Mega Yield International Holdings Ltd v. Fonfair Co Ltd
Read the full judgment text of CACV 55/2011 on BabelCite. This Court of Appeal judgment was delivered on 5 March 2013.
1. The dispute in this case arose out of a tenancy agreement. By an agreement dated 24 January 2007 (“Pre-Lease”), the plaintiff was granted an option by the defendant, the registered owner of a site known as Yau Tong Marine Lots Nos. 2, 3 and 4 (“the Lot”), to obtain a tenancy of the Lot from the defendant for a period of two years commencing on 20 October 2008 or 20 December 2008. The purpose of the plaintiff in renting the Lot was to run a concrete batching plant on it and for such purpose,
Cited by 1 case · Cites 6 cases
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HCA 948 of 2009 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATION REGION COURT OF FIRST INSTANCE ACTION NO. 948 OF 2009 -------------------- BETWEEN
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----------------------- J U D G M E N T ----------------------- Introduction 1.The dispute in this case arose out of a tenancy agreement. By an agreement dated 24 January 2007 (“Pre-Lease”), the plaintiff was granted an option by the defendant, the registered owner of a site known as Yau Tong Marine Lots Nos. 2, 3 and 4 (“the Lot”), to obtain a tenancy of the Lot from the defendant for a period of two years commencing on 20 October 2008 or 20 December 2008. The purpose of the plaintiff in renting the Lot was to run a concrete batching plant on it and for such purpose, permission or waiver would have to be obtained from Government. A waiver of the Government lease provision restricting the user of the Lot was applied for and granted by Government so that the Lot could be used for concrete batching (“Waiver”). Pursuant to the Pre-Lease, a tenancy agreement dated 12 September 2008 (“Lease”) was signed between the parties to commence on 20 December 2008. However, the defendant was unable to deliver possession of the Lot to the plaintiff because the existing tenant on the Lot refused to have its tenancy agreement determined earlier than its natural expiration or to deliver up vacant possession of the Lot to the defendant prior to 20 December 2008 or even later. Issues 2.There are three major areas in respect of which I need to make a decision:
3.If the answer to the first limb of issue (1) above is no, there is no need to go further: the plaintiff’s claim and the action will have to be dismissed. 4.If the plaintiff did fail to mitigate, the assessment of the damages to which it is entitled would have to reflect the failure. If the plaintiff did not fail to mitigate, the assessment of damages will be made as in any normal case of breach of contract. The witnesses 5.Before I deal with specific facts and make findings, I should have a short discussion on the quality of the witnesses. There is hardly any dispute on Mr Keith Siu of RHL and Mr Vincent Wong of the plaintiff, whose respective evidence is of a very narrow scope. The protagonists for the parties are respectively Mr Derek Zen (“Mr Zen”), the managing director of the plaintiff and Mr Leung Yuet Keung (“Mr Leung”), a director of the defendant. I have had the advantage of observing these witnesses, especially Mr Zen and Mr Leung, for several days when they testified before me. Generally speaking, both witnesses are seasoned businessmen and were very intelligent. Both are university graduates and gave their evidence in English, for the interest of time. Mr Zen answered questions in direct and straight forward manner, but he was very alert, sometimes too much so, with anything that might be disadvantageous to the plaintiff or against the plaintiff’s interest. On the other hand, the same alertness was possessed by Mr Leung, but he tended to avoid answering questions straight, veered off from the question and tried not to answer it if not pressed. Mr Chua Guan-Hock SC, leading Mr Harry Liu, for the defendant, has the following description of Mr Leung in his Written Closing Submission:
6.Had I not personally seen how Mr Leung gave evidence and closely observed his demeanour and way of answering questions, I might have been persuaded by this euphemistic explanation of Mr Leung’s behaviour in the witness box. In fact, when he was answering questions in chief, this “keenness to assist the Court with background details” did not find much expression, but it became more and more manifest and acute during cross-examination and as it progressed. My impression of him was that he was an evasive witness cleverly cloaked in attempting to provide details or to slightly misunderstand the question. What was apparent was that he was at times trying to hide things from the Court. A good example can be found later when I deal with his evidence regarding his granting of a tenancy agreement over the Lot to Good Swift Ltd (“GSL”) to start on 1 July 2009. I also find that Mr Leung made up evidence as he went along in cross-examination when he testified that he made oral complaints to both Mr Keith Siu of RHL and Mr John Lam of the plaintiff about the breach of their assurances after the granting of the Waiver by Government was delayed till 29 October 2008. These alleged complaints had never been mentioned before and were conspicuously absent from all contemporaneous documents. I have therefore approached Mr Leung’s evidence with caution and I do not rely on his evidence unless backed up by solid contemporaneous documents. 7.Based on my above view of the two main witnesses, whenever they differ, I prefer the evidence of Mr Zen to that of Mr Leung. Despite this view that I take, it does not mean that I accept every word fallen from the mouth of Mr Zen. Where I disagree with him or do not accept his evidence, it will be mentioned specifically in the course of this judgment. Was there a breach of the Lease and, if so, who was responsible? 8.According to the Pre-Lease dated 24 January 2007 and the Lease dated 12 September 2008, the commencement of the term granted by the Lease was to be on 20 October 2008 or it could be deferred till 20 December 2008 at the choice of the plaintiff, the tenant. By signing the Lease, the parties agreed to start the term on 20 December 2008, but on that day the defendant failed to give vacant possession of the Lot to the plaintiff. There can hardly be anything more important than the possession of the premises let in an agreement for a tenancy. The failure to provide possession goes right to the root of the agreement that must be construed as breach of a condition and repudiation of the agreement that entitles the tenant to accept the repudiation and treat the agreement as at an end. By the issue of the writ of summons in this action on 31 March 2009, the plaintiff accepted the repudiation and treated the Lease as at an end. 9.The defendant alleges that by reason of the fact that the assurances given by the plaintiff or its consultant RHL (whose representative in all matters relevant to this action being Mr Keith Siu, its director) to the defendant which did not come to fruition, it disabled the defendant from recovering possession of the Lot from the sitting tenant Full Creation Development Ltd (“Full Creation”). In other words, it was the plaintiff who was responsible for the defendant’s failure to deliver possession by 20 December 2008 and the defendant was not and should not be liable for its breach of the Lease in failing to deliver possession. 10.The defendant also alleges that the plaintiff was guilty of a breach “of the implied condition of co-operation in the Lease” that the plaintiff would procure the offer letter for the Waiver from the District Lands Officer (“DLO”) on or before 30 September 2008 or have the same “backdated to 30.9.08” so as to enable the defendant to avoid any argument from Full Creation, the sitting tenant on the Lot, and evict it from the Lot by 20 December 2008. 11.The law on implied term is settled. Bokhary PJ stated In Kensland Realty v Whale View Investment Ltd & Anor (2001) 4 HKCFAR 381 at 391J-392B:
12.On the duty to co-operate, in North Sea Energy Holdings NV v PTT [1977] 2 Lloyd’s Rep 418 at 430, Thomas J stated:
13.Ribeiro PJ in Ying Ho Co ltd & Ors v Secretary for Justice (2004) 7 HKCFAR 333, at 379 also had this to say:
14.To put the alleged assurances and implied condition of co-operation in context, mention should be made of the history of the tenancies at the material time. By a tenancy agreement dated 17 October 2005 with a supplemental agreement dated 14 June 2006 (collectively called “the Existing Tenancy Agreement”), the defendant granted a tenancy for a term of three years between 20 October 2005 and 19 October 2008 to Vision Resource Recycle Co (“Vision Resource”). During the currency of this term, the Pre-Lease was granted to the plaintiff on 24 January 2007. Recital (c) of the Pre-Lease specifically referred to Vision Resource’s tenancy and the fact that a copy of the Existing Tenancy Agreement was provided to the plaintiff. 15.In September 2007, the defendant granted a tenancy of the Lot to Full Creation for a term of three years commencing on 20 September 2007 (“Full Creation’s Lease”). Mr Leung, the defendant’s only witness before me, told me that Vision Resource’s tenancy was determined for non-payment of rent and thereafter he let the Lot to Full Creation. At the time when Full Creation’s Lease was granted, the defendant was bound by the Pre-Lease which had granted the plaintiff an option to have the Lease starting on 20 October 2008 which could be deferred at the plaintiff’s choice to 20 December 2008. A clause was included in Full Creation’s Lease to entitle the defendant to terminate the tenancy during its currency and recover possession of the Lot not later than 19 September 2008. By a fax dated 15 August 2008, the defendant provided the plaintiff with a copy of Full Creation’s Lease, and drew the plaintiff’s attention to the clause as enabling a “controversy-free” determination of the existing tenancy. I shall return to examine the efficacy of this clause later. It was clause 11 in the Third Schedule to Full Creation’s Lease (“the said clause 11”), which reads:
16.In Full Creation’s Lease, there was another clause that referred to this right of the defendant to terminate the tenancy before its natural expiration. Clause 1(e) in the Third Schedule to Full Creation’s Lease (“the said clause 1(e)”) provides:
17.The “Existing Tenancy Agreement” referred to in the said clause 1(e) was the one granted by the defendant to Vision Resource on 17 October 2005 for three years to expire on 19 October 2008, already referred to above. 18.The assurances alleged by the defendant for attaching blame to the plaintiff for the defendant’s failure to deliver possession of the Lot to the plaintiff by 20 December 2008 were related to the grant of the Waiver by Government for the Lot to be allowed to be used for producing concrete, which was referred to in the said clause 1(e). RHL was retained by the plaintiff to liaise with the Government departments, notably the District Lands Office, to obtain the Waiver from Government so that the plaintiff could operate a concrete batching plant on the Lot. That was the purpose of the plaintiff right from the start of its obtaining the tenancy of the Lot, which was well known to the defendant. Without the Waiver, the tenancy would become entirely useless to the plaintiff. While RHL was retained and paid by the plaintiff, it needed to nominally represent the defendant in the application, for the plaintiff did not have the locus or legal standing (such as the defendant’s ownership of the Lot) vis-à-vis the Government departments. Through the good services of RHL, the application was eventually successful. Pending the actual grant of the Waiver, Mr Keith Siu of RHL heard that the application was approved in principle and once the DLO gave his approval, the Waiver would be issued. Mr Siu also learned that the Waiver could be backdated to the date when the DLO gave approval, earlier than the date when the offer letter for the Waiver, which would require some time to prepare, was actually issued. The following are the relevant parts of the contents of the letters written by Mr Siu of RHL to the plaintiff, each time with a copy to the defendant:
19.By a letter dated 29 October 2008, the District Lands Officer confirmed to the defendant that he was prepared to recommend to Government to make a temporary waiver of the lease conditions of the Lot, which was the Waiver as sought by the plaintiff. There was no back-dating. 20.In the meantime, on or about 12 September 2008, the plaintiff exercised its option to sign the Lease with the defendant. The Lease was for a term of two years to commence on 20 December 2008. The defendant was most anxious to terminate Full Creation’s tenancy in order to get back possession of the Lot from Full Creation and make it available to the plaintiff. By letter dated 12 September 2008, the defendant notified Full Creation of the plaintiff’s exercise of the option and demanded Full Creation to deliver vacant possession of the Lot within 7 days. By letter dated 18 September 2008, Full Creation’s solicitors informed the defendant’s solicitors that unless a Government waiver had been granted to the plaintiff for carrying out the business of concrete manufacturing, Full Creation would not consider yielding up possession of the Lot to the defendant or agree to the termination of Full Creation’s Lease. 21.It is alleged that on or about 26 and 29 September 2008, upon the inquiries of Mr Leung, Mr Keith Siu of RHL on the plaintiff’s behalf informed him that the DLO’s offer letter for the Waiver would be issued shortly by 30 September 2008, and failing which, the DLO would backdate the same to show that Government had already accepted the Waiver application by 30 September 2008. These are the assurances on which the defendant relies, as expressly pleaded in sub-paragraphs (vii.e) and (viii) of paragraph 13 of the Re-Re-Amended Defence dated 2 December 2011. On this basis, the defendant alleges that there was an implied term of the Lease that each party would do all that was necessary to be done on its part for the giving and taking of vacant possession of the Lot by 20 December 2008 such that the plaintiff should procure the issuance of the offer letter (which was to be backdated to 30 September 2008 to show that Government had already accepted the Waiver application by that date) in a sufficiently expeditious manner so as to enable the defendant to avoid any argument from Full Creation and evict it from the Lot by court action and/or proceedings by 20 December 2008. 22.The defendant further pleads that in breach of the said assurances and in breach of the conditions of Lease, the plaintiff failed to procure the issuance of the offer letter in a sufficiently expeditious manner, such that the offer letter was not issued until 29 October 2008 and was not backdated to 30 September 2008. As a result, the defendant was unable to evict and was prevented from evicting Full Creation on or before 20 December 2008 by way of summary procedure for final judgment in HCA 1915 of 2008, the action brought by the defendant against Full Creation. 23.Thus, the defendant’s expressed belief in its fax of 15 August 2008 that the said clause 1(e) or clause 11 would lead to controversy-free determination of the then existing tenancy was shattered. I have little doubt that in order to stifle the factual basis of Full Creation’s argument, the defendant urged the plaintiff and RHL to obtain the Waiver (or offer letter) and provide a copy of it to the defendant for it to be shown to Full Creation. When the Waiver was not ready by then, when it was only issued on 29 October 2008, Full Creation persisted in relying on its argument that the defendant had failed to satisfy the prerequisite for determining Full Creation’s Lease before its natural expiration. 24.The defendant took out HCA 1915 of 2008 on 3 October 2008 against Full Creation for recovery of possession of the Lot. The Waiver was only issued on 29 October 2008 to take effect on 1 January 2009, and at that stage its existence did not seem to help. Apparently, the main reason relied on by Full Creation was that the Waiver only took effect on 1 January 2009. It was not issued by 30 September 2008 or backdated to that date, which was relied on by Full Creation under the said clause 1(e) (cited above) as a prerequisite for the plaintiff to exercise its option to be granted the Lease to commence on 20 October or 20 December 2008. 25.The defendant’s inability to obtain possession of the Lot for making it available to the plaintiff to start its Lease by 20 December 2008 was undoubtedly caused by Full Creation. However, the defendant had only itself to thank by putting itself into the predicament purely because it was willing to take the risk of Full Creation remaining in possession despite the termination of Full Creation’s Lease. This kind of behaviour of a sitting tenant is not uncommon, but the defendant was apparently unwilling to give up a single day of rent to leave the Lot un-let and unoccupied for any period between two succeeding tenancies. Another thing that the defendant had itself to thank was this “controversy-free” provision. In my view, the provision, especially in the way that was couched in the said clause 1(e), was inviting difficulty, providing ready ideas to people who wish to be argumentative. 26.The failure on the part of the defendant to recover possession from Full Creation by 20 December 2008 was not actually caused by the assurances (alleged by the defendant) given to the defendant by the plaintiff or Mr Siu of RHL as the plaintiff’s agent that the Waiver would be issued by Government by 30 September 2008 or would be backdated to 30 September 2008, but it was rather caused by the interpretation of the provisions in the said clause 1(e) and the said clause 11 as Full Creation would wish. Those provisions were not made by the plaintiff and their terminology could not have been decided or contributed to by the plaintiff. The reliance on the provisions by Full Creation could not have been the doing of the plaintiff, but the effect was that the defendant was unable to recover possession of the Lot by 20 December 2008. While if the plaintiff was able to obtain the Waiver by 30 September 2008 or have it backdated to that date, it would have been helpful to the defendant in its attempt to recover possession from Full Creation, the failure to obtain the Waiver by 30 September 2008 could not reasonably be blamed on the plaintiff as the cause for Full Creation’s refusal to give up possession or as the cause for the defendant’s failure to recover possession on 20 October or 20 December 2008. 27.Indeed, eventually when Reyes J gave judgment in HCA 1915 of 2008 and HCA 835 of 2009 (a further action by the defendant against Full Creation and also against On Kee (HK) Environmental Recycling Limited (“On Kee”)) on 22 July 2009, he declared that the defendant was entitled to vacant possession of the Lot as from 20 September 2008 on the basis that the defendant was entitled to and did determine Full Creation’s Lease pursuant to the said clauses 1(e) and 11 thereof. This vindicated the defendant vis-à-vis Full Creation. On Kee who, as the defendant alleged in HCA 835 of 2009, had taken up a sub-tenancy of the Lot from Full Creation without the defendant’s consent, denied that it was ever a subtenant on the Lot, which of course did not obstruct the defendant in getting an order for possession of the Lot. The judgment also vindicated the plaintiff vis-à-vis the defendant on this topic, because the judge dismissed as invalid the reliance by Full Creation on the argument of the prerequisite of the plaintiff obtaining the Waiver by 30 September 2008 or at all. 28.Moreover, on the evidence before me, I consider there was no implied term as alleged by the defendant. There is no or no sufficient evidence to prove that it was a matter of necessity or that the plaintiff must help to get the Waiver by 30 September 2008; and this would be contrary to the confidence in which the defendant described the said clause 11 as enabling a “controversy-free” determination of the existing tenancy. I also find as a fact that the neither the plaintiff nor Mr Siu of RHL nor RHL itself gave the assurances about the timing of the Waiver being obtained as the defendant alleges. I prefer Mr Siu’s evidence to Mr Leung’s evidence on this matter. In view of this finding, I do not need to express my view whether Mr Siu of RHL was acting for the plaintiff or for the defendant when he kept Mr Leung informed of the progress of the Waiver application. 29.Mr Leung’s evidence on the alleged assurances was of a very low quality. He could not give any satisfactory explanation as to why there was no reference to the alleged assurances or to any complaints that they were not fulfilled in the contemporaneous documents. Mr Leung’s excuses that he was focusing on getting back the site from Full Creation, that he had no time to enter into arguments with the plaintiff over the assurances and that he did not see fit to make any complaint smack of an untruth and are entirely unacceptable. 30.Mr Siu of RHL said that all along he kept the plaintiff and Mr Leung informed of the progress of the application for the Waiver. He was advised by a senior estate officer of the District Lands Office that there was nothing in the way of the issue of the offer letter by the DLO by the end of September 2008, and if the DLO approved the issue by that time before the DLO went on vacation leave in October, while the paper work would take some time, the offer letter could be backdated to 30 September 2008. But unfortunately, as it transpired, due to a District Councillor’s objection or enquiry, the issue of the offer letter was delayed till 29 October 2008. 31.Nothing in argument or in fact could rid the defendant of the responsibility for its breach of the Lease in failing to provide possession of the Lot to the plaintiff on 20 December 2008 or at all. For this wrongful breach, which entitled the plaintiff to claim damages, the defendant must be liable. The only issues left after the making of this finding and ruling are those relating to damages only. Did the plaintiff fail to mitigate? 32.The issue of liability out of the way, whether the plaintiff failed to mitigate becomes the most important issue in this action. 33.On mitigation of damage, the relevant law can be found in Chitty on Contracts, 31st Ed, Vol 1 “General Principles” (“Chitty”) paras 26-077 to 26-079. The claimant is to take all reasonable steps to mitigate his loss consequent upon the breach. The onus of proving the claimant’s failure to have taken certain steps to avoid some part of his loss is on the defendant, who must show that the claimant ought as a reasonable man to have taken certain steps to mitigate his loss. However, the claimant is not “under any obligation to do anything other than in the ordinary course of business”; the standard is not a high one, since the defendant is a wrongdoer. 34.Now I turn to the facts. When possession could not be given to the plaintiff, the plaintiff waited and maintained a position as being able to start the concrete batching business on the Lot by making all the necessary payments to Government for the Waiver, the waiver deposit (covering a period of six months) and the waiver fee (covering the period of six months from 1 January to 30 June 2009). It waited until the end of March 2009 and not before to accept the defendant’s repudiation of the Lease by the issue of the writ herein. Even after that, it waited and waited. It had looked for other premises and entered into certain deals for the purpose of getting those premises for running a concrete batching business in them. It entered into negotiations with the defendant for obtaining a new lease of the Lot when the defendant was able to obtain possession of the Lot back from Full Creation. But the plaintiff was never sure when the defendant was able to give trouble-free possession despite its assertions to the contrary made to the plaintiff in correspondence. Eventually when it was almost ready, when the parties were very close to reaching a satisfactory arrangement or compromise, when any reader of the contemporaneous documents and correspondence would feel that the parties would sign a new lease to enable the plaintiff to get the Lot for its intended business, all of a sudden, the defendant halted all these efforts and granted an immediate tenancy to commence on 1 July 2009 to a third party GSL. 35.The defendant’s allegation is that the plaintiff was becoming “unreasonable and outrageous”, ie, becoming more and more unreasonable and outrageously demanding during the negotiations for it to get a new lease from the defendant, so much so that the defendant believed that the plaintiff’s true intention was not to mitigate but to obtain more and more unjustifiable benefit from the defendant out of the situation. That was apparently why the defendant stopped the negotiations and granted a tenancy to GSL. 36.Let us examine the surrounding circumstances and contemporaneous documents, to see if the defendant’s allegation is borne out. After the writ in this action was taken out at the end of March 2009, nothing of any significance happened for over a month, and then there was a flurry of exchanges between the parties amidst developing events, as follows (with emphasis added by me):
37.A number of points are to be made on the matters set out in the table above. When doing this and when examining the parties’ positions and stance at the material time, it should be borne in mind what was stated by Woo VP in Strong Offer Investment Limited (In Liquidation) v Nyeu Ting Chuang, CACV 384 of 2004 (CA, 4 April 2006), also dealing with the question of mitigation of damage that “Hindsight is to be avoided in reviewing the relevant circumstances …” 38.The 7 May 2009 letter (item 1) was the first indication from the defendant since the commencement of this action that it was in a position to obtain possession of the Lot on 11 May 2009. The duty on the part of the plaintiff to mitigate damage was mentioned and expressly stated as would be relied upon if the plaintiff refused to take up possession of the Lot. The plaintiff was given less than two days to respond. There was a warning that if the plaintiff refused to take possession of the Lot within 10 days from 7 May 2009, the defendant “will be obliged” to lease the Lot to “the party in control of the company currently in occupation” of the Lot. FLN’s letter of 9 May 2009 (item 2) was a prompt reply. It raised a number of matters of the plaintiff’s concern not yet resolved, but in any event expressed the plaintiff’s willingness to take up possession upon the resolution of the various issues. HI’s letter of 12 May 2009 (item 3) further emphasized the plaintiff’s duty to mitigate and proposed to make an appointment for a pre-handover inspection of the Lot. FLN’s letter of 13 May 2009 (item 4) offered other times for the pre-handover inspection, and stated that the plaintiff’s inspection of the Lot or the eventual taking possession did not create any waiver of the plaintiff’s claim for compensation. The efforts of the parties to have a pre-handover inspection of the Lot were then wasted due to the inability of getting entry into the site on 15 May 2009 at the appointed time. There was no more correspondence since 19 May 2009 until over half a month later on 5 June 2009 (item 10) when HI wrote to propose handover of the Lot on 6 June. On the same day, FLN proposed 8 June 2009 for inspection of the Lot instead. Inspection did take place on 8 June 2009. HI’s letter of 9 June 2009 (item 13) for the first time proposed a new lease to resolve the possession issue, but without any suggestion as to how to deal with the plaintiff’s claim for damages in this action. It continued to remind the plaintiff of its duty to mitigate loss and warned about the letting of the Lot to another interested party and even threatened to terminate the Waiver obtained by the plaintiff. 39.Huen & Partners’ letter of 9 June 2009 (item 14) shed light on a dispute on the possession of the Lot as alleged by HI. 40.The letter of 10 June 2009 from FLN (item 15) clearly spelt out that the plaintiff’s entering into possession or taking a new tenancy from the defendant would not prejudice the plaintiff’s claims for damages for the defendant’s breach. It raised two serious concerns as to the right to possession of the Lot that the defendant could hand over, namely, Huen & Partners’ complaint of illegal forcible entry into the Lot by the defendant and the progress of the action between the defendant and Full Creation. It would be imprudent or insensible for the plaintiff to get into possession of the Lot because of both concerns. 41.The quoted part of the letter dated 11 June 2009 of HI (item 17) was purely argumentative, stating nothing other than the obvious and in fact saying something totally irrelevant to the facts of the present case. Of course the incoming tenant cannot use the dispute between the landlord and the outgoing tenant as an excuse for not taking up possession of the premises let to him when the tenancy commences, but this obvious reasoning has nothing to do with this action, for it was the landlord who failed to deliver possession of the premises at the commencement of the incoming tenant’s tenancy. In the normal course of events and unless the incoming tenant is expressly willing to take up the risk, the inability of the landlord to get possession of the premises from the outgoing tenant in order to give possession to the incoming tenant cannot possibly be the responsibility of the incoming tenant. The risk is squarely on the shoulder of the landlord as he should be appreciative of it and he cannot shirk that risk and push it on to the incoming tenant. 42.The plaintiff also expressed its primary concern being that Government might not extend the term of the Waiver in both FLN’s letter of 10 and 12 June 2009 (items 15 and 18). 43.The letter of 19 June 2009 from HI (item 22) made an offer of a new tenancy and asked the plaintiff to produce a receipted demand note for the waiver fee on or before 1 July 2009, which was considered by the plaintiff as an offer valid up to that date. The reference in FLN’s letter of 29 June 2009 (item 28) to “the parties had agreed that the prerequisites listed at paragraph 1 of the Agenda must be satisfied before entering into any new tenancy agreement or taking possession of the Premises by our client” is inconsistent with what was set out at the conclusion of the letter, which was the reference to or even emphasis of the caution that the execution of the New Tenancy Agreement shall not be deemed to operate as a waiver of the Tenant’s claims. Thus, the allegation that the defendant had acknowledged or admitted the plaintiff’s claims of damages in the 25 June 2009 meeting is probably an overstatement. 44.The useless meeting on 29 June 2009 (item 29) must be viewed in the light of Mr Leung’s earlier meeting on the same day with the representatives of GSL referred to below. 45.The parties broke off on 30 June 2009. The two letters from either side seemed to have crossed. The letter of 30 June from HI (item 32) enclosing the defendant’s own letter of the same date (item 31) was receipted with a chop by FLN at 17:30 or very shortly later. According to the time chop of the fax, it was 17:43 hours when the letter (item 33) from FLN was faxed to HI. The Waiver fee had been paid at 4:43 pm (as confirmed by the Post Office) so that a copy could be sent at the same time with the fax at 17:43 hours. 46.HI’s letter of 23 July 2009 (item 39) might have exposed the motives of the plaintiff quite pointedly. However, I consider that the proper interpretation of the plaintiff’s actions between 5 and 30 June 2009 is that while it wanted to seize the opportunity to get its loss and damage from the defendant without going through the court proceedings, it did intend to take up the Lot and mitigate the damages that it would suffer. The plaintiff’s actions were not those other than what an ordinary and prudent businessman would do. It is very clear that although it had conducted negotiations over the Ping Che site, resulting in a pre-lease regarding that site being signed on 22 June 2009 (item 23), whether it would get a necessary waiver from Government for that site remained very uncertain and in any event it would be a very time consuming matter. The attempt to get the Ping Che site was a genuine one, for the sake of enabling it to run a concrete batching business on it instead of on the Lot or in addition to the Lot, which it had planned since 2005. This intention to enter the concrete production industry was at the latest manifested in the Pre-Lease in this case which was signed in early 2007. The plaintiff went through the application for the Waiver, incurring a lot of expenses for employing consultants to make the application, suffering delay in the process, and the eventual success of getting the Waiver and signing the Lease to have the tenancy starting on 20 December 2008. All these demonstrate that the plaintiff surely had the intention to run the business. It would be most unlikely, bordering on being incredible, if it was simply to give up after it failed to get possession from the first day of the Lease. I see no reason to suspect that on seeing the opportunity of getting back the Lot from the beginning of June 2009, the plaintiff would forego this opportunity. It was shocked that the defendant stated that it was backing off on 30 June 2009. Everything was going on fine. From the tone of the correspondence after 30 June 2009 (items 34, 36, 38, 40, 42 and 44), the plaintiff seemed to feel that the defendant could and would turn back to let it have possession of the Lot after all. Thus, it cannot be said that the plaintiff had failed to mitigate. The plaintiff took the opportunity to negotiate a compromise of this action with the defendant so as to start a new chapter of relationship, as Mr Zen described, because he did not want to have a litigation hanging over the parties who would be, after the plaintiff took up possession, landlord and tenant. I consider that it would not be fair or just to conclude that the plaintiff was not acting reasonably to mitigate damage in all the circumstances of the case. It would be naïve to think that the plaintiff as an ordinary and prudent businessman would not seize the opportunity to try to resolve all problems involved including this litigation and maybe even to obtain to a longer term of lease to cover the loss caused by the delay and/or to alleviate the defendant’s bad feeling that it would collect no rent which would have to be used to set off the damages for breach. It was rather the defendant’s behaviour which got rid of the one and only opportunity to allow the plaintiff to mitigate in the unique circumstances of this case where the Lot was the only land on which the plaintiff had a ready Government waiver for running a concrete batching business and that the waiver fee had been fully paid for the next three months till 30 September 2009, which would otherwise become wasted. 47.While the repeated forewarnings of letting to another party referred to in HI’s letter of 3 August 2009 (item 41) attracts sympathy to the defendant’s side, yet the sympathy does not have the force to sway the judging of the reasonableness or otherwise of its act in letting to a third party at the very late stage of the negotiations, especially with the added element of the waiver fee for the following three months having been paid by the plaintiff, as urged by the defendant just shortly before. Even Mr Leung himself admitted that he knew that the plaintiff had all along been interested in getting possession of the Lot. Moreover, it took Mr Leung less than two days to decide to let to GSL when he fully knew that 30 June 2009 was the deadline for the plaintiff to pay the waiver fee for the following quarter or else the Waiver might be lost and he would have to bear the full brunt of the claim for damages in this action. 48.One may ask rhetorically: why the hurry? Especially when the earnest money (for GSL to take up a lease) promised in the fax from the estate agent on 24 June 2009 (see below) had not been paid, when Mr Leung knew that the Waiver would lapse unless the plaintiff paid the Government demand note for over $1 million by the close of 30 June 2009, when GSL requested another tenancy agreement to be signed by a different person on 2 July 2009, and when the deposit for the tenancy agreement was agreed only to be paid on 6 July 2009; and after 1743 hours on 30 June 2009, the defendant must have known that the plaintiff had paid the waiver fee. 49.I consider that it was unreasonable for the defendant to close the negotiations so abruptly and completely shut the opportunity off from the plaintiff to mitigate loss at that stage. The unreasonableness of the defendant’s act could not be altered or saved by the forewarnings which could reasonably be considered as merely empty threats for bolstering its bargaining position. 50.FLN’s letter of 10 August 2009 (item 44) shows that the plaintiff was still thinking of getting possession of the Lot from the defendant. It was only by the letter of 10 August 2009 (item 45) in reply that the defendant unequivocally informed the plaintiff that the Lot had been let to another person. This at best goes to demonstrate that the defendant was taking a couldn’t-care-less attitude once it had let the Lot to a third party: it did not even bother to let the plaintiff know. By the way, item 45 was incorrect to say that “we had made it clear to you in our letter dated 3 August 2009 that … the suit property had been rented out …”, because the wording in that letter (item 41) was that “our client would procure the letting of the Premises to another party”, which is quite different from the “suit property had been rented out”. 51.I cannot leave this topic without commenting on the strange behaviour of Mr Leung as a seasoned business man in dealing with the granting of the tenancy to GSL. That is why I said above “at best” the defendant took a couldn’t-care-less attitude. Mr Leung testified that GSL was introduced to him by an estate agent, and he signed a tenancy agreement on 30 June 2009 to let the Lot to GSL after meeting with its representatives once before on 29 June 2009. He did not know them before and they did not ask for an inspection of the Lot. He drew my attention to copy photographs of the Lot to say the Lot was but an empty site and there was nothing to inspect. However, there was in fact a two-storey building, which Mr Leung described as an office building, standing on over 200 metres of ground on the Lot. I wonder how a prospective tenant can know what is inside the building and its internal condition without inspecting it. Moreover, Mr Leung did not know that GSL had just been incorporated days before and was a BVI company. He did not cause any check to be made as to whether it was good for the payment of rent at $230,000 per month before signing the tenancy agreement. He told me that one of the four men he met, a Mr Chan, told him that he knew his father and that was why he trusted Mr Chan. 52.The circumstances surrounding the granting of the tenancy to GSL were, however, a mystery. According to Mr Leung, the tenancy agreement was signed at about 5:30 pm on 30 June 2008, shortly after Mr Leung had sent the letter of withdrawal of his offer of the same date to the plaintiff. No deposit was paid by GSL, and Mr Leung said that he did not mind that he was not immediately paid the deposit as what was important to him was to be able to get a tenant. This behaviour of not getting the deposit as earnest for the tenancy was not consistent with his usual character in dealing with tenancy and rental matters. He said that it so happened that the deposit was paid on 6 July. He was noticeably surprised when it was pointed out to him (in cross-examination by Mr Daniel Fung SC, leading Mr Danny Choi and Mr David Chen, for the plaintiff) that there was a clause in the tenancy agreement providing for the deposit to be paid on 6 July, six days later. While Mr Leung said that what was important to him was to get a tenant, this was quite at odds with his behaviour at the time. In re-examination, he produced a fax dated 24 June 2009 allegedly sent to the defendant from an estate agent introducing a prospective tenant which eventually turned out to be GSL. Mr Leung said that after he read the fax he just put it aside. His explanation was that he was too focused on the negotiations with the plaintiff at the time. In fact, that fax contained an offer to obtain a tenancy of the Lot from the defendant for a term of two years starting from 1 July 2009 at the monthly rent of $230,000 (which was what eventually granted to GSL), also stating that an initial deposit of $150,000 was to be paid forthwith if the offer was accepted. Yet, this fax was simply put aside. This is not that strange as compared with what happened later. At the request of GSL, a tenancy agreement was signed on 30 June 2009 by Mr Chan on behalf of the tenant. However, another tenancy agreement in identical terms was signed on 2 July 2009 between Mr Leung and GSL. When Mr Leung asked why it was necessary to sign a second time, he was told by the other side that that was for administrative purposes; and he did not inquire further. Both agreements were not disclosed in the original discovery in these proceedings. Eventually, the agreement dated 2 July 2009 was disclosed. According to Mr Leung, GSL only allowed the defendant to disclose that document. Mr Leung pointed out that there was a confidentiality clause in both agreements prohibiting disclosure of them to any third party, and that was why he had to have GSL’s consent. It was only later in December 2010 that GSL allowed the defendant to disclose the agreement dated 30 June 2009, and even then the name and signature of the person signing for GSL (which was Mr Chan) were obliterated. Mr Leung did not inquire as to the reason why but only acted in compliance with GSL’s wish. 53.I do not see the reason for the urgency with which Mr Leung dealt with GSL on 30 June 2009, nor do I believe that the granting of the tenancy to GSL was so simple and innocent as described by Mr Leung. His putting aside the faxed offer of 24 June 2009 stating to be with an initial deposit of $150,000 while he eagerly wanted to let the Lot out, his reticence regarding the unusual requirement of GSL to sign another identical agreement two days later, his willingness to let the Lot to an utter stranger without receiving the deposit forthwith upon signing the agreement, and his reluctance to let the plaintiff know that the Lot had been let to someone else have prevented a clear vision of what exactly was going on. Mr Leung’s activities at the material time were shrouded in mystery. I do not speculate as to what actually happened and the true reason for Mr Leung’s behaviour. What I can say is that this part of his evidence affects his credibility. It also tells foul of the reasonableness of his actions regarding the plaintiff’s attempt to mitigate damage. 54.Further, upon his uttering in testimony that not paying the waiver fee as demanded by Government for the period of 1 June to 30 September 2009 would be more detrimental to the defendant than to the plaintiff, I asked him to explain. He went on for quite some length without actually providing an answer and only eventually came up with the explanation that if the plaintiff suffered any loss from not paying that waiver fee it could claim the damages and recover them from the defendant in this action. Of course this explanation conveniently forgot the unswerved intention of the plaintiff to run the concrete batching business that was only possible with the Waiver, which intention was made known to the defendant right from the beginning when the parties signed the Pre-Lease and the fact that, as Mr Leung knew at the time, a lot of time, effort and expense had been incurred by the plaintiff for getting the Waiver. 55.I am not oblivious of Mr Chua’s argument that the defendant or Mr Leung’s conduct in granting a tenancy to GSL is irrelevant for consideration to decide whether the plaintiff had failed to mitigate damage. In the usual case, whether a claimant has discharged his duty to mitigate or not would not be affected by the defendant’s conduct, but that is not so in the instant case. The only chance for the plaintiff to mitigate, according to the evidence of this case, was to get possession of the Lot which could only be made available by the defendant. When the defendant refused to give possession eventually, there was in reality no hope for the plaintiff to get any comparable site that would allow it to start setting up plants for the production of concrete in the foreseeable future. 56.In my view, the plaintiff had done what it is reasonably expected to do in the circumstances of this case. Although the defence criticises the plaintiff for requesting or pressing the Mr Leung to settle this action, and Mr Leung was obviously annoyed or upset by the request which he thought was unfair on him, it does not mean that the plaintiff had not reasonably fulfilled its duty to mitigate. It was rather Mr Leung’s abrupt action of leasing to GSL, which did not objectively look to be a good tenant at that stage (because no deposit was paid and the lease had to be re-signed), that stopped all the efforts of both parties, in particular, of the plaintiff, in mitigation. 57.No ultimatum was given, no dissatisfaction was expressed, no attempt was made to salvage the situation, no timely notification was given to save the efforts of both parties, or those of the solicitors in continuing to exchange correspondence after early July 2009; there was simply inaction and reticence. In the circumstances, it lies ill in the mouth of the defendant to say that the plaintiff had failed to mitigate. I find that the defendant has failed to prove that the plaintiff had failed to mitigate. Damages 58.Chapter 26 of Chitty provides a comprehensive view of the law on damages for breach of contract. On the question of what damages are generally recoverable for breach of contract, para 26-107 of Chitty refers to the time-honoured rule in Hadley v Baxendale (1854) 9 Ex 341, at 354-355, where Alderson B said:
59.Chitty at para 26-108 states that the principles laid down in Hadley v Baxendale have been interpreted and restated by the Court of Appeal in 1949 in Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd [1949] 2 KB 528 and by the House of Lords in 1967 in Koufos v C. Czarnikow Ltd (The Heron II) [1969] 1 AC 350 and continues:
60.Counsel for both parties refer me to the decision of Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61 (HL), that has impacted the conventional law of damages under Hadley v Baxendale. A claimant will not recover even losses that were not unlikely to occur in the usual course of things if a defendant cannot reasonably be regarded as assuming responsibility for losses of the particular kind suffered, and in particular, if such losses, viewed at the time when the contract was made, could be extensive, unpredictable, or beyond the parties’ control. In The Achilleas, Lords Hoffmann and Hope (with whom Lord Walker agreed) emphasised the underlying basis of remoteness, in that a defendant is only held liable for loss which it was the parties’ intention (objectively ascertained) that he should bear, as loss for which he has “assumed responsibility”, or which falls within the scope of his duty. 61.Mr Fung, for the plaintiff, sets out the plaintiff’s interests under several heads which he submits should be protected by an award of damages, namely,
62.Mr Fung has provided the court with a summary of the plaintiff’s claims, dividing the items under the ambit of the above categories and stating who paid for each. It is helpful to set them out before dealing with the applicable law and facts in respect of each item.
63.In the table above, P means the plaintiff, “ECL” means Excel Concrete Limited and “Topfield” means International Trading Limited. Both ECL and Topfield were at all material times wholly owned subsidiaries of the plaintiff. 64.Only one item, item (4)(i) is not subject to dispute. All the rest are disputed. Mr Fung submits that the expenditure in anticipation of the Lot being delivered to the plaintiff was clearly wasted by reason of the defendant’s breach. The option fees were paid for entering into the Pre-Lease in order to make available the option for obtaining from the defendant the Lease of the Lot. The consultancy fees were paid to consultants engaged to assist in the application for and eventually obtaining the Waiver from Government so that the Lot would be allowed to be used for concrete batching while the legal fees and stamp duty were paid to lawyers preparing the Pre-Lease and Lease and the stamp duty for those documents. The waiver fees and a small amount of administrative fees were paid to the Government for the Waiver. The expenses for removal of structures were incurred for removing the structures on the Lot (jetty, caisson and platform) in order to clear the way for the grant of the Waiver. All these reliance loss or wasted expenditure was related exclusively to the Lot. Mr Fung criticises the defendant’s submission that “Much of the plaintiff’s expenditure would have been incurred in any event – whether or not vacant possession was delivered by 20/12/08” in its opening submission as plainly fatuous. I agree. 65.Parts of Chitty that are relevant to the damages claimed by the plaintiff in this case, relating to the type of damages, are set out below:
66.Mr Chua, for the defendant, raises several defences to the plaintiff’s claim for damages. The major defence which, if successful, would go to the root of the plaintiff’s claim and debar the plaintiff from recovering all the damages claimed (save for those based on restitution): that the plaintiff should not be benefited by an award of damages that would not have been recouped by the plaintiff even although there had been no breach and the contract had been performed. The other defence that involves the law of separate legal entity is founded on the fact that certain items were not paid by the plaintiff, with the contended consequence that they are not recoverable. 67.On the issue of the plaintiff’s alleged inability to recoup its losses even if the contract had been performed by the defendant, it is necessary first to resolve the dispute as to where the onus of proof lies. Mr Fung refers me to CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] 1 QB 16 where Hutchison J noted (at 32H) that it was “common ground that a claim for wasted expenditure cannot succeed in a case where even had the contract not been broken by the defendant, the returns earned by the plaintiff’s exploitation of the chattel or the rights the subject matter of the contract would not have been sufficient to recoup that expenditure.” The judge then reviewed the authorities on the onus of proof and came to the conclusion that it was on the defendant. 68.Mr Chua argues, however, that applicability of the CCC Films principle is restricted to cases where proving “sufficient returns to cover expenditure” would be a “practical impossibility rather than by unfettered choice”. In Parker v SJ Berwin & Co (A Firm) [2009] PNLR 17, Hamblen J held that the CCC Films principle did not apply to a claim in professional negligence against solicitors for wasted expenditure incurred by a client in bidding for a football club. The judge said at 343 of the report:
69.Mr Chua also draws my attention to another part of Hamblen J’s judgment:
70.Mr Chua contends that it is only fair and just in the present case that the “usual” burden is on the plaintiff to prove that it could recoup all its expenditure should vacant possession of the Lot be given to it. I do not agree. Not only do I disagree that there are particular circumstances in the present case that require the shifting of the usual onus in contract cases on the defendant to prove the plaintiff’s inability to recoup its expenditure (the usual onus is not as contended by Mr Chua), but also because of what Hamblen J said in another part of his judgment:
71.It is abundantly clear that the judge considered it fair to impose the onus of proof on a defendant contract breaker in a loss of bargain case, as opposed to a professional negligence claim. I also find support from the following parts of Chitty which deal with a breach of contract scenario:
Is the plaintiff claiming a benefit that would not be available if there had been no breach and the contract had been performed? 72.As the law is clear that the onus of proof of the plaintiff’s inability to recoup its loss rests on the defendant, I now turn to deal with the facts. 73.Mr Leung of the defendant maintains that the plaintiff’s proposed business on the Lot would very likely suffer a loss (instead of making a profit) even if possession of the Lot had been delivered by the defendant in accordance with the Lease. Thus, the defendant should not properly or reasonably be penalized by being required to pay damages to the plaintiff for what the plaintiff could not have recouped from the use of the Lot upon obtaining possession. 74.On the facts, Mr Chua does not argue that the plaintiff deliberately entered into the Lease in order to make a loss. His argument is that given that the term of the Lot is for a maximum of three years, even if there was no breach on the part of the defendant, the term was so short as to prevent the plaintiff from making any profit from its intended business thereon such as to enable the plaintiff to recoup the various items of expenditure that it had incurred and paid for that use. Thus the defendant should not be ordered to pay those losses and damages to the plaintiff. Mr Zen’s evidence is that for the initial period, there would have been no profit but profit would materialize during the latter part of the term of the Lease. His estimate was based on the figures applicable to the Aberdeen site on which a permanent concrete plant with three production lines was built, whereas on the Lot had possession been available, mobile concrete plants would be put up for producing concrete. The benefit of having mobile plants over permanent plants was the much shorter time required for setting up and dismantling, which would enable the operation on the Lot to turn in a profit much sooner. 75.On the other hand, Mr Leung challenges the profitability of the plaintiff’s would-be operation on the Lot. He produced his calculation of profits based on some of the figures derived from the plaintiff’s documents. In cross-examination, Mr Leung accepted that the figures of cost of concrete that he used as the basis of his calculation of profits or lack of profits if the plaintiff had obtained possession of the Lot and operated a concrete batching business on it were inclusive of variable cost and fixed cost, which was different from the variable cost alone that was used as the basis in the plaintiff’s estimate of its profits had the Lot been delivered to it. This defeated the accuracy of Mr Leung’s calculations. Regardless, Mr Fung submits that whether or not the plaintiff would have made a profit on the Lot is plainly a matter for expert evidence. Mr Leung conceded in cross-examination that although he had the experience of producing concrete before, he was not in the business of concrete production and, in any event, was not an expert witness in these proceedings. Mr Fung submits that there being no expert evidence adduced to show the plaintiff would have suffered a loss had it carried on its intended business on the Lot, the defendant has completely failed to discharge its onus. 76.Not only is Mr Leung no expert, I have no confidence in and place no reliance on the sums and calculations that he produced in order to support his assertion that the plaintiff was entering into a losing proposition altogether by renting the Lot for running a concrete batching plant thereon. The defendant has simply failed to satisfy me that this was the case. Was the Aberdeen site a substitute for the Lot? 77.The plaintiff alleges that the Aberdeen site was acquired as a substitute for the Lot, and if that is established, its claim for damages will be based on the difference between the rental for the Aberdeen site on the one hand and the rental for the Lot and the various expenses for making the Lot suitable for producing concrete on the other. While this matter is mainly a question of fact, Mr Chua tries to put his emphasis on the related question of law, ie what responsibility the defendant reasonably assumed in the circumstances. He argues that the plaintiff’s acquisition of the Aberdeen site, involving such a large expenditure, could not reasonably be regarded as a responsibility that the defendant assumed when the contract (the Lease) was entered into by the parties in this case. That is the reason why he refers me to The Achilleas where three of their Lordships in the House of Lords emphasised the underlying basis of remoteness, ie, a defendant is only liable for loss which it was the parties’ intention (objectively ascertained) that he should bear, as loss for which he has “assumed responsibility”, or which falls within the scope of his duty. Mr Fung does not gainsay that, but submits that the law as enunciated in The Achilleas applies only to the special circumstances of that case, especially in view of the law that traditionally applied to the particular trade of charter-parties that was the subject of that case. 78.Chitty deals with The Achilleas in some length, from para 26-123 to para 26-131. The following appears to be the main points made by the editors:
79.Mr Fung, on behalf of the plaintiff, has made clear to me in his opening that the plaintiff is not claiming loss of profit from the lack of use of the Lot for the defendant’s failure to give possession of the Lot on 20 December 2008 or even later, in breach of the Lease. The plaintiff is claiming for losses based on obtaining a comparable alternative site for the same business, which it is alleged was the Aberdeen site in respect of which the plaintiff won its bid in a public tender to obtain a lease for five years from 1 March 2010. Mr Fung contends that just like a breach of contract for the sale of goods by reason of non-delivery, the buyer is entitled to go into the market to obtain substitute goods and claim the difference between the market price of the substitute goods and the contract price of the goods that the seller failed to deliver. He refers me to Erie County Natural Gas and Fuel Co Ltd & Ors v Samuel S Carroll & Anor [1911] AC 105, at 117 for support. However, in the present case, the facts do not admit of such simplistic approach which would otherwise be both reasonable and fair for everyone concerned. There was no such thing as a ready or open market for sites on which a concrete batching business could be run. According to Mr Zen, possible sites can broadly be divided into two kinds, private and public sites. The Lot is a clear example of a private site. It is owned by a private enterprise but there is no guarantee that it could be used to operate a concrete batching plant. It was subject to the waiver by Government of the restrictive user clause of the head Government lease, for a fee, and even if a waiver could be obtained, and there was no certainty that it would be obtained, the fee payable for the waiver would be very substantial. The waiver fee for the Lot in the present case was about one and a half times of its rent (the waiver fee was $1,068,960 for a quarter whereas the rent was $170,000 plus a minimum of $50,000 royalty for every month). An example of a public site is the Aberdeen site; Government offered it on public tender and it was awarded to the plaintiff as the highest bidder. The tender was specifically for the site being used for concrete batching. It was a very expensive lease (see below), with a very substantial rental, but it was unnecessary for a waiver to be obtained, because the user was specifically granted. No uncertainty was involved. On the other hand, one can realize that it is more expensive than it meets the eye because out of the term of five years granted, the first year and part of the second year would be totally unproductive as the time was needed to build permanent concrete batching plants on the site, as required by the lease. Yet what would have been built on the Lot were mobile batching plants that would only take four to six months to set up and two months to dismantle instead of the permanent concrete batching pants that were built on the Aberdeen site. 80.The lease of the Aberdeen site was obtained by the plaintiff and its group of companies. The lease was for five years to commence on 1 March 2010 at the rental of $7,950,000 per quarter, which is $2,650,000 a month. It was specifically designated for the purpose of concrete production, and thus no waiver of any restrictive user term (such as that applicable to the Lot) was required. Regarding the Lot, the rental for the initial term of two years (with an option for the plaintiff to extend it to a third year) was $170,000 a month plus a royalty of not less than $50,000. Thus, it is a comparison between $2,650,000 and $220,000, resulting in a difference of $2,430,000 a month that would apply throughout the term of the Lease of the Lot. Looking at the figures alone, I rule that it would be unreasonable to regard the defendant to have assumed responsibility for such a large amount of damages to be paid if it failed to deliver possession of the Lot to the plaintiff. I consider that The Achilleas will apply to excuse the defendant from paying such a huge amount of damages although it knew that the plaintiff’s intention was to have the Lot for concrete batching and it would be time-consuming and expensive to obtain a waiver from Government for that purpose. 81.Besides the facts related to how The Achilleas is applied, there is another aspect of the facts. Mr Fung asks me to use the rental of the Aberdeen site as the starting point for working out the damages on this head of replacement costs to the plaintiff. But the evidence is quite inconsistent with the basis of this claim which is that the Aberdeen site was the substitute obtained for the Lot which the defendant failed to deliver. In the letter of ECL, the plaintiff’s wholly owned subsidiary, dated 21 April 2009 to the Development Bureau, the point was made that the minimum entry prerequisite for a new entrant into the concrete batching business was to secure two sites within the first year of operation. Mr Zen’s evidence is to the effect that both the plaintiff and ECL were new entrants into the business. Further, the term for the Lot was at most for three years, and the plaintiff had to get another site shortly after its commencement because there could be no guarantee that the defendant would agree to have the term extended. The fact that the plaintiff continued to look for other sites including the Ping Che site, irrespective of whether possession of the Lot was given to it at the beginning of 2009 was very much consistent with this stated prerequisite than with the need to obtain a substitute after the defendant’s failure to deliver possession of the Lot. When the defendant notified that the plaintiff that it was able to deliver possession of the Lot in May 2009 and more confidently so in early June 2009, the plaintiff still proceeded to sign a provisional pre-lease with Ever Color for the Ping Che site on 18 June 2009 and a formal pre-lease on 22 June 2009. Moreover, even after ECL entered into the Aberdeen site in March 2010, the plaintiff did not abandon the planning application in respect of the Ping Che Site, but chose to negotiate for an extension of the pre-lease pending being informed of the unsuccessful result of the planning application. 82.In the course of his cross-examination, Mr Zen testified that if the defendant had delivered possession of the Lot to the plaintiff, it would definitely not go for the Aberdeen site. This testimony was in stark contradiction to the point or representation made in the ECL letter dated 21 April 2009 to the Development Bureau referred to above. While Mr Zen admitted that there was inconsistency, he relegated the importance of the representation in the letter as language for lobbying Government to make available more sites for concrete batching. Whatever one calls this attitude in making such a representation, I find it unacceptable, and one that casts doubt on the veracity of Mr Zen’s evidence that could, if the attitude in making the representation similarly applies, be adjusted to suit a particular purpose important to the plaintiff. The plaintiff has failed to prove to my satisfaction that the Aberdeen site was obtained as a substitute for the Lot. 83.Moreover, it is difficult to make any meaningful comparison between the Lot and the Aberdeen site. Mr Fung has drawn my attention to various matters that show that the Aberdeen site was even inferior to the Lot. Mr Zen also went through a similar exercise in his evidence. From the evidence, it seems to me that apart from the user clause of the lease of the Aberdeen site that specifically allows the use for concrete batching (as compared with the requirement of getting a waiver from Government regarding the Lot), and the duration of the lease (Aberdeen site for five years and the Lot for three), nothing in the Aberdeen site is superior to the Lot in any other aspect. However, Mr Zen said that the rental for the Lot and that for the Aberdeen site were both market rental – that means each site was properly valued for its rental. This means that the Aberdeen site, albeit appearing to be very expensive as compared with the Lot, was worth every cent that it cost and the difference of its price by way of rental over that for the Lot merely reflected all its better qualities over the Lot. In other words, despite all its qualities being inferior to the Lot’s, the only two attributes of not requiring a waiver from Government and its duration of longer by two years were worth the huge difference. To me, this is translated into that for a true substitute for the Lot, the plaintiff would need pay nothing more than what it had paid for the Lot itself, and the plaintiff had suffered no loss by having a substitute site. The Aberdeen site, however, was not a substitute. As such, the Aberdeen site could not properly be used for comparison with the Lot for assessing the plaintiff’s loss resultant from the defendant’s breach. Since the plaintiff fails to prove that the Aberdeen site was a substitute for the Lot, I have no basis for making an assessment based on that difference in rental. 84.The importance of not requiring one to get a waiver from Government regarding the Aberdeen site cannot be slighted. A ready example is the acquisition of the waiver for the Lot. The plaintiff obtained the Pre-Lease from the defendant in January 2007, which was in effect an option for it to obtain the Lease to start on 20 October or 20 December 2008, almost two years later, purely for the purpose of having the opportunity of obtaining a waiver from Government for operating a concrete batching plant on the Lot. Apart from the fees of $150,000 and a further sum of $150,000 paid over to the defendant for maintaining the right to the option, the plaintiff had to employ the services of a number of professionals for liaising with Government departments and dealing with problems regarding traffic, environmental protection, etc to support the application. Despite all that time, effort and expenditure that was incurred, there was no guarantee that the application would be successful. The failure to get a waiver for the Ping Che site was a ready example. No wonder the Aberdeen site that came without the necessity of incurring any such time, effort and expenditure was worth that huge difference in rental outlay. 85.Of course, the duration of the lease by the Aberdeen site having an uninterrupted longer period of two years had a substantial worth. Looking at the way that Mr Zen estimated the profit that could be made from the Lot in the second and third years of the Lease but not at all for the first year, the significance of the length of the tenancy is well demonstrated. But even this profit would be short-lived because there was no guarantee that the defendant would be willing to extend the term of the Lot. Ex post facto, there is not a shadow of a doubt that the defendant would never extend the term in the events that transpired. 86.I merely mention the importance of the permit for a site to be run as a concrete batching plant and of the length of tenancy. These are very valuable attributes that were reflected in the rental volunteered to be paid by the plaintiff as fair market value for the Aberdeen site, and the inferiority of the Lot in these two areas as compared with the Aberdeen site conversely reflects the less rental for the Lot, even including all the time, effort and expenditure that had to be paid and had in fact been paid for the Waiver. I therefore come to the conclusion that there will be no award under this head of damage claimed by the plaintiff on the basis that the Aberdeen site was a substitute for the Lot. Is the plaintiff entitled to claim for losses that had been incurred by another company? 87.Another topic of law that is subject to heated argument between the parties is based on the fact that some of the claimed expenses paid were made by two other companies instead of the plaintiff. It can be seen in last column of the table of damages above that certain items were only funded by the plaintiff but in fact paid by ECL (Excel Concrete Ltd) or Topfield (Topfield International Development Ltd), both of which were the plaintiff’s wholly owned subsidiaries. 88.Mr Chua presents very lengthy arguments on this topic starting with the fact that there is no dispute that the rent at Aberdeen has always been payable by ECL, not the plaintiff. The striking feature is the discrepancy between (a) the entity in which the alleged cause of action lies (the plaintiff) and (b) the entity upon which the loss allegedly fell. The general principle was set out by Lord Goff in Johnson v Gore Wood & Co [2002] 2 AC 1 [HL] at 45-46:
89.Mr Chua submits that the relevant principles were settled in the leading case of Gerber Garment Technology Inc v Lectra Systems Ltd [1997] PRC 443, an English Court of Appeal decision in which Hobhouse LJ, as he then was, and Hutchison LJ were in the majority:
90.The arguments go further. Consolidation of the accounts of different companies within a group under ss 124 to 126 and the Tenth Schedule of the Companies Ordinance, Cap 32, does not mean that all the companies are to be treated as one entity in law (as distinguished from the field of accounting presentation): Kwok Chin Wing v 21 Holdings Ltd, CACV 55/2011 (20 December 2011, unreported), at paras 60-61, per Kwan JA (with whom Tang VP, as he then was, and Yam J agreed.) 91.Mr Chua submits that there is simply no proper basis for the plaintiff to even suggest that ECL’s loss can be translated into the plaintiff’s loss in any meaningful way:
92.Mr Fung accepts that the plaintiff and ECL are separate and distinct legal entities. He submits that the law is plain that:
93.Mr Fung points out that in the present case, the plaintiff wholly owns ECL and Topfield (“the two subsidiaries”) and the same five individuals constitute the boards of the plaintiff, ECL and Topfield. The plaintiff has complete control over the internal management of the two subsidiaries. It is only necessary for the plaintiff to go through formal procedures in ECL and Topfield’s respective boards to make its decision for them fully effective. Further, each of ECL’s and Topfield’s revenues and expenses, profits and loss are all consolidated into the plaintiff’s financial statements: see the plaintiff’s Reports and Consolidated Financial Statements for the year ended 31 December 2009. In other words, the two subsidiaries’ expenses are incorporated into the plaintiff’s consolidated financial statements as part of the plaintiff’s expenses; their loss (or profits) are also incorporated into the plaintiff’s consolidated financial statements as part of the plaintiff’s loss (or profits). Therefore, Mr Fung contends that the facts of the present case fully warrant the court to adopt a judicial approach which takes into account the true business reality as opposed to a narrow, technical and legalistic view. The plaintiff should not be denied certain claims for damages which would otherwise be awarded merely because it chose to incur the relevant expenses through its wholly owned subsidiaries ECL and/or Topfield. 94.Mr Fung draws my attention to a passage in Lord Cooke’s judgment in Johnson v Gore Wood in which, he submits, the correct approach is laid down, at 46B:
95.The above approach, Mr Fung submits, is neatly illustrated by the principle enunciated in Gerber that is also referred to by Mr Chua (see above). 96.In Gerber, P was held to be entitled to damages for patent infringement notwithstanding that a substantial portion of the loss claimed by P was suffered by its wholly owned subsidiary companies. A peculiar feature of Gerber (which distinguishes it from the facts of the present case) is that the parent and its two subsidiaries were each located in a separate tax jurisdiction – P was a US company whereas its two subsidiaries were respectively UK and Belgium companies. 97.There is no dispute that “in law, the parent of a wholly-owned subsidiary can recover damages in respect of the parent’s loss by reason of misfortune that has fallen upon the subsidiary, at all events when the subsidiary has no cause of action against the wrongdoer” – p 456 line 29, per Staughton LJ. 98.The only issue for the court was whether P had proved that they had suffered loss. On this issue of mixed law and fact, the court was divided:
99.Mr Fung submits that the present case is plainly distinguishable from Gerber and falls at the simplest end of the spectrum described by Hobhouse LJ (479 line 8) and within the scope of the “very simple and straightforward cases” as described by Hutchison LJ (482 line 43). Further, Staughton LJ is of the view (457 line 49) that “a pound lost to the subsidiary is a pound lost to the parent, unless there are extraneous circumstances”. 100.In our present case, Mr Fung stresses that ECL is wholly owned by the plaintiff and operates within the same tax jurisdiction, namely, Hong Kong. The composition of the plaintiff’s board and ECL’s board are identical. Accordingly, a dollar lost by ECL is a dollar lost by the plaintiff. There are no extraneous circumstances to exclude that simple rule. The plaintiff is plainly entitled to recover as damages the expenses incurred by ECL as a result of the defendant’s breach. 101.I accept Mr Fung’s interpretation of the law and the analysis of the facts in the present case. Moreover, in the particular circumstances of this case where I have already found not recoverable the loss suffered by ECL over the huge difference between the rent it paid for the Aberdeen site and the rent for the Lot (because of my finding that the Aberdeen site was not a substitute for the Lot) and the only heads of damage that are required to be dealt with relate to the expenditure incurred by the plaintiff and paid by ECL or Topfield, as the case may be, I would approach the matter in a very simplistic way:
102.In the present case, the plaintiff signed the Pre-Lease and later the Lease in respect of the Lot. The intent was to run a concrete batching business on the Lot, to be operated by its wholly owned subsidiary ECL. When the defendant failed to deliver possession of the Lot to the plaintiff, the plaintiff could not make it available to ECL for running its concrete production business on the Lot. It is asserted by the plaintiff that ECL eventually obtained the Aberdeen site as a substitute for the Lot for doing the same business, although I find against this allegation. In the circumstances of this case, I accept Mr Fung’s analysis that a dollar spent by the subsidiary is a dollar incurred by the parent and if this claim does not fail because of my finding and ruling that the Aberdeen site was not a substitute for the Lot, the argument raised by Mr Chua of different corporate entity would not have been a bar to recovery of the loss. This approach equally applies to the operational overheads and the plant storage costs that had been paid by ECL. 103.Again, the same approach should apply to the expenses for removing the structures in the Lot in order to obtain the Waiver. Although the charges were paid by Topfield, they were obviously paid on behalf of the plaintiff. I hold that the different legal entities here do not debar the plaintiff from recovering the expenses thus wasted. Heads of damages 104.Mr Fung has fairly taken the position that the assessment of damages by using the rental difference between the Lot and a substitute site will not be required if one adopts the assessment of the actual loss suffered by the plaintiff. Heading (1) and heading (2) in the table set out in paragraph 62 above are alternatives. 105.In my view, there may be three normal alternative situations in the assessment of damages in the circumstances of the present case, namely,
106.In the scenarios in (1) and (2) above, the damages would be limited to, as it were, the difference between the market price and the contract price. There can be no claim of the expenditure incurred for getting the Lot prepared for being a concrete batching plant, although there can be a claim of the expenditure incurred for making a substitution out of an alternative site fit for running a concrete batching plant there. 107.Since I have concluded that the Aberdeen site could not reasonably be compared with the Lot or fairly be used as a substitute, the question of using the difference in market price under scenario (1) does not arise for consideration. 108.Regarding scenario (2), Mr Zen’s evidence is that the so-called comparable sites that the defendant has identified in support of its contention as available alternative sites were not actually feasible alternatives. I reject the defendant’s contention with Mr Leung’s suggested sites and accept Mr Zen’s evidence and the reasons he gave. Moreover, there are two pieces of contemporaneous materials supporting the conclusion that no such alternative was available at the time. First, ECL’s said letter of 21 April 2009 dealt with the shortage of “public” sites. It stated:
109.Secondly, on “private” sites, the fact that the plaintiff tried to get the Ping Che site, which was in the northern part of the New Territories and without a waterfront access, well reflects the unavailability of any alternative in the vicinity of the Lot or anywhere else more conveniently located than Ping Che. 110.Therefore, I am not satisfied that there was any available site that could be used as a substitute for the Lot and therefore scenario (2) also does not arise. 111.Though there was an attempt, eventually abortive, to obtain the Ping Che site, that site could not be said to be an alternative for the Lot because that had not been the original intention when the whole effort of getting the Ping Che site commenced in May 2009: that was the time when there was hope that possession of the Lot would be delivered by the defendant to the plaintiff. Had the Ping Che site been successfully obtained, it would be a second site for a smooth running of a concrete batching business by a new entrant into the business with at least two sites as ECL (imputed to the plaintiff) had represented to Government to be a prerequisite. I am therefore not prepared to hold that the expenses incurred for obtaining the Ping Che site were incurred for getting an alternative in place of the Lot, as a measure in mitigation. I am not satisfied that there was any causal link between the defendant’s breach and the plaintiff’s attempt to obtain the Ping Che site. The expenses incurred for the exercise are, in my judgment, not recoverable. 112.Scenario (3) covers the actual expenditure reasonably incurred. The expenditure incurred has eventually been wasted because of the defendant’s breach of contract. I have already found the facts against the defendant on its defence that the plaintiff’s entitlement is subject to the rule that it cannot recover what it would not be able to recoup had the contract been performed. I have also ruled against the defendant on its argument that the onus of proof of the plaintiff’s inability to recoup the expenditure rests with the plaintiff. The way is cleared regarding most of the items claimed by plaintiff. 113.Apart from the items I shall specifically discuss below, I allow the following items of damages. I find that these items were expenses that the plaintiff had actually incurred and paid which were eventually wasted because of the defendant’s breach and the amounts are supported by and can be verified with the contemporaneous documents.
Costs in procuring Ping Che 114.It is to be noted that the attempt to get the Ping Che site was initiated on 27 May 2009, when the defendant had already informed the plaintiff that possession of the Lot was available, and the parties went on to negotiate as to how to let the plaintiff have possession under the terms of a new tenancy agreement. Thus, the Ping Che site could not properly be considered as a way to mitigate damage: it may reasonably be considered as a second site complementing the Lot in the operation of a new concrete batching business intended by the plaintiff. The chances of it even being considered as a fall back situation were quite slim, because at the material time, it was beyond anyone’s or the plaintiff’s expectation that the defendant would eventually fail or refuse to deliver the Lot to the plaintiff. The plaintiff’s pre-leasing agreement regarding the Ping Che site with Ever Color was effective from 16 June 2009 to 15 June 2010, and a provisional and a formal pre-lease agreement were executed respectively on 18 June and 22 June 2009, when the parties in this action were negotiating busily regarding the possession of the Lot. When the Aberdeen site was obtained in March 2010, the application for planning permission for the Ping Che site was stilling continuing, and it was not abandoned until June 2010. So the attempt in acquisition of the Ping Che site could not be considered as for mitigating damage, even at this later stage. Thus I hold that the plaintiff fails to prove this head of claimed damage. 115.Perhaps, when the plaintiff failed to obtain possession post-July 2009, there was reason to keep the availability of the Ping Che Site for mitigating damage, but the plaintiff did not submit proof on such a scenario. 116.What is said in the preceding paragraphs applies equally to the rent as well as the consultancy fees and other expenditure regarding the planning permission for the Ping Che site, and these items are not allowed. Plant storage costs 117.The claim for storage of equipment is also not allowed, because if possession had been given to the plaintiff so that it would store the equipment on the Lot instead of storing it at the warehouse, the plaintiff had to pay rent for the Lot, which did not happen. If storage is granted in this case, then an estimated sum for the rent for part of the Lot required for storing the equipment on the Lot would have to be deducted. The plaintiff has not adduced any evidence to show the area of the Lot that might be used or occupied for storing the equipment, let alone the estimated rental for it. Operational overheads 118.The remaining head of damage is the operational overheads. The amount claimed under this heading, as submitted by Mr Fung in the table above is $5,671,371, which represents 80% of the full sum of $7,089,214.61. This percentage was once agreeable to Mr Leung when the parties were negotiating towards the end of June 2009 for the giving of possession of the Lot by the defendant to the plaintiff. Based on the same reasoning that I reject the plaintiff’s claim that the Aberdeen site was a substitute for the Lot, and that I consider that the plaintiff was all along pursuing its professed prerequisite of acquiring two sites for initiating a concrete batching business, the operational overheads could not have been incurred purely for the purpose of getting prepared for running the business on the Lot, especially after the plaintiff learned that the defendant had for certain removed the possession of the Lot from the reach of the plaintiff by granting a tenancy to a third party (which eventually became known to be GSL). That was around 3 August 2009 or slightly later. For calculating the wasted overheads, I consider that it would be fair and just to allow the plaintiff 80% of the overheads for the period between 1 December 2008 (the commencement of the month when the Lease started from 20 December 2008) and 31 March 2009 (when the writ herein was issued, whereby the plaintiff accepted the defendant’s repudiation of the Lease). After March 2009, the operational overheads were incurred for getting the Ping Che site and making application for planning permission or waiver regarding that site. Although as from mid-May 2009, there were talks and negotiations with the defendant for the delivery up of possession of the Lot and the operational overheads for these activities should have been allowed, I consider that such operational overheads were not incurred intentionally for this purpose as the hope of getting possession had demised when the writ was issued and it would be unreasonable to treat the overheads as having been incurred for the hope rekindled because there is no evidence of any expectation of such hope being revived. The overheads could not reasonably be said to be for the purpose at that stage. 119.In the end, I only allow 80% of the total of the operational overheads for the four months from December 2008 to March 2009. The figures set out below are the sum total mainly of staff salaries and wages, rental for offices, etc which are supported by contemporaneous documents:
The waiver fee for 1 July to 30 September 2009 120.I have already found that the plaintiff has not failed in its duty to mitigate damage although the possession of the Lot was never delivered to or regained by it. Right up to the last moment before the defendant abruptly withdrew itself from the negotiations, the plaintiff had been operating reasonably in its attempt to mitigate damage, which included paying the waiver fee for the period of three months from 1 July to 30 September 2009. The plaintiff paid it as its continuing effort to mitigate damage and in preparing for obtaining possession of the Lot and running a concrete batching business thereon. The defendant knew, as well as the plaintiff did, that in default of making payment by the end of 30 June 2009 the prospect of maintaining the waiver from Government and running a concrete batching business on the Lot would be lost, perhaps once and for all. I am satisfied that the payment of this waiver fee was reasonable and proper in all the circumstances of this case, and the plaintiff should be entitled to recover this item of wasted expenditure incurred for the purpose of mitigation, albeit unfulfilled. Conclusion 121.Since I have ruled that item (1)(a) of the claimed damages as set out in paragraph 62 above fails, I have made findings regarding the remaining items under heading (2) of that paragraph. There is hardly any dispute as to the figures because, I think, they are all supported by contemporaneous documents. I set them out below again and indicate the result of my findings:
122.The total damages that I allow come to $7,463,708.60. I award interest on this sum (less the waiver fee incurred on 30 June 2009) as from the date of the writ until payment at the judgment rate, whereas the interest on the waiver fee of $1,068,960 incurred on 30 June 2009 by the plaintiff shall be from 1 July 2009 until payment also at the judgment rate. I also make an order nisi that the plaintiff have its costs of this action against the defendant. I certify the matter fit for two counsel.
Mr Daniel R Fung SC, Mr Danny Choi and Mr David Chen, instructed by Chan & Associates, for the plaintiff Mr Chua Guan-Hock SC and Mr Harry Liu, instructed by Ho & Ip, for the defendant Please refer to CACV61/2013 for the relevant appeal(s) to the Court of Appeal. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
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