TO YUNG SING HERMAN v. SZETO CHAK MEI AND OTHERS

HCMP 2741/2016

[2023] HKCFI 3112

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2741 OF 2016

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J U D G M E N T

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A. Introduction

1.  This is the assessment of damages following a Judgment by Lisa Wong J dated 4 July 2018 (“Judgment”).

2.  The matter arises from an aborted sale and purchase of a property pursuant to an agreement dated 9 March 2016 (“Agreement”) between the Plaintiff (“P”) as purchaser and the 1^st to 4^th Defendants (“Ds”) as vendors.

3.  The subject property (“Property”) is an entire land lot with a 6-storey tenement building erected thereon.  The land is known as Kwai Chung Town Lot No. 248, and the building thereon is known as Nos. 402-406 Castle Peak Road, Kwai Chung & No. 20 Shek Man Path, Kwai Chung, New Territories, Hong Kong (“Building”).

4.  Under the Agreement, completion was scheduled to take place on 8 April 2016, which was later extended to 31 May 2016 (“Completion Date”).  Completion did not take place.

5.  It is P’s case that there were repudiatory breaches by Ds under the Agreement and P was entitled to, and did, accept the repudiation.  On 13 October 2016, P issued a vendor and purchaser summons (“OS”). By the Judgment of Lisa Wong J dated 4 July 2018 (“Judgment”), the issue of liability was found against Ds.

6.  In short, the Judgment: (1) declared that there had been various repudiatory breaches by Ds (failure to deliver vacant possession for certain parts of the Building, failure to answer requisition or show good title); (2) declared that P was entitled to accept Ds’ repudiation, thereby terminating the Agreement; (3) ordered that Ds do pay P damages to be assessed.

B.   Background

7.  The following is a summary of the relevant background facts.  Most of these are undisputed or indisputable as they are derived from contemporaneous documents.

B1.  The Property

8.  As noted above, the Property was a 6-storey tenement building located in the Upper Kwai Chung area.  The ground floor comprises of 4 shop units.  The 1^st and 2^nd floors comprise of 2 office units each (4 in total).  The 3^rd to 5^th floors comprise of 4 residential units each (12 in total).

9.  According to the recitals of the Agreement, the Property was originally owned by one Szeto Chiu and one Szeto Chout in equal shares.  Both have long passed away.  In short, under their respective estates (or the estate of a successor in title), the 2^nd to 4^th Defendants were or had since become the beneficial owners of the Property.  The 1^st Defendant (“D1”) was the administrator of Szeto Chiu’s estate. 

10.  There were separate proceedings amongst Ds themselves (HCMP 1382/2015).  By an order of DHCJ Seagroatt made in November 2015, it was ordered that the Property be put on the open market for sale by way of tender with a reserve price of HK$50,000,000.

11.  The estate agents handling the tender was Savills (Hong Kong) Ltd (“Savills”).  The evidence before the Court includes a sales pamphlet and a tender brochure prepared by Savills.  According to P, he learned of the sale of the Property through such a sales pamphlet.[1]

12.  According to P: (1) he became interested in acquiring the Property in order to redevelop the same into a new building for providing accommodation to NGOs; (2) the Upper Kwai Chung area where the Property was located was a unique location for such purpose because it is one of the poorest areas in Hong Kong and most in need of spaces for NGOs to operate, but such spaces as are being provided by the government are inadequate;[2] (3) he thought the asking price was relatively small, and he could acquire the Property using his available financial resources; (4) he also believed the tenancy situation, with vacant possession available by February 2017, suited him because he could commence redevelopment soon.

13.  There is no dispute that P initially expressed interest in and later tendered his bid for the Property through Savills.  In the initial discussions between P and Savills, P mentioned his intention of redeveloping the Property and to use the Property or the site for charitable purposes.

14.  There were existing tenants for a majority of the units of the Building.  Most of the tenancies would expire by the end of June 2016 and one unit (Office 1A) would expire by the end of February 2017. This information was set out in a table in the tender brochure, such information was also separately sent to P by Savills by email.[3]

15.  P tendered his bid at the price of HK$53,100,000 on 29 January 2016.  A provisional agreement for sale and purchase was signed on 2 February 2016.

16.  It was then discovered by P that the tenancy agreement for Office 1A contained a renewal clause which would allow the tenant the option to extend the term until February 2020.  As this would cause delay to P obtaining vacant possession, the parties renegotiated and the purchase price was reduced to HK$50,000,001. 

B2.  The Agreement

17.  On 6 March 2016, the parties signed the Agreement and P also paid the deposit of HK$5,000,000 under the Agreement (“Deposit”).

18.  Insofar as is relevant for present purposes, under the terms of the Agreement:

18.1  The purchase price was to be HK$50,000,001 (Clause 2).

18.2  The completion date was to be 8 April 2016 (Clause 3).  This was later changed to 31 May 2016 by agreement.

18.3  In the event of the vendors failing (other than due to the default of the purchaser) to complete the sale all the deposit shall forthwith be returned to the purchaser in full, who shall also be entitled to recover from the vendors damages over and above the deposit paid as the purchaser may sustain by reason of such failure on the part of the vendors (Clause 11).

18.4  Clause 33(iv) provides that: “Acknowledging the intent of the Purchaser to proceed to redevelop the said premises as soon as practicable, the Vendor warrants, as conditions, that all tenancies set out under the Fifth Schedule have been duly stamped and that in respect of the units subject to tenancies, save and except Offices A and B on 1^st Floor (the option for Office B since expired), no tenants shall have the right to renew a tenancy term or any right to stay on beyond a monthly extension basis.”  The evidence shows that this clause was specifically raised by P to be inserted into the Agreement.

19.  P paid the stamp duty in respect of the Agreement in the amount of HK$4,250,001.[4]

20.  There is evidence (supported by contemporaneous correspondence) to show that after the signing of the Agreement, P had made enquiries with certain professionals about redeveloping the Property.  He also discussed his plan to redevelop the Property with certain charitable organisations which he intended to invite to use the Property after redevelopment.[5]

B3.   Termination of the Agreement

21.  In the lead-up to the completion date, P raised in correspondence various requisitions.  As noted at §§5-6 above, P’s stance was that these were not satisfactorily answered.

22.  Completion did not occur on the extended completion date of 31 May 2016.  P decided to accept the repudiation by Ds and to rescind the Agreement.  This was communicated in the 5^th letter by P’s former solicitors (Messrs Michael Cheuk, Wong & Kee, “MCWK”) dated 31 May 2016, which also demanded for the return of the deposit.

23.  At that stage, Ds’ stance (which turned out to be wrong) was that P was in repudiatory breach, and Ds also alleged that they were entitled to rescind the Agreement.

24.  Despite P’s termination of the Agreement, it appears that P remained interested in acquiring the Property – P had, in without prejudice correspondence from June to September 2016, raised queries with Ds regarding the outstanding issues.  In the course of such correspondence, Ds made offers to P involving completion of the purchase by P on the original or slightly revised terms.[6] There were ensuing exchange of correspondence between the parties.  These will be discussed in more detail below.  This eventually came to nothing.

25.  I should mention that at this point in time (after completion fell through), P commissioned for two valuation reports in respect of the Property, one by Colliers International (Hong Kong) Ltd dated 13 July 2016 (“Colliers Report”) and one by CBRE Ltd dated 6 December 2016 (“CBRE Report”).  P claims that this was done to understand his position as a result of Ds’ failure to complete.[7] The costs of obtaining these reports are one of the heads of P’s claim for damages. 

B4.  The OS and subsequent events

26.  On 13 October 2016, P commenced the present proceedings.  In short, P’s complaint was that Ds failed to give vacant possession for some of the units in the Building and failed to answer 2 requisitions. 

27.  These matters were upheld by Lisa Wong J in the Judgment on 4 July 2018.  The Judgment directed that damages be assessed. Hence the present assessment.

28.  On 23 August 2018, the Deposit was repaid to P.[8]  I would note that this was not a matter dealt with in the Judgment.

29.  At this stage, it would appear that P again tried to acquire the Property from Ds:

29.1  By an open letter dated 25 August 2018, P sought “an open proposal” from Ds regarding the remedy they would offer to P as a result of the Judgment. 

29.2  In November 2018, P applied to seek to amend the OS to include the relief of specific performance.  This was admittedly ill-advised and was later abandoned (in May 2019).

29.3  Then, by a letter from P’s current solicitors (ELLALAN) dated 27 August 2020, P made an open offer to acquire the Property from Ds on the same terms under the Agreement.  This was not accepted by Ds.

C.  The issues in dispute

30.  As these are proceedings under the originating summons procedure, there are no pleadings. 

31.  P has provided a Statement of Damages which sets out the heads of P’s claims.  They are:

31.1  Loss of bargain being the market value of the Property as at 4 July 2018 (being the Judgment Date) or as at 31 May 2016 (being the Completion Date), less the purchase price of then Building under the Agreement.

31.2  Loss of rental income of the Building from 31 May 2016 to 4 July 2018, if the latter date (ie Judgment Date) is adopted as the valuation date.

31.3  The amount of increased agency commission in acquiring a replacement property of the Building, assessed on the basis of 1% of the market value of the Building as assessed.

31.4  The amount of increased stamp duty in acquiring a replacement property of the Building, assessed on the basis of the market value of the Building as assessed.

31.5  Interest on the deposit paid under the Agreement in the sum of HK$5,000,000 from 9 March 2016 to 24 August 2018 at 1% above the prime rate.

31.6  The costs incurred to obtain the Colliers Report and the CBRE Report, in the sum of HK$133,800.

31.7  Pre-judgment interest under section 48 of the High Court Ordinance (Cap 4).

31.8  Costs.

32.  I agree with the criticisms by Ds in correspondence that this is not a proper statement of damages.  In the event, P has supplemented this in a letter from P’s solicitors dated 13 April 2023, which sets out the amount of the above heads of claim.

33.  The parties have prepared an agreed list of issues.  The agreed issues are:

“1. In respect of loss of bargain:

(a) As to the date to be adopted by the Court as the proper valuation date (“Adopted Valuation Date”),

(i) whether the normal measure of damages for sale of land, namely the market value of the property at the contractual time for completion [ie the Completion Date of 31 May 2016] less the contract price, is to apply in the present case; or

(ii) whether there are any factors, such as the need to give effect to the time required to purchase a substitute property, which render a different date, namely in the present case the date of the Judgment on liability (i.e. 4 July 2018) (“Judgment Date”), a more appropriate date to be adopted;

(b) Whether the market value of [the Property] at the Adopted Valuation Date should be assessed on the existing use basis; or on the redevelopment basis;

(c) Applying the Adopted Valuation Date and the valuation basis to be adopted by the Court as the proper valuation basis (“Adopted Valuation Basis”), what is:

(i) the market value of the Property?

(ii) the quantum of damages, if at all, for the Plaintiff’s loss of bargain?

(d) In the alternative to Issue 1(a)(i) and (ii) above:

(i) whether the Plaintiff was under any duty to mitigate his loss, and if so, when?

(ii) if the Plaintiff was under a duty to mitigate his loss, whether he had failed to discharge such duty, and if so, to what extent?

(iii) who bears the onus of establishing the Plaintiff's failure to mitigate his loss, if any?

2. In respect of loss of rental income, if the Judgment Date is adopted by the Court as the Adopted Valuation Date, whether the Plaintiff is entitled to loss of rental for the period between the Completion Date and the Judgement Date and if so, what is the quantum of the loss of rental of the Property for this period.

3. Whether the Plaintiff is entitled to claim for and what is the quantum thereof:

(a) the amount of increased agency commission as a result of the increased price required to purchase a substitute property;

(b) the amount of increased stamp duty as a result of the increased price required to purchase a substitute property;

(c) interest on the deposit of HK$5,000,000 paid under the Agreement from 9 March 2016 to the Judgment Date at 1% above prime rate;

(d) the costs incurred by the Plaintiff to obtain the Colliers Valuation Report dated 13 July 2016 and CBRE Valuation Reports dated 6 December 2016 and 6 May 2022 in the sum of HK$133,800;

(e) interests; and

(f) costs.”

34.  I will address these issues in turn in this judgment.

35.  It is perhaps convenient to set out here the valuation of the Property contended for by the parties (through their expert) respectively:

	Mr Wayne Lee (P)	Mr Cliff Tse (Ds)
Completion Date (2016)
-     existing use	HK$71,145,000	HK$50,200,000
-     redevelopment	HK$66,252,000	n/a
-     adopted value	HK$71,145,000	HK$50,200,000
Judgment Date (2018)
-     existing use	HK$86,439,000	HK$63,800,000
-     redevelopment	HK$98,803,000	n/a
-     adopted value	HK$98,803,000	HK$63,800,000

36.  If I take the view that the date of assessment should be at the Completion Date, then there is strictly speaking no need for me to decide on: (1) whether the valuation should be conducted on redevelopment basis or existing use basis, because both expert adopted the valuation on the existing use basis for this date; (2) the claim for the loss of rental income between the Completion Date and the Judgment Date.

D.  Evidence at trial

37.  The parties have adduced factual and expert evidence before the court.  In assessing their evidence, I have borne in mind the well-established principles discussed in the cases: see e.g. Hui Cheung Fai v Daiwa Development Ltd HCA 1734/2009 (unrep., 8 April 2014) at §§77-83.

38.  In terms of factual witnesses, P and D1 are the main witnesses. 

39.  Having heard their evidence, my assessment is that both P and D1 were trying their best to give truthful evidence to assist the Court.  Subject to any particular point discussed below in this judgment, I would accept their respective evidence.

40.  In particular, I believe Ds’ central theory against P is that P is trying to reap more financially from Ds in this litigation.  If the point is that P is fabricating a case or his evidence for this purpose, I do not think there is valid basis for this suggestion.  Short of that, I do not see a problem as such if a litigant wants to maximise his chance of recovery or the amount of recovery in litigation by presenting his best case.

41.  I have fully considered the points made in Ds’ Closing Submissions, and I do not consider that any of the points made therein would cast doubt on P’s general credibility.

41.1  Ds criticise P for giving evidence for the first time in the witness box about his attempt to mitigate.  I do not believe this is fair.  P’s basic case is all along that there was no replacement property available on the market, which he has made clear in his witness statement.  It is not surprising that when cross-examined about what steps he took after the termination Agreement, he would in his answers give more details.  Even if it may be said that these matters could have been included in his witness statement, the fact that they were not does not in my view suggest that they were recent fabrication.  Similarly, I do not consider that the fact that no supporting correspondence such as emails are produced should lead to the conclusion that P’s evidence was fabricated.

41.2  I am unable to see the force of Ds’ criticism of P’s evidence, given in re-examination, about the uniqueness of the Property.  I do not see any inconsistency in his evidence that the Property was unique with his evidence that he would not be too concerned if he failed in bidding for the Property – his evidence was that the Property was unique and that was why he bid for it, but he would not be too concerned if he could not get it.  The fact that there were other locations in Hong Kong where NGOs can use help with spaces is neither here nor there – this does not contradict P’s evidence that he found the Property unique.  If the point is that he gave such evidence even though he was not asked about this in cross-examination, this has nothing to do with his credibility. 

41.3  Ds also say that P has on various instances disown what he had previously written in correspondence, for example when he said in an email on 10 January 2016 to Mr Mock of Savills that the best way to preserve the value of the Building was to keep the existing structure (and therefore ruling out a redevelopment).  I do not see the force of this criticism.  Regardless of what P said in this email or why he said it, there is objective evidence of P’s intention to redevelop the Property, given: (1) his various emails, which post-date this email, to other charities and professionals talking about a redevelopment (see §20 above); (2) his insistence of inserting Clause 33(iv) into the Agreement (see §18.4 above).  As to the email to Mr Mock, P’s explanation was that he did not feel the need to explain himself to Mr Mock or to convince Mr Mock.  I do not see anything incredible in that explanation. While P did give evidence in cross-examination that nobody with some knowledge about the property market would think that the Building could be resold for profit, this is neither here nor there as this was talking about reselling the Property, not redeveloping it.

41.4  As to the reason for commissioning the Colliers Report and the CBRE Report, P’s evidence in cross-examination was that when he first engaged them, he did not have the idea that the reports were to prepare for litigation, but as matters developed, he wanted the report to be up to the litigation standard, and he approached them with litigation in mind.  For present purposes, I do not see any inconsistencies in P’s evidence on this point.  Whether such evidence has any impact on P’s claim for the costs of these reports will be discussed below.

42.  Mr Wayne Lee, the valuation expert of P, was called as a factual witness to give evidence specifically on: (1) the fact that he had conducted market search and unable to find any transactions for the sale of a whole block building similar to the Building in the Kwai Chung area for the period from 2010 to 2022; (2) the estimated time for a developer to acquire a building through compulsory purchase.  His evidence was not challenged in cross-examination.  I accept the factual aspect of the evidence.  The relevance, weight, or inferences that may be drawn from such evidence will, if necessary, be dealt with elsewhere in this judgment.

43.  There are persistent criticisms by Ds that P has failed to call relevant witnesses, such as representatives of Colliers and CBRE, those at other charitable organisations with whom P discussed his intention regarding the Property, and P’s secondary schoolmate Patrick, and that adverse inferences should be drawn against him.[9] With respect, this is a wholly bad point.  P himself is the key witness and it is his intention regarding the Property that is relevant.  The other witnesses which Ds say have not been called are at best peripheral witnesses.  I do not see why P would need to call as witnesses every one of these other people with whom he had discussed any matter about his intention regarding the Property at the time.

44.  In respect of D1’s evidence, I would note that her factual evidence mostly dealt with uncontroversial matters.  This is understandable as the matter turns primarily on P’s evidence.  The only controversial matter appears to relate to her knowledge of P’s intention to redevelop the Property and the sales brochure / pamphlets of Savills.[10]  Again, I do not find these matters of much relevance.  D1 has accepted that Ds acknowledged P’s general intention to redevelop the Property, given Clause 33(iv) in the Agreement.[11] Whether D1 personally knew about the sales brochure or pamphlet is not important, given that Savills was the agent of all the Ds as vendors.  While D1 spoke about her view or findings on the viability of a redevelopment in cross-examination, her evidence was that she looked into this issue recently, and she was not referring to what was done at the time back in 2016.  I do not think there is anything regarding this issue which would cast doubt on D1’s general credibility.

45.  Both parties called a valuation expert to give evidence on the market value and market rental of the Property.  Mr Wayne Lee (“Mr Lee”) (of Wayne Lee & Associates Ltd) gave evidence for P.  Mr Cliff Tse (“Mr Tse”) (of Jones Lang LaSalle Ltd) gave evidence for Ds.  I will consider their evidence in more detail below.

E.  Valuation date

46.  The issue of valuation date arises in the context of the question of what the proper date is for the assessment of damages for Ds’ breach of the Agreement.

47.  In the case of a failure to complete for a contract for the sale of land, the normal measure of damages is the market value of the property at the contractual time for completion less the contract price: McGregor on Damages (21^st ed., 2021),§27-005. The question is whether the date of assessment should be the date of breach (ie the contractual time for completion) which is the normal rule, or whether some other date should be adopted (in this case P proposes the date of the Judgment).

48.  In the present case, Ds’ case is that the date of assessment should be the date of the breach of the Agreement, because P has not shown any reason for departing from the normal rule.  P’s case is, in essence, that: (1) there is no available market for any alternative property, and it would not be right to adopt the date of breach, which is only appropriate in cases where there is an available market for an alternative property; (2) it follows that the date of assessment should be postponed, and the Judgment Date is an approximate date and should be adopted.

49.  This is one of the key disputes between the parties, as this point would have a significant impact on the amount of P’s claim.

E1.  Principles for date of assessment

50.  I will first set out some general principles, which are not really in dispute.

51.  The overriding compensatory principle that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed: see Johnson v Agnew [1980] AC 367, 400H; The Golden Victory [2007] 2 AC 353, §9; Richly Bright International Ltd v De Monsa Investment Ltd (2015) 18 HKCFAR 232, §15.

52.  The general rule for assessment of damages is that damages are to be assessed at the date of the breach of contract.  But this is not an absolute rule, and the Court would depart from the general rule where applying it would cause injustice to the plaintiff and fix another date: see e.g. Johnson v Agnew, 400H-401A (Lord Wilberforce); The Golden Victory, §13 (Lord Bingham).

53.  The fluctuation in the price is often regarded as a reason giving rise to injustice and for fixing another date for assessment.  As explained in McGregor at §27-009 in the context of a sale of land:

“As has been seen, for the normal measure the value of the land is taken, following general principle, at the time contractually fixed for completion, but such a measure could be grossly unfair to a buyer if prices had escalated between the contractual date for completion and the date of judgment in their action for damages, as the award they obtain will fall far short of giving them the means of acquiring an equivalent property. Of course the buyer cannot complain of this if they ought to have acquired an equivalent property before the escalation of prices, but they may be able to show good reason why they did not do so.”

54.  Similarly, in The Golden Victory, Lord Brown explained at §§79-80 that:

“79. … Essentially it [the breach date rule] applies whenever there is an available market for whatever has been lost and its explanation is that the injured party should ordinarily go out into that market to make a substitute contract to mitigate (and generally thereby crystallise) his loss. Market prices move, both up and down. If the injured party delays unjustifiably in re-entering the market, he does so at his own risk: future speculation is to his account – “the buyer’s decision is (in the vernacular) down to him”: per Bingham LJ in Kaines (UK) Ltd v Österreichische Warrenhandelsgesellschaft [1993] 2 Lloyd’s Rep 1, 11.

80. The rule is easy to apply where, for example, goods or shares are traded: if it is the seller who is injured by non-acceptance, he must as soon as possible re-sell the goods or shares at the then available market price; if the buyer, he must similarly buy in substitute goods or shares… Where goods or shares are sold, the breach date rule is at its strictest. In other cases, however, time may well be needed before the injured party can reasonably be required to re-enter the market.”

55.  It can be seen that the above reasoning regarding pushing back the date of assessment is closely related to the availability of a substitute, or a market for a substitute, and the issue of mitigation. 

56.  In this respect, the fact that P did not seek specific performance of the Agreement is not really the point.  This was a point repeatedly emphasised by Ds in their submissions[12] which I consider to be misconceived.  The cases mention specific performance as an example of a situation where it would normally be regarded as reasonable for the plaintiff not to take steps to acquire an alternative property (because if the plaintiff is seeking to complete the purchase or sale of the property by seeking specific performance, it would be reasonable for him not to enter into an alternative transaction).  But this is not the only situation where it would be reasonable for the plaintiff not to do so.  Thus, the fact that a party did not seek specific performance is not to the point.

E2.  The availability of a market for a substitute

57.  The issue in the present case is, when there is no readily available substitute, how should the date of assessment be chosen?

58.  P has cited a number of cases which on their face suggests that the date of breach should not be adopted when there is no available market for a substitute. 

59.  In Hooper v Oates [2014] Ch 287, Lloyd LJ stated at §§34 and 38 that:

“34 I agree that the availability of a market is a most relevant factor in relation to the date for assessment of damages for breach of a contract for the sale of land where the buyer fails or refuses to complete the purchase. It is hardly ever the case that there is a readily and immediately available market for the sale or purchase of land, in the sense that the seller can go out into the market on the date of breach, or the next day, and find a purchaser who can and will proceed to contract at once. That may be possible with commodities, with listed shares, with freight forward agreements, or with charterparties, for example. But the sale of land invariably requires time, under the procedures and legislation prevailing in England, and how long it requires will depend in part on economic circumstances at the time…

38 It seems to me that the breach date is the right date for assessment of damages only where there is an immediately available market for the sale of the relevant asset or, in the converse case, for the purchase of an equivalent asset. This is most unlikely to be the case where the asset in question is land. If the defaulting party is the buyer, much will depend on what the seller does in response to the breach, as is suggested in Chitty on Contracts, 31st ed, para 26-014, cited above. If he resells, the buyer may be able to show that, in so doing, the seller failed to take reasonable steps to mitigate his loss, for example by taking too long, or failing to follow proper professional advice, or in some other way. Absent any feature of that kind, the eventual resale price is likely to be the figure to be set against the contract price for assessment of the damages, not because it represents the market value at the date of the breach, but because it shows what loss the seller has suffered, uncomplicated by issues of remoteness or failure to mitigate. If the property market has declined during that time, it is of no avail for the defaulting buyer to say that this should not be laid at his door. If he had completed the contract, he would have suffered that decline in value, so this is part of the loss for which the seller needs to be compensated.” (emphasis added)

60.  In my view, these paragraphs must be read in the context of that case.  In Hooper v Oates, the claimants entered into a contract to sell their property to the defendant, who failed to complete on the completion date and the claimants accepted the repudiation.  The claimants, who had already moved elsewhere in anticipation of completion, attempted to resell the property but failed despite 14 months of marketing.  They then let it out for 6 months. When the tenants left, they marketed it again, and was again unsuccessful.  They eventually gave up trying to sell the property and decided to move back into the property themselves. In the meantime the value of the property had fallen substantially.   See §1.

61.  It was held that the date of assessment should not be the date of breach, but a later date.  The agreed alternative valuation date (13 September 2010) appears to be the date of inspection by the expert (§10), and it is not clear how this fit into the timing of the various acts mentioned above.  The reasoning appears to proceed on the basis that the date should be when the claimants took back the property for their own use.  I would draw attention to §§39-40 of the judgment, where Lloyd LJ explained that:

“39 If the vendor does not resell, and takes no steps to do so, then it may be that the date of the breach is to be taken as relevant, or a date soon after that, when he is shown, or taken, to have decided to retain the property. In the present case, by contrast, the seller only decided not to resell after taking reasonable steps to find a buyer. I can see no basis of policy or principle, in such a case, for imposing on the vendor the value as at the breach date rather than the later date when, after taking steps with a view to mitigating his loss, he finally decided to retain the property upon the failure of his attempt to mitigate.

40 In the present case, there has been no suggestion that Mr and Mrs Hooper failed to take reasonable steps to mitigate their loss. Any such contention would have to have been pleaded and explored in evidence. Accordingly, it seems to me that the appropriate date, as I have said, is the date when they brought to an end their reasonable attempts to resell and took the property back for their own use…” (emphasis added)

62.  I would also refer to the following part of §37, which makes clear that it was not the date of the hearing of assessment that was adopted:

“Of course, it is necessary to take a date on which the loss is crystallised, which cannot be later than that of the hearing of the assessment of damages. If something has happened before that which establishes the position, such as a resale, then that earlier date will be taken. In the present case, as it seems to me, there could be a debate as to whether the right moment is when the claimants withdrew the property from the market for sale and let it instead, or rather the later date when, after the tenancy had run its course and after further efforts to sell, they decided to cut their losses and move back into the property. As I have said, the recorder did not order the defendant to pay interest on the damages from a date before that of judgment, so he was probably proceeding on the basis that the later date was correct. It seems to me that he may well have been correct about that, but in any event nothing turns on the difference in date as regards the evidence of value, so it is not necessary to go further into that question.” (emphasis added)

63.  It is important to note that the date of assessment adopted was the date when the claimants stopped trying to sell the property, a point emphasised in §§39-40 of the judgment.  In other words, the important point in time was when the claimants decided to stop mitigating.  This, in my view, illustrates a number of propositions:

63.1  First, the mere fact that there was no available market does not mean that the date of assessment should automatically be postponed until the date of judgment or assessment.  It is just one of the factors to be taken into account.  In that case, the date of assessment was not postponed beyond the date the claimants moved back into the property, even though at that point in time, there was still no available market for the property in question.

63.2  Second, whether the date of assessment should be postponed, and until when it should be postponed, depends not just on the unavailability of a market, but also on whether the plaintiff was taking steps to mitigate.  This is because if the plaintiff is taking reasonable steps to mitigate, the date of assessment would be postponed because the plaintiff should be compensated by reference to the point in time after the plaintiff have taken reasonable steps to mitigate (as explained in The Golden Victory §§79-80 cited above).  For if the plaintiff was trying to acquire an alternative property to replace the property he lost, and the market was rising, the compensation awarded to him should enable him to do so at the time he would be entering the market (which might be taken to be the time of judgment, when he actually received the compensation), or at an earlier time when he should have entered into the market (which might be because in the circumstances it would be reasonable for him to have entered the market earlier, and he had the means to do so).

63.3  In other words, the reference or emphasis on the availability or unavailability of a market is premised on the assumption that the party would be taking steps to go into the market.

63.4  I would note that Hooper v Oates demonstrates that the same result applies when the plaintiff took reasonable steps to mitigate but was unsuccessful.

63.5  Third and conversely, the date of assessment would not be postponed beyond the date when the plaintiff has stopped mitigating or should reasonably have stopped mitigating – this is also encapsulated by the first part of §39 of the judgment (quoted and underlined at §61 above). In my view, this is because if the plaintiff has stopped taking mitigating steps (or should reasonably have stopped), his loss should be treated as having been crystalised as at the time when he stopped, since he would not (or should not) be seeking to purchase any replacement beyond that date, and there would be no unfairness if he is compensated by reference to the value of the property in question as at that date.  This is so even if at the point in time when the plaintiff stopped mitigating, there was still no available market, as was the case in Hooper v Oates.

63.6  I am further of the view that the result would be the same whether the plaintiff stopped mitigating because he had done all he could and there was no available market (as in Hooper v Oates), or because he simply did not care and decided not to take any step to mitigate at all (which would be covered by the broad formulation at the beginning of §39). 

E3.  Relevant evidence

64.  I will now consider the evidence relevant to this point.  There are three aspects: (1) P’s evidence that he regarded the Property as unique and that there are no available alternatives; (2) what, if anything, P has done after the termination of the Agreement to look for an alternative; (3) the subsequent offers by Ds to complete the sale and purchase of the Property on the same terms as those under the Agreement.

E3.1  Lack of an available market for an alternative

65.  It is P’s evidence that his intention for acquiring the Property was to carry out a redevelopment, and to use the redeveloped building for charitable purposes.[13]  He said this was a long term goal for him, and mentioned past instances where he provided rent free accommodation to NGOs, and past attempts to negotiate for a redevelopment in Yau Ma Tei for similar purposes.[14]  He gave evidence that the Upper Kwai Chung area, in which the Property was located, was a unique location as it was one of the poorest areas in Hong Kong and particularly in need of spaces for NGOs.[15]  He gave evidence of his ideas of using some parts of the building as a church, and some parts for letting out to NGOs.  Such evidence is well supported by Clause 33(iv) of the Agreement and evidence of written communications with various charities about his plans to redevelop the Property, both before and after entering into the Agreement.  I accept such evidence from P.

66.  It is also P’s evidence that the Property, being a whole block tenement building located in Upper Kwai Chung, is unique and there is no replacement of a similar building (in terms of size, price, location and readiness for redevelopment) available on the market at the time.[16]  Mr Wayne Lee, P’s valuation expert, gave factual evidence that there had been no transaction for a whole block building similar to the Building in the entire Kwai Chung since 2010, and no application or order for sale under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap 545) for a whole building in Upper Kwai Chung at the material time.[17] I would also accept this evidence, and indeed I do not think Ds are suggesting that P could have acquired another similar building in the area at the time.

67.  Rather’s Ds’ contention appears to be that P should have looked for an alternative property in a completely different area (because he could provide spaces to NGOs in other areas as well), or he could acquire individual units in different buildings for the same purpose.  I do not think this is right, because the question is whether there are reasonable alternatives to the Property in question being the property that P lost as a result of Ds’ breach, and not whether there are alternative ways to carry out P’s charitable intention.  Further, whether a property is a reasonable alternative must depend in part on P’s preference.  In any case, this is not an important point for reasons that will become apparent.

E3.2  Steps taken by P after termination of the Agreement

68.  P’s evidence on this aspect came out during cross-examination.  His evidence was that:

68.1  After the Agreement was terminated, in his initial discussion with Colliers, he had been asked if he would be interested in another property, to which his response was that he would be if the property is in the same area.  He was quickly told that there was no such property available.  He had a similar discussion with CBRE and was likewise told that there was no such available property.  P’s evidence was that such discussion with Colliers should be in about July 2016, and his discussion with CBRE should be in about August 2016.

68.2  When asked what steps he took to look for an alternative property, P’s evidence was that he was very passive, and that he did not take any active steps because there were no suitable circumstances for him to do so.  I take this to mean that P had formed the view that there was no alternative property available, given the negative answer from Colliers and CBRE. 

68.3  P mentioned that he had approached a high school classmate, Patrick, who worked in a small to medium sized estate developer, and told Patrick to inform him if any suitable property was available, and he had heard nothing from Patrick.  P’s evidence was that this took place in July or August 2016.

69.  I have already rejected Ds’ criticisms of this evidence at §41.1 above.  I would accept such evidence.

E4.  Analysis of the present case

70.  In his closing submissions, P’s argument is essentially that: (1) there was no available market for an alternative property, and thus the date of assessment should not be the date of breach; (2) the date should be postponed given the rising property market; (3) for the plaintiff to make a substitute purchase, the process could have taken a while, and the approximate date should be the Judgment Date.[18]

71.  I am unable to agree.  In light of the above evidence, I am of the view that the appropriate date of assessment should be the Completion Date.

72.  First, it is P’s avowed case that there is no available alternative property in the market.  P has all along maintained that: (1) he only wanted a whole block building in the Upper Kwai Chung area, where there was no similar alternative property available in the market at the material time; (2) whole block buildings in other areas are not suitable alternatives; (3) individual units in different buildings are not suitable alternatives. 

73.  Going by first principles, where there is simply no alternative, there would be no point for the buyer to spend time to look for an alternative.  Indeed, I note that P has in his evidence described finding a replacement property as “purely hypothetical”.[19]  It would follow that in considering the date of assessment, there would be no reason to take into account the time needed for the buyer to look for an alternative, and the possibility that property prices may rise during such time.

74.  As such, I consider that there is no injustice if the date of assessment is fixed at the date of the termination of the Agreement.  That date is the date when P lost his bargain, and prima facie the date when P suffered the loss.  If there is no reason to postpone the date of assessment, then this date would be the appropriate date by default.  This accords with the default rule of date of breach. 

75.  This also accords with the overriding compensatory principle.  If P is not seeking to buy an alternative property or there is simply no alternative property, then the compensation need not take into account the rising prices in the market because P is not or should not be seeking to enter the market to acquire an alternative, possibly at inflated prices because some time is needed to do so.  P would be adequately compensated by the value of the Property as at this date (being the date he lost the bargain), coupled with an award of pre-judgment interest.

76.  Second, the evidence summarised above suggests either that P never took any steps to mitigate by looking for an alternative property, or had stopped mitigating very shortly after the termination of the Agreement.  Given P’s stance that he only wanted a whole block building in the Upper Kwai Chung area as a replacement, he was told very soon by 3 different sources that there was no available replacement on the market.  P himself described the time needed to look for a replacement as “hypothetical”.

77.  Thus, at best, P was waiting for a suitable alternative property to become available on the market.  In the circumstances, I do not regard this as P continuing his efforts to look for an alternative property; rather, it seems more appropriate to regard P to have given up on acquiring an alternative property, but if anyone comes to him with a possibly suitable property, he would consider this as a new and independent transaction.  Alternatively, if P is to be regarded as having been continuing with looking for an alternative property, I would consider that these are not reasonable mitigating acts and they should not be taken into account. 

78.  Third and in particular, given the difficulty for a suitable alternative to come by, it is wholly uncertain when such an alternative would become available.  This could be one year, two years, or ten years later.  In these circumstances, to adopt any particular later date as the date of assessment would be entirely arbitrary and would not reflect the market price of the Property at such point of time.

79.  As such, based on the principles derived from Hooper v Oates (see §§62-63 above), the date of assessment should be the date when P stopped (or should have stopped) his mitigating efforts.  The facts in the present case are to some extent similar to Hooper v Oates, in that there was no available market for the bargain that the plaintiff lost due to the defendant’s breach.  There, there was no buyer for the claimants’ property, whereas here, there was no alternative replacement property.  There, because the claimants were the seller, it took some marketing efforts and time for the claimants to realise that there was no market for the property, whereupon they stopped mitigating and the date of assessment was fixed by reference to that date; whereas here, it seems that P realised from the very beginning that there was no alternative available.

80.  I note that my analysis above is consistent with the case of Panlead Development Ltd v Helen Yee Fong Chung HCA 6853/1992 (unrep., 2 June 1998) (where Hartmann J adopted the date of breach because there was no evidence the plaintiff buyer was seeking to purchase an alternative property: p.14) and the case of Ever Bright (H.K.) Construction Engineering Ltd v Kosasih Muanto [2019] HKCFI 1391 (where Master Lawrence Hui adopted the date of breach because there was no evidence the plaintiff buyer would have entered into another purchase of property, let alone its ability to obtain a mortgage: §28(c)). 

81.  Finally, I have not lost sight of the fact that on the evidence, P was told about the lack of an available alternative only in July or August 2016 (see §68 above).  There was a small time gap between this and the date of the termination of the Agreement (31 May 2016).  However, since there is no clear evidence whether P had been taking any mitigating steps from 31 May 2016 to July or August 2016, and in any event there is no evidence of any difference in value as at July or August 2016, I consider it would be appropriate in the circumstances to adopt the date of the termination of the Agreement (31 May 2016) as the date of assessment of the market value of the Property.  This is the date which represents the best approximate based on the available evidence before the Court.

82.  I should now deal with some of the arguments raised by P.

83.  At §53 of P’s Reply Submissions, P contend that:

“Even taking the Defendants’ case to its highest in assuming that the Plaintiff had done absolutely nothing to mitigate and hypothesising that the Defendants have framed it as a matter of deciding the valuation date, the Defendants have still confusingly and erroneously taken a logical quantum leap to the conclusion that the valuation date should be the date of breach. As a matter of common sense, if the Defendants are saying that the date of breach should be the valuation date, they are essentially saying that had the Plaintiff taken every step of mitigation (which the Defendants could not identify in the first place), the Plaintiff could have acquired a substitute property on the date of breach. Even if there was an immediately available market, this is plainly impossible. Such a conclusion is, without doubt, completely devoid of any logic.”

84.  I do not agree.  In particular, the adoption of the date of breach is for the reason explained above, and not because P could have obtained a substitute property on that date.

85.  I also do not agree that this conclusion would mean the reasoning in Hooper v Oates was wrong, or to enable an argument on the facts of that case that the correct date should be the date of breach.[20] This is because on the facts of that case, it took some time for it to become clear to the claimants that there was no available market for their property, and such reasonable efforts to mitigate would be taken into account: see Hooper v Oates§39. 

86.  In P’s submissions, P also relied on the following decisions, which I do not consider to be of assistance to P’s case:

86.1  Chan Wai Ching v Hui On Yin Ada [2012] HKC 151: in this case, the plaintiff purchaser accepted the seller’s repudiation of the agreement for sale and purchase. The plaintiff was not able to enter the market to purchase a replacement property because of the rising market and the financial restraint caused by the defendant not returning the deposit to her.  The court held that this was a proper case to depart from the breach date rule and adopted the date of the interlocutory judgment.  In my view, this decision is distinguishable.  The plaintiff was not able to mitigate because of the rising market and financial constraint.  The date of assessment was postponed because the award should aim to enable the plaintiff to, with the benefit of the award which would address the financial constraint, purchase an alternative property in light of the rising market.

86.2  Goldbay Fortis Ltd v Rich Resource Development Ltd [2021] HKCFI 1684: in this case, the property in question comprised of the commercial portion of a development and a 49% interest in the car park portion of the same development (there was also a residential tower): §§1, 9.  The agreement in question was a right of pre-emption allowing the plaintiff the first right to acquire the properties in question, which was breached by the defendant.  The Court considered the date of assessment for the commercial portion and the car park portion separately. For the latter, in adopting a date closer to trial, one of the factors taken into account was that there was no readily available market for any alternative: §347(e).  It is not clear what reasoning or legal proposition from that case that P is seeking to rely on, other than the result in that case.[21]  There, the Court appeared to have also taken into account other factors, such as the fact that the car park portion was intended to be a long term investment (§347(d)), and there were no discussion about the plaintiff’s mitigation steps.  As such, I regard the case to be distinguishable.

87.  I should note that there are some discussions in the parties’ submissions as to whether the burden is on P to show a departure from the normal breach date rule, or for Ds to show that there was a failure to mitigate by P. Given my conclusion above, which is based on a consideration of all the evidence, I do not need to come to a view on the issue of burden.  I would note however that the Court of Appeal’s comment in Lo Yuk Sui v Fubon Bank[2019] HKCA 261 at §63 on burden appears to me to be really about the burden to raise the issue – because the plaintiff did not at trial raise the issue that the date of breach should be departed from based on of a lack of available market, the judge was entitled to proceed without dealing with this point, and the plaintiff could not complain about this on appeal.

E5.  Subsequent offer by Ds to sell the Property on the same terms

88.  There remains the separate point arising from Ds’ offer after the termination of the Agreement to sell the Property to P under the original terms of the Agreement.  Given my conclusion above, this point would not affect the result. 

89.  The events had been briefly referred to at §24 above.  In more detail:

89.1  In a letter from MCWK (P’s former solicitors) to CMKI (Ds’ solicitors) dated 16 June 2016, P inquired about the findings by DTZ Cushman & Wakefield (“DTZ”) in respect of the quotation for the discharge of the building orders attached to the Building.  This was one of the sticking points prior to completion.  The letter did not mention the lack of vacant possession and title defects.

89.2  After the exchange of a few letters, in a letter from CMKI dated 30 July 2016, Ds provided an update from DTZ on the rectifying works and stated that the estimated costs for such works was HK$550,000. Ds further made an offer for P to proceed to complete the purchase of the Property within 14 days subject to payment by Ds a sum of the estimated cost (or any sum as agreed), or for the sum to be stakeheld. 

89.3  By an email from CMKI to MCWK on 12 August 2016, Ds provided a draft report prepared by DTZ, as well as a fee proposal for rectifying works to P. 

89.4  By a letter from MCWK, dated 17 August 2016, P raised certain concerns regarding DTZ’s report and the fee proposal.  It is not necessary for me to go into the details of these queries (and neither of the parties have done so in their closing submissions).

89.5  By a letter dated 31 August 2016 from CMKI, Ds disagreed with the concerns raised, and offered to pay all costs for complying with the relevant building notices.

89.6  By a letter dated 1 September 2016 from MCKI, P expressed “disappointment” with Ds’ “swiping answer” to P’s queries, and noted that Ds did not provide details of the quantum of further individual works. 

89.7  There was no further response from Ds on this.

89.8  All of these were without prejudice correspondence.

90.  Ds’ submission is that P should have accepted Ds’ offer in mitigation of his loss.  Ds take the point that the only concern raised by P in the above correspondence concerned the building orders, but not other title defects or the issue of vacant possession, and that Ds’ offer had already covered all the costs of complying with the building orders.[22]  If correct, this would be a separate point why the date of assessment should not be the Judgment Date.

91.  P’s answer is twofold.[23]

92.  First, P cited the case of Heaven & Kesterton Ltd v Etablissements Francois Albiac & Cie[1956] 2 Lloyd’s Rep 316 at 321 for the proposition that where a buyer rejected good on the ground of defective quality, he is not required to accept them in mitigation if the same goods were offered by the seller since this would undermine the buyer’s right to reject. It seems to me that the proposition is borne out by that case. In that case, Devlin J drew a distinction between rejecting goods for defective quality and rejecting goods for other reasons unrelated to quality (such as late shipment), and in the latter case an offer from the seller may be taken into account for mitigation purposes.

93.  In the present case, Ds were not merely offering the original defective Property to P, but also offering to rectify the defect arising from the building orders, which is different from the situation discussed in Heaven & Kesterton.  It would appear that an offer from the party in breach to rectify the defects should be accepted as mitigation: see the discussion in Chitty on Contracts (34^th ed., 2021) Vol. 1 at §29-110on a building contractor offering to rectify defective works.  However, even if that may have dealt with one defect, there was no offer to rectify the other title defects and the issue of vacant possession.  I therefore consider the principle in Heaven & Kesterton to be applicable, and that as a matter of law, P was not required to accept this offer in mitigation of his loss.

94.  I consider that the fact that these other defects were not raised by P in correspondence does not mean that these were not defects objectively, and does not affect whether in law P ought to accept the offer despite such defects.  I emphasise that this is a question of law and does not depend on P’s subjective view (if any, which had not been communicated) that he might have found these defects tolerable.

95.  Second, P made the point that just because P did not repeat the issues of vacant possession and title defects did not mean P was no longer insisting on them.  I also agree with this point. Having considered the correspondence, it seems to me that P was making inquiries with Ds on a specific issue, and there is nothing to indicate that he has waived the other issues or title objections.

96.  At this juncture, I wish to observe that P was cross-examined at some length on his view on Ds’ offer.  In the course of cross-examination, P made the point that the offer regarding the building orders did not address the other title defects and vacant possession, and that without addressing these other points, he was not satisfied that there was a genuine offer from Ds.

97.  I have some doubt about such evidence.  This appears to conflict with §§66-67 of P’s Witness Statement, which made the point that he continued to be interested in acquiring the Property up to 2018 (I do note the time difference), and one of the reasons he gave was that: (1) if Ds were willing, they “would be very capable of delivering vacant possession”; and (2) since he intended to keep the Property for a long term, he would have time to rectify the title defect and even if he could not rectify them, he could live with the title defect on the basis that he would not be reselling the Property.  As these paragraphs were not put to P in cross-examination, I would simply record my doubt about P’s evidence on this point.  In any case, as I explained above, the fact that P might have been willing to tolerate these defects subjectively does not mean that as a matter of law he was obliged to accept Ds’ offer as mitigation of his loss.

98.  Finally, I should add that the fact that P had engaged in negotiations to buy back the Property from Ds should not be taken into account as relevant mitigating efforts which would push back the date of assessment as in Hooper v Oates.  Such negotiations were all along on the basis of the same terms, including the purchase price, under the original Agreement.  If these efforts succeeded, P would not have to pay a higher price for an alternative property on the market such that the date of assessment should be postponed to take this into account.  Rather, he would be getting his original bargain (save for some time difference as to completion).  In any event, these efforts concluded by 1 September 2016, and the position on timing is not materially different from the time when P asked CBRE / Colliers / Patrick about available alternatives, as discussed at §81 above.  Thus, this matter would not affect my analysis in Section E4 above. 

E6.  Conclusion on date of assessment

99.  For the above reasons, I hold that the proper valuation date for the Property for the purpose of this assessment should be the Completion Date, ie 31 May 2016.

F.  Valuation basis

100.  In light of my conclusion above on the valuation date, there is strictly speaking no need for me to consider the issue of valuation basis.  Nevertheless, in deference to the arguments made by counsel, and in case the parties decide to take this further, I will express my views on this point.

101.  The dispute between the parties is as to whether the market value of the Property should be assessed on the existing use basis or on the redevelopment basis. 

102.  The issue arises because, in P’s valuation evidence, P’s expert (Mr Lee) conducted an assessment on both the redevelopment basis and existing use basis, and adopted the higher of the two: see §35 above.

103.  Ds’ submission is that:[24]

103.1  At the time of the Agreement, P did not have a concrete redevelopment plan (with no specific direction or timeline), and Ds had no knowledge of any detail of P’s redevelopment plan other than that P had an intention to redevelop.

103.2  Ds did not assume responsibility for loss arising from the consequence that P could not proceed to redevelop the Property, under the principles explained in Richly Bright International Ltd v De Monsa Investment Ltd (2015) 18 HKCFAR 232.  The loss is too remote.  Thus, P cannot claim for such loss.

103.3  Further and in any event, the valuation conducted by P’s expert on the redevelopment basis was based on a hypothetical development very different from the one P was contemplating at the time of the Agreement.  The point appears to be that P intended the redevelopment to cater for charities, the commercial profitability of the new building that P actually intended would likely be less than the hypothetical development adopted by P’s expert.

104.  In my view, Ds’ submissions misunderstood the nature of P’s claim and the valuation evidence he adduced.

105.  P’s claim is all along for the loss of the bargain under the Agreement, ie the loss of the right to acquire the Property at the contract price of HK$50,000,001.  This raises the issue of the market value of the Property as at different proposed valuation dates.  P’s claim is for the difference in value between the market value and the contract price.

106.  The expert evidence adduced by P is as to the value of the Property as at the different valuation dates.  The reason why valuation on the redevelopment basis is raised is because this is one method of arriving at the market value of a property.

107.  As explained by Mr Lee (P’s expert), “it is a basic valuation principle that the highest and best value that a property can fetch on the market shall be taken as the market value of the property”,[25] and “the highest and best use for an asset is not necessarily the value after redevelopment.  It may be that an asset’s existing use is the highest and best use because it is being used optimally or that the market forces do not make it economically viable for redevelopment.”[26] He made clear that he was conducting a valuation on both the existing use basis and the redevelopment basis, and he would adopt the higher value as the market value of the Property as “the highest and best use”.[27]

108.  In other words, both the redevelopment basis and the existing use basis are valuation methodologies for arriving at the market value of the Property.  To spell it out in long hand:

108.1  The theory of the redevelopment basis is that, if a property can, through a redevelopment, earn for the owner a profit at $X, then a buyer or a seller would be willing to buy or sell the property at $X.

108.2  The theory of the existing use basis is that, if a property can, through continuing with its existing use, such as reselling and/or renting out under its existing state, earn for the owner a profit at $Y, then a buyer or a seller would be willing to buy or sell the property at $Y.

108.3  If the buyer or seller is aware of both such information or had conducted an analysis on both the existing use basis and the redevelopment basis, one would expect that he would willing to pay, or would only be willing to sell at, the higher of $X and $Y.  Thus, the market value is the higher of $X and $Y.

108.4  All these – whether to adopt the redevelopment basis for valuation, and whether the redevelopment valuation would be the “highest and best use” – are all matters of valuation evidence, and within the expertise or judgment of the valuation experts.

109.  This is to be contrasted with a claim for loss of profits.  Under a claim for loss of profits, the buyer would be saying that, if he had acquired the property, he would have earned profits because he would have redeveloped the property in a specific manner, and such a redevelopment would generate profits (after taking into account the costs of the acquisition and the costs of the specific redevelopment) for him in the amount of $Z.

110.  It can be seen that the nature of the “redevelopment” involved in the analysis under the two types of claims are different.  The redevelopment basis to arrive at the market value of the property is based on a hypothetical development.  It would usually not be the same as the development actually intended by the plaintiff.  In contrast, in a claim for loss of profits, the plaintiff would have to adduce evidence as to the specific redevelopment intended by him, and the expected profits from this specific redevelopment.

111.  Once this is understood, it can be seen that Ds’ submissions are misconceived and should be rejected.

112.  First, the principles regarding remoteness and assumption of responsibility do not assist Ds.  Here, P’s claim is for loss of bargain, which is measured by reference to the market value of the Property (and the difference with the contract price).  This loss of the bargain under the Agreement is a loss flowing naturally from Ds’ breach of the Agreement, and indeed are within the first limb of the test in Hadley v Baxandale(1854) 9 Ex 341.[28]  There can be no suggestion that the loss is too remote, or that Ds as vendors have not assumed responsibility for such loss.  The principles on assumption of responsibility discussed in Richly Bright at §§28-41 are not to the point.

113.  How the market value of the Property is to be arrived at is a matter of valuation expert evidence.  As explained above, the redevelopment basis was just a valuation methodology to arrive at the market value of the property.  It does not make the loss claimed by P a different kind of loss (loss of bargain).  

114.  Ds submit that the “bargain” here is “the Property based on its existing use”.[29] I do not agree.  The “bargain” here is the Property, which is to be assessed at its market value, which may be assessed either on the existing use basis or the redevelopment basis, which is determined as a matter of valuation methodology.

115.  The position would be different if P was claiming for loss of profits arising from a specific redevelopment he had in mind.  In such a scenario, questions of the second limb of Hadley v Baxandale, and/or assumption of responsibility would arise.  But this is not P’s claim here.  

116.  This explains the case of Diamond v Campbell-Jones[1961] Ch 22 cited by Ds, where the claim was for loss of profits arising from the redevelopment that the buyer had in mind.

117.  Ds’ submissions also confusingly refer to P’s expectation and the value of P’s expectation, and say that P’s expected use of the Property for charity should be relevant in the quantum of P’s claim.[30]  By “expectation”, one is usually referring to the expectation measure of damages (ie the gain or benefits which the plaintiff expected to receive from the completion of the promised performance under the contract), which is in contrast with the reliance measure (ie the expenses he incurred in reliance of the promised performance under the contract).  In the present case, P is claiming for the loss of bargain which is the expectation measure – the expectation was that he would have acquired the Property if the contract had been performed.  P is being compensated for the loss of this expectation.  But he is not claiming for a loss of profits from a specific development, although such a claim would also be on the expectation measure.

118.  Second, given that the redevelopment basis of valuation is a valuation methodology based on a hypothetical development, it is of no relevance that P did not have a concrete redevelopment plan, or that P’s intention was different form the hypothetical development adopted by the valuer.

119.  In their submissions, Ds also rely on the case of Siu Sau Kuen v Director of Lands CACV 180/2012 (unrep., 31 July 2013) as setting out a test for the Lands Tribunal to determine whether an element of development value should be included in the compensation to be paid on the resumption of land.  This test is set out at §34, which requires evidence to show that at the date of resumption,  redevelopment of the property resumed was likely, either by actual proposals to redevelop received by the applicant, or evidence of redevelopment in the vicinity of the resumed property.  Ds submit that before this Court can take into account the redevelopment value of the Property, this test must be satisfied.

120.  I do not consider this case to be relevant.  In that case, the Court was concerned with the compensation to be awarded to a unit (the ground floor) which was part of the building that was subject to the compulsory sale application (§4).  It is therefore not a case where the applicant for compensation could have redeveloped his property on his own – he could not have redeveloped the ground floor unit on its own, and any redevelopment must be part of the redevelopment of at least the whole building.  In such a context, it would make sense for there to be a requirement to show that there was a sufficiently likely redevelopment for the whole building (which would incorporate the unit of the applicant), before an element of development value should be included in the compensation. Indeed, the test reformulated by the Court of Appeal at §34 originated from the case of Cheung Lai-wan v Director of Lands and Survey [1977] HKLTLR 14 (see §§9 & 18), and the test in that case was specifically concerned with “added value on the open market because of the likelihood that it will be incorporated into a scheme of redevelopment…” (at p.17).  The present case is not the same, as we are concerned with a whole building block, and P’s intended redevelopment would not depend on there being a redevelopment together with other properties.

121.  Nor do I regard the case of Jenmain Builders Ltd v Steed and Steed [2000] PNLR 616 to be of assistance to Ds.  In that case, the passage at 625B-626A relied on by Ds[31] was making the point that the redevelopment potential would have already been taken into account in the market price, and there was no evidence before the court to show that the contract price did not represent the market price.  This does not suggest that the redevelopment potential should not be taken into account.  Further, the facts of that case are different: the claim in that case was run on the basis of loss of profits from a redevelopment, because the claim was against the solicitors firm who failed to pass on relevant information to the buyer (and not against the vendor), and the claim fell outside the scope of their duty: see the earlier discussion from 624D.

122.  For the above reasons, if the issue arises, I would hold that the market value of the Property may be assessed on either the redevelopment basis or the existing use basis, depending on the valuation experts’ view on which would be the appropriate basis, based on the “the highest and best use” principle.

123.  I will deal with the valuation evidence as at the Completion Date in Sections H and I below.  It is not strictly necessary for me to rule on the valuation at the Judgment Date.  However, in case the parties decide to take the matter further, I will also set out my decision on the valuation as at the Judgment Date – this I deal with in Sections J and K below.

G.  Expert valuation evidence: general points

124.  In this section, I will make some general observations on the expert valuation evidence.

125.  In approaching such evidence, I will bear in mind the following points, which I have put to both Mr Lee and Mr Tse and they both agreed:

125.1  Valuation is not an exact science.  The valuation figure arrived at cannot be exactly accurate, and both experts accept that there would be an acceptable range of deviation.  Mr Lee said he would accept a deviation of plus and minus 10-15%. Mr Tse said he would accept plus and minus 10%.

125.2  The element of uncertainty stems from the assumptions or subjective judgments that have to be applied in the process of valuation.

125.3  Amongst the 3 valuation methods discussed in the experts’ evidence, speaking generally, the direct comparison method would involve the least amount of such assumptions or subjective judgment, and thus more reliable, when compared with the income capitalisation method or the residual method (based on a hypothetical redevelopment).

126.  In my view, having considered their expert reports and oral testimony, I take the view that both experts have conducted their valuation in a professional manner and have done their best to assist the Court.  While there may be legitimate criticisms that can be made against both experts on individual points, I do not consider that this should mean that either of their evidence should be rejected in its entirety.

127.  In fact, only P has adopted this bold approach and submitted that Mr Tse’s evidence should be rejected in its entirety.  I do not accept this. In particular:

127.1  The major criticism is that Mr Tse did not personally conduct a site inspection for the many comparables adopted by him whether before his report or the joint report.[32]  However, as pointed out by Ds, the HKIS Valuation Standard does provide that a valuer can, in coming up with his valuation, rely on a site inspection conducted by a suitably trained staff under his supervision.[33]  Mr Tse also explained in his evidence that he was very familiar with the Kwai Chung area from his past engagements.  Further, from the tenor of his evidence in court, it would appear that Mr Tse had visited many of the comparables before the trial and had made any necessary adjustments to his valuation.  As such, I do not consider this to be a reason to reject his evidence entirely.

127.2  The other points made[34] really concern criticisms of his opinion on individual items, and would not merit a wholesale rejection of his evidence.  One criticism concerns Mr Tse’s reliance on his market sense and market information he obtained, which are not set out in his report.  In my view, what Mr Tse is referring to is the subjective judgment and his knowledge derived from his past experience, which are invariably involved in an expert forming his judgment.

127.3  I would also note that both experts have made adjustments to their views in the initial report, whether in the joint report or before trial.  This must be normal and this fact alone cannot justify the wholesale rejection of the expert’s evidence.

128.  The parties are in serious dispute over a wide range of issues on valuation, including the applicable valuation approach, the choice of most of the comparables, and the application of adjustment factors.  Given that my ruling on these individual points would affect the final valuation figure, which has to be worked out by further calculations by the parties, this Judgment will focus on ruling on the disputed points, and I will at the end give further directions for the parties to come up with the final figure of valuation and the damages to be awarded.

129.  In this respect, I would note that this was the approach suggested to me by both parties at the end of the trial.  However, in P’s Closing Submissions, P suggested that, after the Court has ruled on the individual adjustments, the Court should apply a global adjustment, instead of working out by calculation how such adjustments impact on the final figure. The reason for this suggestion was that the Court, after deciding to make revisions on the adjustment factors, would not have the immediate assistance of the experts and would not be able to gauge the final valuation.  P also relied on the fact that both experts expressed that a margin of error in their valuation is acceptable.[35]

130.  I have no hesitation in saying that I would not adopt this approach.  In my view, this is plainly inappropriate, as without working out the impact of the individual adjustment factors, there is no way I can decide on the extent of this “global adjustment”.

131.  Unfortunately, this suggestion by P prompted 7 (out of 30) pages of reply submissions from Ds.  I would address some of these points, as they may be thought to be related to the Court’s general approach to the valuation evidence:

131.1  First, I must say that P’s submission is not that there would be any difficulty in the expert working out the figures based on my decision.[36] P’s point is that I would not, at the time of writing this Judgment, have any idea what the final result would be after revising the adjustment factors.  This is true, because for example, I would not be able to tell at the time of this Judgment whether the residual approach or the direct comparison approach would give a higher value (although this does not mean I should adopt a global adjustment approach). 

131.2  Second, Ds made lengthy submissions on the propriety of adopting a broad-brush approach in the assessment of damages.[37] I would note that 2 of the authorities cited by Ds do show that the Court would adopt a broad-brush approach (or to put it another way, do the best it can) where the analysis or evidence by the experts on the valuation evidence is not satisfactory.[38]  I very much doubt that these are the only two instances where the Lands Tribunal had ever adopted such approach.[39]

131.3  Third, there is a submission by Ds that the Court cannot make an adjustment within the margin of error accepted by the experts (see §125.1 above), because this is a misapplication of the “concept of margin of error”, which is a concept “typically used by the courts to determine whether a valuer has been professionally negligent in his valuation”.  Ds then went on to cite cases to the effect that while the court would take into account the margin of error in deciding whether a valuer was negligent, when it comes to assessment of damages against a negligent valuer, the court must make a finding on a correct valuation, and cannot simply adopt a figure at either end of the margin of error.[40]

131.4  This argument is wholly misconceived:

(a)  First, the entire premise is wrong.  The fact that the Court in the context of valuer negligence would discuss or take into account the margin of error in a valuation does not mean that the margin of error in a valuation is only relevant in valuer negligence context. 

(b)  Second, I cannot see any problem for a court to take into account the fact that valuation is not a precise science, and that even the expert who is putting forward a figure accepts that there is an acceptable margin of deviation, and thus the Court may make adjustments within that margin.  This is, with respect, just a matter of common sense.  

(c)  Third, it follows that the decisions in the context of valuer negligence are completely irrelevant and take out of context by Ds.  The point being made in those decisions was simply that the Court cannot treat the two extremes of the margin of error as both the correct valuation, and can decide to adopt either of them without good reason, and that the Court must arrive at a correct valuation, by a proper analytical process.  But in the process of doing so, as part of assessing the valuation evidence, the Court can of course take into account that there is a margin of error.

131.5  Indeed, there is guidance from the Court of Appeal which directly contradicts Ds’ argument. In Michael B Hamlett v Grace I Y Shong Hamlett CACV 52/1995 (unrep., 12 October 1995), where both valuers were found to be competent in their profession and gave logical reasons for arriving at the final figure, the Court of Appeal found that the only solution was to split the difference.  Litton VP said this at pp 9-10:

“I cannot see how, in the light of the respective approaches of these valuers, it can be said that one had performed his task better than the other.  The matters that I have mentioned are matters of value judgment upon which one would expect expert valuers to differ to an extent. On the judge’s finding that both valuers are “men competent in their profession” and both “gave logical reasons for arriving at their respective final figures”, it is impossible, in my judgment, for the judge then to accept the opinion evidence of the one as “more realistic” and reject the other.

In these circumstances it seems to me that the only logical approach is… to take a half-way point. This is not an exercise of guess-work on the part of the court. It is an exercise in realism, accepting that valuation as I have said is not an exact science and that honest men can honestly differ.” (emphasis added)

H.  Valuation at Completion Date: direct comparison method

132.  In this section, I will consider the valuation evidence as at the Completion Date. 

133.  As explained at §§35 and 36 above, for the Completion Date, both experts adopted the existing use basis.  In this connection, Mr Lee adopted the direct comparison approach, by using comparables from actual sales transactions.  Mr Tse also adopted the direct comparison approach, but also used the income capitalisation approach as a cross-check. 

134.  The key disagreements relate to the selection of the comparables by the two experts (as the comparables adopted by them are very different) and the application of various adjustment factors.  P also criticises Mr Tse for his use of the income capitalisation method as a cross-check.

H1.  Description of the Property

135.  The Property is situated at the junction of Castle Peak Road near its junction with Wo Yi Hop Road in Kwai Chung district. It is located in a residential part of a mixed area with industrial buildings, public housing and private residential developments. 

136.  As noted above, the Property is a 6-storey tenement building located in the Upper Kwai Chung area.  It comprises of: (1) a retail portion, being the ground floor with 4 shop units; (2) an office portion, being the 1^st and 2^nd floors with 2 office units each (4 in total); and (3) a residential portion, being the 3^rd to 5^th floors with 4 residential units each (12 in total).

137.  I have attached to this judgment:

137.1  Annex A which is the table setting out the agreed parameters of the various units in the Building which is attached to the Joint Expert Statement.[41]

137.2  Annex B which is a table which conveniently sets out the comparables adopted by the two experts respectively for each portion of the Building and the adjustments adopted.[42]

H2.  Retail portion

138.  For the retail portion, Mr Lee adopted comparables 1-2, 4-5, whereas Mr Tse adopted comparables C1-C4.  There are no common comparables.

139.  For the comparables adopted by Mr Lee (1-2, 4-5), I agree with Ds’ submissions that these are not good comparables.  This is primarily because Mr Lee has to apply a significant location adjustment (which for Mr Lee included adjustment for pedestrian flow) to all of them (from 25% to 30%), which in turn led to a significant overall adjustment (from 22.2% to 30.4%).  In my view, the fact that there are significant adjustments means they are less reliable, especially when they relate to factors which turn on subjective judgment, such as location.

140.  This is supported by the decision of Stadium Holdings Ltd v New Era Group Ltd HCA 1160/2009 (unrep., 26 January 2011) at §95.  At §§91-94, Master Lai made the point that the pedestrian flow adjustments were not supported by pedestrian flow study or analysis, which is also the position in this case for both experts.  I also note that both P and Ds agree that location is one of the most important factors for the valuation of a retail shop.[43]

141.  For the comparables adopted by Mr Tse (C1-C4):

141.1  I would disregard C2. This is a shop that is located in a shopping arcade on the ground portion of a residential estate, hidden away by a ramp. It is not like the reference unit or other comparables which is located next to a pedestrian road.  I therefore regard it as not an appropriate comparable.

141.2  For the other comparables, P criticises Mr Tse for his location and pedestrian flow adjustments (which I note were separately considered by Mr Tse, unlike Mr Lee who lumped them together).  Mr Lee’s evidence is that he would have applied a large adjustment (+25% to +40%) for pedestrian flow to account for the lesser pedestrian flow for these comparables.  Again, this is a subjective adjustment without detailed pedestrian flow analysis.  Doing the best I can, I have considered the location, the photographs and the views expressed by Mr Lee and Mr Tse respectively. I consider that:

(a)  For C1, I have considered the photographs in the agreed bundle and it appears that C1 has decent pedestrian flow.  I would not attach too much weight to the photos for pedestrian flow regarding the Property, and I accept that the location of the Property would suggests that there would be decent pedestrian flow.  I would make no adjustment.

(b)  For C3, it seems to be some distance away from the Property, and does not appear to be near any busy area.  I note the photos appear to show some amount of pedestrian flow.  I would adopt a +10% adjustment. 

(c)  For C4, while it is located along a slope leading uphill, there is a church, a kindergarten and a shopping centre nearby and this would suggest that there would be decent pedestrian flow.  I would adopt a +10% adjustment.

141.3  The other main criticism by P is that some of these comparables vary greatly from the reference unit in size (C1 was twice the size and C2 was half the size).  I have already disregarded C2 for different reasons.  In my view, this is not fatal as long as appropriate adjustments can be made.  I note that for C1, Mr Tse applied a 14.5% adjustment for size, which is not too substantial.

141.4  Another point explored in the evidence is the adjustment for return frontage (arising from the fact that the comparable is a corner shop and have more than 1 frontage), which arises for C1.  The adjustment for return frontage has been taken into account in the overall figure for the “frontage” item.  I have considered the evidence of Mr Tse and am satisfied that he had not double-counted the frontage in his calculations.  I would accept the adjustment as appropriate.

141.5  For the other adjustment factors by Mr Tse, I can see no specific comment from Mr Lee.

142.  For the above reasons, subject to the exclusion of C2, I prefer the comparables adopted by Mr Tse, subject to the adjustments indicated above. 

H3.  Office portion

143.  For the office portion, there are two common comparables, called O1 & O3 by Mr Tse and 1 and 2 by Mr Lee (I would adopt O1 and O3 for ease of reference).  In addition, Mr Lee adopted a comparable 3 and Mr Tse another comparable O2.  See Annex B.

144.  For comparable O1, Mr Lee adopted in total a -9.4% adjustment and an adjusted unit price of HK$62,341 per sq m; Mr Tse adopted a -29% adjustment and adjusted unit price of HK$49,208 per sq m.  For comparable O3, Mr Lee adopted -7.6% and HK$65,656 per sq m; Mr Tse adopted 029% and HK$50,010 per sq m.  These figures are within the margins acceptable by Mr Lee and Mr Tse.

145.  As to the parties’ disagreement on the adjustment factors:

145.1  On time adjustment, I prefer Mr Tse’s view that the RVD Office C Indices should be used.  The lack of lift access is accounted for in accessibility adjustments, and is not a reason for adopting the RVD Retail Indices for the purpose of time adjustment.  I would adopt Mr Tse’s adjustments.

145.2  One point of disagreement is the adjustment for accessibility, owing to the fact that lift access is only available after a flight of stairs (ie not directly on the ground floor).  I agree with Mr Lee that this merits a larger discount than the -1% proposed by Mr Tse.  I would adopt the figure of -6% put forward by Mr Lee in examination in chief.

145.3  Mr Tse adopted a -5% adjustment for management / facilities on the basis that the public records show that the building is managed by a management company.  While it is true that there is no information on the precise level of management services provided, I consider that the fact that management services are provided would generally be preferable to no management.  I believe it would not be appropriate for there to be no adjustment, which is Mr Lee’s position.  On balance, I would prefer Mr Tse’s view of a -5% adjustment.

145.4  The experts also disagree with each other on adjustments for location, size, age and view.  I have considered the submissions and the evidence and I am unable to form a view on which expert’s view to adopt (owing either to the fact that these are completely subjective adjustments and not capable of reasoning, and/or the lack of submissions from the parties).  As such, I will split the difference, given that:

(a)  The difference in the overall unit rates (see preamble of this paragraph) is within the expert’s respective range of deviation (see §125.1 above), ie Mr Lee’s -15% is within Mr Tse’s +10%.

(b)  For these 4 factors, Mr Lee’s total adjustments are -1.5% for O1[44] and -2.5% for O3,[45] and Mr Tse’s total figures are -3% for O1,[46] and -9% for O3.[47] The difference is not significant.

(c)  In the premises, I would adopt -2.25% for O1, and -5.75% for O3, for these 4 factors.

146.  As for Mr Lee’s comparable 3, I accept Mr Lee’s evidence that comparable 3 is located very close to O1 and O3, and there is no reason to adopt O1 and O3 but not comparable 3.  I would not make any change the adjustments applied by Mr Lee, save the adjustment for time:

146.1  I do not think the fact that it is located close to O1 and O3 necessarily means they should have the same location adjustments. 

146.2  As to time adjustments, this should be adjusted according to the RVD office C indices.  I have worked out from the indices that the adjustment should be -6.1%.

146.3  As to view adjustment, I would accept Mr Lee’s evidence that the Property office units have a more open view than this comparable.

147.  As for Mr Tse’s O2, I would also adopt it without change to his adjustments.  This comparable is located not far from the Property (no further from O1, O3 and comparable 3). I do not think it should be excluded because it is in a completely different area.  In closing, P has not made specific submissions challenging Mr Tse’s adjustments (other than those I have already dealt with).  

H4.  Residential portion

148.  For the residential portion, Mr Lee adopted comparables 13-8, whereas Mr Tse adopted comparables D1-D4.  The only common comparable is D2 (which is Mr Lee’s comparable 17).

149.  In cross-examination, Mr Tse indicated that he had no strong objection to Mr Lee’s comparables 13, 15, 16 and 18, because they are physically quite close to D2 and D3.  As such, I would also adopt them as common comparables.

150.  In light of this, as there are already 5 common comparables, I believe there is a sufficient sample of comparables and would disregard the non-agreed comparables in light of the objection from either one of the experts.  I note in particular that D3 is a transaction relatively further apart in time from the other comparables and its adjusted value appears to be out of line with the other comparables, and Mr Lee objects to D1 and D4 because they are much affected by a nearby flyover.

151.  Regarding the adjustment factors:

151.1  There is no dispute as to time adjustment.

151.2  On adjustment for location, I accept Mr Lee’s view that the Property is at a more convenient location than the other residential comparables, because it lies on the main pedestrian throughfare between the Shek Lei area and the Kwai Hing area (with the MTR station in the latter area).  I do not accept Mr Tse’s point that people living at those comparables even further from the MTR station would take minibuses to the station and this would be more convenient – it seems to me that being further from the station must be less attractive.  I would accept Mr Lee’s adjustments.

151.3  On adjustment for size, this is not really addressed by the parties in closing submissions.  I note that the difference between the experts is small (Mr Lee adopts 1% per 4 sq m, Mr Tse adopts 1% per 4.65 sq m). For the common comparable D2, this difference translates to 0.6% for Mr Lee and 0.8% for Mr Tse.  I would split the difference, and would apply the average of the two adjustment rates put forward by the 2 experts for all the adopted comparables. 

151.4  On age adjustment, for similar reasons to §145.4 above, I will split the difference.

151.5  As to view adjustment, I accept Mr Lee’s 5% adjustment for all residential comparables.  He made the point that the view from the Property is better than all the other comparables, and I accept his point that although the reference unit adopted for the Property faces the Kwai Hing Building, other units have a more open view, so this feature should not be taken to be representative of all residential units in the Building.

151.6  As to floor adjustment, again, this is not really addressed by the parties in closing submissions.  Mr Lee adopts 2% per floor and Mr Tse adopts 1% per floor.  I will split the difference.

H5.  Internal adjustments

152.  There are also disagreements between the experts relating to adjustments for individual units of the Property, when compared to the reference unit. This arises because after arriving at the adjusted unit rate of the reference unit, further adjustments may need to be made to arrive at the value of the other units (ie those other than the reference unit) in the Property.  However, I have not received much assistance from the parties in closing submissions on this aspect, as many of these points are not even addressed by either side.

153.  For the retail units, the two experts made adjustments based on size, frontage and layout:

153.1  For size, the same rate is adopted as in adjustment to the comparables, and likewise I will split the difference.  

153.2  For layout and frontage for Shop 402, I prefer Mr Tse’s 20% adjustment.  Mr Lee’s 40% appears to me to be too large.

153.3  For shop 406, Mr Lee adopts 2% / sq m for frontage width difference and 1% per m of shop depth difference for layout.  Although Mr Tse made no adjustment for shop 406,[48] he does not seem to have addressed his reason for doing so.[49]  Thus, I can only adopt Mr Lee’s adjustment.

154.  For the office units:

154.1  For size, the same rate is adopted as in adjustment to the comparables, and likewise I will split the difference.

154.2  The other disagreement relates to adjustment for floor levels.  I agree that lack of lift access would make office units higher up less attractive.  However, I find Mr Tse’s 20% adjustment for each level to be too high.  I would accept Mr Lee’s 5% per floor.

155.  For the residential units:

155.1  For size, the same rate is adopted as in adjustment to the comparables, and likewise I will split the difference.

155.2  As to adjustment for floor levels, I prefer Mr Lee’s view of a 2% adjustment per floor.  I find Mr Tse’s position that he would only apply 1% per floor for residential units to be surprising compared to his 20% per floor for office units.

155.3  As for the top floors, Mr Tse made a -3% adjustment for their being top floor flats because they are susceptible to adverse effects of heat and water leakage.  He made an additional -5% adjustment for the very poor existing conditions of those units.  Mr Lee did not apply any top floor adjustments, and applied -3% for poor condition.  I do not believe Mr Tse is double counting, as one deals with the fact that the units are on the top floor, and the other deals with the poor existing conditions.  As Mr Lee accepts that it is right in principle to apply top floor adjustments, I would adopt -5% overall for top floor and poor condition.

H6.  Income capitalisation approach as cross-check

156.  Mr Tse adopted the income capitalisation as a cross-check.  The approach involved determining the market rental value of the Property and adopting an income capitalisation rate from the property yield index of the RVD, so as to derive the market value of the Property.  He then used this result to compare with the result under the direct comparison method as a cross-check. 

157.  The results under Mr Tse’s income capitalisation method are very close to the results under the direct comparison method.[50]  Mr Tse then adopted the average under both methods as the final valuation. 

158.  P criticises the use of the income capitalisation method by Mr Tse as a matter of principle.  I disagree with these criticisms:

158.1  The income capitalisation method is a recognised valuation method, one that is mentioned in the HKIS Valuation Standards.  Ds have also cited Lands Tribunal authorities where the income capitalisation method was adopted.[51]  Thus, it cannot be wrong in principle to adopt this approach.

158.2  Similarly, adopting another approach as a cross-check is a common valuation technique.  While the direct comparison approach is usually the more accurate approach (as Mr Tse accepted), given that it is accepted that any valuation approach is at best a good estimate and cannot produce an exact valuation, I see nothing wrong, as a matter of principle, if one is to use another reasonably reliable approach as a cross-check.

158.3  P also criticises Mr Tse for adopting the average value arrived at by the direct comparison method and the income capitalisation method, because this would “dilute” the result of the more accurate direct comparison method.  I am unable to agree. Such an argument assumes that the direct comparison method is completely accurate, which is not correct, as both experts agree.  Further, if the results under both methods are reasonably close, adopting an average is an acceptable way to reflect the inherent imprecise nature of both methods, just like both experts would accept that there is inherently an acceptable range of deviation in any valuation (see §125.1 above).  The position may be different if the results are very far apart, but that is not the case here.  Again, Ds have cited Lands Tribunal authorities where an average under these two approaches were adopted.[52]

159.  However, what causes me concern is the fact that the rental comparables relied on do not appear to be very reliable:

159.1  As pointed out by P,[53] the available market information for comparable rental transactions is even more limited than the sales transactions.  Mr Tse explained that this was due to the fact that there are not many registered tenancies.

159.2  As a result, the comparables adopted by Mr Tse have a lesser sample size (in some cases only 2 comparables are adopted by Mr Tse), and are further apart in terms of time from the valuation date.  Mr Tse even had to adopt transactions in Mong Kok and Sham Shui Po as 2 of his office 3 comparables for both 2016 and 2018.  

159.3  Mr Tse’s explanation for all these less than ideal points regarding the comparables is the lack of available comparables (because rental transactions are often not registered).  This demonstrates that, at least in the circumstances of this case, adopting the income capitalisation method as a cross check is not appropriate.

159.4  I also note P’s point that Mr Tse has adopted a yield which is higher than the RVD market yields, and the difference was adopted by Mr Tse a matter of judgment.  This increased the subjective element in the exercise and reduces its reliability.

159.5  As submitted by P,[54] the inherent nature of the income capitalisation method is that it depends on the two variables of monthly rent and the yield, and a small change to these figures can result in a very large change in the market value.  Thus, to apply this method, it would be desirable for these two variables to be derived reliably, e.g. with more comparables and more objective choice of the yield.

159.6  In particular, given that both experts agree that the income capitalisation method is less certain than the direct comparison method, if the rental comparables used are even less appropriate than those used in the direct comparison method, this would mean that the income capitalisation method would be even less accurate.

159.7  Finally, in my view, the adoption of the income capitalisation approach as a cross check would only make sense if this method can be satisfactorily applied for the whole building.  Thus, for example, if there are no sufficiently satisfactory comparables for the office portion, then even if there are sufficient comparables for the other portions, it would still mean that this method cannot be satisfactorily applied as a cross check.

159.8  Thus, in light of the points identified above, I consider that the income capitalisation approach cannot be satisfactorily applied in this case as a cross check. 

160.  It follows that I would disregard Mr Tse’s analysis using the income capitalisation method.

I.  Valuation at Completion Date: residual method

161.  As noted above, Mr Lee adopted in his report the existing use basis for the valuation as at the Completion Date because the value is higher than his valuation under the redevelopment basis using the residual method.  Given my decision above on the valuation under the existing use basis, which would have reduced Mr Lee’s valuation (but the precise figure is to be worked out by the parties), I would still need to consider the valuation under the redevelopment basis to see if this would be higher or lower than the existing use basis.  This is what I will do in this section.

162.  The residual method of valuation involves valuing a hypothetical development on the relevant site which would give one the gross development value (“GDV”), and then to deduct therefrom the estimated development costs and the developer’s profit, and this would give a price that can be afforded by a prospective developer for acquiring the site.  In this exercise, in valuing the component units of the hypothetical development, reference would be made to transactions of comparable properties.

163.  I have attached to this Judgment: (1) the development schedule of Mr Lee’s hypothetical development as Annex C;[55] (2) Tables M1-M3 of the Joint Expert Report,[56] which set out the adjustments to Mr Lee’s comparables for the hypothetical development and the experts’ comments, as Annex D.  I note that the hypothetical development only comprises of retail units and residential units, with no office units.

164.  Ds’ approach to Mr Lee’s residual method of valuation is to make certain specific criticisms against Mr Lee’s hypothetical development and his application of the residual method, and to contend that the whole exercise is unreliable and should be disregarded.  Having considered these criticisms, my overview is that while some of these criticisms are valid, I do not consider that this should mean that Mr Lee’s valuation under the residual method to be so unreliable that it should be disregarded. 

165.  As such, I will rule on the individual points raised by Ds, which would involve adjustments to some of the figures adopted by Mr Lee.  As Ds did not criticise each and every step of Mr Lee’s analysis and did not present alternative figures for each of the variables used in Mr Lee’s variation, it follows that in the absence of specific comment below, Mr Lee’s figures and analysis in his residual valuation would stand.

166.  Ds submit that the Court must consider whether Mr Lee’s hypothetical development is realistically feasible.[57]  While that must be right as a matter of general principle, it seems to me that save for the point about non-accountable GFA, none of the points made by Ds are to the effect that the hypothetical development is physically not feasible.  If the point is about financial feasibility, this only means that the resultant value would be lower than the direct comparison approach and can be disregarded on that basis (which would not add anything in the context).

I1.  Non-accountable GFA

167.  The first point made by Ds relates to non-accountable GFA.  Ds criticise Mr Lee for allocating only 50 sq m for the plant room and refuse room, which is just 5% of the total GFA.[58]  I am not impressed by this point.

168.  This point is premised on Mr Tse’s research from the Buildings Department that the ratio of non-accountable GFA for most small-scale developments exceed 10%.  This however may well be because there were other facilities which made up the non-accountable GFA such as a gym or clubhouse.  Mr Tse has not produced his research, and his evidence is not to the effect that the plant and refuse room alone would usually exceed 10% of the total GFA.

169.  Mr Lee’s evidence is that he allocated 43 sq m for the plant and refuse room on LG/F and 7 sq m for another plant room on UG/F.[59]  Ds submit that 7 sq m is not sufficient for the transformer room by relying on the case of Allied Future Ltd v Lee Yuk Sim [2023] HKLdT 40.  However, the point made at §98-99 of that case was that 10 sq m was not sufficient for “plant rooms, E&M facilities (i.e. transformer room), caretaker room and/or fire control room”.  It does not say that the transformer room needs more than 10 sq m. Indeed, Mr Tse’s evidence is that he does not know the size requirement for a transformer room.

170.  This also means that there is no issue of having to put all 3 rooms (transformer room, plant room, refuse room) on the G/F, and whether there would be sufficient space for 3 entrance doors on the G/F.

I2.  Developer’s profit

171.  Ds also complained that the developer’s profit of 12.5% adopted by Mr Lee is insufficient to remunerate a developer for the substantial risk in undertaking a small-scale development.[60] 

172.  I agree with this submission.  Ds have cited to me decisions which suggest that a developer’s profit of 15% is usually adopted for commercial/residential developments.[61]

173.  The case of Oriental Moon Ltd v Golden Sino Link Ltd [2022] HKLdT 60 specifically commented (at §170) that a developer’s profit of 12.5% was inadequate and that 15% should be adopted.  The Lands Tribunal there rejected the point that a developer’s profit of 12.5% would be sufficient because a developer should accept a more meagre profit in order to keep its business in the market when market conditions were poor – this is because in such a case, the developer had the choice of using the capital for alternative investments.  

174.  When asked about this case, Mr Lee’s explanation here is that the market conditions in 2016 and mid-2018 were better and would justify a rate of 12.5%, while the conditions in 2018 were worse and would justify a rate of 15%.  Ds criticise Mr Lee (who was the expert in Oriental Moon) for adopting a view contrary to the view he adopted in Oriental Moon.  But even assuming that this was Mr Lee’s view (and not just counsel submissions in that case), there is nothing wrong for Mr Lee to abandon the view that was rejected by the Lands Tribunal in that case. 

175.  However, I do think that Oriental Moon is against Mr Lee’s position.  The Lands Tribunal merely decided that bad market conditions do not justify a reduction from the normal rate of 15%.  This does not support the reverse proposition – ie that good market conditions justify a reduction from the normal rate.  In fact, it reaffirms that the normal rate is 15%.

176.  P cited 2 decisions where a rate of 10% was adopted.  I consider these cases distinguishable. First, the property in Able Luck Development Ltd v Public Global Investments Ltd LDCS 7000/2014 (unrep., 6 October 2017) was an industrial property: see §§144-146. Second, the case of Fairbo Investment Ltd v Leung Chit [2018] HKLdT 57 was concerned with a site area that is more than double the present Property (458.47 sq m vs 178.17 sq m).  I note that the other cases referred to in Appendix II to P’s Supplemental Opening Submissions are of more similar site areas to the Property and all adopted at least 15% developer’s profit.  

177.  Thus, I would adopt 15% for developer’s profit.

I3.  Marketing costs

178.  Ds then criticise Mr Lee’s adoption of 3% marketing costs, and Mr Tse suggests that this rate is too small for a small site, and does not include costs for sales brochure, show flat and legal costs, and that 6% should be adopted.[62]

179.  Ds refer to the HKIS Guidance Notes on Valuation of Development Land, which suggests at §3.5 that: (1) marketing costs usually comprise agency fees, legal costs, advertising and promotional outlays, and may also include design and construction of show flats, open days and sales campaign advertising; (2) for agency fees alone, this may amount to 2.5% to 4% for residential projects (§3.5.4); (3) legal costs will be incurred for the application for pre-sale of the units, the preparation of a DMC, and the preparation of sale and purchase agreements (§3.5.5); (4) other outlays would include complying with the Residential Properties (First-hand Sales) Ordinance, including a detailed sales brochure, which may involve architectural services, and designing and construction of a show flat (§3.5.6); (5) in early 2015, marketing costs excluding agency fees range between a further 3-5% of the sale proceeds (§3.5.7).

180.  On the other hand, I note that P is able to cite a number of Lands Tribunal decisions where the marketing costs adopted is invariably 3% or lower.[63]

181.  During cross-examination, Mr Lee gave evidence that while marketing costs would include agency fee and legal and advertising costs for some developers, from his perspective it would only include agency fees. His explanation for not including advertising or promotional costs was that this was a small scale development and the units would be fully sold in a very short time.  It was only in large scale developments that the developer would pay a large amount of marketing costs.

182.  While the Lands Tribunal decisions seem to adopt 3% generally, Mr Lee’s clear evidence is that his 3% only included agency fees.  I am willing to defer, to a degree, to Mr Lee’s view that by design his hypothetical development does not require marketing or promotion other than the services of estate agents.  However, there is some force in Ds’ point, in particular, given that at least the legal costs referred to above must be incurred, and it would seem so must the costs for the sales brochure, but these were not included by Mr Lee.  Taking these matters into account, I would adopt 4% for marketing costs.

183.  I should add that I do not accept P’s submission that Mr Lee was not asked in cross-examination whether the costs of sales brochure had been included in the residual valuation, and the suggestion that if asked, Mr Lee “would have the opportunity to explain that it is well absorbed in his 3% marketing costs”.[64]  It was all along Mr Tse’s opinion in the Joint Expert Report that the 3% marketing costs should include legal costs and sales brochure etc,[65] which Mr Lee should know about; and in fact, in cross-examination Mr Lee was specifically asked whether marketing costs would include legal costs and sales brochure costs (by reference to the HKIS Guidance Notes), to which his response was it would only include agency fees. 

I4.  Residential comparables from Edition 178

184.  Next, Ds criticise Mr Lee’s adoption of units from a development in a nearby area called Edition 178 as comparables for the residential units in his hypothetical development.[66]

185.  Mr Lee’s evidence is that Edition 178, the pre-sale of which began in August 2017, was most similar to the hypothetical development, compared to other new developments in the area.  I have no issue with Mr Lee adopting units from Edition 178 as comparables.  However, Mr Tse criticises a number of adjustments applied by Mr Lee.

186.  First, on location adjustment:

186.1  Mr Lee adopts a +3% adjustment because he considers that the residential units of the upper floors of the hypothetical development would enjoy a more open view to the front because the road in front of them is much wider than the one in front of Edition 178, and the openness to air is much better than Edition. 

186.2  I note that Mr Lee also adopted a +3% adjustment for view.  I think there is force in Ds’ submission that this is double-counting by Mr Lee.  Mr Lee’s answer in cross-examination is that this factor relates to “openness of air” for the upper floors.  This seems to overlap substantially with a better view for the upper floors.  In any event even if I am wrong and Mr Lee is not double-counting: (1) I would reject his view that mere openness of air (which does not include the view, nor the general environment of the Building), can result in a 3% adjustment despite the admittedly superior location of Edition 178 (in terms of access to transport and facilities, discussed below); (2) this factor cannot be over-emphasised, since the Property is only looking over a major transport road (Castle Peak Road), the opposite side of which are just other buildings.

186.3  Further, it seems to me that the location of Edition 178 is superior to that of the Property.  Edition 178 is closer to Kwai Fong MTR station than the Property to Kwai Hing MTR station.  Edition 178 is next to two shopping arcades “Kwai Chung Plaza” and “Metroplaza”, which are bigger and better than Kwai Sing Centre which is next to the Property.  Mr Lee seems to accept this. 

186.4  Ds have cited to me a Lands Tribunal decision in Hsin Kuang Restaurant (Holdings) Ltd v Commissioner of Rating and Valuation LDRA 52/1997 (unrep. 27 October 2008), where a downward location adjustment of 15% was applied when comparing the location of Kwai Sing Centre to the location of Metroplaza: §12.  I agree with Ds that the location considerations for the shop units are at least similar to the location considerations to residential units, although considerations like view and environment would be less important for shops.  In light of all these, I would apply a -10% location adjustment.

186.5  Given that Mr Tse had expressed his view in the Joint Expert Report[67] that Edition 178 had better location and that there should be a downward adjustment of 15%, I do not think there is anything in P’s complaint that the Hsin Kuang Restaurant case was not put to Mr Lee.[68]

187.  Second, on view adjustment, Mr Lee again adopted +3% for all units adopted from Edition 178.  I agree that this indiscriminate discount cannot be right since the units in Edition 178 would face different directions and had different views.  Those units facing the nearby playground would have a better view than those facing a nearby building.  Also, as noted above, the view of the Property is not a lot better since it is looking over Castle Peak Road and buildings on the other side.  I would reduce the adjustment to +2%.

188.  Third, on layout adjustment:

188.1  Ds made the point that the residential units in the hypothetical development (with an average size of 18.726 sq m[69]) include a balcony and a utility platform (amounting to 3.5 sq m in total).[70] 

188.2  The point is that these areas should not be treated the same as, and indeed should be treated as less desirable than, the other areas inside the flat (and I would add that this is especially so for such a small flat).  I agree.  However, Mr Lee did not make any downward adjustments for these areas, nor did he apply an adjustment to the comparable adopted from Edition 178 when some of the comparable units only have a balcony but not a utility platform and some have neither.  I do not think P has provided any answer to this point.[71]  It follows that in my view, Mr Lee has not established that the units in the hypothetical development should be given their full value as if the balcony and the utility platform are equivalent to internal areas. 

188.3  On the other hand, Mr Tse has not put forward what should be the downward adjustment.  In these circumstances, doing the best I can, I would adopt a -3% adjustment to reflect that some of the units in Edition 178 do not have a utility platform or neither a utility platform nor a balcony, and that these areas should be worth less than the internal areas.

188.4  Broadly, the basis for adopting this figure is: (1) these other areas (balcony and utility platform) amount to 10-20% of the total area of a unit; (2) a discount of 1/2 or 1/3 should be applied to these areas; (3) this means the total value of the unit would be reduced by 3.33% to 10%; (4) some of the units in Edition 178 had 1 balcony but no utility platform, and some have none.  I also note that in P’s Closing Submissions §§116-118, P has indicated a willingness to accept a rough and ready adjustment applied by the Court (albeit in the context of a global adjustment).

189.  Fourth, adjustments should be made because Edition 178 has clubhouse facilities while the hypothetical development does not.  Mr Lee accepted in cross-examination that a downward 2-3% adjustment would be merited.  I note Ds’ point that Edition 178 has a podium garden, a gym, and a library, with a total area of 292.36 sq m (or 30% of the total GFA).  I would adopt a -5% adjustment.

190.  Fifth, a similar point arises in relation to headroom adjustment.  This is because the floor height of the residential units in the hypothetical development was only 3.2m, while that for the residential units in Edition 178 was 3.4m to 3.5m.  In this respect:

190.1  In cross-examination, this Court asked Mr Lee a series of questions which established that: (1) the buyer of the residential units of the hypothetical development would not care about the lower headroom; (2) if such a buyer would not care about the lower headroom and would not want to pay a higher price for a higher headroom, and if the units in Edition 178 has a higher headroom, then this would suggest that there should be a downward adjustment to the comparable from Edition 178.  Mr Lee expressed agreement to these propositions. 

190.2  However, on further reflection, it seems to me that these questions have not established that the higher headroom in Edition 178 had added to the value of the units therein, or that a buyer of units in Edition 178 would take into account the headroom difference.  The position may well be that the headroom difference is so small that it would not make a difference to the buyer.  Since Mr Lee had all along maintained that no headroom adjustment should be made on this item, I consider that on balance no adjustment should be made.

191.  Sixth, Ds criticise Mr Lee for adopting units in higher levels of Edition 178 (which has 25 storeys) as comparables for the hypothetical development (which has only 11 storeys).  In the joint report, Mr Lee took into account this point and decided to use units between 7/F and 15/F for the Completion Date (and he used some units on 18/F and 19/F as comparables for the Judgment Date).  I cannot see why this is a problem.  In the valuation of a specific unit under the direct comparison method, comparables from a different floor level are routinely used, and appropriate floor level adjustments can be made (and such adjustments had been made by Mr Lee, at the agreed rate of 0.5% per floor).  I am unable to see why this should not be permissible when one is valuing all the units in a hypothetical development.  I do not think the so-called “prop-up” effect (because the Property is situated on a higher level above Principal Datum) is quite relevant.

192.  Seventh, Ds suggest that Mr Lee should have taken into account other nearby developments as comparables, such as The Apex.  On this point, I accept Ds’ submission that in a residual valuation, first-hand sale transactions of a new development would generally be more preferable to second-hand transactions of an old development,[72] and I accept Mr Lee’s explanation that  The Apex was built over 10 years ago.

I5.  Retail comparables for the hypothetical development

193.  As the 4 comparables adopted by Mr Lee for his residual valuation are the same as the 4 comparables adopted for the direct comparison method, my decision above on the retail comparables at §§138-142 should be applied here.

194.  As I have discarded all of Mr Lee’s comparables and adopted C1, C3, and C4 for the 2016 Completion Date, the residual valuation must also be conducted using the adopted comparables C1, C3 and C4.  I note however that the relevant adjustments for valuing the Property are not exactly the same as the adjustments for the hypothetical development (compare Annex B with Table M2 of Annex D), such as adjustment for size, frontage, layout (because these features for the unit in the hypothetical development are not the same as the shop units in the Property) and business condition (which is only applied to a hypothetical development).  As such, I believe P would have to redo the calculations using the adopted comparables, before a final figure can be arrived at.

195.  I need to address the business condition factor:

195.1  This is a positive adjustment to be made if it can be shown that there would be enhancement of business condition once the subject development is completed.  I can see the force of P’s submission that a new building would of itself improve the business conditions.  I think I can also see that there are legitimate questions as to the extent of such effect given the small scale of the hypothetical development.  The experts did not really deal with this matter in detail in their reports. 

195.2  I would note that in the case of Lucktime Ltd v Gee Wing Chung [2021] HKLdT 8: (1) the experts agreed to a +10% adjustment; (2) the Lands Tribunal observed that there would be nearby new developments by the same developer that would be completed and this would increase the retail business potential, but he would reduce the figure to +5% because some of the effect would have been absorbed by the comparables in the nearby area because some of the new developments had been completed by the time of these comparable transactions: §71.

195.3  It seems to me that given the small scale of the hypothetical development (the area of the retail premises was more than 3 times in Lucktime), the improvement in business conditions should be smaller than that discussed in Lucktime.  I would adopt +1%.

J.  Valuation at Judgment Date: direct comparison method

196.  For the Judgment Date, Mr Lee conducted a valuation on both the existing use basis and the redevelopment basis, and adopted the higher value arrived at under the latter.  Mr Tse adopted the existing use basis.  He stated that he had also conducted a valuation on the redevelopment basis and the result was lower than the existing use basis, but he did not set out in his report or evidence his redevelopment analysis and thus they are not before the Court.

197.  This section considers the valuation evidence by the two experts as at the Judgment Date under the direct comparison method.  I have already decided above that I would disregard Mr Tse’s income capitalisation method.

198.  For ease of reference, I attach to this judgment Annex E which is a table setting out the comparables adopted by the two experts respectively for each portion of the Building and the adjustments adopted.[73]

J1.  Retail portion

199.  For the retail portion, Mr Lee adopted comparables 1-4, whereas Mr Tse adopted comparables S1-S3.  There are no common comparables.

200.  Mr Lee’s comparables 2-4 again involved large location adjustments of 25% to 30%.  However, in this instance, some of Mr Tse’s comparables are in my view equally unsuitable, if not more so:

200.1  S1 is a shop with a huge cockloft.  The areas of the cockloft would have to be reckoned by applying a conversion factor (Mr Tse suggested 1/3 or 1/4) into the comparable’s effective area.  This conversion factor is arbitrary and thus reduces the reliability of this comparable.

200.2  From the photos, S2 is a shop located inside a pedestrian alleyway which is not next to a vehicular road, and the opposite side of the alleyway has no shops.  This is quite different from the subject Property.

200.3  S3 is in fact used as a garage or car repair shop, which is behind an alleyway and next to a car park.  I note that Mr Tse accepted in court that shops being used as garages usually have lower trading value.

201.  Given that most of the comparables identified by both experts (7 out of 8) are problematic in their own ways, I consider that the best approach is to adopt all of them.  I am distinctly aware that I have rejected Mr Lee’s retail comparables for 2016 by reason of the large location adjustments, but the present instance is different since there are no sufficient alternative comparables available for 2018.  I note that there are examples where the Lands Tribunal had adopted comparables with large location adjustments because there are no available good comparables.[74]

202.  As for the adjustment factors:

202.1  There is no dispute as to adjustment for time.

202.2  As to adjustment for location and pedestrian flow:

(a)  I would keep Mr Lee’s figures for comparables 1-4. 

(b)  To account for the points at §§200.2 and 200.3 above, I agree with Mr Lee that there needs to be some adjustments to Mr Tse’s figures, and I do not agree with Mr Tse making no adjustments to them.  I would adopt in total +25% (slightly reduced from Mr Lee’s figure) for S2 and I would accept Mr Lee’s +15% for S3.

(c)  For S1, I consider it to be similar to the Property, both near a footbridge across Castle Peak Road.  While I would not attach too much weight to the photos taken for the pedestrian flow, as they are just snapshots of one particular moment, I do accept Ds’ point that the footbridge next to S2 connects to the Kwai Wing Road Food Hawker Bazaar.  I would adopt -5% in total for location and pedestrian flow.

202.3  For size, I would split the difference between the experts as I have done so above.

202.4  For frontage, there is no dispute regarding Mr Lee’s comparables 1-4 and Mr Tse’s S2 and S3.  There is a disagreement on S1.  I have considered Mr Tse’s evidence, and he has adequately explained the reason for his adjustment taking into account return frontage, and there was no double counting.  Mr Lee accepted in cross-examination that his suggested figure did not take into account return frontage.  I would accept Mr Tse’s overall figure.

202.5  For headroom or floor height adjustment, Ds have cited to me cases where the Lands Tribunal had applied headroom adjustment to retail shops.[75]  I would accept Mr Tse’s view.  I do not accept Mr Lee’s view that headroom adjustments for shops are only required for more up-market shops.

202.6  For adjustment for age, I would split the difference between the rates adopted by the experts (1% / 5 years and 1% / 10 years), as both rates have been adopted in previous decided cases.

J2.  Office portion

203.  For the office portion, there are two common comparables, called P1 & P2 by Mr Tse and 1 and 2 by Mr Lee (I would adopt P1 and P3 for ease of reference).  In addition, Mr Lee adopted a comparable 3 and Mr Tse another comparable P3. 

204.  For comparable P1, Mr Lee adopted in total a 6.6% adjustment and an adjusted unit price of HK$82,758 per sq m; Mr Tse adopted a 3% adjustment and adjusted unit price of HK$80,067 per sq m.  For P2, Mr Lee adopted 1% and HK$89,275 per sq m; Mr Tse adopted -8% and HK$81,725.  These figures are within the margins acceptable by Mr Lee and Mr Tse.

205.  As to the parties’ disagreement on the adjustment factors for P1 and P2:

205.1  As to time adjustment, I would adopt the RVD Office C indices, for the reasons explained at §145.1 above.

205.2  I accept Mr Tse’s -5% adjustment for management / facilities for the reasons explained at §145.3 above.

205.3  As for adjustment for size, age and view, I would split the difference, similar to the reasons explained at §145.4 above.

206.  As for Mr Lee’s comparable 3 and Mr Tse’s P3, I note that their adjusted unit prices are very close – HK$74,135 and HK$73,810 respectively.  This means that Mr Lee and Mr Tse are both content to adopt a third comparable at around this unit price.  For this reason, I would average out these two comparables and adopt the adjusted unit price of HK$73,972.5 as the third comparable.

J3.  Residential portion

207.  For the residential portion, Mr Lee adopted comparables 2-8, 10-11, whereas Mr Tse adopted comparables E1-E4.  The common comparables are E1-E3 (which are Mr Lee’s comparables 5-7).

208.  Mr Lee’s comparables 2, 4, 8 and 11 are physically quite close to E2 to E4.  In cross-examination, Mr Tse indicated that he had no strong objection to adopting them.  As such, I would also adopt them as common comparables.  

209.  I note that Mr Tse’s E2 is in the same building as E3, E4, and Mr Lee’s comparable 11.  In P’s Closing Submissions §82, P submitted that if Mr Tse’s 4 comparables contain 3 from the same building, this may increase the risk of inaccuracies.  However, now that a total of 7 other comparables are adopted, I consider it would be fair to also adopt Mr Tse’s E2.

210.  As there are already sufficient comparables, I would exclude the rest.  I would record that while Mr Lee’s comparable 10 is located in the same building as E1, Mr Tse opposed it because the transaction unit price was unusually high.

211.  For the adjustment factors for all these adopted comparables (ie E1-E4 and Mr Lee’s comparables 2, 4, 8 and 11):

211.1  There is no dispute on time adjustment.

211.2  For location adjustment, I prefer Mr Lee’s view for the same reason at §151.2 above.

211.3  For view adjustment, I prefer Mr Lee’s view for the same reason at §151.5 above.

211.4  For the same reasons as §§151.3, 151.4 and 151.6 above, I would split the difference for the adjustments for size, age and floor.

J4.  Internal adjustments

212.  I believe the internal adjustments should be the same as the position for the Completion Date. For the adjustments to the retail units, see §153 above.  For the adjustments to the retail units, see §154 above. For the adjustments to the residential units, see §155 above.

K.  Valuation at Judgment Date: residual method

213.  This section considers the valuation evidence of the residual method by Mr Lee as at the Judgment Date.

214.  Mr Lee adopts the same hypothetical development for this date.  For ease of reference, I attach to this judgment Tables V1-V3 of the Joint Expert Report,[76] which set out the adjustments to Mr Lee’s comparables for the hypothetical development and the experts’ comments, as Annex F.

215.  I refer to §§164-165 above. Ds’ approach to Mr Lee’s residual valuation for the Judgment Date is the same, and in fact Ds’ submissions did not deal with the residual valuation for the Judgment Date separately.  As such, the same points considered in Section I above apply mutatis mutandis.  I will only address certain specific points relating to the Judgment Date.  For the avoidance of doubt, in the absence of any specific mention, I would adopt the same view on all the points despite the two year gap between the Completion Date and the Judgment Date.

216.  I need to deal with the retail comparables for 2018 (see Tables V1 and V2 of Annex F):

216.1  The retail comparables for 2018 adopted by Mr Lee for the residual method are not the same as those comparables he adopted for the direct comparison method.  Thus, the problem identified at §§193-194 above does not arise.

216.2  One issue of disagreement between the experts is location adjustment.  Again, Mr Tse’s complaint is that Mr Lee adopted large location adjustments for some of his comparables (from 25% to 30%), which are subjective. However, on this occasion, I would not disregard Mr Lee’s comparables given that: (1) there are no other comparables identified by Mr Tse; (2) Mr Lee was not cross-examined on these comparables at all.

216.3  The experts also disagree on business condition adjustment. For the same reasons discussed at §195 above, I would adopt +1%.

217.  For the residential units, some different transactions from Edition 178 were adopted.  My views above at §§186-192 equally applies.

L.  Loss of rental income

218.  Given that I have decided to adopt the Date of Completion as the valuation date, there can be no claim for loss of rental income, which only applies to the rental income from Date of Completion to the Date of Judgment.  Nevertheless, I will proceed to make relevant findings in relation to P’s claim for loss of rental income if I had adopted the Judgment Date instead.

L1.  Parameters of the claim

219.  Both sides accept that loss of rental income is in principle recoverable in a case where the vendor failed to complete.  The claim should be limited to the period up to the date when the plaintiff ought to have acquired an alternative property as mitigation.  This would be the Judgment Date if I had adopted the Judgment Date as the valuation date of the loss of bargain. 

220.  In my view, the claim for loss of rental income is in the nature of a claim for consequential loss of profits. This claim is in addition to the claim for the loss of the bargain in the form of the value of the Property. Such a claim is premised on the idea that, if Ds did not act in breach of the Agreement and that completion had taken place, P would have in his hands the Property, and P would have rented out the Property to earn rental income during the period from the Completion Date until the time for the redevelopment of the Property.  In Malhotra v Choudhury [1980] 1 Ch 52, the defendant failed to honour an option in a partnership deed which allowed the plaintiff to acquire should the defendant ceased to be a partner of a medical practice.  It was held that the plaintiff was entitled to claim damages for loss of bargain by reference to the value of the property, assessed at the date of judgment (77F-79E), as well as any loss to his medical practice arising from his loss of use of the property in which the surgery was located (79F-81).

221.  A few further points arise as to the parameters of this claim.

222.  First, I take the view that the claim must be limited by the fact that there were existing tenancies for some of the units.  According to the Fifth Schedule of the Agreement,[77] there were existing tenancies for Units 4A, 4C, 4D and Office 1A as at the Completion Date.  For the period covered by these existing tenancies, the claim for loss of rental income must be limited to the rent under these existing tenancies, and should not be by reference to the market rent as assessed.

223.  Second, I do not agree with Ds’ submission that the claim should be limited to the rental income generated by the existing tenancies at the time of completion.[78]  The issue depends on whether it was within the reasonable contemplation of the parties that the units in the Property would continue to be rented out.  In my view the answer is plainly yes, given that: (1) the Property’s existing use was to be rented out, it was not the case that the parties contemplated that P would immediately change its use; (2) the sales brochure prepared by Savills (who must be regarded as Ds’ agent) contemplated as one of the possibilities that the Property would continue to be rented out;[79] (3) while redevelopment was contemplated, it was not the case that this would take place immediately, in light of the existing tenancy for Office 1A, and in the meantime, it is plain that the Property would be put up for rental.  I would thus also reject any argument that Ds did not assume responsibility for such loss.[80]

224.  Thus, I would accept that for vacant units, and for units that would become vacant before the Judgment Date, a claim for loss of rental income can be maintained.

225.  Third, there is evidence that P intended to rent out units in the Property to charitable organisations at a reduced rate for the period after completion until the future redevelopment:

225.1  In P’s WS §42, P gave evidence that he had a meeting on 20 April 2016 with Hong Kong Sheng Kung Hui (“HKSKH”) and discussed with them various proposals for using the units in the Property pending the expected redevelopment, and that P “offered rent free and concessionary rental over various spaces that might become available for their use”. 

225.2  On 16 May 2016, Nora Wong of HKSKH sent by email proposals for using the ground floor and Unit 2A of the Property.[81] The proposals involve using Shop Unit 406 on the Ground Floor[82] for a manicure centre and Unit 2A for a “3D support centre”.  In P’s reply email dated 18 May 2016,[83] P indicated that he had no problem with the proposal, and stated some of the terms for accepting proposals, including that (1) the rent free period for the ground floor unit would be for 1 year only, and then the parties can discuss a market rental; (2) for Unit 2A, the reduced rental would be HK$12,000 per month.

225.3  I consider the above to be good evidence of what P would have done had completion gone through (especially when the emails exchanged with HKSKH were just shortly before the Completion Date) and I find this to be the case. In light of these evidence, I believe that P’s claim for rental income should be limited to the extent that: (1) for Shop 406 on the G/F, the first year should be rent free and thereafter at market rent; (2) for Unit 2A, the rent should be HK$12,000 per month.

226.  I also note that in the early emails by P to Savills in January 2016, P had indicated that he intended to invite Light Be, a social enterprise, to manage the residual units as lettings at nominal rent.[84]  There were also emails in March 2016 from Compassion Revival which proposed to rent 1 office unit on 1/F at concessionary rent.  However, these were further before from the Completion Date, and I do not think the above is sufficiently clear evidence to support a finding that this is what P would have done had Ds performed the Agreement.  I also note that in cross-examination, in response to questions from the Court regarding his intention for the Property for the period before the redevelopment, P’s response was that there was no absolute plan.  For these reasons, other than the point addressed in the previous paragraph, I would not limit P’s claim for rental income on the basis of these other evidence.

227.  Fourth, I believe that for vacant units, and units that would become vacant, some time would be required to identify a tenant.  I would adopt 1 month.  This means that, for example, for a property that is vacant as at the Completion Date, the claim would be for the period from the Completion Date to the Judgment Date minus 1 month.

228.  I would note that as the intended redevelopment of the Property would not take place until sometime later owing to the option to renew for Office 1A which would be beyond the Judgment Date, this would not affect the time period of the claim.

229.  It is with these points in mind that I now consider the rental valuation evidence.

L2.  Rental comparables as at the Completion Date

230.  P’s position is that under the claim for loss of rental income, only the 2016 rental valuation evidence would be relevant as most tenancies would be for a term of 2 years and the rental would remain the same.[85] In other words, the rental would be fixed at around the time of the Completion Date, and since the Judgment Date was about 2 years after the Completion Date, there is no need to consider what would be the rent if the tenancy is to be renewed.  I agree.

231.  For ease of reference, I have attached to this Judgment Tables W1A-W3B of the Joint Expert Report,[86] which set out the comparables adopted by the two experts respectively for each portion of the Building and the adjustments adopted, as Annex G1.  Mr Tse’s updated adjustments are set out in the tables in Annex G2.[87]

L2.1      Retail portion

232.  For the retail portion, Mr Lee adopted comparables 1-4, whereas Mr Tse adopted comparables R1-R3.  The common comparable is Mr Tse’s R2 (which is Mr Lee’s comparable 2).

233.  For the common comparable R2, the experts disagree on a number of the adjustment items:

233.1  For location adjustment, R2 was located very close to the Property. In cross-examination, Mr Tse accepted the suggestion by P's counsel that 0% would be appropriate (instead of his -10%).  I note that while Mr Lee’s view is the adjustment should be +10%, the case put to Mr Tse was 0%.  For this reason, and given that in any event R2 was very close to the Property, I would adopt location adjustment of 0%.

233.2  Another disagreement is on frontage.  Mr Tse’s evidence is that unusually R2 has 2 main frontages (one facing Shek Man Path and one facing Shek Ying Path) and 1 return frontage (the one facing Castle Peak Road), and this explains why his frontage adjustment was -30.9%.  It seems to me he has provided an answer to the challenge in cross-examination.  However, Mr Lee was not cross-examined on why he adopted -9.8%.  In the circumstances, I believe the fair result is for me to split the difference, and I will adopt -20.35%.

233.3  The experts also disagree on other adjustments, including time (Mr Lee: +4.7% vs Mr Tse: -1.2%), size (Mr Lee: 8.2% vs Mr Tse: 16.3%), layout (Mr Lee: -5% vs Mr Tse -20%) and age (Mr Lee: 0.2% vs Mr Tse: 0.1%).  However, I do not believe the experts have been cross-examined on these differences, and I have received no assistance from the parties in their closing submissions.  As such, I can only split the difference on each of these adjustments.  I will adopt 1.75% for time, 12.25% for size, -12.5% for layout and +0.15% for age.

234.  P challenges the adoption of R3 because it is a shop located on the western side of Wo Yi Hop Road which has more industrial buildings, whereas the eastern side has more residential buildings.  I do not accept this.  The Apex, a residential development, was on the same side as R3. Further, Mr Lee’s comparable 3 is on the eastern side of Wo Yi Hop Road and is very close to R3.  Given their close proximity, I do not consider that Mr Lee’s comparable 3 should be adopted but not R3.

235.  Mr Tse’s R1 is the same comparable S3 for the valuation as at the Completion Date.  P’s challenge is likewise that this was actually used as a garage (§200.3 above).  While I see the force of the point, I will adopt it for the reason below.

236.  I have received little assistance from Ds on whether P’s comparables should or should not be adopted.  In my view, given that there are limited suitable comparables (as demonstrated by the total adjustments adopted by the experts for their other respective comparables all exceed 20%), I believe the better course is to adopt all of the comparables from both experts.

237.  I note that there is a general complaint by P that Mr Tse’s adopted comparables show a wide range of adjusted unit rates, and given the small samples, the averaging out of these wide-ranging rates would make the exercise inaccurate.  I can see some force in the point, but I accept that this is due to the lack of sufficient comparables.  In any case, since I have adopted a mixture of the comparables from both experts, this point falls away.

238.  Regarding the adjustments to the individual (non-agreed) comparables:

238.1  Mr Tse’s R1 is the same comparable S3 for the valuation of the value of the Property as at the Completion Date.  As such, I would adopt the same figures at §202 above for the physical adjustments of location, size, frontage, layout and age.  For time, I would accept Mr Tse’s -2% in Annex G2.

238.2  The other adjustments were not really explored with the experts in cross-examination or dealt with in the parties’ submissions.  Thus, in the absence of specific challenge, I would adopt each expert’s adjustments for their own comparables.

238.3  According to Table W1B (Annex G1), Mr Tse indicated a disagreement with Mr Lee’s time adjustment for his comparables 1, 3 and 4. Again, as this was not addressed by the parties, I will split the difference.

239.  As for internal adjustments from the reference unit to the individual units of the Building, I believe the retail reference unit adopted for the rental valuation are the same as the sales valuation. Thus, all the adopted adjustments in that context, discussed at §153 above, can be applied to the rental valuation here.

L2.2  Office portion

240.  For the office portion, Mr Tse adopted R4-R6 as comparables, whereas Mr Lee adopted past rental transactions for the two office units of the Property itself as comparable transactions. 

241.  In my view, R4 (which is located in Sham Shui Po) and R5 (which is located in Mong Kok) are obviously unsuitable comparables.  Their location is simply too different from the Property (in Upper Kwai Chung) to be used as reliable comparables. 

242.  As this would mean that there are only R6 remaining as a comparable from the market, I do not believe it would be accurate to adopt only R6. 

243.  Mr Lee’s approach is to adopt the past tenancy transactions for the two office units (in March 2014 and May 2013 respectively) and adjust them for time using the RVD office rental index.  As these are the same units, there is no need to make any other adjustments.  Ds’ criticisms of this approach are that:

243.1  It would appear that the rents from the respective units in the Property were almost flat since 2013/2014.  According to the tenancy information provided by Ds,[88] all the office and residential units of the Property that had an existing tenancy at the time of the Completion Date or had one which had expired shortly before the Completion Date were rented out on the basis of tenancies at will, based on the terms of the previous (expired) tenancy agreement.  In other words, the rent had not changed since the time of the previous tenancy agreement.

243.2  Ds therefore make the point that the rent back in 2013/2014 in fact remained the rent up to the Completion Date or shortly before.  If one is to adopt an adjustment based on the RVD office rental index, one would arrive at a rent more than double the actual rent that was being paid around the Completion Date.

244.  In my view, the main premise of Mr Lee’s approach is that the rent for the office units for the 2013 / 2014 transactions were at market rent.  If that was the case, then I do not see a problem for the approach of making time adjustments based on the RVD office rental index.  While these transactions were further apart in time from the Completion Date, the time adjustments made are based on a relatively objective criteria (the rental index), when compared to adopting comparables from different locations which would involve a lot of adjustment factors.

245.  Is there any basis to question the premise that the 2013/2014 transactions were at market rent?  I think there is none.  Normally one would proceed on the basis that past transactions gathered from public information were at market rent, just like any other comparable transactions adopted by the experts in any case.  Thus, I believe that unless there is some reason to suggest the transaction was not at market rent, the court should proceed on the basis that it was at market rent. 

246.  In my view, this explains the decision in Mingo Properties Ltd v The Director of Lands LDLR 6/2005 (unrep., 26 February 2007), relied on by Ds.  There, the other side pointed to a few suspicious features from the terms and the circumstances of the tenancy agreement relied on, which suggests that the transaction was not an arm’s length transaction.  It is in these circumstances that the Lands Tribunal suggested that the expert putting forward this transaction (who happened to be Mr Lee) should have conducted market analysis to double check that the transaction was in line with the open market rental value: §§19-20.  Indeed, the Tribunal also observed that the party did not call any factual evidence to explain the suspicious features: §20.  In my view, this decision does not assist Ds.

247.  If the past transactions for the office units in 2013/2014 were at market (and there is nothing to suggest they were not), then the approach of making time adjustments is just a conventional valuation technique. The fact that the tenancies were allowed to continue subsequently as tenancies at will at the same rent does not detract from this.  Rather, they tend to suggest that the subsequent tenancies at will were not at market rent, since the rent was not revised by reference to market conditions.

248.  I can see that it may be said that this approach depends on an assumption, which is not necessarily completely reliable. However: (1) this is the same assumption for all other comparable transactions; and (2) in any event, I believe Mr Lee’s approach is more reliable than adopting Mr Tse’s less than desirable comparables.

249.  For these reasons, I would adopt Mr Lee’s approach and the market monthly rental value he arrived at.  As calculated by Mr Lee,[89] the amount of rent from the Completion Date to the Judgment Date would be HK$1,491,115.

L2.3  Residential portion

250.  For the residential portion, Mr Lee adopted the same approach as the office portion – he adopted 6 previous rental transactions of residential units in the Building (from July 2013 to July 2014) and made time adjustments by reference to the RVD rental index.  For the reasons explained above, I have no problem with this approach.  For the residential units, the sample size of reference transactions (6) are larger and this makes the result more reliable.

251.  On the other hand, Mr Tse adopted comparables R7-R10.  It would appear from the Joint Report that Mr Lee does not oppose the adoption of R7 and R9.[90] Mr Lee however objects to R8 and R10, which are in similar locations to D1 and D4, which are affected by the nearby flyover.  However, I note that they are also in similar locations to C1 and C3, which I have adopted for the retail sales valuation as at the Completion Date.  In my view, Mr Tse’s comparables this time, in contrast with those for the office portion, are more reliable, and I would not disregard his approach entirely.

252.  On the face of it, I think both approaches have been properly conducted by each expert.  I also note that in fact the resultant value of both experts are reasonably close – in the Joint Expert Report, Mr Lee gave the average unit rate for the domestic portion to be HK$180 per sq m, and Mr Tse HK$165 sq m.[91]  This figure of Mr Tse’s would be subject to his further adjustments as at the time of Ds’ Closing Submissions, which increased the average unit rate.[92]  In these circumstances, I believe the fair result is for me to split the difference for the valuation of the residential portion. 

M.   Increased agency commission and stamp duty

253.  P also claims: (1) the amount of increased agency commission and (2) the amount of increased stamp duty in acquiring a replacement property of the Building, assessed by reference to the market value of the Building as assessed (see §§31.3 & 31.4 above).

254.  In my view, these claims are misconceived.

255.  As noted at §47 above, the measure of damages is the difference between the market value of the Property and the contract price under the Agreement.  This represents the position P would have been in if Ds had performed the Agreement and the transaction had gone through, namely, that P would own the Property which has the assessed market value but would have had paid out the contract price under the Agreement, and incurred the stamp duty and agency fees.  This computation does not feature or involve P having to go through the process of purchasing an alternative property, so the agency commission and stamp duty of the alternative purchase is not relevant.

256.  The position may be different if P’s claim is made on the basis that he had actually purchased an alternative property, and had actually paid out agency commission and stamp duty in such purchase.

257.  Both sides cited the case of In Kwok Chung Hon v Lo On Wa [1996] 4 HKC 191.  In my view, that case is of no assistance:

257.1  That case was concerned with a situation where the defendant, having agreed to sell his property to the plaintiffs, sold the property to a third party instead at a higher price.  The issue was whether the plaintiffs, after being awarded a sum representing the loss of their bargain, were also entitled to a refund of a sum being the stamp duty they had actually paid for stamping the aborted agreement.

257.2  The discussion in that case, and the authorities cited there, were all concerned with stamp duty and conveyancing expenses actually incurred (or would inevitably be incurred) by the buyer in the aborted transaction, and were not concerned with the expenses which the buyer would have had to incur in an alternative purchase: see the discussion of Godfrey JA at 195F-196H and the passage from McGregor on Damages (15^th ed.) §§908-909 cited by Nazareth VP at 197D-G.

258.  I therefore dismiss these heads of claim.

N.  Interest on the Deposit

259.  P also claims interest on the Deposit (HK$5,000,000) from 9 March 2016 to 24 August 208 at 1% above the prime rate (see §31.5 above).

260.  I have some doubt why the claim for the Deposit falls within the scope of this assessment given that: (1) the Judgment did not include an order for the return of the Deposit (but the Deposit was returned after the Judgment); (2) the Judgment only includes an order for damages to be assessed, which might not cover a claim in debt.  Nevertheless, this is not a point taken by Ds, and since the parties had agreed that this is an issue in this assessment (issue §3(c)), I am content that I should deal with this claim.

261.  I can see no submission from Ds opposing this claim. 

262.  I am unable to follow why P is relying on the prevention principle under Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381.[93]  I believe P would be entitled to claim such interest as pre-judgment interest under section 48 of the High Court Ordinance (Cap 4).

263.  Under Clause 11 of the Agreement, Ds were obliged to return the Deposit to P upon their failure to complete, which occurred on 31 May 2016 (ie the Completion Date).  Thus the interest should run from that date, and not from 9 March 2016, which was the date when the Deposit was paid.

264.  I believe the intention is to claim interest up to the date when the Deposit was returned by Ds.  From the evidence, the letter by which the cheque was sent from CMKI, Ds’ solicitors, was dated 23 August 2018, but the chop showing receipt by P’s solicitors was dated 24 August 2018. I am thus satisfied that interest should run up to 24 August 2018.

265.  I would therefore award pre-judgment interest on the Deposit from 31 May 2016 to 24 August 2018 at 1% above the prime rate.

O.  Costs of the Colliers Report and the CBRE Report

266.  P also claims the costs incurred by him in commissioning the Colliers Report and the CBRE Report, in the amount of HK$133,800 (see §31.6 above).

267.  P’s contention is that the reports were “necessary” costs for P to incur due to the aborted transaction, because P had to find out his position and losses after completion had fallen through, and that they were a necessary preparatory step to acquire a substitute property.[94]

268.  I am unable to agree.  I am unable to see why P’s finding out his position after completion had fallen through would be part of his mitigation efforts.  I also cannot see why valuing the Property for which the sale and purchase was aborted would be a preparatory step for acquiring a substitute property – if anything, P should go about valuing potential substitute properties.

269.  I would also note that P’s evidence was only that he obtained the reports because he needed to understand his position as a result of Ds’ failure to complete[95] – his evidence did not actually say he obtained these reports to prepare for acquiring a substitute property.

270.  I would also add that, there is a possible argument that these reports were obtained so as to allow P to consider his position on whether to buy back the Property from Ds – I note that this is not a point that has been clearly made by P whether in evidence or submissions.  In any event, I would consider such costs to be unreasonable, given that P already had an agreed contract price under the Agreement and it would have been sufficient for P to have a rough idea that the market value of the Property had risen, without having to obtain formal valuation report at substantial costs.

271.  Thus, these amounts should not be allowed either because they were not costs incurred for mitigation purposes, or if they were, they were unreasonably incurred.

272.  I note that there is evidence from P that in the process of preparing these reports, the focus had in a way shifted and some effort was spent in ensuring that the reports would be “litigation ready” (see §41.4 above).  I would accept P’s evidence to the extent that they were not initially commissioned for the purpose of litigation, and would reject Ds’ suggestion that the two reports were commissioned solely for litigation purposes.  This would then raise the question of whether the later change to focus on litigation would have any impact on whether the costs for the reports would have been incurred at all. There is no sufficient evidence on when P agreed to the costs of the valuation reports with either valuer, and whether the fees were a lump sum or based on time spent.  Given my view above, I do not need to go into this.

273.  It follows that this head of claim fails.

P.  Conclusion

274.  In conclusion, I make the following rulings in respect of the agreed issues (see §33 above):

274.1  In respect of P’s claim for loss of bargain, the proper valuation date for the market value of the Property is the Completion Date.

274.2  In this connection, I find that P has stopped his mitigating efforts shortly after the Completion Date (by July or August 2016); alternatively it would be unreasonable for him to be continuing to look for an alternative property beyond that time and such efforts should not be treated as reasonable mitigation which would postpone the date of assessment.

274.3  The market value of the Property can be assessed on either the existing use basis or the redevelopment basis.  As a matter of valuation methodology, the valuer may decide to adopt the higher figure which would reflect the highest and best use.

274.4  The market value of the Property at the Completion Date and the quantum of damages is to be determined.

274.5  If the Judgment Date is adopted, P would be entitled to claim loss of rental income, limited by the extent explained at §§222-227 above.  The quantum is to be determined.

274.6  P is not entitled to claim increased agency commission or increased stamp duty, or the costs of the Colliers Report or the CBRE Report.

274.7  P is entitled to interest on the Deposit from 31 May 2016 (ie the Completion Date) to 24 August 2018 at 1% above prime rate.

275.  The remaining issues fall to be determined after the precise figure for the valuation of the Property at the relevant dates had been worked out.  I will separately give directions to the parties for such purpose.  Upon considering these figures, I will give a further judgment finalising the figures.  The issue of costs will be dealt with on that occasion.

Annex A

Annex B

Annex C

Annex D

Annex E

Annex F

Annex G1

Annex G2