CHENG KWOK FAI v. CHAU TSANG SZE

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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ASSESSMENT OF DAMAGES

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Background

1. This matter concerned the aborted sale of a flat referred to as Flat C, 17^th floor, Broadway, Mei Foo Sun Chuen ("the flat").

2. The plaintiff was the vendor and selling the flat in the course of his administration of the estate of his late father.

3. By a provisional agreement dated 8.8.97 and a formal agreement dated 19.8.97. both made in writing, the plaintiff agreed to sell the flat to the defendant for $4,700,000. The defendant paid 10% of the purchase price to the plaintiff as deposit. It was agreed that completion would be on 12.2.98. The defendant failed to complete. The plaintiff forfeited the deposit.

4. The plaintiff brought this action for inter alia damages for breach of contract. By an Order dated 30.6.98 Master Chu entered judgment for the plaintiff with damages to be assessed.

The hearing

5. The plaintiff was the only witness called. He told the court that the defendant had paid a 10% deposit and then failed to complete on 12^th February 1998.

6. The plaintiff said that he instructed estate agents to sell the property. At this time the property market was falling rapidly. On the advice of Midland Real Estates, he put the property on the market for $3 million in about March 1998. Midland subsequently informed him that the market had fallen further. Moreover as the defendant had registered the sale and purchase agreement between the parties at the Land Registry, some prospective purchasers had been put off. There had been an offer of $2.7 million at about this time, but the plaintiff refused that offer.

7. Later T&S Property Agency Ltd approached the plaintiff and offered their services. It was through T&S that the property was finally sold in May 1998 for $2.5 million. A formal sale and purchase agreement was signed on 11^th June 1998, and completion took place on 30^th June 1998.

The claim for damages

8. The plaintiff claimed the following heads of damage :-

9. I will deal with the items in turn.

10. The difference or deficiency in price between the sale price agreed by the defendant and the 2^nd sale.

11. The principle relating to the measure of damages was stated by Baron Parke in Laird v Pim (1841) 7 M&W 474. He held the measure of damages to be :-

"....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?"

12. McGregor on Damages 14^th Edition, page 746 states that the seller's re-sale price may be taken as strong evidence of the market value, and that usually the standard conditions of sale would allow the seller to resell and charge the purchaser with any deficiency in price. That is similar to the present situation because the plaintiff relies upon clause 12(1) of the sale and purchase agreement made between the plaintiff and the defendant, see page 56 of the Bundle. It was argued by Counsel for the plaintiff that pursuant to that clause, the plaintiff was entitled to claim against the defendant for the deficiency in price arising from the 2^nd sale.

13. After considering the whole of the evidence, I was persuaded that the sum of $2.5 million should be taken in computing the deficiency in price instead of the figure of $2.7 million.

14. The plaintiff said his reason for refusing the offer of $2.7 million was because he wanted to hold out for $3 million. It is easy with the benefit of hindsight to say that the plaintiff should have accepted that $2.7 million offer. The plaintiff was not to know how long the market's downward trend would last, and if the market rebounded within a short period then the plaintiff might be criticized for not holding out for a price nearer to the $3 million estimate. I also accepted the plaintiff's evidence that, based on a report by Chung Sen Group the property would only have been worth $2.25 million in October 1998. Bearing in mind the difficult circumstances caused by the economic situation, I find that the price of $2.5 million agreed by the plaintiff in May was a reasonable one.

15. The plaintiff still has to give credit to the defendant for the $470,000 deposit paid. The calculation of damages under this head will be $4,700,000 minus $2,500,000 minus $470,000 = $1,730,000.

Consequential Losses

16. The plaintiff may also claim for consequential losses as a result of the defendant's breach of contract, see Mcgregor on Damages 14^th Edition para 746. Items 2, 3, 4 & 5 are such items of consequential loss. The plaintiff is entitled to claim for incidental expenses that necessarily flowing from the defendant's breach.

2. Legal Costs

I was satisfied the plaintiff had settled the legal costs of $2500 and $12,290, as evidenced by the bills found at pages 95 and 96 of the Bundle. I was satisfied that the sums paid were reasonable and award the $12,290 claimed.

3. Management Fees

Management fees at the rate of $884 per month were payable. A specimen debit note was shown at page 100 of the Bundle. I was satisfied that the plaintiff was entitled to claim management fees from the date of completion 13^th February 1998 to the date that the property was finally sold 30^th June 1998. I accept the computation of the plaintiff under this head to be [$884 ÷ 30 x 137 days ] = $4037

4. Commission

I was satisfied that a sum of $25,000 had been paid to T&S Property Agency Ltd, the estate agency that successfully secured the 2^nd sale of the property. A copy of the receipt was produced and shown at page 97 of the Bundle. The sum paid was a reasonable one in the circumstances, and I award the $25,000 claimed.

5. Government rates

A sum of $3382 was claimed for rates paid prior to the 2^nd sale. The plaintiff explained that as a result of a refund from the Government for the period from 1^st April to 30^th June, he was merely claiming for the period from 13^th February to 31^st March 1998. I was satisfied that the plaintiff was entitled to claim this sum of $1766.

The 6^th item, a sum claimed for loss of interest on the sum representing the purchase price agreed by the defendant was abandoned on 11^th June 1999.

Interest

17. At common law the general rule is that interest is not payable under the contract itself in the absence of express agreement. However there is statutory provision for interest in s48 and s49 of Cap 4. Section 48(1) empowers the court to give interest at such rate as the court thinks fit, and for such period as it thinks fit.

18. Counsel for the plaintiff Mr Koo submitted that for the period before judgment, the plaintiff should be awarded interest at the rate of prime + 2% p.a. on the basis that that is the rate used in bank loans. I am not persuaded that that rate is appropriate because it includes an element of profit. The plaintiff should not be allowed to make a profit. I am of the view that prime rate only, that is 8% p.a. should be the rate of interest awarded.

Conclusion

19. Damages are assessed at $1,775,593. (that is $1,730,000 + $14,790 + $25,000 + $4307 + $1766)

20. Interest at the rate of 8%p.a. is awarded on the sum of $1,775,593 from the date of the writ (7^th March 1998) to the date of the assessment (11^th of June 1999); and thereafter at judgment rate until payment.

21. The plaintiff is also awarded costs of the action with certificate for Counsel. Such costs will be taxed if not agreed.