TSE KWONG LAM v. WONG CHIT SEN

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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REASONS FOR JUDGMENT

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1. On 29th November 1984 I assessed damages at $800,047 with interest certified at $2,477,525 and consequently gave judgment for the plaintiff in the sum of $3,277,572 with costs. I directed that time for appealing should not begin to run until such date as I handed down my reasons.

2. This matter came to me by direction of the Court of Appeal pursuant to the judgment of the Privy Council delivered on 25th July 1983, which sets out the whole of the background making it unnecessary for me to say more.

3. My remit was to determine the best price which would have been reasonably obtainable on 24th June 1966 for 54 specified units in Kwong Hing Building which is situated at the north-eastern junction of Cheung Sha Wan Road and Maple Street in Sham Shui Po, New Kowloon. Having done that, I was to assess the damages due to the plaintiff by counterclaim on the basis of the difference, if any, between that figure and the price actually realized at a sale by auction on 24th June 1966, namely HK$1.2 M., less the costs of sale. I was also required to determine the interest due to the plaintiff by counterclaim on such damages which was to be at 1.4% per calendar month from 24th June 1966 until the date of certification which was, in the event, 29th November 1984. Once damages were assessed, the last matter became one of arithemetical calculation only.

4. The evidence which I was able to receive was the relevant evidence given at the trial and any further evidence including that of not more than two experts on each side.

5. It was argued that I ought to have entertained further evidence as to the steps which were taken by or on behalf of the mortgagee in connection with the sale, not being matters given in evidence before the trial judge. The submission was that such evidence ought to have been received as going to the assessment of damages. I did not agree. Of course it was possible to say that if all reasonable steps had been taken by the mortgagee to obtain the best price then it was open to inference that the price actually obtained was the best reasonably obtainable. But it had been held that the mortgagee did not take all such reasonable steps, or, at least, that he had not discharged the burden of showing that he had; and in my judgment it was not an issue which I was free to consider afresh.

6. At trial, Zimmern, J. had before him a valuation report expressing an opinion that the units were worth a total of $2,206,300. That valuation was criticised in the Court of Appeal and by the Privy Council, as being made on the assumption that a sale would take place of individual units over a period of time, and, so it appeared to the Court of Appeal, as having been based upon insufficient information. There was also evidence of an offer made by Wing On Assurance Co. to the mortgagor on 26th April 1966 to advance $1.5 M. on the security of the building. Since there was further evidence that the Assurance Company mould not usually lend more than 70% of the value of the property charged, it was possible to extrapolate a value of $2.15 M, which is what the learned trial judge did. The basis for his conclusion has also been criticized in that there was no direct evidence of valuation from the assurance company and none of any possible fall off in the property market between 26th April and 24th June. Otherwise the Privy Council considered the evidence cogent and it is one of the unusual circumstances of this case that it has come to me even though it has never been suggested that there was no evidence upon which Zimmern J. could make an assessment, or that the figure he arrived at was not supported by the evidence, or that he applied the wrong measure.

7. I have disregarded the earlier valuation report in favour of the additional evidence called before me which more precisely addresses the question posed by the Privy Council. Since the deficiencies noted with regard to the offer of an advance by Wing On Assurance have not been made good, that piece of evidence, also, has played no part in my decision. It has been urged that there is a third piece of evidence which was before the trial judge of which I should have taken account, namely the fact that the property was sold on the 24th June at public auction for $1.2 M. At the auction there has only one bid, that of the mortgagee. There has been no evidence that there were others present, ready, willing and able to bid at what would have been a fair market value. So far as anyone has been able to say the only reason for the price reaching $1.2 M. was that it had been fixed as the reserve by the mortgagee. In my judgment the fact that the price at which the property was sold on the day was $1.2 M. did not assist me at all in assessing a fair market value except to the extent that it allowed me to say that a fair market value could not have been less than $1.2 M.

8. The experts whose reports were placed before me and who were called to give evidence were Mr. Wilburn and  Mr. Fry, for the plaintiff by counterclaim and the defendant respectively. Both were eminently qualified to give evidence as to the value of real property in Hong Kong. Both would have agreed that it was no easy job to attempt a valuation of property as at some specified date more than 18 years ago. The best each has been able to do was to seek out comparables or other relevant, contemporary criteria to serve as a basis for his opinion. I was impressed with the care and skill each of them brought to bear upon a very difficult task. From recollection and available evidence Mr. Fry thought that he was able to detect a general decline in property values throughout 1966 whereas Mr. Wilburn could only discern any such decline taking place in the second half of 1966. Mr. Fry's view was supported by that of Mr. Watson, the very experienced auctioneer. For my part I accepted that the property market did suffer a decline throughout 1966 which included the period between Wing On offering to lend money and the date of the auction.

9. For the purposes of their report, both Mr. Wilburn and Mr. Fry divided the premises up into the ground floor, that is to say shop areas, the first and second floors available for non-domestic use, and upper floors, that is the domestic units. Mr. Wilburn valued the ground floor shops at $585,000 and Mr. Fry at $579,000. They could hardly have been closer. Each acknowledged that the other could be right. The burden was upon the plaintiff by counterclaim and I adopted the valuation of Mr. Fry. In doing so I kept in mind that it was at the lower end of the bracket. For the first and second floors Mr. Wilburn arrived at a figure of $490,000 and Mr. Fry at one of $340,000. Here was a considerable divergence. It was explained by their difference of approach. Mr. Fry was unable to find anything which he was prepared to use as a comparable and so made use of a formula based upon the proportion which the rateable value of the first and second floors bore to that of the domestic units as assessed in 1967. Mr. Wilburn, on the other handy thought that he was able to find something with which to make comparison. It was a small unit with a flat roof and for that reason discounted by Mr. Fry; but Mr. Wilburn who saw it from both the outside and from within said that it had enabled him to form a judgment as to the value of the first and second floors as at the relevant date. Of course he would have been the first to confess to a shortage of available data but, as I accepted, doing the best he could came to the conclusion that the first floor space eras worth $100 Por sq. ft. at the relevant date and the second floor $96 per sq. ft. as contrasted with Mr. Fry's $68 per sq. ft. overall. That was a rather higher rate than was produced by his one comparable, but he told me that the superior position of the subject premises more than compensated for any weighting to be given to the comparable on account of its small area or flat roof. I did not think that Mr. Fry's method was likely to produce a reliable result. Rateable value in turn depends upon rental value which in its own turn is largely determined by capital value. There has been no evidence from anyone who valued these premises for rating purposes and Mr. Fry himself acknowledged that his approach was very much a last resort having not been able to find any comparable from which to work. If one accepts, as I did, that the comparable made use of by Mr. Wilburn is valid for the purpose then Mr. Wilburn's professional evidence as to the value of the first and second floors had to be preferred to that of Mr. Fry's. Therefore I adopted the figure of $490,000 in relation to those floors. Both Mr. Wilburn and Mr. Fry made use of comparables with regard to the upper floors. Mr. Wilburn arrived at a figure of $65 per sq. ft. overall producing $1,045,000 and Mr. Fry thought an overall figure of $60 per sq. ft. more appropriate, producing a total of $964,500. Once again the experts were not so far apart as to force a conclusion that one or other of them must be wrong. Mr. Wilburn paid rather less regard to comparables within the subject building than did Mr. Fry on the ground that he could not be sure of the dates of the transactions resulting in the recorded sale prices. On the material before me it seemed probable that some of the comparables at least had rather more relevance than Mr. Wilburn was prepared to admit. Consequently, for that reason and also because it was for the plaintiff by counterclaim to show that the higher figure ought to be preferred, I took Mr. Fry's figures for the upper floors as my own.

10. Putting those figures together I arrived at the global sum which formed my assessment of damages. Mr. Fry said there ought to be a discount of 15% for the fact that this was to be a block sale. In support of that he argued that any purchaser in 1966 would have wished to resell and would therefore have required a margin for profit. He did not allow the possibility of anyone buying for investment. Statistics, however, showed that whereas a small proportion of such properties were built for re-letting by the developer, nevertheless, more often than not, they were purchased with a view to letting out. In my judgment, "the best price reasonably obtainable" means that which would have been paid on the day, and, if there is substance in Mr. Fry's conjecture, that would most likely have come from someone looking to invest in the property market. Any discount for block purchase ought to have been taken account of in the valuation process which was aimed at establishing a global figure and not the valuation of individual units. That is how Mr. Wilburn viewed it and I thought he was right. In my judgment no further discounting of the aggregate figure was appropriate.

11. For those reasons I reached the assessment as indicated.