(A) Introduction
Far East Rent-A-Car Limited v. Favour Link International Limited (DCCJ 1206/2023, date of judgment: 23 February 2026) [1] arises from an apparently straightforward landlord-and-tenant dispute. However, it serves as a timely reminder to all litigants of two fundamental obligations: (1) to take their duties of documentary disclosure seriously; and (2) to conduct litigation realistically, by properly assessing both the merits of their case and the quantum of their claim.
The Plaintiff (“P”) commenced proceedings against the Defendant (“D”) on the ground that D’s breach of the quiet enjoyment clauses in three lease and licence agreements (the “Agreements”) was repudiatory. The main issue was whether P had accepted that repudiation or, alternatively, affirmed the agreements by its words or conduct. The Court held that P’s affirmation was unequivocal and irrevocable. Ultimately, P recovered a net sum of only HK$61,324.50, which was just 2.1% of its original claim of around HK$2.9 million.
As for costs, the Court placed significant weight on the conduct of the parties. It found that P grossly exaggerated its claim and failed in its disclosure obligations. In contrast, D acted reasonably and contested only those issues which merited challenge. As such, the Court ordered P to pay D’s costs of the whole action, inclusive of the counterclaim and all costs previously reserved, to be taxed with Certificate for Counsel if not agreed.
(B) Facts
P rented various shop and office spaces (the “Premises”) in a hotel (the “Hotel”) operated by D under the Agreements. [2]
By letters dated 1 March and 10 March 2022, D requested P to vacate the Premises until further notice, as the Hotel had been designated to participate in the Government's Community Isolation Facility Hotel Scheme (the “CIF Scheme”). [3] P moved out by 11 March 2022. [4] Subsequently, it relocated to a new office and a new shop. [5] On 29 November 2022, P returned the keys of the Premises to D. [6]
P did not reinstate or clean up the Premises. Instead, on 22 March 2023, P commenced proceedings against D, claiming a refund of the deposits paid under the Agreements and damages for breach of the Agreements in the total sum of around HK$2.9 million. [7]
P alleged that D's breach of the quiet enjoyment clauses in the Agreements was repudiatory, and that P had accepted that repudiation. [8]
D admitted that it breached the Agreements, but argued that its breach was not repudiatory. Even if the breach was repudiatory, P had affirmed the Agreements by its clear words or conduct. [9] D also counterclaimed for unpaid rent and reinstatement costs for the period from the cessation of the CIF Scheme up to the natural expiry date of the Agreements. [10]
(C) Decision
Importance of Disclosure
At the outset of the judgment, the Court emphasized that all litigants who elect to use litigation as their means of dispute resolution must take their disclosure obligations seriously. [11]
Further, the Court highlighted the fundamental importance of contemporaneous documents in the judicial fact-finding process. In a commercial or landlord-and-tenant case where a party claims loss of profits, it is insufficient for a director to come to court to give oral evidence estimating losses, without first producing all relevant contemporaneous pre-litigation documents (such as tax returns, audited accounts, signed official receipts, money transfer records, and commercial contracts). While litigants in cases involving informal intra-family arrangements or historical matters may be forgiven for failing to produce certain documents, it is unacceptable for litigants in cases like the present one to deliberately “bury” material contemporaneous documents for no valid reason. [12]
The Court agreed with D’s closing submissions that P plainly failed to disclose or produce a plethora of highly material documents, and that this conduct was unhelpful to the judicial process. [13]
Issue 1: Whether D’s breach of the quiet enjoyment clauses in the Agreements was repudiatory and, if so, whether P accepted the repudiation or affirmed the Agreements by its words or conduct
The Court held that P had unequivocally affirmed the Agreements on the following grounds:
(1) The Court found that in a letter signed by P’s director, Connie, which stated “We will return to RKH”, the use of the word “will” (as opposed to “hope” or “plan”) conveyed a clear intention that P’s departure from the Hotel was temporary and that P expected to resume occupation. When asked in cross-examination why the said letter used such wording if P had accepted D’s repudiation, Connie's explanation was “incomprehensible”. The Court found the said contemporaneous letter more reliable than Connie's oral evidence at the trial. In addition, the Court found the contemporaneous documents, including those referring to “after we officially move back to Regal Kowloon Hotel” and “as usual”, directly contradicted Connie’s assertion that she treated the Agreements as terminated. [14]
(2) As a matter of law, affirmation once communicated is irrevocable. Where an innocent party elects to affirm a contract and communicates that election to the other party, the affirmation becomes binding. There is no need to prove reliance or detriment by the party in default. As such, the question of whether D’s breach was repudiatory became a “red herring”. As such, the Agreements continued to subsist until their natural expiry date, and P could not later change its mind and treat them as repudiated. [15]
Issue 2: Quantum of damages
The Court ordered D to pay P a net sum of HK$61,324.50 on the following grounds:
(1) The Court found that P deliberately failed to produce key financial documents for its claim of loss of profits. As P was represented by solicitors throughout the proceedings, it was highly unlikely that its director did not know that the Court would need to see these documents to verify her bare assertions. Applying the principle that a party cannot benefit from its own failure to disclose, the Court drew an adverse inference that the hidden documents would have harmed P’s case. [16]
(2) The Court found that even if there had been a drop in revenue, P failed to establish that this translated into a drop in profit, or that any such drop was caused by D’s breach rather than other factors such as government policies or changes in consumer behaviour during the pandemic. Connie’s personal and subjective speculation as to why P’s revenue dropped was unhelpful, given her lack of appropriate qualifications and the absence of essential raw data. [17]
(3) The Court agreed with the revised Scott Schedule lodged by D and found that P’s claim for extra rental costs was flawed because it ignored the voluntary rent reduction offered by D and accepted by P, and P failed to establish that the new office and new shop were comparable to the Premises. D fairly accepted that certain sums, such as extra stamp duty and moving costs paid by P, were correct and recoverable. As such, the total damages payable by D to P was assessed at HK$234,764.50. [18]
(4) As the Agreements were affirmed, they continued to subsist until their natural expiry date. The Court held that P was liable for unpaid rent and reinstatement costs from 12 June 2022 to 30 November 2022, totalling HK$541,750. After setting off the deposits paid by P in the sum of HK$368,310, P was ordered to pay D HK$173,440 on the counterclaim. [19]
(5) After setting off the damages owed to P (HK$234,764.50) against the amount owed to D on the counterclaim (HK$173,440), the net sum payable by D to P was HK$61,324.50. [20]
Costs
The Court held that costs of the action, inclusive of the counterclaim and all costs previously reserved, be paid by P to D, to be taxed with Certificate for Counsel if not agreed, on the following ground: [21]
(1) The Court found that P had exaggerated its claim and had acted unreasonably throughout the litigation, particularly in its failure to disclose key documents. It was wholly unreasonable for P to have resisted D’s case that P affirmed the Agreements when the contemporaneous documents clearly showed that to be the case. In contrast, D's conduct in the litigation was exemplary, admitting and conceding issues where appropriate and contesting only those which merited challenge. [22]
(D) Key Takeaways
This case is significant on the following grounds:
(1) Importance of Disclosure: The Court heavily criticized P’s approach to disclosure and its reliance on oral evidence. The Court found that the non-disclosure was a deliberate choice to "bury" unfavourable documents. The Court highlighted that in a commercial claim for loss of profits, oral testimony is insufficient without supporting documentary evidence. Given P’s failure to meet its disclosure obligations, the Court drew an adverse inference that the hidden documents would have harmed P's case. Parties should not cherry-pick which documents to disclose. Hiding unfavourable documents may undermine a party's credibility and its case.
(2) Primacy of Contemporaneous Documents: The Court placed greater weight on contemporaneous documents created before a dispute arose than on oral evidence given at trial. Where a party's oral evidence contradicts the clear meaning of contemporaneous documents, the documents will prevail. Litigants should ensure that their case is grounded in documentary evidence, especially for claims of loss of profits.
(3) Costs Consequences of Exaggeration and Non-Disclosure: P claimed around HK$2.9 million but was ultimately awarded a net sum of only around HK$60,000, which was only 2% of its original claim. The vast discrepancy between the sum claimed and the amount recovered, together with P’s failure to disclose relevant documents, led the Court to order P to pay D’s costs of the whole action, even though P recovered a net sum. This demonstrates that exaggeration of a claim and material non-disclosure may result in adverse costs orders, regardless of the outcome of the action.
[1] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=177610
[2] Far East Rent-A-Car Limited v. Favour Link International Ltd (DCCJ 1206/2023, date of judgment: 23 February 2026), §10
[3] Ibid, §13
[4] Ibid, §14
[5] Ibid, §15
[6] Ibid, §18
[7] Ibid, §19
[8] Ibid, §20
[9] Ibid, §23
[10] Ibid, §24
[11] Ibid, §6
[12] Ibid, §4
[13] Ibid, §5
[14] Ibid, §31
[15] Ibid, §34
[16] Ibid, §36
[17] Ibid, §37
[18] Ibid
[19] Far East Rent-A-Car Limited v. Favour Link International Ltd (DCCJ 1206/2023, date of judgment: 23 February 2026), §38
[20] Ibid, §39
[21] Ibid, §43
[22] Ibid, §41-§42
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