & Anor v J&R Bossini Trading Ltd [2000] 3 HKC 216, the court was satisfied that the landlord had discharged its duties to mitigate damages by seeking assistance from a number of estate agents (see 220H to 221A). Further at 220E-G, the ordinary contractual principles of repudiation and acceptance apply to a tenancy agreement. 16.It is trite law that a plaintiff had no obligation to mitigate his damages before there has been a breach or an anticipatory repudiation that it had accepted: see Chitty on Contracts, 33rd Ed. Vol. 1, at 26-095. E. CASE OF THE PLAINTIFF 17.The plaintiff claims damages for 2 periods:
This is because the Tenancy Agreement was repudiated on 7 October 2015 before the expiry of the Tenancy Agreement. 18.The loss for the Pre-vacation Period includes rent, service charges, promotional charges and government rates and rent. 19.The loss for the Remaining Period includes the loss of rent, service charges, government rates and rent, as well as 2 sets of the reinstatement costs. 20.In sum, the loss claimed by the plaintiff for the Pre-vacation Period is HK$205,964.69. After taking into account the deduction of the deposit and the proceeds of the goods sold, the loss claimed for the Remaining Period is HK$560,259.76. The total sum claimed thus is HK$766,224.45. F1. PLAINTIFF’S PRE-VACATION CLAIMS 21.The plaintiff’s claim for the Pre-vacation Period is summarised as follows:
F2. PLAINTIFF’S CLAIM OF RENT IN ARREARS 22.The rent from 1 September 2015 to 30 September 2015 was HK$161,850.00 and the pro rata rent from 1 October 2015 to 7 October 2015 was HK$36,546.77. The total rent in arrears claimed for the Pre-vacation Period is HK$198,396.77. F3. PLAINTIFF’S CLAIM OF SERVICE CHARGES 23.The plaintiff claims that the 1st defendant is liable to pay service charges at HK$3,652.00 per month during the Pre-vacation Period. The pro rata service charges from 1 October 2015 to 7 October 2015 was HK$824.65. The total service charges claimed for the Pre-vacation Period are HK$4,476.65. F4. PLAINTIFF’S CLAIM OF PROMOTIONAL CHARGES 24.The plaintiff’s case is that the 1st defendant is liable to repay the promotional charges from 1 September 2015 to 30 September 2015 in the sum of HK$311.30 and the pro rata promotional charges from 1 October 2015 to 7 October 2015 in the sum of HK$70.29[1]. The total promotional charges claimed for the Pre-vacation Period is HK$381.59. F5. PLAINTIFF’S CLAIM OF GOVERNMENT RATES AND RENT 25.The plaintiff also claims that the 1st defendant is liable to pay and discharge all rates incurred during the Pre-vacation Period. The Government rates at the material time were HK$36,000 per quarter for the Premises. 26.The last quarter of Government rates from 1 October 2015 to 7 October 2015 on a pro rata basis were in the sum of HK$2,709.68. G1. PLAINTIFF’S REMAINING PERIOD CLAIMS 27.The plaintiff’s claim for the Remaining Period is as follows:
G2. PLAINTIFF’S CLAIM OF LOSS OF RENT 28.After the 1st defendant’s repudiation was accepted by the plaintiff, the plaintiff attempted to re-let the Premises by contacting various estate agents for re-letting. 29.The plaintiff was not able to rent out the property during the Remaining Period. The plaintiff therefore suffered the loss of rental for the entire Remaining Period totalling HK$856,238.71. 30.The breakdown of the plaintiff’s claim under this head is as follows:
G3. PLAINTIFF’S CLAIM OF LOSS OF SERVICE CHARGES 31.Similarly, had the 1st defendant not repudiated the Tenancy Agreement, the plaintiff would have been entitled to receive service charges for the Remaining Period at HK$3,652.00 per month. As the Premises were not rented out for the Remaining Period, the plaintiff suffered the loss of service charges for the entirety of the Remaining Period, totalling HK$19,320.25. 32.The breakdown of the plaintiff’s claim under this head is as follows:
G4. PLAINTIFF’S CLAIM OF GOVERNMENT RATES AND RENT 33.The government rates were HK$36,000 per quarter throughout the entire term of the Tenancy Agreement. The total government rates that should have been paid by the 1st defendant, but for its repudiation of the Tenancy Agreement, would therefore be HK$63,326.80. 34.The breakdown of the plaintiff’s claim under this head is as follows:
G5. PLAINTIFF SOLD THE 1ST DEFENDANT’S GOODS IN MITIGATION 35.The 1st defendant deserted some properties upon the vacation of the Premises. These properties comprised over 200 pairs of shoes, decoration items and electronics etc (the “Remaining Properties”). 36.By a letter dated 12 October 2015, the plaintiff invited the 1st defendant to inspect and collect the Remaining Properties on or before 15 October 2015. The plaintiff also warned the 1st defendant that if the 1st defendant failed to do so, the plaintiff would deem the Remaining Properties to have been abandoned. 37.As the 1st defendant failed to respond to the said letter, the plaintiff contacted a list of prospective purchasers for the purpose of re-selling the Remaining Properties in bulk. 38.The plaintiff only received one offer, which was from Tai Fook Hong, to buy the Remaining Properties at a price of HK$3,000.00. The Plaintiff sold them at HK$3,000.00. 39.The plaintiff is willing to credit the sale proceeds in the amount of HK$3,000.00 in favour of the 1st defendant. G6. PLAINTIFF’S CLAIM OF REINSTATEMENT COSTS 40.The 1st defendant failed to observe its obligation to remove its fixtures and fittings; it also neglected to reinstate the Premises pursuant to the Tenancy Agreement. 41.For the purpose of re-letting, the plaintiff therefore had to reinstate the Premises into a bare-shell condition and undo the alteration done to the fire sprinkler system by the 1st defendant. 42.The plaintiff invited tenders from numerous construction companies. Out of 6 tenders, the plaintiff opted for the cheapest quotation at HK$112,880.00. The reinstatement work was completed on around 17 May 2016. 43.As to the work for the restoration of the fire sprinkler system, the plaintiff invited quotations. Out of 2 tenders, the plaintiff chose the cheapest offer at HK$8,000.00. The work on the fire sprinkler system was completed on around 10 May 2016. G7. PLAINTIFF TO CREDIT THE DEPOSIT 44.The plaintiff does not intend to forfeit the deposit of HK$496,506.00. The plaintiff is willing to credit the deposit in favour of the 1st defendant. H. CASE OF THE DEFENDANTS 45.The Tenancy Agreement, the Guarantee, the incidental liabilities, the chronology of events and what had factually transpired are not disputed by the 1st and 2nd defendants. The defendants merely contest the plaintiff’s failure to reasonably mitigate its loss and damages. 46.The defendants contend that the costs of HK$112,880.00 for reinstatement and HK$8,000.00 for the fire sprinkler system works were excessive. The materials and labour used were of higher quality than before. The defendants further allege that the plaintiff only invited tenders from construction companies within its own network and resources. The quotations were thus much higher than ordinary contractors. 47.For the resale value of the Remaining Properties, the defendants have the following complaints:
48.Regarding the loss of rent, the defendants allege that the plaintiff failed to look for a replacement tenant upon the defendant’s request in March 2015 (before the 1st defendant’s actual surrender of the Premises in early October 2015). The plaintiff had unreasonably raised the rental price when it was trying to re-let the Premises. The failure for the plaintiff to find a replacement tenant for such a long time suggested that the plaintiff had no interest or determination to do so. 49.Also, the defendants blamed the plaintiff for not responding to the mediation notices. 50.It is worthwhile to note that in the assessment hearing, the defendants had not advanced any positive case of what their maximum liability should be. It seems that the defendants were only “testing” the plaintiff’s case. I. DISCUSSION & ANALYSIS 51.Before dealing with the defendants’ objections in detail, it must be remembered that the plaintiff may recover loss and damages as long as they are reasonably incurred. The burden of proof for the failure of mitigation falls on the defendants. 52.Ms Leung, who is the marketing manager responsible for the leasing of the plaintiff’s property, gave evidence for the plaintiff. She adopted her witness statement as her evidence-in-chief. She was not much cross-examined by the defence. 53.Having heard from Ms Leung, I accept her evidence in full. This court finds her evidence credible and reliable. It is fully supported and corroborated by contemporaneous documents. 54.Mr Wai testified for the 1st defendant and as the 2nd defendant himself at this hearing. Mr Wai spoke fluent English, because he studied in America and went to university there. He adopted his witness statement as his evidence-in-chief. 55.The defendants did not provide any documentary proof in showing the plaintiff’s failure to mitigate its loss regarding the reinstatement and the sprinkler system. As can be seen from the tender offer record produced by the plaintiff, the plaintiff invited tenders from 10 different contractors for the reinstatement work and duly recorded their tender prices. The plaintiff reasonably opted for the cheapest tender. Similarly, for the fire sprinkler system work, the plaintiff invited tenders from 6 companies and duly recorded them. The plaintiff again opted for the cheapest tender. However, the defence did not provide any evidence that shows:
In the premises, there is nothing that may suggest that the reinstatement costs and the costs of the fire sprinkler system work were unreasonable. 56.Regardless of whether the Remaining Properties were defective, the fact remains that Tai Fook Hong was the only company that made an offer. I find that the offer of HK$3,000.00 reflected the market value of the Remaining Properties. Mr Wai was of the view that the Remaining Properties could have been sold for at least $20,000.00, as the value of each item was about $100.00 and there were about 200 items in total. However, when he was cross-examined on how he came up with the exact figure of $20,436.48 as stated in the defendants’ witness statement, he could not give the mathematical formula. I find that it is implausible, since that figure had odd dollars and cents. I also find that that figure was just an arbitrary one advanced by the defence. In any event, in the absence of objective evidence, the value of HK$20,436.48 that the defendants subjectively (and even genuinely) considered the Remaining Properties to be worth is irrelevant. 57.Mr Wai also failed to satisfactorily explain to this court about the plaintiff’s letter dated 12 October 2015, in which the 1st defendant was invited to collect the Remaining Properties at the Premises. Mr Wai’s answer was evasive and equivocal about the meaning of the letter. While Mr Wai admitted that he did receive the letter, he claimed that he was confused by it, and he thought he was prohibited from returning to the Premises. Mr Wai was unable to give a convincing explanation as to why he was confused and as to how he misunderstood the effect of the letter. His version of events kept changing during cross-examination. I am unimpressed by his evidence about the letter. 58.The Remaining Properties had to be sold, because the 1st defendant had failed to discharge its obligations to remove the Remaining Properties under Section III Clause 24 of the Tenancy Agreement, despite the plaintiff’s written request. It was therefore unfair for the defendants to suggest in hindsight that had they known the Remaining Properties would be sold at such a low price, they would have tried to sell them themselves. 59.Indeed, the plaintiff was never under a duty to give credit to the sale proceeds of the Remaining Properties. The plaintiff did so only out of generosity. Under Section III clause 24 of the Tenancy Agreement, the Remaining Properties were deemed to have been abandoned and the plaintiff could have sold the same without deducting the sale proceeds from the plaintiff’s loss. Hence, it defies logic for the defendants to suggest that there was a conflict of interest on part of the plaintiff in selling the Remaining Properties at a low price, because the plaintiff had nothing to gain. 60.Mr Wai further relied on his email to the plaintiff dated 6 March 2015 to argue that the plaintiff was informed of the 1st defendant’s intention to terminate the Tenancy Agreement. He went on to say that the plaintiff ought to have found a replacement tenant at an earlier stage. However, this court is not persuaded that the email was of any relevance to the issue herein. In March 2015, the 1st defendant was not yet in breach of the Tenancy Agreement, before it failed to pay its rent in September 2015. There was thus no duty on part of the plaintiff to look for any replacement tenant in early 2015. The 1st defendant’s email dated 6 March 2015 was no more than a unilateral proposal. The proposal could not have constituted an unequivocal act of repudiation, because the 1st defendant continued to pay rent until September 2015. It was plain that the 1st defendant had chosen to affirm the Tenancy Agreement by its subsequent conducts from April to August 2015. In any case, the 1st defendant’s continued occupation of the Premises for the next 6 months (ie from April to September 2015) suggested that no agreement for replacement of a tenant had ever been reached between the parties in early 2015. 61.Mr Wai complained that the plaintiff should not have increased the rent, when the plaintiff was looking for a new tenant. However, I am of the view that after the repudiation of the 1st defendant, the plaintiff was not duty-bound to re-let the Premises at the same price of the Tenancy Agreement. The plaintiff did not have to do anything, other than to act reasonably in the ordinary course of business. It was thus not unreasonable for the plaintiff to have slightly increased the rent to HK$168,000.00 when re-letting the Premises, which was only a 4% increase. Moreover, according to Ms Leung, the new rent was only an initial offer by the plaintiff, which was subjected to downward negotiation with prospective tenants. In any case, there is nothing to demonstrate that the increased rent was not the market rent in the Whampoa vicinity. In the Remaining Period, the plaintiff had, by contacting various estate agents to rent out the Premises, discharged its duty to mitigate. The 1st and 2nd defendants should be fully liable for the loss of rental. 62.Mr Wai also contended that the plaintiff ignored the defendants’ proposals for mediation. It is trite that the mediation notices were issued after the plaintiff’s issuance of the Writ, when the loss and damages were fait accompli. I do not find that the notices affect the issue of this hearing. 63.After careful consideration, I have grave doubt as to the evidence of Mr Wai, because his evidence is based on pure speculations and bare assertions. His evidence was unreliable. I am not impressed by his demeanour. This court does not accept Mr Wai’s evidence and the defendants’ case. Their case was filled with red herrings. J. DEFENDANTS’ FINAL SUBMISSIONS & CRITICISMS ABOUT THE PLAINTIFF 64.In the final submissions dated 5 June 2019 submitted by the defendants, they raised several other arguments. The defendants alleged that the plaintiff had failed to explain its inaction to find a replacement tenant with the excuse of lack of manpower, pushing its loss onto the defendants. I find that even if there was a shortage of staff members in the plaintiff’s company, it had nothing to do with the present issue. This is because all the plaintiff was expected to do was to act reasonably in the ordinary course of business. I find such allegation by the defendants far-fetched. 65.Furthermore, the defendants submitted that Ms Leung was unable to give evidence in relation to the plaintiff’s inaction, because she only began her employment in October 2015. It was the case of the defendants that they had sent more than one email to the plaintiff in early 2015 to request for early termination of the Tenancy Agreement and to request the plaintiff to look for substitute tenants. The sending of these emails does not appear to be disputed by the plaintiff. However, even if more than one email were sent to the plaintiff, the defendants’ acts were equivocal ones. Those emails were no more than the wishful thinking or subjective desire of the defendants in asking the plaintiff for indulgence by securing new tenants. This court must stress that once a tenancy agreement is signed, both parties shall abide by those conditions strictly, unless it is varied with the two parties’ meeting of minds. Therefore, the emails in early 2015 could not assist the defendants. 66.Besides, the defendants continued to argue that the increase of rent for a prospective tenant was unreasonable. The defendants submitted and referred to some websites and news clippings. Since these materials were not produced at the hearing, and the plaintiff had no opportunity to cross-examine the defendants on those materials, it would not be fair to the plaintiff for the defendants to refer to and rely on them at this late stage. Nonetheless, on a de bene esse basis, I have perused the materials. I find the materials irrelevant and would not attach any weight to them because:
67.The defendants also alleged that as the layout of the tender documents looks similar in appearance, it is suspected that they are affiliated companies. I disagree, because these are purely matters of speculation without foundation. The documents were standard tender forms sent out by the plaintiff to the companies, when the plaintiff was inviting tenders. Since the documents were all sent out by the plaintiff, they would undoubtedly have the same appearance. 68.I am not persuaded by the defendants’ closing submissions. K. PLAINTIFF’S FINAL SUBMISSIONS 69.I have perused the plaintiff’s final submissions dated 18 June 2019. I agree with the contents, analysis and reply in its entirety, save and except paragraphs 19 and 20 in fairness to the defendants. This is because the defendants are acting in person and they are not heard by the court about the basis of costs (ie indemnity basis as requested by the plaintiff) and about the defendants’ objections, if any, regarding the items and quantum in the statement of costs submitted by the plaintiff. L. CONCLUSION AND AWARD 70.For the above reasons, the defendants are not able to prove on the balance of probabilities that the plaintiff failed to discharge the duty to mitigate its loss and damages. 71.I accept the plaintiff’s case. I reject the defendants’ case. Therefore, it is my finding that the plaintiff’s claim of loss and damages were reasonably incurred. I am further satisfied that the plaintiff acted reasonably and fairly to the defendants by mitigating its loss and damages caused by the 1st defendant. 72.The loss claimed by the plaintiff for the Pre-vacation Period is HK$205,964.69. After the deduction of the deposit of HK$469,506.00 and the proceeds of the goods sold at HK$3,000.00, the loss claimed for the Remaining Period is HK$560,259.76. The total sum claimed thus is HK$766,224.45. 73.In the premises, I allow the plaintiff’s claim of HK$766,224.45 in full against the 1st defendant under the Tenancy Agreement and against the 2nd defendant under the Guarantee. M. COSTS AND INTERESTS 74.In addition to the loss claimed above, the plaintiff also claims its costs and interests. The plaintiff is entitled to its costs pursuant to Section VIII Clause 5(a)(ii) of the Tenancy Agreement. 75.I am aware of the defendants’ resentment of the plaintiff’s inaction regarding the 2 mediation notices. However, pursuant to my findings and judgment above, I find the defendants’ allegations and assertions without any substance. The defendants’ case was meritless and the trial for assessment of damages was unjustified. In exercising my discretion as to costs, I nevertheless opine that costs shall follow event. I make an order nisi that the defendants do pay costs of the assessment of damages and the action. Costs shall be awarded to the plaintiff, to be taxed if not agreed. There shall also be a certificate for counsel. 76.This costs order is to be made absolute upon the expiration of 14 days from the date of the handing down of this decision. 77.Insofar as the Pre-vacation Period claim is concerned, the plaintiff is entitled to interests pursuant to Section VIII Clause 5(a)(iv) of the Tenancy Agreement at a rate of 1.25% per month from the date due for payment to the date of actual payment. 78.As to the claim under the Remaining Period, prime rate plus 1% will be the applicable pre-judgment rate from the date of Writ to the date of judgment, while judgment rate will be applicable after judgment until the actual date of payment. 79.Lastly, I thank Mr Chan for his helpful assistance.
Mr Avery Chan, instructed by Woo Kwan Lee & Lo, for the plaintiff The 1st defendant was represented by its company director Mr Wai, Brian Stephen King Yin The 2nd defendant was not legally represented, but appeared in person |
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