YUN KEE KITCHEN LTD v. LUK KWAN AND ANOTHER

HCMP 5/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 5 OF 2009

(On an Intended Appeal from DCCJ 4904/2006 and
DCCJ 90/2007(Consolidated))

___________________________

BETWEEN:

YUN KEE KITCHEN LIMITED
(容記小菜王有限公司)
Plaintiff/Respondent
and
LUK KWAN and LUK PAK LING Defendants/Applicants

(Consolidated pursuant to the Order of Master K.W. Wong
made on the 26th day of January 2007)

Before: Hon Cheung and Yuen JJA in Court

Date of hearing and judgment: 10 February 2009

Date of reasons for judgment: 13 February 2009

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REASONS FOR JUDGMENT

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Hon. Yuen JA (giving the judgment of the court):

1. This is an application for leave to appeal from a judgment of District Judge Lok given on 23 September 2008. Leave was refusedby the judge and by Tang V-P on paper. At the conclusion of the hearing, we dismissed the application and indicated that writtenreasons will be handed down. These are our reasons.

Background

2. The Defendants were the owners of a building. They rented out the ground floor to the Plaintiff for a period of 3 years startingNovember 2005. The Plaintiff used it as an annexe for its restaurant which was in an adjacent building. The annexe was used asa VIP room and attached karaoke room. Food from the Plaintiff’s restaurant was taken to the guests in the annexe.

3. Water leaked from the podium above the annexe starting in November 2005. The judge found that the annexe could still be used toa certain extent from January to March 2006 but that the situation deteriorated to the point that the Plaintiff was justified instopping operations in April 2006. For a period thereafter the parties were engaged in protracted discussions through their respectivesolicitors regarding inspection and responsibility for undertaking repairs. The Plaintiff also made a complaint to the Food andEnvironment Health Department which undertook inspections. The Plaintiff eventually undertook repairs and resumed operation of theannexe in January 2007, 10 months after stopping operations.

Proceedings

4. The Plaintiff sued the Defendants for an injunction and damages for loss of profit and the cost of repairs.

5. The Defendant filed a Defence and Counterclaim for arrears of rent. It was common ground that the Defendants had not received therent ($24,000 per month) for the 28 months from 1 June 2006 to date of trial (September 2008).

6. A number of issues were raised at trial which the judge dealt with in his judgment.

Judgment

7. In his judgment the judge held that the Plaintiff was entitled to loss of profit from the annexe for the period of 10 months fromApril 2006 to January 2007 and he accepted the Plaintiff’s evidence that the net loss of profit was $30,000 a month (para. 17). He also found that the cost of repairs was $31,000. Therefore the Plaintiff was entitled to net profits of $300,000 for that periodof 10 months and $31,000 as costs of repairs.

8. As I have said, it was common ground that the Defendants had not received rent at $24,000 per month for the 28 months from 1 June2006 to date of trial (September 2008). The total figure would be ($24,000 x 28 mos) = $672,000.

9. To calculate the set-off, the judge adjusted the claim for the Plaintiff’s net profits to arrive at gross profits of $54,000 for the 10 months ($540,000). He then deducted this sum and the cost of repairs from the arrears of rent, arrivingat $101,000 ($672,000 – $540,000 – $31,000).

Application for leave to appeal

10. In the draft Notice of Appeal, the Defendants do not dispute the judge’s calculations or the award for cost of repairs but theyseek to challenge the judge’s award of loss of profit.

Grounds 1,2 and 6

11. Grounds 1, 2 and 6 of the draft Notice of Appeal are concerned with the judge’s finding that the net profit from the annexe was$30,000 a month.

12. The Defendants argue first that this was a bare assertion from the Plaintiff as the judge had rejected the accountant’s reportwhich sought to support the Plaintiff’s claim for a larger sum. The assessment in that report was on the basis of dividing thetotal takings by the total number of seats in the adjoining restaurant and the annexe, and then applying that to the number of seatsin the annexe. In his judgment the judge rejected that approach as the annexe was not used regularly.

13. However that was not the only evidence on loss of profit. In the course of cross-examination of Mr Yik the Plaintiff’s director,the Defendants’ then counsel directly asked Mr Yik to estimate the net profit from the annexe (Transcript p.61-D). It was thenthat Mr Yik gave the figure of $30,000 a month (Transcript p.61-E). The judge then asked Mr Yik a series of questions on this figure(Transcript p.61-62), but the Defendants’ counsel did not further challenge it. The judge found that Mr Yik was a reliable witnessand awarded damages on that evidence.

14. So whilst it is true that the figure of $30,000 a month had not appeared in Mr Yik’s Witness Statements and may have caught theDefendants by surprise, this evidence was given in reply to a question from the Defendant’s counsel who invited Mr Yik to makesuch an estimate. If the Defendants wished to challenge this figure, they could have done so by further cross-examination , andthey might even have asked for an adjournment for further discovery if necessary. They did not do so. Accordingly the judge wasentitled to accept this piece of evidence.

15. The Defendants also argued that the net profit of $30,000 should have been smaller because other than rent for the annexe, the judgeshould have taken into account staff salaries and various expenses. In this respect the judge was entitled to accept the Plaintiff’sevidence that the food for the annexe was provided in the nature of “take-away” from the adjoining restaurant and there wereno additional staff salaries for the annexe. Other outgoings such as electricity etc had already been taken into account when makingdeductions from the turnover of $110,000 a month (Transcript p153-U).

16. The Defendants also argued that the judge had found that the annexe could still be used in January – March 2006 but the Plaintiff’sown evidence was that there was a drop of business of 50% and 80% during that period. They therefore argued that the judge shouldnot have accepted that the Plaintiff would have been able to continue making the same amount of net profit of $30,000 a month afterNovember – December 2005.

17. The short answer to this point is that the judge found that there was nothing to substantiate Mr Yik’s estimate of the drop inbusiness of 50% – 80% (para. 21). That was the reason why the judge declined to make an award for the period before April 2006. Implicit in this was the judge’s acceptance that the Plaintiff had continued to make a net profit of $30,000 a month until theannexe had to be closed in April 2006.

18. As for the Defendants’ argument that the audited accounts showed that gross profit for the year ended March 2007 was greater thanMarch 2006, with respect I do not understand the point. Takings vary from year to year for all sorts of reasons.

19. Finally as to the alleged discrepancies in the evidence (the use of the VIP room and the question of odour), the judge was entitledto prefer the evidence of the Plaintiff to its expert, who was not called to provide expert evidence on the use of the room or thepresence of odour.

20. In conclusion the above arguments are essentially attacks on the judge’s findings of fact. It is well-established that an appellatecourt would not likely interfere with a trial judge’s findings of fact. Accordingly we do not see any realistic prospect of successon these grounds.

Ground 3

21. Ground 3 is concerned with the mitigation of damages. The water leakage was in the karaoke room. The judge held that a sensiblebusinessman would have tried his best to make use of the VIP room even if the karaoke room could not be used (para. 20). Thereforethe Defendants argue the judge was wrong to have found that the Plaintiff was entitled to close down the annexe completely and tolodge a claim for damages accordingly.

22. The judge had found that the availability of the karaoke room was important to the VIP guests (para. 19). Reading para. 20 of thejudgment carefully, the judge was in fact saying that the Plaintiff had no option but to close down the annexe (“ As there was no guarantee that the Plaintiff would be able to recover any damages from the Defendants, a sensible businessman should have tried his very best to make some use of the [VIP] room ... and yet the Plaintiff had to close down its operation in the Premises altogether …”). There was no inconsistency in the judgment. Accordinglywe do not see any realistic prospect of success on this ground.

Grounds 4 and 5

23. The Defendants also argued that the Plaintiff was guilty of failure to mitigate in waiting to carry out repair work and there wereother methods of repair which did not require the Plaintiff to trespass on the Defendants’ property. It seems to be implicit thatthe Defendants accept the judge’s finding that the Plaintiff could not be expected to institute legal proceedings for an injunction(para. 24).

24. In light of the evidence this argument has no realistic prospect of success and is unattractive. It is clear from the evidencethat there were protracted discussions between the parties through their solicitors up to September 2006. During this period theDefendants did not commit themselves to undertaking repairs nor did they categorically refuse to do so, so the Plaintiff’s reluctanceto expend money itself to undertake repairs on the Defendants’ property is perfectly understandable. As for the period from September2006 to the end of the year, the Plaintiff had lodged a complaint to the food health authorities in June 2006 with a view to theauthorities issuing an order to the Defendants to undertake repairs. This was obviously a less expensive remedy for the Plaintiff. However the inspections were not finished until the end of the year. Finally, although there were other methods of repair withoutinvolving trespass, they were more expensive (Transcript p.71-T – p.72-C). The judge was entitled to find on that evidence thatthe Plaintiff had acted reasonably in holding off incurring expenses to undertake repairs until after the end of the year 2006. That is a finding of fact, an appeal against which would not have a realistic prospect of success.

Ground 7

25. Finally the Defendants complain that they should have been awarded the costs of 2 summonses taken out by the Plaintiff (the first,to strike out the witness statement of the 1st-named Defendant’s son and the second, to call the 1st-named Defendant to attend court to give evidence).

26. Costs are in the discretion of the trial judge . The judge found that the Plaintiff was entitled to issue those summonses as itwas not until the first day of trial that there was medical evidence that the 1st– named Defendant was suffering from dementia and thus could not personally give evidence, with the result that it fell to her sonto have to give hearsay evidence (see the Decision given on 18 December 2008). We see nothing at all to suggest that the appellatecourt should interfere with the judge’s exercise of discretion.

Order

27. For these reasons, we dismissed the application for leave to appeal.

(PETER CHEUNG)
Justice of Appeal
(MARIA YUEN)
Justice of Appeal

Mr Kenneth Y F Wong instructed by Yung Yu Yuen & Co for the Defendants/Applicants