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Mega Yield International Holdings Ltd v Fonfair Co Ltd

Judgment Cited authorities 6 Cited in Precedent Map Related
Vincent
Judgment Date18 September 2014
Year2014
Judgement NumberCACV61/2013
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV61/2013 MEGA YIELD INTERNATIONAL HOLDINGS LTD v. FONFAIR CO LTD

CACV 61/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 61 OF 2013

(ON APPEAL FROM HCA NO. 948 OF 2009)

________________________

BETWEEN

MEGA YIELD INTERNATIONAL HOLDINGS LIMITED Plaintiff
and
FONFAIR COMPANY LIMITED Defendant

________________________

Before: Hon Lam VP, Kwan JA and Barma JA in Court

Date of Hearing: 4 September 2014

Date of Judgment: 4 September 2014

Date of Reasons for Judgment: 18 September 2014

________________________

REASONS FOR JUDGMENT

________________________

Hon Kwan JA (giving the Reasons for Judgment of the Court):

1. This is the defendant’s appeal against the judgment of Deputy High Court Judge Woo on 5 March 2013, given after a 16-day trial on various dates from November 2012 to January 2013. The plaintiff’s claim arose out of the breach of a tenancy agreement by the defendant landlord in that there was failure to deliver possession of the leased premises to the plaintiff. The judge found the defendant liable and awarded damages to the plaintiff in the total sum of $7,463,708.60 with interest. This appeal is against the quantum of damages.

2. At the conclusion of the hearing, we dismissed the appeal with costs to the plaintiff with a certificate for two counsel. These are our reasons.

The background

3. The relevant background matters for the purpose of this appeal may be stated as follows.

4. The defendant owns the subject premises being a site known as Yau Tong Marine Lots Nos 2, 3 and 4 (“the Lot”). At all material times, Leung Yuet Keung (“Mr Leung”) was its director.

5. The plaintiff is a subsidiary of a listed company, Wai Kee Holdings Limited (“Wai Kee”). In early 2005, Wai Kee decided to enter the market of supplying concrete, which was a very lucrative business in Hong Kong. The plaintiff was established by Wai Kee as an intermediate holding company to engage in the business of construction materials through two wholly-owned subsidiaries, Excel Concrete Limited (“ECL”) and Topfield International Trading Limited (“Topfield”). The plaintiff’s managing director at all times was Derek Zen (“Mr Zen”). He was also a director of ECL and Topfield.

6. By an agreement dated 24 January 2007 (“the Pre-Lease”), the defendant granted an option to the plaintiff to obtain a tenancy of the Lot from the defendant for a term of two years commencing on 20 October 2008 or 20 December 2008. The purpose of the plaintiff in renting the Lot was to run a concrete batching plant on it, and for such purpose it was vital that a waiver should be obtained from the Government as the Government Lease restricted the Lot from being used “for any purpose other than ship building and/or as a sawmill and timber yard”. Recital (c) of the Pre-Lease referred to a tenancy of the Lot granted by the defendant to Vision Resource Recycle Co (“Vision Resource”) for a term of three years from 20 October 2005 to 19 October 2008.

7. According to the evidence of Mr Leung, Vision Resource’s tenancy was determined for non-payment of rent and thereafter the defendant let the Lot to Full Creation Development Limited (“Full Creation”) in September 2007 for a term of three years commencing on 20 September 2007 (“Full Creation’s Lease”). Certain clauses were inserted in Full Creation’s Lease to entitle the defendant to terminate the tenancy during its currency and to recover possession of the Lot not later than 19 September 2008.

8. On or about 12 September 2008, the plaintiff exercised its option under the Pre-Lease and signed a tenancy agreement dated 12 September 2008 (“the Lease”), by which the defendant agreed to let the Lot to the plaintiff for a term of two years commencing on 20 December 2008.

9. Before the Lease was entered into, the plaintiff had retained consultants to liaise with the Government on the defendant’s behalf to obtain a waiver of the Government Lease restriction so that the Lot could be used for concrete batching (“the Waiver”). In the course of the application for the Waiver, the District Lands Office required the demolition and removal of an unauthorised jetty and associated platform (“the Structure”) within the vicinity of the Lot and this was done in late August 2008. By a letter dated 29 October 2008, the District Lands Officer confirmed to the defendant he was prepared to recommend to the Government to make a temporary waiver of the lease condition, which was the Waiver as sought by the plaintiff. The Waiver was to take effect on 1 January 2009.

10. The defendant was unable to deliver vacant possession of the Lot to the plaintiff by the commencement date of the Lease on 20 December 2008 as Full Creation refused to yield up possession and the defendant was unable to evict Full Creation in time. It was only on 22 July 2009 that the defendant obtained judgment for possession against Full Creation and On Kee (HK) Environmental Recycling Limited, a party alleged by the defendant to have taken up a sub-tenancy of the Lot from Full Creation without the defendant’s consent.

11. The plaintiff issued the writ herein on 31 March 2009, thereby accepting the defendant’s repudiation of the Lease and treating the Lease as at an end.

12. Between 7 May 2009 and 30 June 2009, negotiations were conducted between the plaintiff and the defendant for a new tenancy of the Lot to be granted to the plaintiff. The negotiations did not come to fruition and the parties broke off on 30 June 2009. On that day, Mr Leung signed a tenancy agreement on behalf of the defendant to lease the Lot to a third party, Good Swift Limited (“GSL”) for a term of two years to commence on 1 July 2009 (“GSL’s Lease”), shortly after he had sent a letter to the plaintiff withdrawing the defendant’s offer to grant a new tenancy to the plaintiff. However, the plaintiff was not told about GSL’s Lease until 10 August 2009 and it continued to write to the defendant in July and early August 2009 asking if the defendant would be prepared to deliver possession of the Lot to the plaintiff and if so on what terms.

13. On 29 January 2010, the plaintiff acquired from the Government the lease of a site at Aberdeen (“the Aberdeen Site”) for a term of five years to commence from 16 March 2010. The Aberdeen Site was designated for setting up a concrete batching plant.

The judgment

14. The judgment of the judge (“the Judgment”) ran into 88 pages. We will only mention the salient findings relevant to this appeal.

15. Mr Leung and Mr Zen were the protagonists in this action. Both are intelligent, seasoned businessmen. The judge was not impressed with Mr Leung as a witness. He found Mr Leung evasive, trying to hide things from the court, and making up evidence as he went along in cross-examination. In assessing Mr Leung’s evidence, the judge had approached his evidence with caution, and did not rely on it unless backed up by solid contemporaneous documents[1]. And whenever the evidence of Mr Leung differed from that of Mr Zen, the judge had preferred the evidence of the latter generally, except for those instances specifically mentioned in the Judgment[2].

16. The judge rejected the defence that it was the plaintiff who was responsible for the defendant’s failure to deliver possession of the Lot to the plaintiff by the commencement of the Lease on 20 December 2008. He found the defendant in breach of the Lease in failing to deliver possession of the Lot to the plaintiff on the commencement date or at all. As mentioned earlier, there is no appeal on liability.

17. The greater part of the Judgment was concerned with damages and a major issue was whether the plaintiff had failed to mitigate its loss.

18. The plaintiff’s claim for damages had gone through substantial changes in the three years it took for the action to come to trial. When the statement of claim was filed in March 2009, the claim was for $200 million. This was reduced to $90 million when the statement of claim was amended in October 2010. An exhibit produced in the course of the trial in early December 2012 put the figure at $87 million. In the written closing submission of the plaintiff on 21 December 2012, it was further reduced to $42 million odd, alternatively to $12 million odd. The claim of $42 million was based on the difference in rental value between the Lot and the Aberdeen Site and the latter being obtained as a substitute and comparable site. This claim was not pursued in earnest at the trial[3] and was rejected by the judge[4].

19. The judge awarded total damages in the sum of $7,463,708.60 and set out his findings conveniently in table form at §121 of the Judgment:

Claim Amount claimed $ Result
(1) Expectation loss
(a) Difference in rental value 39,210,480 Disallowed
(2) Reliance loss (wasted expenditure)
(b) Option fees 300,000 Allowed & awarded
(c) Waiver and administrative fee 2,168,420 Allowed & awarded
(d) Consultancy fee 664,720 Allowed & awarded
(e) Removal of structure 1,250,000 Allowed & awarded
(f) Legal fee and stamp duty 53,902 Allowed & awarded
(g) Operational overheads 5,671,371 Only $1,517,706.60 allowed & awarded
(3) Incidental loss
(h) Plant storage costs 258,648 Disallowed
(4) Restitution interest

(i) Rental deposit 440,000 Allowed & awarded
(5) Loss in reasonable attempt to mitigate
(j) Costs in
...

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