Bonny Ace Ltd v. Kr Space (HK) Ltd
Read the full judgment text of HCA 614/2019 on BabelCite. This High Court CFI judgment was delivered on 4 November 2022.
1. The plaintiff commenced this action by Writ of Summons issued on 8 April 2019 in respect of a commercial tenancy dispute over premises known as the whole of 11/F, 12/F, 15/F, 16/F, 17/F, 18/F and 19/F, One Hennessy (“Building”), No 1 Hennessy Road, Hong Kong (collectively, “Premises”).
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HCA 614/2019 [2022] HKCFI 3301 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 614 OF 2019 _______________
_______________ Before: Master Benny Lo in Court Dates of Hearing: 8 June 2022 Date of Judgment: 4 November 2022 ___________________ J U D G M E N T (on assessment of damages) __________________ A. Introduction 1.The plaintiff commenced this action by Writ of Summons issued on 8 April 2019 in respect of a commercial tenancy dispute over premises known as the whole of 11/F, 12/F, 15/F, 16/F, 17/F, 18/F and 19/F, One Hennessy (“Building”), No 1 Hennessy Road, Hong Kong (collectively, “Premises”). 2.The plaintiff’s claim is straightforward. It contends that, despite having executed a written contract agreeing to take up a 5-year lease of the Premises from it, the defendant had eventually failed or refused to do so as a result of which it has suffered loss and damage in the form of rental income, expenses and various other items. 3.On 11 May 2020, Master Dick Ho ordered that:-
4.The assessment of damages was fixed to be heard before me on 8 June 2022. 5.Despite the defendant’s absence at the hearing, I was satisfied on the affidavits of service filed by the plaintiff that sufficient notice had been given to the defendant of the hearing and it was appropriate to proceed to hear the plaintiff’s evidence and submissions. 6.This is my judgment on the assessment of damages. B. FACTUAL BACKGROUND 7.The plaintiff was at the material times the registered owner of the Premises. 8.By an offer letter dated 30 April 2018 issued by Chinachem Agencies Limited (as the plaintiff’s agent) and countersigned by the defendant on 9 May 2018, the plaintiff as lessor agreed to let and the defendant as lessee agreed to take up the lease of the Premises for a term of 5 years at a monthly rent of HK$7,395,811.00 (“Agreement”). 9.The Agreement provides, inter alia, as follows:-
10.On 10 May 2018, the defendant paid the plaintiff’s agent the initial deposit in the sum of HK$7,395,811.00 pursuant to clause 12 of the Agreement. 11.On 14 February 2019, the Building Authority issued an occupation permit in respect of the Building. 12.Accordingly, on 18 February 2019, the plaintiff through its solicitors issued a written notice to the defendant, pursuant to clause 28 of the Agreement, stating that the lease of the Premises shall commence on 1 April 2019 and end on 31 March 2024. The plaintiff’s solicitors also requested that the defendant execute the enclosed deed of lease and return the same together with the agreed further deposits by 5 March 2019. 13.On 4 March 2019 and 11 March 2019, the defendant sent two emails to the plaintiff respectively confirming, in Chinese and English, that it would no longer be taking up the lease of the Premises and that the plaintiff may let the Premises to any third party. 14.By a letter dated 22 March 2019, the plaintiff through its solicitors informed the defendant that its failure to take up the lease under the Agreement amounted to a unilateral repudiation of the Agreement. The plaintiff therefore accepted the defendant’s repudiation and forfeited the initial deposit paid by the defendant. C. EVIDENCE 15.For the purpose of this assessment, the plaintiff has filed a witness statement on quantum of Ms Wong Hoi Yi Vicky (“Ms Wong”) who was the Assistant Manager – Leasing of the Chinachem Group. 16.Ms Wong attended the assessment hearing on 9 June 2022, adopted the contents of her witness statement and provided elaborations on the relevant matters to the court. 17.Apart from the above background matters, Ms Wong’s evidence essentially focussed on two areas:- (i) first, the steps taken by the plaintiff in mitigation of loss; and (ii) second, the loss and damage suffered by the plaintiff. A summary of her evidence is provided below. C1. Mitigation of loss 18.Shortly after the termination of the Agreement, the plaintiff through its solicitors wrote to the Commissioner of Stamp Revenue and explained the late stamping of the Agreement by reference to the defendant’s failure to take up a lease by 5 March 2019. 19.Having considered the plaintiff’s representations, the Commissioner of Stamp Revenue imposed a late-stamping penalty of HK$117,500.00 on top of the stamp duty of HK$797,874.00 which was assessed to be payable in respect of the Agreement. 20.As regards locating replacement tenants, the plaintiff engaged professional agents in marketing and advertising the Premises for re-letting. These include household names such as Jones Lang LaSalle, Colliers, Centaline and Cushman & Wakefield. 21.With the aforesaid effort, the plaintiff eventually succeeded in re-letting all floors of the Premises to third party replacement tenants: the 19/F by July 2019, the 18/F by October 2019 and the 11/F, 12/F, 15/F, 16/F and 17/F (“Remaining Floors”) by November 2020. 22.The lease of the whole of the 19/F was granted to one Amber Hill Holdings Limited under a Tenancy Agreement dated 5 July 2019 (“19/F TA”). Under the 19/F TA, inter alia:-
23.As to the replacement tenancy for the whole of the 18/F, it was granted to one FIS Systems (Hong Kong) Limited under a Deed of Lease dated 24 October 2019 (“18/F Lease”). Under the 18/F Lease, inter alia:
24.As for the Remaining Floors, a replacement tenancy agreement was entered into with the Government in the name of Financial Secretary Incorporated under an Agreement dated 16 November 2020 (“Government TA”). Under the Government TA, inter alia:-
C2. Loss and damage 25.On the above basis, and as set forth in Ms Wong’s witness statement, the plaintiff has quantified the loss and damage suffered by it as follows:-
D. ASSESSMENT OF DAMAGES 26.Where a tenant fails to take up a lease as per the terms of an agreement, the landlord is entitled to recover damages representing rent, management fees and air-conditioning charges, and rates which it would otherwise have received for the term of the lease subject to the deduction of any loss it could have avoided by taking reasonable steps to mitigate: Kin Tong Land Investment Co Ltd v Capella Ltd [2019] HKDC 65 at §24; World Light Limited v MegaSuper Market Limited [2018] HKCFI 2864 at §§28-30. 27.The onus of proving the plaintiff’s failure to have acted reasonably in taking steps to mitigate its loss consequent upon the breach is on the defendant: Chitty on Contracts (32nd ed) §§26-081 to 26-082. In the present landlord and tenant context, the plaintiff landlord is under no obligation to do more than reasonably necessary to market the premises: Wing Siu Co Ltd v Goldquest International Ltd. (unrep, HCA 4145/2001 & HCA 3183/2001, 18 August 2006) per Master de Souza at §15. D1. Loss of rent for periods left vacant prior to replacement tenancies 28.The first item claimed for each floor of the Premises is the loss of rent for the periods left vacant, from the date on which the defendant was obliged to take up a formal lease of 1 April 2019 to the respective starting date of the replacement tenancies (after the expiry of any rent-free periods granted under such replacement tenancies). 29.On the evidence, the plaintiff took around 3 months (19/F), 7 months (18/F) and 20 months (Remaining Floors) respectively to re-let to replacement tenants. The defendant has adduced no evidence taking issue with the time taken for the re-letting, or suggested that the terms of the replacement tenancies were in any way unreasonable. 30.The plaintiff’s calculation for this item takes into account the 6 months of rent-free period under the Agreement and seeks to arrive at an effective average monthly rent as the basis of calculation. This approach is in my view acceptable. 31.On the plaintiff’s above calculation, I accept the claimed damages in the amounts of HK$3,805,070.40 (19/F), HK$8,561,408.40 (18/F) and HK$98,140,793.81 (Remaining Floors) under this head. D2. Loss of rent for remaining term of the Agreement 32.The second item claimed relates to any loss of rent for the remainder term of the Agreement. This essentially represents any reduction from the effective average monthly rent under the Agreement to the rent under the respective replacement tenancies. 33.Starting with 19/F, the period claimed is from 1 August 2019 (after the expiry of the 2-month rent-free period under the 19/F TA) to 31 May 2022 (expiry of the initial 3-year term under the 19/F TA). On top of it, the plaintiff claims loss of rent for the period left vacant from 1 June 2022 until the expiry of the term under the Agreement (31 March 2024). During her testimony, Ms Wong confirmed that the relevant tenant for 19/F did not exercise the option to renew, and that no new tenant was interested to take up the floor as of the date of the hearing. I accept the plaintiff’s calculation and assess this item in the net amount of HK$7,614,884.40 (ie HK$9,512,676.00 – HK$1,897,791.60). 34.As to 18/F, the period claimed is from 1 January 2020 (after the expiry of the 2-month rent-free period under the 18/F Lease) to 31 March 2024 (expiry of the term under the Agreement). On the plaintiff’s calculation, I assess this item in the amount of -HK$3,977,272.40 which is to be deducted from damages awarded under other heads. 35.As regards the Remaining Floors, the period claimed is from 21 December 2020 (after the expiry of the rent-free period on 20 December 2020 under the Government TA) to 4 November 2023 (expiry of the initial 3-year term under the Government TA). On top of it, the plaintiff claims loss of rent for the period left vacant from 5 November 2023 until the expiry of the term under the Agreement (31 March 2024), on the assumption that the option to renew under the Government TA will not be exercised. 36.At the hearing, Ms Wong informed the court that the Remaining Floors were rented under the Government TA to serve as Government offices. She accepted that there is no basis for her to assume that the option to renew under the Government TA will not be exercised. As she explained, as the question of renewal would only come up for discussion around 9 months before the expiry of the initial term, the issue of option to renew had not yet come up for discussion with the tenant. 37.Given the uncertainty of the evidence, I see no basis to assess damages in respect of the Remaining Floors on the assumption that the option to renew will not be exercised. In view of the nature of the tenant and the total floor space, it is not unlikely that the option to renew will be exercised. However, as the evidence stands I would err on the side of caution and proceed on the basis of an even chance that the option will be exercised upon expiry of the initial term. Indeed the plaintiff has made no submission specifically against this approach. Based on the plaintiff’s revised calculation lodged after the hearing, I assess this item for the Remaining Floors in the amount of HK$24,477,449.29 (ie ((HK$20,716,862.15 + HK$4,597,793.40) + HK$23,640,243.03[4]) / 2)) D3. Loss of management fees and air-conditioning charges 38.Under clause 10 of the Agreement, the defendant was obliged to pay a monthly management fee and air-conditioning charge at the minimum rate of HK$8.50 per square foot. 39.The periods in respect of which these items are claimed for the different floors mirror those claimed for the loss of rent under Sections D1 and D2 above. As for the loss of rent for the remaining term of the Agreement, the plaintiff lodged a revised calculation for these items in respect of the Remaining Floors on the alternative assumption that the option to renew under the Government TA will be exercised[5]. 40.Adopting the same approach, I assess the plaintiff’s loss under this head as follows:-
D4. Loss of rates (less any rates concession) 41.Under clause 11 of the Agreement, the defendant was obliged to pay government rates quarterly in advance at 5% on rental payable per month with necessary adjustments made upon formal assessment by the Rating and Valuation Department. 42.Due to the rates concessions made by the Hong Kong Government in the financial years 2018/2019 and 2019/2020, the plaintiff has submitted no claims for loss of rates up to and including 30 June 2020. Apart from this, the periods in respect of which these items are claimed mirror those claimed for the losses under Sections D1 to D3 above. 43.As for the loss of rent for the remaining term of the Agreement, the plaintiff lodged a revised calculation for loss of rates in respect of the Remaining Floors on the alternative assumption that the option to renew under the Government TA will be exercised. The plaintiff also lodged further evidence showing the rates payable for 19/F from 1 June 2022 to 31 March 2024.[6] 44.Applying the same approach, I assess the plaintiff’s loss under this head as follows:-
D5. Legal fees including half-share stamp duty for replacement tenancies 45.The plaintiff next claims the legal fees incurred and/or the half-share of the stamp duties paid in respect of the replacement tenancies. 46.I consider these items to have been reasonably incurred following the defendant’s breach of the Agreement and find that they are recoverable. 47.In the absence of evidence to the contrary, I hold that the quantum claimed by the plaintiff to be reasonable and award the sums of HK$32,996.50 (19/F), HK$65,132.50 (18/F) and HK$124,590.00 (Remaining Floors, half-share stamp duty only) in full. D6. Agency fees 48.The plaintiff further claims agency fees paid to Jones Lang LaSalle Limited for arranging the replacement tenancies for the 19/F TA and the 18/F Lease. No claim for agency fee has been made in respect of the Government TA. 49.I accept that agency fees were reasonably incurred by the plaintiff for the purpose of finding replacement tenants for the Premises. In the absence of evidence to the contrary, I hold the quantum claimed by the plaintiff to be reasonable and award the respective sums of HK$1,258,856.20 (19/F) and HK$415,660.00 (18/F) in full. D7. Future stamp duty after the expiry of the replacement tenancies 50.In respect of 19/F and the Remaining Floors, the plaintiff also claims future stamp duty after the expiry of the respective replacement tenancies at a sum to be assessed. 51.The apparent basis for claiming this item is the assumption that the option to renew under the 19/F TA and the Government TA will not be exercised, and in the event that new tenants are found for the relevant floors, the plaintiff will incur stamp duty expenses in relation to those further tenancies for the remaining term of the Agreement. 52.In relation to the Remaining Floors, I have already explained that it cannot be assumed that the option to renew under the Government TA will not be exercised. In relation to both the 19/F and the Remaining Floors, the claim for such future stamp duty is too speculative at present. It is also not supported by any evidence in the amount claimed. 53.I am not satisfied that this head of claim should be allowed. D8. Stamping costs for the Agreement 54.Finally, the plaintiff claims the stamping costs incurred in respect of the Agreement itself. This includes HK$398,937.00 being the half-share of the stamp duty paid by the plaintiff for the defendant, and HK$117,500.00 being the late-stamping penalty. 55.Clause 27 of the Agreement stipulates that the stamp duty payable shall be borne by the plaintiff and the defendant in equal shares. By the fact that the late-stamping penalty was only incurred because of the defendant’s refusal to execute a formal lease, it is also reasonable that the defendant shall be made liable to pay the late-stamping penalty. 56.I would therefore allow these sums in full. E. CONCLUSION 57.In summary, I assess the damages payable by the defendant as follows:-
58.After deducting the initial deposit paid by the defendant in the sum of HK$7,395,811.00, the net total amount of damages payable by the defendant to the plaintiff is therefore HK$150,011,648.81 (ie HK$15,964,942.82 + HK$5,771,550.50 + HK$135,154,529.49 + HK$516,437.00 – HK$7,395,811.00). 59.The plaintiff also claims interest on the assessed damages at the rate of 1% per annum above the prime rate from the date of the Writ of Summons (ie 8 April 2019) to the date of final judgment and thereafter at judgment rate until payment in full. 60.I find this claim for interest to be reasonable and so order. 61.Finally, the plaintiff claims costs of this assessment of damages in the total sum of HK$147,818.00. Having reviewed the plaintiff’s statement of costs for summary assessment and in the absence of any comments from the defendant, I consider this amount of costs to be largely reasonable and assess the plaintiff’s costs at HK$135,000.00. 62.It remains for me to thank Ms Pang for her assistance.
Ms Cherry Pang Mei Ngan of Ford, Kwan & Company, for the plaintiff The defendant was unrepresented and absent [1] Despite the fact that the Government TA provide for three rent-free periods of (i) 5 November 2020 to 20 December 2020 (both days inclusive); (ii) 5 November 2021 to 4 December 2021 (both days inclusive); and (iii) 5 November 2022 to 4 December 2022 (both days inclusive), the plaintiff has only relied on the first of these rent-free periods in Ms Wong’s evidence and its solicitors’ submissions. [2] This is the corrected figure as per the letter of the plaintiff’s solicitors dated 25 October 2022. [3]This is the corrected figure as per the letter of the plaintiff’s solicitors dated 25 October 2022. [4] See the letter from the plaintiff’s solicitors dated 10 June 2022. [5] See the letter from the plaintiff’s solicitors dated 10 June 2022. [6] See the letter from the plaintiff’s solicitors dated 10 June 2022. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment