THE PRUDENTIAL ENTERPRISE LTD. AND ANOTHER v. P.H. SHEK LTD. AND ANOTHER
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HCA004911/1987
1987, No. A4911
IN THE SUPREME COURT OF HONG KONG
HIGH COURT
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| BETWEEN | ||
| THE PRUDENTIAL ENTERPRISE LIMITED | 1st Plaintiff | |
| THE PRUDENTIAL MALL LIMITED | 2nd Plaintiff | |
| AND | ||
| P.H. SHEK LIMITED | 1st Defendant | |
| PIREST LIMITED | 2nd Defendant |
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Coram: Hon. Liu J. in Chambers
Dates of hearing: 23 - 27 January, 9 - 10 February 1989
Date of delivery of judgment: 28 February 1989
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J U D G M E N T
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1. The defendants were the 2nd plaintiff's tenants of Portion R of the 3rd Basement of Prudential Centre in Nathan Road. Rental for Portion B was $169,290 per month. The 2nd plaintiff re-entered these premises by writ on the 14th August 1987. Judgment was given for the 2nd plaintiff against the defendants, inter alia, "that the defendants do pay the 2nd plaintiff damages to be assessed".
2. Mesne profits are thus the only outstanding issue. The agreed period for assessment is from re-entry on the 14th August 1987 to the 12th October 1988. For easy computation, it is also agreed that it should be 14 months less two days.
3. The area of the said premises is 9,400 sq.ft. Interim payment at the rate of the contractual rent has been made for the whole period of assessment. Damages by way of mesne profits are sought to he assessed by a judge.
4. Valuation aside, the main disagreement lies in two areas:
(1) whether mesne profits are to be assessed on the exclusive basis of "open market rental value" or whether assessment should be made with reference to a notional tenant of the same type as the defendants who held over after forfeiture;
(2) whether or not, in any case, the 2nd plaintiff's claim is confined by pleadings and conduct to "open market rental value."
5. A further attack was mounted at the un-particularised mesne profits in the Amended Statement of Claim.
6. That special damage must be specifically pleaded is beyond question. Unless it is, so pleaded, evidence of special damage cannot be led at the trial and consequently no damages can technically be awarded Hayward & Another v. Pullinger & Partners, Ltd., [1950]1 K.A.D. 581; Ilkiw v. Samuels & Others, [1963]1 W.L.R. 991 at p. 1006, per Diplock, L.J.
7. It is not necessary to plead general damage. Whatever damages are claimed, an opponent need, at times, be given fair warning as to what case he has to meet, particularly when the claim is one which cannot with justice be sprung upon a defendant at the trial. In Perestrello E Companhia Limitada v. United Paint Co. Ltd., [1969]1 W.L.R. 570, at page; 579, Letters E-F, the English Court of Appeal in a judgment delivered by Lord Donovan made the following observation:
"Accordingly, if a plaintiff has suffered damage of a kind which is not the necessary and immediate consequences of the wrongful act, he must warn the defendant in the pleadings that the compensation claimed will extend to this damage, thus showing the defendant the case he has to meet and assisting him in computing a payment into Court."
"The limits of this requirement are not dicated by any preconceived notions of what is general or special damage, but by the circumstances of the particular case. 'The question to be decided does not depend on words, but is one of substance.' (per Bowen L.J. in Ratcliffe v. Evan [1892] 2 Q.B. 524, 529)."
8. But mesne profits are not special damage. They flow from a holding over in trespass and are "the necessary and immediate consequences of a wrongful act." Arrears of rent are claimed and adjudged as a liquidated demand. However, not final but only interlocutory judgment may be given for mesne profits to le assessed. See marginal reference 13/4/5 at p.120, 1988 White Book Vol. 1. Indeed, "a claim for rent is therefore liquidated. But the amount to which the plaintiff is entitled for mesne profits must be assessed by the Court." Bullen &Leake And Jacob's, Precedents of Pleadings 12th Edn., p.69. In Precedent Forms Nos. 330 & 331 given at pages 595 & 596 for "Claim for Possession upon a Forfeiture for Non-Payment of Rent and Claim Law Procedure Act, 1852", a prayer for mesne profits is made without quantification from the service of the writ until delivery for possession. A claim for mesne profits is a claim for general damage and assessment of mesne profits is guided by settled principles familiar to all. The rest is evidence.
9. After all, Lord Dunedin said in The Susquehanna [1926] A.C. 655 at p. 661:
"If the damage be general then it must he averred that such damage has been suffered; but the quantification of such damage is a jury question."
10. Evidence to assist assessment of mesne profits may come from experts. The calling of experts and exchange of their reports is governed by set rules of procedure so that the parties may adequately be warned of the material which each will be confronted with at the trial. A litigant will then be in a position to prepare evidence for meeting or testing his opponent's expert opinion for the courts assistance. All this is a far cry from the immutable requirement of pleading of special damage and the adverse consequences in breach that follow.
11. The burden of proving damages lies squarely on the shoulders of a plaintiff. The Court was time and again directed to paragraph 1779 of McGregor on Damages 15th Edn. with a view to piling emphasis on judicial reluctance "to advance into an area of pure speculation" without evidence, in defiance of the known , contractual rent. (per Forbes J. in Tate & Lyle Food And Distribution Ltd. v. Greater London Council. and Another, [1982]1 W.L.R. 149 at p.152 Letter H).
12. Strange enough there is little authority for the proposition that "the normal measure of damages is the market rental value of the property occupied or used for the period of wrongful occupation or use." See para. 1420 at p.879 McGregor on Damages 15th Edn. The same passage continues with the following rationalization :
"But this measure is consonant with general principles and with the name of the action for wrongful occupation as one for mesne profits. If the rental value varies due to market fluctuation during the period of wrongful occupation, these fluctuations should be taken into account."
13. Megaw L.J. proposed that "in the absence of anything special in the particular case, it would be the ordinary letting value of the property that would determine the amount of damages." Swordheath Properties Ltd. v, Tabet, [1979]1 U.L.R. 285 at p.288 Letters E/F. Obviously, the target is "the fair value of the premises; when the rent represents that fair value the assessment is according to the amount of the rent, but if the fair value is higher than the rent the assessment is by reference to that higher value". It is so summed up in paragraph 1-2158 at p.976 Woodfall on Landlord & Tenant, 28th Edn.
14. Measure of mesne profits is, so Mr Mills-Owens suggested on behalf of the defendants, on the open market rental value which merely envisages occupation by an ordinary tenant. Counsel urged the Court not to assess mesne profits with reference to the type of tenant of the same quality as that of the actual sitting tenant holding over in a given case. But it would seem unjust for any landlord to be saddled with a former tenant of a quality which he no longer wishes to entertain even at a chargeable higher rental and yet to be given only the lower open market rental payable by an ordinary tenant. It would be inequitable to allow a tenant who holds over in trespass to profit by his own wrong, paying less in damages than he would pay for renting the premises.
15. The courts are inclined to steer a common sense path. In Swordheath Properties Ltd. v. Tabet, supra. at p. 288 Letters E/F Megaw L.J. came down heavily in favour of the owner and damages were awarded against the over-staying former tenant, even without evidence that the property could or would have been let, on the basis of the value of the property as it would fairly be calculated". Nevertheless, we are still left with no direct authority as to how a fair value is to be calculated. Is it to be the open market rental value in the sense as Mr Mills-Owens suggested or must mesne profits take into account the quality of the former tenant who has remained on as a trespasser?
16. Perhaps I should begin with a definition of mesne profits as given by Bullen & Leake And Jacob's Precedents of Pleadings, 12th Edn. at p.69:
"If a person who has no title enters into possession of land, the rents or profits which he receives or makes or which he might have received or made therefrom during his occupation are called mesne profits."
This passage highlights the actual rental taken or receivable by the trespasser.
17. Mr Swaine referred me to Bracewell v. Appleby [1975]l Ch. 408, where damages were granted in lieu of an injunction restraining trespass over a right of way by reason of the plaintiff's own delay. At p.419 Letters D/E, Graham J. proceeded to assess as damages the fair price which the reluctant owners would have accepted when refused the aid of an injunction:
"It seems to me that the defendant must be liable to pay an amount of damages which insofar as it can be estimated is equivalent to a proper and fair price which would be payable for the acquisition of the right of way in question."
18. Graham J. gauged the quantum with reference to a percentage of the probable profit or notional profit to the trespasser.
19. Mr Swaine also leaned heavily on an observation of Brightman J. in a similar situation in Wrotham Park Estates Co. Ltd. v. Parkside Homes Ltd., [1974]1 W.L.R. 798 at P. 815:
"A just substitute for a mandatory injunction would be such a sum of money as might reasonably have been demanded the plaintiff from Parkside as a quid pro quo for relaxing the covenant."
20. These dicta stem from cases dealing with an outright acquisition of property right at a price fair in the prevailing circumstances, having regard to probable or notional profit. The price of a land right, even on a forced sale to a trespasser, must be affected by what profit he expects to make from its use or wrongful enjoyment. While the price of a property sale is necessarily sensitive to a wide spectrum of element the special gain which a trespasser may make from his wrongful occupation has never been recognised as a proper item for quantifying mesne profits. Insofar as the decided cases purport to suggest that in the assessment of mesne profits, one "may look beyond even market rental value of the land to the benefit which the defendant had extracted from its user, they are moving away from damages to quasi-contractual restitution." See end of para. 1421 at P.881, McGregor on Damages 15th Edn. In my view, Bracewell and Wrotham Park offer no real guidance
21. However, the cases cited do not shut out from a fair value what a landlord would demand in return for the actual wrongful user. That is precisely the answer provided by an analogy in Strand Electric & Engineering Co. Ltd. v. Brisford Entertainments Ltd., [1952] 2 Q.B. 246. That was a case for damages for wrongful detention of certain switchboards. Having aired his sentiments at p.p. 249/250 that the defendants could not "as wrongdoers, have the use of the chattels for less than a fair price for the hire. Otherwise, they would be benefiting by their own wrong", at p. 252, Somervell L.J. had this to say:
"Why is not the plaintiff's loss the value in the market of the user?"
"There are no doubt some cases in which a wrongdoer may, he called on to account for profits, but in considering the measure of damages as raised here, I think the actual benefit which the defendants have obtained is irrelevant. The damages could not, in my view, be increased by showing that the defendant has made by his use of the chattel much more than the market rate of hire. Equally, they cannot be diminished by showing that he had made less."
22. Even for damages in a trespass to goods, expected profits of the wrongdoer are not considered as material. But indeed, why is not the owner's loss the value in the market of the user? Then Lord Justice Somervell continue :
"It is curious, as I have said, that there is no authority on this point. The nearest analogy is a claim for mesne profits. The measure there is a reasonable sum in the nature of rent for the user during the period of defendant's trespass. In other words, the defendant must pay what the plaintiff would have obtained if the defendant has lawfully been in possession."
There, in my view, the measure of mesne profits as damages is correctly stated. Open market rental expected of a tenant comparable with the trespasser in quality and is the proper yardstick for assessing damages.
23. The defendants further contended that the question of quality of tenant such as nuisance tenants as in the defendants, running a fastfood outlet was not an issue open to the 2nd plaintiff. It was argued that by the prayer in the Amended Statement of claim, the reports of the 2nd plaintiff's case in measure of mesne profits had throughout been put on the narrow basis of open market rental value. The 2nd plaintiff should not be allowed, therefore, to shift its claim to include a consideration of the quality of its sitting tenant.
24. As general damage, mesne profits need not be specifically pleaded. An order was made for limiting one expert from each side. Exchange of their reports was not even ordered although reports had, in fact, been exchanged in advance. Mr Swaine referred in the opening, to the user by the sitting tenant as a fastfood outlet and invited the court to take into account all it entailed. He outlined the 2nd Plaintiff's evidence for quality of the tenant. The prayer of the Amended Statement was based on the rate of $515,000 per month as given in the 2nd plaintiff's expert reports, but the prayer also referred to "or such other date (sic) as this court deems just.? The formal judgment simply ordered damages to be assessed.
25. The defendants had at no time sought an adjournment. Indeed, the expert of the defendants Mr Ng was specifically asked as to quality of tenant, and he agreed that a nuisance tenant would bid more for the same premises. The question of quality of tenant was not a matter excluded. The reverse is true. The 2nd plaintiff cannot be said to have confined itself exclusively to open market rental value by pleadings or conduct.
26. Having disposed of these preliminary contentions, it is necessary to cover briefly the geography and the main events. The Prudential Centre stands on 216 - 228A Nathan Road. Its shopping mall completed in December 1982. The upper structures were thereafter added onto the mall, but they do not concern these proceedings. The Prudential Centre Mall is a nine-storeyed commercial complex comprising four podium floors above the ground level, a lower ground level and four levels of basement low. The four basement levels are known as the 1st to the 4th Basements. The 1st floor, the upper ground level, the lower ground level and the 1st to the 3rd Basements are all shopping arcades served by corridors with an atrium at the core. The empty atrium extends from the 3rd Basement right up to the 1st floor level. Therefore only the 3rd Basement has the advantage and use of the Centre Void flooring. All above is empty air space. There are five pairs of escalators on both sides of the atrium. There also three staircases and one service lift serving the mall. The Prudential Centre Mall is unusual and unique with its 2nd Basement connected to the Jordon MTR Station Entrance. It was agreed on all hands that lettings within the shopping mall would provide better samples for comparison in any attempted valuation.
27. The lease to the defendants was to run from the 18th December 1982 to the 17th December 1989. After forfeiture on the 14th August 1987, the defendants held over. Units 8 to 12 on the 2nd Basement were let as a shop on the 7th September 1986. Unit 27 on the 2nd Basement was let as a shop on 15th September 1986. Unit 28 on the 2nd Basement was let as a shop on the 9th May 1987.
28. In October 1988, Swire made enquiry for some 4,000 sq.ft. on the 3rd Basement on behalf of Kentucky Fried Chicken, another fastfood outlet. An offer was made for $55 p.s.f. for the first three years with escalating rental thereafter. Average rental for the entire six years term was $60.50. The offer was rejected by the 2nd plaintiff which set its mind on a better quality tenant. In three memoranda from its Letting Agent between November and December 1988, offers ranging between-$40 to $50 p.s.f. were received. These offers did not interest the 2nd plaintiff by reason of the required floor area, the nature of the proposed activity or performance record of the enquirers. In any case, they were tentative offers and information was scanty. On the 21st January 1989, the Friday preceding the week-end before the hearing of these proceedings, Toppy Company (H.K.) Ltd. concluded a four years lease with the 2nd plaintiff to commence from the 1st March 1989 with rental payable as from the 1st April 1989.
29. Mr Hui and Mr Ng were called as valuers. Mr Ng is more highly qualified and enjoys a longer experience than Mr Hui, but Mr Ng adopted the report of one Mr Chiu who is equally less qualified and not as experienced. I accept them both as experts. Mr Hui, expert for the 2nd plaintiff, knew the area well and had been working in that locality for some three years. Certain indices prepared by Jones Lang Wootton mere relied upon. That is permissible. See R. v. Abadom [1983]1 A.E.R 364 at p. 367, Letters c - d.
30. Mr Hui focused on four other letting samples taken within the Prudential Centre. Letting to Toppy Company (H.K.) Ltd is recent. Mr Hui's selected-samples were criticized as unsuitable comparables. They are all on a different level, the 2nd Basement, in different locations, with varying terms, areas and frontages. Except for Shop 28, they were all let at a time well before the assessment period commencing from August 1987. They had no exclusive use of the "Coffee Shop Portion" but were served by common corridors. The letting date of the last sample, shop 28 on the 2nd Basement was closest to August 1987 and accepted by the defendants as the best letting for comparison before the Toppy lease. As these selected samples differed in essentials, factors were suggested for adjustment. The object of the exercise was to eliminate or reduce the disparities bringing the essentials on a par with those of a letting in August 1987 so as to reflect a rental rate at the relevant time.
31. Apart from the factor of time adjustment, Mr Hui's other factors of adjustments were criticized as insignificant and their given percentage allowances as inaccurate. One of such factors of adjustment of Mr Hui, "Visibility in respect to the Central Void but later recategorized as "Coffee Shop Portion", was assailed by the defendants as overlapping with another factor "Frontage" or giving some double-counting effect to it. In the report of Mr Hui, no adjustment was allowed for quality of tenant, and his evidence of a nuisance tenant running a fastfood outlet was condemned by the defendants as an after-thought.
32. Mr Hui, expert for the 2nd plaintiff, initially regarded the Toppy lease as the prime comparable. The 1989 Toppy lease is most recent in time and was accepted by the defendants as having overtaken Mr Hui's other samples. Then Mr Hui experienced some difficulties in explaining the low rental rate in the Toppy lease, said to be not in tune with the others he sampled. And Mr Hui suggested that there must have existed some unknown factors for such low rental rate. Mr Hui attempted to brush aside the low rate in the Toppy lease as being not very reliable and not as good. At one time, he even implored Mr Mills-Owens, Counsel for the defendants, to discontinue discussing it. However, he maintained to the last that the Toppy lease would provide good background information.
33. In his final address, Mr Swaine rallied to Mr Hui's support with a suggestion that his expert could comfortably have explained the low rental rate in the Toppy lease with an adjustment for "quality of tenant? Mr Hui was driven to concede that the ordinary meaning of open market rental value" would make to allowance for any nuisance tenant. Even, with all variables "quality of tenant" re-adjusted, Mr Hui's average rental rate from his four letting samples ($55.82 p.s.f.) is 33% of his original valuation calculated on the Toppy, lease ($41.83 p.s.f.) or 23% of such his original valuation as revised to $45. 35 p.s.f. by a higher time index differential of -41.89%. See Chart B in the annexure to this judgment. Mr Hui could hardly maintain as valid both his assessment of $55,82 p.s.f. (or approx. $525.,000, per month i.e. $55.82 x 9,400 sq. ft.) and his rental valuation derived from figures taken of the Toppy lease: they are $55.82 and $41.83 (or $45.35 after revision). There is a difference of over $10 p.s.f.!
34. I turn, Mr Swaine attacked Mr Ng, expert for the defendants, as lacking in credibility by his blatant refusal to give credit to "Frontage" and "Visibility" for these premises in the Prudential Centre. That was said to have been sufficienly borne out by the answer of Mr Ng to the last question in cross-examination. Mr Ng suggested three sub-factors for the factor of adjustment in area i.e. "Quantum": one of which was "Ease of Letting"; for that the allowed from -9% to -11% in the 4 letting samples used by Mr Hui. Mr Swaine argued that as there would be more tenants than space available in the rising market, the question of "Ease of Letting' should have little bearing on the exercise. Mr Ng's attempt so introduce -9% to -11% was characterised as an example of his propensity to exaggerate.
35. Mr Ng adopted the reports of Mr Chiu, "D4(1)" to "D4 (3)". In "D4(2)", rental for Shop 28 on the 2nd Basement was taken to be $29 p.s.f. for September 1983 as opposed to its actual known rental of $25 p.s.f. Another error, so Mr Swaine was at pains to point out, is the $35 unit rental for Shop 4 on the 2nd Basement in December 1982. As a matter of fact, for the first year, the rental for that shop was only $31.50 p:s.f. and $35 was unit rental for the 2nd and the 3rd years. Further, the correlation attempted by Mr Chiu on the figures from Shops 6 and 28, both on the 2nd Basement was admitted by Mr Mg to be of no value to him.
36. Valuation of this nature must be highly subjective. The selection of factors for adjustment cannot be always justified. The list of factors of adjustment, their order of priority and percentages allowance could well produce some factor duplication or double-counting effect. There is no standard formula for such an exercise. While the percentages given were at trimes hotly contested, the factors as chosen were not seriously debated. It is a very inexact science. The temptation to over-value or under-value may not be easy to resist. I come to the firm conclusion that so long as a property valuer is consistent in his application of a device or formula to any given situation, his expert views should be given proper respect. In complex calculations involving subjective assessment, it is understandable that both experts were taken to task in the defence of their valuations. In the result, I propose to take the best of both worlds as it were, adopting selectively what I would regard as better suited to the circumstances under consideration, as expressed in the opinions of these experts.
37. Both experts seemed to have embraced a "sequential assessment" of factors listed in order of priority of their importance. The selection of factors and the priority accorded to each did not draw much adverse comment. Four lettings within the Prudential Centre were initially taken as samples for comparison in the valuation process. Variables by way of differences in area, frontage to MTR entrance, transaction date and display facilities were adjusted. These samples for comparison are known as the comparables. The variables in the comparables selected, once adjusted, on the basis of the know rental, up or down in sequence of their priority, would hopefully yield a reliable notional letting value similar in most respects to that of the subject property at the relevant date. These adjustments are generally expressed in terms of positive or negative percentages with the result that the known rental value in any comparable used will be either enhanced or diminished in rate. Theoretically, even the rental of the subject property may be so adjusted for use in the valuation process. But for possible avoidance of imponderables, similar lettings closest to the date of valuation would be sampled. The less a comparable requires adjustment the more accurate would be the result. The percentages arising from all the relevant variables may be taken together as a final total percentage to be added to or subtracted from the known rental value of the selected comparable. This is known as adjustment on an aggregate percentage basis or an aggregate adjustment. Again, these percentages, plus or minus, may also be taken account of, one by one, in a series of adjustments to the known rental of the comparable. This is known as adjustment on a sequential basis or a sequential adjustment. In a sequential adjustment, a further decision shall have to be made as to the order in which the pecentages are to be adjusted. This list of priority for the factors of adjustment is normally to be determined by the respective importance of the variables as judged by the valuer. See also Land Compensation and Valuation Law in Hong Hong by H.H Judge Cruden, p. 400. Neither of these methods of adjusting the percentages given to the variables is entirely free from criticism. If a valuer would bear in mind what difference there is in or could arise from the use of these two bases, experience would lead him to make a further allowance so that on either basis his valuation would suffer from no significant disparity.
38. Mr Mills-Owens endeavoured to illustrate that the prime comparable, the Toppy lease would produce the most reliable result. Counsel pressed upon this Court that the Toppy lease was for the same 3rd Basement premises, also with the use of the "Coffee Shop Portion" in the Centre Void, though admittedly not a "letted area".
39. Mr Ng, tile expert for the defendants, expressed the view that only the time factor need be adjusted for the Toppy lease rental rate. Mr Mills-Owens echoed his opinion that not only was the Toppy lease the prime comparable as a recent letting of virtually the same premises with the same facilities, the only need for an adjustment in time would give it an added advantage of being exposed to a much less subjective assessment. Further, counsel sought to rely on the consistency displayed in the calculations : the valuation based on the Toppy lease at $34.44.p.s.f. as adjusted back to August 1987 is close to (1) Mr Ng's assessment of $38.70 p.s.q. from Mr Chiu's figures for Shop, 28 as given, in his report, Exh. D4(2), (2) the re-calculated assessment of $40.14 for Shop 28 from figures of Shop 4 on the 2nd Basement and also (3) the Kentucky offer of $38.73 as calculated by Mr Hui, expert for the 2nd plaintiff.
40. The expert for the defendants, Mr Ng, explained his colleague's valuation, using Shop 28 as a comparable. Shop 28 let in May 1987 on the 2nd Basement was closest in time to the assessment date, of August 1987. Rental figures from Shop 28 as given in "D4(2)" were applied as follows:
(1) the unit rental of Shop 28 was taken as $29 p.s.f. in September 1983;
(2) the Unit rental of Shop 28 as at the end of 1982 was estimated to be $34 p.s.f.;
(3) the average rental paid for the defendants premises was $18 p.s.f. in December 1982;
(4) ($18 × 1.89 = $34) therefore, $34 p.s.f. of Shop 28 was 1.89 times $18 p.s.f. of the defendants premises as at the end of 1982;
(5) unit rental for Shop 20 was known to he $68.40 in May 1987 from the letting information;
(6) ($36.20 × 1.89 = $68.40) therefore, the unit rental of lithe defendants premises ought to be $36.20 in May 1987;
(7) with about 7% increase from May to August 1987, the unit rental of the defendants premises ought to be $38.70 in August 1987.
41. This $38.70 can hardly be said to be accurate. The $29 p.s.f. assumed for September 1983 is an error. It was then only $25 p.s.f.
42. On the information available, Mr Mills-Owens calculated, for illustration, unit rental of Shop 28 as at August 1987 from figures of Shop 4 as follows:
(1) Average rental of Shop 4 in December 1982 was $33.33 p.s.f. ($31.50 for first year and $35 for second and third years);
(2) "Visibility" in terms of "how easily you can see the shop" requires a 3% adjustment downwards in relation to Shop 28 and therefore Shop 4, put in the location of Shop 28, ought to be $32.81 p.s.f. as at December 1982;
(3) ($18 × $1.823 = $32.81) therefore, $32.81 is 1.823 times of the average unit rental of $18 for the defendants premises, in December 1982;
(4) Shop 28 was let for $60.40 p.s.f. in May 1987;
(5) ($37.52 × 1.823 = $68.40) therefore, rental for Shop 28 with all the variables adjusted should be $37.52 p.s.f. in 1987;
(6) with about 7% increase from May to August 1987, the unit rental as at August 1987 for Shop 28 with adjusted variables ought to be $40.14;
(7) Shop 28 as adjusted is the best of the 4 comparables used by Mr Hui and therefore the defendants' premises should also attract $40.14. p. s.f in August 1987.
43. Mr Hui's calculations on the Kentucky offer are as set out in the Chart 4 in the annexure to this judgment giving an adjusted unit rental of $38.73 for August 1987.
44. The thrust of the defendants' valuation is in their Toppy lease calculations with only time adjustment i.e. $34.44 p.s.f. That can be seen from Chart 1 in the annexure to this judgment.
45. Mr Ng disagreed with Mr Hui's valuations made on the four comparables. Mr Ng's calculations are, as set out in Chart 2 in the annexure to this judgment, ranging from $25-$37 p.s.f. Mr Ng offered these calculations at the request of counsel. His preference was the Toppy lease. Mr Mills-Owens also directed the Court's attention to this range of $25-$37 p.s.f. as yet further corroboration of the defendants $34.44 p.s.f.
46. Mr Mills-Owens further pointed out that all his figures were much below (1) the 2nd plaintiff's re-adjusted valuations of, $55,-$58.89 p.s.f as at August 1987 from the figures of the 4 comparables given by its expert, Mr Hui (Chart D in the annxure to this judgment), (2) the offer as recorded in the second of Sindy's memoranda in November 1988 at $45 - $50 p.s.f., and (3) Mr Hui's unit rate of $5.5.82 or $56 p.s.f. for the defendants premises in August 1937.
47. Take the $56 p.s.f. assessed by Mr Hui for the defendants' premises in August 1987 and multiply it by the Jones Lang Wootton Property Index of 141.89 or.41.89% taken from 22 of Exh. P4, it would yield a figure of $79.45 p.s.f. for January 1989. Capital was also sought to be made by Mr Mills-Owens of this $79.45 p.s.f. as being a much inflated value given by Mr Hui when compared with the $40-$50 p.s.f. offers recorded in Sindy's memoranda made just a short time earlier at the end of 1988.
48. Mr Swaine, Counsel for the2nd plaintiff, was less than enthusiastic in pressing for rising market to be taken as a separate factor for adjustment. First of all, Mr Hui, expert for the 2nd plaintiff, did not himself list rising market as a factor. In this case, rising market would appear to be more of a matter of hindsight because there was no evidence led to suggest that anyone in the trade had then formed a firm view of a definite rising market trend. Market conditions, after all, had been taken into account by Hr Hui. He stated in evidence that "we should build in our opinion of the then market rental value in our report".
49. The tentative offers in the Letting Agent's memoranda were taken to consideration by Mr Hui; nor was the Kentucky Fried Chicken offer through Swire. Mr Hui explained that in valuation practice, only concluded agreements were accepted as comparables. He gave us what he regarded as proper factors for adjustments for the Kentucky offer as shown in Chart 4 in annexure to this judgment, yielding a figure of $38.73 p.s.f., having taken it backwards to August 1987.
50. Little can usefully be deduced from the less than precise memoranda of the Letting Agent.
51. Mr Swaine had chosen to take a different approach to the Kentucky offer : the $55 p.s.f. as offered in October 1988 even for a much smaller area of 4,000 sq.ft. should be $41.82 back in August 1987, after deducting the 31.5% increase given in the Jones Lang Wootton Property Index. See Chart A in the annexure to this judgment. In fact, it should be an average unit rental of $60.50 throughout the six years as offered by Swire for Kentucky Fried Chicken and not just $55 p.s.f. Assuming the index differential to be the same at 31.5%, Mr Swaine might have raised it to $46 p.s.f. for August 1987 as a matter of arithmetic.
52. The Kentucky offer of $55 or an average of $60.50 p.s.f. was not made in a concluded agreement. Mr Hui would not use offers as comparables. The figure produced in Mr Swaine's approach cannot be reliable, particularly when Mr Hui himself had adjusted it down to $38.73 p.s.f.
53. Mr Swaine further submitted that the defendants' $34.44 p.s.f. calculated from the Toppy rental rate with only the time factor adjustment was wholly unrealistic for a tenant running a fastfood outlet. The Toppy lease was concluded with the reputable Fang family group, and the business will be cleaner, operating more regular hours, enjoying less control over the "Coffee Shop Portion?and catering for a lower customer density.
54. Simply for time differential, even with the acknowledged acceptability of Jones Lang Wootton Property Index for percentage rental fluctuation, it would seem to be more appropriate working forward from May 1987 to August 1987 on Shop 28 (a time lag of only 3 months) rather than working backward from January 1989 to August 1987 (a difference of r some 16 months). The Property Index does provide hindsight of market fluctuation, but, there is, no evidence that any owner would have knowledge or had had the benefit of the like information. Whilst the Property Index may well back what should have been a past survey with a more accurate, forecast using Shop 28 seems to be more realistic, particularly with a short time span accounting for just a 7% increase.
55. For these reasons, I have re-calculated Shop 28 for my use. I would allow only 10% and 5% for "Frontage" and "Coffee Shop Portion" respectively, in effect reducing these allowances by half for Shop 28. See Final Chart in the annexure to this judgment.
56. It does not mean that the Toppy lease has been replaced as the prime comparable. I accept that it is. What is being suggested is that Shop 28 should not be ignored. Mr. Hui must be correct in suggesting that it would be incautious to rely on only one comparable.
57. For the Toppy lease, I agree with Mr Swaine that allowance must be given to its lack of more effective control over the Centre Void or "Coffee Shop Portion". The area of the Centre Void was originally sought by Toppy on the 3rd January 1989. Toppy has now the use of this Centre Void area but subject to a little more supervision from the 2nd plaintiff as landlord. This "Coffee Shop Portion" is not "a letted area". Unit rental of Toppy must be adjusted upwards for enjoying no better control. Freer use of this Centre Void area would more likely discourage the management from interfering with any temporary installation of seats for queuing up customers, logos or other promotional material. That must clearly be an asset to the tenant, call it what you will, "Visibility" or "Coffee Shop Portion". Frontage to the MTR entrance would also be an advantage. In my view, the quality of the tenant should be, for assessing mesne profits, given credit to and taken as an extra payable by a nuisance tenant to compensate "what the plaintiff would have obtained if the tenant had lawfully been in possession" himself. See Strand Electric & Engineering, Co. Ltd. v. Brisford Entertainments Ltd. supra p. 252 per Somervell L.J.
58. Time for negotiation for the Toppy lease and others must have had some built-in edge advantage if negotiation was conducted with fewer contenders. There was no reason why negotiation could not have been commenced by Toppy at year-end for occupation in March 1989. Mr Hui made no assertion that prospective tenants of the 3rd Basement had probably channelled their undivided attention to preparing and promoting the year-end sales. Although he was unable to offer the real cause for lack of interest at the year-end, I accept his evidence based on his experience that in practice, that would be the case.
59. It was a continuous trespass. Periodical fluctuation cannot be a proper element for consideration. The rental value of the premises must be judged at the time when the 2nd Plaintiff had to determine what fair value it would have received on a usual letting of these premises, the nature of which does not cater for monthly occupation.
60. Mr Hui produced his calculations for the 4 selected comparables as set out in Chart 2. I have put in the 7% increase from May to August 1987. I was not impressed by Mr Ng's evidence in cross-examination on his additional factors : Management, Ease of Letting and Time for Decoration. Mr Ng explained that "Mr Hui's quantum allowance (was) a very general allowance while (his) quantum allowance (was) being very specific. That (was) why (he) further split up the possible quantum allowance used by Mr Hui into three other categories." I am not satisfied that there was any real need for their introduction. Moreover, Mr Ng allotted a negative adjustment of -45% in respect to "Quantum" for all the four comparables, but there was no explanation as to why in comparable (1), he should maintain the same -45% for "Quantum" but allow a lower -9% for "Ease of Letting" which is itself a subsidiary of "Quantum". I have also taken note of Mr Swaine's criticisms against these three extra subsidiary factors of Mr Ng for adjustment.
61. Evidently, for the reasons I have given, there would seem to be little justification for me to reject the basic approach adopted by either of these two experts. I have taken advantage of all the expertise they had to offer in areas which I regard as most or more convincing.
62. Mr Hui's adjustments on the Toppy lease as shown in Chart 1 were brought in line in Chart B with the 41.89% increase as acceded to by him in his cross-examination.
63. Shop 28 is the best of the 4 comparables selected by Mr Hui. For the reasons I have given, Shop 28 should not be overlooked.
64. Mr Swaine endeavoured to provide further information by using the figures available in respect to Shop 28. It is a known fact that Shop 28 attracted a unit rental of $25 p.s.f. in September 1983, and not $29 p.s.f. as suggested by Mr Chiu in his report, Exh."D,4(2)? Mr Swaine made an assumption that $25 p.s..f. in September 1983 represented the continuation of a stable rent as from December 1982. He further postulated that since Mr Chiu's report s"D4(2)''. was $4 off the mark at .$29 p.s.f. from the actual $25 p.s.f for September 1983, he would arbitrarily adjust, the given estimated unit rate of $34 p.s.f. as at the end of 1982 in the said report also by $4 to $30 p.s.f. That is how Chart C was prepared. Contrasting his first assumed rental at $25,p.s.f. and his further assumed rental at. $30 p.s,.f. with the average rental for the defendants' premises at..$18 p..s.f., Mr Swaine obtained 2 rental ratios, of 1.39 and 1.66 respectively. Applying the rental rations so obtained to the known unit rental of Shop 28 for May 1987 together with a 7% increase from May to August 1987, Mr Swaine arrived at $45.20 and $44.11 p.s.f. respectively.
65. I agree with Mr Mills-Owens that on these assumptions Chart C cannot be reliable.
66. Chart D produced by Mr Swaine gives summary of calculations for the 4 comparables, with the adjusted percentage for time.
67. Therefore, in Mr Swaine's various proposed calculations, the relevant unit rental for August 1987 of Prudential Centre Mall ranged from $41.82 p.s.f. in Chart A to $58.39 p.s.f. in Chart D.
68. Bearing in mind all the pros and cons, the suggestions and calculations from the experts, and the calculations suggested for my benefit by counsel, I am persuaded to accept the Toppy lease as the prime comparable. Indeed, as Mr Hui advised, it would be more cautious not to rely on one comparable, I have also take into consideration Shop 28. I have adopted all the suggested percentages of Mr Hui with the exception of those for the "Time", "Time of Letting" and "Coffee Shop Portion". Percentage for "Time" has to be revised form - 35% to - 41.89%. I regard the 5% for "Time of Letting" as being slightly high. I would adopt the reduced figure of 2%. The suggested "Coffee Shop Portion" of 10% would seem likewise too high. I would reduce it by half to 5%. The final calculation is as set out in the Final Chart in the annexure attached to this judgment.
69. I have set out in extenso the views, reasons and calculations of each of the experts as well as submissions and calculations made by Counsel. The object of the exercise is, first to fully understand these materials presented for my consideration and then to take full advantage of all the assistance so rendered me. Even from matters I have disregarded, good lessons are learnt for general application. My own conclusion can therefore be said to be an educated one, bearing in mind everything put before me and after much deliberation.
70. In conclusion, I would prefer a figure somewhere in between $42.06 for the Toppy lease and $46.51 for Shop 28. I would take the middle but slightly below the mean of the two figures, i.e. $44 p.s.f. $44 p.s.f. × 9,400 sq.ft. × 14 months = $5,790,400. Two days' rental at $44 p.s.f. = $44 × 9,400 ÷ 30 days × 2 = $27,573.33. Therefore, $5,790,400 - $27,573.33 = $5,762,826.67. That represents the assessment of mesne profits for the relevant period by this Court.
71. For the form of the order, I would prefer to be assisted by counsel for the 2nd plaintiff and the defendants. I also make an order nisi for costs in favour of the 2nd plaintiff against the defendants.
| (B. Liu) | |
| Judge of the High Court |
Representation:
Mr J. Swine, Q.C. and Mr G. Ma instructed by M/s. Tai, Ho & Chan for the 2nd Plaintiff.
Mr Mills-Owens, Q.C. and Mr R. Wong instructed by M/s. Deacons for the 1st & 2nd Defendants.
"Toppy Chart" Chart 1
TOPPY LEASE AS COMPARABLE
| ASSUME AREA LEE TO TOPPY AI 8184 SQ.FT [p.45] | QUINCY HUI IN-CHUI | CROSS EXAMINAIION OF QUINCY HUI | EXAM. INCHIEF OF NG SAI HEE | CROSS0EXAMINAIION OF NG SAI HEE | ||||
ADJUSIMENI | ADJUSIED UNIT RAIE TROM $48.87 PER SQ.FT. PER MONIH [p.45] | ADJUSTMENI | ADJUSTED UNIT RAIE FROM $48.87 PERSQ.FT. PER MONTH [p.45] | ADJUSTMEN | ADJUSTED UNIT RAIE FROM $48.87 PER SQ.FT. PER MONHI [p.45] | ADJUSIMENI | ADJUSTED UNIT RAIE FAOM $40.87 PER SQ. FT PER MONIH [p.45] | |
Area | -5% [p.48] | $46.43 | -5% | $46.43 $46.43 | Nil | $48.87 | ||
| Time different- ial [Between July/Aug. 87 to Jan. 89] | -35% [p.46] | 430.18 | -41.89% [p.54] | $26.98 $26.98 | -41.89% | $34.44[p.111] 141.89 [R x ------ = 48.87 100 therefore 48.87 x 100 R = ----------- 141.89 = $34.441 | ||
| Time of negotia-tion being Nov. Or Dec. | +5% [p.46] | $31.69 | +5% | $28.33 $28.33 | Nil [p.110] | $34.44 | ||
| Coffee Shop Portion | +10% [p.46] | $34.85 | +10% | $31.16 $31.16 | Nil [p.110] | $34.44 | ||
| Quality of Tenant | +20% [p.47] | $41.85 | +20% | $37.39 Accepls you do not make an adjustment for the quality of tenant in assessing market value. [pp.67-68] | Nil [p.110] | $34.44 | ||
| Amoont on the Basis of 9405 sq.ft | ($393,411) @$41.88%sq.ft. | ($351,671.76)($293,059.80) @$37.39/sq.ft. @$31.16/sq.ft.[With adjustment for Quslity of tenant] [No adjustment for Quality of tenant] | $323,908.20 | |||||
Chart 2
FOOR COMPARABLE ADODIRD BY PEILY
| September 1986 COMPARABLE (1) SHOP 28 - 8 to 12 AREA 2,550 SQ.FT | PETTY AS PER PROOF EVIDENCE | PETTY IN RE-EXAMINATION | JONES LANG IN-CHUI | JONES LANG IN-CHUI | ||||
ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT. | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | |
AREA | -20% | $39.78 | -45% [p.106] | $27.35 | ||||
| FRONTAGE TO MTR | +10% | $43.75 | Ease of access [p. 107] Nil | $27.35 | ||||
| TIME DIFFERENTIAL | +8% | $47.25 | +8% | $29.54 | ||||
| VISIBILITY | +10% | $51.97 | Nil [p.108] | $29.54 | ||||
| MANAGEMENT | -2% [p.113] | $28.96 | [p.165] | |||||
| EASE OF LETTING | -9% [p.113] | $26.54 | ||||||
| TIME FOR DECORATION | -3% [p.113] | $25.55 | ||||||
+7% $55.61 (See Chart D)
May - Aug.87
| September 1986 COMPARABLE (2) SHOP 28 - 29 & 30 AREA 412 SQ.FT | PETTY AS PER PROOF EVIDENCE | PETTY IN RE-EXAMINATION | JONES LANG IN-CHUI | JONES LANG IN-CHUI | ||||
| ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT. | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | |
AREA | -40% | $44.12 | -45% | $45.45 | ||||
| FRONTAGE TO MTR | +10% | $48.54 | Ease of access [p. 107] Nil | $40.45 | ||||
| TIME DIFFERENTIAL | +8% | $52.42 | +8% | $43.69 | ||||
| VISIBILITY | +5% | $55.04 | Nil [p.108] | $43.69 | ||||
| MANAGEMENT | -2% [p.113] | $42.82 | [p.165] | |||||
| EASE OF LETTING | -11% [p.113] | $38.1 | ||||||
| TIME FOR DECORATION | -3% [p.113] | $37 | ||||||
+7% $58.89 (See Chart D)
May - Aug.87
| September 1986 COMPARABLE (3) SHOP 28 - 27 AREA 210 SQ.FT | PETTY AS PER PROOF EVIDENCE | PETTY IN RE-EXAMINATION | JONES LANG IN-CHUI | JONES LANG IN-CHUI | ||||
| ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT. | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | |
AREA | -45% | $33.04 | -45% | $33.04 | -45% | $33.04 | ||
| FRONTAGE TO MTR | +20% | $39.65 | +20% | $39.65 | Ease of access [p. 107] Nil | $33.36 | ||
| TIME DIFFERENTIAL | +8% | $42.83 | +8% | $42.83 | +8% | $37.1 | ||
| VISIBILITY | +10% | $47.11 | +20% | $51.4 | +10% | $40.8 | ||
| MANAGEMENT | -2% [p.108] | $40 | [p.165] | |||||
| EASE OF LETTING | -11% [p.113] | $35.60 | ||||||
| TIME FOR DECORATION | -3% [p.113] | $54.55 | ||||||
+7% $50.40 (See Chart D)
May - Aug.87
| September 1986 COMPARABLE (4) SHOP 28 - 28 AREA 263 SQ.FT | PETTY AS PER PROOF EVIDENCE | PETTY IN RE-EXAMINATION | JONES LANG IN-CHUI | JONES LANG IN-CHUI | ||||
| ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT. | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | ADJUSTMENT | ADJUSTED UNIT RATE FROM $49.72/SQ.FT | |
AREA | -45% | $37.64 | -45% | $37.64 | -45% | $37.64 | ||
| FRONTAGE TO MTR | +20% | $45.17 | +20% | $45.17 | +2%l | $38.39 | [P.152] | |
| TIME DIFFERENTIAL | - | $45.17 | - | $45.17 | +8% | $41.46 | ||
| VISIBILITY | +10% | $49.69 | +20% | $54.2 | +5% [P.108] | $43.53 | ||
| MANAGEMENT | -2% [p.113] | $42.66 | [p.165] | |||||
| EASE OF LETTING | -11% [p.113] | $39.97 | ||||||
| TIME FOR DECORATION | -3% [p.113] | $36.83 | ||||||
+7% $53.17 (See Chart D)
May - Aug.87
Chart 3
FRONIAGE TO MIR ENIRANCE AND VISIBILITY
COMPARABLE | LOCATION | FRONTAGE TO MTR ENTRANCE (1) | VISIBILITY (2) |
TOAL (1) & (20 | ||
| ASSESSMENT AS PER QUINCY HUI | ADJUSTMFNT ALLOWED BY QUINCY HUI | IN PROOF OF EVIDENCE | RE-EXAMIN- ATION | |||
1 | Shops Nos. 2B 8 - 12 | Has a much Larger frontage than 2B-2 and 2B-3 [p.72] | +10% | +10% | +10% | 20% |
2 | Shop 2B-Shop 2B - 30 | Has a much Shorter frontage towards MTR [p.71] Has a larger frontage than 2B-2 and 2B-3 [p.71] | +10% | +5% | +5% | 15% |
3 | Shop 2B - 27 | +20% | +10% | +20% [P.82] | 40% | |
4 | Ship 2B - 28 | +20% | +10% | +20% | 40% | |
Chart 4
KENTUCKY FRIED CHICKEN LEASE [p.296]
| ASSUME AREA LET 4,000 SQ.FT | QUINCY HUI IN-CHIEF $55 PER MONTH [p.49] |
Area | -10% $49.50 |
| Time differential | -25% $36.88 |
| Time of negotiation | +5%$38.73 |
2nd Plaintiff's Chart A
KENTUCKY CASE
Date | JLW Index | % Increase From Aug. 87 | Rent/S.F. on 4,000 S.F. |
Aug. 87 Oct. 88 | 140.37 184.64 | 0.0% 31.5% | $41.82 $55.00 |
2nd Plaintiff's Revised Chart B
TOPPY LEASE
| TOPPY RENT | Less 5% (Quantum) | TIME (41.89% increase 1987 to January, 1989) | ADD 5% (Time of letting) | ADD 10% (Coffee Shop) | ADD 20% (Quality of Tenant) | ADD 15.7% (Average percentage increase from August, 1987. to October, 1988) |
$48.87 | $46.43 | $32.72 | $34.55 | $37.79 | $45.35 | $52.50 |
2nd Plaintiff's chart C
THE ANALYSIS OF JLW APPROACH
A. (Average) MARKET RENT FOR PIZZA HUI AS AT DECEMBER, 1982 | B. MARKET RENT FOR b2 SHOP 2B AS AT DECEMBER, 1982 | C. RATIO (B ÷ A |
| 1. $18.00 2. $18.00 | $35.00 $30.00 | 1.39 1.66 |
MARKET RENT FOR B2 SHOP 28 AS AT MAY, 1987 | MARKET RENT FOR PIZZA HUI AS AT MAY, 1987 (using ratio of 1.39) | MARKET RENT FOR PIZZA HUI AS AT MAY, 1987 (using ratio of 1.66) | ADD 7% (Increase from May, 1987 to August, 1987) | ADD 15.78% (Average percentage increase from August, 1987 to October, 1988) |
| $68.44 | $42.44 | $41.23 | $45.20 (For rental ratio 1.39) (For rental ratio 1.66) | $52.33 $51.08 |
2nd Plaintiff's chart D
THE 4 ORIGINAL CHLSIERIOH POTTY COMPARABLES (AS RIVISED
LOCATION | RENT | QUANTUM | IRONTACE TO MIR | THE | VISIBILITY | ADD 10% (Increase from May, 1987 to August, 1987) | ADD 15.78% (Average percentage increase from August 1987 to October, 1988) |
1.2B Shop 8-12 (September) 1986) 2. 2B Shops 29 and 30 (September 1986) 3. 2B Shop 27 (September 1986) 4. 2B Shop 2B (May 1987) | $49.72
$75.54
$60.08
$68.44 | $39.L78 (Less 20%) $44.12 (Less 40%) $33.04 (Less 40%) $36.64 (Less 45%) | $43.75 (Add 10%) $48.54 (Add 105) $39.65 (Add 20%) $45.17 (Add 20%) | $47.25 (Add 8%) $52.42 (Add 8%) $42.83 (Add 8%) | $51.97 (Add 10% $55.04 (Add 8%) $51.40 (Add 20%) $54/20 (Add 20%) | $55.31
$58.89
$55.00
$58.00 | R64.38
$68.34
$63.68
$66.14 |
Final Chart
Shop 2B RENT | LESS 45% (Quantum) | Shop 2B | ADD 7% (Increase form May 87 to Aug. 87) | |
ADD 10% (Frontage to MTR Entrance) | ADD 5% (Coffee Shop Portion) | |||
R68.44 | $37.64 | $41.10 | $43.47 | $46.51 |
TOPPY EEASE
TOPPY RENT | LESS 5% (Quantum) | TIME (41.89% increase from August, 1987 to January, 19789) | ADD 2% (Time of letting) | ADD 5% (Coffee Shop Portion) | ADD 20% (Quality of Tenant) |
$48.87 | $46.43 | $32.72 | $33.39 | $35.05 | $42.06 |