YEUNG SAU CHUEN SAMMY v. SHING SING SUI

HCA 15372/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRACTIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15372 OF 1999

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ASSESSMENT of DAMAGES

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Background

1. The plaintiff purchased a property for HK$2,950,000 for investment purposes towards the end of 1997. This was Flat 407, 4th Floor, Block E (including the Flat Roof adjacent thereto) Healthy Gardens, 560 King's Road Hong Kong ("the property"). After he bought it, the plaintiff spent HK$168,000 renovating the property. After renovation the plaintiff put the property back on the market. He hoped to resell the property for HK$3,400,000.

2. The plaintiff was informed by his estate agent PW3 on or about 10 December 1997 that a buyer was willing to pay HK$3,100,000 for the property. The plaintiff's evidence was that if the buyer had not noticed the water stains in the bathroom ceiling, he would have successfully sold the property to this buyer. The plaintiff said that the problematic water stains were the result of water leakage from the defendant's premises, situated just above the plaintiff's property. The potential buyer resiled from the purchase of the plaintiff's property. The plaintiff therefore claimed that he had suffered the loss of an opportunity to recoup his investment by reselling the property for HK$3,100,000.

3. After the resale had fallen though, on about 20 December 1997 the plaintiff personally went to inspect the bathroom ceiling of the property. He found that the ceiling of the bathroom and the wall of the living room adjacent to the bathroom was not merely damp, but was actually wet to the touch.

4. The plaintiff tried to contact the defendant to lodge his complaint without any success. Neither he nor staff of Hopewell (who managed Healthy Gardens) were able to contact the defendant.

5. In January 1998 the plaintiff spent HK$20,000 to $30,000 renovating the property. After renovation, the property was put back on the market. The plaintiff hoped to sell, or at least to rent it out.

6. A tenant was found, and the property was let for HK$8000 per month on a two year lease, from 14 February 1998. However, around the end of March 1998, the plaintiff received a list of complaints from the tenant. These included water dripping from the ceiling; wallpaper peeling off; loosened floorboards; and short circuiting of the electrical wiring.

7. The plaintiff tried to find the defendant to address the water leakage problem without any success.

8. Around the middle of June 1998 the tenant terminated the tenancy. Left without a tenant, the plaintiff decided to try and sell the property once more. He renovated the property again.

9. The plaintiff said that since the water leakage problem in his property was common knowledge, the best offer he received for the sale of the property was merely about HK$1,500,000. At this point the plaintiff sought legal advice. He was advised to commission a survey report. A report dated 27 August 1999 was produced as Exh P1.

10. The water leakage problem necessitated another renovation of the property in that same month, August 1999. A sum of HK$82,000 was spent on this occasion, after which the property was again placed on the market. Subsequently another survey report was commissioned dated 3 March 2000.

11. The property remains unsold. The plaintiff complained that as a result of the failure to sell the property, he has had to continue to pay the mortgage instalments to the bank, and to bear the rates and other charges relating to the property.

The claim for damages

12. Judgment on liability in default of defence was entered against the defendant on 24 November 1999.

13. Counsel for the plaintiff submits that this matter falls within the third category of "Loss of Chance" cases referred to in McGregor on Damages 16th Edn § 375-381. It was submitted that the plaintiff's loss arose as a result of a third party deciding not to act in a way which would have benefited the plaintiff because of the wrongful act of the defendant. In other words the plaintiff had lost the chance to sell to the prospective purchaser in December 1997 because of the water leakage problem.

14. Counsel for the plaintiff submitted that the plaintiff should obtain damages if he is able to prove, as a matter of causation that he had a real or substantial "chance" as opposed to a speculative one of selling the property to the third party for HK$3,100,000 in December 1997. In this regard Counsel also relied upon Allied Maples Group v Simmons & Simmons [1995] 1WLR 1602.

Consideration of the Evidence

15. It is trite law that that a plaintiff claiming damages must prove his case. Judgment had been entered in default of defence. The defendant was absent at the hearings for assessment of damages. In the circumstances the court is duty bound to put the plaintiff to strict proof.

16. The plaintiff gave evidence and called 2 other witnesses.

17. The crux of the plaintiff's case is this. There was an offer by an unnamed third party to purchase the property for HK$3,100,000 in December 1997. The plaintiff would have accepted that offer. However the third party withdrew his offer having discovered water stains, which indicated a water leakage problem. Since the water leakage problem originated from the defendant's flat, the plaintiff had lost an opportunity for which the defendant should be liable.

18. Counsel argued that the facts of the present case fall squarely within the principles of the "lost opportunity" cases referred to in the passages relied upon in McGregor. Therefore, it was argued, the plaintiff is entitled to claim damages for that lost opportunity. The measure of damages in such circumstances would be in the region of HK$1,500,000 as calculated in paragraph 25 of counsel's skeleton.

19. In considering the evidence, I noted several aspects of the plaintiff's case in relation to the third party's offer that were unusual and called for comment.

20. The identity of the prospective purchaser of the property has been completely forgotten. I found this was quite odd if one takes into consideration the circumstances at the time. The property market in Hong Kong had suffered a huge drop by December 1997. Judicial notice can be taken of this fact, and I note that the surveyor has described the situation as "the impact of the Asian financial turmoil on the local property market in October 1997". The plaintiff had purchased the property for the sole purpose of investment. He must have been very anxious to divest himself of the property as quickly as possible in a falling market. The prospective buyer's offer at this point would have appeared to the plaintiff as a godsend. The failure of the plaintiff to sell the property must have been a bitter disappointment. The plaintiff must have recalled the event in the months that followed with much regret. One would have expected that the bitter disappointment of losing this chance to sell for profit remained at the forefront of the plaintiff's mind long after the event. I therefore found it most curious that neither the plaintiff nor the estate agent PW3 could recall the name of this buyer. They could not even recall his surname.

21. Another curious aspect was the generosity of that offer. A falling market is often referred to as "a buyer's market" because prospective buyers would normally take advantage of the situation to drive hard bargains. The market had fallen drastically. This fact was recognized in page 3 of the Survey Report dated 3 March 2000. Many investors in the property market like the plaintiff were desperate to try get out of the market through a quick sale, even if they had to sell at a loss. In those circumstances, it appears that the plaintiff had the temerity to ask for, and was lucky enough to obtain a price which would have enabled him to make a profit.

22. On considering this point I had not forgotten that PW3 Mr Wong Fu Keung had said that this nameless buyer liked the view from the property, and had found the property suitable for his needs. The property was a flat on the 4th floor of a building on King's Road, one of the busiest roads in Hong Kong. The survey report described the property being in "a well established residential area". If the potential purchaser wanted to look for a flat in that location, there should have been plenty of flats to choose from locally. As to the view, it is difficult to envisage that a flat on the 4th floor of a building in King's Road was capable of providing an unusually pleasant or unique view.

23. The evidence of the plaintiff and PW3 was contradictory in one notable respect. The plaintiff stated that many other potential purchasers came to view the property after the prospective purchaser resiled from the purchase in December 1997. PW3 was the estate agent appointed by the plaintiff. PW3 said in evidence that "I didn't take other people to view the property anymore as I knew it was difficult to sell."

24. I also noted discrepancies in the plaintiff's evidence. For instance he claimed in his statement that he was just about to accept the offer by the prospective purchaser in December 1997 when that offer was withdrawn. In viva voce evidence, the plaintiff claimed that he had accepted the offer before the offer was withdrawn. In my view, if such an offer had been made, it would have left a deep impression on the plaintiff's mind. He would have had the following three years to mull over this missed opportunity. Had the deal gone through, the plaintiff would have made a tidy profit. He would have escaped from the burden of mortgage repayments. In the circumstances it odd for the plaintiff to contradict his own evidence in this manner.

25. The plaintiff was curiously ambivalent about disclosing the time that he first discovered the water leakage problem. The water leakage problem was the cause of all his difficulties. It was the reason why he failed to sell the property in December 1997. The discovery of this problem should have been traumatic for him, and yet he appeared to be unable to pinpoint the moment he learnt of it. He seemed unable to answer the question directly, giving long rambling qualifications at every turn, without addressing the point of the question. He said initially in evidence that he was told about the water leakage problem by the decoration sifu in December 1997 after he had first obtained possession of the property. He immediately corrected his himself, saying that he knew about water stains only, not that a water leakage problem existed. The plaintiff changed his position many times in evidence, he appeared to be reluctant to disclose the exact moment that he discovered a water leakage problem originating from the defendant's property.

Has a case been made out for a claim of lost opportunity in 1997?

27. Counsel has put the matter in this way. "The issue before the court is whether the defendant wrongfully deprived the plaintiff of a real or substantial chance of selling the property in December 1997".

28. Having considered all the evidence carefully, I find that the plaintiff has failed to prove a claim of lost opportunity to sell the property in December 1997.

Loss of profit arising from early termination of Tenancy

29. The evidence was that the property had been let for HK$8000 per month on a two year lease. Shortly after the property was let in March 1998, the tenant complained that water was dripping from the ceiling; the wallpaper was peeling off; water leakage had loosened the floorboards and caused the wiring to short circuit. The tenant terminated the tenancy.

30. A sum of HK$160,000 has been claimed under this head, calculated in the following manner. The tenancy agreement was to last for 2 years. The rental was $8000 per month inclusive of government rent. The plaintiff had been deprived of 20 months' rent monies by the fault of the defendant. $8000 x 20 = $160,000.

31. It was during his evidence on renovating the flat due to the tenant's complaints that I noticed the plaintiff behaving oddly by giving long rambling qualifications to his answers. He seemed reluctant to explain why he repeatedly spent money on painting over the places where the water was seeping through. When asked whether he agreed that painting over the wet areas would only hide or mask the water leakage problem, the plaintiff came out with a startling statement. He said "I was afraid the court would think I defraud people".

32. This was a most unexpected reaction. In retrospect, I think the reaction of the plaintiff can be explained in this manner. If the plaintiff admitted in court that he had masked the water leakage problem by painting over it time and again, he would be admitting to acting unreasonably.

33. I find it very likely the plaintiff was alive to the possibility that the Court could make a finding of fact that he had purchased a property with an existing water leakage problem.

34. If the plaintiff had purchased a property with an existing water leakage problem, all that the defendant should be liable for would be the direct consequences of the water leakage. The consequences of the plaintiff's mistake in purchasing a faulty property cannot be shifted to the defendant. If the water leakage problem existed at the time the plaintiff bought the property, and the plaintiff rented the property out before the water leakage problems had been remedied, then the plaintiff should not be able to claim this head of damage against the defendant. In those circumstances the plaintiff had let the property out knowing that the water leakage problem had not been rectified. Therefore the tenant would be affected by the problem sooner or later. It would only be a matter of time before the tenant lodged a complaint.

35. In my view, the plaintiff has failed to prove on a balance of probabilities that he had been deprived of 20 months' rent monies by the fault of the defendant.

Management Fees

36. A sum of HK$12,900 was claimed for 21 months' management fees. The plaintiff's claim here is dependent on the success of the argument put forward on the tenancy claim. For the same reasons, this claim also fails.

Opportunity Revived

37. It was argued that the plaintiff had lost another opportunity to sell the property in July 1998 for HK$1,500,000.

38. The evidence was that the plaintiff had renovated the property again after the tenancy was terminated. It was put back on to the market in July 1998. He was offered the paltry sum of HK$1,500,000 by another potential buyer because, he said, "many potential purchasers knew about the water leakage problem." The plaintiff refused the offer as HK$1,500,000 would have been insufficient to cover his mortgage repayments.

39. The claim under this head has not been made out. The evidence does not support the case of a lost opportunity. The plaintiff's evidence is that he would not have sold the flat for HK$1,500,000 in any event. He stated that he wanted at least HK$2,000,000 so that the selling price would cover the sum he owed to the bank, and he could "get out without a loss". As the plaintiff had no intention whatsoever of selling the property to this buyer for $1,500,000 the circumstances cannot amount to a "lost opportunity".

Renovation Costs amounting to HK$82,000

40. In his statement the plaintiff claimed that "as time went by, the water leakage caused the property to deteriorate into a very bad state" therefore he "had no choice but to renovate the property again for the third time". In court the plaintiff said he spent more on renovation on this occasion because he wanted to make the flat look good in order to sell it. He had an architect inspect the flat before renovation. He had also instructed solicitors to take action against the defendant.

41. It is axiomatic that the plaintiff would not be allowed to recover for any damages that had not been reasonably incurred. The water leakage problem had persisted ever since December 1997. Each time the plaintiff had spent money on renovations, the water leakage problem spoilt the effects soon afterwards. Moreover in another part of his evidence the plaintiff disclosed that the architect had informed him that no matter what he did to the flat he would not be able to solve the water leakage problem. In those circumstances the $82,000 spent on this occasion cannot be regarded as reasonably spent.

The expert evidence

42. PW1 Mr Rudy Ngan a Registered Professional Surveyor produced a report Exh P1. PW1 gave evidence in a professional manner, and I have no reason to doubt the valuations he put forward.

43. PW1 stated that the open market value of the property as at 3 March 2000 in reasonable condition, without water leakage problem would be in the region of HK$1,800,000; the property subject to water leakage problem would be in the region of HK$1,400,000. He concluded that the water leakage problem decreased the value of the property by HK$400,000. In a subsequent letter dated 3 April 2000 (at page 135A of the Bundle), PW1 stated that the open market value of the property in reasonable condition, without water leakage problem would be in the region of HK$1,700,000; the property subject to water leakage problem would be in the region of HK$1,300,000. Therefore the evidence was that the reduction in value due to water damage remained constant at $400,000. In any event, the sum claimed by the plaintiff for water damage in the Statement of Claim was also $400,000.

44. A sum of $5000 was claimed for the costs of preparing the survey report dated 12 August 1999. No claim was made for the costs of the subsequent report and letter. It would have been reasonable to allow for the costs of one report in all the circumstances, therefore the claim for $5000 is allowed.

Conclusion

45. In my view, and for the reasons stated above, the defendant is only liable to the plaintiff for the amount that the property has been reduced in value as a result of the water leakage problem. This sum was calculated at HK$400,000 by PW1. I found that to be a reasonable sum.

46. A sum of $5000 is also allowed for the preparation of a survey report.

47. Damages are therefore awarded in the sum of $405,000. ( $400,000 + $5000)

48. Interest shall be paid on the damages awarded at judgment rate from the date of judgment 24 November 1999 until payment.

Costs

1. Costs of the assessment to the plaintiff together with certificate for counsel, to be taxed if not agreed.

2. The costs of and occasioned by the re-amendment of the Statement of Claim on 9 May 2000 are to be borne personally by the plaintiff's solicitors.