GIANT RICHES LTD. v. CAPTAIN PRODUCTS LTD.

HCA14339/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14339 OF 1999

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

_________________________

Assessment of Damages

_________________________

1. This is an assessment of damages for breach of contract.

2. The Plaintiff is the developer of a residential block known as " The Panorama" located at 520-526 Castle Peak Road. The Defendant was the purchaser of Flat G on the 20th floor of the building.

3. By an agreement signed between the Plaintiff and the Defendant on 5 August 1997 the Defendant agreed to buy and the Plaintiff agreed to sell the said property at a purchase price of HK$5,580,000.

4. The Second Schedule of the Agreement specified the payment schedule:-

(i) The sum of HK$837,000 (including the initial deposit of HK$300,000) as deposit money to be paid upon the signing of the Agreement;

(ii) The sum of HK$279,000 as further deposit money to be paid on or before 29 November 1997;

(iii) The sum of HK$279,000 as further deposit money to be paid on or before 29 March 1998;

(iv) The sum of HK$279,000 as further deposit money to be paid on or before 29 July 1998;

(v) The balance of HK$3,906,000 to be paid within 14 days of the Purchaser being notified in writing that the occupation permit covering the property has been issued and the Vendor is in a position validly to assign the Property to the Purchaser.

5. Pursuant to the Agreement the Defendant paid the first three installments, amounting to a total of HK$1,395,000 of deposits towards the purchase of the said domestic premises.

6. The Defendant defaulted payment since. Demands for payment were sent to the Defendant in September 1998.

7. On 13 October 1998 the Plaintiff exercised its right under clauses 19(i) and (ii) of the Agreement to:-

(i) determine the Agreement;

(ii) forfeit the portion of the Defendant's deposit representing 10% of the purchase price of the property; and

(iii) retain sums over and above 10% of the purchase price paid as security under the agreement for the payment of compensation for loss or damage suffered by the Plaintiff arising from the Defendant's default.

8. On 17 October 1998 the Plaintiff exercised its power of resale in accordance with clause 19(iii) of the Agreement and re-sold the said unit at HK$2,673,000.

9. On 4 September 1999 the Plaintiff instituted the present proceeding to seek recompense from the Defendant.

10. On 8 April 2000 with the consent of both parties judgment was entered in favour of the Plaintiff for damages to be assessed.

Quantum of Damages

11. The Plaintiff now quantifies its damages with reference to the following heads:-

(i) Deficiency loss between the purchase price and the re-sale price with credit given to the deposits received from the Defendant;

(ii) agency fees paid to effect the resale of the property;

(iii) legal costs incurred as a result of the Defendant's breach; and

(iv) interest on the defaulting sums.

Deficiency Loss

12. The Plaintiff successfully re-sold the property for HK$2,913,570 on 17 October 1998 to two joint named purchasers through a real estate agency firm. These buyers subsequently changed their mind and opted for a 70% mortgage of the purchase price as opposed to a 90% mortgage which parties originally bargained for on 17 October 1998. On 5 January 1999 parties entered into a further agreement to revise the purchase price to HK$2,673,000. According to the surveyor report produced by the Plaintiff, market value of the property was assessed to be HK$2.621 millions on 17th October 1998.

13. As the Plaintiff was able to secure a buyer for HK$2,913,570 on 17 October 1998, the price of HK$2,913,570 ought to represent a fair market price at the time of the resale of the property. The fact that the Plaintiff had subsequently chosen to enter into further agreement with the new purchasers to revise the purchase price to a lower sum ought not prejudice the position of the Defendant. The sum of HK$2,913,570 reflected the purchase price a willing buyer would pay on 17th October 1998. The deficiency loss suffered by the Plaintiff was therefore a sum of HK$ 1,271,430, after deducting the resale price and the payments made by the Defendant from the originally stipulated contract price ( i.e. HK$5,580,000- HK$2,913,570 - HK$ 1,395,000 ).

Agency Fees

14. As an incentive to attract quick re-sale, the Plaintiff offered 1.5% commission to real estate agents and paid complimentary legal fees on behalf of the buyers. Debit note and invoice were produced to show that the Plaintiff had paid Midland Realty Limited agency fees of HK$40,095, representing 1.5% of the resale price, for its service of negotiating the successful re-sale of Flat 20-G.

Legal Costs

15. The Plaintiff incurred a sum of HK$13,500 legal costs as a result of the Defendant's breach. This comprised of a sum of HK$3,500 paid towards the discharge of the Defendant's interest in the property and another sum of HK$10,500 paid on behalf of the subsequent buyer towards effecting the re-sale. The HK$10,000 legal costs was extra expenses incurred by the Plaintiff. For pursuant to clauses 14, 16, 31(iv) & 31(v) of the original sale and purchase Agreement, the Defendant was the party responsible for shouldering these legal costs had the Agreement proceeded to fruition.

Interest

(i) Contractual Interest

16. Clause 3(v) of the sale and purchase agreement permitted the Plaintiff to charge overdue interest at 2% above the prime rate specified by the Hongkong and Shanghai Bank. I accept the Plaintiff was entitled to claim contractual interest at 2% above the prime rate specified by the Hongkong and Shanghai Bank on the sum of HK$279,000 from 30 July 1998 to 13 October 1998.

17. The Plaintiff also sought to claim interest at the contractual rate on the unpaid balance of the purchase price of HK$4,185,000 from the date of termination of the Agreement on 13 October 1998 to the date of re-sale on 17 October 1998. I do not accept the Plaintiff to be entitled to such interest. Pursuant to the Agreement the Defendant's obligation to pay the balance of the purchase price did not arise until receipt of notification of the issuance of the occupation permit. The Defendant had a 14 days period to abide. Occupation permit of the said property was not issued until 16 December 1998. On the day of the termination of the Agreement on 14 October 1998, the Defendant's obligation to pay the balance of the purchase price had not yet arisen.

(ii) Commercial Interest

18. In accordance with the payment schedule the Plaintiff was not in a position to call upon the Defendant to make payment of the balance of the purchase price until issuance of the occupation permit on 16 December 1998. Assuming that the occupation permit was received 2 days after it was issued and valid notice to pay was served upon the Defendant two days after the occupation permit was received, the Defendant was not considered to be in default until 14 days thereafter, i.e. after 3 January 1999. The Defendant was not considered to be in default until 4 January 1999. Commercial interest on the deficient sum is only chargeable from 4 January 1999 onwards.

19. In the Court of Appeal decision of Komala Deccof & Co v Perusahaan Pertambangan [1984] HKLR 219 Mr. Justice Cons.J.A. said the award of interest, other than contractual, would be a matter of discretion of the court. Mr. Justice Cons opined that 1% above prime would be the appropriate rate to apply for small and less well established concern.

20. The Plaintiff before me is a member of the Lai Sun group, one of the major land developers in Hong Kong, whose borrowing power is likely to be stronger than any small or medium scale of operation. Besides, during the economic downturn, it was not unknown that banking institutes did grant bank loans at rates below prime.

21. In the trading climate of 1998 and 1999, it would not be inequitable to assume a lending rate at prime for major land developing groups.

Conclusion

22. On balance I accept the following computation reflects a fair quantification of the damages suffered by the Plaintiff, and I do award judgment in favour of the Plaintiff in the following sums:-

(i) HK$ 1,271,430 deficiency loss;

(ii) HK$40,095 agency fees;

(iii) HK$13,500 legal costs;

(iv) overdue contractual interest at 2% above the prime rate specified by the Hongkong and Shanghai Bank on the sum of HK$279,000 from 30 July 1998 to 13 October 1998; and

(v) commercial interest on the deficient sum of HK$1,271,430 at prime rate from 4 January 1999 to the date of judgment.

23. Interest accrues at judgment interest rate from the date of judgment to the date of payment.

24. I further grant order nisi for costs in favour of the Plaintiff, with certificate for counsel, for the assessment hearing. Unless parties apply to be heard further on the question of costs, this order nisi would become absolute at the expiration of 14 days from the date of this judgment.