BROAD MONEY DEVELOPMENT LTD. v. INDUSTRIAL ENGINEERS LTD.

CACV 101/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 101 OF 1999

(ON APPEAL FROM HCA 4335/1998)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an appeal from a master's assessment of damages in an action by a plaintiff vendor against a defendant purchaser for damages for breach of a contract for the sale of land. The issues in the case relate to several of the items of damage claimed by the vendor, as to which the differences between the vendor and the purchaser were resolved by the master in favour of the vendor. The purchaser now appeals, contending that the damages awarded under the assessment should have excluded those items.

The facts

2. The facts are as follows.

3. On 22 January 1998, the vendor and the purchaser entered into a formal sale and purchase agreement for the sale by the vendor to the purchaser of 6A, The Somerset, 67 Repulse Bay Road, Hong Kong, with two car parking spaces, at a price of HK$28.8 m. The agreement provided, among other things, for the usual deposits (which were duly paid) and for completion on 9 March 1998. The agreement contained in Clauses 8(a) and (b) provisions which have featured prominently in the argument and the material parts of which I shall accordingly read :-

"8(a) Should the Purchaser fail to complete the purchase in accordance with any of the terms and conditions herein contained (including without limitation any failure to pay the purchase price or any part thereof in the manner, on the dates and within the time herein stipulated) the Vendor may (without being obliged to tender an Assignment to the Purchaser) forthwith determine this Agreement by giving notice of termination in writing to the Purchaser or his Solicitors to such effect ..... and the Vendor shall be entitled to forfeit all the initial deposit and the further deposit paid to the Vendor .....

(b) Upon determination or rescission of this Agreement pursuant to any provision herein, the Vendor may resell the said premises ..... Without prejudice to the Vendor's right to recover the actual loss which may flow from the Purchaser's breach of this Agreement, on such resale any deficiency in price shall be made good and all expenses attending such resale or any attempted resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor as and for liquidated damages. This Clause shall not preclude or be deemed to preclude the Vendor from taking other steps or remedies to enforce the Vendor's rights hereunder or otherwise or prevent the Vendor from recovering, in addition to liquidated damages, damages representing interest paid or lost by him by reason of the Purchaser's failure. ....."

4. On 9 March 1998, the date fixed for completion, the purchaser failed to come up with the balance of the purchase money. (The market at the time was dropping.)

5. On 10 March 1998, the vendor's solicitors wrote to the purchaser's solicitors, calling attention to the purchaser's failure, and giving notice that the sale and purchase agreement was thereby rescinded and that all the deposits paid up under the said agreement ($2.88 m) were totally forfeited by the vendor. The vendor's solicitors' letter added this :-

"... our client is prepared to exercise its right under Clause 8(b) of the said Agreement to resell the above property without further notice.

All our client's right to claim against yours for any losses and damages by our client is hereby expressly reserved."

6. On 19 March 1998, the vendor instituted the proceedings below by way of writ, and, on 13 April 1998, took out a summons under Order 86 of the Rules of the High Court for summary judgment.

7. Before any further progress was made in the proceedings, the vendor received an offer for the premises of HK$25 m from Kim Chee Services Limited, in the form of a so-called "provisional agreement" signed on behalf of the prospective purchaser and accompanied by a cheque for the appropriate deposit . The "provisional agreement" provided for a completion date of 5 June 1998.

8. However, on 21 April 1998, the next day, the purchaser offered "to continue the purchase in accordance with the Sale and Purchase Agreement dated 22nd January 1998 except that the completion date be changed to 27th July 1998", and to pay a further deposit of HK$1 m if this new offer was accepted.

9. On 22 April 1998, the vendor rejected this offer. It made a counter suggestion, which was that the purchaser should make a written offer to purchase, accompanied by a cashier order for a further HK$2.88 m (that is to say, a payment equivalent to 10% of the original purchase price). The vendor's solicitors informed the purchaser's solicitors that the vendor had received a firm offer from another prospective purchaser, and made it clear that unless the purchaser's offer and the cashier order reached them before 1 p.m. that day, the property would be sold to that other purchaser. They added this :-

"Finally, we must stress that nothing herein shall prejudice our client's rights to claim against your client for all loss and damage suffered by our client as a result of your client's wrongful repudiation of the said Agreement and our client hereby reserves its rights and position in this matter."

10. There being no satisfactory response from the purchaser to the vendor's counter suggestion, the vendor proceeded to accept the new purchaser's offer of HK$25 m.

11. On 27 April 1998, the purchaser made a further offer, which came too late, since the vendor had by then accepted the new purchaser's offer of $25 m, and, on 28 April 1998, the vendor informed the purchaser that the property had been sold.

12. On 5 June 1998, the sale to the new purchaser was duly completed.

13. On 22 June 1998, the vendor obtained a judgment against the purchaser for damages to be assessed, and the hearing of the assessment of damages took place before the master on 22 December 1998.

14. On 11 February 1999, the master certified that :-

"1. the Plaintiff acted at all times in a reasonable manner in its dealings with the Defendant and in the resale of the property to Kim Chee Services Limited;

2. the damages awarded to the Plaintiff are as follows :-

(a)	Loss of Profit	HK$920,000.00
(b)	Loss of Interest	HK$225,170.44
(c)	Loss of Interest	HK$291,557.70
(d)	Management fees	HK$13,549.80
(e)	Government rates	HK$11,741.00
(f)	Estate agent's commission	HK$250,000.00
(g)	Legal costs	HK$45,360.00
	Total	HK$1,757,378.94
		=============	"

15. The master directed that judgment be entered for the plaintiff for a sum of HK$1,757,378.94, being damages, and interest on the said sum of HK$1,757,378.94 at judgment rate from 22 June 1998 until payment.

The first question

16. The first question which arises is whether the master was correct in finding as she did that the vendor had acted "in a reasonable manner in its dealings with the Defendant and in the resale of the property to Kim Chee Services Limited". The contention of the purchaser has been that a vendor seeking to recover damages for breach of contract from a defaulting purchaser is under what is sometimes called "a duty to mitigate"; or, as its counsel put it, "a duty to act reasonably so as to keep the damages down".

17. But for many years it has been recognised as a general rule that a vendor is entitled in claiming damages for breach of contract against a defaulting purchaser to recover the deficiency in price on a resale.

18. I would reserve for another day the question whether a vendor is ever under any "duty", of any sort, to his purchaser in considering what offers to accept or reject when reselling the property after the purchaser has defaulted.

19. For present purposes, we have to consider simply whether, in this particular case, what the vendor did was so unreasonable as to disentitle it to claim the usual remedy of a vendor, that is to say, a claim for the deficiency in price on resale.

20. As counsel for the purchaser accepted, the issue really comes down to this. Could any reasonable vendor have rejected the offer made here on 21 April 1998 by the defaulting purchaser to the vendor to enter into a new contract to purchase the property at the original price but with a later completion date?

21. For my part, I have no doubt that the vendor was perfectly well entitled to act on the principle that a bird in the hand is worth two in the bush. It was entitled to reject the offer made by the original purchaser and to accept the offer made by the new purchaser. For a vendor to be asked to wait and see if a defaulting purchaser will actually complete a second time, after he has failed to complete the first time, seems to me to expect too much of the vendor. In my view, the vendor here did act reasonably in accepting the offer from a new purchaser which it did accept and in rejecting the offer which it did reject from a purchaser who had already once defaulted. Even though the new purchaser's offer was a lower one, it was an offer to complete earlier and it was not so low that (in a dropping market) any reasonable vendor would have refused it.

The remaining questions

22. The remaining questions we have to consider relate to a number of particular items of damage claimed by the vendor, and awarded by the master.

23. For this purpose, we must re-visit the provisions of Clause 8(b).

24. Clause 8(b) envisages that the vendor, in the events which happened here, is to have a right pursuant to its contract with the purchaser to seek to recover from the purchaser "the actual loss" which has flowed from the purchaser's breach of the agreement. That "actual loss" would include any deficiency in price. That was item (a), the sum of HK$920,000 ordered by the master. The vendor's "actual loss" also included "all expenses attending such resale". That would include item (g) in the master's certificate; but it has been said by the purchaser that that sum has not, or not yet, actually been paid. For my part, I think that makes no difference. The expenses were incurred, and the master was entitled to certify those expenses (described in the certificate as "legal costs") as recoverable accordingly.

25. There has been some argument before us as the meaning of the expression in Clause 8 "as and for liquidated damages". I think the effect of this is that the vendor is entitled to say "I have resold the property and the deficiency in price is X dollars. The expenses of the resale amount to Y dollars. I am therefore entitled without further inquiry or assessment to recover by way of damages a liquidated sum of X + Y dollars from the purchaser." I do not think myself that the expression has any more significant meaning than that. It is expressly provided by Clause 8(b) that it "shall not preclude or be deemed to preclude the Vendor from taking other steps or remedies to enforce the Vendor's rights" nor "to prevent the Vendor from recovering, in addition to liquidated damages, damages representing interest paid or lost by him by reason of the Purchaser's failure."

26. In these circumstances, it seems to me the master was correct to award the sums which she did, under items (b) and (c), for loss of interest referred to in the certificate.

27. I do not think the reference to "liquidated damages", and the reference to "interest", between them, in some way, exclude the right to claim any of the other items, if those items formed part of "the actual loss" of the vendor. Thus, I would hold the management fees and government rates, items (d) and (e) respectively, were also recoverable by the vendor as part of "the actual loss".

28. This treatment of the matter of course involves proceeding on the premise that the vendor in seeking to recover its "actual loss" was not seeking in some way to limit itself by election to a lesser sum representing only the deficiency in price obtained on the resale and the expenses of the resale.

29. For my part, I do not think the vendor, at any stage, did make any such election to limit its claim in that way. It appears from the transcript of the proceedings before the master that the whole matter proceeded on the footing that the vendor was claiming for its "actual loss". This is perfectly normal, even in the case where a provision is made for some, at any rate, of the items to be treated as "liquidated damages".

30. Reference to Atkin's Court Forms, Second Edition, Volume 34(1) (1998 Issue) Title "Sale of Land", shows that in the normal case where a seller is claiming the sort of relief which is appropriate here he asks the court for a declaration that the deposit is forfeited and for "damages", which include "particulars of the loss on resale, the expenses and disbursements in respect of the resale and any abortive resale and any other special damage" : see the precedent No. 9 (at pp.335 and 336). In effect, that is what has happened here. The order which the master made for the various items of damage which she held to constitute items in "the actual loss" suffered by the vendor as a result of the purchaser's breach of contract (save for item (f), which requires separate consideration) all seem to me to be properly comprehended in a claim made by a contracting party, the victim of a breach of contract, against the contract breaker for items of damage which represent "the actual loss".

31. There being no such election as might debar the vendor from such a claim, I see no legitimate ground for disturbing the master's certificate or any item in it. But item (f), the item for "Estate agent's commission", has been the subject of an agreement between the parties, which is that this item, certified by the master at HK$250,000, ought to be reduced by HK$115,200.

Result

32. Save in so far as may be necessary to give effect to that agreement, I would dismiss this appeal.

Rogers, J.A. :

33. I agree.

34. It is quite clear that on the inquiry, or assessment of damages as it was called, the Plaintiff was claiming damages on the basis of actual loss. It is not necessary therefore, and perhaps for the same reason, is likely to be undesirable that any extensive analysis of the meaning of Clause 8(b) be undertaken. It is not in dispute that the Clause permits the vendor to recover its actual loss which may flow from the purchaser's breach of the agreement.

35. The main argument both in the Court below and here was in respect of the Plaintiff's duty to mitigate. The Plaintiff avers that it did mitigate. The evidence, on both sides was that, at the relevant time, the property was worth less than $25 m. But the Plaintiff sold the property on for $25 m, thus, reducing the damages which might otherwise have been sustained had it not itself resold the property. But, the Defendant in this Court says that the Plaintiff should have accepted its offer and not the offer which it did from Kim Chee.

36. There were two material differences between the offer by the Defendant and that by Kim Chee. Kim Chee was offering a deposit of $21/2 m. The Defendant was offering a deposit of $1 m. On Kim Chee's offer, the total deposits which the Plaintiff would then have received by 12th May would have been $5,380,000, being $2,880,000 which it had received from the Defendant and under the contract which had not been fulfilled and the $21/2 m which it would have received from Kim Chee. On the other hand, if it had accepted the Defendant's further offer, the total amount in deposits that is cash in hand would have been $3,880,000.

37. The other matter is that the completion date offered by the Defendant was 52 days later than the completion date offered by Kim Chee.

38. Two points arise. First of all, there was what appeared to be a falling market and if there were any likelihood of another default, the Plaintiff would first of all have the extra money from the deposit and secondly, it would be aware of any default considerably earlier than if it had accepted the Defendant's offer.

39. I would say that it was not unreasonable for the Plaintiff to take into account the fact that the Defendant had defaulted, notwithstanding that it was seemingly a substantial company and this would be despite the fact that Kim Chee was a BVI company, therefore by its nature it was difficult to ascertain its size or the extent of its assets.

40. For these reasons, I would concur that this appeal should be dismissed.

Keith J.A.:

41. On 22nd April 1998, the vendor had to choose between two competing offers for the flat. One was an offer to buy the flat for $25m., with initial and further deposits of $0.75m. and $1.75m., and a completion date of 5th June. The other was an offer from the defaulting purchaser to buy the flat for the equivalent of $25.92m., with a deposit of $1m., and a completion date of 27th July. The principal question for the master was whether it was reasonable for the vendor to reject the latter offer in favour of the former, and not to negotiate with the defaulting purchaser for a better offer.

42. I bear in mind that different courses of conduct may both be reasonable in the circumstances. In other words, there may often be a wide range of reasonable responses to a particular proposal. The vendor will therefore only have acted unreasonably in accepting the offer of $25m. from the eventual purchaser if no vendor in those circumstances could reasonably have rejected the offer from the defaulting purchaser or refused to negotiate with the defaulting purchaser further. For the reasons given by Godfrey J.A. and Rogers J.A., I agree that it cannot be said that no vendor could reasonably have rejected the offer from the defaulting purchaser or refused to negotiate further with it.

43. On the other issues raised on this appeal, there is nothing which I can usefully add to what has been said, and I agree that the appeal should be dismissed, save that the sum awarded to the vendor should be reduced by the sum of $115,200.00, representing the estate agent's commission which was paid by the vendor in respect of the original sale, and which has to be deducted from the commission paid by the vendor on the subsequent sale if the vendor is to be put into the position in which it would have been if the original sale to the defaulting purchaser had been completed.