FARICHO INVESTMENT LTD v. GOOD TIME FINANCE LTD

HCA 2496/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2496 OF 2005

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ASSESSMENT OF DAMAGES

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1. The parties were last before me on 20 February 2008 for an assessment of damages hearing.  My decision was given on the same day with reasons handed down on 29 February 2008.  I do not feel the need to dwell in detail on what has been discussed previously.

2. In gist, pursuant to the judgment granted by Deputy Judge Carlson of the High Court on 25 July 2006, I am tasked with the assessment of damages.  In this case a Master is not tasked with the jurisdiction to adjudicate on the liability and the date of the breach which gave rise to the liability.  What I am entitled to do is to construe the date of breach from the judgment of Judge Carlson and assess the damages suffered by the plaintiff from the date of the said breach.

3. The breach described by Judge Carlson at paragraph 13 of his judgment reads: -

“I am satisfied that there can be no arguable defence to the claim for the declarations sought by the plaintiff……  The plaintiff has validly exercised its right of redemption which the defendant refuses to recognize.  These purported sale and purchase agreements represent a fetter on the plaintiff’s undoubted right of redemption…...”

4. What was said by Judge Carlson was reasonably clear to show Judge Carlson was considering the defendant’s act of clogging the equity of redemption of the plaintiff.  For the purpose of the present assessment, I shall ignore other possible acts of breaches.

The Assessment

5. The subject matter in dispute centers around the defendant’s purported exercise of its power of sale of the 2 mortgaged properties pursuant to loan agreements entered into between the plaintiff and the defendant.  The 2 mortgaged properties in question are:

(a)   Flat B-5 on the 7^th floor of Block B, Tai Hong Building at No. 28-30 Yuet Wah Street in Kowloon (the 1^st Property); and

(b)  The rear portion on the 4^th floor of number 408A Des Voeux Road West in Hong Kong (the 2^nd Property).

6. I recap the chronology of events previously set out in paragraph 9 of my judgment of 29 February 2008 for easy reference here: -

5/8/04	The plaintiff executed legal charges over the 1st and the 2nd property for 2 loans of HK$320,000 and HK$430,000 respectively.
	The 2 loans, by way of agreements written in Chinese, were for a contractual period of 6 years with a yearly flat rate of interest of 26.24% (which amounts to an effective rate of interest of 38.4% per annum).  The monthly repayment sums, inclusive of interest, were agreed at HK$11,441 and HK$15,374 respectively for the 2 loans.  The monthly payments were to be paid on or before the 5th of each month, commencing on 5 September 2004.
	From 5 September 2004 to 5 July 2005 the plaintiff made its payments on time.
5/8/05	The plaintiff failed to make payment of the instalment payments from 5 August 2005 to 16 August 2005.  On 16 August 2005 the plaintiff repaid the monthly instalments for the month of August 2005.  Since 16 August 2005 the plaintiff made punctual repayment of all monthly sums till February this year.
3/9/05	The plaintiff received offer from a prospective purchaser to buy the 2nd property at a purchase price of HK$934,000 with the date for completion set for 18 October 2005.
5/9/05	After receiving the 3 September 2005 offer, the plaintiff instructed its solicitors to secure a discharge of the legal charges over the two mortgaged properties.  Solicitors acting on behalf of the plaintiff wrote to the defendant to request for the supply of title deeds as well as an account of the redemption amount up to 18 October 2005.
7/9/05	Solicitors for the defendant replied to the plaintiff’s solicitors by letter to state a sum of HK$1,125,204 was payable on 18 October 2005 in respect of the 2 loans. (Judge Carlson at paragraph 6 of his judgment noted defence agreed the amount outstanding should be in the order of HK$760,000 in September 2005.)
8/9/05	The plaintiff did not agree with the calculation.  Written request, through solicitors, was made to the defendant for a breakdown of the outstanding sum.  The defendant gave no reply to the plaintiff’s request.
12/9/05	The plaintiff, through its solicitors, again wrote to the defendant’s solicitors demanding a breakdown of the calculation of the amount of payment.
16/9/05	The plaintiff received a phone call from a person who indicated he was the defendant’s collection agent.  The caller intimated to the plaintiff that the plaintiff had to pay a sum of HK$300,000 to the defendant since the defendant has already sold the properties.
20/9/05	Solicitors of the plaintiff wrote to the solicitors of the defendant seeking confirmation about the indicated sale of the properties by the defendant.  The defendant again gave no reply to this letter.
22/9/05	The plaintiff, through its solicitors, again wrote to the defendant’s solicitors demanding an answer to their previous requests.
6/10/05	The plaintiff, through its solicitors, wrote to the defendant’s solicitors yet again to demand for the breakdown of the repayment amount.
	Round about the same period of time, the plaintiff’s solicitors conducted land searches and found 2 sale and purchase agreements dated 22 September 2005 and 21 September 2005 respectively registered in respect of the 2 mortgaged properties.
	The registered agreement showed the defendant agreed to sell the 2nd property at a purchase price of HK$980,000 with the date of completion of 28 February 2006.
25/11/05	The plaintiff wrote, through its solicitors, to object to the purported sales of the 2 properties by the defendant.  The defendant again gave no reply.
30/11/05	The plaintiff further pressed the defendant for a reply.
5/12/05	The plaintiff again pressed the defendant for a reply.
10/12/05	The plaintiff took out the present writ to compel the defendant to refrain from completing the purported sales of the 2 mortgage properties.
4/1/07	The plaintiff received a 2nd offer of land purchase in respect of the 2nd property and signed a sale and purchase agreement for a purchase price of HK$1,020,000.

7. Judge Carlson was satisfied the defendant had acted clandestinely in clogging the plaintiff’s right to redemption when the defendant purported to exercise its power of sale after an 11-days default in effecting repayment of the monthly sums.

8. Apart from granting injunctions and declarations to retrain the defendant from selling the 2 mortgaged properties, it was Judge Carlson’s order that the damages of the plaintiff are to be assessed by a Master.  The relevant orders granted were: -

“ (1) a declaration that the Defendant is not entitled to sign the Agreement for Sale and Purchase dated the 22^nd September 2005 and registered at the Land Registry on 14^th October 2005 under Memorial No. 05101402390047 (“the 1^st SPA”) as the purported attorney of the Plaintiff;

   (2) a declaration that the Defendant is not entitled to sign the Agreement for Sale and Purchase dated the 21^st September 2005 and registered at the Land Registry on 7^th October 2005 under Memorial No. 05100701940032 (“the 2^nd SPA”) as the purported attorney of the Plaintiff;

   (3) an injunction to restrain the Defendant whether by itself or its agent or otherwise howsoever from completing the sale and purchase of a 1^st property known as B5 on the 7th Floor of Block B, Tai Hong Building, Nos. 28-30 Yuet Wah Street, Kowloon (“the 1^st Property”) under the 1^st SPA;

   (4) an injunction to restrain the Defendant whether by itself or its agent or otherwise howsoever from completing the sale and purchase of a 2^nd property known as the 4^th Floor (Rear Portion), No. 408A Des Voeux Road West, Hong Kong (“the 2^nd Property”) under the 2^nd SPA;

   (5) an injunction to compel the Defendant to cancel or rescind the 1^st SPA as soon as practicable;

   (6) an injunction to compel the Defendant to cancel or rescind the 2^nd SPA as soon as possible;

   (7) damages to be adjourned for assessment by a Master.”

9. From the written judgment of Judge Carlson, it was clear that Judge Carlson was satisfied the defendant was not entitled to exercise its power of sale of the 2 mortgaged properties.

10. From the facts disclosed by the parties the plaintiff has written to the defendant on 5 September 2005 through its lawyer to evince an intention to redeem the 2 mortgaged properties and asked for an account of the outstanding payments on 18 October 2005 intending to redeem the 2 mortgaged properties.

11. Factually the 2 sale and purchase agreements were not signed until 21 September 2005 and 22 September 2005.  The plaintiff’s request to redeem was sent to the defendant’s solicitor on 5 September 2005 which obviously pre-dated the purported sale by the defendant of 21 September 2005 and 22 September 2005.  There is no evidence to show when the defendant entered into provisional agreements for sale in respect of the two properties.  There is no inking of fact to suggest the purported agreements for sale of the 2 properties were arrived at prior to 5 September 2005.  The defendant cannot possibly claim ignorance of the plaintiff’s intention to redeem since the defendant has responded through his own solicitors to the plaintiff’s request on 7 September 2005.  In the letter of 7 September 2005 the defendant’s solicitors never mentioned the 2 mortgaged properties had been sold or were in the process of being sold.  The natural and logical inference to accept was there was no intended sale of the mortgaged properties on 7 September 2005 as well as on 5 September 2005 when the plaintiff gave its indication to redeem.

12. The plaintiff does not take issue about the legality of the 2 loan agreements and the enforceability of the terms therein.

13. In this hearing counsel on behalf of the plaintiff confirmed his stance that the plaintiff is only seeking damages for overpaid interest in respect of the defendant’s wrongful acts of clogging the plaintiff’s right to redemption.  The plaintiff is contented to accept the date of breach to be 18 October 2005 in respect of the defendant’s wrongful act of clogging the plaintiff’s right to redemption.  The sum the plaintiff is seeking is HK$38,258.51 (being the sum total of interest overpaid since 18 October 2005 deducting the amount of loan principal as stated in paragraph 19 of my judgment of 20 February 2008; i.e. $229,307 + $308,129 + $5,574.19 + $7,490.32 - $218,561 - $293,681).

14. Defence counsel advanced the arguments that in assessing the damages of the plaintiff, this court has to bear in mind (i) firstly the reasonableness of the plaintiff’s action in refusing to agree to the sale of the property by the defendant when the defendant was able to secure a buyer for a price higher than the potential buyer of the plaintiff; (ii) secondly in quantifying the damages this court ought to bear in mind the damages the defendant suffered as a result of the early termination of the loan agreements by the plaintiff as well as the incurrence of the loan recovery agent fees as a result of the late payment of the plaintiff for the 11 days in August 2005; and (iii) last but not the least, as the property market was on the rise, the plaintiff suffers no real financial loss despite the defendant’s wrongful acts of clogging the plaintiff’s right to redeem.

15. I do not find the plaintiff’s acts unreasonable in seeking an early redemption on 18 October 2005 and to effect a sale of its property to potential buyers of its own choice for the following reasons: -

(i)    the plaintiff only intended to sell off one of its 2 mortgaged property rather than both mortgaged properties;

(ii)  the date of completion of the solicited sale of the 2^nd property by defendant was on 28 February 2006 which was about 4 months after the intended date of redemption of 18 October 2005. Defence counsel made calculation and accepted that the interest incurred in respect of the 2 loans for the 4 months from October 2005 to February 2006 would be HK$89,412.  This amount exceeds the increase in sale price of the 2^nd property ($980,000 - $934,000 = $46,000).  The plaintiff would certainly be worse off should the defendant be allowed to insist on completing the land sale in February 2006.

16. Defence counsel does have a case to argue when attempting to seek redress concerning the defendant’s right to damages for early termination of the loan agreement and loan recovery costs in respect of the plaintiff’s late payment.  Defence counsel fairly concedes no documentary evidence has been placed before court for the purpose of the present assessment hearing on the head of liquidated damages for early termination; nor have the recovery agent fees been pleaded in the defence and counterclaim.  One does have to abide by the rules of the pleadings and the Court should not adjudicate on factual issues which parties have not been given an opportunity to consider or to take objection upon in their respectively pleadings.  Nor do I feel just to grant leave for the defendant to amend its pleadings at this late stage to occasion further costs on a disputed sum of HK$38,258.51.

17. I do not find favour with the argument that the defendant would be entitled to cash upon the increase in land value and benefit from the increase in the value of the landed property as a result of the defendant’s own wrongful act in denying the plaintiff’s right to sell.

18. I do enter judgment in favour of the plaintiff in the sum of HK$38,258.51

19. Costs to follow the event in respect of this assessment hearing. I award the plaintiff’s costs of this assessment hearing with its quantum to be taxed if not agreed between the parties.

20. Arguments have been advanced by defence counsel that the scale of costs for the present hearing ought not be granted at the High Court scale as the financial relief sought is well below the HK$1 million threshold.  I do accept the quantum crystallized is well within the Small Claim jurisdiction if this item of damage is singled out on its own, yet the matter started off with a plea for injunctive reliefs against the defendant for wrongful sales of 2 landed property.  I was so informed in the present hearing the legal charges in respect of the 2 mortgaged properties have not yet been discharged.  The subject matter in dispute between the litigants is really their right to dispose of the 2 landed property.  There was no dispute that the value of the 2 property well exceeded the HK$1 million jurisdictional limit, I find the proper scale to grant is costs at High Court scale.