IP SIU KUEN v. CORAL OCEAN SHIPPING LTD

HCA 250/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 250 OF 2009

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BETWEEN

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ASSESSMENT OF DAMAGES

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Introduction

1.  On 31 March 2007, the plaintiff had, by a written agreement (“the principal agreement”), agreed to purchase the property (Flat A on the 45^th Floor of Tower 7 and Private Cars Car Park No. 183 on Car Park Level 5 of Bel-Air No. 8, Bel-Air on the Peak erected on Section B of Inland Lot No. 8969) from the developer at $18,171,600.

2.  On 19 January 2008, the defendant by a sub-sale agreement (“sub-sale agreement”) agreed to purchase the property from the plaintiff for HK$22,000,000.

3.  Under the sub-sale agreement, the defendant duly paid to the plaintiff deposits amounting to $3,300,000 by 3 installments. On the day scheduled for completion on 12 December 2008, the defendant did not tender the balance of the purchase price. On the same day, the plaintiff determined the sub-sale agreement and forfeited the aforesaid deposits under Clause 13(a) of the sub-sale agreement.

4.  The plaintiff completed purchase of the property from the developer on 29 December 2008 and she sold the property at $14,928,000 on 27 April 2009 to a third party.

5.  On 2 February 2009, the plaintiff issued a writ with a statement of claim endorsed. Judgment was entered by consent against the defendant on 4 June 2009 with damages to be assessed and costs of the action up to 4 June 2009 to be taxed and costs of the assessment of damages be in the cause.

Consequences of defendant’s breach of contract

6.  The plaintiff now says that the following consequences ensue because of the defendant’s breach of the sub-sale agreement, relying on clause 13(a) of the sub-sale agreement:

“Should the Purchaser (other than due to the default of the Vendor) fail to complete the purchase in accordance with the terms and conditions herein contained the Vendor may (without tendering an Assignment to the Purchaser) forthwith determine the Sub-sale Agreement …… and the Vendor shall be entitled to forfeit all the said deposit or further deposit paid the to Vendor absolutely.  Upon determination of this Sub-Sale Agreement the Vendor may resell the Property ……  Without prejudice to the Vendor’s right to recover the actual loss which may flow from the Purchaser’s breach of this Sub-sale Agreement, on such resale any deficiency in price shall be made good and all reasonable expenses shall be recoverable by the Vendor.”

7.  Because of the defendant’s failure to complete the sub-sale agreement, the legal expense incurred in the sub-sale agreement was wasted.

8.  Furthermore, the plaintiff was bound by the principal agreement to complete the purchase of the property. She arranged and paid for financing to complete the purchase under the principal agreement in order to minimize the loss.

9.  In additional, prior to the resale of the property, the plaintiff had to pay management fees and other miscellaneous expenses including rates and government rent in maintaining the property.

10.  The plaintiff endeavoured to enter into another provisional sale and purchase agreement to sell the property on 24 February 2009 [Bundle 318-319] i.e. less than 3 months after the defendant’s repudiation of the sub-sale agreement. The agreement for sale and purchase was made on 10 March 2009 [Bundle 320-338] and completed on 27 April 2009 [Bundle 346-356].

11.  Because of the impact of the global financial crisis, which commenced in about end of 2008, the plaintiff was only able to sell the property at HK$14,928,000. The plaintiff had to incur agency and legal fees as well as financing charge in completing the resale of the property.

12.  Given that the defendant had already paid deposit of HK$3,300,000, which had been forfeited to the plaintiff, the plaintiff therefore claims HK$3,772,000 plus other consequential loss and damage, which are further particularized below.

The consequential loss and damages

13.  The consequential loss and damages suffered by the plaintiff in this case include the following:

(HK$)

Costs wasted in the sub-sale agreement

(i)

Legal costs incurred in the sub-sale agreement [Bundle- 228]

24,910.00

Costs incurred in completing and financing the purchase of the property under the principal agreement

(ii)	Administration Charges for postponing the purchase under the principal agreement [Bundle-118] (see paragraphs 10-11)	5,304.00
(iii)	Legal costs to vendor’s solicitors under the principal agreement [Bundle-316], which could have been charged to the defendant under the sub-sale agreement (see Clause 6(a) and 8(b) of the sub-sale agreement, and Clause 12(1) of the principal agreement)	11,316.00
(iv)	Legal costs to plaintiff’s solicitors under the principal agreement (including of the costs and disbursement for preparing and registering for mortgage) [Bundle-316], which could have been charged to the defendant under the sub-sale agreement or would have been unnecessary if not because of the defendant’s breach (see Clause 6(a) & 7 of the sub-sale agreement)	11,400.00
(v)	Interests for mortgage loan repaid [Bundle C p. 312, p. 342]
	§  by 29.1.2009	23,150.12
	§  by 28.2.2009	22,274.95
	§  by 29.3.2009	21,406.26
	§  by 29.4.2009	22,745.45
(vi)	Cash rebate from mortgage loan [Bundle-313]	-45,429.00

Costs incurred in maintaining the property prior to the resale

(vii)	Debris Removal Charges [Bundle –134]	4,304.00
(viii)	Management fees (2 months advance	776.00
	payment) [Bundle 133-134]	8608.00
(x)	Management fees for March 2009 [Bundle-136]	4,727.00
(xi)	Management fees for April 2009 [Bundle-138]	4,727.00
(ix)	Difference in management fees [Bundle –135]	168.00
(xii)	Rates and Government Rent	147.00
	[Bundle-373-374]	4,637.00

Costs incurred in the resale of the property

(xiii)	Legal costs for the resale of the property [Bundle-357-358]	10,550.00
(xiv)	Penalty for early redemption of mortgage (2% of original loan advanced of HK$9,085,800) [Bundle-342-343]	181,716.00
(xv)	Estate agent’s commission for the resale of the property [Bundle-319]	149,280.00
TOTAL		466,717.78

14.  In the premises, the Plaintiff claims against the defendant the total outstanding loss and damage in the amount of HK$4,238,717.78 ($3,772,000+$466,717.78) and interest on the said outstanding damages from the date they were incurred to the date of judgment at such rate as the Court may think fit pursuant to Section 48 of the High Court Ordinance (Cap. 4), and thereafter from date of judgment to date of payment at judgment rate pursuant to section 49 of the High Court Ordinance (Cap. 4).

Defendant’s objections

15.  In Mr. Cheung’s written submission, the defendant submits that there are 3 issues that fall to be decided by the Court:

(a)  Whether the administrative fee, legal costs and disbursements relating to the mortgage and the mortgage loan interests are loss or damages flowing from the defendant’s breach of the sub-sale agreement?

(b)  Whether the management deposits, building fund and public utility deposits are loss or damages suffered by the plaintiff?

(c)  Whether the debris removal charges and monthly management fees are loss or damages suffered by the plaintiff that was flowing from the defendant’s breach of the sub-sale agreement?

See paragraph 6 of Mr. Cheung’s written submission.

16.  The defendant has no objection to the plaintiff’s claim for costs incurred in the resale of the property, viz. 13 (xiii), (xiv) and (xv).

17.  However, at the hearing, Mr. Cheung raised the following 2 issues, which are not in his written submission:

(a)  The plaintiff is not entitled to claim the difference in the contract price and the resale price to the third party because the plaintiff has failed to plead the particulars of the damages in the statement of claim; and

(b)  The plaintiff has not exercised her option of canceling the principal agreement under Clause 11(3) of the principal agreement, for which the plaintiff will only have to pay to the developer 5% of the purchase price.  As such, Mr. Cheung submitted that the plaintiff had failed to mitigate her loss.

18.  Whilst this court may not disallow Mr. Cheung to raise the above issues at the hearing because he has not raised them in his written submission under Order 34 rule 3A, this practice takes plaintiff’s counsel and this court by surprise and should not continue without good reasons. If Miss Ho, counsel for the plaintiff, had asked for an adjournment for her preparation to argue those issues, I would have acceded to her request and the defendant will have to bear all the costs wasted. However, Miss Ho did not ask for an adjournment, I allowed the matter to proceed.

Discussion on the defendant’s objections

19.  As to Mr. Cheung’s suggestion that the plaintiff is not entitled to claim the deficiency in the contracted price under the sub-sale agreement and the re-sale price for the reason that the plaintiff has not pleaded the particulars in the statement of claim, this is not a valid objection. The plaintiff has pleaded the facts leading to the breach of the sub-sale agreement by the defendant, which the defendant has admitted. The plaintiff has also claimed for damages to be assessed. The defendant has agreed to submit to judgment with damages to be assessed. As such, the defendant is simply not allowed to renege on its liability for damages, which is the subject of this assessment under the judgment by consent.

20.  As to the suggestion that the plaintiff has failed to mitigate her loss by canceling the principal agreement with the developer under clause 11(3) of the principal agreement [Bundle-68]. On a careful reading of clause 11, it can be seen that this clause deals with the situation that the purchaser sub-sells the property or transfers the benefit of the principal agreement to another purchaser. I set out below the relevant terms of clause 11 of the principal agreement:

“11.  (1)  The Purchaser shall at any time before completion of the sale and purchase be at liberty to : (a) ……sub-sell the Property or transfer the benefit of this Agreement without any interference or charges by the Vendor or anyone claiming under or through the Vendor; (b) charge or mortgage the Purchase…;(c) instruct another firm of solicitors of his choice to act for him …

(2)  The Purchaser hereby covenants with the Vendor that in the event that the Purchaser sub-sells the Property or transfers the benefit of this Agreement ……, the Purchaser will procure from the sub-purchaser…… a binding obligation in such other agreement to the effect that such sub-purchaser to the effect that such sub-purchaser …shall (i) disclose, by setting out at length in the sub-sale Agreement for Sale and Purchase …full details (including identity card numbers and full addresses) of all confirmors, nominees and other intermediate parties …and (ii) will procure from any subsequent sub-purchaser or other transferee a covenant, in the subsequent sub-sale Agreement for Sale and Purchase or impose a binding obligation in any other agreement, having similar effect as this Clause 11(2).

(3)  In the event of the Purchaser requesting the Vendor agreeing to execute a Cancellation Agreement or any other means which has the effect of canceling this Agreement or the obligations of the Purchaser hereunder, the Vendor shall be entitled to retain the sum of 5% of the total purchase price of the Property as the consideration for his agreeing to cancel this Agreement…and the Purchaser will in addition pay or reimburse, as the case may be, to the Vendor all legal costs, charges, disbursements (including stamp duty, if any) in connection with the cancellation of this Agreement.”

It can be seen that clause 11(3) deals with the situation that the purchaser opts for withdrawing from the principal agreement and requests the developer to cancel the principal agreement so that the sub-purchaser can enter into the agreement for sale and purchase of the property direct with the developer.  This option is not applicable as the defendant had elected not to complete the sub-sale agreement for the purchase of the property.

21.  Under cross-examination by Mr. Cheung, the plaintiff said that she knew such a clause in the principal agreement, but she was not familiar with the legal position and it did not occur to her that she should exercise such option. She had to make the decision within a short period of time and she decided to complete the principal agreement by getting a mortgage from the bank.

22.  Even if such was an option open to her, clause 11(3) provides that it required the agreement of the developer for the cancellation of the principal agreement. It is simply inconceivable that the developer would agree to cancellation of the principal agreement, discharging the liability of the plaintiff from it, given the property market was falling drastically because of the financial crisis at that time, which can be seen from the fact that the price of the property had depressed to $14,928,000 (about 82% of the purchase price under the principal agreement of $18,171600.00) in less that 3 months after the defendant’s repudiation of the sub-sale agreement. I believe this was the reason the defendant decided not to complete the sub-sale agreement.

23.  I hold that Mr. Cheung’s challenge that the plaintiff had failed to mitigate her loss fails.

24.  Mr. Cheung argued in his written submission paragraph 10 that the plaintiff had not specifically brought the state of her financial situation to the defendant’s attention or made it a term of the sub-sale agreement that the plaintiff could not complete the principal agreement but for the money of the defendant. He therefore argued that this head of damages claimed is too remote and outside the normal measure of damages in this type of case, referring to the case of Chan Cheung & Another v Cheerich Ltd. (2001) unreported, HCA 18579/1999 at paragraph 12. The fact of this case is different from the present case. In that case, the plaintiff had entered into an agreement to sell the property to the defendant, but had, in the meantime, also entered into another agreement to purchase another property from another developer. The defendant failed to complete. The plaintiff obtained the consent of the developer to cancel the agreement for the other property. He claimed against the defendant for the loss and expenses for the cancellation of the agreement for the purchase of the other property. In the assessment of damages, Master Chan held that the defendant had no knowledge that the plaintiff had entered into another an agreement to buy another property. Such transaction was not within the defendant’s knowledge and therefore loss and damages were too remote. Obviously, the fact of that case cannot apply to this case here. It is not necessary for the plaintiff to bring the defendant’s attention to her financial position – she was unable to complete the principal agreement without the money from the defendant. This is obvious on the face of the matter because the plaintiff had, by the sub-sale agreement, agreed to assign the benefit of the principal agreement to the defendant upon payment of the purchase price by the defendant. The date of completion of the sub-sale agreement is closely tied in with the period of completion provided in the principal agreement. See page 81 and page 104 of the Bundle. I hold that Mr. Cheung’s argument cannot sustain.

25.  I therefore hold that the plaintiff is entitled to claim the deficiency in price, having taken into account of the deposit paid by the defendant.

26.  As to the costs wasted in the sub-sale agreement under paragraph 13(i), the defendant has no objection.

27.  As to the costs incurred in completing and financing the purchase of the property under the principal agreement and interests for mortgage loan repaid under paragraph 13(ii) to (v) and the costs incurred in maintaining the property prior to the resale under paragraph 13(vii) to (xii) above, the defendant has raised the following grounds of objection:

(1)  The plaintiff did not suffer loss or damage after taking into account of the deposits forfeited.  This ground cannot sustain as I have ruled that the plaintiff is entitled to claim the deficiency in price as explained above.

(2)  The principal agreement and sub-sale agreement are independent agreements.  This is a fact, which does not entitle the defendant to object to the items claimed.

(3)  Those are not consequential losses flowing from the breach of the sub-sale agreement.  It is difficult to appreciate this defence because those losses are clearly caused by the defendant’s breach of the sub-sale agreement.  The principal agreement has been given to the defendant’s solicitors.  The defendant is deemed to understand the obligations of the plaintiff under the principal agreement.  If the defendant is in breach of the sub-sale agreement, the plaintiff will have to meet the contractual obligations under the principal agreement, which she otherwise does not have to if the defendant had performed the sub-sale agreement.

(4)  The defendant is not liable to the plaintiff’s own costs for performing the principal agreement and acquiring the property concerned for her own benefits.  It is difficult to understand what benefits the plaintiff had obtained by performing the principal agreement, which was forced upon her by the defendant’s breach of the sub-sale agreement.

28.  The defendant specifically opposes to the payments of deposits to the Management Company for the property and the public utility companies. But in Miss Ho’s written submission, the plaintiff does not claim for the deposits. See paragraph 13 above.

29.  Mr. Cheung also argued against the plaintiff’s claim for management and other fees saying that those were expenses paid not pursuant to the sub-sale agreement but the DMC. It did not flow from the breach of the sub-sale agreement but rather for services provided by the Management Company. The sub-sale agreement did not provide for continuing loss, therefore, whatever the damages the plaintiff had suffered it would have crystallized at the time when the conveyancing should have occurred, referring to the case of Union Bace Co. Ltd. v Convenient Ltd. (2001) unreported, HCA 3250/1998, para.16-17. In this case, the vendor had not resold the property even at the time of the hearing by Master de Souza. There was no evidence to ascertain when the property would be sold. It is mere speculation that the property would be sold. The property was being leased out for investment. The vendor might decide not to sell the property, in which event, the expense for resale is simply not existent. For the present case, the vendor had already resold the property. The plaintiff has pleaded to claim for the expense for the resale.

30.  I therefore hold that the plaintiff is entitled to claim those expenses for the reason that they are losses caused by the defendant’s breach of the sub-sale agreement. Under the sub-sale agreement, the plaintiff assigns all the benefits and burdens in respect of the property under the principal agreement to the defendant. Those expenses such as the debris removal charges, the management fees, rates and government rent are the burdens on the plaintiff under the DMC. If the defendant had completed the sub-sale agreement and the property were assigned to it, it took over all the burdens under the DMC in respect of the property from the plaintiff. It is clear that the assignment of the property will assign the property subject to and with the benefit of the DMC to the defendant. I also reject Mr. Cheung’s argument that those damages are too remote and outside the normal measures of damages as in Chan Cheung & Another v Cheerich Ltd. (2001) unreported, HCA 18579/1999 for those reasons that I have given under paragraph 27 above.

Conclusion

31.  The plaintiff is entitled to damages assessed at HK$4,238,717.78, particulars of which are set out in paragraphs 11-14 of this Judgment together with interest at the prime rate of the HSBC as from the date of the writ to date and thereafter at the judgment rate until date of payment.

32.  I shall also make an order nisi that the plaintiff shall have the costs of this assessment, including all costs relating thereto and reserved, such costs are to be taxed, if not agreed. This order nisi shall, unless an application has been made to vary it, become absolute 14 days after this Decision is pronounced as provided in Order 42 Rule 5B(6) of the Rules of the High Court.