SUN’S WORKSHOP CO LTD v. LANGOLD INVESTMENT LTD

HCA 94/2022

[2024] HKCFI 1235

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 94 OF 2022

(TRANSFERRED FROM DCCJ 4096 OF 2021)

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JUDGMENT

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A.  INTRODUCTION

1.  The plaintiff’s claim arises from the defendant’s breach of a sale and purchase agreement dated 26 February 2021 (“SPA”) in respect of Shop 13 on Ground Floor, Dragonfair Garden, Nos 445/485, Queen’s Road West, Hong Kong (“Property”).

2.  As a result of the breach, the plaintiff claims, inter alia, three heads of loss, namely, (i) loss of rental income, (ii) stamp duty, and (iii) loss of bargain.

3.  On 8 February 2022, by consent, judgment on liability was entered in favour of the plaintiff. The defendant was ordered, inter alia, to pay the plaintiff damages and interest to be assessed.

B.  BACKGROUND

4.  The defendant was at all material times the registered owner of the Property.

5.  By a provisional agreement for sale and purchase (“PSPA”) dated 5 February 2021, the plaintiff agreed to purchase and the defendant agreed to sell the Property at the price of HK$16,380,000 (“Purchase Price”).

6.  In relation to the provisions of the PSPA:

(a)  Clause 4 provided, inter alia, that the plaintiff agreed to purchase the Property subject to the existing tenancy. In this regard, the appendix of the PSPA provided, inter alia, that the existing tenancy was at a monthly rate of HK$33,000, for the period up to 31 December 2021, without renewal. The tenant was referred to as “經營雜貨零售”.

(b)  Clause 9 provided, inter alia, that in consideration of the services rendered by the agent, the agent should be entitled to receive 1% and 0.5% of the purchase price (成交價) from the defendant and the plaintiff respectively as commission.

7.  Upon signing the PSPA, the plaintiff paid the defendant an initial deposit of HK$800,000. The plaintiff has also paid the stamp duty for the PSPA, in the amount of HK$100.

8.  On 26 February 2021, the plaintiff and the defendant entered into the SPA in place of the PSPA.

9.  In relation to the provisions of the SPA:

(a)  Clause 6(a) provided that the Property was sold subject to such tenancy as set out in Part VI of the First Schedule of the SPA. Under Part VI of the First Schedule, the existing tenancy was stated to be with a tenant named “Lee Shuk Ling” (“Purported Tenant”), for a period of 2 years commencing on 1 February 2020, at a monthly rental (inclusive of rates and management fee) of HK$33,000. Annexed to the SPA was a purported tenancy agreement dated 2020 (without the month and the day) between the defendant as landlord and the Purported Tenant as tenant (“Tenancy Agreement”). Schedule 1 of the Tenancy Agreement provided, inter alia, that the tenancy was for a fixed term of two years from 1 January 2020 to 31 December 2021 (both days inclusive) at a monthly rental (inclusive of rates and management fee) of HK$33,000.

(b)  Clause 14 provided that time shall in every respect be of the essence of the SPA.

(c)  Clause 16 provided, inter alia, that if the defendant should fail to complete the sale in accordance with the terms of the SPA, then all deposit(s) paid thereunder should be returned to the plaintiff who shall also be entitled to recover from the defendant such damages (if any) over and above the said deposit or (as the case may be) any further sum or sums of money paid thereunder as the plaintiff might sustain by reason of such failure on the part of the defendant.

(d)  Clause 21 concerned stamp duty. I shall address this clause in greater detail in Section D2 below.

10.  Completion, according to clause 5 of the SPA, was to take place between 9:30 am to 5:30 pm on 21 May 2021.

11.  Upon signing the SPA, the plaintiff paid the defendant a further deposit of HK$838,000 (this deposit, together with the initial deposit of HK$800,000, is hereinafter referred to as the “Deposits”). It is not in dispute that the plaintiff paid the stamp duty for the SPA, in the amount of HK$614,250.

12.  The defendant failed to complete the sale of the Property on the completion date. By a letter dated 24 May 2021 from Messrs Yuen, Yu, Yuen & Co, solicitors for the defendant (“YYY&Co”), to Messrs Chan, Wong & Yip (“CWY”) (“24 May 2021 Letter”), former solicitors of the plaintiff, the defendant admitted that it was unable to complete the sale and was in breach of the SPA.

13.  The 24 May 2021 Letter was preceded by events which, on the evidence, originated from matters concerning the authenticity of the Tenancy Agreement:

(a)  By a letter dated 22 April 2021 (“22 April 2021 Letter”), Messrs. Huen & Partners (“HP”), who claimed to act for the Purported Tenant, informed YYY&Co, inter alia, that the Purported Tenant never executed the Tenancy Agreement, and had been in continuous exclusive possession of the Property for a period of no less than 12 years with intention to possess. YYY&Co forwarded this letter to CWY by a letter dated 30 April 2021.

(b)  On 26 April 2021, Mr Chan Yum-kit (“Mr Chan”), the director and a shareholder of the defendant, gave a statement to the police in connection with the alleged forgery of the Tenancy Agreement.

(c)  By a reply letter dated 27 April 2021, Messrs. So, Lung and Associates (“SLA”), who acted for the defendant, informed HP, inter alia, that the defendant took the same view that the Purported Tenant never executed the Tenancy Agreement and that the defendant had reported the matter to the police.

(d)  By a further reply letter dated 6 May 2021, HP informed SLA, inter alia, that the Purported Tenant would commence legal proceedings for adverse possession of the Property in due course, and alleged that the Tenancy Agreement was a false document.

(e)  By a letter dated 14 May 2021 to CWY, YYY&Co requested for a postponement of the completion date to on or before 20 August 2021.

(f)  By a letter dated 20 May 2021 to YYY&Co, CWY requested for details concerning the Tenancy Agreement and the extension request. YYY&Co, by a reply letter of even date, informed CWY, inter alia, that (i) given a dispute between the defendant and the tenant, the defendant was unable to confirm whether the Property was sold with tenancy or vacant possession pending the outcome of the dispute, and that (ii) the defendant would try their best to reach a settlement with the tenant.

(g)  By a letter dated 21 May 2021, CWY sought to put on record that the defendant was in breach of the SPA, and made a suggestion as to the postponement of the completion date subject to conditions. That suggestion, as is evident in the 24 May 2021 Letter, was not accepted.

14.  In the 24 May 2021 Letter, YYY&Co enclosed two cheques in the total sum of HK$1,638,000 in favour of the plaintiff as a refund of the Deposits.

15.  By a letter dated 28 May 2021, CWY acknowledged receipt of the cheques, and stated, inter alia, that the plaintiff had accepted the defendant’s repudiation of the SPA.

16.  On 24 June 2021, the defendant commenced proceedings against the Purported Tenant in the District Court to, inter alia, claim delivery of vacant possession of the Property.

17.  On 25 August 2021, the plaintiff commenced proceedings against the defendant in the District Court (DCCJ 4096/2021).

18.  By an order dated 7 January 2022, Master Maurice Lam ordered, inter alia, that the plaintiff’s action to be transferred to the Court of First Instance, hence this action.

19.  By a consent order dated 8 February 2022, Master Lai ordered, inter alia, that judgment in this action be entered for the plaintiff against the defendant with damages to be assessed. Interlocutory judgment was entered on the same day accordingly.

20.  The following factual witnesses testified at the hearing for assessment of damages:

(a)  Mr Cheuk Hong Yuet (“Mr Cheuk”), a shareholder and director of the plaintiff, who has made 1 witness statement dated 20 October 2022 (“Cheuk WS”); and

(b)  Mr Chan, who has made 1 witness statement dated 28 October 2022 (“Chan WS”).

21.  The parties have also adduced expert evidence on the valuation of the Property, which will be detailed below.

C.  HEADS OF LOSS

22.  By its statement of claim, the plaintiff claims against the defendant for the following heads of loss:

(a)  Loss of rental income for the Tenancy Agreement for the period from 21 May 2021 to 31 January 2022 (which was subsequently corrected to be 31 December 2021) in the sum of HK$241,645.16;

(b)  Legal costs and registration fee in connection with the sale and purchase of the Property in the sum of HK$13,210;

(c)  Stamp duty in the sum of HK$614,325 (which was subsequently corrected to be HK$614,350)[1];

(d)  Estate agent’s commission in the sum of HK$81,900; and

(e)  The difference between the Purchase Price and the market price of the Property as on 21 May 2021 or any other date as the court deems fit.

23.  In relation to head (b), the defendant accepts in its closing submissions its liability for the same.

24.  In relation to head (d), the plaintiff confirmed in its opening and closing submissions that the estate agent’s commission had been settled with the estate agent directly on 4 June 2021. The plaintiff no longer pursues its claim under this head.

25.  Thus, the only heads in issue are: (i) loss of rental income, (ii) stamp duty, and (iii) loss of bargain.

D.  DISCUSSION

D1.  Loss of rental income

26.  The plaintiff’s case is that under the SPA the Property was agreed to be sold subject to tenancy, and the Tenancy Agreement was for a fixed term of two years commencing from 1 January 2020 to 31 December 2021 (both days inclusive) at a rental sum of HK$33,000 per month inclusive of government rates and management fees. The defendant, by its breach of the SPA, is therefore liable to pay the plaintiff the income thereunder for the period from the original date of completion (ie 21 May 2021) to 31 December 2021.

27.  The defendant’s case, on the other hand, is that the Tenancy Agreement is a forged document, and all that the plaintiff would acquire on a hypothetical completion would be non-existent entitlements under that forged document and a claim for adverse possession. It is therefore not open to the plaintiff to claim that there would be rental income.

28.  The object of an award of damages for breach of contract is well established. It is compensatory in nature, in that it aims to place the innocent party, so far as a monetary award can do so, in the same position as if the contract had been performed in accordance with its terms: Richly Bright International Ltd v De Monsa Investments Ltd (2015) 18 HKCFAR 232, at §15, per Ribeiro PJ and Fok PJ.

29.  Applying the above principle, the defendant’s contention is invalid. The Tenancy Agreement being forged is a red herring. The plaintiff, being the innocent party, is to be placed in the same position as if the SPA had been performed in accordance with its terms. As is apparent from Clause 6(b) of the SPA, the plaintiff and the defendant entered into the PSPA and the SPA on the basis that the Tenancy Agreement was a valid tenancy:

“6. EXISTING TENANCY

(a) The Property is sold subject to such tenancy as set out in Part VI of the First Schedule hereto.

(b) If the Property is sold subject to tenancy, the Purchaser shall be deemed to purchase with full knowledge thereof and shall take the Property subject to the rights of the Tenant thereunder or by reasons thereof. The Vendor shall on completion account to the Purchaser the rental deposit paid by the Tenant in respect of such tenancy or tenancies Provided That the Purchaser shall sign and deliver to the Vendor the Letter of Undertaking annexed hereto upon completion and the Purchaser hereby undertakes to observe and perform the terms and conditions on the part of the landlord contained in the relevant tenancy agreement with the Tenant (including but not limited to refunding rental deposit and/or other deposits to the Tenant in accordance with the terms of the tenancy or tenancies) and to indemnify the Vendor against any subsequent claims by the Tenant in respect thereof. The provision of this clause shall survive completion of the sale and purchase of the Property.” (emphasis added)

30.  Clause 6(b) is to be contrasted with a clause whereby the vendor expressly refrains from giving any warranty as to the validity of any tenancy.

31.  Therefore, the financial position that the plaintiff should be put into includes the financial benefit that the plaintiff would be able to derive from a valid tenancy in the same terms as those of the Tenancy Agreement.

32.  For completeness, I would make it clear that, notwithstanding the challenge of the plaintiff, I have considered and accepted the evidence of Mr Chan as to (i) the confession of Ms Wong May Fong which exposed the issue of the authenticity of the Tenancy Agreement, and (ii) how the defendant followed up on such issue, including making a police report against Ms Wong May Fong for forging the Tenancy Agreement, as well as commencing legal action DCCJ 2975 of 2021 against the occupier of the Property to recover possession. The plaintiff could not point to any substantive evidence that could even remotely cast any doubt on the veracity of Mr Chan’s evidence. His evidence apparently does not benefit the defendant in any material way. I see no rational reason for Mr Chan to fabricate any bits of his evidence.

33.  The defendant further argues that, in any event, the plaintiff has wholly failed its duty to mitigate to the extent that no award for the loss of rental income should be made.

34.  It is trite that the plaintiff cannot recover damages for any part of his loss consequent upon the defendant’s breach of contract that the plaintiff could have avoided by taking reasonable steps: Chitty on Contracts (34^th ed, 2021) at §29-096. What is reasonable is a question of fact which requires consideration of the circumstances of each case: Chitty on Contracts, at §29-099. Also, it is the burden of the party in breach, ie the defendant herein, to establish the failure of the innocent party, ie the plaintiff herein, to reasonably mitigate the loss arising from the breach of contract: Chitty on Contracts, at §29-098.

35.  The defendant argues that there was no commercial reason why the plaintiff must insist that the money be used to invest in property and the plaintiff has adduced no evidence to show that any steps have been taken. The defendant relies on Mr Cheuk’s evidence at trial that he did not seek to invest the money that he would have paid. The defendant argues that the plaintiff “sat on the situation”.

36.  I disagree. It was expressly stated in Cheuk WS that (i) the plaintiff tried to seek for an alternative to realize its investment plans; (ii) after paying for stamp duty and all related costs pursuant to the PSPA and the SPA, the shareholders of the plaintiff decided that the plaintiff was not in a financial position to risk making another purchase; and (iii) the plaintiff had in any event not been able to find another property of a similar market price with the same investment potential as the Property as at the date of the witness statement.

37.  I regard the last part of Mr Cheuk’s evidence as the key to rebut the defendant’s argument. When the plaintiff set out to acquire the Property as an investment, reasonable mitigation would normally involve looking for comparable investment opportunities. The defendant was not able to adduce any evidence to demonstrate that the plaintiff was presented with similar investment opportunities at the material times.

38.  The defendant’s case on the plaintiff’s purported failure to mitigate therefore also fails.

39.  In the premise, I hold that the plaintiff is entitled to the loss of rental income for the period from 21 May 2021 to 31 December 2021 (both days inclusive), in the sum of HK$241,645.16.

D2.  Stamp duty

40.  Insofar as the liability to pay stamp duty for the PSPA and the SPA is concerned, section 29BA and Scale 2 of Head 1(1A) under the First Schedule of the Stamp Duty Ordinance (Cap 117) (“Ordinance”) appear to be pertinent to the present situation. The collective effect of such provisions is that both the plaintiff and the defendant were liable to pay stamp duty for the PSPA and the SPA.

41.  Parties usually allocate the liability to pay stamp duty between themselves through contract. In the present case, clause 21 of the SPA is the material provision.

42.  There is no dispute that the plaintiff is liable inter se to pay stamp duty pursuant to clauses 21(a) & (b) of the SPA, which provided that:

“(a) The ad valorem stamp duty and land registration fees payable on this Agreement and any prior agreement for sale as defined in Section 29A of the Stamp Duty Ordinance Cap.117 between the parties hereto in respect of the Property and/or any subsequent Agreement(s) and/or the Assignment(s) made pursuant to this Agreement and/or the subsequent Agreement(s) shall be borne by the Purchaser solely. In the event of the consideration stated in this Agreement and/or any prior agreement for sale and/or subsequent Agreement(s) and/or in the Assignments(s) being not accepted by the Collector of Stamp Duty Revenue as representing the true value of the Property hereby agreed to be sold and purchased the excess or additional ad valorem stamp duty being charged in accordance with his valuation of the Property shall also be paid by the Purchaser solely and the Purchaser shall keep the Vendor fully indemnified in respect thereof. The provision of this clause shall survive completion of the sale and purchase of the Property.

(b) The Vendor and the Purchaser hereby jointly and severally confirm and declare that in view of the operation of the Ordinance, they fully understand that stamp duty is chargable on this Agreement as the case may be. The Purchaser hereby undertakes to pay the stamp duty thereof within the prescribed time and further indemnifies the Vendor and the Vendor’s solicitors, Messrs. Yung, Yu, Yuen & Co., against all actions, suits, claims, demands, losses and damages arising therefrom.”

43.  The present dispute concerns whether the plaintiff is entitled to recover the stamp duty in the sum of HK$614,350 from the defendant as a result of the termination of the SPA upon the defendant’s failure to complete the sale and purchase in the manner provided in the SPA.

44.  The plaintiff relies on clause 21(d) of the SPA to claim against the defendant for the stamp duty paid. Clauses 21(c) & (d) provided that:

“(c) For avoidance of doubt, the Purchaser hereby declares and confirms that the Purchaser fully understands that the stamp duty paid under this Agreement is non-refundable except made under the circumstances within the meaning of Section 29C(6) of the Ordinance. In such event, the Purchaser shall apply directly to the Commissioner of Inland Revenue for refund of the stamp duty with all reasonable assistance given by the Vendor’s solicitors for such refund but shall not have any claim against the Vendor or the Vendor’s solicitors, Messrs. Yung, Yu, Yuen & Co., thereon.

(d) It is hereby declared and agreed by the parties hereto that in any event, either the Vendor or the Purchaser, fails to complete the sale and purchase in the manner herein contained, the defaulting party shall be responsible and liable for the payment of the stamp duty chargeable on this Agreement or Memorandum, of Sale and Purchase made between the same parties hereto or any other instruments chargeable with stamp duty in respect of the Property or any part thereof.”

45.  The defendant contends that clause 21(d) was only applicable to the situation where the stamp duty was not yet paid to the Collector. In the situation where the stamp duty was already paid by the plaintiff, clause 21(c) mandated the plaintiff to apply directly to the Commissioner of Inland Revenue for refund. Alternatively, the defendant contends that the plaintiff was under a general obligation to mitigate its loss by applying for refund in any event. Given the plaintiff had failed to apply for refund within the allowable period under the Ordinance, the plaintiff should be barred from recovering the same from the defendant.

46.  The first issue revolves around the interpretation of clause 21 as a whole, in particular the effect of clauses 21(c) & (d). In conducting the construction exercise, I have borne in mind the well-established principles on contractual interpretation to which the parties referred in their submissions.

47.  Clause 21(c) specifically incorporated section 29C(6) of the Ordinance, which however had been repealed at the time of the SPA. It provided that:

“(6) If stamp duty has been paid in respect of a chargeable agreement for sale under which the vendor was unable to prove his title in accordance with the agreement and which was rescinded by the purchaser on that ground—

(a) the Collector shall, subject to the production of such evidence, by statutory declaration or otherwise, as the Collector may require, make allowance for the stamp duty paid;

(b) section 51 applies to such an allowance as if it were an allowance for spoiled stamps made under Part VI; but

(c) this subsection shall only apply if—

(i) the application for allowance is made within 2 years after the agreement was rescinded; and

(ii) no legal proceeding (other than legal proceedings in which there falls to be determined the question whether the purchaser was so entitled to rescind the agreement) has been commenced in which the instrument could or would have been given or offered in evidence and, if the Collector so requires, the instrument is given up to be cancelled.”

48.  It is common ground between the plaintiff and the defendant that section 29C(6) was replaced by section 29C(5A)-(5B) in the Ordinance:

“(5A)	(a) Notwithstanding any other provisions of this Part, an agreement for sale to which head 1(1A), (1B) or (1C) in the First Schedule would, apart from this subsection, apply shall, subject to paragraph (b), not be regarded as an agreement for sale to which that head applies if the agreement is cancelled, annulled or rescinded or is otherwise not performed.
	(b)Where an agreement for sale described in paragraph (a) is cancelled, annulled or rescinded or is otherwise not performed by reason of the occurrence of a specified event described in subsection (5AA), despite paragraph (a), the agreement continues to be regarded as an agreement for sale to which head 1(1A), (1B) or (1C) in the First Schedule applies.
…
(5B)	(a) Subject to paragraph (b), if any monies have been paid under this Ordinance, whether by way of stamp duty or penalty, in respect of an agreement for sale as an agreement for sale to which head 1(1A), (1B) or (1C) in the First Schedule applies, but the agreement is under subsection (5A)(a) not regarded as an agreement for sale to which that head applies, the Collector must refund the monies paid.
	(b) In relation to an agreement for sale described in paragraph (a), no monies shall be refunded under paragraph (a) unless—
		(i) an application has been made to the Collector—
			(A) where the agreement has been cancelled, annulled or rescinded, within 2 years after the agreement has been cancelled, annulled or rescinded, as the case may be; or
			(B) where the agreement has otherwise not been performed, within 2 years after the date agreed under the agreement as the date of completion of the sale and purchase, or (in its absence) the date of conveyance, of the immovable property subject to the agreement (whether the date is determined by reference to the happening of an event or otherwise); and
		(ii) such evidence, by statutory declaration or otherwise, in support of the application as the Collector may require has been produced to the Collector.”

49.  It is common ground during the oral closing submissions that the reference to section 29C(6) in clause 21(c) could not be substituted by section 29C(5A)-(5B) notwithstanding the repealing of the former. Indeed, the parties have no dispute over the principle that where a contract or deed incorporates the provisions of a statute or subordinate legislation, there is no presumption either way as to whether the reference is to the law for the time being in force: William Hare Ltd v Shepherd Construction Ltd [2010] B C C 332, at §27, per Coulson J.

50.  It is also common ground between parties that section 29C(5A)-(5B) provide a wider basis for seeking refund of stamp duty than the one under the repealed section 29C(6). The ground for refund that was provided in section 29C(6) was only subsumed into the wider ground under section 29C(5A)-(5B). In other words, clause 21(c) remained fully operative even though section 29C(6) was repealed.

51.  In respect of the defendant’s contentions, first, I do not accept the argument that clause 21(d) only applied to the situation where the stamp duty remained unpaid, which is contrary to the clear wordings of clause 21(d) specifying that: “…in any event, either the Vendor or the Purchaser, fails to complete the sale and purchase in the manner herein contained, the defaulting party shall be responsible and liable for the payment of the stamp duty chargeable…” (emphasis added). There was no reference to stamp duty being paid or otherwise. On the contrary, to limit the defaulting party’s liability to the time before stamp duty was paid would be contradictory to the references of “in any event” and “fails to complete the sale and purchase”.

52.  Also, to qualify clause 21(d) to only the time before the stamp duty was paid would put the purchaser to a choice between (i) paying the stamp duty soon after the execution of the SPA, so that the purchaser could have the SPA registered to avoid the risk of the vendor double-selling the Property, and (ii) delaying the payment of the stamp duty for as long as possible to preserve the right under clause 21(d). I do not see any valid ground to find that the parties had indeed structured the bargain as such.

53.  The sensible interpretation of clause 21 is that:

(a)  Clauses 21(a)-(b) allocated the liability of paying stamp duty to the plaintiff in the absence of any default in completing the sale and purchase under the SPA.

(b)  Clauses 21(c)-(d) governed the situation where there was a default in completing the sale and purchase as per the SPA.

(c)  Clause 21(d) imposed the liability to pay stamp duty upon the defaulting party generally, whilst clause 21(c) served as an exception to clause 21(d).

(d)  If the defendant defaulted in completing the sale and purchase of the Property in the manner as required in the SPA, unless clause 21(c) applied, the defendant would be liable to reimburse the plaintiff the stamp duty paid to the Collector under the SPA.

54.  Therefore, the next material question is whether clause 21(c) applies in the present dispute to bar the plaintiff from recovering the stamp duty. I find that it does not.

55.  The circumstances in which the sale and purchase of the Property could not be completed as shown in the correspondence shall be set out in some detail.

56.  On 30 April 2021, ie 3 weeks before the agreed completion date (21 May 2021), YYY&Co informed CWY of the allegation of adverse possession made by the Purported Tenant through the 22 April 2021 Letter.

57.  On 14 May 2021, YYY&Co further requested CWY to postpone the date of completion to on or before 20 August 2021.

58.  Then on 20 May 2021, the day before the completion date, CWY replied to YYY&Co asking a series of questions arising from the defendant’s proposal to postpone the completion date. Most noticeably, CWY made the following inquiry which demonstrates that the plaintiff was concerned as to whether the claim for adverse possession could be resolved by the proposed new completion date, such that the defendant could deliver the Property which would be freed from such claim:

“Whether your client can continue the tenancy as enclosed in the Agreement for Sale and Purchase dated 26 May (sic) 2021…or will deliver vacant possession of the above property to our client upon completion?”

59.  Adverse possession by a squatter has the effect of extinguishing the paper owner’s title pursuant to section 17 of the Limitation Ordinance (Cap 347). CWY’s inquiry was clearly concerning the defendant’s title to the property as affected by the claim for adverse possession.

60.  On 21 May 2021, CWY counter-proposed that the completion date be postponed to 31 January 2022, subject to, inter alia, the request that “vacant possession of the Property shall be delivered to our client upon completion”. Even though the counter-proposal asked for the “vacant possession” of the Property, CWY was effectively focusing on the ability of the defendant to give good title to the Property eventually.

61.  On 24 May 2021, YYY&Co replied to CWY stipulating that: “in view of the potential claim for adverse possession, our client is unable to complete the sale subject to the existing tenancy pursuant to the Formal Agreement for Sale and Purchase dated 26^th February 2021”. The gist was once again the defendant’s inability to show and give good title upon completion given the risk that the title might have already been extinguished by adverse possession. YYY&Co enclosed two cheques as the refund of the deposits paid by the plaintiff.

62.  On 28 May 2021, CWY replied to YYY&Co. Receipt of the cheques representing the refund of the deposits was acknowledged. More importantly, the plaintiff accepted the defendant’s repudiation of the SPA. The plaintiff did not specify what was the “repudiation” on the part of the defendant at that stage. However, in light of the previous correspondence, it should be clear that the “repudiation” was the defendant’s failure to show and give good title upon the completion because of the claim of adverse possession. The plaintiff never adduced any evidence to suggest that, on the original completion date (21 May 2021), the defendant as vendor was unable to complete the sale and purchase under the SPA for any other reason. On the contrary, the correspondence clearly shows that, since YYY&Co’s letter dated 30 April 2021 informing CWY of the claim for adverse possession, parties had not discussed the mechanism for completion (which normally would involve (i) the plaintiff arranging for payment as purchaser and (ii) parties’ discussion about the execution the assignment) at all.

63.  Therefore, the situation appears to fall within the repealed section 29C(6) of the Ordinance to the extent that the defendant was unable to prove its title in accordance with the SPA, which was rescinded[2] by the plaintiff on the same ground. In fact, the plaintiff has not advanced any clear argument as to why the present situation should not fall within the repealed section 29C(6).

64.  On one hand, the plaintiff repeatedly emphasized that, notwithstanding the fact that section 29C(6) was repealed at the time of the SPA, clause 21(c) was perfectly workable as is, and the reference to section 29C(6) should not be substituted with the new sections 29C(5A)-(5B). I accept this argument.

65.  On the other hand, the plaintiff only cursorily contends that it was the defendant, not the plaintiff, rescinding the SPA in the present case. Such contention is misconceived. There were no provisions in the SPA that would allow the defendant to rescind the SPA should it fail to prove a good title to the Property. As it was made clear in the correspondence, particularly the 24 May 2021 Letter, the defendant accepted that it was in breach of the SPA (which is the opposite to the defendant invoking any rescission clause under the SPA).

66.  Nevertheless, there were two provisos in section 29C(6), namely (i) the application for refund must be made within 2 years, and (ii) no legal proceeding (other than legal proceedings in which there fell to be determined the question whether the purchaser was so entitled to rescind the agreement) had been commenced in which the instrument could or would have been given or offered in evidence and, if the Collector so required, the instrument was given up to be cancelled.

67.  In respect of the first proviso, the application for refund was made only 1 month before the trial according to Mr Cheuk in cross-examination, ie beyond the 2-year window. The application has failed and the plaintiff has not adduced any evidence as to the reason(s) for the failure. I accept the defendant’s submission that each party to a contract is expected to co-operate to ensure the performance of their side of the bargain: Ying Ho Co Ltd v Secretary for Justice (2004) 7 HKCFAR 333, at §128. It should be the plaintiff’s duty to seek refund of the stamp duty under clause 21(c). The plaintiff could not put itself in a better position by simply failing to apply for refund within the 2-year window as required under the first proviso of section 29C(6) of the Ordinance.

68.  Nevertheless, I find that the present situation falls within the second proviso. The SPA has been put into evidence for at least the purpose of the dispute in relation to the loss of rental income under the Tenancy Agreement. Such dispute was raised by the defendant rather than the plaintiff. The second proviso is therefore engaged.

69.  I therefore hold that the plaintiff’s claim for reimbursement of the stamp duty paid is not barred by clause 21(c). The situation falls into clause 21(d) such that it is the defendant’s liability to reimburse the plaintiff for the stamp duty paid.

D3.  Other arguments in relation to stamp duty

70.  The defendant has further made the following arguments to resist the claim for reimbursement of the stamp duty paid in the present case:

(a)  Even if clause 21(c) does not apply in the present situation, the plaintiff has failed to discharge its duty to mitigate the relevant loss by applying for refund of the stamp duty in any event; and

(b)  The plaintiff has to elect between the claim for stamp duty and the claim for loss of bargain.

D3.1  Duty to mitigate

71.  If clause 21(c), which provided for the specific situation where the plaintiff had the burden to apply for the refund of the stamp duty, does not apply to the present situation, I could not see how the defendant could still escape the liability under clause 21(d) by blaming the plaintiff for not invoking its statutory right under section 29C(5A)-(5B) of the Ordinance to seek refund of the stamp duty.

72.  A similar contention was also rejected in Ip Fong Keng v Fong Yu Shing and Another [2019] HKCFI 1677, where DHCJ Dawes SC (as he then was) held that:

“78. The defendant argues that the plaintiff can apply for a refund of stamp duty under section 29C(5B)(a) of the Stamp Duty Ordinance (Cap 117) (“SDO”), so the plaintiff cannot claim the costs of stamp duty from the defendant. This argument is misconceived. Clause 30 expressly provides that the defaulting party shall bear and pay all ad valorem stamp duty payable under the SDO. The mere fact that the plaintiff has a statutory right to apply for refund of stamp duty cannot detract from the express terms of the agreement between the parties.” (emphasis added)

73.  The ruling in Ip Fong Keng, which I respectfully agree, is consistent with the general principle that the duty to mitigate does not apply to the claim of a liquidated damage, on the basis that the general duty to mitigate has been implicitly ousted by parties agreement: McGregor on Damages, 21^st ed, at §16-025. The claim under clause 21(d) is liquidated in nature[3], as it effectively provided an obligation for the defendant to reimburse the plaintiff in the event of the defendant’s default in completing the sale and purchase under the SPA. The duty to mitigate does not apply, otherwise clause 21(d) is superfluous.

D3.2  Election between stamp duty and loss of bargain

74.  It is not in dispute that generally one cannot recover both the benefit of the bargain and what he had to pay to achieve that very bargain. In Kwok Chung Hon & Another v Lo On Wa [1997] HKLRD 980, Godfrey JA held, at p 984G-H, that:

“In the Hong Kong situation, it is not possible for a purchaser to achieve his bargain without first paying the stamp duty on the agreement for sale and purchase. If a purchaser completes his bargain in the ordinary way, he will have had to lay out the stamp duty as part of the price of his bargain. If instead he is forced to sue the vendor for damages for loss of bargain then, as it seems to me, it cannot have it both ways. He cannot claim the benefit of the bargain, or, rather, the damages awarded to him for the loss of it, and also at the same time claim a refund of the money which he had to pay out by way of stamp duty to achieve the bargain in the first place. For these reasons, which are different from those given by the judge, I think she came to the right conclusion in refusing to order the vendor to refund the stamp duty to the purchasers. I would on this point also dismiss the purchasers’ appeal.” (emphasis added)

75.  In Ip Fong Keng, DHCJ Dawes SC allowed the purchaser’s claim for stamp duty in addition to the claim for loss of bargain based on a specific clause in the subject agreement. In doing so, the learned Judge distinguished Kwok Chung Hon on the basis that there was no express contractual term requiring the defaulting party to pay the stamp duty in that case:

“79. In Kwok Chung Hon v Lo On Wa[1996] 4 HKC 191, the Court held that stamp duty was not recoverable against the defaulting vendors, on the basis that the stamp duty would have been incurred by the purchaser even if the purchase had proceeded. However, that case is distinguishable on the basis that there was no express contractual term requiring the defaulting party to pay the stamp duty.” (emphasis added)

76.  In Qin Tian v 譚震 (unrep, DCCJ 3712/2014, 22 July 2016), DDJ Winnie Tsui (as she then was), in addressing the issue of whether the plaintiff was entitled to seek reimbursement of the stamp duty he had paid in addition to his claim of loss of bargain, held that:

“121. At the beginning of the trial, Mr Choy sought to argue that such claim should not be allowed as the plaintiff should have applied for a refund from the Collector of Stamp Revenue pursuant to section 29C(5A) and (5B) of the Stamp Duty Ordinance, Cap 117. The argument was later withdrawn. However, My Choy submitted that as a matter of contractual principle and on the authorities, if the plaintiff elected to sue for loss of bargain, he could not at the same time seek reimbursement of the stamp duty expense since he would have had to incur that expense in order to earn the lost bargain in any event. Hence it would be either one or the other, but not both. He relied on the Court of Appeal decision in Kwok Chung Hon v Lo On Wa [1997] HKLRD 980 at 984G-H; Re Daniel [1917] 2 Ch 405 at 412 and McGregor on Damages (19^th ed) at §4-024. I accept his submission which I think accurately states the position of the general law. The authorities are clear and the conclusion is sound as a matter of logic.

122. However, in the present case, one also needs to consider whether the following express clauses in the Agreement affects or alters in any way the general law position:-

“If the Vendor shall fail to complete the sale in accordance with the terms and conditions of this Agreement, the deposit and all other money paid by the Purchaser to the Vendor shall be returned forthwith to the Purchaser who shall also be entitled to recover from the Vendor such damages (including but not limited to the stamp duty paid by the Purchaser) (if any) as the Purchaser may sustain by reason of such failure on the part of the Vendor …” (clause 14) (emphasis added)

“Notwithstanding Sub-Clause (1) hereof, it is hereby agreed between the parties hereto that if any party to this Agreement shall fail to complete the sale and purchase of the Property in accordance with the terms and conditions of this Agreement, the stamp duty payable on this Agreement and the Provisional Agreement (if any) shall be borne by the defaulting party absolutely.” (clause 19(2))

“Should any of the parties hereto fail to complete the sale and purchase of the Property according to the terms and conditions of this Agreement (“the defaulting party”), such party shall bear and pay the stamp duty payable on this Agreement under the Stamp Duty Ordinance 1992 and the estate agent’s commission paid and the defaulting party shall fully indemnify the other party in respect of all the stamp duty payable on this Agreement under the said Ordinance and the said estate agent’s commission paid.” (clause 34)

123. Mr Choy submitted that these clauses did not provide that the stamp duty paid would be recoverable in addition to a claim for loss of bargain and that it was up to the plaintiff to elect whether to claim under these clauses but if he did so elect, his right to claim for loss of bargain would be lost or the amount accordingly reduced. I agree.

124. As a matter of construction, any expenditure incurred on stamp duty is to be regarded as part of general damages payable upon a breach of the Agreement – see, in particular, the words in clause 14 as italicised above. As such, the general compensatory principle applies to any such claim. In my view, if the intention of the parties was to allow both the expenditure claim and the loss of bargain claim, which would be a departure from the general law position, much clearer language to that effect would be required. In the absence of such language, there is nothing in the Agreement which would entitle the plaintiff to claim stamp duty in addition to the loss of bargain.

125. I believe that the above clauses are fairly standard provisions that can be found in conveyancing contracts. I would add that there are many varied scenarios under which damages may be claimed (eg, the Property might have depreciated by the time of breach) and how these clauses would operate in these other scenarios would depend on the facts of each case, including the nature of the breach and the basis of the claim. In the present case, that the plaintiff did have an option to elect does not necessarily mean that other purchasers may have the same option under these clauses in other scenarios.” (emphasis added)

77.  Both Ip Fong Keng and Qin Tian made it clear that the principle stated in Kwok Chung Hon could be disapplied by express term(s) in the agreement. The only issue is whether the contractual provision(s) is clear enough for such purpose.

78.  I find clause 21(d) to be sufficiently clear for disapplying the general principle stated in Kwok Chung Hon. As I have held in paragraph 54 above, clause 21(d) provided generally that the liability for paying the stamp duty would be borne by the party in default, unless clause 21(c) applied. Unlike the relevant clause in the subject contract in Qin Tian (namely clause 14 as quoted at paragraph 122 therein) which rolled up the stamp duty with general damage, clause 21(d) provided for the liability for stamp duty solely and distinctly. There is no ambiguity in clause 21(d).

79.  For reasons above, I hold that the plaintiff is entitled to recover the stamp duty paid, in the sum of HK$614,350.

D4.  Loss of bargain

80.  It is not in dispute that as a result of the defendant’s breach of the SPA, the plaintiff is in principle entitled to damages for the loss of bargain. The principal disputes between the parties are (1) the date of assessment, and (2) the quantum, which in turn depends on the expert evidence adduced by the parties.

D4.1  Date of assessment

81.  The general rule is that damages for breach of contract are assessed as at the date of breach: Goldbay Fortis Ltd v Asia Allied Infrasturcture Holdings Ltd [2021] HKCFI 1684, at §332, per K Yeung J; Ever Bright (H.K.) Construction Engineering Ltd v Kosasih Muanto [2019] HKCFI 1391, at §14, per Master Lawrence Hui. It is for the party seeking to depart from the general rule to justify it: Goldbay Fortis Ltd, at §§333-338. The Court has power to fix such other date as may be appropriate in the circumstances, if to follow the general rule would give rise to injustice: Goldbay Fortis Ltd, at §341; Ever Bright (H.K.) Construction Engineering Ltd, at §§13-14.

82.  The plaintiff argues that the Court should adopt the date of judgment (viz 8 February 2022), as opposed to the date of the breach (viz 21 May 2021), as the date of assessment on the basis that the price of the Property had escalated between the contractual date for completion and the date of judgment. The plaintiff asserts that it was common knowledge that property prices in Hong Kong had risen and stayed resilient amidst the Covid-19 pandemic.

83.  I am unable to accept the plaintiff’s argument, for the evidence in support is plainly insufficient. The so-called “common knowledge” is a bare assertion. The plaintiff in its closing submissions cited a passage in the Hong Kong Property Review 2022 published in May 2022 by the Rating and Valuation Department and produced the relevant excerpt of that publication in its list of authorities for the closing submissions. The defendant was never given a proper opportunity to address that by way of evidence. This manner of advancing the factual argument based on the so-called “common knowledge” is far from fair. I reject such factual assertion accordingly.

84.  I also note that Mr Cheuk mentioned in Cheuk WS a valuation report which he said was previously exhibited in his affirmation filed on 16 December 2021, and clearly showed that Hong Kong’s property market was escalating at the time and the market price for the Property was estimated at HK$22,000,000 as of 30 September 2021. That valuation report, however, is not before me, and I cannot therefore properly consider and give weight to it.

85.  On the other hand, both expert witnesses have given their opinions on the market value of the Property both on the date of the breach and on the date of the judgment. It was common to their respective opinions that the value of the Property on the date of the judgment was higher than that on the date of the breach by about 1%.

86.  Insofar as the delay between the date of the breach and the grant of the judgment is concerned, I note that in both the 24 May 2021 Letter and the acknowledgement of service, the defendant made it clear that it did not contest liability for the breach of the SPA. The time taken to obtain the interlocutory judgment was apparently owing to the need to transfer the present proceedings from the District Court to the High Court. It is unclear why the plaintiff chose to commence the proceedings before the District Court in the first place. In any event, the plaintiff did not seek to lay blame on the defendant for causing such delay.

87.  In light of the above, I do not see any cogent reason to depart from the general rule that damages should be assessed on the date of the breach. I shall accordingly proceed to address the issue of quantum on such basis.

D4.2  Quantum

88.  The plaintiff filed an expert report of Mr Denys Lok Ping Kwan (“Mr Kwan”) of CS Surveyors Limited dated 6 June 2022. The defendant filed an expert report of Ms Dorothy Yeuk Yu Chow (“Ms Chow”) of Colliers International (Hong Kong) Limited of even date. The parties further filed a joint valuation report by the two experts dated 3 October 2022 (“Joint Valuation Report”).

89.  The key common grounds between the two experts, according to the Joint Valuation Report, are as follows:

(a)  There is no dispute over the general environment of the Property, and the description of Dragonfair Garden.

(b)  The measurements of the Property are: saleable area (35.99m²), weighted saleable area (35.99m²), full frontage (3.55m), depth (13.45m), and headroom (floor to floor) (4.72m).

(c)  The Property was valued by the direct comparison method. The Property was compared with other comparable properties located in surrounding areas, which had been sold or in the process of price negotiation around the valuation dates. Appropriate adjustments would be made to reflect any qualitative and quantitative differences that may affect the sales prices.

(d)  The agreed adjustment factors are: time, location, frontage, return frontage, headroom, size, layout, and age/condition.

(e)  The calculation approach for adjustment is by multiplication instead of summation.

(f)  The 8 comparables (A-H) as identified in Table A3 of the Joint Valuation Report locate in the vicinity of the Property and are suitable for assessing the latter’s market value.

90.  According to the Joint Valuation Report, the key differences between the experts relate to the following matters:

(a)  The adjustment rate for “location” in relation to comparables C, E, F, and G;

(b)  The adjustment rate for “frontage”;

(c)  The adjustment rate for “layout”;

(d)  Whether “additional access” and “efficiency” should be additional adjustment factors; and

(e)  Whether cross-checking of the market value by other method(s) is necessary or appropriate.

D4.2a.  The location adjustments for comparables C, E, F, and G

91.  The following features in respect of the locations of the Property, and comparables C, E, F and G respectively are not in dispute:

(a)  The Property is to the west of Hill Road, whilst comparables C, E, F and G are to the east of Hill Road and to the west of Whitty Street.

(b)  Comparable C is on the east most of all comparables and close to Whitty Street. Comparables E, F and G (which are all within the same development Sang Cheong Building) are to the west of comparable C and close to Hill Road.

(c)  The Property and comparables C, E, F and G are all on the north side of Queen’s Road West.

(d)  Comparables C, E, F and G are directly opposite to the Shek Tong Tsui Market which is on the south side of Queen’s Road West. MTR exits B1 and B2 are also on the south side of Queen’s Road West. Exit B1 is close to Comparable C, whilst Exit B2 is close to comparables E, F and G.

(e)  There are three zebra crossings connecting the north and south sides of that section of Queen’s Road West where comparables C, E, F and G are situated. There is only one zebra crossing for the section of Queen’s Road West where the Property is situated.

(f)  There are railings separating the pavement from the vehicular passage on both north and south sides of the section of Queen’s Road West outside comparables C, E, F and G. There is no railing on the pavement outside the Property.

(g)  The pavement outside comparables C, E, F and G is narrower than that outside the Property.

(h)  The vehicular passage outside comparables C, E, F and G is marked by a yellow line, ie the vehicles are not allowed to stop at that section of Queen’s Road West. The vehicular passage outside the Property is not so restricted.

92.  Mr Kwan took the view that the location of comparable C was at par with that of the Property (ie 0% of adjustment). On the other hand, the locations of comparable E, F and G were better than that of the Property. He found a -5% adjustment to be appropriate.

93.  Ms Chow took the view that the locations of comparables C, E, F and G were all significantly better than that of the Property, and all of them merited a -10% adjustment.

94.  Having considered the explanations given by both Ms Chow and Mr Kwan, I find Mr Kwan’s opinion to be more consistent with the objective circumstances in relation to the respective locations of comparables C, E, F and G, as well as the location of the Property:

(a)  Mr Kwan pointed out the fact that the unit rates of the comparables to the east of Hill Road (viz comparables C, E, F and G, ranging from $438,834/sqm and $563,304/sqm) were generally significantly lower than those of the comparables to the west (viz comparables A, B, D and H, ranging from $650,355/sqm and $677,967/sqm). I note that those transactions that gave rise to such unit rates were entered into on various dates. The age and condition of those comparables also differed. However, the general difference in the unit rates remains even after the adjustments of time and age/condition (of which both experts are in agreement) have been factored in.

(b)  I have considered the evidence of Ms Chow that a generalized comparison as such might not yield meaningful results, as the unit rates were affected by a series of factors and location was only one of those factors. However, the most salient common feature that separates comparables C, E, F and G from comparables A, B, D and H is their respective locations.

(c)  Also, Mr Kwan suggested that there was no necessity for people going to and from the Shek Tong Tsui Market or the MTR station to cross to the north side of Queen’s Road West. The pavement at that section was cramped and narrower than the pavement outside the Property. The same observation also applied to the vehicular passage of those two sections of Queen’s Road West. Ms Chow did not seriously dispute that.

(d)  Further, whilst Mr Kwan accepted that the pedestrian flow for comparables E, F and G was more substantial than that for the Property, he did not take the same view for comparable C. In any event, he did not accept that the difference in pedestrian flows could justify an adjustment as significant as -10%.

(e)  On the other hand, Ms Chow put heavy emphasis on the heavier pedestrian flow for comparables C, E, F and G, hence better locations than that of the Property which merited an adjustment of -10%.

(f)  However, both Mr Kwan and Ms Chow did not adduce any objective evidence to corroborate their respective visual observations in relation to the extent of the difference in pedestrian flow between comparables C, E, F and G and the Property.

(g)  In light of the fact that Mr Kwan’s opinion has more support from the indisputable evidence, I accept Mr Kwan’s opinion insofar as the adjustments for location are concerned.

D4.2b.  The frontage adjustment rate

95.  Mr Kwan adopted the adjustment rate of +/- 1% for every meter difference in frontage between the Property and the comparables, on the basis that the comparables and the Property were shops providing services to the neighbourhood, and their frontages were not very sensitive to valuation.

96.  Ms Chow adopted the adjustment rate of +/-1% for every 0.5 meter difference (in other words +/-2% for every meter), as +/-1% per meter was inadequate.

97.  It was apparently a common ground between Mr Kwan and Ms Chow when they were cross-examined that the Property was located in a secondary location which did not merit a high sensitivity in the adjustment for frontage.

98.  The only question is how conservative the adjustment should be. In all authorities cited by both sides to me in their closing submissions, +/-2% for every meter (ie Ms Chow’s proposed adjustment) was the rate accepted by the Lands Tribunal, which is a specialist tribunal, for shops located in secondary locations: Ever Great Development Limited v Fong Yau Shan & Ors [2023] HKLdT 50, at §71; Fancy Million Limited v Year Glory Limited [2021] HKLdT 76, at §47; Holly Property Co Ltd v Acewell Investments Ltd [2022] HKLdT 16.

99.  The plaintiff did not point out any significant distinguishing features between the Property and those properties involved in the authorities. On the contrary, it contends that “there is no distinctive feature of [the Property] which justifies a departure of the aforesaid observations”.

100.  I therefore accept Ms Chow’s proposed rate of +/-2% per meter for the adjustment for frontage.

D4.2c.  The layout adjustments

101.  The differences between the experts’ respective opinions in respect of the adjustments for layout are the most substantial.

102.  Mr Kwan regarded the following adjustment rates to be appropriate for comparables A to H respectively: -10%, -5%, 0%, -10%, -5%, 0%, -5%, and -10%. By contrast, Ms Chow took the view that much higher rates of adjustment for those comparables were necessary: -20%, -20%, -20%, -25%, -10%, -5%, -10% and -25%.

103.  The layout of the Property comprises two narrow and deep rectangular sections. I shall refer them as the outer section and the inner section. The depth of the inner section is similar to that of the outer section. They are connected by a passage of only about 1 meter wide.

104.  Other than comparables C and F, all comparables are simply in the shape of a narrow and deep rectangle. Comparable C is largely in the shape of a narrow and deep rectangle, except the width of it reduces as it goes deeper. There is a small rectangular “pocket” area towards the inner-most section of it. Comparable F, similar to the Property, is also divided into an inner section and an outer section, with a passage of about 1.5 meters wide connecting them.

105.  In general, Mr Kwan found that, from the perspective of the potential occupants (whether tenants or owners), the attractiveness of the layout of the Property was similar to the layouts of the comparables. Ms Chow, on the other hand, found the layout of the Property to be significantly less desirable than those of the comparables.

106.  In cross-examination, Mr Kwan explained that even though the layout of the Property was not a regular rectangle in shape, it would still appeal to certain types of businesses which required certain degree of privacy, and the inner section of the Property would be ideal for such businesses. The inner section could also be utilized as storage for retail businesses.

107.  I am unable to accept Mr Kwan’s opinion on this aspect. It is true that certain potential occupants might find the layout of the Property naturally suitable for certain businesses. However, it is also indisputable that the Property’s layout allows much less flexibility in usage than the layouts of the comparables. Therefore, the number of potential users that the Property can appeal to is naturally much smaller than the number of potential users of the comparables. The lack of flexibility of the Property’s layout should therefore have a significant negative impact on its valuation as compared to the comparables.

108.  I have also compared the adjustments proposed by Mr Kwan and Ms Chow respectively. Given my rejection of Mr Kwan’s opinion in respect of the relative appeal (or the lack of which) of the layouts, there is no other reason to suggest that the adjustments proposed by Ms Chow are inappropriate.

109.  I therefore accept Ms Chow’s proposed adjustments based on the layouts.

D4.2d.  Additional access

110.  In relation to additional access, Mr Kwan disagreed that it was an appropriate adjustment factor. He took the view that having a back-door is a double-edge sword. It might be welcomed by restaurants, but it might pose security risks or hyenine issues for retail shops. Mr Kwan further remarked that there was in any event no market evidence for reliable adjustment figures.

111.  Ms Chow regarded additional access as an adjustment factor, because shops with more than one way of access were considered better in terms of accessibility, and might attract a wider pool of prospective occupants. A uniform adjustment of -5% should therefore be allowed for comparables with more than one way of access.

112.  I find Mr Kwan’s opinion more balanced and sensible. Whilst an additional access does provide extra flexibility and appeals to businesses like restaurants, the security risk would be a negative factor for businesses that are sensitive to security concerns. To block the additional access by furniture, or even to seal it off, causes extra labour and expenses. Therefore, I accept Mr Kwan’s opinion that no adjustment should be made for additional access. It is a neutral factor.

D4.2e.  Efficiency

113.  Ms Chow took the view that an adjustment factor of “efficiency” should apply because of a specific feature in the calculation of saleable area. Ms Chow suggested (and Mr Kwan seemed to accept during cross-examination) that the entire thickness of the walls which were adjourning common areas (eg lift lobby etc.) and half of the thickness of the party walls were accountable for the calculation of the saleable area.

114.  Ms Chow therefore took the view that adjustments should be made to reflect the differences in the efficiency of use due to the thickness of extremal walls between the Property and the comparables. Mr Kwan simply disagreed, but did not put forward any substantive reasons to support his stance.

115.  Given the fact that saleable area does not equate actual usable area, and the difference between the two may be materially impacted by exceptionally thick walls, I accept that it has a material impact on valuation and adjustment should be allowed accordingly.

D4.2f.  Cross-checking

116.  Ms Chow adopted the term and reversion method to cross-check the market value of the Property derived from the direct comparison method on the date of the breach of the SPA. She also adopted the direct capitalization method for cross-checking the market value on the date of judgment. Common to both cross-checking methods was the adoption of 2.5% as the reference yield. Mr Kwan disagreed with the necessity of cross-checking the market value derived from the direct comparison method.

117.  During cross-examination of Ms Chow:

(a)  She accepted that the figure 2.5% as reference for yield was obtained from the data published by the Rating and Valuation Department as an average of Hong Kong in general, ie not specific to the locality where the Property is situated.

(b)  She further accepted that there were only very limited data in the public domain in respect of the actual rents charged for the shops in the region. Such limited data would not be sufficient for performing a full analysis through the term and reversion method and the direct capitalization method. That was why she only applied those methods with the 2.5% yield as “cross-checking” only.

118.  In light of (i) the admitted limits of those cross-checking methods in the present circumstances, and (ii) my rejection of some of the adjustments proposed by Ms Chow under the direct comparison method, I do not find the cross-checking methods of any assistance in ascertaining the market value of the Property as of the date of the breach. I therefore do not give any weight to this part of Ms Chow’s opinion.

D5.  Summary of rulings for loss of bargain

119.  To summarize, my rulings in respect of the issues for assessing the loss of bargain are as follows:

Issues in dispute	Ruling
1. Date of assessment	21 May 2021 (i.e. date of breach)
2. The adjustment rate for “location” in relation to comparables C, E, F, and G	Accept Mr Kwan’s adjustments: Comparable C: 0% Comparable E, F and G: -5%
3. The adjustment rate for “frontage”	+/-2% per meter
4. The adjustment rate for “layout”	-20%, -20%, -20%, -25%, -10%, -5%, -10% and -25% for comparables A-H respectively in accordance with Ms Chow’s opinion
5. Whether “additional access” should be an additional adjustment factors	No adjustment should be made for additional access
6. Whether “efficiency” should be an additional adjustment factors	-0%, -5%, -5%, -5%, -0%, -0% -5% and -5% for comparables A-H respectively in accordance with Ms Chow’s opinion
7. Whether cross-checking of the market value derived from the direct comparison method is necessary or appropriate	No weight is given to Ms Chow’s opinion in respect of cross-checking

E.  DISPOSITION

120.  For the reasons above, I allow the following heads of the plaintiff’s claim:

(a)  Loss of rental income for the Tenancy Agreement for the period from 21 May 2021 to 31 December 2021 (both days inclusive) in the sum of HK$241,645.16;

(b)  Legal costs and registration fee in connection with the sale and purchase of the Property in the sum of HK$13,210; and

(c)  Stamp duty in the sum of HK$614,350.

121.  For the loss of bargain, it would be prudent to let the parties re-calculate the market value of the Property based on my various findings in relation to the assessment date, as well as the adjustment factors and rates above. Parties shall jointly write to the Court within 14 days from the date of this judgment in respect of the following matters:

(a)  The market value of the Property as of the date of the breach of the SPA upon the adjustments to the comparables in accordance with my rulings above; and

(b)  The quantum of the loss of bargain (if any).

122.  I must emphasize that the exercise envisaged at the present stage is arithmetic in nature only. There shall be no room for any further arguments.

123.  The defendant shall also pay interest on the damages awarded herein at the rate of 1% above the prime lending rate(s) from 21 May 2021 to the date of this judgment, and from judgment rate onwards.

124.  As to costs, the plaintiff is the successful party. I order, on a nisi basis, that costs of the present action be to the plaintiff, with certificate for counsel, to be taxed if not agreed. Also, if the eventual amount of damages the plaintiff can recover, including the loss of bargain the quantum of which is to be computed, falls below HK$3,000,000, the costs shall be taxed on the District Court scale only. Otherwise, the costs shall be taxed on the High Court scale.