CHENG POK HIM v. CHEUNG HO WA

HCA No. 2680 OF 1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2680 OF 1999

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J U D G M E N T

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1. This is an assessment of damages claimed by the plaintiff arising from the defendant's failure to complete the purchase of the plaintiff's property pursuant to the Sale and Purchase Agreement entered into between them on the 23rd January 1998. Interlocutory Judgment having been entered for the plaintiff on the 4th May 1999 for damages to be assessed.

The Facts

2. The plaintiff was the registered owner of the premises known as all those three equal undivided 23rd parts or shares of and in all those pieces or parcels of ground registered in the Land Registry as the remaining portion of Inland Lot no. 3615 and the remaining portion of Inland Lot no. 1852 and of and in the messuages erections and buildings thereon known as No. 85 Hollywood Road, Hong Kong together with the sole and exclusive right and privilege to hold use and occupy and enjoy all that the ground floor and cockloft of the said no. 85 Hollywood Road, Hong Kong (hereinafter referred to as "the Property").

3. The plaintiff entered into a Sale and Purchase Agreement with the defendant on the 23rd January whereby he agreed to sell to the defendant who agreed to purchase the Property for the sum of HK$7,530,000.00. A copy of the Agreement is at pages 1 - 20 of the Bundle of Documents of the plaintiff.

4. Under the said agreement it was agreed between the parties, inter alia, that:-

a) The defendant shall pay a deposit of HK$200,000.00 before the signing of the said Agreement being initial deposit and in part payment of the Purchase Price. This deposit had been paid.

b) completion of the sale and purchase should take place on or before 31st December, 1998 when the balance of the purchase price of HK$7,330,000.00 would be payable by the defendant to the plaintiff.

c) The plaintiff shall prove and show a good title to the property in accordance with the requirements under Section 13 of the Conveyancing and Property Ordinance.

d) Any requisition or objection shall be delivered to my solicitors within 7 working days after receipt of the title deeds by the defendant's solicitors.

5. The defendant had without justification failed to complete in accordance with the said Agreement. It was pleaded in the Statement of Claim that the plaintiff has through his solicitors written to the defendant's solicitors at 6 p.m. on 31st December 1998 to forfeit the deposit of HK$200,000.00 as a result of the defendant's failure to complete the transaction. Further, by letter dated 13th January 1999, the plaintiff has through his Solicitors served notice of rescission of the sale to the defendant's solicitors. The plaintiff claims herein damages representing the difference in value between the purchase price and the value of the property as at the scheduled completion date. As at the date of the scheduled completion, on the 31st December 1998, the market value of the property has dropped quite substantially below the purchase price. He further claims the expenses related to the sale of the property to the defendant including commission paid to the Estate Agents Very Satisfy Properties in the sum of $37,650.00 and Legal Fees incurred for the aborted sale in the sum of $16,000.00.

6. The plaintiff had not entered into a subsequent sale of the Property.

7. Issues in this Assessment of Damages

a) Whether the damages which had been forfeited should be taken into account?

b) Whether the Estate Agent Commission and Legal Costs of the aborted sale is recoverable.

Clause 10 of the Agreement

8. Paragraph 10 of the said Agreement state as follows:-

"10(a) Should the Purchase (save as due to default of the Vendor) fail to complete the purchase in accordance with the terms and conditions herein contained or fail to pay the balance of the said purchase price at the time and in manner aforesaid (other than the default of the Vendor), any deposit paid hereunder shall be absolutely forfeited to the Vendor who may thereupon, by notice to the Purchase but without tendering an Assignment to the Purchaser, rescind the sale and claim or recover from the Purchaser such damages which the Vendor may sustain arising from the breach of the Purchaser as aforesaid.

(b) Upon the Vendor exercising his right to rescind the sale under the provisions of Sub-clause (a) of this Clause, if this Agreement has been registered in the Land Registry the Vendor may (but is not obliged to) register in the Land Registry the Vendor may (but is not obliged to) register in the Land Registry a Memorandum of Rescission signed by the Vendor alone to rescind the sale of the Property and/or to vacate the registration of this Agreement.

(c) Upon the Vendor exercising his right to rescind the sale under the provisions of Sub-clause (a) of this Clause, the Vendor may (but is not obliged to) resell, let or otherwise deal with the Property either by public auction or private contract and on such conditions as the Vendor shall deem fit. Furthermore, in the event of the Vendor having elected to and did sell the Property, any deficiency in price and all expenses attending such resale or any attempted resale shall be borne by the Purchaser and shall be recoverable by the Vendor as and for liquidated damages. Any increase in price on a resale shall belong to the Vendor."

The Valuation of the Property as at 31st December 1998

9. The plaintiff sought to adduce evidence of the value of the Property as at 31st December 1998 by means of the Valuation Report of Chung Sen Surveyors Limited dated 31 May 1999. The plaintiff was unable to call the maker of the report as he had left the employment of Chung Sen Surveyor Limited. Instead they called Mr. David John Forshaw, an Associate of Chung Sen Surveyors, who was a Fellow of the Royal Institution of Chartered Surveyors, Fellow of the Hong Kong Institute of Surveyors, a Registered Professional Surveyor (GP). He gave evidence to state that he had read the valuation report prepared by the former staff of Chung Sen Surveyors. He himself had been to view the external of the Property. He was more or less in agreement with the valuation of the Property in the Valuation Report at pages 23 to 37 of the plaintiff's Bundle of Documents. He stated that he could verify the information at pages 25 and 26 of the Report. However when he came to show how he would arrive at his valuation based on the two comparable prices on page 4 of the Valuation Report, he told me that he gave a value of 5% of the overall value of the shop to the cockloft which is part of the Property. When I asked whether this is the usual method of valuing a cockloft on top of shop premises, he said that the more usual method is by giving it a price per square foot of 10% of the price per square foot given to the shop premises. When I asked him to assess the value of the Property by assessing the value of the cockloft by the usual method of its price per square foot of 10% of the price per square foot of the shop premises, Mr. Forshaw then came to a valuation of the Property in the amount of $5,735.368.00 as at 31st December 1998.

Normal Measure of Damages

10. McGregor on Damages (16th edition) paragraph 992 at p. 657 state:-

The normal measure of damages is the contract price less the market price at the contractual time fixed for completion. This measure is first clearly stated in Laid v. Pim by Park B. as follows:

"The measure of damages . . . is the injury sustained by the plaintiff by reason of the defendants not having performed their contract. The question is, how much worse is the plaintiff by the diminution in the value of the land, or the loss of the purchase money, in consequence of the non-performance of the contract?"

11. Hence the normal measure of damages in this case should be the difference between the contracted purchase price and the value of the property as at date of completion i.e. $7.530,000.00 - $5,735,568.00.

The First Issue

12. The plaintiff's Counsel Mr. Raymond Tsui refers to Essex v Daniell (1875) L R 10 C P 538 and the passage in the judgment of Lord Coleridge, C.J. which was concurred by other judges, that "the deposit, therefore, is absolutely forfeited, and the vendor is at liberty, not bound, to re-sell, and may recover against the purchaser any deficiency on the second sale, together with the expenses of the first sale. The property not having been re-sold in this case, the expenses to which the vendor has been put with reference to the abortive sale are recoverable from the purchaser, plus the deposit-money".

13. It would be relevant to look into Clause 8 of the conditions of sale in Essex v. Daniell. Clause 8 states,

"And, lastly, should the purchaser neglect or fail to comply with any of the above conditions, his deposit-money shall be absolutely forfeited to the vendor, who shall be at liberty to re-sell the property by public auction or private sale; and, if the amount or price which shall be obtained by such second sale shall not be sufficient to cover the amount bid for the same at this present sale and all the expenses of or incidental to the present sale, the deficiency shall be paid by the defaulter to the vendor, and, in case of non-payment, the same shall be recoverable as and for liquidated damages."

14. Mr. Tsui argues that this case is similar to Essex v Daniell in that there is no re-sale of the property. In Essex v Daniell it was held that the deposit could be absolutely forfeited. Clause 10(a) of the Sale and Purchase Agreement in this case also provided that the deposit is to be absolutely forfeited should the Purchaser fail to complete the purchase. However, in Essex v Daniell, apart from forfeiture of the deposit and a claim for expenses of the aborted sale pursuant to Clause 8 of the conditions of sale therein, there was no additional claim for damages. The question as to whether the forfeited deposit should be brought into account to be deducted from the damages claimed and assessed, was not at issue. Hence Essex v Daniell is not helpful in support of this issue.

15. I am of the view that the principles in the judgment of Ockenden v Henly (1858) E.B. & E. 485, are relevant to our case. The judgment of the Court, of Lord Campbell C.J. state,

"There having been an actual forfeiture of the deposit by the express words of the seventh condition, the deposit, if paid, could not in any event have been recovered by the purchaser; and the seller would have been entitled to any additional benefit on a resale. But, the seller having obtained a right to the forfeited deposit, and making a further demand of damages sustained on the resale, it becomes necessary to consider what was the nature of the deposit. Now it is well settled that, by our law, following the rule of the civil law, a pecuniary deposit upon a purchase is to be considered as a payment in part of the purchase money, and not as a mere pledge; ... Therefore in this case, had the deposit been paid, the balance only of the purchase money would have remained payable. What then, according to the seventh condition, is the deficiency arising upon the resale which the seller is entitled to recover? We think the difference between the balance of the purchase money on the first sale and the amount of the purchase money obtained on the second sale: or, in other words, the deposit, although forfeited so far as to prevent the purchaser from ever recovering it back, as without a forfeiture, he might have done ... still is to be brought by the seller into account if he seeks to recover as for a deficiency on the resale."

16. In the above case, there was an actual forfeiture of the deposit as provided for in the conditions of sale. The purchaser having obtained the right to forfeit the deposit sought to recover further damages sustained in the re-sale in the deficiency in the purchase price upon re-sale. It was held that as the deposit had it been paid were to be part-payment of the purchase price, the outstanding balance of the purchase price remained to be paid. It was held that in calculating the difference between the deficiency in price between the contract price and the price obtained upon re-sale, the balance of the contracted purchase price should be used for calculating the deficiency between the price on re-sale and the contracted purchase price. Further the expenses of the re-sale are to be deducted to obtain the net re-sale purchase price as provided for in the conditions of sale in this case.

17. In our case, the deposit paid was forfeited. The plaintiff seeks to claim common law damages in addition to the forfeiture of the deposit. The deposit was stated to be in part payment of the purchase price in Part IV of the Schedule to the Sale and Purchase Agreement. The measure of damages as referred to above as stated in Laid v. Pim by Parke B. is

"the injury sustained by the plaintiff by reason of the defendants not having performed their contract. The question is, how much worse is the plaintiff by the diminution in the value of the land, or the loss of the purchase money, in consequence of the non-performance of the contract?"

18. Had the defendant performed the contract, he would only have had to pay the balance of the purchase price. In considering how much worse off the plaintiff is by the non-performance of the contract by the defendant, or the diminution in the value of the land, or the loss of the purchase money, it seems to me that the fact that the plaintiff has obtained part payment of the purchase price is relevant and has to be taken into consideration.

19. I therefore find that the case Essex v. Danielle is not helpful to the plaintiff's contention in this issue. I am of the view that credit for the deposit paid in part-payment of the purchase price, though forfeited, has to be taken into account in the assessment of common law damages in respect of the injury sustained by the plaintiff by reason of the defendant not having performed his contract.

The Second Issue

20. Mr. Tsui in his submission referred me to Yeung Leung Wai Kwan v Tsang Nui Tai where Master Poon says at p.622:

"It is trite law that the Plaintiff can also recover consequential losses. Such losses include incidental expenses and losses which flow necessarily from the breach of the agreement: York Glass Co. v Jubb (1925) 134 LT36 C(CA)."

21. He also stated that the claim of commission and legal costs was not allowed in Yeung Leung Wai Kwan v Tsang Nui Tai on the ground that the sale and purchase agreement in that case did not contain the clause similar to that of Essex v Daniell. Mr. Tsui conceded that whereas Condition 8 in Essex v Daniell deals with the expenses of the first sale, Clause 10(c) deals with expenses relating to the re-sale. However he submitted that from the comment made by Lord Coleridge CJ referred to hereunder, it seemed clear that he did not rely on Condition 8 in the Condition of Sale because he said the "property not having been re-sold in this case". He therefore relied on Essex v Daniell for the claim in this case in respect of legal costs and commission.

22. However, I am of the view that as the expenses of the abortive sale would have been incurred even if the buyer had not defaulted, such expenses are necessary to bring about the completion of the sale and I am of the view are not consequential losses flowing from the breach of the agreement. I agree with Master Poon that Essex v Daniell turns on its own particular conditions of sale. I therefore do not grant these items.

Mitigation of Loss

23. I agree with Mr. Tsui that there is no question of mitigation of loss as the plaintiff accepted the repudiation of the Sale & Purchase Agreement by the defendant on the date of completion. There is no evidence that he could have sold the property at any stage after completion date at a higher price than the value of the property at completion.

Damages

24. I therefore assess damages in the sum of $1,794,632 being the normal measure of damages, namely the contract price less the value of the property as at completion date. I give final judgment for the plaintiff in the sum of $1,794,632 together with interest thereon from date of writ on 12 February 1999 to date of judgment at judgment rate and thereafter at judgment rate until payment and costs of the assessment to be taxed if not agreed.