MILLION RICHLY LTD v. SIU SUK YIN

HCA2403/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2403 OF 2008

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BETWEEN

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J U D G M E N T

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I. INTRODUCTION

1.  This is an assessment of damages arising out of an aborted sale of a property known as No. 8 Monterey Avenue (House Type M2), Royal Palms Phase A, Wo Shang Wai, Yuen, New Territories (“the Property”).

2.  Judgment by consent was entered on 23 March 2009 against the Defendant with damages to be assessed and costs reserved.

II. The Factual Background

3.  Pursuant to an agreement in writing dated 15 February 2008 (“the Agreement”), the Plaintiff agreed to sell and the Defendant agreed to purchase the Property at the price of HK$8,380,000.00 with completion to take place on or before 23 July 2008.  The Defendant paid deposits of HK$838,000.00 or 10% of the purchase price as required.  The Defendant was to pay the balance of the purchase price in the sum of HK$7,542,000.00 on completion of the Agreement.

4.  The 23 July 2008 came and went and the Defendant failed to complete the sale of the property by paying the balance of the purchase price.  By letter dated 23 July 2008, the Plaintiff, through its then solicitors, accepted the Defendant’s repudiation and forfeited the deposits.

5.  Within days of the Defendant’s default, on 31 July 2008 the Plaintiff instructed Midland Realty Ltd. (“Midland Realty”) to offer the Property for resale at the price of HK$7,800,000.00.  There was no interest from any prospective buyers.

6.  On 15 October 2008, the Plaintiff instructed Midland Realty to reduce the asking price to between HK$6,000.000.00 and HK$6,800,000.00.  This exercise was equally unproductive.

7.  On 5 November 2008, the Plaintiff gave instructions to Midland Realty to further reduce the asking price to HK$5,350,000.00 in the hope of achieving a resale.

8.  The Plaintiff entered into a provisional agreement to resell the Property on 27 November 2008 for a considerably lower price of HK$4,950,000.00.    The formal agreement was signed on 10 December 2008 and the sale was completed on 20 February 2009.

9.  Having sustained financial loss in the resale against a depressed property market, the Plaintiff has sought damages in the sum of HK$2,592,000.00 plus interest after giving credit for the forfeited deposits.

10.  None of what has been set out thus far was controversial.

11.  Very broadly summarized, the Defendant contended that by unreasonably setting the resale price higher than the market value of the Property on 31 July 2008, the Plaintiff had made it difficult to achieve a resale.  The higher asking price was possibly motivated by the Plaintiff’s wish to profit from the Defendant’s breach.  In the circumstances, the Plaintiff had failed to mitigate its loss and was entitled to no more than much reduced damages being the difference between the contract price and the market value of the Property at the date of completion less the forfeited deposits.

iii. THE Applicable Legal Principles

12.  The normal measure of damages following a failure to complete a sale of property is the contract price less the market price at the contractual time fixed for completion of the sale of the property: McGregor on Damages 18^th ed., para 22-034.  The court has power to adopt another date for assessing damages to avoid injustice to an innocent party: Barnsley’s Conveyancing Law and Practice, 4^th ed., Chapter 22, Part C2(a) at p. 657; Johnson v Agnew [1980] AC 367 at 401.

13.  Assessment by reference to the value of the property at a date other than the contractual date for completion is both permissible and just if warranted by the circumstances as can be discerned from the line of authorities cited: see for instance Lau Suet Ling and Another v Ng Goon Lau Joseph, HCA 20578 of 1998, 8 October 1999, unreported; Teng Fuh Company Ltd v Keen Lloyd (Holdings) Ltd, HCMP 2438 of 1998, 27 May 1999, unreported, a decision upheld on appeal under CACV 193 0f 1999, 5 November 1999; Iki Trading Ltd v Ho Ting Sun, HCA 2075 of 1998, 1 February 2000, unreported; Lui Chun Wai v Tsan Hing Chung (2000) HCA 20373 of 1998, 4 May 2000, unreported.  It is however important to bear in mind that the decisions are necessarily case sensitive.

IV. Analysis of The Evidence

14.  The Plaintiff’s written instruction dated 31 July 2008 appointing Midland Realty as its non-exclusive agent to market the Property within 8 days of the Defendant’s admitted failure to complete the sale set the listing price at HK$7,800,000.00.  It also authorized Midland Realty to sub-list the property to other estate agents.  The authorization was signed on the Plaintiff’s behalf by its director, PW1 Mr. Ip Kin Lap (“Mr. Ip”).  Centaline Property Agency Ltd (“Centaline”) was also orally instructed at about the same time to assist with the listing.  In the circumstances, it is patent that the Plaintiff was acting promptly to resell the Property to minimize its loss.

15.  Mr. Ip explained that the listing price of HK$7,800,000.00 was set as he was aware that the market prices of properties had generally fallen when compared to the earlier part of the year when the failed transaction was entered into.  Was the asking price so unrealistic and disproportionate to what the available market could sustain at the time so that the Plaintiff could be said to have acted unreasonably and accordingly failed in its duty to mitigate as urged by the Defendant?

16.  According to the Joint Expert Report of the parties, the open market value of the Property as at 23 July 2008 was HK$7,000,000.00.  The expert evidence indicated that the price indices for the New Territories demonstrated that in the months of July and August of that year, property prices were relatively stable with the Property being reasonably marketable as at 23 July 2008.  What remains incontrovertible is that property prices have undoubtedly fallen since the date of the contract.  In reality, the asking price was no more than a little over 10% of the market value that was assessed some considerable time after the event.  The Plaintiff did not possess the information now available from the survey reports at the end of July 2008.  Much could be said with the benefit of hindsight.  Mr. Ip on behalf of the Plaintiff went about attempting to resell the Property with such information that he had at the material time.

17.  Mr. Ip testified that he had made enquiries from Midland Realty and Centaline and was told that the general market price for the Property should fall somewhere within the range of HK$7,000,000.00 to HK$8,000,000.00.  He was perfectly entitled to rely on the experience and suggestion of these established property agents with their fingers on the pulse of the property market. He decided to list at HK$7,800,000.00, a median figure so as to afford some room for bargaining which he fully expected from potential buyers.

18.  In assessing the market value of the Property as at 23 July 2008 at HK$7,000,000.00, the joint valuers examined 4 comparables, one of which, a semi-detached as against the Plaintiff’s terraced house, had a transaction date of 24 July 2008.  The house was sold for HK$7,720,000.00.  Seen against this fact (which was unavailable to the Plaintiff until the Joint Valuation dated 23 December 2011 was issued), how could it be said that the listing price at that time was exorbitant, unreasonably high or so optimistic as to be out of step with what the market could fetch?

19.  Mr. Ip explained that the asking price was but an “offering” price. With counter offers likely from potential buyers, he said the price attainable upon resale was likely to be less than what was originally sought.  Price negotiation in property transactions is not an uncommon feature.  As transpired there was no interest not to mention any offer in the Property that remained untenanted since November 2007 although Mr. Ip was aware that the listings had attracted some viewings.  Had he placed the Property on the market at or near the assessed value of HK$7,000,000, with the price possibly or likely to be bargained down and a sale resulting, the Plaintiff might well stand accused of selling for under value to the detriment of the Defendant.

20.  In going about reselling the Property with reasonable diligence and expedition, I am satisfied to find that Mr. Ip was simply trying to get the best possible price that was consistent with what he then understood of the prevailing market conditions.  He did not have the benefit of property statistics nor should he have been expected to assess pricing by commissioning expert valuation before fixing the price.  Nor has it been suggested he had such information or should have done so. What he did was no more than was reasonably required of him in mitigating the Plaintiff’s loss.  He was perfectly entitled to seek and rely upon the information and experience of the estate agents retained by him when fixing the price for resale.  It was not suggested that these agents were expert valuers (which they clearly were not) but their knowledge of and general advice on property prices from daily exposure to the property market was undoubtedly useful.

21.  By adopting a higher price than the assessed market value as a starting point at the end of July 2008, it was suggested that the Plaintiff was endeavoring to make a profit from the Defendant’s breach of contract.  Nothing could be further from reality on the evidence in my view.  The onus of proof of any failure to mitigate falls squarely upon the Defendant.  That burden remained undischarged in my judgment.

22.  As the Property continued to fail to attract any interest or offers, Mr. Ip instructed Midland Realty on 15 October 2008 to lower the listing price to a range of HK$6,000,000.00 to HK$6,800,000.00.  This did not have the desired effect for the Property remained unsold.

23.  From the expert reports, it is clear that the global financial crisis unfolding at or about the end of September 2008 causing an alarming slump in the property market was beginning to be keenly felt.  Mr. Ip being uncertain whether further deterioration of the property market would occur instructed Midland Realty on 5 November 2008 to reduce the price to HK$5,300,000.00.  The Property was eventually sold to a buyer for HK$4,950,000.00 on 27 November 2008 some 4 months after the Defendant’s repudiation.  Its assessed market value on the same date was just a little higher at HK$5,000,000.00.

24.  The price realized consistent with the joint valuation can legitimately be taken as the best evidence of the market price when the sale finally took place.

25.  On the evidence the Plaintiff was wholly justified in pursuing damages by reference to the much reduced price of the Property realized only on 27 November 2008.  In my view, it is only just and appropriate to adopt the resale date rather than the completion date in assessing the Plaintiff’s loss.

26.  The Plaintiff is therefore entitled to damages in the amount of HK$2,592,000.00 being the difference between the contract price of HK$8,380,000.00 and the resale price of HK$4,950,000.00 less the deposits forfeited of HK$838,000.00.

V. Interest

27.  The Defendant submitted that the Plaintiff was dilatory in prosecuting its claim after consent judgment on liability was entered on 23 March 2009 for almost 3 years until the directions for assessment were issued on 18 January 2012.  Accordingly, interest for the period should be disallowed.  This was opposed.

28.  The Defendant could have taken a more proactive approach in the period in question to bring the assessment on sooner.  This she did not do.  The Plaintiff had to commission its own expert valuation as did the Defendant.  In that period and beyond, the Defendant had use of funds from which assessed damages would be paid.  I do not find that there was undue delay in the circumstances of the case.

VI.CONCLUSION

29.  The Plaintiff having effectively abandoned its other claims relating to wasted legal costs, stamp duty and agency fees shall be awarded damages in the sum of HK$2,592,000.00 with interest thereon at judgment rate until full payment from the date of the entry of interlocutory judgment.

30.  As for costs, the Plaintiff shall be entitled to the costs of the action as also the costs of the assessment including any costs reserved in respect thereof, taxed failing agreement with certificate for counsel in the assessment.