Kam Lung Motor Group Ltd v. Very Great Metal Co. Ltd
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DCCJ 3449/2021 [2026] HKDC 1644 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 3449 OF 2021 ------------------------------
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--------------------------- JUDGMENT --------------------------- I. INTRODUCTION 1.This case concerns the tenant’s obligation to return the premises to the landlord upon termination of the tenancy agreement. II. BACKGROUND The premises 2.The premises in question are known as the Ground Floor of Wofoo Building (formerly known as Watson Building), Nos 204-210 Texaco Road, Tsuen Wan, New Territories, Hong Kong (“Premises”). They comprise an industrial property of approximately 17,000 square feet. The main entrance is located on Texaco Road, with a back entrance on Ma Kok Lane. 3.The Defendant (also referred to as the “Landlord”) became the registered owner of the Premises on 15 July 2004. At that time, the Premises were let to a logistics company and were used as a base for freight forwarding operations. Tenancy agreement between the Defendant and Volkswagen 4.By a tenancy agreement dated 29 January 2008[1], the Landlord let the Premises to Volkswagen Hong Kong Limited (“VWHK”) for a term of five years from 15 February 2008 to 14 February 2013. VWHK used the Premises as a car dealership centre and service centre (“Service Centre”). 5.To suit its business purposes and operations, VWHK carried out substantial alterations, additions, and installations of fixtures to the Premises, including the following:
6.Under clause 2.1(hh) of VWHK’s tenancy agreement, VWHK had an obligation to “re-instate and restore the said premises to their original condition as when the said premises was first delivered by the Landlord to the Tenant and to make good all damage caused or occasioned by the erection and removal of alterations partitions or other erections” (underlining added). 7.Further, under clause 2.1(ii), VWHK was required:
8.The last tenancy agreement between the Landlord and VWHK was entered on 29 December 2017[2] (“VWHK’s 2018 Lease”). It was for a term of 3 years from 15 February 2018 to 14 February 2021. There was no change to clauses 2.1(hh) and 2.1(ii) in that tenancy agreement. 9.By the email dated 11 February 2020[3], VWHK informed the Landlord that it had formed a new partnership with the Plaintiff, and that the Plaintiff would become the sole distributor in Hong Kong and Macau for the Volkswagen and Audi brands. VWHK described the Plaintiff as “one of Volkswagen Group’s core investors”. 10.In the email dated 18 February 2020[4], VWHK confirmed that the Plaintiff was its “new investor” and would act as importer and dealer for both sales and aftersales. VWHK also indicated that it planned to transfer the Service Centre at the Premises to the Plaintiff. 11.By another email dated 5 March 2020[5], VWHK informed the Landlord that the Plaintiff would “take over” the lease of the Premises with effect from 1 July 2020. 12.In May 2020, Messrs Au, Thong & Tsang were instructed by the Landlord to prepare a deed of surrender in respect of VWHK and a new tenancy agreement for the Plaintiff. 13.By a Deed of Surrender dated 9 July 2020[6], the tenancy agreement between the Landlord and VWHK was terminated. It was expressly provided in clause 2 that:
Tenancy agreement between the Defendant and the Plaintiff 14.By a tenancy agreement of even date[7] (ie 9 July 2020), the Landlord let the Premises to the Plaintiff (also referred to as the “Tenant”) for a term of 7 months and 14 days from 1 July 2020 to 14 February 2021 (being the original expiry date of VWHK’s 2018 Lease) (“Tenancy Agreement”). Pursuant to the Tenancy Agreement, the Tenant paid a deposit of $1,734,000 (“Deposit”) to the Landlord. 15.It is noted that the Tenancy Agreement did not record the arrangements between VWHK, the Landlord, and the Tenant. Further, the “reinstatement” clause in VWHK’s 2018 Lease, namely clause 2.1(hh), was not carried over into the Tenancy Agreement. However, the “yield-up” clause, namely clause 2.1(ii) of VWHK’s agreement, was retained in the Tenancy Agreement (and became clause 2.1(hh)), and “yield-up” requirement was changed from “all the Landlord’s fixtures, fittings and additions therein and thereto” to “bare-shell” condition. Clause 2.1(hh) of the Tenancy Agreement reads as follows:
16.It is not disputed that the Tenant did not carry out any substantial alterations to the Premises after taking over from VWHK in July 2020. Return of the Premises 17.In around January 2021, as the Tenant had decided not to renew the lease of the Premises, Mr Patrick Ng of the Tenant and Mr Princip Poon of the Landlord (“Mr Poon”) commenced discussions regarding the reinstatement of the Premises. 18.On 21 January 2021, the Landlord issued to the Tenant a document entitled “還原摘要” (“Reinstatement Notice”), to which a plan (“Floor Plan”) was attached[8]. The Reinstatement Notice contained the following two tables:
19.Subsequently, the Landlord and the Tenant engaged in negotiations concerning the Reinstatement Notice, and certain items were varied by mutual agreement. 20.There is no dispute that vacant possession of the Premises was delivered by the Tenant to the Landlord on 27 February 2021, being 13 days after the expiry date of the Tenancy Agreement on 14 February 2021. Photographs and videos were taken at delivery[9] and there is therefore no dispute as to the condition of the Premises. The dispute between the parties is whether the condition of the Premises satisfied the requirements set out in the Tenancy Agreement. The parties’ positions 21.The Tenant’s position is that it was obliged only to yield up the Premises in a bare-shell condition and in good, clean, and tenantable repair and condition, and that it did so on 27 February 2021 in accordance with the Tenancy Agreement. The Tenant admits the liability to pay rent and rates for the period from 15 to 27 February 2021 in the sum of $285,661.53. It claims against the Landlord for the balance of $1,448,338.47 (ie the Deposit less the outstanding rent and rates). 22.The Landlord’s position is that the Tenant failed to reinstate the Premises and to repair the damage to the Premises in a proper and workmanlike manner. As a result, the Landlord engaged contractors to carry out remedial works between 27 April and 4 June 2021. In the Amended Defence and Counterclaim (“ADC”), the Landlord claims:
The Landlord’s total claim is $1,929,986.53. After giving credit for the Deposit, the Landlord counterclaims the balance of $195,986.53. 23.Pursuant to the Order of Master Stanley Ho dated 25 September 2023, the Landlord filed an expert report dated 6 November 2023 (“Expert Report”) prepared by Mr Lau Wing-wai Patrick (“Expert”) to address the following:
24.At the trial, the parties helpfully prepared a Scott Schedule (“Schedule”), listing the expert’s valuation and the parties’ latest stance. 25.In closing submissions, both Mr Liu (for the Tenant) and Mr Sam (for the Landlord) very fairly made concessions to some of the items which further narrowed down the dispute between the parties. III. TENANCY AGREEMENT 26.Apart from clause 2.1(hh), the parties also referred to the following clauses or schedules of the Tenancy Agreement:
IV. LEGAL PRINCIPLES Interpretation of tenancy agreement 27.In Eminent Investment (Asia Pacific) Ltd v DIO Corp (2020) 23 HKCFA, the Court of Final Appeal held that the starting point in contractual interpretation is the ordinary and natural meaning of the words used in the contract. However, in more difficult cases where that approach is unhelpful because the parties may debate what constitutes the ordinary or natural meaning of the words, context provides a surer guide to interpretation. Where competing interpretations arise, regard should be had to the natural and ordinary meaning of the provision in question, the purpose of the contract and of that provision, the other relevant provisions, the facts and circumstances known to or assumed by the parties at the time the contract was made, the quality of the drafting, and commercial common sense. “bare-shell” condition 28.Both parties referred to the Court of Appeal’s decision in AFH Hong Kong Stores Ltd v Fulton Corporation Ltd [2022] HKCA 1243. 29.In that case, the premises which comprised a number of individual floors were leased to the tenant for a term of 9 years commencing 1 November 2011. After entering into possession, the tenant, inter alia, demolished the entire mezzanine floor, as well as part of the ground, 1st and 2nd floors, removing floor slabs and staircases. On 11 November 2016, the tenant served a notice of early termination under the “break clause”. 30.The “yield-up” clause in that case, which is very similar to the one in the present case, provided that it was the tenant’s obligation to “yield up the Premises in a “bare-shell” good clean state of repair and condition …” (clause 3) and “to return the Premises to the Landlord in a ‘bare shell’ good clean state of repair and condition on each floor of the Premises to the reasonable satisfaction of the Landlord” (Special Condition 13). 31.On 6 September 2019, the tenant issued a summons for an order that three issues be determined pursuant to Order 14A rule 1. One of the issues concerned the meaning of the phrase “bare shell”, and in particular whether the tenant was obliged to reinstate the demolished floors. The judge answered the question in the negative and the landlord appealed. 32.After citing the Eminent Investment, Yuen JA held that:
33.For completeness, Yuen JA went further to consider the contextual factors mentioned in Eminent Investment, ie the purpose of the contract and provision, other provision in the contract, quality of the drafting, commercial common sense, and formed the view that there was nothing that would detract from the natural and ordinary meaning of the term. 34.Subsequently, the tenant applied for leave to appeal to the Court of Final Appeal. In dismissing the application for leave to appeal ([2023] HKCA 478), the Court of Appeal emphasized at §18.2 that “Even if the words “bare shell” can be found in other leases, their meaning must be resolved in the context of the individual lease” in accordance with the principle set out in Eminent Investment. 35.The tenant’s further application for leave to appeal to the Court of Final Appeal was also dismissed by the Appeal Committee. In the Reasons for Determination ([2024] HKCFA 5), Lam PJ emphasized at §7 that the tenancy agreement should be construed against the facts of the case and “the determination of the construction issue in the present case would not provide guidance to the construction of this expression in other contexts”. “good clean and tenantable repair and condition” 36.In Proudfoot v Hart (1890) 25 QBD 42 (CA), the Court held that:
37.In Wong Kong Lee v Kung Cheung Fai Patrick, DCCJ 5693/2007, 21 December 2009, the tenant was required to maintain the interior of the property in “good and tenantable repair and condition”. The Court observed at §28 that:
“fair wear and tear excepted” 38.Paragraph 235.322 of Halsbury’s Laws of Hong Kong states that:
39.Finally, when construing the Tenancy Agreement, I also bear in mind the following observation of Mimmie Chan J in Wo Kee Administration Ltd v Honco Management Ltd [2025] 2 HKC 329 at §17:
V. WITNESSES 40.At trial, the Tenant called Mr Poon and Mr Ko Wai Kong (“Mr Ko”) to give evidence, and the Landlord called Mr Cho King Lung (“Mr Cho”). Neither party challenged the credibility of these witnesses in closing submissions. I shall refer to their testimony where it is necessary to do so. 41.The Expert also gave evidence at trial. His evidence was not seriously challenged by the Tenant and I have taken it into account accordingly. VI. TENANT’S OBLIGATIONS 42.As a starting point, I should first consider the Tenant’s obligations in respect of the condition of the Premises when yielding up the same upon termination of the lease. Clause 2.1(hh) 43.It is common ground that the Tenant’s primary obligations concerning the return of the Premises are governed by clause 2.1(hh), which may be divided into two parts:
44.The Landlord argues that clause 2.1(hh) Part 2 is not limited to alterations made by the Tenant itself, but also covers those made by VWHK:
45.On the other hand, the Tenant’s argument is that:
46.I agree with the Tenant’s submissions on this point. As the Tenant rightly emphasises, where the language of a contract is clear and unambiguous, the express wording should be the start and the end of the matter. 47.Clause 2.1(hh) Part 2 of the Tenancy Agreement is expressly conditioned on the Tenant itself having made alterations or installed fixtures or additions; it applies “in the event the Tenant has made any alterations or installed any fixtures or additions to the said premises …” (underlining added). The term “Tenant” is a defined term in the Tenancy Agreement and refers only to the Plaintiff. There is no reference in that clause, or elsewhere in the Tenancy Agreement, to alterations made by any predecessor in title, and no mechanism by which obligations in respect of such alterations are transferred to the Plaintiff. In my view, the natural and ordinary meaning of clause 2.1(hh) Part 2 is therefore clear; it governs only alterations made by the Tenant, and does not extend to alterations installed by VWHK. 48.This construction is reinforced by the overall structure and drafting history of the relevant documents. If the Landlord had intended that the Tenant should assume responsibility for reinstating the alterations made by VWHK, it could readily have achieved that result in one of two obvious ways: (a) by retaining in the Tenant’s Tenancy Agreement the “reinstatement” clause in VWHK’s 2018 Lease, thereby expressly requiring reinstatement to the original condition and making good damage caused by the erection and removal of alterations; or (b) by entering into a deed of novation (or equivalent tripartite arrangement) with VWHK and the Plaintiff, expressly transferring VWHK’s reinstatement obligations to the Tenant. Neither step was taken. Instead, the Landlord and the Tenant executed a separate tenancy agreement with no mention of VWHK, its lease, or any assumption by the Tenant of VWHK’s reinstatement obligations. The deliberate omission of the VWHK’s “reinstatement” clause in the Tenancy Agreement, coupled with the absence of any novation or cross‑reference to VWHK’s lease, strongly indicates that the parties did not intend for the Tenant to “inherit” VWHK’s obligations under its lease. 49.Further, the fact that the Tenant elected to remove certain VWHK’s alterations during the reinstatement process cannot be relied upon to construe the meaning of clause 2.1(hh) as it is not permissible to take into account subsequent conduct of the parties as an aid in construing the contract; Yuen Ching Yuen v Union Insurance Society of Hong Kong [1998] 1 HKLRD 650 at 657H-J per Cheung J (as he then was). The proper construction of a contractual clause depends on its language, read in light of the relevant context at the time of contracting, not on how one party subsequently chose to perform its obligations. 50.In any event, the Tenant’s removal works may well have been carried out for the purpose of discharging its obligations under other provisions of the Tenancy Agreement (for example, the bare-shell condition), rather than in recognition of any obligation under clause 2.1(hh) Part 2 to reinstate alterations made by VWHK. 51.I therefore find that the Tenant was not obliged under clause 2.1(hh) Part 2 to reinstate and remove the alterations made by VWHK. Clauses 2.1(e) & (k) 52.In addition to clause 2.1(hh), clause 2.1(e) is also applicable and the Tenant was required to “To keep all the interior parts of the said premises … in good, clean and substantial repair and condition (fair wear and tear excepted) and … to deliver up the same to the Landlord at the expiration or sooner determination of the term in like condition”. The clause expressly covers, inter alia, light fittings, fire fighting apparatus, piping, drainage, wiring. 53.Clause 2.1(k) further requires the Tenant “To make good … any portion of the said building which may be damaged through any omission act or default of the Tenant … which omission act or default are in breach of the provisions hereunder …”. 54.It is the Tenant’s argument that clauses 2.1(e) and 2.1(k), when construed together with clauses 4.1(s) and 9.1 and the Fifth Schedule, only required the Tenant to keep, maintain and deliver up the Premises in the state they were in when the Tenancy Agreement was entered into on 9 July 2020 and the Premises were delivered to the Tenant on an “as is” basis. The Tenant contends that the bare shell of the Premises could already have been damaged while VWHK was in possession, and refers to the bare-shell condition of the Premises as of July 2020 as the “2020 Bare‑shell State”. 55.I do not accept the Tenant’s submissions. 56.The maintenance obligation in clause 2.1(e) is to keep the interior parts of the Premises “in good, clean and substantial repair and condition fair wear and tear excepted” and to deliver them up at the end of the term “in like condition”. That covenant does not oblige the Tenant simply to maintain the Premises at the “2020 Bare‑shell State”. The standard is “good, clean and substantial repair and condition (fair wear and tear excepted)”. The condition of the premises at the commencement of the tenancy is merely one factor to be taken into account in assessing that standard, not the sole or determinative benchmark; Wong Kong Lee. 57.That approach is consistent with the principle stated in §235.321 of Halsbury’s Laws of Hong Kong which provides that:
58.In other words, a covenant to keep premises in good and substantial repair presupposes that the tenant must do the repairs necessary to achieve that standard, even if that means putting the premises into a better condition than they were in at the start of the term. The age, character and condition of the premises at the outset are relevant, but they do not reduce the tenant’s obligation to a duty merely to avoid making things worse. 59.I do not consider that clause 9.1 and the Fifth Schedule assist the Tenant. The Fifth Schedule is concerned with seepage and the peeling or falling of concrete from the walls and ceiling, and the Tenant may elect whether or not to carry out repairs. It does not, however, alter the standard at which the Premises must be yielded up. If the Tenant chooses not to repair, it remains solely liable for the consequences of that choice, including any consequences arising from the Tenant’s decision not to carry out the repair. The Fifth Schedule is concerned with the allocation of responsibility for structural maintenance during the term; it does not redefine the condition in which the Premises must be delivered at the end of the tenancy. 60.In those circumstances, I reject the Tenant’s argument that its obligations under clauses 2.1(e) and 2.1(k) are limited to maintaining the “2020 Bare‑shell State”. In my view, the Tenant was obliged to keep and deliver up the relevant parts of the Premises in good, clean and substantial repair and condition, fair wear and tear excepted, having regard to the age, character and locality of the building and the condition at the start of the tenancy, but not confined to that initial state. Clause 2.1(j) 61.Clause 2.1(j) requires the Tenant, within one month of receiving a notice from the Landlord specifying works or repairs that are the Tenant’s responsibility under the lease, to put those works in hand and execute them with all possible despatch. If the Tenant fails to do so within that one‑month period, the Landlord is entitled to enter the Premises and carry out the specified works or repairs at the Tenant’s expense. 62.The Landlord’s position is that clause 2.1(j) applies in the present case. It contends that the Reinstatement Notice was issued pursuant to that clause and that the Tenant was therefore obliged to comply with its requirements within the period specified in the Reinstatement Notice and clause 2.1(j). This obligation was independent of the Tenant’s obligations under the other provisions of the Tenancy Agreement. 63.The Tenant’s position is however that the Landlord could invoke clause 2.1(j) only in respect of works or repairs which were, upon a proper construction of the Tenancy Agreement, the Tenant’s responsibility. In other words, clause 2.1(j) does not enlarge the substantive obligations otherwise imposed upon the Tenant. 64.On this issue, I agree with the Tenant’s view. By its express terms, clause 2.1(j) applies only to works or repairs “which … are the responsibility of the Tenant hereunder”. It provides a mechanism by which the Landlord may require the Tenant to perform, and, upon the Tenant’s default, may itself undertake, works which the Tenant is otherwise contractually obliged to perform. It does not create a separate or additional obligation as to the condition in which the Premises must be returned. 65.Having determined the Tenant’s obligations upon yielding up the Premises, I turn to the Landlord’s counterclaim, the individual items of which are set out in the Schedule. Although the parties have helpfully prepared an Agreed List of Issues, the Landlord’s counterclaim was the main focus of the trial. It is therefore more convenient to address it directly. Rather than considering each item in the order in which it appears in the Schedule, I adopt Mr Liu’s approach and deal with the items by reference to the categories into which they fall. VII. AGREED ITEMS 66.I shall start with the items that are agreed by the parties. 67.As noted above, the Tenant has accepted that it was liable for the outstanding rent and rates for the period from 15 February 2021 to 27 February 2021 in the total sum of $285,661.53; ADC §13(1). 68.The Tenant also admits liability in respect of the following items:
69.The total sum claimed for these items is $19,500. 70.The Tenant submits that the Court should allow the estimated amounts made by the Expert, ie $16,390, the difference being $3,110. 71.The Tenant argues that the Landlord instructed the Expert to give evidence on the reasonable costs. After seeing that the Expert’s opinions on the reasonable costs are not favourable to it, the Landlord cannot now invite the court to ignore the Expert’s opinion. 72.The Landlord’s position is that its claim is based on the actual sum incurred, rather than the Expert’s estimate. 73.The Landlord referred to Halsbury Law of Hong Kong, Vol 36 (2025 Re-issue) §235.334 where it is said that “[t]he general measure of damages is the sum which it would take to put the premises in the state of repair in which the tenant ought, under the covenant, to leave them. The actual cost to the landlord of carrying out such repairs is as a rule the amount of the recoverable loss and is the best guide to the diminution in value of the reversion”. 74.The Landlord also relies on clause 4.1(k) which provided that “the Tenant shall be liable for, and shall fully indemnify the Landlord, and keep the Landlord indemnified against, loss, costs, expenses, actions, demands, proceedings, claims and liabilities made against or suffered or incurred by the Landlord arising out of any act, omission, neglect, default or negligence of the Tenant or any persons at the said premises with the Tenant’s authority and out of any breach or non-performance or non-observance by the Tenant of any of the conditions or other provisions of this Agreement”. 75.In China Resources Property Management Ltd v Max Merit Ltd, DCCJ 2012/2010, 18 July 2012, §§86-88, the Court accepted the landlord’s reliance on a similar “indemnity cost” clause to justify the actual expenses incurred by the Landlord in the reinstatement work. The Court found that there was nothing “unreasonable” in the actual expenses claimed by the Landlord. 76.I accept the Landlord’s submissions. The proper measure of damages is the amount reasonably required to put the Premises into the state of repair in which the Tenant was obliged to leave them. Where the Landlord has in fact incurred expenditure in carrying out the necessary works, the actual expenditure is ordinarily the best evidence of the loss suffered, subject always to the requirement that the works and the sums claimed were reasonably incurred. As stated in Halsbury’s Laws of Hong Kong, the actual cost of carrying out the repairs is, as a rule, the recoverable loss. 77.The Expert’s estimates are to assist the Court in assessing whether the actual sums claimed were reasonable. They do not, without more, impose a ceiling on the Landlord’s recoverable loss. An estimate prepared by an expert is an assessment of the reasonable cost of works. It is not equivalent to evidence of the actual cost incurred, nor does it displace otherwise admissible evidence that the landlord in fact incurred a different sum. 78.I therefore reject the Tenant’s submission that the Landlord is bound by the Expert’s estimates or can recover no more than the sums stated in the Expert Report. The fact that the Landlord did not obtain a further expert report, or cross-examine the Expert so as to challenge his estimates, does not assist the Tenant. The Landlord is entitled to rely upon the actual expenditure it incurred, provided that it establishes the necessary causal connection with the Tenant’s breach and proves that the particular works and expenditure were reasonably incurred. 79.This conclusion is also consistent with clause 4.1(k), which provides for the Tenant to indemnify the Landlord against loss, costs and expenses incurred as a result of the Tenant’s breach or non-performance of the Tenancy Agreement. 80.Accordingly, I shall assess each agreed item by reference to the actual sum claimed by the Landlord. I shall have regard to the Expert’s estimate as a useful cross-check on the reasonableness of that sum, but will not treat it as a ceiling. 81.In the present case, the aggregate actual claim of $19,500 exceeds the aggregate estimate of $16,390 by $3,110 only. The difference is not significant. I am satisfied that the Landlord’s actual expenditure was reasonably incurred, and I allow the agreed items in the sum of $19,500. VIII. PREPARATION OF SURVEYOR’S REPORT RGARDING FIXTURES/DEFECTS 82.This item concerns a report dated 9 April 2021 (“Wesley Report”) prepared by Wesley & Associates Company Limited (“Wesley”). The Landlord claims $9,850 in respect of the cost of obtaining the report; ADC §13(2). 83.The Tenant submits that this item should be disallowed on two grounds. First, it contends that the Wesley Report was, in substance, a valuation report; it recorded the defects alleged by the Landlord and estimated the cost of remedial works at approximately $1.8 million. Secondly, the Tenant submits that the report was prepared without the leave of the Court. 84.In my view, the mere fact that the Wesley Report was prepared before the commencement of this action does not determine whether its cost is recoverable as damages or as a litigation disbursement. The critical question is the purpose for which it was commissioned. Where a report is reasonably obtained to inspect, investigate and identify remedial works made necessary by a tenant’s breach, its cost may in principle constitute a recoverable consequential expense. Where, however, its substantial purpose is to value, quantify or substantiate a prospective claim in litigation, the cost is more appropriately treated as a disbursement in the proceedings, recoverable, if at all, pursuant to an order for costs and on taxation. 85.The evidence shows that the Landlord engaged Wesley on 11 March 2021. Wesley’s scope of services was to: (a) inspect the Premises and make a record of their condition; (b) review the Tenant’s obligations concerning the yielding up of the Premises; and (c) prepare a report setting out its findings arising from the inspection and that review. According to the Wesley Report, the site inspection was carried out on 15 March 2021. 86.I accept that the Wesley Report was commissioned not principally for the purpose of the present litigation, but to identify the condition of the Premises following their return and to ascertain the remedial works required to make good the alleged defects. In the circumstances, the cost of obtaining the report was a reasonable expense incurred by the Landlord in investigating and responding to the Tenant’s breaches. As there is no serious challenge by the Tenant on the amount, I would allow the Landlord’s claim for this item in full, ie $9,850. IX. FIRE-ALARM SYSTEM 87.This category consists of three items:
88.The Tenant denies the liability for these claims. The Landlord’s arguments 89.The Landlord’s case is that the Tenant reinstated only part of the fire-alarm system. It alleges that the Tenant wrongfully removed, and failed to reinstate, the break-glass units and alarm bells, and disconnected the system as a whole. 90.The Landlord submits that the basic fire-alarm system formed part of the bare-shell condition and, in any event, fell within the Tenant’s maintenance obligations under clause 2.1(e), which expressly refers to “fire fighting apparatus”. It contends that the Tenant removed or failed to reinstate essential components, including wiring and cabling, fire-hose brackets, alarm bells and break-glass units, with the result that the system was disconnected and non-functional. 91.The Landlord’s evidence is that the fire-service system had been in place and functional since at least 2004, was used by both VWHK and the Tenant, and was required to be returned in functional condition. It further relies on Mr Ko’s admission in cross-examination that the fire-alarm system was part of the bare-shell condition. The Tenant’s arguments 92.The Tenant says it did not remove or damage the fire-hose brackets. During VWHK’s occupation, the fire-hose water pipes were partly fixed to partition walls. When those walls were removed, the Tenant’s contractor secured the pipes to the ceiling with metal wires. The Tenant contends that it was entitled to perform its obligations in the manner least onerous to it and that metal wires were sufficient. It further submits that there is no evidence that the system would not function without brackets. 93.The Tenant relies on photographs to suggest that the first fire-hose reel was probably newly installed by VWHK, and that no steel conduits were installed before February 2021, while the Service Centre was still in use. 94.The Tenant contends that the Landlord bears the burden of proving that the three fire-hose reels seen in 2021 belonged to it and that the relevant conduits existed in 2021. It points to Mr Cho’s evidence that he could not identify his own three fire-hose reels and could not see the conduits in the photographs, and submits that the Landlord has therefore failed to discharge that burden. 95.The Tenant argues that, in any event, the fire-hose system should have been removed as part of “alteration” in the Reinstatement Note, but the Landlord never requested its removal and instead reused the firefighting system. 96.The Tenant further submits that the Landlord has failed to prove that the Tenant removed any such steel conduits and wiring, and that there are photographs showing that no such conduits were installed before February 2021. 97.The Tenant maintains that it never tested or altered the fire service alarm system during the 7½ months of the tenancy and that it delivered up a bare shell under clause 2.1(hh). It also argues that clause 2.1(hh) Part 2 does not apply in this case. My views 98.There is no serious dispute that a fully functional fire-alarm system was in place when the Tenant took possession of the Premises. It is also not disputed that certain components of that system were removed during the Tenant’s reinstatement works. 99.The Tenant’s case, in short, is that those components formed part of VWHK’s fit-out and were removed together with the associated fixtures when the Tenant restored the Premises to bare-shell condition. The Tenant contends that, as its obligation was limited to yielding up the Premises in bare-shell condition, it was not required to reinstall those components for the Landlord. 100.I do not accept the Tenant’s submissions. Quite apart from Mr Ko’s admission that the fire-alarm system was part of the bare-shell condition of the Premises, the Tenant’s maintenance obligations under clause 2.1(e) expressly covered “fire fighting apparatus” and those obligations continued until the Tenant yielded up possession of the Premises. It follows that the Tenant was obliged to deliver up the fire-alarm system in a functional condition regardless of whether the said system was part of the bare-shell condition of the Premises or not. The Tenant cannot avoid that obligation by contending that the components in question had been installed as part of the fit-out and were removed when the Tenant restored the Premises to what it considered to be a bare-shell condition. 101.I therefore find that the Tenant was in breach of clauses 2.1(e) and 2.1(hh) insofar as it removed, and failed to reinstate, the components necessary for the proper functioning of the fire-alarm system. The Landlord is entitled to recover the reasonable costs of the remedial works required to restore the system. 102.I am satisfied that the items at §§87(a) & (c) are necessary for the proper functioning of the fire-alarm system and would allow the claim of these two items. Further, I am of the view that the amounts claimed, which are quite close to the Expert’s estimates, are reasonable and allow the Landlord’s claims for these two items. 103.For the installation of fire-hose brackets, the Landlord complained that certain fire-hose water pipes were suspended from the ceiling by metal wires. Its position is that proper fire-hose brackets should have been installed to support those pipes. The Landlord relies on Mr Ko’s admission that the fire-alarm system was part of the bare-shell condition of the Premises. It further submits that the system had to be functional if the Premises were to be yielded up in “good clean and tenantable repair and condition”. 104.The Tenant’s position is that, during VWHK’s occupation, the relevant fire-hose water pipes had been partly affixed to partition walls. When the partition walls were removed during the reinstatement works, the Tenant’s contractor secured the pipes to the ceiling with metal wires. 105.The Tenant relies on the statement in Halsbury’s Laws of Hong Kong at § 235.321 that “[i]n general it is for the covenantor to decide how to carry out the repair and the tenant is entitled to perform covenants in the manner least onerous to him”. It submits that securing the pipes to the ceiling with metal wires was the least onerous method available to it. The Tenant further submits that there is no evidence that the fire-alarm system would not function properly in the absence of fire-hose brackets. 106.I do not accept the Tenant’s submission. I have found that the Tenant was required to yield up the Premises with a properly functioning fire-alarm system. Once the partition walls to which the relevant fire-hose water pipes had been affixed were removed, the Tenant was obliged to secure those pipes properly to the walls or ceilings. Simply suspending them by metal wires was not an adequate substitute for proper supports. 107.The Tenant’s further submission that there is no evidence that the fire‑alarm system would not function without the brackets misstates the issue. The question is not whether the system could be made to work by an improvised method, but whether the Tenant yielded up the fire‑fighting apparatus in the state of repair and condition required by the Tenancy Agreement. If the Tenant’s argument were correct, it could reinstall and leave the fire‑alarm components in whatever manner was most convenient to it, even placing all components on the ground, and still claim to have complied with its obligations. That would be an absurd result and cannot have been what the parties intended. The Tenant was obliged to secure the fire‑hose pipes and related components properly to the walls or ceiling in a workmanlike manner, not merely to leave them loosely suspended. 108.The Tenant’s reliance on the principle that it was entitled to perform its obligations in the least onerous manner also does not assist it. That principle did not entitle the Tenant to adopt a method which fell short of the standard required to return a properly functioning and adequately supported fire-alarm system. In any event, I have considered the limited cost involved and the modest extent of the works required, and I do not consider that requiring the Tenant to install appropriate fire-hose brackets was onerous. 109.In those circumstances, I would allow the Landlord’s claim for fire-hose brackets at $3,000. 110.The total sum allowed for the fire-alarm system is $49,000 ($14,000 + $32,000 + $3,000). X. TOILET FACILITIES 111.This category consists of four items:
112.It is not disputed that, after taking possession of the Premises, VWHK carried out substantial renovation works, including the relocation of the toilets to Zone E[20] (“Relocated Toilets”). During the reinstatement works, the Tenant demolished the Relocated Toilets at Zone E and constructed toilet facilities at Zone F, which was the location shown for the toilets on the Floor Plan. 113.The Landlord’s complaints concerning the toilet facilities at Zone F are as follows:
114.The Tenant accepted that the Landlord had requested it to rebuild or reinstate the toilets, and that it had only partially done so, without connecting the fresh-water and drainage pipes. It also accepted that the Landlord complained about the size and standard of the partially constructed toilet facilities. However, the Tenant submits that:
115.I do not accept the Tenant’s submissions. 116.I have already rejected the Tenant’s argument that clause 2.1(e) only required it to maintain the Premises to the “2020 Bare-shell State”. The clause expressly requires the Tenant to keep the Landlord’s fixtures and fittings, including “piping” and “drainage”, in good, clean and substantial repair and condition, fair wear and tear excepted, and to deliver them up in like condition upon the expiration or sooner determination of the tenancy. The fresh-water and flushing-water supplies, together with the associated pipes and drainage, plainly fall within that provision. The Tenant was therefore obliged to deliver up those facilities in a functional condition. 117.Further, I do not agree that the expression “bare-shell” in clause 2.1(hh) Part 1 relieved the Tenant of any obligation to provide functioning toilet facilities. In AFH, the Court of Appeal considered the meaning of “bare shell” in the particular context of that case, which involved, among other matters, the removal of floor slabs and staircases. The decision does not establish a general proposition that a bare-shell condition necessarily excludes all basic facilities or that it permits a tenant to leave the premises with incomplete facilities which would otherwise be required by the relevant contractual provisions. 118.More fundamentally, clause 2.1(hh) Part 1 does not impose a bare-shell requirement in isolation. It requires the Tenant to yield up the Premises in bare-shell condition and in “good clean and tenantable repair and condition”, fair wear and tear excepted. The latter words qualify the required condition of the Premises at delivery up. 119.The assessment of whether premises are in good, clean and tenantable repair and condition is fact-sensitive. It requires regard to the condition of the Premises at the commencement of the tenancy and to the standard of repair that would make the Premises reasonably fit for occupation by a reasonably minded tenant of the relevant class; Wong Kong Lee. The question is therefore not whether the Tenant was obliged to improve the Premises beyond their original condition, but whether the Premises as returned satisfied the contractual standard. 120.In the present case, it is not disputed that the Relocated Toilets at Zone E were fully functional when the Tenant took possession of the Premises. The Tenant removed them in the course of its reinstatement works. It thereafter constructed toilet facilities at Zone F, being the original toilet location shown on the Floor Plan, but accepts that the works were only partially completed. 121.The Tenant’s contention that it had no obligation to reinstate the Relocated Toilets because they had been installed by VWHK does not address the position which resulted from the Tenant’s own removal and partial reconstruction works. The Tenant removed the Relocated Toilets in order to yield up the Premises in bare-shell condition. Once it proceeded to reconstruct toilet facilities at Zone F, it was under an obligation to ensure that the Premises were yielded up in the condition contractually required, namely “good clean and tenantable repair and condition”. It could not satisfy that obligation by leaving incomplete toilet facilities which were incapable of proper use. 122.A reasonably minded incoming tenant would not regard toilet facilities lacking fresh-water and flushing-water supply, the necessary pipes and drainage, a door and surrounding wall for the female toilet, and proper partitions as being in good, clean and tenantable repair and condition. The use of wooden planks and boards as partitions, the omission of the door and surrounding wall, and the failure to remove the artificial ceiling further demonstrate that the works were incomplete and fell below the requisite standard. 123.I therefore find that the Tenant failed to comply with clause 2.1(hh) Part 1, namely the requirement to yield up the Premises in bare-shell condition and in good, clean and tenantable repair and condition, fair wear and tear excepted. It also failed to comply with clause 2.1(e) in respect of the piping and drainage associated with the toilet facilities. 124.Having regard to the expert’s estimates, which are broadly consistent with the sums actually claimed, I am satisfied that the amounts claimed are reasonable. I therefore allow the four claims in full, in the total sum of $89,500. XI. PAINTING, PLASTERING AND REPAIR OF WALLS, CEILINGS AND COLUMNS 125.This category consists of four items:
Tenant’s argument 126.The Tenant submits that the Landlord’s complaints about falling concrete from ceilings, walls and columns are: (a) within fair wear and tear; (b) matters of structural maintenance; and (c) contrary to the express agreement in clause 9.1 and the Fifth Schedule, which make the Landlord responsible for structural maintenance. 127.The Tenant observes that most patches of fallen ceiling concrete and exposed rusted bars appeared in areas that had been covered by the Volkswagen office, toilets and changing rooms, with only two small patches in uncovered areas. 128.It submits that apparatus such as air-conditioning and ventilation equipment in those covered areas could have been fixed to the ceiling and walls by the VWHK. Photographs taken while the Service Centre was still in use (before February 2021) show that even the uncovered areas had many fixtures attached to the ceiling (lighting, conduits, wire mounts, ventilation, machinery), yet there was hardly any fallen concrete there. 129.Given that the iron bars are rusted and appear to have been rusted for some time, the Tenant argues it is more likely that the concrete had been falling for a considerable period, and that moisture trapped behind the covered areas over many years contributed to paint failure and concrete spalling. On that basis, the Tenant contends these are structural defects whose maintenance costs should be borne by the Landlord under the Fifth Schedule. 130.It argues that the Landlord has failed to prove the “2020 Bare-shell State” of the walls and ceilings, and in particular has not shown that they were adequately painted in 2020. The Tenant characterises the work undertaken by the Landlord as repainting, upgrading and improving the whole of the Premises to a near brand-new condition, which goes far beyond the scope of the Tenancy Agreement. 131.The Tenant repeats the submissions that the covenant to yield up in “good, clean and tenantable repair and condition” does not require the tenant to improve the premises or to repaint the whole property at the end of the term. It contends that requiring it to renovate the ceiling and walls to an almost “perfect, new and newly decorated condition” contradicts clause 9.1 and the Fifth Schedule, under which the Landlord is responsible for reasonable maintenance costs of the structure. 132.Having regard to its interpretation of “bare shell”, the Tenant submits that it is not in breach of clause 2.1(hh) Part 1, and that clause 2.1(hh) Part 2 does not apply. It further submits that, under clause 2.1(k), it is only obliged to make good damage caused through its omissions, and under clause 2.1(e) it is only obliged to keep and maintain the “2020 Bare-shell State”. 133.By way of alternative submission, if the Court finds the Tenant liable for any reasonable costs of painting, plastering and repairing the ceiling and columns (which it denies), the Tenant contends it should be responsible for at most 20% of the costs. It relies on: (a) the large size of the Premises (about 17,000 sq ft) and the disproportionate renovation cost (about $851,000) compared with the 7½ months’ rent; (b) the Landlord’s long-term rental income from the Premises (roughly over $100 million over 17 years) making it unreasonable for a short-term tenant to bear the cost of a significant upgrade; (c) the fact that the Landlord’s complaints relate to only a minority of the total area, yet the whole premises was repainted; and (d) a comparison with other industrial premises on the market, which it says shows the works amounted to an upgrade and improvement, producing a “perfect, new and newly decorated condition” that goes beyond “good, clean and tenantable” repair. The Landlord’s argument 134.The Landlord accepts that there was some wear and tear but says it was minimal and does not justify the extent of the damage now seen. 135.It relies on the Expert’s opinion that the concentration and pattern of ceiling damage (spalling) is more consistent with damage caused by removal works (eg removal of artificial ceilings, air‑conditioning units and anchor bolts) than with homogeneous age‑related deterioration. 136.It argues that, where the premises are not in good repair at the end of the term, the tenant bears the legal burden of proving that the complained‑of dilapidations result from fair wear and tear (Halsbury’s Laws of Hong Kong §235.322). Even if the premises were in a poor state at the start of the tenancy, clause 2.1(e) would still oblige the Tenant to put the interior parts (including plaster and rendering to walls, floors and ceilings) into repair (Halsbury’s Laws of Hong Kong §235.321). 137.The Landlord submits that clause 2.1(e) imposes a clear obligation on the Tenant to keep in good, clean and substantial repair: (a) interior parts including flooring, plaster and rendering to walls, floors and ceilings; and (b) the Landlord’s fixtures and fittings, including fire‑fighting apparatus, electrical installations, lighting, piping, drainage and wiring. It says the photographic evidence shows the Tenant failed to keep those interior parts in the required standard, and that the damage went far beyond fair wear and tear. 138.The Landlord denies that the works amount to an “improvement”. It says the repainting and plastering were necessary to remedy substantial, scattered damage to walls, ceilings and columns caused by the Tenant’s removal works. It refers to Taylor v Jones [2023] EWCA Civ 170 in which the English Court of Appeal applied and extended the principle in Harbutt’s, holding that that the owner of property who reasonably repairs the damage caused by the wrongdoer does not have to give credit for the fact that the repair involves replacing old materials with new. The English Court of Appeal at §58 further elaborates on the position that it is the wrongdoer who bears the burden of proving that there ought to be reductions:
139.In reliance on the above, the Landlord argues the repainting of the Premises is an incidental betterment that should not be subject to deduction, because the observed damage was extensive and highly scattered throughout the Premises, which made it impracticable to only repaint those damaged areas individually with new white paint, giving off an awkward look mixed with scattered, patchy white and old paints. 140.Further, it contends that wholesale repainting was more cost‑ and time‑efficient than sporadic repainting of scattered damaged areas, and that the Tenant has not shown that a cheaper, equally effective alternative was available. My views 141.I have already found that the Tenant’s obligation as to the condition in which the Premises were to be yielded up was not limited to the so‑called “2020 Bare-shell State”. The standard under clauses 2.1(e) and clause 2.1(hh) is “good, clean and tenantable/substantial repair and condition, fair wear and tear excepted”. That obligation does not require the Tenant to repair structural damage, but it does require the Tenant to make good damage to interior finishes caused by its own works or omissions, even if that results in the premises being in a better decorative condition than at the start of the term. 142.On the evidence, I accept the Expert’s opinion that the pattern and concentration of the ceiling spalling are not consistent with homogeneous, age‑related deterioration across the whole Premises. Rather, the damage is concentrated in areas where fixtures and apparatus were removed from the walls and ceilings. I find that at least some of the falling concrete and associated damage was caused when the Tenant, through its contractors, removed fixtures or apparatus affixed to the walls or ceiling. 143.Judging from the photographs relied on by both parties, I am also satisfied that the damage to the walls, ceilings and columns went beyond fair wear and tear. 144.Having compared the condition of the Premises with that of other industrial premises of similar age and character produced by the Tenant[25], I am of the view that, by reason of the condition of the wall, ceiling and columns, the Premises were not in “good, clean and tenantable/substantial repair and condition, fair wear and tear excepted” as required in the Tenancy Agreement when they were yielded up. 145.As to the quantum, I am satisfied that the patching of wall in item 9 was required to make good the damage which was not attributable to fair wear and tear. The amount claimed is reasonable and I allow it in full (ie $15,000). 146.For the remaining three items, the photographs of comparable industrial premises show that patch marks, areas of localised repair and variations in paint colour or finish are not unusual in industrial premises of a similar age and character. A tenantable premises does not necessarily have to present a uniform, newly painted appearance throughout. I therefore do not accept that it was necessary, for the purpose of putting the Premises into the condition required by the Tenancy Agreement, to repaint all the walls, ceilings and columns. 147.The fact that a uniform finish might be more aesthetically satisfactory, or more convenient for the contractor, does not by itself make wholesale repainting recoverable from the Tenant. The Landlord was entitled to carry out the works reasonably necessary to remedy the damage attributable to the Tenant, but not to require the Tenant to bear the cost of giving the whole Premises a uniform or substantially new decorative finish. 148.The same consideration applies to the plastering works. The recoverable works should be confined to the damaged areas and such immediately associated works as were reasonably necessary to carry out those repairs properly. They should not extend to plastering sound or undamaged parts of the walls and ceilings merely to achieve a consistent overall appearance. 149.As to the Landlord’s “economy of scale” argument, there is insufficient evidence of the labour and time savings said to result from wholesale repainting. 150.Having considered the extent of the damage, I am of the view that the Tenant should bear 50% of the costs of item 13 (painting and plastering of walls), item 14 (painting and plastering of beams) and item 15 (repairing columns). The total amount is ($148,500 + $163,800 + $19,800) ÷ 2 = $166,050. Adding $15,000 for item 9, the final amount is $181,050. XII. REMOVAL OF TILES AND BRICK WALL AND REPAIR OF FLOOR 151.This category consists of only one item, ie item 5[26]. The total amount claimed is $130,000. The Expert’s estimate is $66,790. 152.The Landlord confirms that the amount claimed does not include the cost to reinstate the raised floor at Gate C. The amount claimed is to remove the tiles on some of the walls, remove brick walls left behind by the Tenant, repair damaged floor and address the unevenness of the floor. 153.The Tenant does not seriously dispute the removal of tiles and brick walls. The focus is on the floor. 154.Insofar as the floor is concerned, the Landlord’s claim covers:
155.The Tenant’s position is that:
156.There is no dispute that the raised floor at Zone G was made by VWHK, not the Tenant. As it is my finding that clause 2.1(hh) Part 2 cannot properly be construed as imposing on the Tenant a liability to reinstate alterations made by VWHK, it follows that the Tenant has no obligation to reinstate the raised floor at Zone G. 157.I also accept the Tenant’s submission that a floor in “good, clean and substantial/tenantable repair and condition (fair wear and tear excepted)” need not be perfectly even. The photographs of other comparable industrial premises show that uneven floors and floors with drainage channels are not uncommon in premises of this type and locality. Having regard to the videos of the Premises and the overall condition of the flooring, I am satisfied that the floor, as yielded up by the Tenant on 27 February 2021, generally met the contractual standard of “good, clean and substantial/tenantable repair and condition (fair wear and tear excepted)”. In these circumstances, I disallow the Landlord’s claim insofar as it relates to the general condition and evenness of the floor. 158.It follows that the Landlord is entitled to recover only that part of item 5 which relates to the removal of the tiles and the brick wall, and not to works addressing the general condition or levelness of the floor. The difficulty is that the Landlord’s claim of $130,000 for item 5 is presented as a single sum without any breakdown between (a) removal of tiles and brick wall (which I have found recoverable) and (b) other flooring works (which I have disallowed). There is no sufficiently reliable evidence before me that would enable a reliable apportionment. 159.I also note a substantial difference between the Landlord’s claim of $130,000 and the Expert’s estimate of $66,790, and there is no explanation from the Landlord or the Expert for this difference. In the absence of any evidential basis to quantify the recoverable portion of item 5, and bearing in mind that the burden of proving quantum rests on the Landlord, I am unable to make a reasoned assessment of damages for this item. I therefore award only nominal damages for the recoverable portion of item 5, in the sum of $1,000. XIII. LIGHTING AND ELECTRICITY 160.This category consists of five items:
161.The Tenant admits that it did not reconstruct the electrical system or provide new lighting when it yielded up the Premises. Its case is that it removed the office partitions and false ceilings as part of the required bare-shell reinstatement, and that the electrical wires and light fittings associated with those installations necessarily had to be removed. 162.The Tenant’s contentions are:
163.The Landlord submits that the electrical system and basic lighting were part of the Landlord’s fixtures and fittings or the basic infrastructure of the Premises. It argues that they had to be delivered up under clause 2.1(e), which expressly refers to electrical installations, light fittings, wiring, meters, etc., and that they were also relevant to whether the Premises were in good, clean and tenantable repair and condition under clause 2.1(hh). 164.The Landlord’s case is that:
165.I agree with the Landlord’s submissions that the Tenant was required to yield up the Premises with basic electrical wiring and lighting with a reasonable number of power switches. This follows both from clause 2.1(hh) Part 1, which required the Tenant to yield up the Premises in “good clean and tenantable repair and condition”, and from clause 2.1(e), which expressly required the Tenant to keep and deliver up the Landlord’s fixtures and fittings, including “electrical … installations”, “light fittings”, “wiring” and “meters”, in good, clean and substantial repair and condition, fair wear and tear excepted. 166.I accept that, in the course of removing the partition walls, false ceilings, and other fit-out works, the Tenant might have been required to remove electrical wiring and light fittings associated with those particular installations. That, however, did not relieve the Tenant of its obligation to ensure that the Premises were returned with such basic electrical infrastructure as was necessary to render them compliant with the contractual standard. The Tenant could not remove the electrical system and rely upon the bare-shell requirement as a complete answer. 167.The requirement to yield up the Premises in bare-shell condition must be read together with, and not in isolation from, the requirement that they be yielded up in good, clean and tenantable repair and condition. A bare-shell condition does not, in the circumstances of this case, mean a condition in which the Premises were devoid of any electricity supply, basic wiring, or lighting. Nor does it permit the Tenant to yield up an industrial premises of approximately 17,000 square feet without the basic electrical infrastructure necessary for its ordinary occupation and use. 168.The Tenant submits that the electricity supply to the Premises was functioning when it delivered up possession on 27 February 2021. I do not accept the Tenant’s submissions as a complete answer to the Landlord’s claim. The question is not whether electricity was supplied to the Premises at the time of delivery. The relevant issue is whether the Premises were yielded up with the electrical installations, wiring and light fittings required by clauses 2.1(e) and 2.1(hh), and in a condition reasonably fit for occupation by an incoming tenant. The absence of basic wiring and lighting fell short of that standard. 169.I therefore find that the Tenant failed to comply with its obligations under clause 2.1(e) to maintain and deliver up the Landlord’s electrical installations, light fittings and wiring in the requisite condition. It also failed to yield up the Premises in good, clean and tenantable repair and condition under clause 2.1(hh) Part 1, insofar as the Premises lacked basic electrical wiring, electricity supply and lighting. The Landlord is entitled in principle to recover the reasonable costs of the remedial works necessary to restore those basic facilities. 170.However, I accept the Tenant’s submission that the Landlord’s claim, insofar as it concerns the installation of 100 light fittings and the further “add-on” lighting works, goes beyond what was reasonably required to restore the basic electrical infrastructure of the Premises[27]. The Tenant was obliged to yield up the Premises with basic electrical wiring, electricity supply and lighting sufficient to meet the contractual standard of good, clean and tenantable repair and condition. It was not, however, obliged to provide a substantially upgraded lighting installation or to fund lighting beyond what was reasonably necessary to restore the basic facilities. 171.I have considered the photographs of the new light fittings installed by the Landlord[28], the size of the Premises (approximately 17,000 square feet), and their industrial character. I also have regard to the lighting shown in other industrial premises of similar age and character, which I consider to be useful reference[29]. Taking those matters into account, I consider that 50 sets of the new light fittings represented a reasonable provision of basic lighting for the Premises. This is necessarily a broad assessment, but I am satisfied that it fairly reflects the size and character of the Premises while avoiding an allowance for the more extensive lighting scheme installed by the Landlord. 172.The Landlord claims $90,000 for the installation of 100 sets of light fittings, equivalent to $900 per set. I adopt that unit cost for the purpose of my assessment. I therefore allow $45,000 in respect of the installation of fifty light fittings. 173.As to the installation of wire conduits and three power switches, I consider that the work was necessary and the claim is reasonable. I therefore allow these two items in full. The total sum for this category is $76,000 ($45,000 + $25,000 + $6,000) XIV. COVERS OF ROLLER SHUTTERS 174.This category consists of the last two items of the Schedule[30]:
175.The Tenant disputes the liability on two grounds:
176.The Landlord’s position is that:
177.I accept the Landlord’s submission on this point. The analysis is analogous to that in relation to the toilet facilities. 178.It is not in dispute that, when the Tenant took over the Premises, the roller shutters were provided with overhead covers/metal cladding and that covers formed part of the roller shutter assembly as delivered to the Tenant. The Tenant elected to remove that cover as part of its reinstatement works. Having done so, the Tenant was obliged to yield up the roller shutters in “good, clean and tenantable repair and condition (fair wear and tear excepted)”, which, in my view, required the provision of a proper cover comparable to that which existed at the commencement of the tenancy. 179.The Tenant’s position that the cover is merely aesthetic or that the roller shutter can still “function” without it is, in my judgment, misplaced. By the same reasoning, one might argue that a toilet can function without a door, or without certain fittings, and therefore a tenant who removes those elements is under no obligation to reinstate them. That cannot be right. The obligation is to yield up the fixture in the condition in which it was taken, subject to fair wear and tear. If a tenant removes part of a fixture, it cannot rely on the fact that the remainder is operable to avoid the obligation to reinstate what was removed. 180.Accordingly, I find that the Tenant was obliged to reinstate the overhead covers to the roller shutters. I am satisfied that the amount claimed by the Landlord is reasonable and allow the claim for roller-shutter covers in full, ie $36,000. 181.In respect of the claim for testing of the power supply to the roller shutters, the Landlord submitted that it was required as a result of the problem mentioned in the Expert Report, ie short circuit occurred when power was connected to the roller shutters when the Expert conducted the inspection on 15 March 2021. 182.However, as shown in the videos, the roller shutters functioned properly when the Premises were returned to the Landlord on 27 February 2021, and there is no evidence from the Expert as to the cause of the short circuit. In such circumstances, I am not satisfied that the test was required because of the Tenant’s failure to discharge its obligations under the Tenancy Agreement and I would not allow this item. 183.In other words, the total sum allowed in this category is $36,000. XV. LOSS OF RENTAL INCOME 184.It is the Landlord’s case that, by reason of the Tenant’s failure to yield up the Premises in the condition required under the Tenancy Agreement, the Landlord was required to carry out remedial works from 27 April 2021 to 4 June 2021 (38 days). Based on the monthly rent of $578,000, the Landlord claims loss of rental income for that period in the sum of $732,133, together with government rent and rates in the sum of $51,342. 185.The Tenant submits that the Landlord must prove causation. The issues relating to causation are:
186.The Tenant submits that:
187.On causation, it is provided in Chitty on Contracts, 36th Ed, Vol. 1 §30-75 that:
188.Footnote 457 adds that “… the breach of contract need not be the sole cause: below, para 30-85. Where it is more likely than not that a breach caused the loss in question, it is not necessary for the claimant to show that other possibilities must be eliminated: Dana UK Axle Ltd v Freudenberg FST GmbH [2021] EWHC 1751 (TCC) at [227]-[242]”. 189.In Worldwide International Corp Ltd v Gloryluck Industrial Ltd [2024] 5 HKLRD 722, Deputy District Judge Vaughan stated that:
190.In Modern Beauty Salon (Hk) Limited v King Alliance International Limited [2026] HKDC 115, Deputy District Judge Alan Ng, citing Worldwide International Corp Ltd, stated the legal position at §58 as follows:
191.I have already made findings on the items claimed by the Landlord and have allowed most of them. In my view, it was most unlikely that any reasonably minded tenant would have been willing to rent the Premises in the condition in which they were yielded up, lacking basic infrastructure and facilities such as a functional fire-alarm system, proper toilet facilities, fresh‑water and flushing‑water supply, electricity, and the like. 192.Based on those findings, I am satisfied that the Tenant’s breaches were the “effective” or “dominant” cause of the Landlord’s loss of income. I agree with the Landlord that it does not need to eliminate other possible causes (such as Covid‑19 related restrictions); it is enough that the Tenant’s defective reinstatement work was the effective or dominant cause necessitating the repair works during that period. 193.Further, the Tenant has not pleaded any positive case that the Landlord failed to mitigate its losses. The evidence of Mr Cho and Mr Poon is that: (a) the Premises were already put up for letting at the end of January 2021; (b) there were enquiries and viewings from prospective tenants during the period before and after the repair works; and (c) Mr Cho received an offer around November 2021. 194.For these reasons, I am satisfied that the Landlord is entitled to claim loss of rental income caused by the Tenant’s breaches of the Tenancy Agreement. I do not consider that the Covid‑19 pandemic or the alleged bad economy constituted an intervening event that broke the chain of causation. 195.As for the period of loss, I consider it appropriate to apportion the 38‑day period by reference to the proportion of the repair costs which I have allowed. This approach is justified because the repair costs were incurred largely on a labour (man-day) basis, and the duration of the works is reasonably correlated with the scope of works allowed. 196.The Landlord’s total claim for repair works under ADC §13(4)-(6) is $851,000, and the number of days claimed for the loss of rent is 38 days. The amount I have allowed for repair works is $452,050. On a pro‑rata basis, the number of days of loss attributable to the allowed works is 20.18 days: 38 days × ($452,050 / $851,000), and I would round it up to 21 days. 197.The loss of rental income is therefore: $578,000 × 21/30 = $404,600. The corresponding loss of government rent and rates is: $51,342 × 21/38 = $28,373.21. The total award for this category is therefore $432,973.21. XVI. SUMMARY OF THE LANDLORD’S CLAIM 198.My findings and assessment of the Landlord’s claim are summarised as follows:
199.After setting off the above sum from the Deposit, the balance of the Deposit is $553,465.26 which the Landlord should return to the Tenant. XVII. DISPOSITION 200.For the reasons set out above, I would make the following orders:
XVIII. COSTS 201.Although the Landlord succeeds on most of the items in its counterclaim, the damages I award to it are less than the Deposit. The outcome is that the Tenant is entitled to judgment in respect of the balance of $553,465.26 and the Landlord’s counterclaim is dismissed. In these circumstances, I am of the view that the general principle of “costs following the event” should apply. 202.I therefore make an order nisi that the Defendant do pay the Plaintiff’s costs of the action, including the costs of the Defendant’s counterclaim and any costs reserved, with Certificate for Counsel, to be taxed if not agreed. The order nisi made will become absolute unless an application is made by any party to vary them within 14 days after the handing down of this Judgment. 203.Lastly, I thank Counsel for their very helpful assistance to the Court.
Mr Jerome Liu and Mr Chris Wong, instructed by Wong & Tang, for the Plaintiff Mr Perlam Sam, instructed by Huen & Partners, for the Defendant [1] [451-474] [2] [873-892] [3] [917] [4] [919] [5] [920] [6] [893-896] [7] [340-359] [8] [360-361] [9] [212-313] [10] ADC §13(1)-(2) [11] ADC §13(3) [12] ADC §13(4)-(6) [13] ADC §13(7)-(8) [14] [234] [658-660] [867-869] [15] [235] [860] [862] [864] [871] [16] [677-8] [682] [686] [841-842] [17] [230-231] [841-842] [18] [232] [19] [647] [668] [679] [690] [766-774] [783-784] [841] [843] [851] [870] [20] See Annex 2.2 of the Landlord’s Opening Submissions [21] [800] [802] [823] [824] [22] Walls: [664] [681] [738] [716-7] [720] [740] [847-849] [675]; Ceiling: [675] [706-707] [710] [666] [670-671] [678] [690] [793] [841-842] [775] 752-753] [755] [838] [670] [715] [719] [764] [23] ditto [24] [639] [657] [664] [662] [704] [711] [714] [756] [704] [791-792] [825] [828-830] [843] [854] [861] [25] [423] [428] [431-433] [439-440] [443-446] [26] Walls: [683] [795] [644] [696-699] [785-786] [788] [790]; Floor: [709-710] [804-806] [858] [656] [830-833] [839-840] [226] [676] [680] [791] [763] [852-855] [856-857] [681] [864] [871] [727] [750] [866] [870] [723] [27] [863-864] [866-869] [28] ditto [29] [423] [428] [431-433] [439-440] [443-446] [30] Item 8 in the Schedule is blank [31] [238] [32] [225] [666-667] [701] [782] [840] [865] [870-871] [33] Mr Liu confirms in the closing submissions that the Tenant does not claim pre-judgment interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment