CHEUNG PUI PENG v. LEE WAI LUN

1998, No. A7321

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. A7321 OF 1998

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Judgement on Assessment of Damages

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1. This assessment arises out of an agreement made between the Plaintiff and the Defendant for the sale and purchase of the property known as Flat C 3rd Floor, Block 6 Kenswood Court, Kinswood Villas, No. 2 Tin Lung Road, Tin Shui Wai, Yuen Long, New Territories ("the Property").

Background

2. The Plaintiff was the registered owner of the Property. The Property was subject to a mortgage in favour of the First Pacific Bank Limited.

3. By a provisional sale and purchase agreement dated 9.11.1997, the Plaintiff agreed to sell the Property to the Defendant at the price of HK$3.3 million. An initial deposit of HK$100,000 was paid by the Defendant upon the execution of the provisional agreement.

4. On 22.11.1997, the parties executed the formal sale and purchase agreement ("the Agreement"). A further deposit of HK$230,000 was paid by the Defendant. Under the Agreement, the completion was to be before 5:00 p.m. on 8.4.1998.

5. The Defendant failed to complete at the agreed time. The Plaintiff accepted the repudiation and gave notice of the same by her solicitors' letter dated 15.4.1998.

6. On 17.4.1998, the Plaintiff filed with the Lands Registry a Memorandum of Recission. On the same day, the Plaintiff signed a sale and purchase agreement with another purchaser for the sale of the Property at the price of HK$2 million ("the Resale"). Completion took place on 12.6.1998.

7. The Writ herein was commenced on 8.5.1998. On 19.8.1998, Master Bharwaney entered final judgment for the Plaintiff for a declaration that the Plaintiff is entitled to forfeit the deposits in the sum of HK$330,000 held by the Plaintiff. Master Bharwaney also entered interlocutory judgment in favour of the Plaintiff for repudiation of the Agreement with damages to be assessed together with interest and costs of the action.

8. On 11.9.1998, the Plaintiff obtained ex parte an interim attachment order against the Defendant's property at Unit D 29th Floor, Tower T-3, Miami Beach Towers, Tuen Mun, New Territories. On 18.9.1998, I ordered that the said order be discharged on condition that the Defendant paid into Court the surplus of the balance of proceeds of sale of his property, after discharging the outstanding mortgage and costs and expenses for the conveyance of the sale. Pursuant to my order, the Defendant paid into Court the sum of HK$534,700.45 on 23.9.1998. The amount is still kept in the Court in an interest earning account.

Issues

9. At the hearing for assessment of damages, the Plaintiff sought to recover from the Defendant the following items of loss :-

(1) Damages representing the difference between the price under the Agreement and that under the Resale ;

(2) The legal costs for the Resale ;

(3) The amount of interest paid by the Plaintiff to the First Pacific Bank Limited under the mortgage for the period between 8.4.1998 and 12.6.1998 ; and

(4) Interest on the net purchase price of the Agreement (being the difference between the price of the Agreement and the outstanding liability under the mortgage with First Pacific Bank Limited) for the period from 8.4.1998 to 12.6.1998.

10. The Defendant's objections to the Plaintiff's claim can be summarised as thus :-

(1) The Plaintiff had through her brother assured and promised him that the completion date under the Agreement could be varied if he was unable to complete as scheduled.

(2) After the Agreement was terminated, the Plaintiff and her present solicitors have no genuine intention to settle the dispute, despite his repeated attempts and his offer to settle.

(3) The Resale was at an undervalue and it was a deliberate step by the Plaintiff to cause greater loss to him.

(4) The Plaintiff is a speculator in the property market. Being a resident of Macau, she falls within the kind of foreign speculators who is responsible for the fall of the property market and the economic downturn of Hong Kong. The Defendant complained that the Plaintiff's economic activities had caused him loss and damages.

11. As the subsequent part of this judgment will show, the first two objections of the Defendant are irrelevant to this assessment of damages. The last objection is both irrelevant and groundless. There is no evidence of the Plaintiff being a property speculator. Even if she were a property speculator, there is no law or legal principle disentitling her to claim for her loss for breach of agreement for sale and purchase of property. This is so notwithstanding she is not a resident of Hong Kong. The Defendant's complaint simply has no substance.

12. In my judgment, the only issue in this assessment hearing is whether the Plaintiff is entitled in law to recover the 4 items of loss claimed and whether she has proved the loss on a balance of probabilities.

The Evidence

13. The Plaintiff and her brother, Mr. Cheung Wang Kei, gave evidence at the assessment hearing. The Plaintiff testified that as she was residing and working in Macau, she had to entrust the sale of the Property to her brother. She gave evidence of the loss she suffered as a result of the Defendant's failure to complete the sale. The documents evidencing the payment of interest for the mortgage and the legal costs for the Resale were admitted under a Hearsay Notice.

14. Mr. Cheung confirmed that he was responsible for negotiating with the Defendant and had the conduct of the subsequent Resale. He gave evidence that prior to 8.4.1998, he had already been notified by the estate agent and also by the Defendant directly that the Defendant would not proceed to completion under the Agreement. He therefore placed the Property for sale again through estate agents and also advertisements in newspapers and on internet. He received 2 offers from different estate agents, but the highest offer was from the new purchaser, who approached him directly. He explained that as the property market was undergoing a decline between April and June 1998, he therefore accepted the offer from the new purchaser and agreed to sell at HK2 million.

15. In cross-examination, the Defendant suggested to Mr. Cheung that, before signing the provisional agreement, they had agreed that completion could be postponed if, for any reason, the Defendant was unable to complete on the agreed completion day. This was denied by Mr. Cheung. The Defendant also suggested that he did subsequently asked for a postponement of the completion, to which Mr. Cheung agreed, but asked for payment of an additional sum. The request for additional payment was not agreed to by the Defendant because he could not afford it. The Defendant's request to postpone the completion was accordingly not accepted by Mr. Cheung. These suggestions were all denied by Mr. Cheung.

16. The Defendant had also given evidence. He testified that when he was negotiating for the purchase of the Property, he was trying to sell his property in Miami Beach Towers. He was afraid that he might not be able to sell his property in time to enable him to have the financial resources to complete the purchase of the Property. He therefore secured from Mr. Cheung a promise to the effect that the completion of the purchase of the Property could be postponed if he was not in a position to complete on the date as agreed. The Defendant said that when he later could not complete as scheduled, Mr. Cheung reneged on his promise. The Defendant also testified that he had after the commencement of these proceedings agreed with the Plaintiff's former solicitors to settle the action, but the Plaintiff and her present solicitors were not interested in any settlement.

17. The issue of whether Mr. Cheung had agreed with the Defendant that the completion date could be postponed to suit the Defendant's need is strictly speaking irrelevant for the present purpose which is to assess the loss suffered by the Plaintiff. It is an issue which may be relevant to the question of liability, a matter which Master Bharwaney had considered and dealt with. At any rate, I find the Defendant's allegation hard to accept. I see no reason why Mr. Cheung should be so accommodating, especially when the stipulated completion date was some 5 months away from the signing of the provisional agreement and the total deposits paid was no higher than the usual 10% of the purchase price. If the completion date could be arbitrarily altered to suit the needs and convenience of the Defendant, then what assurance and protection did the Plaintiff or Mr. Cheung had under the Agreement ? Not only was this alleged oral agreement between Mr. Cheung and the Defendant not reflected in the Agreement, but it is also plainly contrary to the express provision of the Agreement which provides that time shall be of essence.

18. As to the Defendant's assertion of a settlement agreement with the Plaintiff's former solicitors, it is apparent from his answers in cross-examination that no binding agreement had in fact been reached. Again, this subject of settlement is not relevant to the issue of the quantum of the Plaintiff's loss and damages.

19. At the assessment hearing, the Plaintiff and the Defendant had each adduced an expert report for the purpose of showing the market value of the Property in April. Interestingly, both reports were from the same firm of surveyors. The Plaintiff's report stated that the market value of the Property as at 1.4.1998 was HK$1.9 million. The Defendant's report however stated that the market value of the Property as at 20.4.1998 was HK$2.25 million. The parties did not object to the admission of the reports and did not require the writer(s) to attend Court for the purpose of cross-examination. I shall return to deal with these reports later.

Direct Loss

20. The immediate and direct loss suffered by the Plaintiff as a result of the Defendant's breach of the Agreement will be the difference between the price under the Agreement and the market value of the Property at the contractual date of completion. There is no dispute as to the purchase price under the Agreement. The parties, however, differ as to what was the market value of the Property as at 8.4.1998, the scheduled date of completion.

21. For the Plaintiff, she adopted the price of the Resale as the relevant market value. In support of her case, she relied on her surveyors report which stated that the market value on 1.4.1998 was HK$1 million less than the price of the Resale. As for the Defendant, he based his case on his surveyors report which quoted HK$2.25 million as the market value on 20.4.1998. He also relied on the fact that the Plaintiff's new purchaser managed to sell the Property at HK$2.25 million on 8.5.1998.

22. I accept that the price at which a vendor resells the property may provide an indication of the market value, and that, in appropriate cases, the Court can take the resale price as the market value. But where there is evidence suggesting that the resale price differs from the market value, the Court should take the market value and not the resale price for the purpose of calculating the loss of the vendor : see Mcgregor on Damages (14th edition) para.745.

23. In this case, I have reservation over the reliability of the valuation reports adduced by the parties. These reports were prepared by the same firm of surveyors, with the contents being almost identical. If they were to be accepted in their entirety, it would mean that the property market at the material time was a rapidly rising one in that the market value of the Property had risen by over 15% within 20 days. This is plainly contradictory to the evidence of Mr. Cheung who said that the property market, as far as he knew, was undergoing a decline. It is also common knowledge that the property market in Hong Kong had undergone a very difficult time at least during the first three quarters of 1998. No explanation had been offered by the writer(s) of these reports as to the substantial difference in the valuations given. In the circumstances, I feel unable to place any weight on these valuation reports.

24. I am also not prepared to accept the price of the Resale as the relevant market value although the Resale was concluded within 2 weeks from the scheduled date of completion. The fact that the new purchaser managed to resell the Property with a 12.5% profit only some 3 weeks later gives me cause to doubt whether the price of the Resale is a fair reflection of the market value, both at the time of the scheduled date of completion and at the time of the Resale. This is particularly so when it is Mr. Cheung's evidence, in explaining his decision to sell at HK$2 million, that the property market was undergoing a decline between April and June 1998.

25. Further, one must not forget that the Plaintiff is under an obligation to take reasonable steps to mitigate her loss. The onus is on the Defendant to prove that the Plaintiff had failed to discharge the obligation. Although Mr. Cheung had mentioned that, of the offers he had received, he had accepted the highest one, that does not necessarily mean that he had taken reasonable steps to secure the best deal. The fact that the new purchaser was able within a very short time to sell the Property at HK$250,000 more is strong evidence and indication that the Plaintiff had not taken reasonable steps to procure the best deal.

26. In this respect, it is relevant to note that the evidence does not establish that the Plaintiff was under any urgency to sell the Property. The Plaintiff's case is that the Property was brought partly as an investment and partly for the use of her mother, but because her mother did not like it, it had been left vacant. According to Mr. Cheung, the plan was to sell the Property and then to acquire another property in the urban area. Despite that, as at the date of the assessment hearing, the Plaintiff had not acquired any other property. The offer of HK$2 million from the new purchaser was received about 2 days after the scheduled date of completion and the agreement for resale was executed 2 days after the Plaintiff accepted the Defendant's repudiation. No good reason had been offered as to why the Plaintiff could not have explored the market further and waited for a longer period of time. Mr. Cheung had mentioned the need to repay the mortgage; but the Plaintiff had been paying the mortgage instalment since July 1997 when she purchased the Property and there is no suggestion that she was having difficulties in continuing with her obligations under the mortgage.

27. In my judgment, the price at which the Plaintiff's new purchaser resold the property, namely, HK$2.25 million, is to be adopted for the purpose of assessing the Plaintiff's loss of bargain under the Agreement. Accordingly, the Plaintiff's loss is HK$1.05 million, being the difference between HK$3.3 million and HK$2.25 million. Against this sum, credit has to be given for the sum of HK$330,000, being the deposits received by the Plaintiff under the Agreement. The net loss is therefore HK$720,000.

Consequential Losses

28. The law is clear and there is no doubt that the Plaintiff can also recover consequential losses. Consequential losses include incidental expenses and losses which flow necessarily from the breach of contract.

(1) Costs of the Resale

29. The costs of a resale is one of the incidental expenses recognized by the law. In this case, the Plaintiff's evidence, as appeared by paragraph 5(c)(ii)(2) of her witness statement, is that her former solicitors charged her HK$8,290 as costs and disbursement for the Resale, but this sum had not included the HK$210 registration fee for the Memorandum of Recission.

30. The bill issued by the Plaintiff's former solicitors (at p.105 of the Bundle), however, shows the costs and disbursement of the Resale to be HK$8,500. Included in the disbursement items under the bill are the registration fees for a Memorandum and for a Discharge. The former is for HK$210 which must relate to the Memorandum of Recission because clause 12(a) of the sale and purchase agreement for the Resale provides for all stamp duties and registration fees payable on the agreement and the subsequent assignment to be borne by the new purchaser. Further, it can be seen from the Memorials for the sale and purchase agreement and the assignment for the Resale that the registrations were effected by the purchaser's solicitors.

31. As for the HK$450 registration fee for the Discharge, it is referring to the discharge of the mortgage in favour of First Pacific Bank Limited. This is not an item of loss which flows from the breach. It is an item of expense which the Plaintiff would have to incur even if the Defendant was not in breach of the Agreement. The amount of costs of the Resale which the Plaintiff is entitled to claim is therefore HK$8,050, being HK$8,500 less HK$450.

(2) Interest paid under the mortgage

32. The amount of bank interest which the Plaintiff had to pay to First pacific Bank Limited under the mortgage for the period after the scheduled completion date to the completion of the Resale is another item of consequential loss. Had the Defendant performed the Agreement and completed the sale as scheduled, the mortgage would have been redeemed and the Plaintiff's obligation to pay interest under the mortgage would have ceased. As a result of the Defendant's repudiation, the Plaintiff had to continue with the interest payments. Although Mr. Wong for the Plaintiff had in his final submission asked for interest from 8.4.1998, the proper date should be 9.4.1998 since completion was scheduled on 8.4.1998. At any rate, the statement from First Pacific Bank Limited only shows the interest paid for the period from 9.4.1998 to 12.6.1998. The total amount is HK$62,172.71, and the Defendant is liable for this sum.

(3) Loss of interest

33. The Plaintiff also claims loss of interest which she would have earned on the net proceeds of sale under the Agreement. I accept that this is an item of consequential loss which the Plaintiff is entitled to recover from the Defendant. According to paragraph 5(d) of the Plaintiff's witness statement, the net balance of the purchase price under the Agreement is HK$630,759.90. The Plaintiff asks for the loss to be calculated at the judgment rate. The prevailing judgment rate in April 1998 is 12.9% p.a.

34. This net proceeds of sale is the amount which the Plaintiff would have received on 8.4.1998 had the Agreement been performed. By reason of the Defendant's breach, the Plaintiff had been deprived of the use of it. Instead, the amount had been held by the Defendant who could and would have the use of it. The Plaintiff should therefore be compensated on the basis as if she had lent the sum to the Defendant. In this regard, the appropriate rate to be adopted is the prime rate, instead of the judgment rate as claimed. The prevailing prime rate in April 1998 is 10% p.a.

35. As the Plaintiff had on 17.4.1998 received HK$200,000 deposit from the purchaser to the Resale, Mr. Wong for the Plaintiff fairly conceded that after 17.4.1998, interest should only be calculated on HK$430,759.90, being HK$630,759.90 less HK$200,000.

36. The Plaintiff's loss under this head is therefore HK$8,164.20, made up as follows :-

(a)	From 9.4.1998 to 17.4.1998 HK$630,759.90 x 10% p.a. x 9days = HK$1,555.30
(b)	From 18.4.1998 to 12.6.1998 HK$430,759.90 x 10% p.a. x 56days = HK$6,608.90
(c)	Total HK$1,555.30 + HK$6,608.90 = HK$8,164.20

Conclusion

37. The total amount of damages which the Defendant is liable to pay to the Plaintiff is therefore as follows :-

(1)	Direct loss		HK$720,000.00
(2)	Consequential loss
	Costs of resale	HK$ 8,050.00
	Interest payment	HK$62,172.71
	Loss of interest	HK$ 8,164.20	HK$ 78,386.91
	Total :		HK$798,386.91

38. Accordingly, there will be judgment for the Plaintiff for the sum of HK$798,386.91 together with interest on HK$790,222.71 (being the judgment sum less HK$8,164.20) at judgment rate from 13.6.1998 to the date of payment.

39. The amount of HK$534,700.45 paid into Court by the Defendant on 23.9.1998, together with any interest accrued thereon, to be paid out to the Plaintiff in partial satisfaction of the judgment made herein.

40. I also make an order nisi that the Plaintiff shall have the costs of the assessment, to be taxed if not agreed. The order nisi to become absolute after the expiration of 14 days from the date of handing down this decision on assessment of damages.