CHAN WAI CHING v. HUI ON YIN ADA

DCCJ 3807 / 2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3807 OF 2010

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ASSESSMENT OF DAMAGES

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1.  This assessment concerns the sale and purchase of a landed property.

The Sale and Purchase

2.  The Defendant was and is still the registered owner of a property known as Flat C, 2^nd Floor, Hoi Hing Building, Nos. 5 & 7 Mercury Street, Hong Kong (“the Property”).

3.  By a provisional agreement for sale and purchase dated 30^th August, 2010, the Defendant agreed to sell and the Plaintiff agreed to purchase the Property at the price of $2,150,000.  Upon signing of the provisional agreement, the Plaintiff paid an initial deposit of $70,000.  The provisional agreement provided, inter alia, that completion of the sale and purchase was to take place on or before 13 October, 2010 (“the Completion Date”).

4.  The transaction was concluded through the introduction of an estate agent.   Under clause 9 of the provisional agreement, the Plaintiff was liable to pay $21,500 to the estate agent as commission.

5.  The parties then proceeded to instruct their respective solicitors to complete the legal formalities.  Hence, a Formal Agreement for Sale and Purchase was signed on 13 September, 2010 (“the Agreement”) and the Plaintiff paid a further deposit of $145,000, making the total at $215,000.  As usual, the Agreement provided, inter alia, that time was the essence: Clause 5.  I will come to other relevant provisions of the Agreement in the later part of this judgment.

11 October, 2010

6.  Then what would have been an ordinary transaction became a rugged one. What happened was that shortly before the Completion Date, on 11^th October, 2010, the Plaintiff’s solicitors discovered from the up-dated land search record that a Notice of an Application for Ancillary Relief under FCMC No. 13024 of 2010 in which the Defendant was named as the Respondent had been registered at the Land Registry against the Property on 7^th October, 2010.  The matrimonial proceedings were taken out by the Defendant’s husband one Mr. Yeung (“Mr. Yeung”).

12 October, 2010

7.  The Plaintiff’s solicitors raised requisitions on the following day and asked Messrs. T.L. Ip & Co, the solicitors then acting for the Defendant in the sale, to provide written evidence that Mr. Yeung consented to the transaction and that Mr. Yeung agreed to renounce his interest in the Property.  On the same day, by another letter, the Plaintiff’s solicitors informed T.L. Ip & Co. that the Plaintiff might consider to re-schedule the completion date to 15^th November, 2010 on the pre-condition that the Defendant was to provide a Deed of Renunciation executed by Mr. Yeung before the rescheduled completion date and requested T.L. Ip & Co. to revert in writing by noon of 12^th October, 2010. 

8.  No reply was received from T.L. Ip & Co. on 12^th October, 2010.

9.  In the meantime, the Plaintiff’s solicitors received notification from Mr. Yeung’s solicitors alleging that it was Mr. Yeung who had paid the whole of the purchase price for the Property and that Mr. Yeung would have no objection to the completion of the transaction provided that the net proceeds of sale were paid into court pending the final determination of Mr. Yeung’s claims for ancillary relief. 

13 October, 2010

10.  On 13^th October, 2010, the Completion Date, the Plaintiff’s solicitors wrote to T.L. Ip & Co. and related Mr. Yeung’s demand to them and requested for a reply without delay. 

11.  Then in the absence of a reply from T.L. Ip & Co., the Plaintiff’s solicitors issued a second letter accepting the wrongful repudiation of the Agreement by the Defendant and demanding the immediate return of the deposit.

12.  It should be noted that T.L. Ip & Co. did reply the next day agreeing to the postponement but it came too late since the Plaintiff had already accepted the Defendant’s repudiation.

13.  The Defendant did not return the deposit and on 2^nd November, 2010 T.L. Ip & Co. even ceased acting for her.

The Interlocutory Judgment

14.  The Plaintiff then on 5^th November, 2010 commenced the present proceedings against the Defendant.

15.  The Defendant failed to give her Notice of Intention to Defend.

16.  On 12^th May, 2011, Interlocutory Judgment was entered against the Defendant.  Upon the application by the Plaintiff, Mr. Registrar C. Lee granted the Plaintiff the following reliefs:

“(1) A declaration that the Plaintiff is entitled to relief of rescission of the Agreement for Sale and Purchase dated 13^th September 2010 and registered in the Land Registry by Memorial No. 10091702430014 (i.e. the Agreement);

(2) The Defendant do forthwith return the Deposits in the total sum of HK$215,000.00 to the Plaintiff;

(3) The Defendant do pay the Plaintiff damages for breach of the Agreement to be assessed. The Plaintiff do file the Notice of Appointment for Assessment of damages within three months from the date of this Order (ie. 12^th August, 2011);

(4) The Defendant do indemnify the Plaintiff for any commission which the Plaintiff may have to pay the estate agent(s) under the Agreement and/or any provisional agreement(s) therefor;

(5) A lien on the Defendant’s Property (as more particularly described in the Schedule hereto) and on its original title deeds for payment of the said sum of HK$215,000.00, the conveyancing expenses incurred in the purchase of the Property in the sum of HK$15,500.00 and/or damages and costs and interest as awarded herein;

(6) Interest on (a) the said sums of HK$215,000.00 and HK$15,500.00 respectively at the rate of 8% per annum from the date of Writ to the date of Judgment and thereafter at judgment rate until payment: (b) the damages for breach of the Agreement to be assessed and the costs of this action (including the costs of this application), under and by virtue of Sections 49 and 50 of the District Court Ordinance, Cap. 336; and

(7) Costs of this application on summary assessment in gross sum of HK$12,000.00 be paid by the Defendant to the Plaintiff forthwith.”  

17.  It is by virtue of paragraph (3) of the above Order that the matter came before me for assessment of the Plaintiff’s damages.  

18.  For reasons that I will explain below, it has also become necessary for me to deal with paragraphs (4), (5) and (6) of the Order.

19.  It seems to me clear that the Defendant was on the Completion Date in breach of her obligations in the Agreement in that she had failed to answer a crucial requisition on title, to show a good title and to sell the Property free from incumbrances and any third party’s interests in accordance with various provisions in the Agreement.  Since liability is not in issue I do not think I need to recite these provisions. 

20.  For the purpose of this assessment, I only need to refer to the following provisions in the Agreement:

“Clause 11

If the Vendor shall for any cause (other than the default of the Purchaser) fail to complete the said sale in accordance with the terms and conditions hereof then all the said deposit shall forthwith be returned to the Purchaser who shall also be entitled to recover from the Vendor damages as the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an assignment to the Vendor”. (emphasis added)

“Clause 24

The Vendor shall hereby warrants and declares that there is no third party (whether related or otherwise) other than the Vendor who is occupying the said Premises and having interest whatsoever whether legal or equitable in the said Premises. The Vendor hereby further declares and confirm (sic) that the Vendor has the absolute right and interest in the said Premises and the said Premises was purchased with the Vendor’s own monies and the mortgage loan was repaid by the Vendor’s own monies. In the event of any third party claim on the said Premises, whether legal or equitable, the Vendor shall forthwith return all deposits and the money paid herein to the Purchaser and without prejudice to the Purchaser’s right to claim against the Vendor for all losses and damages sustained by the Purchaser by reason of the Vendor’s failure and/or inability to complete the sale in accordance with the terms hereof and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution”. (emphasis added)

21.  In my view, there cannot be any dispute that the Plaintiff is entitled to damages for loss of bargain pursuant to the above provisions.  Indeed, even without these provisions, the Plaintiff is still entitled to damages for loss of bargain under the common law:  see Barnsley’s Conveyancing Law and Practice, 4^th ed., para. 2 at p. 655.  Whether damages are granted at common law or in lieu of specific performance, the principles governing their assessment are the same:  see Choy Nga Wai Nancy v. Gentle Smart Limited, [2009] 4 HKLRD 75, at para. 20; and Wilkinson and Sihombing’s Hong Kong Conveyancing Law and Practice Vol. 1(B), para. 1452 in Chapter XV.

Normal Measure of Damages

22.  The normal measure of damages is the market value of the property at the contractual time for completion (normally when the breach occurs) less the contract price:  see McGregor on Damages, 18^th ed., para. 22-005.  This normal rule has been widely applied in aborted sale and purchase cases in Hong Kong, for instance in the case of Kwok Wai Kong & Anor v. Luk Ping Hung and Anor, HCA 4447/1998, date of judgment:  4^th November, 1999 and Leung Hing Chow v. Kuan Heng Choi also known as Kwan Heng Choi, HCA 13111/1997, date of judgment:  9^th September, 1999.

23.  Hence, in the instance case, if the normal rule is to apply the Plaintiff’s damages are to be assessed with reference to the market value of the Property as at 13^th October, 2010, the Completion Date.

24.  However, Mr. Suen, counsel for the Plaintiff, asked me to depart from the normal rule and instead, to assess the Plaintiff’s damages based on the market value of the Property as at the date of interlocutory judgment, i.e. 12^th May, 2011.  His argument, in brief, was that adopting the normal rule would cause injustice to the Plaintiff.

25.  Mr Suen referred me to the following passage in Barnsley’s Conveyancing Law and Practice, 4^th ed., at p. 657,

“(b) Date for assessment of damages

At common law damages for breach of contract, whether claimed by the vendor or purchaser, are assessed as a general rule at the date of the breach.  This follows from the basic principle considered on page 654 that damages are compensatory.  Nevertheless, a rigid application of this rule is likely to cause severe hardship during times of high inflation, leaving an injured party considerable out of pocket by the time his case comes to trial.  The problem is well illustrated by Wroth v. Tyler, where property brought for £6,000 in 1971 was worth £7,700 at the time of the breach (the completion date) and had risen in value to £11,000 by the date of judgment some 15 months later.  The House of Lords has now held in Johnson v. Agnew that the common law rule is not inflexible.  The court has power to fix such other date for assessment as is appropriate to avoid injustice to the innocent party.  Depending on the circumstances the date selected may be the date of the hearing, the date when the contract is finally lost, or some other date.  In one case the court moved back the date for valuing the property one year before the judgment date because the purchaser’s tardiness in bringing proceedings to a conclusion.  In other situations the appropriate date for calculation will clearly be the date of breach and not any later date, e.g. where the property decreases in value after a wrongful repudiation.”

26.  I note that McGregor on Damages, 18^th ed., has substantially the same commentaries on this point of law; see: para. 22-009.

27.  Locally, in a recent case of Choy Nga Wai Nancy v. Gentle Smart Ltd., supra, it was also opined by H.H. Deputy Judge Bernard Mak that when assessment of damages under the normal rule did not give a realistic substitute for specific performance, assessment could be made by reference to the market value of the subject property at a date later than the breach.

28.  Clearly, in appropriate circumstances, damages may be assessed by reference to the value of the property at a different date.  The question is whether the present case warrants a departure from the normal rule.

The Plaintiff’s Evidence and Analysis

29.  Ms. Chan, the Plaintiff, gave evidence in the assessment hearing.  She was a gemmologist.  She said that the purchase price of $2,150,000 was slightly below the market value at that time.  For about a month after the transaction had fallen through she had contacted some estate agents for seeking another property but the prices had already gone up substantially.  She was informed by an estate agent that between the time of agreement and the Completion Date the value of the Property had increased by as much as $400,000.  Her solicitor also informed her that the value of the Property assessed by the bank, using the Property Valuation Tool provided by HSBC, was already higher than the purchase price.  Her solicitor also attempted to contact the Defendant on numerous occasions but in vain.  The Plaintiff said since the Defendant was withholding her deposit and because of the up-rising market, she could not afford to make a substitute purchase and later on she abandoned the idea of finding another property. 

30.  The Property has a gross floor area of 424 sq.ft. only.  The Plaintiff appeared to me to be a person of modest means. I accept that the holding of $215,000 by the Defendant imposed a financial restraint on her.

31.  The Plaintiff also adduced expert evidence by way of a Valuation Report dated 21 July, 2011 prepared by one Mr. Denys L.P. Kwan, a Registered Professional Surveyor of C.S. Surveyors Limited. I allowed the Valuation Report to be adduced as evidence without calling Mr. Kwan to give evidence in court.

32.  Mr. Suen submitted that but for the breach of the Defendant, the Plaintiff would have been able to purchase the Property at a price which was slightly below its market value.   He further submitted that the Valuation Report clearly showed that the property market was escalating at that time.  The expert made assessment on the value of the Property at different dates as follows: 

Date	Market Value
13th October, 2010 (the Completion Date)	$2,350,000.00
12th May, 2011 (the date of Interlocutory Judgment)	$2,650,000.00
21st July, 2011 (the date of Valuation Report)	$2,700,000.00

33.  I have carefully considered the Valuation Report, it is true that the expert was not able to gain access to the Property for the purpose of preparing the Report but the assessment was arrived at after analysis of comparable transactions in the same building.  I have no reason to doubt the correctness of the Report.  Indeed, I think it is common knowledge and a well known fact that the property market in Hong Kong was rising if not sky-rocketing at the end of 2010 and in such a market one cannot expect it would be an easy task if not an entirely impossible one for a purchaser to purchase a substitute property at more or less the same price.  It was even more so for the Plaintiff whose pocket had been deprived of $215,000, for which the Defendant was to blame.  In my view, it was unreasonable for the Defendant not to return the deposit and thereby adding extra hardship on the Plaintiff.

34.  I am satisfied that for the reasons that she gave, the Plaintiff was not able to make a substitute purchase when she realized that the transaction had come to an end because of the rising market and the financial restraint caused by the Defendant. 

35.  I have not lost sight of the fact that in the present case the Plaintiff had accepted the Defendant’s repudiation on 13^th October, 2010 and had not asked for specific performance of the Agreement when she could have done so.  However, I am of the view that whilst the Plaintiff had this option opened to her, she was entitled to rely on another option, i.e. the express provisions in the Agreement that I have referred to in paragraph 20 above to sue for damages.  Further, there is nothing to suggest that the Plaintiff has failed to mitigate her loss.

36.  For these reasons, I consider that the present case is a proper one for me to depart from the normal rule and to adopt a different date in order to do justice to the parties.  The value of the Property has appreciated substantially and the Defendant still owns the Property.  I accept that an award of $200,000, being the difference between the value of the Property as at the Completion Date ($2,350,000) and the contract price ($2,150,000) would fall short of giving the Plaintiff the means of acquiring an equivalent property.  For example, according to the Valuation Report, another flat of the same size and in the same building, being Flat C on the 9^th Floor was sold on 31^st January, 2011 at as much as $2,750,000.  To adopt the value of the Property as at the Completion Date means that the Defendant would stand to gain from her breach.    

37.  The next question is which date to be adopted?  I have considered whether the date of the assessment hearing should be adopted.  I have decided not to do so.  The Plaintiff has prosecuted her action against the Defendant without any delay; in my view, for the fairness of the parties, the date on which interlocutory judgment was entered (i.e. 12^th May, 2011) should be adopted for the reasons that, first, this date was closer in time to the Completion Date and secondly, it was this date when the Defendant was adjudged to be liable.

38.  Therefore the damages for the Plaintiff’s loss of bargain should be $500,000, being the difference between the market value of the Property as at 12^th May, 2011 and the purchase price ($2,650,000 - $2,150,000).

Conveyancing Expenses

39.  Mr. Suen accepted that where a purchaser succeeded in a claim for damages for loss of bargain, he could not claim in addition his conveyancing costs incurred in the transaction: In re Daniel [1917] 2 Ch 405.  Hence, in Leung Hing Chow v. Kuan Heng Choi, supra, Ms. Registrar Chu (as she then was) disallowed a plaintiff purchaser’s claim for legal costs and disbursements incurred as a result of an abortive sale, the reason being that these expenses would have been incurred irrespective of whether the defendant had defaulted; and putting the plaintiff into the position he would have been in had the Agreement been performed still entailed his having incurred these expenses. 

40.  For these reasons, Mr. Suen confirmed that the Plaintiff would waive her entitlement to conveyancing expenses incurred in the purchase of the Property in the sum of $15,500 given under the Order dated 12^th May, 2011 by Mr. Registrar C. Lee (see paragraph 16 above).  However, I note there is no express order granting $15,500 in favour of the Plaintiff.  There is only a lien on the Property and on the original title deeds and interest on the said $15,500 (paras. (5) and (6) of the Order).  Be that as it may, I am satisfied that the Plaintiff should not be entitled to any remedies in respect of the said $15,500.

Estate Agent’s Commission

41.  On the same rationale, the estate agent’s commission referred to in paragraph (4) of the Order is an expense that the Plaintiff would have to incur anyway.  It is also irrecoverable.

42.  Hence, it seems to me clear that the default judgment dated 12^th May, 2011 has been entered for too much as far as paragraphs (4), (5) and (6) are concerned.  It is trite law that a default judgment entered for too much is irregular and pursuant to O.13, r.9 of the Rules of the District Court, the court has the power to set aside or vary it:  Hong Kong Civil Procedure 2012, para. 13/9/7.  I will therefore set aside paragraph (4) and vary paragraphs (5) and (6) by deleting the reference to conveyancing expenses so that they are read as follows:

“(5) A lien on the Defendant’s Property (as more particularly described in the Schedule hereto) and its original title deeds for payment of the said sum of HK$215,000 and/or damages and costs and interest as awarded herein;

(6) Interest on (a) the said sum of HK$215,000.00 at the rate of 8% per annum from the date of Writ to the date of Judgment and thereafter at judgment rate until payment; (b) the damages for breach of the Agreement to be assessed and the costs of this action (including the costs of this application), under and by virtue of Sections 49 and 50 of the District Court Ordinance, Cap. 336;”

Conclusion

43.  To sum up, the Plaintiff’s damages are assessed at $500,000.  This sum carries interest at the rate of 8% per annum from the date of Writ to the date hereof and thereafter at judgment rate until payment.

Costs of Assessment

44.  The Plaintiff elects summary assessment of her costs of assessment.  The Statement of Costs states a total sum of $73,700 inclusive of counsel fees and the cost for the Valuation Report but exclusive of the costs of $12,000 awarded under paragraph (7) of the Order dated 12 May, 2011.  Taking a broad-brush approach, I will assess it at a gross sum of $60,000.

45.  I give an order nisi that the Defendant do pay the Plaintiff costs of the assessment summarily assessed at the gross sum of $60,000.

46.  Finally, I thank Counsel for his assistance.

Representation