The One Property Ltd v. Northern Global Ltd
Read the full judgment text of DCCJ 3408/2023 on BabelCite. This District Court judgment was delivered on 17 May 2024.
1. This is the trial of a dispute arising from a tenancy agreement between the Plaintiff and the Defendant. The Plaintiff is and was at all material times the landlord of a shopping arcade in Tsim Sha Tsui and the Defendant was a tenant of one of the shop premises therein. In this action, the Plaintiff claims against the Defendant for arrears of rent and other losses in connection with the Defendant’s breach of the relevant tenancy agreement.
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DCCJ 3408/2023 [2024] HKDC 779 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 3408 OF 2023 ____________________ BETWEEN
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____________________ JUDGMENT ____________________ A. INTRODUCTION 1.This is the trial of a dispute arising from a tenancy agreement between the Plaintiff and the Defendant. The Plaintiff is and was at all material times the landlord of a shopping arcade in Tsim Sha Tsui and the Defendant was a tenant of one of the shop premises therein. In this action, the Plaintiff claims against the Defendant for arrears of rent and other losses in connection with the Defendant’s breach of the relevant tenancy agreement. 2.The present action was commenced by the Plaintiff in the High Court on 30 September 2021. The parties then filed their respective pleadings. However, the Defendant has not taken any substantive steps in these proceedings since the filing of its List of Documents in April 2022. On 7 November 2022, the Defendant’s solicitors obtained an order from the court ceasing to act for the Defendant. 3.By an order of the court dated 19 July 2023, these proceedings were transferred from the High Court to the District Court. On 7 December 2023, the court granted leave to the Plaintiff to set the case down for a 1-day trial to take place on 3 April 2024 (“the December Order”). 4.The Defendant did not attend the trial hearing on 3 April 2024. Since the granting of the December Order fixing the date of the trial, the Plaintiff had attempted to bring notice of the trial hearing to the Defendant by the following means:-
5.The Plaintiff submitted that the December Order and the Notice of Hearing (both of which give notice as to the date and venue of the trial) had been validly served on the Defendant pursuant to section 827 of the Companies Ordinance (Cap. 622), which provides that a “document may be served on a company by leaving it at, or sending it by post to, the company’s registered office.” The Plaintiff further submitted that despite the served documents were returned undelivered, this does not affect the validity of service under section 827 of the Companies Ordinance. 6.It appears to me to be settled law that documents served on a company at its registered office pursuant to section 827 of the Companies Ordinance (Cap. 622) constitute valid service even if they were returned undelivered, or that the party effecting service has actual knowledge that the company has moved out from that office at the time of service: See Ho Kwok Wah v Group Jewellery Arts Ltd [2000] 3 HKC 595, 598G-599D; Best Joint Investments Ltd v Kagani Ltd (unrep, CACV 417/2007, 23 August 2011) at §§48-49; AVC Property Development Company Limited v Joyful Grace Trading Limited (unrep, CACV 208/2016, 16 June 2017) at §31; Chan Pui Kwan v Ecrent (HK) Company Ltd [2018] HKCFI 1619, at §§10-12; Chan Man Hing v Dong Wai Ba Fong Logistics Company Ltd [2018] HKDC 1144, at §§8-9. 7.In the present case, I am satisfied that notice of the trial hearing as contained in the December Order and the Notice of Hearing had been validly served on the Defendant by post and by leaving the same at its registered office pursuant to section 827 of the Companies Ordinance (Cap. 622). It is immaterial that the documents were thereafter returned undelivered. Accordingly, I am satisfied that it is appropriate to proceed with the trial in the absence of the Defendant in accordance with Order 35 rule 1(2) of the Rules of the District Court, having regard to the pleaded defence where appropriate: Jotz Klaus-Bernhard Markus v Hamawy Tarek Mahmoud (unrep, HCA 1150/2013, 30 June 2017), at §4. B. FACTUAL BACKGROUND 8.As the Defendant did not adduce any evidence in opposing the Plaintiff’s claim, the Plaintiff’s evidence is essentially uncontested. I have considered the documentary evidence and the account of the Plaintiff’s witness (Mr. Chan Kam Yuen, the Assistant Leasing Manager of the Plaintiff) and I accept the Plaintiff’s evidence in the present case. As such, I am satisfied that the Plaintiff has established as proved the following factual background. 9.The Plaintiff (as landlord) and the Defendant (as tenant) first entered into a tenancy agreement in respect of a shop premises known as “Shop UG201 on the Upper Ground Floor 2, The ONE, 100 Nathan Road, Tsim Sha Tsui, Kowloon, Hong Kong” (“the Premises”) on 26 April 2013. The tenancy was subsequently renewed twice. At the second renewal, the parties entered into a tenancy agreement dated 23 April 2019 (“the Tenancy Agreement”), whereby the Defendant rented from the Plaintiff the Premises for a term of 3 years from 26 April 2019 to 25 April 2022. 10.Pursuant to Clause 3 of the Tenancy Agreement, the Defendant is required to pay the Plaintiff:-
11.The Tenancy Agreement also contained inter alia the following terms:-
12.In about February 2020, in view of the Covid-19 pandemic, the Plaintiff offered an ex-gratia 30% reduction on the Basic Rent. By a circular dated 13 February 2020 issued by the Plaintiff to “selected tenants” (the Defendant being one of them), the offer to reduce the Defendant’s rent was stated to be subject to inter alia the following terms and conditions:-
13.By similar circulars issued by the Plaintiff to the Defendant on 17 March, 9 April, and 22 May 2020, similar rent concessions were offered by the Plaintiff from March to May 2020. On 26 June, 24 July, and 21 August 2020, further circulars for rent concessions were issued to the Defendant on similar terms, except that the rent reduction offered was 20%. Essentially, there were ex-gratia reduction of the Basic Rent of 30% between February and May 2020, and 20% reduction between June to August 2020. The total rent concession given by the Plaintiff to the Defendant from February to August 2020 was HK$315,000. 14.There is no dispute that since 1 January 2021, the Defendant has failed to pay the Monthly Rent, service charges, promotional levy and rates in accordance with Clause 3 of the Tenancy Agreement. 15.In light of the non-payment by the Defendant, the Plaintiff instituted 2 distraint actions in January and February 2021. In the first distraint action, seizure of goods and chattels at the Premises took place on 1 March 2021 with an auction conducted on 9 March 2021. The net proceeds of sale after deducting the auctioneer’s expenses amounted only to HK$43.50. The expenses incurred in the first distraint action were HK$10,521. The net expenses incurred were therefore HK$10,477.50. 16.As rent was still outstanding in February 2021, the Plaintiff took out a second distraint action, which was withdrawn on 5 March 2021 following the approval and commencement of the first distraint action. The Plaintiff only incurred costs of HK$250 in the second distraint action. 17.On 9 March 2021, the Plaintiff re-entered the Premises and recovered possession of the same from the Defendant. Upon re-entry, the Plaintiff discovered that the Premises had been left with rubbish and was not in the original state and condition in accordance with Clause 5.6 of the Tenancy Agreement. In anticipation of carrying out reinstatement works, the Plaintiff erected hoarding boards around the Premises and incurred expenses in the sum of HK$42,000. 18.Since late-February 2021, the Plaintiff approached 2 retailers and offered a short-term license to them in respect of the Premises. At the end, one of the retailers, Rococo Fashion Limited (“Rococo”), accepted the Plaintiff’s offer. Rococo entered into a license agreement with the Plaintiff for use of the Premises from 8 April 2021 to 7 April 2022 at a basic license fee of HK$10,000 per month, and a turnover license fee being 20% of Rococo’s monthly gross receipt exceeding the basic license fee. Eventually, Rococo’s license was extended until October 2022. The Plaintiff received a total of HK$734,886.91 from Rococo for the period from 8 April 2021 to 25 April 2022 (i.e. the date on which the Tenancy Agreement would have expired). 19.It was in these circumstances that the Plaintiff commenced the present action against the Defendant on 30 September 2021. C. THE PLAINTIFF’S CLAIM 20.In this action, the Plaintiff claims against the Defendant for:-
21.The Plaintiff also accepts that the Security Deposit should be set off against the sums found due to the Plaintiff. D. THE DEFENDANT’S DEFENCE AND COUNTERCLAIM 22.In the Amended Defence, the Defendant admitted that it did not pay the Monthly Rent and other payables since 1 January 2020, but denied that it was in breach of the Tenancy Agreement. The Defendant did not advance a positive case to say why it was not in breach and simply put the Plaintiff to strict proof of the Defendant’s breach. 23.The Defendant further averred that even if there had been a breach by the Defendant, the Security Deposit, which exceeds the outstanding sums as at 9 March 2021, could and should be set off against any outstanding sums due. 24.The Defendant also denied that it was in breach of Clause 5.6 of the Tenancy Agreement in failing to yield up the Premises in good clean and proper condition. The Defendant again simply put the Plaintiff to strict proof of the Defendant’s breach. 25.Having denied that the Defendant was in breach, the Defendant alleged that by virtue of Clause 11.3 of the Tenancy Agreement, the Security Deposit should be returned to the Defendant within 30 days after delivering vacant possession to the Plaintiff. Thus, the Defendant counterclaimed for the return of the Security Deposit or alternatively the return of the balance of the Security Deposit after deducting any outstanding sums as at 9 March 2021. 26.In response to the Defendant’s pleaded case, Mr. Kwan Ping Kan, counsel for the Plaintiff, submitted at trial that:-
27.I have no hesitation in accepting the Plaintiff’s submissions. On the contrary, it is difficult to see why the Defendant was not in breach of the Tenancy Agreement when the Defendant had failed to pay the Monthly Rent and other payables since 1 January 2021. This is plainly a breach of Clause 3 of the Tenancy Agreement, where the Defendant covenanted to pay the Monthly Rent and other payables. 28.I also do not see how Clause 11.3 of the Tenancy Agreement assists the Defendant. Clause 11.3 of the Tenancy Agreement clearly provides that the Plaintiff shall return the Security Deposit within 30 days if (i) the Defendant had paid all money payable to the Plaintiff, and (ii) the Defendant is not in breach of any terms or conditions of the Tenancy Agreement. In the event of non-payment and/or breach, the Plaintiff has the right to apply the Security Deposit towards payment of any sums due and/or towards remedying any such breach without prejudice to other remedies that Plaintiff may have under the Tenancy Agreement. Mr. Kwan was clearly right in submitting that the existence of the Plaintiff’s rights under Clause 11.3 does not negate the breaches of the Defendant. 29.I thus have no hesitation in finding that the Defendant was in breach of the Tenancy Agreement in failing to pay the Monthly Rent, service charges, promotional levy, and rates since 1 January 2021. 30.I also find that the Defendant was in breach of Clause 5.6 of the Tenancy Agreement in failing to yield up the Premises in good clean and proper condition. I accept the unopposed evidence of the Plaintiff that the Premises was filled with rubbish with various fit outs that were not in the original state as required under Clause 5.6 of the Tenancy Agreement. 31.In relation to the counterclaim of the Defendant, the Defendant did not attend the trial hearing to prosecute its counterclaim. Regardless, having been satisfied that the Defendant was in breach of the Tenancy Agreement, the Plaintiff has the right to set off the Security Deposit against the sums due to the Plaintiff. As will be evident below, the amount of the Security Deposit is insufficient to cover the sums found due to the Plaintiff, and hence the Defendant is not entitled to the return of the Security Deposit or any balance thereof in any event. 32.Although I have found that the Defendant was in breach, it is still incumbent on the Plaintiff to prove and quantify its loss, to which I will turn next. E. OUTSTANDING PAYMENTS BEFORE RE-ENTRY 33.The Defendant, in its Amended Defence, has admitted to the non-payment of the Monthly Rent, service charges, promotional levy, and rates since 1 January 2021. The Defendant has also admitted to the amount of HK$357,135.74 as claimed by the Plaintiff. The Plaintiff is clearly entitled to claim this sum from the Defendant and I so find. 34.The Plaintiff claims interest on the sum of HK$357,135.74 at the rate of 3% above HSBC prime rate from 1 January 2021 to the date of judgment, and thereafter at judgment rate. The Plaintiff relies on Clause 3.7(a) of the Tenancy Agreement which provides that:-
35.I accept that the Plaintiff is entitled to the contractual interest rate of 3% above HSBC prime rate as provided for in Clause 3.7(a) of the Tenancy Agreement. However, since it does not expressly provide for interest at the same rate after judgment, I am of the view that such contractual rate only applies before judgment. 36.From 1 January 2021 to 17 May 2024 (i.e. the date of judgment), the Plaintiff is entitled to pre-judgment interest for a total of 1,232 days in the sum of HK$98,552.72 as follows:-
F. LOSS OF INCOME AFTER RE-ENTRY 37.It is well-established that where a landlord accepts a tenant’s repudiation of the tenancy agreement, the landlord is entitled to claim as damages against the tenant for rent of the unexpired term of the tenancy agreement, rates, service charges and reinstatement costs. This is subject to a duty on the landlord to mitigate its loss by acting reasonably and take such steps as are necessary 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: Roco Investment Limited v Guschlbauer (Hong Kong) Limited [2019] HKCFI 2272, at §§22 and 23; Foxhill Investments Limited v Sino Golden International Group Holdings Limited [2021] HKCFI 3662, at §14 38.In the present case, the Defendant has not alleged that the Plaintiff has failed to mitigate its loss. 39.I am satisfied that the Plaintiff had accepted the Defendant’s repudiatory breach of the Tenancy Agreement by re-entering the Premises on 9 March 2021. Accordingly, the Plaintiff is entitled to claim as damages against the Defendant for rent of the unexpired term of the tenancy agreement, rates, service charges, and promotional levy, subject to the deduction of the license fees in the sum of HK$734,886.91 received from Rococo from 8 April 2021 to 25 April 2022. 40.On the basis that the Basic Rent was HK$175,000 prior to 25 April 2021 and HK$185,000 thereafter, the loss of Monthly Rent from 10 March 2021 to 25 April 2022 was HK$2,490,026.89. 41.The loss of services charges (at HK$17,453.40 per month), promotional levy (at HK$1,531 per month), and government rates (as shown by schedule of government rates of the Premises prepared by the Rating and Valuation Department) from 10 March 2021 to 25 April 2022 were respectively HK$236,371.58, HK$20,734.35, and HK$46,585.73. 42.Taking into account the license fees received from Rococo, the total loss of Monthly Rent, services charges, promotional levy, and rates come to a sum of HK$2,058,831.64 (HK$2,490,026.89 + HK$236,371.58 + HK$20,734.35 + HK$46,585.73 – HK$734,886.91). G. REINSTATMENT COSTS AND COSTS OF DISTRAINT ACTIONS 43.The Plaintiff claims reinstatement costs of HK$42,000 incurred as a result of erecting hoarding boards around the Premises. In the Statement of Claim, the Plaintiff had initially claimed reinstatement costs in the total sum of HK$178,380.53. Mr. Chan explained that the initial claim was based on a quotation obtained from a contractor for reinstating the Premises to its original state. However, it was by fortuity that Rococo was subsequently located who had carried out renovation work at Rococo’s own expenses without the need for the Plaintiff to carry out reinstatement works. At the end, only the hoarding boards were erected at the expense of the Plaintiff. 44.I accept that the hoarding boards were erected in anticipation of reinstatement works on the Premises which was a result of the Defendant’s breach of its reinstatement obligations under Clause 5.6 of the Tenancy Agreement. I further accept the Plaintiff’s submissions that the mere fact that a subsequent tenant happens to not require reinstatement of the Premises does not discharge fully the Defendant of its reinstatement obligations. 45.Accordingly, I am of the view that the Plaintiff is entitled to claim as damages the sum of HK$42,000, being costs associated with reinstatement of the Premises. 46.The Plaintiff also claims the net expenses in the sum of HK$10,727.50 incurred in the 2 distraint actions in January and February 2021. By Clause 7.2 of the Tenancy Agreement, all costs and expenses incurred by the Plaintiff to recover outstanding payments shall be paid on a full indemnity basis. In Windsor House Limited v Shining Source Holding Group (Hong Kong) Limited [2019] HKCFI 279, at §§20-21, on the basis of a similar contractual provision to Clause 7.2 of the Tenancy Agreement, the court accepted that costs of distraint actions by the landlord are recoverable from the tenant in breach. I too am satisfied that the Plaintiff is entitled to the sum of HK$10,727.50 as claimed. H. REIMBURSEMENT OF RENTAL REDUCTION 47.The Plaintiff further claims that it is entitled to recover the rental concession in the total sum of HK$315,000 given to the Defendant between February and August 2020. However, it is far from certain on the pleadings what is the basis of the Plaintiff’s claim. In the Statement of Claim, only a short plead at §13 was pleaded in relation to the rental concession, which reads as follows:-
48.Apart from the pleaded passage quoted above, there was no plead regarding the basis of the claim. At trial, I asked Mr. Kwan the precise basis of the Plaintiff’s claim for reimbursement of the rental reduction. It is unclear to me whether the claim is made on the basis of breach of a separate contract, or breach of the Tenancy Agreement which was varied by the parties, or on the basis of unjust enrichment (such as an enrichment given through a contract that was subsequently found to be void). Whatever the basis may be, it is clear that none of them has been pleaded. I also informed Mr. Kwan that if the basis of the claim is not pleaded in the Statement of Claim, he may have to consider amending the pleadings before the Plaintiff is permitted to make such a claim. Of course, such a course would require the Plaintiff to make an application before I am in a position to consider whether such amendments should be allowed at trial and even if amendments were to be allowed to be made at this late stage, the issue of service on the Defendant and further conduct of the trial will also have to be considered. In the end, Mr. Kwan submitted that an amendment is not required and the Plaintiff intends to make further submissions in closing as to why the Plaintiff is entitled to make such a claim on the existing pleadings. 49.In the Plaintiff’s closing submissions, Mr. Kwan submitted that the correct analysis should be that the claim for rental reduction is based on the Tenancy Agreement that did not provide for rental reduction. As the Defendant did not pay full rents for all months, but instead, it paid reduced rents from February to August 2020, it is argued that it follows that there is a shortfall which the Plaintiff is now entitled to claim based on the Tenancy Agreement. According to Mr. Kwan, this is a straightforward enforcement of the Tenancy Agreement. 50.Mr. Kwan further submitted that the rental reduction notices contained in the circulars issued to the Defendant never constituted any valid variation of the obligations owed by the Defendant under the Tenancy Agreement as they were never supported by any consideration. Although the Defendant may potentially raise an argument based on promissory estoppel and/or waiver, the Defendant did not do so. 51.Essentially, the Plaintiff is alleging that the Defendant had breached the Tenancy Agreement by failing to pay full rent between February and August 2020. Mr. Kwan thus submitted further that there are no pleading issues since:-
52.With respect, I am unable to accept Mr. Kwan’s submissions that the pleadings had validly raised a contractual claim for breach of the Tenancy Agreement in respect of the rental reductions. The pleaded breaches complained of in relation to non-payment of rent are directed at those since 1 January 2021. This is unmistakably pleaded at §14 of the Statement of Claim:-
53.There are no other pleads to aver that the Defendant was in breach of the Tenancy Agreement for failing to pay full rent from February to August 2020. No allegation is pleaded for any breach prior to 1 January 2021. Certainly, no reasonable person reading the Statement of Claim would have understood that a breach is being alleged for failing to pay full rent in February to August 2020. 54.In my view, the claim in relation to rental reduction has not been satisfactorily pleaded in the Statement of Claim. It leaves a reader to guess what is the precise legal and/or factual basis of the claim. This clearly is not acceptable particularly from a legally qualified pleader: Mui So Bing v Wan Chi Shing [2019] HKCA 1341, at §§23.1, 23.3. I am not satisfied that the pleaded matters are sufficient for the Plaintiff to run the case as advanced by Mr. Kwan in his closing submissions. Clearly, no such breaches as now contended by Mr. Kwan had even been pleaded in the Statement of Claim. The fact that the Defendant did not in its Amended Defence raise an estoppel is neither here nor there as the Plaintiff could not reasonably be said to have raised such a contractual claim based on the rental reduction. As stated above, no reasonable reader of the Statement of Claim would reasonably perceive the failure to pay full rent from February to August 2020 is alleged as a breach of the Tenancy Agreement and hence it is entirely understandable that no defence was raised in this regard. In any event, it is immaterial that no defence was raised as the Plaintiff has not pleaded a valid claim. 55.In the circumstances, I am not satisfied that the Plaintiff has pleaded a viable cause of action for the reimbursement of the rental reduction in the sum of HK$315,000. I. INTEREST ON LOSS AFTER RE-ENTRY 56.By the forgoing reasons, apart from the arrears of Monthly Rent prior to re-entry, I find that the Defendant is liable for damages in the sum of HK$2,111,559.14 as follows:-
57.The Plaintiff claims interest on the sum of HK$2,111,559.14 from 10 March 2020 until judgment at 1% above HSBC prime rate (i.e. commercial rate) and thereafter at judgment rate. The usual practice of the court is to award interests at 1% above HSBC prime rate, which represents the theoretical costs to a plaintiff of going into the commercial market to borrow the amount lost: PT Asuransi Tugu Pratama Indonesia TBK v Citibank NA (No 2) [2023] 6 HKC 406, at §6. I am satisfied that it is appropriate to award interest at commercial rate on the sum of HK$2,111,559.14. 58.In relation to the calculation of interests, the Plaintiff is content for the license fees received from Rococo to be deemed to have been received by the Plaintiff on 10 March 2021, without the need to work out any impact the amount and time of receipt might have on the calculation of interests. This way the license fees from Rococo are treated to have been received in reduction of the principal sum in advance of their actual receipt. I accept that this is a more convenient manner in dealing with interests and will only reduce the amount of interests payable by the Defendant. 59.The pre-judgment interest on the sum of HK$2,111,559.14 from 10 March 2020 until judgment at 1% above HSBC prime rate amounts to HK$428,685.63 as follows:-
J. JUDGMENT SUM AND THE SECURITY DEPOSIT 60.I have found that the Plaintiff is entitled to judgment in the sums of HK$357,135.74 (for outstanding payment as at 9 March 2021) and HK$2,111,559.14 (for damages arising on termination). The Plaintiff accepts that the Security Deposit in the sum of HK$634,753.20) should be applied to set off the sums due to the Plaintiff. Accordingly, the Plaintiff is entitled to judgment in the sum of HK$1,833,941.68 (HK$357,135.74 + HK$2,111,559.14 – HK$634,753.20). K. COSTS 61.As the Plaintiff is largely successful in these proceedings, the Plaintiff should have its costs of these proceedings. 62.Clause 7.2 of the Tenancy Agreement provides that all costs and expenses of any action for the recovery of outstanding sums due to the Plaintiff be paid by the Defendant on a full indemnity basis. The court usually gives effect to contractual provisions of the parties in relation to costs and I see no reason to depart from the parties’ bargain in the present case. 63.As to the scale of costs, the Plaintiff accepts that costs of the entire proceedings should be assessed on the District Court scale (notwithstanding that these proceedings were commenced and conducted in the High Court prior to 19 July 2023), and I so order. L. DISPOSITION 64.For the forgoing reasons, I make the following orders:-
65.Lastly, it remains for me to thank Mr. Kwan for his able assistance.
Mr Kwan Ping Kan, instructed by S Y Wong & Co, for the Plaintiff The Defendant was not represented and did not appear | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment