PANTECH INTERNATIONAL HOLDINGS LTD v. YUEN PAK YIU PHILIP AND OTHERS t/a YUNG, YU, YUEN & CO Solicitors (a Firm)

HCA 244/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 244 OF 2006

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ASSESSMENT OF DAMAGES

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Introduction

1.  This assessment of damages is pursuant to a judgment dated 19 June 2006 entered by consent of the defendant admitting liability of professional negligence.

2.  The plaintiff was a purchaser under a sale and purchase agreement, which was to be completed on 16 January 2006.  The purchase price of the property, which is a shop in San Po Kong, was $20,000,000.00.  The plaintiff paid the deposit of $2,000,000.00 to the vendor.

3.  The agreement for sale and purchase provided that completion should take place by 1500 hours on 16 January 2006.  The defendant had failed to deliver the balance of the purchase and the draft Assignment for the property on time on completion.  The vendor rescinded the contract and forfeited the deposit.  The defendant admitted negligence.  Judgment was entered against the defendant with damages to be assessed.

4.  The defendant has paid as interim payment $2,000,000 for the deposit forfeited.

Date of valuation of the property

5.  The plaintiff now claims against the defendant damages to be assessed based on a notional repurchase of a substitute property, relying upon the case of Keep Point Development Ltd. v Chan Chi Yim and Others (2003) 6 HKCFAR 160 and Keep Point Development Ltd. v Chan Chi Yim and Others (No.2) (2004) 7 HKCFAR 246.  Counsel for the defendant opposes this approach, stating that the facts of the above cases are different from this case and the approach of assessment of damages adopted in those cases is not applicable in this case.

6.  Having heard submissions from counsel, I agree with Mr. Manzoni, defence counsel that Keep Point were cases with special facts not found in this case.  In those cases, the innocent parties were owners of the properties, which they surrendered to the developer for re-development.  They are entitled to the right of claiming against their solicitors for loss of their original property.  Hence the repurchase of the property. Mr. Yeung for the plaintiff does not wish to argue further and submits that he is content to conduct the assessment by putting the plaintiff back to the position as if the transaction of sale and purchase of the property had been completed, which is agreed by Mr. Manzoni.  I therefore do the assessment on this basis.

7.  However, Mr. Yeung argues that the date of the valuation of the property for the assessment of damages should not be on the date of breach under the normal rule for assessment of damages.  He relies on 2 grounds.  First, the plaintiff intended to purchase another similar property after rescission of the contract by the vendor. But the prices of comparable properties had gone up.  As a result, he was unable to buy another comparable property in the open market.  Second, the plaintiff had signed a provisional tenancy agreement with Park N’ with a monthly rent of $115,000 for the first 3 years and at an increased of not more than $126,500 for the next 3 years.  [Bundle - 127]  Plaintiff would only sell the property after Park N’ had moved in because this lease would boost the price of the property.  Plaintiff now seeks to postpone the date of valuation of the property to April 2006 after Park N’ had moved in the property or even at 30 June 2006, giving the plaintiff 6 months as the reasonable time for plaintiff to purchase another comparable property or to resell the property.  Mr. Yeung submits that to make the valuation of the property on the date of rescission of the contract by the vendor is unfair to the plaintiff as it has lost the chance of making profit of the property.

8.  Mr. Yeung refers me to para. 11-255 of Jackson & Powell and County Personnel Ltd v Alan R Pulver & Co.:

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Damages are generally assessed as at the date of breach, unless justice requires that some other date should be taken.  This principle is illustrated by a number of cases……. The Court of Appeal summarized the law as follows: damages will normally fall to be assessed at the date when the cause of action arose; but this principle will not applied mechanistically in circumstances where assessment at another date may more accurately reflect the overriding compensatory principle.”

Mr. Yeung submits that it is fair to fix another date rather than the date of breach for the reason that the price of the property has escalated and the plaintiff was unable to purchase another equivalent property.  Mr. Yeung also refers me to a case of Panlead Development Ltd. v. Yee Fong Chung [1998] 2 HKLRD 92, in which Hartmann J. accepted the principles in McGregor on Damages (14ed.) para.719:

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The normal rule in cases of failure to complete a contract for the sale and purchase of land was that damages were the market value of the property at the contractual date for completion less the contract price.  However, such a measure could be grossly unfair to a buyer if prices had escalated between the contractual date for completion and the date of judgment as the award he obtained would fall far short of giving him the means of acquiring an equivalent property.  While he could not complain if he ought to have acquired an equivalent property before the escalation of prices, he might be able to show good reason why he did not do so.”

9.  Mr. Yeung submits that the plaintiff should be given reasonable time to purchase another similar property in the market.  He proposes the valuation date be either 1 April 2006 or 29 June 2006.  The expert report for the plaintiff has provided for valuation of these respective dates, apart from the date of 16 January 2006, the date of completion.

10.  Mr. Manzoni has no dispute with Mr. Yeung on the above legal principles.  He submits that the valuation date should be the date of breach because according to Mr. Tsoi’s evidence, it is quite obvious that the plaintiff was not going to use the property as a shop at the material time, but rather as an investment property to be resold within a short time for profit.  Mr. Tsoi gave evidence that he would sell the property at the right price.  On the other hand, he said that he could hold on to it for rental income.  But he did not say what the right price should be. In fact, the right price is always susceptible to change as the market price fluctuates from time to time.  I believe that Mr. Tsoi had the intention of selling the property for profit within a short period of time.  As he said, the lease with Park N’ is an advantage to boost the value of the property.  The plaintiff is not the end user of the property.

11.  In Panlead Development Ltd. v. Yee Fong Chung [1998] 2 HKLRD 92, Hartmann J. found that there was no evidence to show that the purchaser actively looked for another similar property after the breach of the contract.  On that basis, he declined to postpone the valuation date for the assessment of the property.  Similarly in this case, although Mr. Tsoi said that he intended to buy another similar property with the same potential for profit, he was unable to find one.  I have no evidence what properties he had made enquiry.  He admits that he is not the end user of the property himself.  I decline to give him time to look for a similar property after rescission of the contract by the vendor.

12.  As to loss of opportunity of making profit by selling the property after Park N’ moving in by April 2006, I decline to allow time to the plaintiff until April after Park N’ had moved in because there is no evidence from the plaintiff that such advantage of the Park N’ lease to boost the value of the property was within the contemplation of the defendant at the material time.

13.  The date for valuation of the property for the assessment of damages in this case is 16 January 2006.

Expert evidence

14.  Parties rely on the expert evidence for valuation of the property on 16 January 2006.  Both experts adopt the method of comparison of similar properties in the area.  Miss Sat acting for the plaintiff has adopted 9 comparables whilst Mr. Ling who acts for the defendant has adopted 2 comparables only.  Miss Sat takes the view that using more comparables would be better for the purpose of valuation of the property.  Mr. Ling takes a different view. He considers that those in King Fuk Street and Hong Keung Street, which are a few blocks away from the property in question are irrelevant or inappropriate for the purpose of valuation of the property in question.  Miss Sat argues that those comparables far away can still be adopted if suitable adjustments in respect of the value are made.  I agree with Miss Sat. It is apparent that no comparable is exactly the same as the property in question.  Adjustments have to be made for the valuation of these properties accordingly.

15.  However, the problem does not stop there. In making adjustments to the properties in Hong Keung Street, Miss Sat and Mr. Ling take a rather wide discrepancy in their assessment of the value of a nearby big commercial and residential development – Rhine Harbour of Sun Hung Kai, which will be completed in 2009.  Because of their location, Miss Sat gives a 7% to 10% inflationary value to those properties whilst Mr. Ling estimates 30% to them. [111- Appendix 1]  It appears that Miss Sat’s valuation is more elaborate than that of Mr. Ling’s. Mr. Ling makes the same valuation of 30% in respect of the locations of three different locations of the three shops in Hong Keung Street.  Miss Sat makes different valuation of them by reference to their different locations, though they are situated along the same street.  I consider that Mr. Ling’s estimate of 30% inflation of the price of those properties because of their locations being near the big development is too high, bearing in mind that the big development will only complete in 2009.  On the other hand, Miss Sat also agrees that her estimate may be a bit low.  In any event, both experts agree that the speculative premium given to those properties for the big development is based on their own subjective opinions.

16.  Both experts agree that the most important factor for determining the appropriate comparables are their locations, which form the most prominent factor for valuation of the properties.  Both experts also agree that the most ideal comparable is the shop situated at the junction of Yin Hing Street and Fu Yuen Street, which is “7” marked in the location plan on page 0079 of the bundle.  It can be seen (in blue) from an enlarged map produced by the defendant at the hearing.  It is only a stone’s throw from the property in question (in pink).  Miss Sat relies upon this property as one of the comparables.  Mr. Ling does not take this property for comparison.  He agrees that in terms of location, it is very good.  But there are 2 frontages, which will be 50% of the perimeter of the shop and it is because of this high frontage, he decides to exclude it for comparison.  I find it hard to accept this as the valid reason for excluding this property.  I agree with Miss Sat that this property is the most appropriate property for comparison with the property in question because of their proximate locations and that it should be used for comparable with appropriate adjustments.  In any event, Mr. Ling has made a comparison of this property with the property in question in Appendix I of his report at page 111 of the bundle.  The only differences between Miss Sat and Mr. Ling are the time and quantum.  Miss Sat makes –5.6% for time; Mr. Ling makes 0% for time. Miss Sat makes –7.3% for quantum and Mr. Ling –10%.  The ultimate valuation of this property is $8,184 per square foot by Miss Sat and $8,566 per square foot by Mr. Ling.

17.  I consider that the above property is, in terms of location, far better than those adopted by Mr. Ling in Yin Hing Street.  Mr. Ling has to make adjustments to those properties for 15% and 12% for their locations respectively.  [table at 107]  I have heard the evidence from both experts.  I have to say that I prefer Miss Sat’s valuation to Mr. Ling’s.  Miss Sat has used the objective data of the price of the properties and the rental yields of them published by The Rating and Valuation Department for reference. She considers that the property in question is an ordinary property, which will fit in the general data of The Rating and Valuation Department.  Mr. Ling refuses to use those data.  He says that those data are too general and will not take into account special features of designated areas.  He prefers to use his own personal experience on the designated areas.  He admits that there is a high element of subjectivity in the valuation.  Having considered all the evidence, I decide to adopt the valuation of the property at “7” by Miss Sat at $8,184 per square foot for valuation of the property in question.

Assessed damages with interest

18.  Defendant shall pay the plaintiff damages assessed as follows:

a.	Difference between the market price and contract price of the property as on 16 January 2006: (3000 x $8,184) – $20,000,000 = $4,552,000.00
b.	Special damages in terms of other expenses:
	i.	valuation and mortgage fees: $16,800
	ii.	estate agent commission: $280,000
	Total: $4,552,000,+ $16800 + $280,000=$4,848,800.00
c.	Interest on the total sum of $4,848,800 at prime rate plus 1% from the date of assessment to the date of this judgment and thereafter at the judgment rate.
d.	Interest earned on HK$2,000,000 (the forfeited deposit) from 16 January 2006 to the date of payment out of the interim payment.

Costs

19.  There shall be an order nisi that the defendant shall pay the plaintiff costs of this assessment of damages including and all costs reserved for this application.  This order is made under Order 42 rule 5B(6) of the Rules of the High Court.  Unless an application is made to vary it, this order becomes absolute 14 days after this decision is pronounced.