Vember Lord Ltd v. The Swatch Group (Hong Kong) Ltd
Read the full judgment text of HCA 1113/2020 on BabelCite. This High Court CFI judgment was delivered on 13 July 2023.
1. This is the assessment of damages in respect of summary judgment entered in favour of the Plaintiff on 23 June 2021 in HCA 1113/2020 (“ HCA 1113 ”) and HCA 1114/2020 (“ HCA 1114 ”) respectively. In both actions, it was ordered that the Defendant is to, inter alia , pay the Plaintiff damages to be assessed.
Cited by 3 cases · Cites 7 cases
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HCA 1113/2020 [2023] HKCFI 1779 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NOS 1113 & 1114 OF 2020 ________________________
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_________________________________ JUDGMENT _________________________________ INTRODUCTION 1.This is the assessment of damages in respect of summary judgment entered in favour of the Plaintiff on 23 June 2021 in HCA 1113/2020 (“HCA 1113”) and HCA 1114/2020 (“HCA 1114”) respectively. In both actions, it was ordered that the Defendant is to, inter alia, pay the Plaintiff damages to be assessed. 2.The Plaintiff seeks to recover the sum of HK$11,802,765.54 in HCA 1113 and the sum of HK$24,034,983.74[1] in HCA 1114 for damages arising out of the Defendant’s breach of two tenancy agreements. FACTUAL BACKGROUND 3.The following are the undisputed/indisputable facts. 4.The Plaintiff belongs to the CK Asset group of companies. At all material times, the Plaintiff was the landlord of Shop G1 (“Shop G1”) and Shops G3 to G5 (“Shops G3-G5”) of China Building, 29 Queen’s Road Central (collectively, “Shops”). 5.The Defendant carried on business as a retailer of watches under, inter alia, the “Swatch” and “Blancpain” brand names. The Defendant was the tenant of the Shops. 6.The tenancy agreement for Shop G1 is dated 22 August 2018, and provides that the premises are let for a term of 3 years from 16 June 2018 to 15 June 2021. The shop was to be used exclusively for the sale of watches under the “Swatch” brand. The monthly rent (exclusive of government rent, rates, extra air-conditioning charges, management fees, utility, and other outgoings) was HK$1,350,000, plus a turnover rent based on 15% of the amount that gross turnover exceeded the basic rent for that calendar month. The Defendant paid a deposit of HK$4,086,069. 7.The tenancy agreement for Shops G3-G5 is dated 12 March 2019, and provides that the premises are let for 3 years, from 4 January 2019 to 3 January 2022. The shops were to be used exclusively for the sale of “Blancpain” brand watches. The monthly rent (exclusive of government rent, rates, service charges and other outgoings) was HK$1,800,000. The Defendant paid a deposit of HK$5,454,582. 8.Both tenancy agreements provided for a rent-free period subject to the Defendant’s due performance and observance of the terms and conditions of the agreements:-
9.From December 2019 onwards, without the Plaintiff’s consent, the Defendant ceased to pay full rent and instead paid sums equivalent to 70% of the monthly rents under the respective tenancy agreement. 10.On 7 May 2020, the Plaintiff cut off the air-conditioning supply to the Shops. On 17 June 2020, the Plaintiff obtained warrants of distress against the Defendant. Upon the execution of the warrants of distress on 18 June 2020, the Defendant ceased to conduct business at the Shops and commenced demolition works. 11.On 3 July 2020, the Writs in HCA 1113 and HCA 1114 were issued and were served on the Defendant on 6 July 2020. 12.The Defendant completed the demolition works and returned the keys of the reinstated Shops to the Plaintiff on 31 July 2020 and 3 August 2020 for Shop G1 and Shops G3-G5 respectively. 13.On 23 June 2021, pursuant to the Plaintiff’s applications, Master Rebecca Lee gave summary judgment in both actions for payment of arrears of rent and other charges (as particularized in the respective Statement of Claims in both actions) and ordered damages to be assessed. 14.The Defendant appealed against the summary judgments. In the appeal, the Defendant relied on the “extraordinary circumstances” caused by social unrest and the Covid-19 pandemic and argued that it was entitled to an abatement of rent, or that the tenancy agreements were frustrated. The Defendant’s appeal was dismissed by DHCJ Le Pichon on 20 January 2022[2] and also by the Court of Appeal (Chu VP, Yuen and Chow JJA)[3] on 15 March 2023. 15.Subsequent to the Defendant’s delivery of vacant possession of the Shops, the Plaintiff entered into replacement tenancies or licenses. 16.In respect of Shop G1:-
17.In respect of Shops G3-G5:-
WITNESSES 18.The Plaintiff called one factual witness, Miss Sin Ka Yan (“Ms Sin”), who is a Senior Marketing Manager of Hutchison Property Group Limited (an associated company of the Plaintiff), to give oral testimony. Ms Sin has filed one witness statement in each action. 19.In her evidence, Ms Sin explained the damages suffered by the Plaintiff and the steps that the Plaintiff had taken to mitigate its loss caused by the Defendant’s repudiation of the tenancy agreements:-
20.Ms Sin’s evidence is disputed by the Defendant for reasons explained at §§34-35 below. In particular, the Defendant has challenged Ms Sin’s credibility as well as the following factual assertions:-
21.Both parties called a valuation expert to give oral testimony on the market rent of the Shops at various dates, being the dates on which the Shops were returned by the Defendant to the Plaintiff and each of the dates on which the replacement licenses/tenancies were entered into. The Plaintiff’s expert is Mr Keith LH Siu (“Mr Siu”) of RHL Appraisal Limited and the Defendant’s expert is Mr Denys Lok Ping Kwan (“Mr Kwan”) of CS Surveyors Limited. 22.The market rent assessed by the two experts is as follows:-
THE PLAINTIFF’S CASE 23.The Plaintiff’s case may be summarized as follows. 24.Mr Pao SC, for the Plaintiff, submitted that the Defendant has failed to plead its allegation that the Plaintiff failed to mitigate its loss with sufficient particulars. The Defendant does not positively aver in its Answers to the Statement of Damages what the Plaintiff ought to have done, but did not do, in the discharge of its duty to mitigate. This is fatal to any case that the Defendant intends to run on mitigation. 25.Without prejudice to this position, the Plaintiff submitted that it took reasonable steps to market and re-let the Shops after their return:-
26.The Plaintiff’s case is that expert evidence is of little relevance because on the facts of this case the Plaintiff has acted reasonably in discharging its duty to mitigate its loss arising from the Defendant’s breach. The best evidence of the market rent of the Shops at the time when the Plaintiff entered into the replacement leases is the actual rent that it managed to secure. There is no need to resort to comparable analysis, when the direct evidence is available and clear. 27.Insofar as expert evidence is relevant, the Plaintiff submitted that Mr Kwan’s evidence is flawed in the following respects:-
28.If necessary, the Plaintiff invited the Court to accept the evidence of Mr Siu in preference to that of Mr Kwan. 29.In relation to its claim for claw-back for the rent-free period due to the Defendant’s breach of the agreements, the Plaintiff’s submissions were that:-
30.The Plaintiff seeks an order that interest should be paid on the amount of damages awarded at 1% above the HSBC prime rate from 3 July 2020 until judgment, and thereafter at judgment rate until full payment. The Plaintiff does not accept that there should be any reduction to the period in which interest is ordered due to the delay caused by the Plaintiff’s application for leave to adduce expert evidence on 5 May 2022:-
31.As for costs, the Plaintiff seeks costs on a solicitor and own client basis. THE DEFENDANT’S CASE 32.The Defendant’s case may be summarized as follows. 33.Mr Keith Chan, for the Defendant, submitted that the Plaintiff’s contention that the Defendant has not adequately pleaded its case of mitigation is unfounded. The Defendant has no quarrel with the proposition that a defence of mitigation must be pleaded and particularized, but the Defendant has done this. 34.The Defendant submitted that in assessing whether the Plaintiff had taken all reasonable steps to mitigate its loss, the evidence of Ms Sin should be given little weight. Her oral evidence departed significantly from her witness statements and she had a clear tendency to come up with new material in Court which was never mentioned in her witness statements. In particular:-
35.On Ms Sin’s credibility, the Defendant further submitted that the Court should take into account the fact that Ms Sin is an employee of Hutchison, occupying a senior managerial position, and has been working for them for the past 18 years. 36.The Defendant submitted that Ms Sin’s evidence and the documentary evidence demonstrate that the Plaintiff has fallen short of its duty to take all reasonable steps to mitigate its loss:-
37.The Defendant made specific points of attack on the steps taken by the Plaintiff to re-let each of the Shops. In essence, it submitted that the Plaintiff failed to take sufficient steps to negotiate higher rents for the leases/licenses that had been entered into. Ms Sin’s evidence at trial that there had been oral negotiations on the rent payable was not mentioned in her witness statements and are not believable. 38.As for the relevance of expert evidence on market rent, the Defendant submitted that the market rent is the best yardstick to establish a reasonable rent, and the duty to take reasonable steps to mitigate presupposes that the premises could and should have been rented out at such rent. The market rent is indicative of whether the Plaintiff had compiled with its obligation to take all reasonable steps to market and re-let the Shops. In the expert reports, “market rent” is defined as the estimated amount for which a property would be leased after proper marketing has been undertaken. It is no answer to say that the market condition was particularly dire due to Covid-19 and therefore the market rent is not probative. As explained by Mr Kwan, prevailing market conditions, including effects of the Covid-19 pandemic on the rental market, had already been taken into account through the use of market comparables to assess the market rent. 39.Mr Chan made the following criticisms of Mr Siu’s evidence:-
40.Mr Chan submitted that Mr Kwan’s evidence was cogent and credible and should be preferred to that of Mr Siu:-
41.As for the Plaintiff’s claim in relation to the rent-free period, the Defendant submitted:-
42.As for interest, the Defendant submitted:-
43.As for costs, the Defendant invited the Court to direct written submissions to be made, or to make a costs order on a nisi basis. DISCUSSION Whether the Defendant has properly pleaded its case on mitigation? 44.Having considered the parties’ submissions, I do not accept the Plaintiff’s argument that the Defendant has failed to properly plead its case on mitigation. 45.It is common ground that a tenant who wishes to set up a positive case that the landlord has failed to mitigate its loss must plead the allegation with particulars specifically in its defence (or, in its Answer to the Statement of Damages). The Plaintiff went further and argued that the Defendant ought to have pleaded (i) when exactly the Plaintiff ought to have re-let the Shops and (ii) for what exact rent or license fee. 46.I agree with the Defendant that none of the cases cited by the Plaintiff supports the proposition that a tenant’s case on the landlord’s failure to mitigate must be pleaded with such specific particulars. In particular, in Foxhill Investments Ltd v Sino Golden International Group Holdings Ltd [2021] HKCFI 3662 at §§14-15, whilst Master Sabrina Ho referred to the well-established principle that an allegation of a failure to mitigate must be pleaded with particulars, she did not make any observations on the extent of particulars required. In any event, the facts of Foxhill Investments are clearly distinguishable, as the defendant there did not file a defence or adduce evidence to show that the landlord had failed to mitigate its loss. 47.I am satisfied that the Defendant’s case on mitigation has been pleaded with sufficient particulars. The Defendant has expressly denied that the Plaintiff has taken reasonable steps to mitigate its loss and relied on the fact that: (i) Shop G1 was not re-let until 4 months later; (ii) Shops G3-G4 were not re-let until 6 months later; and (iii) the terms of the replacement leases, in particular the rent and the duration of the leases, are significantly less favourable to the Plaintiff than under the original tenancy agreements.[9] In my view, the Defendant has made it sufficiently clear that its case on mitigation is that the Plaintiff should have caused the Shops to be re-let at an earlier time, at a higher rent, and for a longer term than under the actual replacement tenancies. 48.In any event, as the Defendant pointed out, I cannot see any potential prejudice or unfairness to the Plaintiff arising from the Defendant’s alleged failure to sufficiently plead its case on mitigation. Indeed, none has been suggested by the Plaintiff. The Plaintiff understands the defence raised and has been able to meet that case. Whether the Plaintiff has mitigated its losses? 49.The applicable principles are not in dispute. 50.The Plaintiff has a duty to take all reasonable steps to mitigate its loss in the sense that it cannot claim any part of the damage it has suffered which is due to its neglect to take such steps. Whether the Plaintiff acted reasonably is a question of fact: McGregor on Damages (21st Ed) at §§9-014, 9-016. 51.The legal onus is on the Defendant to establish the Plaintiff’s failure to mitigate. Once the Defendant raises the issue of mitigation with sufficient evidence, the Plaintiff will bear a “heavy evidential burden” to provide evidence as to how it has mitigated its loss: McGregor on Damages at §§9-020, 9-115, citing Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC [2020] 4 All ER 807 at §216. 52.Where a landlord accepts a tenant’s repudiation, the landlord is expected to act reasonably and to take such necessary steps to re-let the vacant premises at market rent. The duty to mitigate is not onerous, and the landlord is not required to do anything other than in the ordinary course of business. The burden rests on the tenant to show that damage has not been mitigated: Wing Siu Co Ltd v Goldquest International Ltd (HCA 3183 & 4145/2001, 18 August 2006) at §§7-8 (Master de Souza); Silvercord Ltd v High Performance Sports Ltd [2020] HKCFI 1800 at §9 (Master Anthony HK Chan). 53.In the Defendant’s Reply Submissions,[10] Mr Chan confirmed it is not the Defendant’s case that the Court should infer from the experts’ views on the market rent on the valuation dates that “something must have gone wrong” and that the Plaintiff has not taken all reasonable steps to mitigate. The Defendant’s primary contention is that it is clear from the primary facts that the Plaintiff has not taken all reasonable steps to mitigate. It is only when the Court considers the primary facts to be equivocal on whether all reasonable steps have been taken, or once the Court concludes that the Plaintiff has not taken all reasonable steps, would expert evidence on market rent become relevant in guiding the Court’s assessment of the rent that would have been achieved had all reasonable steps been taken. I agree that this is the proper approach for the Court to take. 54.Ms Sin had explained the steps taken by the Plaintiff to mitigate its loss. Having seen and heard her evidence, and considering that together with contemporaneous documents, I accept that Ms Sin was an honest, credible, and reliable witness. I do not think that the matters raised by the Defendant (summarised in §§34-35 above) have casted doubt on the quality of Ms Sin’s evidence:-
55.In my view, bearing in mind that the duty to mitigate is not onerous, and that the Plaintiff was not required to do anything other than in the ordinary course of business, the Defendant’s criticisms of the steps taken, or not taken, by the Plaintiff to re-let the Shops fall short of showing that the Plaintiff has failed to discharge its duty to mitigate. 56.I also accept that it was reasonable for the Plaintiff to have waited until completion of the reinstatement works before including the Shops on the vacancy lists. Although the Plaintiff might have some idea as to the approximate length of the reinstatement works, the Plaintiff could not reasonably be expected to know exactly when the works would be completed. The Defendant and its contractors carried out the works, and the Plaintiff had no control over them. In the circumstances, instead of including the Shops on the vacancy lists when the Shops were not actually vacant, I find it reasonable for the Plaintiff to have instead approached individual estate agents and the existing tenant of Shop G2 (namely, Chow Tai Fook) on a more informal basis through phone calls, when the exact situation concerning the availability of the Shops could be more easily explained. In the end, the steps taken by the Plaintiff proved to be effective as it led to the Shop G5 lease. 57.I do not agree with the Defendant that the vacancy lists ought to have included “asking rents” for the Shops. In my view, the inclusion of “asking rents” or simply to state that the term or amount is “negotiable” is very much a matter of commercial judgment for the Plaintiff. Both options are within the ordinary course of business. In any event, I accept Ms Sin’s explanation as reasonable that “asking rents” were not included because of the concern that setting a too high asking rent would deter potential offers from being made and lead to prolonged vacancy of the premises. This is particularly so in light of the impact that the Covid-19 pandemic undoubtedly had on the property leasing market. 58.On a related note, I am unable to accept the Defendant’s submission that an adverse inference should be drawn from the redacting of other entries in the vacancy lists. The contention that redaction was done because there were other “asking rents” in the list was not suggested to Ms Sin in cross-examination and it ought to have been if such submission were to be made. I accept the Plaintiff’s submissions, in any event, which accord with common sense that the redactions were made because they contain confidential information relating to other properties in the Plaintiff’s portfolio and are irrelevant to the present proceedings. Further, as Mr Pao pointed out, the Defendant has never made any requests for unredacted versions of the lists or challenged the basis upon which the vacancy lists are redacted. 59.As for the Defendant’s submission that the Plaintiff should have included specific information about the Shops in the body of the e-mails attaching the vacancy lists, I do not think the Plaintiff could realistically be expected to include such information for all the shops listed on the vacancy lists. The same applies to the shopfront stickers and signages that were put up by the Plaintiff at the Shops. Potential tenants, especially those interested in renting a prime shop in the Central district, could well be expected to make inquiries with the Plaintiff if they were interested in further information (e.g. size, headroom and layout). 60.I do not accept the Defendant’s submission that the Plaintiff reasonably ought to have taken other steps to re-let the premises. I accept Ms Sin’s evidence that, in her experience, most deals are struck through agents, who would be adequately informed of vacancies through the vacancy lists. I agree with Mr Pao that to require the Plaintiff to indiscriminately call every agent and every existing tenant would be to place an excessive burden on it. As for other forms of advertisements (newspapers or websites), I do not think there is any basis to challenge Ms Sin’s evidence that these forms of advertisements would not be effective since prospective tenants for a prime shop in Central would tend to rely on the referral of estate agents rather than such forms of advertisements. Contrary to the Defendant’s submission,[11] the taking of reasonable steps in the ordinary course of business does not require a landlord to take steps which are likely or have been proven to be ineffective. 61.For the reasons explained in §54 above, despite the Defendant’s submissions, I accept Ms Sin’s evidence that oral negotiations had taken place between the Plaintiff with prospective tenants and/or estate agents acting on their behalf in relation to potential leases of the Shops. 62.As for Shop G1, whilst I accept that Ms Sin appears to have misunderstood the effect of the revised offer made on 18 November 2020 by 3i through its agent (being an improved offer, rather than a lower offer as suggested by Ms Sin in cross-examination), I do not think this has undermined the credibility of her evidence, bearing in mind the lapse of time and the fact that negotiations were not conducted by Ms Sin personally but by her colleague, Ms Gloria Chan, who reported to Ms Sin. The fact that the Plaintiff had received an improved offer is consistent with Ms Sin’s evidence that there had been negotiation of terms of the replacement leases, and that the Plaintiff had attempted to secure better commercial terms through negotiations. As for the Defendant’s complaint that the license fee did not change when the license was renewed 6 months later, given that the first license agreement was already based on an improved offer made by 3i, it is unsurprising that 3i was unwilling to agree to a further increase for the renewed license agreement. 63.As for Shop G5, I agree with the Plaintiff that it would be setting the bar too high and thus would be unrealistic to expect the Plaintiff to have continued to market the Shop to other potential tenants or agents when negotiations with Watch Gallery through Savills were on foot. This was especially so when the continuing negotiations eventually led to an increase in rent from HK$150,000 to HK$190,000 as agreed. 64.As for Shops G3-G4, I do not see any substance in the Defendant’s criticism of Ms Sin’s shift in her evidence from saying that negotiations with Centaline were done “mainly orally” to “completely orally”. Given the passage of time, it is unrealistic to expect the witness to give a definitive answer on whether there had ever been any non-oral negotiations. Further, there is no basis for the Defendant to suggest that little effort was put into the negotiations by the Plaintiff with Centaline (for the lease with MF Living) and/or Savills (for the lease with Chung Yuen Electrical). There is no guarantee that negotiations would necessarily lead to improved terms, especially against the poor market sentiment caused by Covid-19. In any event, negotiations with Centaline did lead to an improved offer as the Plaintiff was able to secure a significantly shortening of the term of the first license with MF Living. 65.Overall, I find from the primary facts that the steps taken by the Plaintiff (as summarised in §19 above) were sufficient to discharge the Plaintiff’s duty to mitigate its loss. On principle, subject to what is said below, the Plaintiff is entitled to recover its loss of rent and other income caused by the Defendant’s repudiatory breach in full. 66.It is common ground between the parties that expert evidence of market rent is not relevant if I find on the facts that the Plaintiff has discharged its duty to mitigate its loss. This I have done. Nevertheless, out of deference to the parties’ respective experts and the extensive submissions made by Counsel, I shall briefly express my views on the expert evidence in the following section of this Judgment. Expert Evidence 67.I accept that both Mr Siu and Mr Kwan have conducted their valuation of the Shops in a professional manner and have done their best to assist the Court. Both experts fairly accepted that their counterpart’s valuation is not outside the scope of a reasonable valuer and not unprofessional. 68.As for the basis for the valuation, I do not accept the Plaintiff’s criticism of Mr Kwan’s report on the ground that he had not seen the actual replacement leases when preparing his report. I accept Mr Kwan’s explanation that the Direct Comparative Method, which he adopted, involves looking at market evidence from market comparables, rather than the subject property itself. It is noteworthy that the Direct Comparative Method was also adopted by Mr Siu, who was also not provided with the actual replacement leases for the preparation of his report. Relatedly, I accept that the Direct Comparative Method is an appropriate basis for conducting valuation of market rent. 69.Even if (contrary to my finding) the Plaintiff failed to take all reasonable steps to mitigate its loss, in my view, it does not follow that damages must then be assessed on the basis that the Plaintiff should have achieved the market rent on the respective valuation dates. On the Defendant’s own case, evidence of market rent is “relevant”[12] or the “best yardstick”[13] for the Court to assess the rent that would have been achieved had all reasonable steps been taken, but not determinative of the same. 70.If evidence of market rent were relevant, having considered the experts’ opinions and heard their live testimony under cross-examination, I would have preferred the evidence of Mr Siu. In my view, there are some problems with Mr Kwan’s approach and choice of comparables, which have a major impact on the overall valuation result. 71.First, I see no basis for Mr Kwan’s approach of excluding Comparable 1 for the 2021 valuation dates simply because it was a transaction in 2020. When asked about this, Mr Kwan explained in cross-examination that he selected comparables based on the year in which the transaction occurred. As submitted by the Plaintiff and which I accept, such approach means that comparables are selected based not on proximity in time, but rather arbitrarily, the calendar year in which they happened to be transacted in. This resulted in Comparable 4 (15 June 2021) being used for the valuation date of 5 February 2021, whereas Comparable 1 (1 September 2020) was not, even though both comparables were broadly within the same time range from the valuation date. Besides, Mr Kwan’s explanation is inconsistent with his inclusion of Comparable 2 for the 2020 valuation dates, since Comparable 2 was a transaction dated 24 April 2019. 72.Second, I also see force in the Plaintiff’s submission that Mr Kwan’s exclusion of Comparables 1 and 2 for the 2021 valuation dates have led to the surprising result that for Shop G1, Mr Kwan’s opinion of market rent was HK$615,000 on 26 November 2020, and HK$1,141,000 on 4 May 2021, amounting to an increase of about 85%. By contrast, during the same period, the RVD Indices were at 168.5 and 171.2 in November 2020 and May 2021 respectively, representing a relatively modest increase of about 1.6%. Even though the RVD Indices are territory-wide, this does not explain the significant discrepancy between the RVD Indices and Mr Kwan’s opinion. In cross-examination, Mr Kwan was unable to explain how he could justify such discrepancy. 73.It seems that Mr Siu has adopted the more appropriate approach of using all four comparables for all valuation dates and adjusted for time through the adoption of the RVD Indices. Both experts accepted that the use of the RVD Indices is standard practice. I note that Mr Kwan himself had used the RVD Indices to make time adjustments for the comparables that he adopted. 74.Further, I agree with the Plaintiff that it would have been appropriate for Mr Kwan to have used the rental commencement date (18 January 2020) rather than the date of tenancy (15 June 2021) for determining the year in which Comparable 3 occurred. The rent would have been paid since the commencement of the term (January 2020), and the actual tenancy agreement serves to record the rent which the tenant had been paying all along. Thus, the level of rent payable under the tenancy agreement would reflect the market situation as at the date of rental commencement, not as at the date of tenancy. Comparable 3 should have been regarded as a 2020 rather than a 2021 transaction. 75.As for the specific categories of adjustments, the differences between the two experts are relatively insignificant. I accept that both approaches are within the scope of a professional valuer. For completeness, I would have preferred the adjustment factors adopted by Mr Siu:-
76.For the reasons I have given, had it been necessary, I would have accepted Mr Siu’s evidence of the market rent on the valuation dates. Rent-free period 77.I respectfully agree with and adopt the analysis of DHCJ To in The Center (76) Ltd (supra) at §§15-19 in relation to the nature of rent-free period clauses. The effect of a rent-free period clause is to suspend the primary obligation to pay rent under the tenancy agreement, which would be “re-activated” upon the tenant’s breach. Thus, in my view, a claim for rent which has become payable upon a tenant’s breach under a rent-free period clause is a claim for an agreed sum or debt, not damages. 78.For the following reasons, I am unable to agree with the Plaintiff that its claim for rent under the rent-free period is analogous to one for liquidated damages:-
79.I also agree with the Defendant that a debt claim is not within the scope of the present hearing. Master Rebecca Lee, who entered summary judgment in favour of the Plaintiff, only directed that “damages” for breach of the tenancy agreements be assessed.[14] The Plaintiff has not referred me to any authorities where the scope of an assessment of “damages” was held to include debt claims, which by definition are not claims for “damages”. On the other hand, the cases cited by the Defendant, namely The Center (76) Ltd at §52 and Cheong Ming Investment Co Ltd v IBCL Property Investment Ltd [2022] HKDC 683 at §§1-2 (Master Maurice Lam), although not conclusive, support the Defendant’s position that a claim for rent during the rent-free period ought to have been sought at the summary judgment stage.[15] 80.For those reasons, I would not allow the Plaintiff’s claims for rent during the rent-free period. Pre-Judgment interest 81.In the Plaintiff’s closing submissions, for the first time in these proceedings, pre-judgment interest is sought from 3 July 2020 until judgment. This is different from the position in its Statement of Damages and opening submissions,[16] where pre-judgment interest was only sought from 23 June 2021. In closing submissions, the Plaintiff contended that pre-judgment interest should accrue from 3 July 2020, when the writs in the present proceedings were issued, because that was when the Plaintiff started to be wrongly kept out of the pocket. Understandably, the Defendant complains about this belated change in stance. 82.In the absence of an application to amend the Statement of Damages, I do not see any basis for the Plaintiff’s claim for pre-judgment interest from 3 July 2020. In any event, even if such application were made in the Plaintiff’s closing submissions, I would have refused to accede to it in the absence of: (i) an application made by way of summons, (ii) any prior notice to the Defendant and (iii) any valid reason for the late application. 83.Thus, I would not allow the Plaintiff’s belated claim for pre-judgment interest for the period between 3 July 2020 and 22 June 2021. 84.As for the period between 10 March 2022 and 29 August 2022, I agree with the Defendant that interest should not run during the period of delay caused by the Plaintiff’s application for leave to file expert evidence. 85.I reject the Plaintiff’s suggestion that Mr Kwan’s evidence was, inter alia, “wholly unjustified”[17] which called for a response. For the reasons I have explained, although I would have preferred the evidence of Mr Siu, I do not think that Mr Kwan’s valuation was outside the scope of a reasonable valuer or was unprofessional. The Plaintiff’s criticism of Mr Kwan’s evidence in such terms does not sit well with the fact that even Mr Siu’s figures are, for the most part, noticeably higher than the actual rents achieved by the Plaintiff. In any event, I accept that, as submitted by the Defendant, the Plaintiff’s stated reason for not adducing expert evidence at the outset was because of its position that such expert evidence is irrelevant in principle. On the Plaintiff’s case, there should not have been any need to adduce its own expert evidence even if (contrary to my finding) the Defendant’s expert evidence could be said to be unreasonable. 86.I also do not agree with the Plaintiff’s fallback position that, alternatively, any reduction should only be for a period of 2 months, ie between the date of the order granting leave to the Defendant to adduce expert evidence on 10 March 2022 up to the Plaintiff’s application on 5 May 2022. Although the Court eventually acceded to the Plaintiff’s application, the Plaintiff was seeking an indulgence from the Court and it was reasonable for the Defendant to oppose the application, as reflected by Master Phoebe Man’s order that costs of the application be paid to the Defendant. Thus, the time taken for Master Phoebe Man to determine the Plaintiff’s application should also be attributed to the Plaintiff’s delay in seeking expert directions. 87.For those reasons, I would grant pre-judgment interest at 1% above the HSBC prime rate[18] from 23 June 2021 until the date of judgment, save as to the period between 10 March 2022 and 29 August 2022. Damages 88.I would assess the Plaintiff’s damages in HCA 1113 to be HK$9,168,088.12, the breakdown of which are as follows:-
89.I would assess the Plaintiff’s damages in HCA 1114 to be HK$20,404,306.80, the details of which are as follows:-
Costs 90.Overall, I consider that the Plaintiff is the successful party. There is no reason why costs should not follow the event and the Plaintiff should be entitled to the costs of the assessment. Having considered parties’ submissions, I would make a costs order nisi that the Defendant pay the costs of this assessment of damages, with certificate for counsel, to be taxed if not agreed, on a solicitor and own client basis. DISPOSITION 91.For the reasons above, I make the following orders. 92.In HCA 1113/2020:-
93.In HCA 1114/2020:-
94.The above costs order nisi shall become absolute unless an application to vary the same is made within 14 days of the date of this Judgment.
Mr Jin Pao SC, instructed by Woo Kwan Lee & Lo, for the Plaintiff. Mr Keith Chan, instructed by King & Wood Mallesons, for the Defendant. [1] In the Statement of Damages, the sum of HK$24,692,487.76 was claimed. However, in closing submissions, the claim has been reduced to HK$24,034,983.74 because of the reduction in agency fees claimed: see P’s Closing §102. [4] As revised in Annex 1 to P’s Closing [5] Tenancy agreement dated 29 August 2020 for All that Shop on the Ground Floor of 35 QRC, No.35 Queen’s Road Central, commencing on 1 September 2020 for a term of 5 years. [6] Tenancy agreement dated 22 March 2019 for Shop No. 14 on G/F, Yip Fung Building, Nos. 14-18 D’Aguilar Street, commencing on 24 April 2019 for a term of 3 years. [7] Tenancy agreement dated 15 June 2021 for Shop Z on Ground Floor, Euro Trade Centre, Nos. 13-14 Connaught Road Central & Nos. 21-23 Des Voeux Road Central, commencing on 18 January 2020 for a term of 2 years. [8] Tenancy agreement dated 8 February 2021 for Ground Floor of 41 D’Aguilar Street, commencing on 15 December 2020 for a term of 2 years. [9] HCA 1113 Answer §11; HCA 1114 Answer §12. [10] D’s Reply §§4-6. [11] D’s Closing §25.13. [12] D’s Reply §6. [13] D’s Opening §23.4. [14] See Orders made by Master Rebecca Lee dated 23 June 2021. [15] I note that the Plaintiff was represented by another senior and junior counsel at the summary judgment stage. [16] P’s Opening §10. [17] P’s Closing §96. [18] As agreed by the parties. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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