Civil Action2001

WING SIU CO. LTD. v. GOLDQUEST INTERNATIONAL LTD.

Related cases with same parties

CACV225/2002WING SIU CO. LTD. v. GOLDQUEST INTERNATIONAL LTD.
HCA4145/2001WING SIU CO. LTD. v. GOLDQUEST INTERNATIONAL LTD.

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53747-EN-2006-08-18

WING SIU CO LTD v. GOLDQUEST INTERNATIONAL LTD

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HCA4145/2001
& hca3183/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. 4145 AND 3183 OF 2001

______________________

BETWEEN

	Wing Siu Company Limited	Plaintiff
	and
	Goldquest International Limited	Defendant

(Consolidated pursuant to the Order of Master M. Yuen dated 26^th April 2002)

______________________

Coram: Before Master de Souza in Court

Dates of Hearing: 23 November 2005, 25 & 26 May 2006 and 5 June 2006

Date of Handing Down Judgment: 18 August 2006

_____________________________

ASSESSMENT OF DAMAGES

_____________________________

Introduction

1. This is an assessment of damages pursuant to the order of Mr. Justice Ma (as he then was) on 11 November 2002. The salient uncontroversial facts giving rise to these proceedings are briefly these.

2. Under a lease dated 11 October 1999, the Plaintiff leased Grade A office premises at Suites 2101-210A Dah Sing Financial Centre, Wanchai (the premises) to the Defendant for a 3-year term from 11 October 1999 to 10 October 2002. The Plaintiff is the owner of the premises. The lease contained the usual obligations on the part of the tenant for timely payment of rental and other outgoings. As happened, the Defendant committed defaults in the payment of rent and other related charges resulting in the Plaintiff instituting proceedings in the District Court in January 2001 under DCCJ 1297/2001. Those proceedings were transferred on 4 September 2001 to the High Court, becoming HCA 4145/2001 (the first action).

3. Some three days after the District Court action was launched, on 22 January 2001 the Defendant purported to terminate the letting by returning to the key of the premises to the Plaintiff. The Plaintiff treated the conduct as tantamounting to a repudiation. By letter from its solicitors dated 6 February 2001 to the Defendant, the Plaintiff accepted the repudiation of the lease.

4. In May 2001, summary judgment was entered for the Plaintiff in the first action in the sum of $354,252 with interest and costs on an indemnity basis against the Defendant with execution stayed pending final determination of the Defendant's counterclaim for return of the rental deposit. Subsequently, the Plaintiff having been refused leave to amend the claim in the first action to plead wrongful repudiation brought a second action on 16 July 2001 under HCA 3183 of 2001 for damages for breach of the lease, interest and indemnity costs. By order dated 26 April 2002, both actions became consolidated.

5. On 11 November 2002, on the Plaintiff's O.14 summons, Ma J, gave interlocutory judgment on liability to the Plaintiff with damages to be assessed subject to partial judgment in the sum of $476,581.50 to the Plaintiff with the balance of any damages to be assessed by a Master. At the same time, he also lifted the stay of execution in the first action.

The Plaintiff's Claim

6. In broad terms, the Plaintiff seeks, inter alia, damages for repudiatory breach of the lease and the cost of reinstatement of the premises together with interest in this suit and indemnity costs in respect of both actions. Much was made of the Plaintiff's alleged failure to reasonably and properly market and re-let the premises to mitigate its loss. There is no dispute that the premises were only taken up by a new tenant some 31 months later. In those circumstances, it is necessary to revisit basic principles.

Damages and Mitigation

7. An aggrieved landlord's entitlement to damages for wrongful repudiation of a tenancy agreement following general contractual principles is well established in cases such as Hop Woo Cheung Enterprises Ltd v Intergroup Industries Ltd [1982] HKC 436 and Sano Screen Mfrs v J & R Bossini [2000] 3 HKC 216. He can legitimately anticipate in the measure of damages to be awarded, such damages as reflecting the rental, service charges, rates and reinstatement cost stipulated in the tenancy and therefore payable were the agreement to be permitted to run its full course, subject always to a duty to minimize his loss: Chitty on Contracts, 29^th ed. Vol. 1, at 26-094. He is, accordingly, expected to act reasonably and to take such steps as are necessary to re-let the vacant premises at a market rent: Merry “The Hong Kong Tenancy Law”, 4^th ed. at page 167-168. However, it falls upon the errant party to establish that mitigation has not taken place: Chan Annie v Lau Wai Kwong [1984] 1 HKC 231, 235G-H; Lai Hon Ming v Fong Wai Ching HCPI 994/2001, 21 Oct 2002, unreported.

8. The duty to mitigate is not onerous as the landlord is not required to do anything other than in the ordinary course of business: Chitty at 26-095; MacGregor on Damages 16^th ed. paras. 322-323.

9. With these principles in mind, I turn then to evaluate and assess the Plaintiff's claims and the arguments advanced for and against them on the evidence adduced.

Damages for loss of rental following repudiation

10. Mitigation or rather the lack or adequacy thereof loomed large in the Defendant's contention. It is said that the Plaintiff's marketing strategy of pursuing a high headline rent in a falling market was totally inappropriate and unrealistic and had the effect of discouraging potential tenants. Mr. Memfus Wong, the defence expert (Mr. Wong) would have approached the problem differently. His evidence suggested that it would have been more productive, and therefore more reasonable, to have lowered the asking price to or at below the prevailing market rent if the Plaintiff was genuine in wanting to move the premises. To further compound matters, no attempt had been made to reinstate the empty unit to make the unit more attractive. Had these steps been taken in a timely manner, no or considerably less damages would have been incurred by the Defendant's abandonment of the premises. This supposed laissez-faire attitude resulted in the unit lying empty for some 31 months, long after the lease would have expired.

11. There was a wealth of evidence from both sides and extensive cross-examination of the witnesses, particularly the experts, Mr. Wong and Mr. Dwyer for the Plaintiff. It is patent that Mr. Wong would have advised a different marketing approach to the premises. It is important not to lose sight of the fact that his expertise lies essentially in residential and new developments and not in Grade A office properties. This is a material consideration when coming to determine the reliability or weakness of his evidence. This did not, however, prevent him from offering his professional view on what the Plaintiff ought to have done.

12. The Plaintiff's other crucial witness was Mr. Philip Kwan (Mr. Kwan). As the Assistant Business Manager of the Plaintiff, he was responsible for all letting in the Plaintiff's building. Following the Defendant's repudiation, in about February 2001, he contacted a number of estate agents, namely Jones Lane Lasalle, FPD Savills, CB Richard Ellis, Queen's and Chesterton Petty by phone instructing them to let the premises. Midland Realty, Treasure Land, Cosmo and Sallman came on board from about October 2001. They were given a headline rent. Mr. Kwan accepted that a higher asking rent was sought in line with the usual practice in the industry to offer a higher rate in contemplation of a significant reduction after negotiation with the prospective tenants.

13. Mr. Kwan said he maintained regular contact with the agents to review progress on a weekly basis. The asking unit rate was also reviewed every 2 months as such rate had dropped by approximately HK$2.00 every 2 to 3 months since February 2001. He provided a schedule of the estate agents and prospective tenants who have inspected the premises since 6 February 2002 and copies of correspondence passing between the Plaintiff and the agencies since June 2001. The schedule was exhibited as KKT-8 to his 4^th affirmation. There was no lack of interest in the premises, but it remained empty despite all reasonable endeavours to re-let as described by Mr. Kwan. Maximum market exposure of the premises to all prospective tenants was targeted and in fact achieved. I have no hesitation in holding that the Plaintiff has made genuine and reasonable effort to market the premises.

14. The much-criticized practice of seeking a higher headline rent was, as Miss Ismail submitted in reference to Mr. Dwyer's testimony, neither unreasonable nor counter-productive. The bottom line is that landlords and potential tenants both strive to achieve an effective rent that would be consistent with the market price obtainable at any given time. That the objective is to achieve a market effective rent is common ground between the experts. It is the method adopted that was different. Mr. Wong's approach would have the Plaintiff lower the asking rent to or below market rent. There was no evidence that such a move in a falling market would have had the stimulating effect envisaged. Further, as Mr. Dwyer explained in evidence, agents handling Grade A office properties concentrated on the achievable effective rent and not the asking headline rent as this was clearly information of greater significance to the market. He also opined that some landlords quoted no asking rent at all or if they did, failed to regularly adjust such rents. In his view, the practice of stating an asking headline rent was irrelevant and could have no impact on the achievable effective rent at which premises would ultimately be let. With that I agree.

15. Mr. Wong also failed to appreciate the potential deleterious effect of lowering rental on a single unit to below market rent on the Plaintiff's portfolio of properties within the building. As a whole-building landlord, such an approach would impact on rent reviews, renewals and new lettings of other premises. The Plaintiff was duty bound to do no more than was reasonably necessary to market the premises. Taking any steps that may have an adverse consequence on the rental tone of the building is not to be expected of the Plaintiff in my considered view.

16. The evidence disclosed that some 15 units in the building were let from March 2001 to November 2002 at levels broadly in line with market rates. This speaks of an effective and reasonable marketing policy at a time of considerable difficulty. These other premises were able to achieve competitive rates, a fact with which Mr. Wong agreed. On the evidence, it has not been established that the Plaintiff's approach to letting was unreasonable, erroneous or inconsistent with what the market could have sustained.

17. The suit premises remained empty for as long as it did through no fault of the Plaintiff. It had attracted a degree of interest from time to time, but for various reasons given by Mr. Kwan was not taken up. The commercial reality is that some units move quickly and others take longer to re-let despite all reasonable effort. Some properties just ‘stick' according to Mr. Dwyer. He gave as an example an Exchange Square unit that had lain empty for some 2 years.

18. On the issue of reinstatement, it is submitted that the Plaintiff should have undertaken it soon after the Defendant left the premises to enhance its attractiveness to potential tenants. In failing to do so, the Plaintiff is said to have failed to take all reasonable steps to minimize its loss. This contention can be shortly addressed.

19. There is consensus between the experts that it is unexceptional for whole-block landlords to have empty and fitted premises on their portfolios. This offers a choice to tenants some of whom may wish to move in quickly with the minimum of attention and cost. It makes for good economic sense. Mr. Wong opined that if the caged vault and the configuration of the reception area of the premises rendered the unit less attractive, they ought to have been removed. Partial reinstatement is uncommon and as Miss Ismail submits, costly if undertaken properly. The actual reinstatement for the replacement tenant took only 20 days. If the fittings represented a genuine impediment, reinstatement could have been done quickly if keen interest in letting was expressed. On Mr. Kwan's evidence, the premises remained empty for a variety of reasons relating to location, non-lift facing, layout, decoration, etc, none of which related to price. Mr. Kwan also testified that he was advised by a number of agents to keep the premises as was. There is nothing on the evidence to demonstrate that the Plaintiff's decision not to reinstate contributed to the unit not being taken up sooner had a potential tenant come along. If the fittings were deemed undesirable, they could have been removed fairly promptly.

20. Returning to Mr. Wong's evidence, I hold that he has failed to demonstrate that the Plaintiff's approach to marketing was intrinsically flawed or in any way contributed to the sluggish movement of the premises. His was but one approach and he had to admit that there was no industry standard for leasing. He advised that it was crucial to attain maximum exposure by taking on a pool of agents. Mr. Kwan did precisely that and followed the advice offered. His advocated lowering of asking rent to generate interest has been adequately addressed and refuted. He also agreed that there were significant differences between residential and office lettings and between letting new buildings and existing building with vacant units. Coupled with his declared lack of experience in Grade A office marketing, I have little difficulty in preferring Mr. Dwyer's evidence to his.

21. I hold that the Plaintiff has taken all reasonable steps in the circumstances to minimise loss consequent upon the wrongful repudiation of the Defendant.

22. The Plaintiff is accordingly, by way of damages, entitled to the loss of rental for the remainder of the term. The claim for rental income loss as pleaded and substantiated on the evidence comes to HK$2,500,652.90. This is calculated at the monthly rate of HK$123,048.00 from 1 February 2001 to 10 October 2002 when the lease would have expired. I award this sum to the Plaintiff.

23. Under the lease the Defendant was responsible for service charges and rates. They amount to HK$625,163.22 (1/2/2001 to 10/10/2002) and HK$92,379.35 (1/4/2001 to 10/10/2002) respectively. These amounts are wholly supported on the evidence and are recoverable in full.

24. Also recoverable in full are the costs of reinstatement pursuant to Clause 3(8) of the lease. It remained the Defendant's contractual duty to reinstate which it wholly failed to do. They are itemized and properly receipted in the sum of HK$244,005. There is no moment in the contention that such task should have been undertaken at any time other than when it was.

25. The Plaintiff is therefore entitled to recover further damages in the sum of HK$2,985,618.97. This sum represents the aggregate of the lost rental, management fees and rates allowed above less the amount of partial judgment in the sum of HK$476,581.50.

26. The Plaintiff additionally claimed interest pursuant to s.48 of the High Court Ordinance. Under clause 3(3)(a) of the lease, the prescribed rate is 3% over prime. This is the rate sought. Whilst it remains within the discretion of the court to determine what rate of interest should be given, if any, no cogent or compelling reasons have been advanced why the bargain between the parties should be departed from in this case.

27. Accordingly, I award interest on the judgment sum at 3% above prime to the date of judgment and thereafter at judgment rate until payment.

28. The Plaintiff shall also have its costs of both actions, taxed if not agreed with certificate for counsel for the assessment. The scale of costs shall be indemnity basis as urged by Miss Ismail upon the basis of the contractual entitlement to such costs pursuant to clause 3(29) of the lease. I perceive no valid reason in the exercise of my discretion not to accede to the Plaintiff's request: Chekiang First Bank v Fong Siu Kin [1997] 2 HKC 302.

(Brian de Souza)
Master of the High Court
Court of First Instance

Ms Roxanne Ismail instructed by Herbert Smith, for the Plaintiff

Mr Andrew YS Mak instructed by Chan, Wong & Lam, for the Defendant

25382-EN-2002-11-11

WING SIU CO. LTD. v. GOLDQUEST INTERNATIONAL LTD.

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HCA003183B/2001

HCA3183/2001 and
HCA4145/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS.3183 AND 4145 OF 2001

---------------------

BETWEEN
	WING SIU COMPANY LIMITED	Plaintiff

	AND

	GOLDQUEST INTERNATIONAL LIMITED	Defendant

----------------------

(Actions consolidated by Order dated 26 April 2002)

Coram: Hon Ma J in Chambers

Date of Hearing: 25 September 2002

Date of Judgment: 11 November 2002

-----------------------

J U D G M E N T

-----------------------

The application before the court

1) I have already dealt with these consolidated proceedings on two previous occasions in : first, an appeal from Master Hout .C. Wong in relation to an application by the Defendant to strike HCAApril 3183/2001 (Decision made on 15 April 2002, Reasons for Decision handed down on 23 2002pending ); and secondly, in an application by the Defendant for a stay of the proceedings the hearing of the appeal from my 2002, 15 April 2002 Decision (Decision made on 16 August Reasons for Decision handed down on 29 August 2002).

2) The background to these proceedings (which were consolidated by Order of Master Mary Yuen on 26 April 2002) is described in the Reasons for Decision in both my previous Decisions. In order to put the present application in context, I set out paragraphs 1 to 7 of the Reasons for Decision handed down on 29 August 2002 in relation to the stay application :

"1. The background to the present summonses before the court is as described in the Reasons for Decision handed down on 23 April 2002 in relation to an application by the defendant to strike out HCA 3183/2001 ('the Second Action'). There, Master H.C. Wong had made an order striking out the action but on appeal, I allowed the plaintiff's appeal after a hearing on 15 April 2002 and dismissed the defendant's strike out application.
2. The defendant has appealed my decision by a notice of appeal dated 3 May 2002 ('the Appeal'). The hearing before the Court of Appeal is to take place on 17 January 2003.
3. It will be recalled that the plaintiff is the owner of premises situate at Suites 2101-05A, 21/F, Dah Sing Financial Centre, 108 Gloucester Road, Wanchai, Hong Kong ('the Premises'). Under a lease dated 11 October 1999 ('the Lease'), the Premises were let to the defendant for a period of three years from 11 October 1999 to 10 October 2002. Following defaults by the defendant in the payment of rent and other charges, the plaintiff commenced proceedings in the District Court on 19 January 2001. These proceedings were transferred to the High Court on 4 September 2001 (in HCA 4145/2001). I will refer to the District Court proceedings and the transferred proceedings simply as 'the First Action'.
4. On 22 January 2001, three days after the Writ had been issued in the District Court in the First Action, the defendant purported to determine the lease and returned the keys of the Premises to the plaintiff. The plaintiff treated this as a repudiation of the lease and by a letter dated 6 February 2001 from its solicitors, accepted the repudiation.
5. On 6 April 2001, the plaintiff applied for summary judgment on its claim for the outstanding rent and other charges. On 17 May 2001, Master Kwang granted summary judgment to the plaintiff in the sum of $354,252 and interest, but stayed execution pending the determination of the defendant's counterclaim for the return of rental deposit. That counterclaim to this day remains unresolved and the defendant has not made much progress in this regard.
6. Subsequent to Master Kwang's order, by a summons dated 20 June 2001, the plaintiff applied for leave to amend the Statement of Claim in the First Action to plead the cause of action based on the acceptance of the defendant's repudiation of the Lease. On 29 June 2001, Master Au-Yeung refused leave. Following this refusal, the plaintiff instituted the Second Action on 16 July 2001, making a claim based on the said repudiation. It is this claim the defendant sought to strike out. Whether this action should be struck out will of course be a matter for the Court of Appeal to resolve in the Appeal. As stated earlier, I had dismissed the defendant's application to strike out.
7. By a summons dated 3 August 2001, just before the defendant's application to strike out, the plaintiff applied for summary judgment against the defendant in the Second Action. Following the plaintiff's appeal from Master H.C. Wong being allowed on 15 April 2002, the plaintiff amended the Statement of Claim in the Second Action on 5 July 2002. On 9 July 2002, the plaintiff issued a summons seeking leave to amend the 3 August 2001 Summons to refer to the Amended Statement of Claim and also to claim interim payment under RHC Order 29, rule 10. In addition, the plaintiff sought directions for the hearing of the amended Summons. On 26 July 2002, leave to amend was given by Master Ho, leaving the directions part of the 9 July 2002 Summons outstanding."

3) I shall use the same abbreviations as I have done in the previous Reasons for Decision.

4) The present application before the court is the hearing of the Plaintiff's amended Summons for summary judgment and interim payment. There is also an application by the Plaintiff for the lifting of a stay, although there is no summons for this.

The parties' respective positions

5) The Plaintiff's claim is simply put. On 22 January 2001, the Defendant sought to terminate the Lease by returning the keys to the Premises. The covering letter of that date made reference to a letter dated 16 November 2000 which had been sent by the Defendant's Director of Legal Affairs to the Plaintiff. I shall be referring to these letters in greater detail presently.

6) The Plaintiff treated the return of the keys as a repudiation of the Lease and by a letter dated 6 February 2001 from its solicitors, accepted it. The Plaintiff, therefore, claims damages for repudiation.

7) Damages are claimed in the present application under the following heads :

(1) The rental loss that the Plaintiff has suffered from 1 February 2001 to 25 September 2002 (the date of the hearing of the present summons) at the rate of $123,048 a month. Strictly speaking, this claim should be for the loss of rental from 1 February 2001 to 6 February 2001 when the Lease was terminated and mesne profits from that date to 25 September 2002. This claim amounts to $2,440,452.
(2) Service charges from 1 February 2001 to 25 September 2002 in the sum of $610,113.
(3) Office rates from 1 April 2001 to 25 September 2002 in the sum of $90,700.
(4) Legal costs from 15 January 2001 to 19 September 2002 in the sum of $1,690,405.50.

8) The Plaintiff accordingly seeks judgment in these amounts; alternatively, that interim payment be made in such sums. In addition, the Plaintiff applies to lift the stay of execution on Master Kwang's Order for summary judgment made on 17 May 2001.

9) The Defendant disputes both liability and quantum :

(1) As to liability, the Defendant raises the alleged existence of an oral collateral contract made between the parties in or about September 1999 whereby the Plaintiff promised the Defendant that should larger premises be available in the building where the Premises were located (Dah Sing Financial Centre ("the Building")), the Defendant would be permitted to terminate the Lease and a new lease would be entered into in relation to the larger premises. The Plaintiff is alleged to have breached this collateral contract by refusing to let to the Defendant some larger premises that became available. This breach, so it is alleged, therefore justified the abandonment by the Defendant of the Lease.
(2) As to damages, the Defendant contends that the Plaintiff has not mitigated its loss. The Premises were left unoccupied subsequent to the termination of the Lease and remains unoccupied today. Affidavit evidence has been adduced by the Defendant to the effect that as at the date of termination, the market rent for the Premises was in the region of $100,000 a month and, as at September 2002, about $85,000 a month.
(3) The Defendant also disputes the liability to pay legal costs. This part of the Plaintiff's claim was based on a provision contained in the Lease. The Defendant argued that even if this could be sustained, the relevant legal costs had as yet not even been taxed (for these costs related to the Plaintiff's costs in the consolidated actions) and therefore it was not right that the Plaintiff should have an order either for judgment or for interim payment in respect of the same.

10) I have, of course, not forgotten the fact that the Defendant has appealed my Decision dated 15 April 2002 refusing to strike out the Plaintiff's claim in the Second Action. This appeal is due to be heard by the Court of Appeal on 17 January 2003. If the Defendant were to succeed in this appeal, the consequence would be that the second action would be struck out. In this event, if I were to grant judgment or order interim payment in the present application, any such orders would have to be set aside. Mr William Wong (who appeared for the Defendant) made it clear that his principal position was of course that the Plaintiff's claim should be struck out but accepted that I had already decided this against him in my Decision made on 15 April 2002.

11) Mr Wong's submissions, in the present case, were therefore made subject to the appeal due to be heard by the Court of Appeal in January next year.

Liability

12) Ms Roxanne Ismail appeared for the Plaintiff in the summons before me. It was her submission that quite simply, the Defendant had repudiated the Lease and the Plaintiff had accepted this repudiation.

13) It is clear that by the act of returning the keys to the Premises, the Defendant sought, unilaterally, to terminate the Lease and vacate the Premises. It said as much in its letter to the Plaintiff dated 22 January 2001 enclosing the keys. There can be no doubt that, but for the collateral contract defence to which I shall come presently, the Defendant repudiated the Lease. This repudiation was accepted by the Plaintiff's solicitors by their letter dated 6 February 2001. The contractual concepts of repudiation and acceptance of repudiation apply equally to leases as they do to any other contracts : see National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675, at 703 per Lord Simon of Glaisdale.

14) What then of the Defendant's collateral contract defence?

15) In the affirmation of its Director of Finance, Mr Richard Zinkiewicz, it is said that in about early September 1999, he visited the Premises together with a Mr Samson Law and his assistant, Ms Asther Lau (both of whom he says were acting on behalf of the Plaintiff (which I shall assume for present purposes)). Upon Mr Zinkiewicz expressing some concern over the adequacy of the floor space of the Premises, Mr Law and Ms Lau "reassured me unequivocally on the Plaintiff's behalf that should there be a larger floor area in the same building become available in future, the Plaintiff would offer that to the Defendant and a new lease would then be entered into. They also told me that for the first year, the Plaintiff was willing to offer around HK$50,000 per month, though for the rest of the term the contractual rent would be higher".

16) This, Mr Wong argued, was a collateral contract for the entering into of a new lease should larger premises become available. It was as a result of this collateral contract that the Defendant agreed to lease the Premises from the Plaintiff. The Lease was dated 11 October 1999.

17) Mr Zinkiewicz then further deposes to the fact that in about August 2000, there appeared the possibility that some larger premises in the Building (the 38th floor) were available. Negotiations then ensued between the Defendant's representative (one Mr Nelson Lam of Chesterton Petty Ltd ("Chesterton Petty")) and the then tenant of the 38/F premises, Dah Sing Bank. These negotiations were conducted on the basis that Dah Sing Bank would sublet these premises to the Defendant. The Defendant's impression was that agreement with Dah Sing Bank was close, but later that month, the negotiations were suddenly called off. It was said that the tenant had changed its mind and wanted to reserve the 38/F premises for itself. Mr Zinkiewicz alleges that the reason why the negotiations were called off was that the Plaintiff had disapproved of the possibility of the Defendant becoming the subtenant of the 38/F premises. It is alleged by him that this was because the Plaintiff did not like the Defendant's clientele (the Defendant sold gold and jewellery).

18) The Defendant's reaction was the said letter dated 16 November 2000 to the Plaintiff from its Director of Legal Affairs, in which extreme disappointment was expressed at the Defendant not being able to secure the tenancy of the 38/F premises. Reference was made to a "bad taste left in their mouth". The upshot was that by the letter, the Defendant sought the Plaintiff's consent to "assign ... [the Premises] or locate a takeover tenant". No response having been received from the Plaintiff, the Defendant then sought to terminate the Lease by the said letter dated 22 January 2001.

19) In my view, these allegations by the Defendant do not amount to an arguable defence that should go to trial :

(1) First, the precise terms of the alleged collateral contract are so vague that even on the Defendant's version of events, there is insufficient certainty to found the existence of a contract. Generally, in the case of a lease, the material terms must be those relating to the location of the premises to be let, the duration of the tenancy and rent. Even on the assumption that the alleged agreement meant that if larger premises in the Building were available (wherever they may be located), the Defendant would be bound to take them, there was nothing that was agreed (even according to Mr Zinkiewicz) as to the duration of such a tenancy. As to rent, all that is said is that the Defendant would be willing to offer "around $50,000 per month, though for the rest of the term the contractual rent would be higher".
(2) This is much too vague to found a contract. When this is coupled with there having been no agreement (even on the Defendant's case) as to what was to happen to the Lease of the Premises in the event of a new tenancy being entered into, this uncertainty becomes increased. For example, when exactly would the Lease terminate and the new lease begin? Or who would be responsible for the removal costs in the event of a new tenancy being made?
(3) I am of course mindful that the modern approach of the courts is to strive to find the existence of a contract where the parties have clearly intended this : see Chitty on Contracts, (28th Edition), Volume 1, at paragraph 2-129. However, on the Defendant's case, it cannot surmount the difficulty that the terms of the alleged collateral agreement are much too vague and uncertain. I have derived much assistance in this area of the law from the judgment of Rix LJ in Mamidoil-Jetoil Greek Petroleum Company SA v. Okta Crude Oil Refinery AD [2001] 2 Lloyd's Rep. 76, at paragraphs 50-69. While in some situations, I accept that the court can fix even the price of goods by reference to the yardstick of reasonableness when this has not been agreed (see Chitty at paragraph 2-104) and also in the case of rent where this has not been expressly agreed (Chitty at paragraphs 2-120 and 2-122), this is not possible in the present case. The willingness of the Plaintiff to offer "around" $50,000 for the first year and a "higher rent" for the rest of the term (whatever that may be) is at the same time vague but also makes it impossible for the court to fix a sum as rent by reference to the yardstick of reasonableness. The market rent (which is probably the best yardstick to establish a reasonable rent) may not necessarily accord at all with either $50,000 (for the first year) or "higher" (for the subsequent term). It is to be observed that this $50,000 figure would apply whatever the size of the premises, as long as they were larger than the Premises. There is also the question of what would be the duration of the new lease. Would it simply be the balance of the unexpired term of the Lease of the Premises or would it be a new term (and if so, what would this be)?

(4) Secondly, when one looks at the documentary evidence and the conduct of the Defendant in the present case, there is really no question that an agreement along the lines of the collateral contract now advanced by the Defendant, was ever in the minds of the parties. I have already referred to the Defendant's letter dated 16 November 2000. There is not a hint of the collateral contract. The same can be said of the 22 January 2001 letter from the Defendant (again, from its Legal Affairs Department). The stated reason for the termination of the Lease by the Defendant was the non-response to the request for the assignment or subletting of the Premises that had been made in the 16 November 2000 letter. It seems to me inconceivable that if an agreement existed, that this would not have been mentioned by the Legal Affairs Department of the Defendant.
(5) There is also no reference to any collateral contract in the Counterclaim that the Defendant still maintains in the First Action. The Counterclaim neither in its original nor amended forms remotely hints as the existence of the collateral contract.
(6) Thirdly, even if it can be assumed that the alleged collateral contract existed, on the facts as alleged by the Defendant, it has no application. The collateral contract is predicated on the fact that if larger premises became available, it would be the Plaintiff who would let them to the Defendant (viz., a direct tenancy). Yet the Defendant's version in relation to the 38/F premises of the Building relates instead to a proposed sub-tenancy as between the Defendant and Dah Sing Bank. Nothing in the alleged collateral contract deals with this situation and Mr Wong did not deal with this aspect at all. It is also perhaps noteworthy that the Defendant and Dah Sing Bank were negotiating on the basis of a rent of about $347,622 proposed by the Defendant : see the letter dated 23 August 2000 from Chesterton Petty to Dah Sing Bank. This is entirely inconsistent with the collateral contract in which, it will be recalled, the starting rent for the first year would be in the region of $50,000 a month.

20) Finally, I come to Ms Ismail's reliance on clause 5(8) of the Lease : the entire agreement clause. The clause states as follows :

"This Lease sets out the full agreement reached between the parties and no other warranties or representations express or implied have been made or given by the Landlord or by anybody on its behalf relating to the Building or the Premises and if any such representation or warranty has been given or implied the same is hereby withdrawn and is deemed to have been withdrawn immediately before the execution of this Lease."

21) The Lease was made subsequent to the alleged collateral contract. Quite apart from its terms being completely inconsistent with the existence of the alleged collateral contract, in my view, Ms Ismail is right when she says that clause 5(8) operates to prevent the Defendant from relying on this defence. Although the clause does not in terms exclude the applicability of any previous agreements or promises, I am of the view that it is sufficiently wide to cover any reliance on the alleged collateral contract. In Inntrepreneur Pub Company (GL) v. East Crown Ltd [2000] 2 Lloyd's Rep. 611, Lightman J had to deal with a clause that was more or less only stated that the written agreement in that case constituted the "entire Agreement" between the parties : see 613(1). Like clause 5(8) of the Lease, there was no express exclusion of previous agreements or promises. The learned judge held, however, that the words in that case were sufficient to exclude the application of any alleged collateral contract : see 614(1)-615(1). With respect, the reasoning of Lightman J in Inntrepreneur is compelling and I follow it. The nature of a collateral contract (or collateral warranty as it is sometimes called) is that it involves an assurance or warranty : see Chitty at paragraph 12-101. The words "representation or warranty" contained in clause 5(8) are apt in my view to cover collateral contracts.

22) For the above reasons, the defence advanced by the Defendant in the present case is bad in law, even if the assertions are believable (which in my view they are not, applying the well-known Ng Shou Chun test).

23) Accordingly, there will be judgment for the Plaintiff on liability. But should there also be summary judgment for any particular amount or interim payment ordered?

Damages and interim payment

24) The test for giving summary judgment in relation to damages is the same as for liability : only if there is compelling evidence in support and no arguable defence shown, would it be appropriate to grant summary judgment in any particular sum or sums. It is of course possible to grant summary judgment for a part of a claim : Order 14, rule 3(1). While this is often appropriate where liquidated claims or an ascertainable portion of a number of claims are involved, it is also possible to make such an order in relation to identifiable or indisputable parts of unliquidated claims (i.e. there is no doubt that some damages are payable but there is an argument fit for trial as to the balance) : see Associated Bulk Carriers Ltd v. Koch Shipping Inc. [1978] 2 All ER 254.

25) Running in parallel with the court's power to give judgment in relation to a part of a claim is the court's power to order interim payment. It is appropriate to make an order for interim payment where the court is satisfied that the Plaintiff will obtain judgment for a substantial sum : see Hong Kong Civil Procedure 2002, Volume 1, at paragraph 29/11/1. There will often be an overlap between applications for summary judgment and applications for interim payment and, like the present case, they are often made together. The conceptual differences between the two are discussed in Hong Kong Civil Procedure, Volume 1, at paragraph 29/11/3. The practical differences may be few but where the court entertains some doubt for whatever reason as to the appropriateness of granting summary judgment, even though it is of the view that the Plaintiff will eventually obtain judgment for a substantial sum at trial, an order for interim payment would be appropriate.

26) I have earlier identified the Plaintiff's monetary claims. I now deal with them in turn. The claims can essentially be placed in two groups :

(1) The claims for loss of rent, service charges and office rates.
(2) Legal costs.

27) The first group of claims focuses on the question whether the Premises could or should have been let following the termination of the Lease on 6 February 2001. It is not in dispute that they were not let and indeed remained so up to and including 25 September 2002. It would also appear that this is the position today. The Defendant's case is that the Plaintiff has not mitigated its loss. The law is clear. In claiming damages following the termination of a contract, the innocent party must act reasonably to minimize its losses : see Chitty at paragraphs 27-087 and 27-088. The burden of proof is, however, on the party in breach.

28) The Plaintiff has served affidavit evidence in support of its contention that it has acted at all times reasonably in its attempts to let the Premises following the termination of the Lease. There is evidence before me of the efforts made by the Plaintiff. A number of estate agents were engaged (about 10) and when the asking rents were not accepted, the Plaintiff offered lower rents. Reference was also made to the fact that demand for office space in the Building dropped since the termination of the Lease.

29) It is unnecessary for me to deal with every minute aspect of the Plaintiff's case here. In my judgment, they are all matters which should properly be resolved at the assessment of damages. At this stage, I am of the view that the Defendant has demonstrated an arguable case on the question of damages under this group of claims (but only to a limited extent, however) :

(1) The stark fact remains that from February 2001 to September 2002, the Premises have remained unoccupied. The Plaintiff's contention was not that there was no demand whatsoever for premises in the Building, only that occupancy was dropping and that the Premises could not be let. This instantly gives rise to the argument that perhaps the asking rents were too high. One reason of the lack of demand may have been the fact that the Premises did not face the lifts or had unattractive decorations (these facts appear from the Plaintiff's own evidence).
(2) Whether or not in the circumstances the Plaintiff had acted reasonably is not something that is easily decided on a summary basis. Reasonableness is a matter of degree and in the absence of cross-examination or full discovery, this is not often capable of determination at the Order 14 stage. In other words, the very concept of reasonableness invariably gives rise to arguments that should only be resolved at trial (or in the present case, at the assessment exercise).
(3) The Defendant has adduced evidence in the form of a surveyor's report to the effect that as at February 2001, the market rental for the Premises was $100,000 a month, which was below the Plaintiff's asking rent for the Premises. In that respect, it was also stated that the market rent for the Premises as at September 2002 was in the region of $85,000 a month. This presupposes that the Premises could and should have been rented out at these rates. Ms Ismail analyzed the report and made many criticisms of the surveyor's approach. There may be some force in what she says but not enough for me to discount it altogether. Mr Wong informed me that the surveyor's valuations were based on comparables (and this is what the survey itself says) although details are not provided anywhere in the report. I should add here that the Plaintiff has also produced a survey report which states that in the opinion of its surveyor, the rent in January 2001 was $31 per square foot and $17 per square foot as at September 2002. Apart from demonstrating the existence of a triable issue, this report would also suggest that the Plaintiff could (and therefore should) have been able to let the Premises instead of leaving them empty.

30) In the end, I have come to the conclusion that the damages suffered by the Plaintiff as regards rent, must be determined at an assessment. As there exists therefore the argument that the Plaintiff may not have acted reasonably in not letting the Premises during the relevant period, it follows also that the other claims for service charges and office rents, must also be left for the assessment exercise. In other words, if it transpires that the Plaintiff ought reasonably have let out the Premises for the period in question (or any part of it), the liability for service charges and office rates should then have fallen on the hypothetical tenant and not the Defendant.

31) That said, given the Defendant's case that the market rental for the Premises as at February 2001 was $100,000 a month, it is right that judgment should be given to reflect the difference between that and the Plaintiff's claim. Of course, for the six days from 1 February 2001 to 6 February 2001, the Plaintiff is entitled to a pro rata proportion of the rent under the Lease. Accordingly, the Plaintiff is entitled to partial judgment in the sums of :

(1) $24,272.50 (being the rent due for the period from 1 February 2001 to 6 February 2001, prorated on a 365-day basis).
(2) $452,309 (being the difference between $123,048 and $100,000 for the period from 6 February 2001 to 25 September 2002 also prorated on a 365-day basis for the incomplete month in September 2002).
(3) The total is therefore $476,581.50.

32) As for legal costs, the Plaintiff relies on clause 3(29) of the Lease which enables it to claim solicitors' costs on indemnity basis for any proceedings in relation to breaches of the Lease. It is of course well-established that as far as costs are concerned, the court will normally give effect to the contractual bargain between the parties : see Chekiang First Bank v. Fong Siu Kin [1997] 2 HKC 302, at 309 (Court of Appeal).

33) Mr Wong does not dispute the applicability of these principles. His contention, rather, is that the sums claimed as representing the Plaintiff's costs in the consolidated actions have not yet been taxed and even includes a sum ($221,689) as yet unbilled.

34) I have been shown bills in relation to the solicitors' costs incurred by the Plaintiff in the consolidated actions. They amount to $1,690,405.50. In my view, although taxation has not taken place, it is extremely likely that the Plaintiff will obtain an order for a substantial amount to be paid to it by way of costs, particularly if taxed on an indemnity basis. As I have remarked above, the Defendant does not really submit that the Plaintiff will not be entitled to a taxation on this basis.

35) I am in agreement with Ms Ismail that an order for interim payment should be made. As taxation has not yet taken place, I am of the view that it would not be right for summary judgment to be ordered, even on a partial basis. However, an order for interim payment would be appropriate and I would so order. Ms Ismail advanced the basis for any order for interim payment as being Order 62, rule 9A and I am content to do so on that basis. Whether or not there is any difference between an order made under this rule and an order under Order 29, rule 12, it is unnecessary for me to decide. It seems to me in either case that the court will be able to make any necessary adjustments once a final order as to damages has been made or taxation has taken place : see Order 29, rule 17 and Order 62, rule 9A(2).

36) As to the amount of such interim payment, I would adopt a rough approach. It is often said that on a party-and-party basis of taxation, the court will usually award two-thirds of a party's actual costs. This percentage would increase if taxation is on an indemnity basis. Taking a conservative line, I would order that interim payment in the sum of $1,000,000 be made by the Defendant to the Plaintiff.

Lifting of stay of execution on Master Kwang's Order dated 17 May 2001

37) There is no reason why the stay of execution ordered by Master Kwang should remain in place any longer. Master Kwang made the order on the basis of the then existing Counterclaim made by the Defendant in the First Action. In the original Counterclaim, there were allegations of breach of the Lease on the part of the Plaintiff. The Counterclaim was amended on 17 January 2002 to delete the whole of the original Counterclaim, substituting in its place a claim for $107,178, being the difference between the judgment sum ordered by Master Kwang ($354,252) and the rental deposit of $461,430 paid by the Defendant when it entered into the Lease.

38) In the Amended Counterclaim, the Defendant accepts that it is liable under the judgment ordered by Master Kwang. For its part, the Plaintiff accepts that the rental deposit must be taken into account to the Defendant's credit.

39) However, I leave open for the parties' agreement or further determination by the court all questions regarding interest arising from Master Kwang's order and the Amended Counterclaim.

Order

40) Accordingly, for the reasons given above, I would order as follows :

(1) Subject to paragraph (2), there be interlocutory judgment on liability in favour of the Plaintiff with damages to be assessed.
(2) There be partial judgment in the sum of $476,581.50 to the Plaintiff with a balance of any damages due to be assessed by a Master.
(3) The Defendant is to make interim payment of the sum of $1,000,000 to the Plaintiff.
(4) The stay of execution ordered by Master Kwang on his judgment dated 17 May 2001, be lifted.
(5) The Plaintiff is to give credit to the Defendant in the sum of $461,430 in relation to any payments to be made by the Defendant herein.

41) If necessary, I shall hear the parties on the exact terms of the order. This would include any questions as to interest arising from the above.

42) As to costs, I make an order nisi that the costs of and occasioned by this application be to the Plaintiff in any event, such costs to be taxed if not agreed.

	(Geoffrey Ma)
	Judge of the Court of First Instance,
	High Court

Representation:

Ms Roxanne Ismail, instructed by Messrs Herbert Smith, for the Plaintiff

Mr William Wong, instructed by Messrs Darin Leung & Partners,for the Defendant

19281-EN-2002-08-16

WING SIU CO. LTD. v. GOLDQUEST INTERNATIONAL LTD.

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HCA003183A/2001

HCA3183/2001 and
HCA4145/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS.3183 AND 4145 OF 2001

-----------------------

BETWEEN
	WING SIU COMPANY LIMITED	Plaintiff

	AND

	GOLDQUEST INTERNATIONAL LIMITED	Defendant

-----------------------

(Actions consolidated by Order dated 26 April 2002)

Coram: Hon Ma J in Chambers

Date of Hearing: 16 August 2002

Date of Decision: 16 August 2002

Date of Handing Down of Reasons for Decision: 29 August 2002

----------------------------------------------------

REASONS FOR DECISION

----------------------------------------------------

Background

1. The background to the present summonses before the court is as described in the Reasons for Decision handed down on 23 April 2002 in relation to an application by the defendant to strike out HCA 3183/2001 ("the Second Action"). There, Master H.C. Wong had made an order striking out the action but on appeal, I allowed the plaintiff's appeal after a hearing on 15 April 2002 and dismissed the defendant's strike out application.

2. The defendant has appealed my decision by a notice of appeal dated 3 May 2002 ("the Appeal"). The hearing before the Court of Appeal is to take place on 17 January 2003.

3. It will be recalled that the plaintiff is the owner of premises situate at Suites 2101-05A, 21/F, Dah Sing Financial Centre, 108 Gloucester Road, Wanchai, Hong Kong ("the Premises"). Under a lease dated 11 October 1999 ("the Lease"), the Premises were let to the defendant for a period of three years from 11 October 1999 to 10 October 2002. Following defaults by the defendant in the payment of rent and other charges, the plaintiff commenced proceedings in the District Court on 19 January 2001. These proceedings were transferred to the High Court on 4 September 2001 (in HCA 4145/2001). I will refer to the District Court proceedings and the transferred proceedings simply as "the First Action".

4. On 22 January 2001, three days after the Writ had been issued in the District Court in the First Action, the defendant purported to determine the lease and returned the keys of the Premises to the plaintiff. The plaintiff treated this as a repudiation of the lease and by a letter dated 6 February 2001 from its solicitors, accepted the repudiation.

5. On 6 April 2001, the plaintiff applied for summary judgment on its claim for the outstanding rent and other charges. On 17 May 2001, Master Kwang granted summary judgment to the plaintiff in the sum of $354,252 and interest, but stayed execution pending the determination of the defendant's counterclaim for the return of rental deposit. That counterclaim to this day remains unresolved and the defendant has not made much progress in this regard.

6. Subsequent to Master Kwang's order, by a summons dated 20 June 2001, the plaintiff applied for leave to amend the Statement of Claim in the First Action to plead the cause of action based on the acceptance of the defendant's repudiation of the Lease. On 29 June 2001, Master Au-Yeung refused leave. Following this refusal, the plaintiff instituted the Second Action on 16 July 2001, making a claim based on the said repudiation. It is this claim the defendant sought to strike out. Whether this action should be struck out will of course be a matter for the Court of Appeal to resolve in the Appeal. As stated earlier, I had dismissed the defendant's application to strike out.

7. By a summons dated 3 August 2001, just before the defendant's application to strike out, the plaintiff applied for summary judgment against the defendant in the Second Action. Following the plaintiff's appeal from Master H.C. Wong being allowed on 15 April 2002, the plaintiff amended the Statement of Claim in the Second Action on 5 July 2002. On 9 July 2002, the plaintiff issued a summons seeking leave to amend the 3 August 2001 Summons to refer to the Amended Statement of Claim and also to claim interim payment under RHC Order 29, rule 10. In addition, the plaintiff sought directions for the hearing of the amended Summons. On 26 July 2002, leave to amend was given by Master Ho, leaving the directions part of the 9 July 2002 Summons outstanding.

The applications before the court

8. By a summons dated 18 July 2002, the defendant sought a stay of the Second Action (perhaps more accurately the consolidated action as Master Mary Yuen had ordered the consolidation of the First and Second Actions on 26 April 2002) pending the determination of the Appeal.

9. There were therefore two matters before the court : the plaintiff's Summons dated 9 July 2002 seeking directions and the defendant's Stay Summons dated 18 July 2002.

10. Both summonses were heard by me on 16 August 2002. Mr Nigel Francis appeared for the plaintiff, Mr William Wong for the defendant.

11. After hearing submissions, I dismissed the defendant's stay application and gave directions in relation to the hearing of the plaintiff's application for summary judgment and interim payment.

12. I now give the Reasons for my Decision.

The application for a stay

13. The defendant applies for a stay on the basis that if it succeeds in the Appeal, then the claims made in the Second Action would be struck out in their entirety and therefore it would be right at this point to stay the present proceedings. Otherwise, there was a significant risk of wasted costs and effort. To this, Mr Wong added that the period from now to the hearing of the Appeal is only some five months and that as far as the merits were concerned, the defendant had a better than 50% chance of success.

14. Applications such as the present feature quite regularly in the courts. They take a variety of forms but generally all involve the court being asked to prevent or delay a party from exercising what otherwise would be his rights, procedurally or substantively. They include, for example, applications for a stay of execution pending appeal or applications that, say, discovery is postponed until pleadings are amended. Sometimes the Rules of the High Court make express provision dealing with this type of situation (such as in the case of stays of execution), but more often than not, the Rules are silent. In the latter case, the court is guided by balancing the interests of both parties, the respective prejudices and its own administration of justice. The present case involves a party applying for a stay on the basis of a pending appeal. The parties have treated this as being akin to an application for a stay of execution pending appeal. Though conceptually not an application for a stay of execution as such, the basic principle is the same : an appeal does not operate to halt or delay proceedings and a court will not grant a stay unless exceptional circumstances are shown.

15. In my view, the defendant has not demonstrated an entitlement to a stay :

(1) The plaintiff wishes to proceed with its application for summary judgment and interim payment. The application for summary judgment has been pending since 3 August 2001. The claim arises out of events which took place in early 2001. The summary judgment granted by Master Kwang dates back to 7 May 2001 but the plaintiff has as yet not been able to levy execution. Given this chronology, in my view, a further delay of five months would cause prejudice to the plaintiff and would not be fair or just. This is particularly so when on the evidence before me, the defendant has as yet not disclosed any defence to the summary judgment claim. At its lowest (for the plaintiff), therefore, it has an arguable application for summary judgment that should be heard.
(2) I have already referred to Mr Wong's submission that should the Appeal be allowed, the time and costs expended on any further proceedings from now would be wasted. He also submits that there is a risk of irreparable harm if summary judgment is granted, because even if the Appeal is successful, the summary judgment may nevertheless remain intact. In my view, no prejudice is demonstrated by these arguments. As to wasted costs and time, should it transpire that the defendant succeeds in the Appeal, I would have thought that it would in general be entitled to the costs of the action. If a case of wastage is made out, the defendant would be compensated in a costs order. As to the risk that despite a wholly successful outcome in the Appeal, any summary judgment granted would remain intact, I cannot envisage any circumstances in which this could occur.
(3) This leaves only the aspect of the merits of the Appeal. I accept that if the defendant can demonstrate that it has a strong appeal (as opposed to merely an arguable one), this would be a highly relevant factor in the exercise of discretion. An arguable appeal is not sufficient because in these circumstances, both sides have an equal chance of success and there is no reason why the successful party (the plaintiff in the present case) should be prejudiced. A strong appeal, on the other hand, may well tilt the balance in favour of the party applying for a stay. Though Mr Wong has submitted to me that the defendant has a more than 50% chance of success, I do not share this view. The highest that can be said in favour of the defendant is that it has an arguable appeal and I say this really only because the matter will be argued afresh before the Court of Appeal and I fully accept the possibility that it may well find the defendant's arguments persuasive. For my part, however, the arguments are as unattractive now as when the matter was argued before me on 15 April 2002.

16. For the above reasons, I see no reason why the progress of this action should be further delayed and, as I have said, I have accordingly made directions on the plaintiff's Summons.

	( Geoffrey Ma )
	Judge of the Court of First Instance,
	High Court

Representation:

Mr Nigel Francis, of Messrs Herbert Smith, for the Plaintiff

Mr William M.F. Wong, instructed by Messrs Darin Leung & Partners, for the Defendant

22160-EN-2002-04-15

WING SUI CO. LTD. v. GOLDQUEST INTERNATIONAL LTD.

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HCA003183/2001

HCA3183/2001 and
HCA4145/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS.3183 AND 4145 OF 2001

--------------

BETWEEN
	WING SUI COMPANY LIMITED	Plaintiff

	AND

	GOLDQUEST INTERNATIONAL LIMITED	Defendant

--------------

Coram: Hon Ma J in Chambers

Date of Hearing: 15 April 2002

Date of Decision: 15 April 2002

Date of Reasons for Decision: 23 April 2002

-----------------------------------------------------

REASONS FOR DECISION

-----------------------------------------------------

Background : the two Actions

1. The plaintiff is the owner of the premises situate at Suites 2101-05A, 21/F, Dah Sing Financial Centre, 108 Gloucester Road, Wanchai, Hong Kong ("the Premises"). By a lease dated 11 October 1999, the plaintiff let the Premises to the defendant for a period of three years from 11 October 1999 to 10 October 2002 ("the Lease").

2. The Lease contained, inter alia, the following terms :

(1) Apart from the rent, the defendant was obliged to pay office rates, management fees and electrical charges for air conditioning;
(2) Clause 5 thereof contained a standard re-entry clause whereby upon non-payment of the rent or other charges payable by the defendant, the plaintiff would be at liberty to re-enter the Premises.

3. Following defaults on the part of the tenant in the payment of rent and the other charges referred to above, the plaintiff commenced proceedings in the District Court on 19 January 2002 (in DCCJ 1297/2001), claiming the outstanding amounts owed by the defendant in relation to arrears of rent, office rates, management fees and electrical charges. In addition, the plaintiff claimed damages being its legal costs payable on an indemnity basis (pursuant to contract) and interest on the outstanding amounts. This action, commenced as I have said in the District Court, was, for reasons unnecessary to go into, transferred to the High Court on 4 September 2001 by order of H H Judge Li. This action became HCA 4145/2001 ("the First Action").

4. By a letter dated 22 January 2001, after the Writ had been issued in the First Action, the defendant sought unilaterally to terminate the Lease and return the keys to the Premises to the plaintiff. The plaintiff regarded this as a repudiation of the Lease and by a letter dated 6 February 2001 through its solicitors, accepted this alleged repudiation.

5. The plaintiff served the Statement of Claim in the First Action on 14 February 2001. Reference was made to the acceptance of the alleged repudiation in the following terms :

"5. By letter to the Plaintiff of 22nd January 2001 enclosing keys to the Premises, the Defendant unilaterally abandoned the Premises in breach of the terms of the Lease whereby the Lease is due to expire only on 10th October 2002 and thereby wrongfully repudiated the Lease. By letter from Herbert Smith, solicitors for the Plaintiff, to the Defendant of 6th February 2001, the Plaintiff confirmed its acceptance of the Defendant's wrongful repudiation of the Lease with effect from 6th February 2001. Accordingly whilst the office rates for the quarter 1st January 2001 to 31st March 2001 is HK$15,150.00 the claim for office rates is now limited to the pro-rata payment for the period until 6th February 2001."

6. In its Defence and Counterclaim, the defendant denied that it had repudiated the Lease, instead claiming that it was actually the plaintiff which had repudiated the Lease, which repudiation the defendant accepted by the said letter dated 22 January 2001. The plaintiff was alleged to have been in breach of Clause 5(12)(c) of the Lease. The defendant counterclaimed for the return of the rental deposit on the basis of determination of the Lease. The plaintiff served a Reply and Defence to Counterclaim on 24 May 2001.

7. By a Summons dated 6 April 2001, the plaintiff applied under RDC Order 14 for summary judgment for the amounts claimed in the Statement of Claim together with interest and costs. The hearing of this application took place before Master S. Kwang on 7 May 2001, who ordered, inter alia, that :

(1) There be judgment to the plaintiff in the sum of HK$354,252.00 together with interest thereon. This sum reflected the amounts claimed by the plaintiff for arrears of rent, office rates, management fees and electrical charges.
(2) Execution on this judgment be stayed pending the determination of the Counterclaim.
(3) Costs of the application to be in the cause.

8. Master Kwang did not determine the plaintiff's claim for its legal costs to be paid on an indemnity basis. It is obvious why he did not do this : the action had not yet finally been determined.

9. By a summons dated 20 June 2001, the plaintiff applied to amend its Statement of Claim by adding a claim for damages for the wrongful repudiation of the Lease on the defendant's part. It will be recalled that in the original Statement of Claim, reference was made to the acceptance of the repudiation only for the purpose of explaining why the plaintiff's claim for office rates was limited to the period up to 6 February 2001.

10. The summons for leave to amend came before Master Au-Yeung on 29 June 2001 on a three-minute hearing. From an Attendance Note dated 29 June 2001 made by the defendant's solicitors, it is apparent that the defendant did not object to the amendments and may even have consented to them. Despite this, Master Au-Yeung refused the amendments on the basis that the plaintiff's cause of action based on wrongful repudiation had accrued only after the date of the issue of the Writ. That this was the reason for the refusal of leave to amend is apparent not only from the said Attendance Note but also from an affidavit made by the plaintiff's solicitor who was present at that hearing.

11. Following Master Au-Yeung's refusal to allow the plaintiff to advance a case for damages for wrongful repudiation in the First Action, the plaintiff commenced another set of proceedings in the High Court on 16 July 2001 (in HCA 3183/2001) ("the Second Action"). The Writ in that action particularizes the claim for damages for wrongful repudiation by reference to claims for lost rental, lost service charges, lost office rates and the costs of reinstatement, restoration and making good of the Premises on an indemnity basis. Interest and costs on an indemnity basis (again pursuant to contract) are also claimed. The Statement of Claim in the Second Action was served on 3 August 2001.

12. By a Summons dated 3 August 2001 in the Second Action, the plaintiff applied for summary judgment. This was met by an application by the defendant for the Writ and Statement of Claim in the Second Action to be struck out under RHC Order 18, rule 19. The defendant accordingly asked that the action be dismissed.

13. On 17 January 2002, Master H.C. Wong acceded to the defendant's application and dismissed the Second Action with costs. Mr K.M. Chong (for the defendant) says this was on the basis that the plaintiff was seeking to rely on a cause of action that was or should have been raised in the First Action and therefore the principle of res judicata came into play. I have looked at the Master's notes and although in her Ruling she does refer to res judicata, she also said that the plaintiff "should pursue [these claims] further in the [First Action] rather than starting a new action".

14. The plaintiff appealed Master Wong's decision by a Notice of Appeal dated 31 January 2002. Further, in case this appeal failed, the plaintiff also applied by a summons dated 5 February 2001 seeking leave to appeal out of time Master Au-Yeung's decision dated 29 June 2001.

The Orders made on 15 April 2002

15. Both the appeal from Master Wong's decision and the summons for an extension of time for leave to appeal from Master Au-Yeung's decision came before me on 15 April 2002. The plaintiff was represented by Mr John Bleach SC, the defendant, as I have said, by Mr K.M. Chong.

16. At the conclusion of argument, I made the following orders :

(1) On the appeal, I allowed the appeal and set aside Master Wong's Order dated 17 January 2002 with an order that the costs on appeal and below be to the plaintiff in any event.
(2) On the Summons dated 5 February 2002, I made no order either as to the relief sought in the summons or as to costs.

17. I now give my reasons for these decisions.

The issues before the court

18. The summons dated 5 February 2002 was otiose if the plaintiff succeeded on the appeal. This summons was, as I have already remarked, only brought by the plaintiff in case the appeal failed. Accordingly, in view of my decision on the appeal, it is necessary only to identify the issues arising on the appeal.

19. Here, the following issues arise :

(1) The plaintiff's position is simple. Master Au-Yeung had determined that the cause of action based on wrongful repudiation could not be brought in the First Action since it accrued after the issue of the Writ. Thus, the only way in which it could be brought was by way of another action and this was precisely what the plaintiff had done by instituting the Second Action. Was this the effect of Master Au-Yeung's decision? (Issue 1 : Effect of Master Au-Yeung's decision)
(2) The defendant's position is to rely on the doctrine of res judicata both in its "narrow" and "wider" senses. (Issue 2 : res judicata)

Issue 1 : Effect of Master Au-Yeung's decision

20. As stated above it is clear that Master Au-Yeung disallowed the amendments introducing the claim for damages for wrongful repudiation on the basis that the cause of action (i.e. wrongful repudiation) accrued only after the issue of the Writ in the First Action.

21. A cause of action has been defined as meaning "simply a factual situation the existence of which entitles one person to obtain from the Court a remedy against another person" : see Letang v. Cooper [1965] 1 QB 232 at 242. As pleaded by the plaintiff, the cause of action based on wrongful repudiation consisted essentially of the said letter dated 22 January 2001 in which the defendant unilaterally determined the Lease and returned the keys to the Premises to the plaintiff. This repudiation was then accepted by the plaintiff by the said letter dated 6 February 2001 from its solicitors to the defendant. The letter makes express reference to the 22 January 2001 letter and the return of the keys as constituting the repudiatory conduct.

22. I would here observe, although it is ultimately not strictly speaking relevant, that the learned master was correct to hold as she did. She was bound by the decision of the Court of Appeal in Lark International Finance Ltd v. Lam Kim Marisa [2000] 4 HKC 688, where at page 699I, it was observed by Keith JA :

"It is well established that a statement of claim, whether indorsed on the writ or not, cannot be amended, without the defendant's consent, whether with the leave of the court or not, where the effect of the amendment is to add cause of action which accrued since the issue of the writ. ..."

23. Mr Chong sought to argue that this did not represent the law. Even if causes of action accrued only after the issue of a Writ, they can be pleaded by way of amendment. Reliance is placed on Vax Appliances Ltd v. Hoover Plc. [1990] RPC 656 (English High Court) and Woo Suk King v. Lam Lee Yuet Ha Lilian [1995] 3 HKC 701 (Waung J, Court of First Instance). I accepted that these cases provide authority for the proposition advanced by Mr Chong but in my view, it is for a higher court to overrule the clear effect of Lark International Finance Ltd. Both Master Au-Yeung and this court are bound by that Court of Appeal authority.

24. Next, Mr Chong argued that even if Lark International Finance Ltd represented good law, the bar to amending to plead a cause of action accruing since the issue of a Writ, is inapplicable where the parties consent : see page 669I. In this case, Mr Chong submitted that, as shown by the said Attendance Note dated 29 June 2001, the defendant consented. I am not persuaded by this submission. The defendant's solicitor did not insist on the amendments going through when the learned master disallowed them. Moreover, the defendant's position now in resisting any leave to appeal from Master Au-Yeung's decision, surely negates any consent that may at one time have been given.

25. In the end, these points are not relevant. The fact remains that Master Au-Yeung's decision stands as neither party has appealed from it. Even assuming it to be wrong (and I stress that I am not of this view), it is nevertheless still binding on the parties in terms of the issues decided.

26. I would add here that among the issues decided by Master Au-Yeung is that implicit in the learned master's decision on the basis as stated above is an acceptance that the cause of action based on wrongful repudiation was not and could not be brought in the First Action. The importance of this will presently be seen.

Issue 2 : res judicata

27. Mr Chong submits that this principle applies both in its "narrow" and "wider" senses.

28. By "narrow" sense is meant that the relevant issue has already previously been finally decided between the same parties by a court of competent jurisdiction. This is properly called res judicata in the strict sense and may consist of cause of action estoppel or issue estoppel. It provides an absolute bar to re-litigation save in "special cases" or "special circumstances" : see Bradford & Bingley Building Society v. Seddon Hancock [1999] 1 WLR 1482, at 1490F-G.

29. The so-called res judicata in its "wider" sense originates from the classic statement of Wigram V-C in Henderson v. Henderson (1843) 3 HARE 100, at 115. This was summarized in the decision of the Judicial Committee of the Privy Council in Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd [1975] AC 581, where at 590A-B, Lord Kilbrandon said :

"But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings."

30. This has been described as being not strictly speaking res judicata at all but merely an abuse of process not qualifying as res judicata, in which the task of the court is "to draw the balance between the competing claims of one party to put his case before the court and of the other not to be unjustly hounded given the earlier history of the matter" : see Bradford & Bingley Building Society at 1490F-H.

31. Mr Chong first submits that res judicata, in its strict or narrow sense, applies because Master Kwang gave summary judgment on the basis that the defendant had repudiated the Lease, which repudiation had been accepted by the plaintiff. I disagree with this. The issue of damages for wrongful repudiation was not before Master Kwang. There is no evidence before me to suggest that it was. On the contrary, I have already referred to the Statement of Claim in the First Action (the contents of which were verified on oath) in which the acceptance of the defendant's repudiation was pleaded only for the purpose of limiting the period for which office rates was claimed in the action. It is to be noted that the claim for rent, management fees and electrical charges did not go beyond 6 February 2001 either. Nowhere in the Writ or Statement of Claim was there a claim for damages for wrongful repudiation. It is simply fallacious to suggest that Master Kwang decided this issue. All that the learned master dealt with was the defendant's breach of the Lease in failing to pay the said rent and other charges. This claim existed whether or not the Lease had been repudiated by the defendant.

32. I would also repeat what has already been said above about the effect of Master Au-Yeung's decision. It was central to her decision that the cause of action based on wrongful repudiation was not one that was before the court in the First Action.

33. Next, Mr Chong relies on res judicata in its "wider sense". He submits that the issue of wrongful repudiation and the plaintiff's claim for damages arising therefrom could and therefore should have been before the court in the application for summary judgment in the First Action :

(1) First, it is said that the cause of action had already accrued prior to the issue of the Writ in the First Action. Mr Chong submits here that the plaintiff had already pleaded the defendant's repudiation by the failure to pay the rent and the other charges. The acceptance of the repudiation was also pleaded in the Statement of Claim. The fact that this acceptance accrued after the issue of the Writ was not a bar to pleading it. The acceptance of a repudiation was not an essential element in the cause of action based on wrongful repudiation : see Tilcon Ltd v. Land & Real Estate Investments Ltd [1987] 1 WLR 46, at 53B-D. In these circumstances, if the plaintiff chose therefore not to raise the question of damages for wrongful repudiation (as it seeks now to do in the Second Action) when it could have and therefore should have, res judicata in its wider sense prevents this issue being raised now.

(2) Secondly, it is argued that even if the cause of action had not accrued by the time the Writ was issued in the First Action, it could still be pleaded and was so pleaded : see Vax Appliances Ltd and Woo Suk King. Therefore, again, if the plaintiff failed to advance a case based on damages for wrongful repudiation at the summary judgment stage when it could have, it was not now permitted to do so by a reason of the application of the "wider" doctrine of res judicata.
(3) Fundamental to Mr Chong's submissions regarding the said two arguments was the contention that the summary judgment determination by Master Kwang finally determined the plaintiff's claim against the defendant in the First Action. As Mr Chong put it, the plaintiff's action had come to an end at the latest by 7 May 2001.

34. In my judgment, these arguments are simply misconceived and cannot justify an order striking out the Writ and Statement of Claim in the Second Action :

(1) It is of course only in plain and obvious cases that proceedings should be struck out. In the present case, if anything, it is plain and obvious that the proceedings should not be struck out.

(2) It is quite wrong to suggest that the cause of action based on wrongful repudiation had already accrued prior to the issue of the Writ in the First Action. The plaintiff's case on repudiation is founded on the 22 January 2001 letter and the return of the keys. It is not based on the defendant's failure to pay the rent and the other charges. The defendant, in its pleading, denies the repudiation alleged by the plaintiff. No issue arises in the First Action as to whether the failure to pay rent and the other charges amounted to repudiatory conduct on the part of the defendant. The plaintiff's case on repudiation did not accrue until after the issue of the Writ. It is quite bizarre in my view for Mr Chong to assert that the plaintiff's case on repudiation is or should be based on the non-payment of rent and the other charges and Clause 5 of the Lease, when clearly it is not.
(3) As for Mr Chong's contention that even if the cause of action accrued subsequent to the issue of the Writ, an amendment could be made to plead this (based on Vax Appliances Ltd and Woo Suk King), I have already held that it is not open to me to share this view as this would be contrary to binding authority (see Lark International Finance Ltd).
(4) In any event, the impact of Master Au-Yeung's decision must not be overlooked. The effect of her order was as I have already stated in paragraphs 20 and 26 above. This was binding on the parties and effectively disposes of the res judicata argument. Paradoxically, the doctrine of res judicata here works against the defendant, for the overall effect is that the parties are bound to accept that the issue of wrongful repudiation was not and could not be raised in the First Action. I am conscious of the fact that it is rare for masters to give reasons for decisions and that therefore it may often be difficult to discern what issues have actually been decided for the purposes of res judicata. However, the decision of a master without reasons is technically as capable of giving rise to res judicata (whether issue estoppel or cause of action estoppel) as a reasoned decision can, providing that the reason for the decision is ascertainable with some degree of precision : see Spencer Bower, Turner & Handley : Res Judicata (3rd Edn) at paragraph 180. Here, I am satisfied that one is able to ascertain with precision just what Master Au-Yeung decided. I would also add that it matters not whether the decision was correct or not in order for the doctrine of res judicata to take effect (although I must say that Master Au-Yeung's decision was, in my judgment, with respect, correct) : see Spencer Bower, Turner & Handley : Res Judicata at paragraph 15.

(5) Even if I were wrong on paragraphs (2) to (4) above so that the issue of damages for wrongful repudiation could be pleaded and raised in the First Action, the defendant simply cannot demonstrate that the issue could and therefore should have been raised in the summary judgment application before Master Kwang. Mr Chong was careful to submit to me that the plaintiff's claims for damages for wrongful repudiation (as particularised in the Statement of Claim in the Second Action) were contested and that although some of the claims were apparently conceded to be unanswerable, this concession was, in his words, only "for the purposes of the present application". I took this to mean that Mr Chong was not really conceding that any of the plaintiff's claims were indefensible at all but that, at the very least, he was reserving his position to submit in the future that he had arguable defences to all these claims. In the circumstances, in view of the possibility that arguable defences exist, I am far from satisfied that the present claims for damages for wrongful repudiation could have properly been raised in the application for summary judgment in the first place.

(6) If it was critical for me to decide that the summary judgment application brought to an end the plaintiff's claim in the First Action, I would decide this issue against the defendant. The plaintiff's claim for costs on an indemnity basis remained after Master Kwang's decision and indeed, the rest of its claims (for which judgment was given) still existed in the sense that execution thereon was stayed pending the determination of the Counterclaim. Here, it is also pertinent to note that this was precisely the defendant's stated position at the hearing before Master Au-Yeung : see the said Attendance Note dated 29 June 2001.

35. Finally, I wish just to add this. I have applied the principles of Yat Tung Investment Co. Ltd in their full rigour. Probably, I am bound by them anyway. However, I do not wish it to be thought that they necessarily represented the full or precise extent of the law in this area. For example, the words "could and therefore should have been litigated in earlier proceedings" (emphasis added) have been the subject of much controversy : see Spencer Bower, Turner & Handley : Res Judicata at paragraph 446 note 45. Further, see also Bradford & Bingley Building Society, which in my view significantly undermines the effect of Yat Tung Investment Co. Ltd. It is, however, unnecessary for these controversies to be resolved in this appeal.

Costs

36. It follows from my decision on the two issues that the plaintiff's appeal must be allowed and Master Wong's order set aside. Costs should follow the event and Mr Chong did not resist this.

37. It then becomes unnecessary to decide on the plaintiff's summons dated 5 February 2002. It was therefore appropriate that no order be made on it. As to costs, the plaintiff wanted its costs and for its part, the defendant wanted its costs or at least an apportionment of costs. I decided that no order was again appropriate because it seemed to me that reasonably good arguments existed on both sides. While on the one hand I can well see that the plaintiff only issued the summons owing to the position taken by the defendant in the Second Action, on the other hand it by no means followed that the plaintiff would have succeeded on the summons in view of the lapse of time.

	(Geoffrey Ma)
	Judge of the Court of First Instance,
	High Court

Representation:

Mr John Bleach, SC, instructed by Messrs Herbert Smith, for the Plaintiff

Mr K.M. Chong, instructed by Messrs Darin Leung & Partners, for the Defendant

Remarks:
Appeal by the Defendant to Court of Appeal. Appeal dismissed. Please refer to Appeal Judgment of CACV000225/2002.