GOODJOY DEVELOPMENT LTD. v. CHENG TAI PUI AND ANOTHER

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. HCA8765 OF 1999

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J U D G M E N T

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Introduction

1. Following an aborted land transaction, the plaintiff, Goodjoy Development Limited ("the plaintiff") brought suit against the 1st and 2nd defendants for damages on 28 May 1999. The writ was apparently not served upon the 2nd defendant and on 12 January 2000, interlocutory judgment for damages to be assessed was awarded to the plaintiff against the 1st defendant solely.

2. Subsequently, on 5 July 2000, the writ of summons was amended as respect two items of loss, namely, agency fee and legal costs incurred by the plaintiff on the resale of the property. The property was later sold to an independent third party, a Mr Chun. There is no suggestion that the resale to Mr Chun was otherwise than a bona fide transaction.

The Facts

3. By a provisional agreement for sale and purchase dated 12 May 1998, the plaintiff, as developer and vendor, sold a domestic apartment unit known as Unit A on the 6th Floor of Triump Terrace at No. 9, 9A-C Victoria Avenue, Ho Man Tin, Kowloon, ("the property") to the 1st and 2nd defendants as purchasers. The formal agreement for sale and purchase followed on 2 June 1998.

4. Pursuant to the agreement between the parties, it is common ground that the defendants have paid, as agreed, the first two deposits amounting to 10 per cent of the contract price. The contract price was $5,091,492. The property was resold to Mr Chun for $4,040,000. Under the agreement the defendants paid by way of deposits a sum of $509,149.20.

5. According to the agreement, the defendants should have paid a further deposit of $254,574.60 on or before 15 June 1998. This the defendants had defaulted in doing, and on 23 June 1998 the plaintiff, through their solicitors, wrote to the defendants pointing out their default and demanding it be made good.

6. As the defendants failed to comply or to make payment of any subsequent instalments as envisaged and provided for in the agreement for sale, the contract was determined by the plaintiff on or about 4 August 1998.

7. The 1st defendant, who appears in these proceedings in person, has questioned the quantum of claim now being pursued before me. One should perhaps start with the items of claim now being sought by way of damages.

8. The plaintiff claims damages under several heads, the principal being loss equating to the deficiency in the resale price of the property. A sum of $1,051,492 is being pursued. That represents the difference between the original contract price of $5,091,492 and the resale price of $4,040,000. The plaintiff claims commission paid to the agent in respect of the resale now put at $60,600, a sum considerably higher than as particularised in the unamended writ of summons. Legal costs associated with the resale paid to Messrs F Zimmern & Co. at $20,000 are also being sought in these proceedings.

9. Although the plaintiff was entitled under the agreement to forfeit the deposits paid, credit for them will be given to the 1st defendant. The plaintiff has reserved its position as regards the 2nd defendant and in the proceedings before me is content to pursue damages by way of liquidated damages under the contract. It is of course also entitled in the alternative to claim general damages under Common Law principles, but essentially as I understand the plaintiff's case as canvassed, it is seeking an order for damages by way of liquidated claim.

10. The 1st defendant submitted a defence statement this morning which he developed in both his opening as well as in final submission. As transpired, it seemed that his complaints were principally three-fold. The first relates to the difference in the price, which he said should be calculated in a different fashion. The plaintiff has adopted the difference between the contract price and the resale price for calculating damage under this particular head. The 1st defendant countered that, in all fairness, damage should really be based upon the difference between the listed price of the property and the resale price, the listed price being somewhat lower at $4,948,000.

11. As regards the agency fees paid to the agent on the resale of the property, the 1st defendant really doubted the genuineness of that amount. As I understood him, he complained that the plaintiff should have had all its documents at hand prior to the filing of the unamended writ of summons and could therefore not have honestly and genuinely made the mistake of asserting the loss under this head was $19,685. After amendment of the writ of summons a much higher figure of $60,600 is being pursued.

12. The claim for legal costs now stands at $20,000 after the amendment. The 1st defendant submits that, if paid, this amount would, in any event, fall within the expenses that the plaintiff would have incurred for its own account, whether or not a default had occurred. In other words, he should not have to bear that item.

13. Very broadly then, those are the contentions of the 1st defendant and the case as mounted by the plaintiff.

14. Where there is a breach of contract, it is necessary to revisit the terms of the contract to ascertain and identify the rights and obligations of the respective parties thereto. In this case clause 16 of the agreement provides a right to determine the contract upon the default of the defendants. That right was plainly exercised after the defendants failed to pay any further instalments following the payment of the first two deposits. This is not a matter of controversy in this case.

15. The right to forfeit the deposits paid is set out in clause 16(2)(a) and the forfeiture of the deposits thus paid is also not a matter of dispute. In fact, the 1st defendant quite plainly acknowledges default, although no reasons have been given for breaching the contract.

16. What is of particular significance to the quantification of the damages payable by the 1st defendant is clause 16(3) of the agreement, which provides that upon the determination of the agreement, the plaintiff may resell the property either by public auction or private contract, subject to such stipulations as the plaintiff may think fit, and any increase in price on the resale shall belong to the plaintiff. It also goes on to stipulate that upon such a resale, any deficiency in price shall be made good and all expenses attending such resale shall be borne by the defendants, and such deficiency and the expenses shall be recoverable by the plaintiff as and for liquidated damages, provided that the defendant shall not be called upon to bear such deficiency or expenses unless the property is resold within six months of the determination of the agreement. As happened, the property was indeed resold to Mr Chun on 13 January 1999, within the six month period. Time was clearly of essence to this agreement, both in respect of the sale of the property and also the resale of the property upon default.

17. The plaintiff claims liquidated damages under clause 16(3) of the agreement. It plainly stipulated that on a resale, if there is any deficiency in price - and there is in this case but the formula, of course, is a matter of dispute - such will have to be made good by the defendants, as well as all expenses attending such resale. This loss is recoverable from the defendants.

18. I turn then first of all to deal with the first head of claim, that is the deficiency in sale price. As previously noted, there is no dispute the resale price in this case was $4,040,000. The question is from what figure should that resale price be deducted to work out the deficiency? The plaintiff suggests and urges the court to adopt the original contract price of $5,091,492, whereas the 1st defendant contends that a lower price of $4,948,000 should be adopted. That is the listed price of the flat in question.

19. It is clear from the evidence of the sole witness who has testified in these proceedings, Mr Cheung Kai-kwong, for the plaintiff, that the defendants have opted to purchase the yet unfinished property at a price higher than the fixed or the list price of $4,948,000. In this case, as the defendants have desired to make full payment only upon the issue of the occupational permit, a different formula for calculating the contract price was adopted, which was essentially $4,948,000, less 2 per cent, plus 5 per cent. That, of course, produced the final contract figure that we have heard.

20. The adjustment to the fixed or list price was necessary in order to compensate the plaintiff for the loss of use of the purchase price, which was not to become payable for some time. The property was sold to Mr Chun. I find that what he paid represented the open market price in this case. There was no dispute that the re-sale was at arm's length.

21. Since the rights of the parties are to be determined and are obviously circumscribed by the terms of the agreement, one must look at the contract in order to ascertain what the contract price is. In my view and judgment, the defendants have contracted voluntarily to purchase the property at $5,091,492. If both defendants had honoured that obligation and the transaction went ahead successfully, that would have been the sum that the plaintiff would have received at the end of the day. So it must be right that that figure must be adopted for the purpose of calculating the deficiency in price. That being so, I find that the deficiency in sale price should be assessed at $1,051,492, or $5,091,492 less $4,040,000.

22. The legal costs and the commission paid to the agent can conveniently be dealt with together. The evidence disclosed that commission was indeed paid to the agent upon the resale of the property. That amounted to $60,600. The evidence also plainly demonstrated that legal costs had been incurred in the amount of $20,000 and paid in respect of the resale of the property to Messrs Zimmern & Co. The question is whether or not they are recoverable.

23. Reverting to clause 16(3) of the agreement, it is plain to me and I find that these are expenses falling within the description of "all expenses attending such resale" which are to be borne by the defendants. It is true, of course, that Mr Chun was responsible for and did pay a total of $2,300 in respect of the agreement for sale and purchase and for attending registration. It is also true that had the contract been performed fully by both parties, the plaintiff might well have had to shoulder the agency fees. However, the contract which was entered into between the plaintiff and the defendants provided most clearly that upon default of the defendants in completing the contract and resale of the property, all attending expenses in regard to the resale are for the defendants' account.

24. That being so, it must follow, in my judgment, that the 1st defendant is responsible for the legal costs and the agency fees that have been paid upon the resale. Credit for the 10 per cent deposit forfeited by the plaintiff amounting to $509,149.20, must be afforded the 1st defendant. Accordingly, I quantify damages as follows.

25. Deficiency in sale price, that is to say $5,091,492 less $4,040,000, or $1,051,492 will be added the costs of resale: (a) commission paid to agent - $60,600; (b) legal costs - $20,000; subtotal $1,132,092 less forfeited deposit of $509,149.20; balance payable $622,942.80.

26. There will therefore be judgment for the plaintiff against the 1st defendant in the sum of $622,942.80, with interest at judgment rate thereon from 20 July 1998, namely the date of the resale of the property to the date hereof.

(Discussion re costs)

27. The costs of this assessment shall be to the plaintiff against the 1st defendant, taxed if not agreed.

(Further discussion re costs)

28. I make no order for costs in respect of the costs reserved on 17 February 2000.

(Discussion re method of payment)