Ip Ming Kin v. Wong Siu Lan

DCCJ 1236/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1236 OF 2010

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D E C I S I O N

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1.The plaintiff (“Ip”) claimed against the defendant (“Wong”) for repudiation of the written tenancy agreement in respect of a shop between them dated 13 January 2010 (“the Tenancy Agreement”).

2.In the written judgment after trial and handed down on 20 March 2012 (“the Judgment”), I gave judgment in favour of Ip for substantial damages and judgment on counterclaim in favour of Wong for nominal damages.  I also ordered Wong to pay 95% of the costs of the action.

3.The documents show that Wong applied for legal aid in April 2012.  The application was apparently refused on the same day.  She has changed solicitors and counsel since then.

4.By summons filed on 8 May 2012, Wong applies for leave to appeal.

5.According to section 63A(2) of the District Court Ordinance, leave to appeal shall not be given unless the intended appeal has a reasonable prospect of success or in the interest of justice should be heard by the appellate court.

6.As can be seen below, Wong is also appealing the order as to costs.  Therefore, in applying the above test, the court has to consider the prospect that the appellate court would disturb the exercise of discretion as to costs.

THE INTENDED APPEAL

7.In respect of the 6 major issues in dispute (§§16-20 of the Judgment), I gave my answers after trial (§§31 to 96 of the Judgment).  I shall not repeat here.

8.According to the draft notice of appeal, the grounds of appeal concern the following aspects (adopting the same definitions and expressions in the Judgment):

(1)  The Alteration Restriction (Ground 1);

(2)  The rights and obligations of the landlord and tenant (Grounds 2 and 3);

(3)  The Compensation Provision (Grounds 4 to 9);

(4)  Costs.

Ground 1

9.It is suggested that no reason was given (in §40 of the Judgment) for the court’s preference of Ip’s evidence in respect of whether the Alteration Restriction was mentioned on the day before the signing of the Tenancy Agreement.

10.As I see it, this is incomplete reading of the discussion of Wong’s assertion and evidence in respect of the Alleged Oral Agreement (starting from §31 of the Judgment).  What is being singled out contains the reference to the evidence of Ip and the conclusion of the discussion.

11.One also should not lose sight of the last paragraph of the discussion in that section of the Judgment (§41).

Grounds 2 and 3

12.It is suggested that the court has failed to consider that one could not carry out alteration works in breach of the Building Ordinance and the deed of mutual covenant; and therefore the question of the rights and obligations of Wong (as the landlord) and Ip (as the tenant) should be considered in the light of that as well.

13.The reference to the Building Ordinance and deed of mutual covenant is a surprise. The question of the legality of the alterations to the shop that Ip had in mind was not pleaded.  Nor was the issue of compliance with the deed of mutual covenant (and even counsel does not refer to specific provision of the relevant deed, assuming it exists).

14.In question was not whether the Alteration Restriction was reasonable, but rather whether it was in fact an agreed term binding on the parties at the time when the Tenancy Agreement was signed.  This forms the context of the discussion in that part of the Judgment (§§44 to 50).  Hypothetically Ip might have turned out to be unable to legitimately carry out the alterations exactly as intended, had the tenancy commenced as agreed.  Yet I do not see how the legal status of the alterations, that Ip did not actually get to commence, manages to affect the answer to the question in dispute as set out above.

Ground 4 to 9

15.These grounds concern the Compensation Provision, its construction and enforceability.

16.It is suggested that the court has failed to apply the principle of contra proferentum in construing the Compensation Provision, in particular whether the rent referred to in the provision was the monthly rent only.

17.As recorded in the Judgment (§56), both parties actually gave evidence of what they agreed, in view of the apparent ambiguity of the reference to the rent.  The evidence was considered and conclusion was drawn in favour of Ip (§§57 to 60 of the Judgment).  This was never solely the exercise of construction of the wordings contra proferentum as suggested.  Nor was the principle of construction applicable to the court’s assessment of the evidence, credibility of the witnesses included.

18.As to whether the Compensation Provision was a genuine pre-estimate of damage or amounted to a penalty, it is not suggested that the recital of the relevant principles in the Judgment (§§61 to 63) was erroneous.  It is the application of the principles that is under challenge.

19.Probably to illustrate the proportionality of the provision to the specified breach, it is suggested that the reference to failure to deliver vacant possession in the provision may somehow be construed separately from the reference to do so on the date 15 March 2010.  It is suggested that the circumstances giving rise to failure to deliver vacant possession on time could be trivial.

20.I cannot agree with the argument.  The event triggering the Compensation Provision was default of Wong in delivering vacant possession on the agreed date.  It is not about the possibility of technical failure or trivial delay in delivery of vacant possession.  I would be surprised, if it was the parties’ intention at the time when the Tenancy Agreement was signed that the provision would be invoked when Ip affirmed the agreement and accepted vacant possession, though a day or two later than the agreed date.  But that was not the point or concern raised or argued at trial.  Reference to Ip’s evidence that he would not have minded late delivery of vacant possession for a day or two does not assist the argument on the facts as a whole.

21.Reference is made to what is described as the “overwhelming purpose” of the Compensation Provision.  It is suggested that the provision was included solely or essentially for the purpose of terrorising Wong.  I do not agree.  What drove Ip to become concerned about the inclusion of the provision, and the evidence in that respect, was indeed explained in the Judgment (§§67; 70).  This was a commercial deal between an experienced landlord and a businessman in respect of the tenancy of business premises that was known by the landlord to be wanted for the operation of business for a relatively short term of 12 months.  What was determinative of whether the provision was a genuine pre-estimate of damages were the peculiar circumstances of the present case already set out in the Judgment (§§65 to 72).

22.It is suggested that Ip did not actually apprehend difficulty in ascertaining his loss or his ability to mitigate his loss in the event of default by Wong to deliver vacant possession of the shop as agreed.  It is said that those, to begin with, were not pleaded.

23.I do not see how a pleading could fairly be taken now.  Whether the provision was a genuine pre-estimate of damage or amounted to a penalty was indeed a pleaded issue.  Evidence was adduced and argued in this respect.  For instance, the evidence in respect of the parties’ conversation concerning the compensation payable that counsel recited in submission (§19) actually began with the question put by counsel for Wong at the trial.

24.However, the evidence is said to be fatal to Ip’s case in that the amount was not his estimation or projection but put forward by Wong.  I do not see how.  I do not read the evidence the way counsel did, even merely by relying on counsel’s record of the same part of the evidence as recited in the submission (§19). Reference to the upfront payment of 1 year’s rent was specifically made during such conversation that enabled the parties to understand the amount being talked about.

25.Evidence from Ip, and the inference that could be drawn, in respect of the circumstances prevailing at the time of the Tenancy Agreement were set out in the Judgment (§§68 to 70).  The inference includes that of his perception of the availability of alternatives to the shop that would serve his purpose.  Projection of loss by reference to the profit expected to be made from the business operating at the shop could not be a flawed approach.  The fact that such projection might not be precise was not fatal to his case either.  All those circumstances have to be assessed as at the time when the Tenancy Agreement was made, rather than tested by reference to subsequent events.  It was indeed the difficulty so involved that has made the principles (set out in §71 of the Judgment) relevant.

26.The court will naturally be on guard, if the amount of agreed compensation objectively is prima facie extravagant or unconscionable.  But the facts of the present case did not suggest that, even by testing the expected business profits that Ip expected realistically against the amount of the agreed compensation (§71 of the Judgment).

27.Lastly it is suggested that the court should not have taken into consideration the event that Wong would be entitled to keep 1 year’s rent paid if it were Ip who wrongfully refused to take possession of the shop.

28.I fail to see why this criticism is lodged.  All the circumstances should be considered.  Further, this was discussed in the context of the relative bargaining position between the parties in the present case (§§65 and 66 of the Judgment).

Costs

29.Considering the outcome of this case, I made an order nisi that Ip should have but 95% of the costs of this action, including any costs reserved.  No application was made to vary it within the time as directed.  Point is not taken as to the incidence of the costs liability but the percentage of the liability.

30.Whilst it is suggested the percentage should be reduced to 80%, Mr Cheung made no submission to substantiate the variation.  In any event, unless an error in principle is established, I am not convinced that the appellate court would lightly disturb the exercise of discretion as to costs.

ORDER

31.For the above reasons, I am not satisfied that the intended appeal has a reasonable prospect of success.  Nor is it shown that the intended appeal needs to be heard on the basis of the other limb of section 63A(2).

32.Following this event, the application for leave to appeal is dismissed with costs to Ip. Costs shall be taxed, if not agreed, with certificate for counsel.  I see no sufficient basis for the prayer for costs on higher basis.