Chinese Estates (Harcourt House) Ltd v. Surex Consultants Ltd and Another

DCCJ3378/2003

IN THE DISTICT COURT OF THE

HONG KNOW SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3378 OF 2003

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BETWEEN

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Coram : Deputy District Judge W. K. Kwok in Court.

Date of Hearing : 15 July 2005.

Date of Handing Down Judgment : 20 July 2005.

JUDGMENT

1.This is an assessment of damages, Final and Interlocutory Judgment having been entered against the 2^nd Defendant on 25 November 2004 for a liquidated sum as well as for damages for breach of the Lease in question.

Background

2.By a lease in writing dated 26 July 2001 and made between the Plaintiff as the landlord, the 1^st Defendant as the tenant, and the 2^nd Defendant as the guarantor (“the Lease”), the Plaintiff agreed to let and the 1^st Defendant agreed to rent the premises situated at Room 1207, 12/F., Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong (“the premises”) for business purpose for a term of two years commencing from 16 July 2001 to 15July 2003 at a monthly rent of $36,869 payable in advance on the first day of each and every successive calendar month, save and except that the 1^st Defendant would enjoy two rent-free periods, firstly between 16 July 2001 and 15 August 2001, and secondly between 16 July 2002 and 15 August 2002.

3.Under the Lease, the 1^st Defendant also agreed to pay to the Plaintiff service charges at $7,614.25 each month payable in advance together with the rent, as well as the rates charged quarterly by the Hong Kong Government.  It also agreed to pay interest to the Plaintiff for arrears of rents and all other payments at the rate of 3% per annum above the prime rate quoted by Hong Kong and Shanghai Banking Corporation.

4.By the Lease, the 2^nd Defendant, in consideration of the Plaintiff entering into the Lease with the 1^st Defendant, covenanted with the Plaintiff as a primary obligator that he would forthwith upon demand pay all arrears of rent, service charges and all other payments payable under the Lease by the 1^st Defendant in case of default by the 1^st Defendant. 

5.In breach of the Lease, the 1^st Defendant failed to pay to the Plaintiff rent since 1 May 2002, services charges since 1 June 2002 and rates since 1 October 2002.

6.On 12 October 2002, the 1^st Defendant vacated and deserted the premises without the consent or permission of the Plaintiff.  It returned keys of the premises to the Plaintiff on 1 November 2002.

7.On 11 December 2002, the Plaintiff recovered possession of the premises, after giving due notice to the 1^st and 2^nd Defendants.

8.The Plaintiff instituted the proceedings herein against the 1^st and 2^nd Defendants on 11 June 2003 to claim for arrears of rents, service charges and rates due and payable up to 10 December 2002 by the 1^st Defendant as the tenant and by the 2^nd Defendant as the guarantor, as well as for damages for breach of the Lease arising from the premature termination of the Lease.

9.The 2^nd Defendant filed no defence against the Plaintiff’s claim.  Final and Interlocutory Judgment was entered against him for a liquidated sum and for damages for breach of the Lease to be assessed.  The liquidated sum related to the arrears of rents, service charges and rates due and payable up to 10 December 2002.  The amount of damages is to be assessed before me.

10.The Plaintiff has not taken further steps in these proceedings against the 1^st Defendant after filing of the Statement of Claim.

The Evidence

11.Madam Ng Lai To, the senior leasing officer of Chinese Estates Holdings Limited responsible inter alia for handling all matters arising from the tenancy agreements concerning the Plaintiff, was the only witness who testified in this Assessment. 

12.The 2^nd Defendant did not appear in the hearing.  Notice of this hearing had been duly served upon him.

13.According to Madam Ng, due to the repudiation of the Lease by the 1^st Defendant, the Plaintiff had suffered loss and damage in that it had lost the rent it would have otherwise received from the 1^st Defendant for the unexpired term of the Lease from 11 December 2002 to 15 July 2003.

14.In an attempt to mitigate its loss and damage, the Plaintiff tried to re-let the premises.  Madam Ng testified that the Plaintiff had been trying its very best to rent out the premises again by eliciting help from estate agents as well as approaching its own customers.  The Plaintiff eventually succeeded in letting out the premises by late March 2003.  Madam Ng could not recall if there was any other offer coming from prospective tenant before the premises were let out again. 

15.By a lease dated 9 May 2003 and made between the Plaintiff as the landlord, Cityray Technology (China) Limited (“Cityray”) as the tenant, and Ng Lup Ki Ricky as the guarantor, the Plaintiff agreed to let and Cityray agreed to rent the premises for business purpose for a term of 2 years commencing from 28 March 2003 at a monthly rent of $22,765 with a rent-free period between 28 March 2003 and 27 April 2003.

16.Madam Ng also stated in her statement that the Plaintiff was entitled, by virtue of the Lease, to charge interest on the outstanding rent, service charges and rates from their respective due dates up till 10 December 2004.

17.Madam Ng particularized the interest rates which was 3% above the prime rate quoted by Hong Kong and Shanghai Banking Corporation at different points of time for calculating the amount of interest that had become due.  The amounts of interest for outstanding rent, service charges and rates were in the respective sums of $5,008.99, 1,186.66 and 44.96.

18.Madam Ng also testified that by a letter dated 16 November 2004, the solicitor for D2 sent to the Plaintiff 3 cheques in purported full and final settlement of the Plaintiff’s claim.  The cheques, in the respective sums of $90,000, $80,000 and $80,000, were post-dated respectively to 30 November 2004, 31 December 2004 and 31 January 2005.  The Plaintiff accepted this offer for settlement from the 2^nd Defendant. 

19.However, the 2^nd Defendant only honoured the first two cheques, but the third cheque dated 31 January 2005 was dishonoured.

D2’s offer for settlement

20.It is quite clear from the evidence of Madam Ng that the Plaintiff and the 2^nd Defendant had in fact entered into a settlement agreement.  If this settlement agreement remained in full force and effect, the Plaintiff would not have been entitled to proceed with this Assessment, and in fact it is arguable that it should not have entered into the Final and Interlocutory Judgment against the 2^nd Defendant on 25 November 2004.  The cheques were sent to the Plaintiff prior to that day, and the first two cheques were duly honoured upon presentment for payment.

21.It is however not for me to set aside the Final and Interlocutory Judgment.  I do not know whether the settlement agreement would be rendered void when the 3^rd cheque was dishonoured.  Furthermore, D2, who has due notice of all proceedings prior to the date of the Assessment, has not taken any step to set aside the Final and Interlocutory Judgment.  I will therefore proceed on the basis that the Final and Interlocutory Judgment is valid, regular and effective, and the Plaintiff is at liberty to proceed with this assessment for damages. 

Findings

22.Madam Ng appears to be a truthful and reliable witness.  Her evidence is supported by documents and is not contradicted.  I accept her evidence and find it to be the facts of this case.

23.The ordinary contractual principles of repudiation and acceptance of repudiation applies to a tenancy agreement.  Hence, a landlord is entitled to recover damages for breach of a tenancy agreement if the tenant repudiates the tenancy agreement unilaterally: World Realty Ltd. v. Kwan Ngar Yin [1987] 3 HKC 148; Sano Screen Manufacturers Limited v. J & B Bossini Trading Limited, HCA 12351/98.

24.The 1^st Defendant did not pay rent from 1 May 2002 onwards.  It vacated from the premises on 12 October 2002 without the Plaintiff’s prior consent or permission.  It returned keys to the Plaintiff on 1 November 2002.  It was clear that it had evinced an intention not to be bound by the Lease. 

25.The Plaintiff accepted its repudiatory breach on 11 December 2002 when it recovered possession of the premises.  The 1^st Defendant is therefore liable to pay damages to the Plaintiff for the loss and damage it has suffered.

26.The 2^nd Defendant is equally liable as he was the guarantor under the Lease and he had undertaken primary liability.

27.I am satisfied that, but for the repudiatory breach of the 1^st Defendant, the Plaintiff would have been entitled to receive rent from the latter from the date of acceptance of the repudiation (i.e. 11 December 2002) to the date when the Lease would have expired (i.e. 15 July 2003) at $36,689 per month.

28.I am also satisfied that the Plaintiff had tried its best to re-let the premises.  I am satisfied that it had done so without delay.  I am satisfied that the earliest possible time it could rent out the premises again was 28 March 2003 by virtue of the lease made between the Plaintiff and Cityray. 

29.I am satisfied that the rent at which the premises was let to Cityray was the market rent that could be reasonably obtained at that time. 

30.As far as the provision of a rent-free period for one month to Cityray is concerned, Madam Ng testified that it was not the case that the Plaintiff would grant rent-free period to each and every tenant, and that it depended much on the amount of decoration that needed to be carried out in the room to be rented out.  For the particular lease with Cityray, Madam Ng said that the agreement in respect of the rent-free period was reached after negotiation between the parties, and that if the Plaintiff did not allow Cityray to have this one month’s rent-free period, the premise might not be let out so soon.  I accept Madam Ng’s evidence.  After all, it is also clear that the 1^st Defendant had been given two different rent-free periods during the currency of the Lease.  For these reasons, I find that the provision of a rent-free period for one month to Cityray was a reasonable step to take for mitigating the loss.

31.All in all, I am satisfied that the Plaintiff had fulfilled its duty in mitigation of its loss and damage. 

32.The Plaintiff is therefore entitled to recover the loss of rental between 11 December 2002 and 15 July 2003, less the amount of rent it had received from Cityray between 28 April 2003 to 15 July 2003, as damages.

The Assessment

33.Mr. Hui, Counsel for the Plaintiff, submitted that the Plaintiff is entitled to claim the following sums of money from D2: -

(a)	Rent from 1/5/02 to 10/12/02	$	207,031.00
(b)	Service charges from 1/6/02 to 10/12/02	$	48,141.71
(c)	Rates from 1/10/02 to 10/12/02	$	2,865.08
(d)	Interest for late payment of rent	$	2,264.39
(e)	Interest for late payment of service charge	$	813.57
(f)	Interest for late payment of rate	$	36.21
		$	261,151.96
Less:
	Security deposit	$	133,449.75
	Final and Interlocutory Judgment	$	127,702.21
		$	0
(g)	Interest on outstanding rent	$	5,008.99
	(from 1 May 2002 to 10 December 2002)
(h)	Interest on outstanding service charges	$	1,186.66
(i)	Interest on outstanding rates	$	44.96
(j)	Damages for breach of the Lease	$	205,207.79
Less:
	Payment received by Plaintiff	$	170,000.00
		$	41,448.40
			=========

34.The Plaintiff’s claim for interest particularized in items (g), (h) and (i) appears to be out of place in this Assessment because they are clearly claims for liquidated sums.  A liquidated sum is a specific sum of money due and payable under or by virtue of a contract.  Its amount is either already ascertained, or capable of being ascertained as a mere matter of arithmetic (see para. 6/2/4, Hong Kong Civil Procedure 2004).  The amounts of rent, service charges and rates fell due on 10 December 2002 were certain, and the amount of interest to be charged was clearly ascertainable.  Hence, I have reservation on whether I should award the Plaintiff such claims here.

35.Nevertheless, having studied the Statement of Claim and the terms of the judgment entered on 25 November 2004 very carefully, it is clear that this part of the Plaintiff’s claim which has been pleaded in the Statement of Claim has not been dealt with in the Final and Interlocutory Judgment.  I see no point to direct the Plaintiff to seek another judgment in default for these sums.  It will just increase the amount of costs.  I therefore allow the Plaintiff to recover these sums, the aggregate of which is $6,240.61.

36.As far as the claim in item (j) is concerned, being the loss of rental suffered by the Plaintiff between 11 December 2002 and 15 July 2003, I am satisfied that the Plaintiff is entitled to recover from the 2^nd Defendant the sum of $205,207.79 as damages.

37.The Plaintiff had already received $170,000 from the 2^nd Defendant.  During the course of Mr. Hui’s submission, an issue has been raised on whether this sum should go to pay off the Final Judgment or whether it should set off the amount of damages ascertained in this Assessment.  The concern is whether the 2^nd Defendant will be made to pay more interest by using one method rather than the other.

38.I have given this matter very serious consideration.  I have calculated the respective aggregate amounts that the 2^nd Defendant would have to pay under each of these two options, taking into account especially the interest element that will be attached to the eventual award.  I do not see the need to set out the calculations here.  It suffices for me to say that the option submitted by Mr. Hui in fact results in a lower payment by the 2^nd Defendant.  In the premises, I accept and adopt Mr. Hui’s calculation.

Order

39.For these reasons, I make the following orders: -

(1)	Judgment for the Plaintiff against the 2nd Defendant in the sum of $41,448.40 with interest at the rate of 8% per annum from 11 June 2003 to the date of the Assessment and thereafter at judgment rate until payment.
(2)	Costs of and occasioned by the Assessment to be paid by the 2nd Defendant to the Plaintiff, to be taxed if not agreed.

Mr. David Hui, instructed by Messrs. S. Y. Wong & Co, for the Plaintiff.

The 2^nd Defendant, acting in person, absent.