KONG MOU HOLDINGS LTD. v. GOLDCONE PROPERTIES LTD.

HCA14171/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14171 OF 1997

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J U D G M E N T

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Assessment of Damages

1. The Plaintiff agreed to sell the suit premises at Flat B on the 59th and 60th Floors of Tregunter Tower 3, together with a car park space, to the Defendant for $63,000,000. The Defendant paid a deposit of $6,300,000 and a further $6,300,000 as part of the price. The provisional agreement was dated 29th May 1997, and the formal agreement 18th June 1997, but completion was not scheduled to take place until 12th December 1997. The Defendant did not complete the purchase. The Plaintiff gave the Defendant a notice of termination and commenced these proceedings. On 13th January 1998 the Plaintiff entered into a provisional agreement, and on 27th January a formal agreement, to sell the suit premises to a third party for $36,000,000. Meanwhile, on 21st January 1998 the Plaintiff obtained a consent judgment against the Defendant for damages to be assessed. The Plaintiff, having retained the deposit and part payment, now claims as damages the balance of the difference between the original sale price and the resale price, plus the expenses of resale.

2. The Plaintiff's claim is based on clause 21 of the formal agreement for sale and purchase dated 18th June 1997, which provides for the forfeiture of 10% of the price by the vendor from the deposits in the event of the purchaser's failure to complete and for the resale by the vendor with any deficiency in price plus the expenses of resale being recoverable as "liquidated damages". It does not specify any time within which the resale is to be carried out, nor does it make any reference to the market price. In fact there is no dispute that the Plaintiff is entitled to the difference between the agreed price and the market price at the time of resale.

3. As the evidence shows, the Plaintiff accepted what was, in effect, the first firm offer that came its way. The Defendant's case as stated by Counsel is that the Plaintiff failed in its duty to mitigate its loss, by selling in a hurry and below the market value.

4. Of course a plaintiff must take reasonable steps to mitigate his loss; and where a defendant says that the plaintiff has not done so, it is for the defendant to prove it. The question here is what this Plaintiff should have done. The Defendant's case has two limbs and the Defendant has to prove at least one of them on the balance of probabilities.

5. The first limb is that the Plaintiff sold in a hurry. This implies that even if the market value on 13th January was $36,000,000, the Plaintiff would have been able to sell the property for more than $36,000,000 if it had waited. It seems to me that to succeed on this limb, the Defendant must show at least that it is more probable than not that the Plaintiff would have got more by waiting, and that the Plaintiff knew or reasonably ought to have known that it would get more by waiting.

6. The second limb is that the $36,000,000 price accepted on 13th January was below the true market value at that date.

Evidence of Facts

7. This comes only from the Plaintiff's director, Madam KOH Mui Lee. In brief, she said that as soon as the Defendant failed to complete, she contacted a number of estate agents and told them that the suit premises were for sale at $50,000,000. She fixed this figure because she had obtained a verbal valuation of $47,500,000 from the Surveyors, Chesterton Petty. Visits were made by a number of agents with potential purchasers between 17th December and 12th January and she kept a list of 35 such visits.

8. About 17th December, an agent told her that his client would offer $40,000,000. She told him to try to get a higher offer; but none was forthcoming. On about 8th January she received an offer of $37,000,000 by fax, but this too was not pursued when she tried to follow it up. Over the weekend of 10th and 11th January, she held an "open house" for prospective purchasers to view the property. Then on 13th January an agent approached her with an offer of $35,000,000, a provisional sale agreement and a cheque for an initial deposit. After what Madam KOH in her statement claimed to be lengthy negotiation, which in fact lasted only a short time on one evening, the offer was increased to $36,000,000; and this offer she accepted. The next day, another agent made an offer of $32,000,000, backed with a provisional agreement and a cheque for the initial deposit.

9. Cross-examined, Madam KOH said that she had accepted the offer because the market was going down and this was the only offer that she had received in connection with which the agent had brought a cheque and a contract. She did not accept that she was being pressured to sign by this tactic; it appears that she regarded any offer where no contract or cheque was put forward as being a mere testing offer. She agreed that the Plaintiff had an outstanding mortgage of over $32 million, and had to meet repayments of $285,000 (interest only) per month, but she did not agree that she had accepted the offer simply to pay off the mortgage or that she had panicked. She did accept that there might have been more action in the property market after the Lunar New Year; but not much.

10. She also agreed that she had not taken advice from a valuer on the offer of $37,000,000. It had not occurred to her to do so. In any event, from her dealings with them, she thought that they sometimes could not follow the market. She had accepted the word of the purchasers' agent that his clients were "genuine users" rather than speculators. It was better that a purchaser should be a genuine user because such a purchaser would be less likely than a speculator to call off the sale and forfeit the deposit.

The Expert Evidence

11. The Plaintiff relied on three reports made by PW2, Mr NG, of Chesterton Petty, as well as his oral evidence. His first report was dated 6th March 1998, when he put the value at 12th December 1997 at $47,500,000. His second, dated 9th March 1998, put the value as at 13th January 1998 at $37,000,000. His supplementary report, dated 6th July 1998, explained the details of his earlier valuations and commented on the opinion given by the Defendant's surveyors, Mansion Surveyors Ltd.

12. The Defendant relied on a report by Mr Andy CHAN Chi Ho, DW1, the valuation manager of the surveyors C.Y. Leung & Co. Ltd., who valued the property at $50,000,000 as at 12th December 1997. They also relied on a report and a supplementary report by Mr J.S. LAI, DW2, of Mansion Surveyors Ltd. He put the value of the property at $43,000,000 as at 13th January 1998.

13. I do not think it is necessary to set out the expert evidence extensively. All the experts were cross-examined at length and in the case of each of them, there were matters which he could not satisfactorily explain.

14. In his valuation as at 13th January, Mr NG, although he based his valuation on the sales of a very large number of properties, did not generally compare like with like. He started with 37 sales, which he used for various analyses; and then he took 8 sales and applied to them adjustments for size, level, view and time. However, of these 8 only 4 were sales of duplex apartments and some of the sales were quite far away in time from the sale of the subject premises. He could not satisfactorily explain why he had left out of the reckoning the sale of a duplex at 63/64B on 23rd February, and his explanation as to why duplexes were not qualitatively different from single-level flats did not sound convincing.

15. It has to be noted that Mr NG's valuation is dated 9th March 1998 and his supplementary report, which set out the basis of it, is dated 6th July 1998.

16. Mr LAI used only two single-level flats as his prime comparables although he did refer to two duplex sales, that on 23rd February mentioned above and one on 25th March as showing consistently higher unit rates compared to flats. However, he did not set out in detail the basis of his transaction analysis, and he was unable satisfactorily to explain why his adjustment percentage as between 37B and the suit premises was widely different from the adjustment percentages extracted from actual sales in the period from November 1996 to January 1997.

17. Mr LAI's valuation is dated 9th April 1998. Some supplementary pages, setting out the basis for the valuation and the primary comparables, came into being on 6th July. It appears that a draft was supplied to the Plaintiff's advisers on 4th July which did not include the primary comparables but did include other comparables which ultimately were not used in the supplementary pages. Mr LAI's explanation that the draft was prepared to deal with a point raised in Mr NG's final report seems difficult to accept given that that report only came into being on 6th July and, according to Mr LAI, both sides had not exchanged drafts before that.

18. It is not strictly necessary to refer to Mr CHAN's valuation at all, because it is for 12th December 1997 and is therefore irrelevant, but I note that he too was unable satisfactorily to explain various matters brought out in cross-examination.

19. I am left with the impression that the evidence of valuation on both sides is less than satisfactory. Both sides could, to some extent, be trying to "massage" the figures, especially in relation to the comparables, in order to support their own valuations. However, any valuation is an estimate. It says in effect what price should be obtained or, if retrospective, as these are, what should have been obtained. It has to be looked at in the light of what in fact happened, and that is why I have set out the factual evidence in some detail.

The Issues

20. As I have indicated, the second limb of the Defendant's case, which I will deal with first, is that the price of $36,000,000 was not the true market price as at 13th January. It is true that Mr NG's valuation is $1,000,000 higher but the figure is within his band of 5% either side.

21. I have noted that in fact the Plaintiff notified a large number of estate agents that the property was for sale since 12th December and held an "open house". There is uncontradicted evidence from Mr NG, which I accept, that putting property to estate agents for a month would be proper and sufficient marketing in Hong Kong.

22. Having therefore taken reasonable steps to market the property the Plaintiff received the following :

- an approach or "feeler" for $40,000,000 on 17th December, which came to nothing;

- an offer, not backed with any contract or cheque, for $37,000,000 on 8th January;

- the offer which was accepted, on 13th January; and

- another offer of $32,000,000, backed with a contract and a cheque, on 14th January, which was in any event too late.

23. The $40,000,000 "feeler" may be disregarded, because it was quite close in time to 12th December, at which date the experts on both sides put the value at $47,500,000 to $50,000,000. However it does perhaps go to demonstrate the fact which both parties agree, that the market was going down.

24. I have to ask why, if the value at 13th January was $43,000,000 or anything like it, did no one at all at that time even express any interest at a figure above $37,000,000? The only answer that I can find must be that in fact the market value at that date was not $43,000,000 at all, but was rather somewhere about the $35,000,000 mark.

25. It follows that I cannot be satisfied on the balance of probabilities that the Plaintiff did not sell at the market price obtaining at the time of sale.

26. I turn to the other limb. Could the Plaintiff have got more, if it had waited; and should it reasonably have done so?

27. The problem here is that there is in fact no valuation evidence at any date after 13th January. At best there is

- an admission by Mr NG in cross-examination that some people but not all might have expected the market to go up after the Lunar New Year, and that in general, one would expect people to buy then;

- some rather evasive answers by Madam KOH on the same point;

- the facts, as appear from Mr LAI's supplementary pages that a duplex at 63B and 64B, only a few floors above the Plaintiff's property and facing the same way, sold in February for $59,900,000 or $16,461 per square foot, and a duplex at 53C and 54C sold in March for $47,000,000 or $12,375 per square foot, as against the Plaintiff's achieved price of $36,000,000 or $9,893 per square foot.

28. This all certainly suggests that notwithstanding the fact that the market was falling, the Plaintiff might have sold the property for more if it had waited for another month. I am not sure that one can, in the absence of valuation figures for the property for a period after the Lunar New Year, go so far as to say that the Plaintiff would probably have done so, especially given Mr NG's evidence in re-examination that the price of 63B and 64B was out of line with the general trend.

29. But even if the Plaintiff would probably have sold for more a month later, the next question is whether the Plaintiff ought reasonably to have appreciated that. Again, it is difficult to see how. The market was generally falling. The Plaintiff was in a dilemma. It could sell or wait. If it sold, it could be criticised for failing to mitigate by waiting; but if it waited and sold for less, it would be in an even worse position. If it waited and sold for the same figure, it would still have incurred further outgoings in the way of mortgage payments and the like, so unless a higher figure could be seen as probable, it is difficult to see that the Plaintiff can be criticised for not waiting.

30. Even if Madam KOH knew, as she says that at least some people thought that things might get better after the Lunar New Year, that hardly shows that she saw a probability that the Plaintiff would get more by waiting.

31. The Plaintiff's obligation was to do no more than it would do in the ordinary course of business and it is difficult to see that a prudent businessman should be expected to wait, in a falling market, to see if there would be an up-turn.

32. I conclude that the Plaintiff did not fail to mitigate by selling, as the Defence puts it, in a hurry.

Assessment

33. There seems to be no dispute on the figures set out at pages 9 and 10 of Madam KOH's affirmation of 19th June 1998 save as to the figure of $12,000 for valuation report and the interest figure.

34. I accept that the valuation report should be part of the costs of the proceedings. As to the interest I accept that the rate, up to the date of judgment, should be the cost of funds, i.e. $10.5%, rather than the judgment rate; and it should be charged at a flat rate.

35. The damages are therefore assessed as follows:

Agreed Purchase Price		$63,000,000.00
less
10% deposit		($6,300,000.00)
10% part payment		($6,300,000.00)
Balance which should be paid on 12/12/97		$50,400,000.00
less
Sale of Property on 13/02/98		($36,000,000.00)
		$14,400,000.00
Add
Mortgage interest from 13/12/97 to 13/02/98	$591,938.35
Management fees from 13/12/97 to 13/02/98	$17,990.71
Rates from 13/12/97 to 13/02/98	$12,132.88
Government rent from 13/12/97 to 25/12/97	$604.00
Legal Costs (Conveyancing)	$76,900.00	$699,565.94
Total Damages:		$15,099,565.94

36. Judgment in favour of the Plaintiff for $15,099,565.94, with interest thereon at the rate of 10.5% p.a. from the date of the writ to the date of judgment and thereafter at the judgment rate, and the costs of the action to be taxed if not agreed. Certificate for Counsel in respect of the assessment hearing.