The One Property Ltd v. The Swatch Group (Hong Kong) Ltd
Read the full judgment text of DCCJ 6504/2024 on BabelCite. This District Court judgment was delivered on 21 May 2026.
1. This is the hearing of assessment of damages for two actions, namely DCCJ 6504/2024 and DCCJ 6505/2024.
Cites 6 cases
|
DCCJ 6504 & 6505/2024 (Heard Together) [2026] HKDC 774 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 6504 OF 2024 ----------------------------------------------
---------------------------------------------- IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 6505 OF 2024 ----------------------------------------------
----------------------------------------------
--------------------------------------- ASSESSMENT OF DAMAGES --------------------------------------- A. INTRODUCTION 1.This is the hearing of assessment of damages for two actions, namely DCCJ 6504/2024 and DCCJ 6505/2024. 2.Both actions are tenancy disputes. In DCCJ 6504/2024, the plaintiff landlord is The One Property Ltd (“The One”), and the defendant tenant is the Swatch Group (Hong Kong) Ltd (“Swatch”) (“The One’s Action”). In DCCJ 6505/2024, the plaintiff landlord is Silvercord Ltd (“Silvercord”), and the defendant tenant is also Swatch (“Silvercord’s Action”). The One and Silvercord will hereafter collectively be referred to as “Ps”. 3.The two cases were initially commenced in the Court of First Instance (as HCA 268/2021 and HCA 269/2021) because the combined liquidated and unliquidated amounts exceeded the District Court’s jurisdiction. The two cases have been heard together from the outset, given the overlap in parties and legal representation, and the similar defences raised by Swatch in the two actions. 4.In a decision dated 8 February 2022 (“Summary Judgment Decision”), Master Alexander Tang granted summary judgment for both actions on liability and for the liquidated sums (ie arrears of rent, liquidated damages, etc), leaving unliquidated damages to be assessed. 5.The assessment of damages proceedings in both actions were transferred to the District Court by Order of Master MK Liu dated 9 October 2024. B. FACTUAL BACKGROUND 6.The following factual background is undisputed. B1. The One’s Action 7.The One is the owner and landlord of the commercial building known as “The ONE”, a 23-storey retail complex located at 100 Nathan Road, Tsim Sha Tsui, Kowloon. 8.By an agreement dated 2 November 2018, The One agreed to let Shop GA08, G/F, The ONE (“The One’s Premises”) to Swatch for a term of three years from 20 September 2018 to 19 September 2021. 9.Clause 3 and the Third Schedule of the agreement set out the rent, service charges, promotion levy and rates, etc, payable by Swatch:
10.Pursuant to Clause 5.6, Swatch was required to yield up the premises at the termination of the lease in its original state and condition, failing which Swatch must pay to The One all the cost and expenses of reinstating the premises. 11.As found in §4 of the Summary Judgment Decision:
12.Silvercord is the owner of the commercial building known as “Silvercord”, a 6-floor shopping centre located at 30 Canton Road, Tsim Sha Tsui, Kowloon. 13.By an agreement dated 18 October 2018, Silvercord agreed to let Shop No G03, G/F, Silvercord (“Silvercord’s Premises”) to Swatch for a term of three years from 8 October 2018 to 7 October 2021. 14.Clauses 2 and 5(a)-(b) and the Third Schedule of the agreement set out the rent, service charges and rates, etc, payable by Swatch:
15.As found in §5 of the Summary Judgment Decision:
C. THE ISSUES 16.Ps submit that they are prima facie entitled to damages in the sum of HK$2,581,097.93 and HK$2,140,894.08 respectively[1]. Swatch has not disputed any of these calculations. 17.Instead, Swatch raised three arguments:
D. MITIGATION ISSUE 18.Swatch argues that both Ps have not taken all reasonable steps to mitigate their damages by securing replacement tenants. D1. The Law 19.The relevant principles have recently been summarised in Vember Lord Ltd v The Swatch Group (Hong Kong) Ltd [2023] HKCFI 1779 at §§50-52:
D2. Lack of Mitigation D2.1. The One’s Action 20.Mr Chan Yuk Ho (“Mr YH Chan”), senior leasing manager of The One, was called as a witness for The One. According to him, the following steps have been taken in mitigation:
21.Mr Keith Chan, counsel for Swatch made several criticisms of the above alleged steps. 22.Mr Chan contended that The One failed to reasonably mitigate in the period before Swatch returned the keys on 21 January 2021. This is because The One should have known that there was a real risk that Swatch would abandon the tenancy, as it had stopped opening the shop since April 2020, had stopped paying rent since July 2020, and had indicated its intention to surrender the premises early. 23.With respect, I do not agree. Ps had no duty to mitigate their losses by finding a replacement tenant unless and until they accepted Swatch’s repudiation and terminated the lease: Chitty on Contracts (36th ed), §30-106; McGregor on Damages (22nd Ed, 2024) at §10-021; Re Dai Yumin [2022] HKCFI 950 at §88 (per Q Au-Yeung J); United Assets Co Ltd v Fordyear International Property Ltd & Anor (HCA 7957/1998, 26 May 2000) at p 13 of the transcript (per Sakhrani J). 24.Further, as explained by Mr YH Chan, whose evidence I accept, there is no basis upon which The One could have speculated on if and when Swatch would repudiate the contract. On previous occasions, some tenants who expressed an intention to surrender had their requests refused by The One and subsequently continued to rent until the expiration of their leases. Since The One declined Swatch’s request for an early surrender, the tenancy remained valid until 21 January 2021, when Swatch’s repudiation was accepted. 25.Mr Chan then queried why The One did not inform the estate agents about the vacancy of The One’s Premises while negotiations with Smartac / Sun International / Fragrance House were ongoing. However, in the case of both Smartac and Sun International, the negotiations had reached an advanced stage, and licence agreements were ready. I therefore find nothing unreasonable in not putting The One’s Premises on the vacancy list in those circumstances. As Mr YH Chan said, if he represented that the premises were available when they were on the brink of being licensed out, this would risk giving inaccurate and confusing information to the estate agents, which would diminish trust. 26.Mr Chan also questioned the lack of written record of cold calls to prospective tenants or licensees. However, as submitted by Mr Jiang Zixin (with Ms Karvis CM Lam), counsel for Ps, it is entirely plausible that there would be no written record. Further, at least one email contains the words, “As spoken just now”, which provides evidence supporting Ps’ case that they had contacted clients by phone call. 27.Mr Chan criticised that the licence fees that The One offered for The One’s Premises to licence them to Smartac and Sun International were too low. However, as Mr YH Chan clarified, which I accept, these arrangements were made during the Covid period, when market conditions were challenging and many retail spaces remained unoccupied. Some shopping centres were even prepared to waive base rent in favour of turnover-based charges. Mr YH Chan further explained that Smartac was the sole prospective tenant available at the time, and he, together with his team, had taken all reasonable steps under the circumstances. 28.In relation to the 11 March 2021 email sent to the contacts of estate agents containing the vacancy list, which included The One’s Premises, Mr Chan contended that it was perfunctory and contained only basic information. There was no attempt to offer any further information, explanation or photos of The One’s Premises to inform the estate agents. However, I accept Mr YH Chan’s explanation that further information was unnecessary; the estate agents only required basic information such as the shop’s asking rent, location, and area. In any event, where an estate agent expressed interest, further negotiations and site visits could be arranged. 29.It was also contended that the asking monthly rent was too high. The asking monthly rent per square foot was HK$132.45, which is higher than all of the other shops on G/F, except for GA01. However, it seems typical for rental rates to differ among shops within different locations of a shopping mall, and there is no substantive evidence supporting Swatch’s claim that the rent for The One’s Premises is unreasonably high. 30.It was also criticised that The One failed to further market The One’s Premises such as by advertisements in newspapers, billboards or websites. I accept Mr YH Chan’s explanation that mainstream shopping malls do not run newspaper advertisements, and that sticking shopfront stickers advertising rental availability would give the shopping centre a negative image and affect customer experience. 31.Regarding the Replacement Licence with Imperial Diamond in April 2021, Mr Chan contended that the licence fee was unreasonably low. It was observed that the licence fee of HK$30,000 or 5% of monthly gross receipts was even lower than that offered to Sun International in February 2021 (ie HK$30,000 or 18% of monthly gross receipts). However, as clarified by Mr YH Chan, whose explanation I accept, Sun International is a watchmaker producing its own watches and thus operates with higher profit margins compared to Imperial Diamond, a diamond trader. Consequently, Imperial Diamond would not be able to sustain similar or higher rates. 32.Finally, it was contended that The One failed to make sufficient efforts to find other licensees or tenants for The One’s Premises following the Replacement Licence. However, it is not disputed that The One circulated a mass email on 16 July 2021 to estate agents with the vacancy list attached and engaged in negotiations with Heinemann HK in September 2021. In light of these actions, I do not regard their efforts as insufficient under the circumstances. D2.2. Silvercord’s Action 33.Mr Tong Tsun Yiu Terrance, assistant general manager of Silvercord, was called as a witness for Silvercord. According to him, the following steps have been taken in mitigation:
34.Mr Chan again made several criticisms of the above alleged steps. 35.As with The One’s Action, Silvercord has likewise faced criticism for alleged failures to mitigate before the return of the keys, to post advertisements, to provide more information to estate agents, to put Silvercord’s Premises on a vacancy list earlier, and to make cold calls[2]. However, for the reasons discussed above, I also find that Silvercord has not breached its obligation to mitigate in light of these criticisms. 36.Mr Chan also argued that the asking rent listed in the leasing kit (HK$98,000 or HK$174.38 per square foot) was too high. In support of this, he noted that Silvercord failed to locate any replacement tenant or licensee until February 2023. He argued that it was an extraordinary position for a shop in a prime shopping location such as Tsim Sha Tsui, even bearing in mind the effects of the Covid pandemic at the time. Reliance was made on Wing Siu Co Ltd v Goldquest International Ltd (No 2) [2002] 4 HKC 420 at §29(1) where Ma J (as he then was) noted that in that case, the vacancy “instantly gives rise to the argument that perhaps the asking rents were too high”. Mr Chan also noted that Silvercord’s Premises (Shop G03) had the highest asking monthly rent per square foot (HK$174.38) of all the shops on the G/F, and that the rent eventually secured was only HK$88,000. 37.I am unable to accept Mr Chan’s submissions. Unlike the circumstances in Wing Siu, the present case is impacted by the COVID-19 pandemic, which has rendered market prices exceptionally unpredictable. A significant number of shops in the market are vacant, creating a markedly different situation. The eventual rent, which was HK$10,000 less than the asking rent, does not necessarily indicate that the asking rent was excessive. Hindsight usually offers greater clarity. It would be unreasonable to fault Silvercord for not possessing complete knowledge of the optimal rental price for its premises at every point in a constantly shifting market environment. With respect to rent per square foot, as previously noted, rental values depend on a variety of factors, including location and shop orientation. Additionally, smaller shops may command a higher rent per square foot. Thus, it would be inappropriate to compare monthly rents on a per-square-foot basis without considering these other relevant characteristics. 38.Finally, during cross-examination, it was suggested to Mr Tong that Silvercord had refused to reduce the rent because they believed they would recover the rental amount through this litigation, and that Swatch would be able to pay. Mr Tong strongly rejected this assertion, explaining that he disagreed because, in fact, it had taken them two years of losses before they were able to lease out the premises. D2.3. Conclusion 39.In conclusion, I am satisfied that Ps have undertaken all reasonable measures to mitigate their losses. D3. Extent of Loss Caused by Lack of Mitigation 40.For completeness, and in deference to counsel’s submissions, I will briefly explain below that even if Swatch were able to demonstrate that Ps did not take adequate steps in mitigation, Swatch would nonetheless confront an insurmountable obstacle. In this case, Swatch has not produced any factual or expert evidence to meet its burden of proving the quantum of avoidable loss if Ps had properly mitigated their losses. 41.In the cases cited by the parties, where the defendant tenants argued that the plaintiff landlord could have avoided its losses by taking reasonable steps to find a replacement tenant (including the Vember Lord case in which Swatch was the defendant), the defendants adduced expert evidence to support their cases: see Wing Siu Co Ltd v Goldquest International Ltd (unrep, HCA 4145/2001 & 3183/2001, 18 August 2006) at §§10-11; Vember Lord at §21; Wing Siu (No 2) at §29(3). 42.Absent any expert evidence regarding quantum, there is no evidentiary basis upon which the court can find that Ps could reasonably have avoided further loss by taking additional steps. As Mr Jiang submitted, even if Ps did not take all reasonable steps, this does not mean their claim for damages is entirely defeated. The effect is simply that Ps cannot recover losses which they could have avoided by exercising reasonable care, or, in other words, losses attributable to their omission: see McGregor on Damages (22nd Ed), §10-014. Without evidence quantifying avoidable loss, the court lacks grounds to reduce the amount claimed by Ps. 43.In Swatch’s Opening, Swatch argues that:
44.However, this position does not assist Swatch. 45.When a defendant raises mitigation as an issue with sufficient supporting evidence, the plaintiff’s evidential responsibility is usually confined to demonstrating the actions taken to mitigate loss, since the defendant is not privy to those details. In this case, Ps have fulfilled this requirement by presenting testimony from their staff regarding the measures taken to reduce damages. 46.In the context of landlord-tenant disputes, proving the quantum of avoidable loss typically requires expert testimony regarding market rent. Defendants are equally capable of providing such evidence. There is therefore no basis for drawing adverse inferences against the plaintiff if there is no such evidence. 47.If no evidence exists indicating that loss could have been avoided through further action, it follows that Swatch cannot establish its defence, and Ps remain entitled to recover the full amount of loss claimed. E. RENTAL REDUCTION ISSUE 48.Between February and April 2020, Ps granted Swatch an ex-gratia 30% rental reduction amounting to HK$275,400 in respect of The One’s Premises and HK$215,100 in respect of Silvercord’s Premises (the “Rental Reduction”), on the condition that there shall be no breach of the terms and conditions of the tenancy agreements by Swatch. Following Swatch’s breach of the agreements, Master Tang ordered Swatch to reimburse the Rental Reduction to Ps. 49.Swatch argues that the damages awarded to Ps must be reduced by the amount of the Rental Reduction on the basis that Ps would not have been entitled to that sum had Swatch performed the tenancy agreements. Swatch relies on the compensatory principle: the function of compensatory damages is to place the innocent party in the same position as if the contract had been performed, but not more: Robinson v Harman (1848) 1 Exch 850, 855 (Parke B). An innocent party must give credit for any loss avoided by reason of non-performance: Tettenborn, Butterworths Common Law Series: The Law of Damages (2nd ed), §19.82. Equally, where the breach itself confers an advantage upon the innocent party, that advantage must ordinarily be brought into account: Burrows, Remedies for Torts, Breach of Contract, and Equitable Wrongs (4th ed), pp 147-148. 50.Applying those principles, Swatch contends that awarding Ps the full measure of damages without deducting the Rental Reduction would place Ps in a better position than if the tenancy agreements had been performed, an outcome that is plainly inconsistent with the compensatory principle. 51.I do not agree with Swatch’s arguments. As submitted by Mr Jiang, its logical consequence would be that Swatch retains the benefit of the Rental Reduction regardless of whether it breached the tenancy agreements, an outcome directly contrary to what the parties had agreed. Mr Chan’s suggestion that the parties’ intention was fulfilled by the reimbursement order itself, even if the damages are subsequently reduced by the same amount, must be rejected. Taken objectively, the parties cannot have intended the condition attached to the Rental Reduction to be rendered nugatory, with no practical effect and only a hollow technical existence. Applying the compensatory principle in the manner Swatch proposes would plainly undermine, rather than give effect to, the parties’ common intention. 52.Swatch has not identified any vitiating factor or positive argument for overriding the parties’ intention. For instance, there is no indication that the relevant provision constitutes a penalty clause or is otherwise unenforceable. In the absence of such reasons, the parties’ expressed intention must prevail. 53.Further, I accept Mr Jiang’s submission that Swatch’s argument fails at the threshold level of causation. The prerequisite for deducting a gain from damages is that the gain and the loss must have been caused by the same breach. The Rental Reduction reimbursement was not caused by Swatch’s repudiatory breach, which is the operative breach for the purposes of this damages assessment. Swatch’s entitlement to the Rental Reduction was extinguished when it first defaulted on rent in July 2020. Ps’ right to reimbursement arose at that point, and would have arisen regardless of whether Swatch subsequently repudiated the tenancy agreements in January 2021. 54.Accordingly, the damages claimed by Ps are confined to losses arising from, or causally connected to, the acceptance of Swatch’s repudiation in January 2021. Benefits conferred prior to that acceptance are irrelevant: they were not caused by the repudiatory breach. Causation does not operate retrospectively. 55.The underlying rationale for the credit rule confirms this conclusion. An innocent party must account for breach-caused gains because only the net loss attributable to the breach is compensable. Where a breach simultaneously causes both loss and gain, the gain is deducted to arrive at that net loss. But where, as here, the gain and the loss flow from different breaches, no deduction is warranted. F. INTEREST ISSUE 56.Ps ask for pre-judgment interest at prime + 1% from the dates of acceptance of repudiation until judgment, and thereafter at judgment rate until full payment. 57.Following Master Tang’s entry of summary judgment in favour of Ps on 8 February 2022, Swatch filed notices of appeal which were withdrawn with leave granted by DHCJ Winnie Tsui (as she then was) on 31 March 2023. 58.However, it was only on 23 January 2024 that Ps’ solicitors indicated that they would proceed with the assessment of damages and proposed directions by letter to Swatch’s solicitors. Following correspondence, the parties filed a consent summons for directions for assessment of damages on 7 March 2024. As previously stated, the assessment of damages proceedings were transferred to the District Court by Order of Master MK Liu dated 9 October 2024. 59.Swatch therefore argues that there is no justification for pre-judgment interest to be awarded for the period from 8 February 2022 (when Master Tang entered summary judgment) to 23 January 2024 (when solicitors for Ps first proposed directions for the assessment of damages), or alternatively for the period from 31 March 2023 (when Swatch was granted leave to withdraw its appeals from the summary judgment orders) to 23 January 2024. This is because:
60.The relevant principles on disallowance or reduction of interest on the ground of delay are summarised in Remedy Asia Ltd v Patrick Tong Hing Chi [2021] 2 HKC 190 at §§12(8)-(11) per Coleman J:
61.I accept Mr Jiang’s submission that the predominant cause of delay is Swatch’s appeal against the Summary Judgment Decision, which was only withdrawn on 31 March 2023. It appears reasonable for Ps to wait for the outcome of Swatch’s appeal before considering whether to proceed with assessment of damages. Otherwise, costs would have been wasted if Swatch’s appeal was successful. 62.However, I agree with Mr Chan that there is no explanation for Ps’ inaction between 31 March 2023 and 23 January 2024. Interest should therefore not be awarded for this period. G. DISPOSITION 63.For the reasons above, I make the following orders:
64.Costs should follow the event. The tenancy agreements each contain an indemnity clause. I therefore make a costs order nisi that Swatch shall pay the costs of the assessment to Ps including all costs reserved, on the High Court scale up to 9 October 2024 (date of transfer to the District Court), and thereafter on the District Court scale, with certificate for one counsel (Mr Jiang), on an indemnity basis, to be taxed if not agreed. The above order nisi shall become absolute in the absence of application to vary within 14 days hereof. 65.I thank all counsel for their helpful assistance.
DCCJ 6504/2024 Mr Jiang Zixin, leading Ms Karvis CM Lam, instructed by S Y Wong & Co, for the plaintiff Mr Keith Chan, instructed by King & Wood Mallesons, for the defendant DCCJ 6505/2024 Mr Jiang Zixin, leading Ms Karvis CM Lam, instructed by S Y Wong & Co, for the plaintiff Mr Keith Chan, instructed by King & Wood Mallesons, for the defendant [1] See calculation at §17 of Ps’ opening submissions [2] As with The One’s Action, I see no reason to disbelieve Mr Tong’s testimony that cold calls were made. There is even more support for Silvercord’s case that calls were made, considering multiple emails began with the phrase, “Recap to our conversation”. Similarly, I see no good reason to disbelieve Mr Tong’s testimony that the leasing kit was circulated to estate agents by mass email or that old emails were routinely deleted. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under DCCJ 6504/2024