BROAD MONEY DEVELOPMENT LTD. v. INDUSTRIAL ENGINEERS LTD.

HCA 4335/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4335 OF 1998

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Assessment of Damages

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1. This action relates to an agreement for sale and purchase of an apartment together with a carpark located at The Somerset, 67 Repulse Bay Road. By final and interlocutory judgment entered on 22nd June, 1998, a declaration was made that the agreement dated 22nd January 1998 had been duly rescinded and an order made that the defendant do pay the plaintiff damages with interest and costs of the action to date to be taxed if not agreed. A notice of appointment of assessment of damages was issued on 27th August, 1998, and the assessment came before me on 22nd December, 1998.

2. An agreed bundle of documents and an agreed bundle of affidavits and exhibits were before me.

3. At the assessment, Cheung Wang Ngai was called for the plaintiff, his witness statement was admitted into evidence and he was cross examined. Cheung hsian sang was called for the defendant, his witness statement admitted into evidence, and he was cross examined.

4. The agreement for sale and purchase is dated 22nd January, 1998, and was entered between the plaintiff/vendor and defendant/purchaser companies. Clause 2 provides that the purchase price is $28,800,000, with an initial deposit of $870,000 already paid, a further deposit of $2,010,000 to be paid upon signing the agreement, and the balance of $25,920,000 to be paid upon completion. Clause 3 provides that the completion is to take place on 9th March, 1998.

CLAUSE 8(a) AND (b) OF THE AGREEMENT

5. Clause 8(a) and (b) were the subject of submission by both Counsel. They are the standard provisions used in Hong Kong, and I will set out here the substance for ease of reference.

6. Clause 8(a) provides that "Should the Purchaser fail to complete the purchase in accordance with any of the terms and conditions herein contained ... the Vendor may ... forthwith determine this Agreement by giving notice of termination in writing to the Purchaser or his Solicitors to such effect ... and the Vendor shall be entitled to forfeit all the initial deposit and the further deposit paid to the Vendor under Clause 2(a) and 2 (b) hereof absolutely."

7. Clause 8(b) provides that "Upon determination or rescission of this Agreement pursuant to any provision herein, the Vendor may resell the said premises ... and any increase in price on resale shall belong to the Vendor. Without prejudice to the vendor's right to recover the actual loss which may flow from the Purchaser's breach of this Agreement, on such resale any deficiency in price shall be made good and all expenses attending such resale or any attempted resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor as and for liquidated damages. This clause shall not preclude or be deemed to preclude the vendor from taking other steps or remedies to enforce the Vendor's rights hereunder or otherwise or prevent the Vendor from recovering, in addition to liquidated damages, damages representing interest paid or lost by him by reason of the Purchaser's failure."

8. Clause 12 provided that "time shall in every respect be of the essence in this Agreement."

BACKGROUND

9. The 10% deposit of $2,880,000 was duly paid, but on 9th March, 1998, the date of completion, the purchaser failed to complete. By its letter of 10th March, 1998, the vendor accepted the purchaser's repudiation and forfeited the 10% deposit. On l9th March, 1998, the vendor issued the Writ claiming a declaration that the Agreement had been duly rescinded, damages, interest and costs. On 17 April, 1998, the vendor issued an Order 86 summons and on 22nd June, 1998, Final and Interlocutory Judgment was ordered.

10. On 20th April, 1998, the vendor received an offer from Kim Chee Services Limited (Kim Chee). A copy of the provisional agreement for sale and purchase is at page 61 of the Bundle, and shows that the date of April 20th 1998 was altered to 22nd April 1998. In cross examination, PW 1 said that the date was amended from 20th to 22nd April 1998 because he received the offer on the 20th and he accepted it at around 4pm on the 22nd, the delay being due to the fact that he contacted the Bank to obtain a professional valuation so that he did not sell below the market value.

11. Clause 2 of the Kim Chee agreement provides that the purchase price is $25 million, with an initial deposit of $750,000, and a further deposit of $1,750,000 upon the signing of the formal agreement on or before 4th May, 1998. The balance of the purchase price was to be paid on or before 5th June, 1998 15:00, in the sum of $22,500,000.

12. On 21st July, 1998, the vendor obtained a valuation from Vigers Hong Kong Ltd., which states that the open market value of the property as at 9th March, 1998, was $24 million; as at 20th April, 1998, it was $22 million; and as at 21st July, 1998, it was $l8 million.

13. On 7th September, 1998, the purchaser obtained a valuation, which stated that at 20th April, 1998, being the date of valuation, the property was valued at $24,760,000.

14. Thus, on 20th April, 1998, the offer of $25 million made by Kim Chee Services Ltd. was more than the valuation of both expert valuers.

CORRESPONDENCE

Correspondence was entered into between the parties, and it is necessary to set it out in some detail here -

10th March, 1998, the plaintiff's solicitor's letter stated that -

"... In breach of clause 2(c) of the said agreement, your client has failed to send our client the balance of purchase price in order to complete the transaction on the 9th March, 1998. Notice is hereby given that the said Agreement is hereby rescinded and that all the initial deposit and the further deposit paid under the said Agreement are absolutely forfeited by our client and our client is prepared to exercise its right under clause 8(b) of the said agreement to resell the above property without further notice. All our client's right to claim against yours for any losses and damages by our client is hereby expressly reserved ..."

21st April, 1998, defendant's solicitors letter stated that -

"... Our client offers to continue the purchase of the said property as in accordance with the Sale and Purchase Agreement dated 22nd January 1998 except that the completion date be changed to 27th July 1998, and our client is prepared to pay a further deposit of $1,000,000 upon your client's acceptance of this offer."

22nd April,1998, plaintiff's fax timed at 9.43 am, is as follows -

"We refer to your letter dated 21st April 1998 received by us by fax at 5.45 pm. yesterday, on which we have taken our client's instructions. By the letter dated 10th March 1998 from our client's former solicitors Messrs. C.Y. Kwan & Co. to your client and the issue of the Writ against our client in HCA No. 4335 of 1998, our client has rescinded the Agreement for Sale and Purchase dated 22nd January 1998 in respect of the captioned property and forfeited the deposits paid by your client thereunder. Your client's offer to continue the purchase of the property mentioned in your said letter is not acceptable to our client. Moreover, our client has serious doubts over the sincerity and bona fida of your client's offer to purchase the property. Our client has put the property on the market for sale and any person, including your client, may put forward an offer to purchase the property. If your client intends to purchase the said property from our client again, please submit a written offer setting out the purchase price which your client is prepared to pay and other terms together with a cashier order in favour of our client equivalent to 10 per cent of the purchase price as deposit to secure the performance of the purchase by your client, which said offer shall, if accepted by our client, be legally binding. Please further note that our client has received a firm offer by another purchaser. Your client's offer together with the cashier order as aforesaid should reach our office before 1:00 p.m. today, failing which our client will sell the said property to other intending purchasers. Needless to say, our client is not bound to accept any offer made by your client. Finally, we must stress that nothing herein shall prejudice our client's rights to claim against your client for all loss and damage suffered by our client as a result of your client's wrongful repudiation of the said Agreement and our client hereby reserves its rights and position in this matter."

27th April, 1998, the defendant's fax stated that -

"We refer to your letter dated 22nd April 1998. Our client offers to continue the purchase of the said property at the purchase price of HK$28,800,000.00 as in accordance with the Sale and Purchase Agreement dated 22nd January 1998 except that the completion date be changed to 29th June 1998, and our client is prepared to pay a further deposit of HK$2,880,000.00 equivalent to 10 per cent of the purchase price upon your client's acceptance of this offer ..."

28th April 1998, the plaintiff's fax is as follows -

"We refer to your letter dated 27th April 1998. We also refer to our letter to you dated 22nd April 1998. Our client reiterates that the Agreement for Sale and Purchase dated 22nd January 1998 has already been rescinded by our client by reason of your client's wrongful repudiation. As our client did not receive any offer from your client in accordance with our said letter, our client has entered into a Provisional Agreement with another purchaser to sell the property at the price of HK$25,000,000.00. In the circumstances, our client will proceed with the captioned Action and claim against your client for all loss and damage suffered by our client as a result of your client's wrongful repudiation of the Agreement for Sale and Purchase dated 22nd January 1998."

28th April, 1998, the defendant's fax is as follows -

"Our client fails to understand why your client has elected to sell the property at HK$25,000.000.00 whilst there is a genuine and binding offer from our client to continue the purchase of the property at the original price of HK$28,800,000.00. It appears that your client has failed in its duty to mitigate loss. All our client's rights and remedies are expressly reserved."

30th April 1998, the plaintiff's letter set out the history of the transaction, and referred to the Agreement dated 22nd January 1998 and the failure to complete on 9th March 1998, and then goes on as follows -

"... 3. On or about 1st April 1998, your client offered to complete the purchase on 20th April 1998 and further agreed inter alia to pay to our client a further deposit of $2,880,000.00 and compensation for loss of interest, management fees, rates, and legal costs. 4. The terms of the settlement were agreed on 2nd April 1998 and the drafter settlement agreement was sent to you for execution by your client. 5. On 8th April 1998, while acknowledging that the terms of the settlement had been agreed, your client failed to pay the further deposit and the agreed compensation and to sign the settlement agreement. 6. Meanwhile, the local property market continued to fall. 7. On l6th April 1998, your client not only failed to pay the further deposit and the agreed compensation but even denied the existence of the agreement. 8. On 21st April 1998, your client "offered" to continue the purchase and to complete the purchase on 27th July 1998 and to pay HK$1,000,000.00 as deposit. This was a complete withdrawal from the terms previously agreed between the parties ..."

15. The letter then goes on to refer to the plaintiff's letter of 22nd April and the defendant's of 27th April 1998 set out above, and states that "... For the above reasons, our client denies that it has failed to mitigate its loss as alleged or at all. On the contrary, our client would have failed to discharge its duty to mitigate the loss if it did not accept the aside offer of HK$25 million in view of the falling property market ..."

30th April 1998, the defendant's solicitor's letter, being the final in the correspondence, stated that -

"...We see no point in engaging into hot argument with you in correspondence as the points are better dealt with in the pleadings. In the meantime, all your allegations are denied and/or not admitted ..."

EVIDENCE

Plaintiff

16. In paragraph 10 of his statement, Mr. Cheung for the plaintiff says that after the breach of the agreement by the defendant, the plaintiff took out these proceedings, the parties had entered into negotiations for settlement and on 2nd April 1998, the terms of the settlement were finally agreed. When asked to perform its obligations under the settlement, the defendant then denied that there was a settlement, although it did acknowledge that the parties had in principle agreed the terms of settlement. The plaintiff made repeated requests and gave numerous extensions of time to the defendant, but the defendant failed to honour its obligations under the settlement.

17. In cross examination, Mr. Cheung acknowledged that he was a conveyancing partner in a solicitor's firm and that was experienced in property transactions on his own behalf, using companies to buy and sell property. His wife is a solicitor and the plaintiff company is theirs. When the formal agreement for sale and purchase was signed, the solicitor handling the transaction for the vendor made a search of the defendant company which showed that the company owned two properties. After he rescinded the agreement on 10th March, he intimated to the defendant company's solicitor that he knew the defendant company had assets. After the rescission and the issue of the writ, he thought a settlement had been reached between the parties, but the defendant had a different view, and he felt disappointed.

18. As to the expenses incurred in the re-sale of the property, the estate agent's commission was paid by a company cheque and Mr. Cheung said he has the receipt (at page 107 of the bundle), but he did not have the bank statement for production.

19. As to the legal costs on the resale, his own firm acted in the purchase and rendered a bill (at page 108 of the bundle). He paid the stamp duty by instructing the accountant to deduct it from his partnership account with his firm, but he does not know whether the deduction has been made. It has not yet been paid by the company. He agreed that it is common practice among solicitors not to charge a fellow practitioner for work done on their behalf.

20. The claim for management fees paid by the plaintiff from 9th March 1998 to 4th June 1998 is $13,549.80. Mr. Cheung was cross examined on the debit notes found at pages 111 to 113 in the agreed bundle. The debit notes at page 112 and 113 found support in the letter from First Pacific Davies found at page 110, which shows that from lst April 1998, the new management fee for Unit A is $4,556. The debit note at page lll is illegible and was replaced by a fresh copy admitted into evidence and included in the exhibit marked Pl. The debit note shows a figure of $4,392 for the licence fee and the management fee. The fresh copy produced shows that the sum of $4,392 was received by First Pacific Davies on l8th March 1998, being cheque number 358469, which finds support in the handwritten note "Paid 12/3/98, # 358469" on the illegible copy in the bundle. When asked about the handwritten note, Mr. Cheung said it was made by one of his employees and not by First Pacific Davies. The licence fee refers to the carpark, but he did not know why it was called that.

21. The claim for rates from 9th March 1998 to 4th June 1998 is in the sum of $11,741. The demands are found at page 114 and 115 of the agreed bundle. The demand at page 114 is for the period for the quarter ending 31st March 1998 in the sum of $11,662, and the rates are paid by company cheque. The demand at page 115 is for the quarter ending 30th June 1998 in the sum of $12,265. Mr. Cheung thought there was an adjustment, and the government waived rates from the 3rd quarter of 1998.

22. The claim for interest paid by the plaintiff on its mortgage loan from 9th March 1998 to 4th June 1998 is $291,557.70, and the bank statements in support of this claim are found at page 116 and 117(the larger loan) and at page 118 and 119 (the smaller loan). Mr. Cheung said he did not do the actual calculation, but it was based on the interest paid during that period. I note that Mr. Cheung was cross examined on the basis that the period 24.2.98 to 23.3.98 is 30 days, but in fact it is only 28 days, February being a short month. On the basis of a 28 day period, the figure of $291,557.70 claimed by the plaintiff is correct.

23. As to the loss of profit claimed in the sum of $3,800,000, Mr. Cheung agreed that this should be reduced by the sum of $2,880,000, being the initial deposit, so that this figure should now be $920,000.

24. Mr. Cheung confirmed paragraph 8 of his statement, and he said that the agent he placed the property with told him that the market value of the property had since the date of the agreement dropped substanitally and was still falling at the time of the breach by the defendant. He added that he had placed the property with several agents, including Midland Realty, who handled the sale in the end, and Ribicorp, Centaline, and two other agents.

25. At paragraph 12, he mentions Francis Lo of Midland Realty, who was the agent he dealt with. In reference to paragraph 13, where he says that he obtained through his banker an oral valuation of the property from Mr. Raymond Ho of Vigers who estimated that the then market value of the property was $22,000,000, but he does not have a note of that conversation.

26. As to paragraph 17, Mr. Cheung said that he thought the three agencies he mentioned told him that prices were falling, but he has no written note of these conversations.

27. As to the correspondence, Mr. Cheung confirmed that he did not accept the offer made in the letter of 21st April 1998. Mr. Cheung confirmed the contents of the letter dated 22nd April, which was on his instructions and which was sent by fax at 9.43 am. Mr. Cheung agreed that the defendant company was given until l pm to make an offer accompanied by a cashier's order, which was a matter of 3 hours and 17 minutes. He did not receive the signed provisional agreement with Kim Chee until late that afternoon.

28. Mr. Cheung agreed that when the letter was sent, he already had a 10% deposit belonging to the defendant company and he was asking for another 10% deposit by cashier order, and he added that it was in case he decided to accept the offer. Mr. Cheung denied that there had been a telephone conversation preceding the letter of 21st April in which the later completion on 27th July 1998 was suggested by Messrs. Kok & Ha.

29. The offer from Kim Chee was received through the agent by telephone on 20th April, and the agent said that he had cheque in hand. He did not take up the offer from Kin Chee immediately because he had to seek confirmation of the valuation.

30. When he entered into the provisional agreement for sale and purchase with Kim Chee on 22nd April at about 4 pm he did not know that it was a BVI company and he did not know the people behind it. It looked like a Hong Kong company. By the time Kim Chee's status became known to him, he could not refuse to comply with the terms of the provisional agreement. When he signed the provisional agreement, he was mainly concerned with the deposit in case Kim Chee did not comply with its obligations under the agreement.

31. By the time he received the letter of the 21st he had not yet accepted the Kim Chee offer. He received the initial deposit of $750,000 on 22nd April. Although the land search shows that the date of the formal agreement was l2th May, he signed it on 4th May, and received the further deposit of $1.75 million on that date. He has documents to support this, and he produced the letter dated 4th May, together with copy cheque in the sum of $1.75 million dated 4th May, and these were admitted into evidence and marked P1. The balance of $22.5 million was received on completion on 5th June. He put the deposits in the bank on deposit account.

32. In re-examination, Mr. Cheung confirmed that when he signed the formal agreement with the defendant company, a company search was done and showed that the defendant company owned two properties. In relation to both the defendant company and Kim Chee, he did not do a company search when the provisional agreement was signed.

Defendant

33. Mr. Cheung Hsian Sang gave evidence for the defence. He affirmed the contents of his statement at page 130 of the bundle.

34. In his statement, at paragraphs 9, 10, and 11, Mr. Cheung for the defendant says that after the completion fell through, the defendant initiated negotiation through the estate agent as well as the defendant's solicitors with a view to carrying on with the sale and purchase. Eventually by a letter from the defendant's solicitor dated 21st April 1998, the defendant offered to continue the purchase of the property at the original price as in accordance with the sale and purchase agreement except with a new completion date of 27th July 1998.

35. In his statement, Mr. Cheung goes on to explain that this would give the defendant more time to arrange finance. The defendant offered a further deposit of $l million because it thought that the further deposit was really a matter of good faith but not an essential term as the defendant was bound to complete the purchase in any event. Having received the plaintiff's solicitor's letter of 22nd April, 1998, the defendant agreed to increase the further deposit to 10% and, in order to demonstrate the defendant's sincerity, the proposed completion date was brought forward to 29th June 1998. The revised offer was contained in the letter of 27th April 1998.

36. By the letter dated 28th April, 1998, the plaintiff advised the defendant of the sale for $25 million, substantially less than the $28.8 million which the defendant offered to pay. He cannot understand the plaintiff electing to sell the property to a new purchaser at a much lower price than that offered by the defendant. The new purchaser cannot be said to more creditworthy or had a better chance to complete as it is a BVI company, and the deposit of $750,000 is less than the $1 million further deposit offered by the defendant and much less than the $2.88 million deposit already paid by the defendant under the sale which fell through. The defendant had no prior knowledge that the plaintiff had already entered into provisional agreement to sell the property to the new purchaser before the defendant's offer of 27th April 1998. As reflected in the new price of $25 million, the market value of the property had remained relatively stable over the period. There was no reason for the plaintiff to rush into the deal with a BVI company on terms much less favourable than those offered by the defendant. For these reasons, the defendant says that the plaintiff failed to mitigate its loss reasonably.

37. In cross examination, he agreed that the defendant company is substantial, owning two properties with a net worth of over 4l.5 million. He confirmed paragraph 6 of his affidavit, that he is a director and shareholder in Yang's Taxi Company Limited, the shareholding being divided as to 50% to his mother and 50% to himself, and that the company owns 50 taxis with licences each worth $2 million even at today's low prices, so that the assets of the company are worth $100 million. He did not agree that he was a rich man, saying that he has to work every day.

38. He agreed that the price of the property was $28.8 million, that he intended to borrow 70%, about $20 million. The provisional agreement was entered into on 9th January, 1998, with completion to take place on 9th March, 1998, so that he had two full months to obtain the $20 million mortgage, but he was unable to raise it. He confirmed his statement at the end of paragraph 6 of his statement that his back up plan was to sell some of the taxis if the bank finance could not be arranged, but it was a very bad time for the economy with everything going down and he decided it was not a good time to sell taxis. He agreed that he could have sold taxis but he made a conscious decision not to sell. He knew that by failing to complete the purchase, the vendor could terminate contract and forfeit the deposit. By 9th March, 1998, he knew that the market price of the property had fallen. When it was put to him that Vigers' valuation showed a fall of 16%, he said he did not know the exact figure.

39. The letter dated 21st April, 1998, was marked "c.c. client", and he received a copy. He did not disagree with the contents of the letter. He agreed that he knew it was some time after the 10th March 1998 when the letter was sent and he knew that the sale and purchase agreement was terminated, that the 10% deposit has been forfeited, and that the agreement was no longer in existence. When it was put to him that he knew that the 10% deposit belonged to the vendor, he said that all he knew was that it was forfeited. When pressed further on this point, he said that it was not in his bank account, it was in someone else's, that he could not use it, it was not his. He made no claim after the forfeiture and he no longer regarded the money as his.

40. Although he knew that the agreement was terminated, the words used in the letter were that the defendant company "offers to continue the purchase of the said property in accordance with the sale and purchase agreement dated 22nd January 1998..." After 9th March there were discussions between him and the vendor through the solicitor and agent. He agreed that although the agreement was terminated, he thought the vendor was still interested and willing to discuss with the solicitor to reach an agreement. He did not go into technical definitions.

41. He agreed that from the date of the letter to the completion date of 27th July was more than three months, although he had the ability to complete earlier by resorting to the back up plan, but he said that it was not a good time to carry out the back up plan, and he thought 27th July might be a better time.

42. On 21st April, the bank offered him only 60% and not 70% on a valuation of only $22 million and not $27 million, which resulted in an offer of $13.2 million. He could not raise the balance so there was no point in accepting the bank offer. He did not think the bank would increase the amount in three months time, but the new airport was opening on 7th July, the taxi fare would be $300, so he thought that by the 27th July there would be an increase of passengers which would enhance the value of the taxis, resulting in his back up plan producing more capital. He made a commercial decision to seek a three month delay in the settlement of the purchase.

43. The January 1998 transaction, when he made the offer, together with a cheque for the deposit, and signed the provisional agreement, was all done through the agent.

44. The letter dated 22nd April 1998, marked "c.c. client", was sent to him by fax.

45. When Mr. Cheung was asked whether later he became aware that the property had been sold to Chim Kee through the newspaper, he said 'no', when it was suggested to him that he did learn of the sale through the newspaper he said 'what do you mean', the question was put again and he replied 'not until later', and on the final occasion when the question was put to him, he replied 'no, I did not.' Mr. Cheung was not re-examined.

SUBMISSIONS

46. Mr. Merry for the defendant made submissions on two aspects of the case, the main one being the conduct of the vendor, with the second relating to the construction of clause 8 and whether it was enforceable.

CLAUSE 8

47. Mr. Merry commenced with his argument by submitting that Clause 8(a) provides for forfeiture of the deposits upon the purchaser's failure to complete, and the vendor appears to have opted to rely on this subclause. Clause 8(b) provides for recovery by way of liquidated damages for loss flowing from the purchaser's breach, and additionally recovery of interest lost . Clause 8(c) deals with specific performance.

48. The deficiency on resale and expenses are not liquidated damages, since liquidated damages is by definition an agreed amount stated and calculable at the time of the contract. Mr. Merry concludes that either liquidated damages is a misnomer or the part of the subclause dealing with loss on resale is penal. There is no requirement that the resale value should be reasonable or that the plaintiff should mitigate its loss. It is possible that the plaintiff could sell to a nominee company for $1.

49. The use of the words 'without prejudice' incorporates an ambiguity into the clause since it could be interpreted as meaning additional or alternative damages. If interpreted as additional damages, then there is a danger of double recovery. If interpreted as alternative damages, the plaintiff must chose either the difference in the sale price and expenses or actual loss, whatever that means. If it means general damages at common law, then the plaintiff should be put back into the position it would have been in had the sale been completed with the defendant. Once additions are incorporated, then the point of liquidated damages is destroyed.

50. The statement of claim pleads clause 8. If common law damages then the plaintiff must mitigate its loss and the test of reasonableness must be considered. The plaintiff must give credit for gains made in the course of the matter, the result being actual loss.

51. The forfeited deposit has been held by the plaintiff for months, and any resulting gain should be taken into account. On the resale, the plaintiff received two deposits of $750,000 and $1.75 million, which the plaintiff would not have received but for the defendant's default. The legal costs have not actually been paid by the plaintiff yet, although Mr. Cheung had instructed his firm to handle the costs through his partnership account and he had produced a receipt from his firm. It would not be surprising if the firm waived the fees, the plaintiff paying only the disbursements.

52. Mr. Chan for the plaintiff submitted that the argument on clause 8 is a non-point. There is no question of the plaintiff claiming liquidated damages as such under clause 8(b). As to the distinction between 8(b) and Common Law, this is misconceived. It is elementary that under clause 8(b) there is a duty to mitigate and the principle that the resale must be at market value is applicable. To sell the property to a nominee company for $1 would not be countenanced by the Court. Clause 8(b) is a standard provision in Hong Kong agreements, and the same clause can be found in the agreement for sale to Kim Chee. The submissions on behalf of the defendant have no merit.

53. As to the deposit of $2.88 the plaintiff agrees that the defendant should be given a credit for this. As to the interest earned by the plaintiff on the deposit, the defendant is not entitled to have this taken into account, since once the deposit is paid over it becomes the property of the vendor.

54. As to the legal costs, these are recoverable since there is evidence that C Y Kwan & Company (CYK) sent a bill to the plaintiff, and the plaintiff gave instructions that payment should be made through his partnership account with CYK. There is no evidence that CYK waived its fees, and this was not put to Mr. Cheung for the plaintiff. There is no suggestion that he will not pay, it is simply a matter of time and accounting procedures as to when the payment is made. The plaintiff company is under an obligation to reimburse Mr. Cheung for the legal costs. The plaintiff company must be entitled to recover such fees as part of the damages.

CONDUCT OF PLAINTIFF

55. Mr. Merry submitted that the issue is whether the plaintiff acted in a reasonable manner. The agreement was promptly rescinded and the deposit forfeited on 10th March. It is common ground that there were some negotiations, although there is a dispute as to the effect of those negotiations. The plaintiff was very prompt in filing the Writ on l9th March, with the Order 86 summons filed on 17th April. On 21st April, the defendant offered to continue with the purchase. Although the wording of the letter is less than accurate as to the legal position between the parties, the plaintiff would have understood the intent that the original contract terms would apply with a further deposit of $l million, and seeking acceptance of this offer. The letter of 22nd April expresses doubts as to the sincerity and bona fides of the defendant and refuses the offer. The plaintiff then makes an offer, giving the defendant three hours and seventeen minutes to accept, accompanied by a cashier order. Failing acceptance, the plaintiff reserves its right to sell to other purchasers.

56. The plaintiff's behaviour is consistent with punishing the defendant, while keeping its options open. The letter of 27th April offers a larger deposit with an earlier completion date, but in its letter of 28th April the plaintiff advises of the sale to another purchaser but no details are given. While the $2.88 million deposit, although technically belonging to the plaintiff, is money which should be taken into account as not fully belonging to the plaintiff. The deadline set by the plaintiff was not reasonable.

57. The letter of 30th April setting down the history of the case clearly shows a harboured resentment by the plaintiff against the defendant. The plaintiff was not reasonable, knowing as it did that the defendant company had substantial assets, it was a company worth suing, even for specific performance.

58. The issue is whether the steps taken by the plaintiff were reasonable, the defendant submits that they were not because of a failure to mitigate loss.

59. Mr. Chan submitted that the contract was terminated on 10th March, 1998, the property was resold on 22nd April for $25 million which, even on the basis of the defendant's own valuation, was more than the market value of $24.76 million as at 20th April, 1998. The only issue is whether the vendor should have accepted the purchaser's 'offer' dated 21st April, 1998, in terms of reasonableness. In considering this issue, I should bear in mind that not only had the defendant failed to complete the purchase on 9th March, it had breached the terms of the settlement reached between the parties mentioned in paragraph 10 of the plaintiff's statement. This is not disputed by the defendant in its statement.

60. As to the 'offer' in the letter dated 21st April, 1998, in which the defendant seeks to complete on 27th July, three months later, and which was not even accompanied by a cheque. This offer is neither bona fide nor reasonable. The agreement of January 1998 was terminated on 10th March, 1998, and the deposit of $2.88 million was forfeited. A fresh offer has to be independent of the January 1998 agreement and not 'in accordance with' it. The deposit is not in accordance with the conventional deposit of 10% of the purchase price, with only $l million being offered. The suggested date of completion of 27th July 1998 is more than three months from the date of the letter and is too long. The defendant does not need such a period of time for the bank to approve its mortgage application. The only explanation is that the defendant is obtaining another three and a half months to watch the property market on the promise to pay $l million.

61. As to the plaintiff's letter of 22nd April, 1998, a bona fide purchaser would have replied promptly that the time was too short and sought more time. In fact there was no contact until the defendant's letter of 27th April. The defendant's conduct speaks far louder than the submissions made on its behalf. It is not a sustainable argument to suggest that the third paragraph on the first page of that letter could be construed as a 'counter offer', still less an option. It simply expresses concern over the sincerity and bona fides of the purchaser, stating however that if the defendant wishes to purchase the property it should submit an offer with a cashier's cheque for the vendor's consideration.

62. As to the plaintiff's solicitor's letter of 30th April 1998, it is suggested that this letter demonstrates the vendor's resentment against the defendant. This letter simply records the sequence of events to demonstrate that the purchaser is neither bona fide nor reasonable, it is a perfectly reasonable letter by a solicitor in the proper discharge of his duty.

63. As to the submission that the plaintiff company was punishing the defendant company in demanding the further 10% deposit, this should be ignored. It is settled law that even if a purchaser is one minute late on settlement, the vendor is entitled to exercise its legal rights, and it must do so promptly, to avoid being held to have acquiesced in the delay. Authority for this can be found in Ip ming wai v. World Ford Development Ltd. (1994) 2 HKLR 1.

CONCLUSION

Credibility

64. I did not find Mr. Cheung for the defendant company to be a credible witness. He was clearly evasive and attempted to tailor the evidence to suit his own case.

65. I found Mr. Cheung for the plaintiff company to be a credible witness, and I accept his evidence.

Construction of Clause 8

66. As to the forfeiture of the deposit, in Dawson Enterprises Limited v. Talisteam Limited, HCMP 790 of l994, at page l2, Mr. Justice Barnett, quotes an extract from the English Law Commission's report, Penalty Clauses and Forfeiture of Monies Paid, Law of Contract Working Paper No. 6l (l975), which concisely sets out the concerns and the approach taken by the courts -

"It will be seen that, like a penalty clause, a deposit can be regarded as operating in terrorem. Yet the courts do not seem to regard this as a reason why its forfeiture should not be upheld. Nor does the amount of the deposit necessarily bear any relation to the loss that a breach of contract might cause to the party in breach: the ten per cent deposit on the sale of land is an arbitrary amount and can be retained by the vendor on the purchaser's breach even if he suffers no loss - indeed, even if he makes a profit on a resale and, because the market price of houses is rising, it was foreseeable when the original contract was made that he would do so. Since the forfeiture of a deposit does not prevent the vendor from suing for damages (giving credit for the amount forfeited) if he suffers further loss, he appears thus to get the best of both worlds. Yet, subject to equity's power to grant relief, to which we return below, it has been said that an order for the forfeiture of the deposit is 'one which is to be made ex debito justitiae ..."

67. The main concern relates to cases where the vendor suffers no loss, and in some cases where the vendor makes a profit on a rising market. However, forfeiture of a deposit does not prevent the vendor suing for damages for loss on resale but giving credit for the forfeited deposit.

68. I accept Mr. Chan's submission that there is no question of the plaintiff claiming liquidated damages under clause 8(b), and that under clause 8(b) there is a duty to mitigate and that any resale must be at a market value.

Was the conduct of plaintiff company reasonable

69. By its failure to complete the purchase on 9th March, the defendant was in breach of the agreement. The vendor gave notice of rescission on the 10th March. I find that this was necessary and reasonable to protect the rights of the plaintiff, and that delay in giving notice would have prejudiced the plaintiff in that arguments on the issue of acquiescence could have arisen.

70. There is the evidence of this breach, and the evidence of negotiations for settlement, which the defendant then denied had been finalised. There is the evidence of the defendant's letter of 21st April, attempting to impose its own terms for continuing the agreement with a three month completion date. The plaintiff's fax of 22nd April advised the defendant of a firm offer having been received, but gave the defendant a final opportunity to make a firm offer, accompanied by a cashier's order for the 10% deposit. I accept this letter as entirely appropriate to the circumstances at the time. The defendant was told of a firm offer having been received, and I see no reason why the plaintiff should disclose to the defendant the details of the offer. The vendor gave the defendant a final chance. The defendant had not shown itself to be prompt in pursuing the purchase of the property, and the plaintiff could not be expected to delay taking up the firm offer for fear of losing it. There is no reason why the plaintiff should have given the defendant any longer to make up its mind whether to make a firm offer. It is quite clear that the defendant company had substantial assets and, in its own evidence, the defendant makes it clear that there was no reason why it could not have taken steps to arrange a mortgage to complete the purchase. It is not acceptable to expect the plaintiff to await the commercial convenience of the defendant in the sale of its property in a falling market.

71. I do not accept that there is any evidence of resentment on the part of the plaintiff in the contents of the correspondence sent by its solicitors. Its solicitors were carrying out their professional duty in setting out their client's legal position and its rights arising out of the defendant's failure to complete the January agreement. In my view, there is nothing of the malign in the letters sent.

72. Much has been made of the sale to Kim Chee at $25 million. This was a resale at a higher figure than the valuations of both the plaintiff and vendor valuers as at the 20th April, when the offer was made. I accept the evidence of the plaintiff as to the change of date from 20th to 22nd April. It was necessary for the plaintiff to take time to check the valuation, and it acted properly in checking with its bank and obtaining a valuation before committing itself to the sale to Kim Chee. I also accept the plaintiff's evidence as to the signing of the formal agreement on the 4th May, although it is dated l2th May on the copy registered in the Land Registry. I am satisfied that the plaintiff acted in a reasonable manner in entering into this agreement in mitigation of the damages.

73. The defendant raises the question as to why the plaintiff entered into an agreement with a BVI registered company about which it knew nothing for $25 million when it could have sold to a Hong Kong registered company it knew to have substantial assets for $28.8 million. The defendant omits the important circumstance that it had not shown itself to be vigorously pursuing the purchase of the property, leading the plaintiff to have doubts as to whether it was genuine. In my view, the plaintiff's solicitors were justified in expressing their client's doubts as to the defendant's sincerity and bona fides given its behaviour when dealing with the completion on 9th March and later in its settlement negotiations.

74. I find that in all the circumstances of this case, some of which I have particularly identified above, the plaintiff acted at all times in a reasonable manner in its dealings with the defendant and in the resale of the property to Kim Chee.

75. All that remains is for the quantum of damages to be assessed against the defendant.

QUANTUM OF DAMAGES

76. I do not accept that credit should be given to the defendant for the interest earned by the plaintiff on the deposit of $2,880,000.

(a) As to the claim for loss of profit, I award damages of $920,000 ($28,800,000 - ($25,000,000 + 2,880,000).

(b) As to the claim for loss of interest on the net sale proceeds of $14,353,443.15 (being the balance of the purchase price of $25,920,000 less the outstanding mortgage loan of $11,566,556.85) from 9.3.98 to 4.6.98 at judgment rate, I accept the defendant's submission that the payments of $750,000 on 22.4.98 and $1,750,000 on 4.5.98 should be taken into account. The parties have agreed that the interest rate should be 7% . I make an award of damages for loss of interest as follows -

on the sum of $14,353,443.15 from 9.3.98 to 21.4.98, being 44 days, at 7% per annum = $121,119.47

on the sum of $13,603,443.15 from 22.4.98 to 3.5.98, being 12 days, at 7% per annum, = $31,306,55

on the sum of $11,853,443.15 from 4.5.98 to 4.6.98, being 32 days, at 7% per annum, = $72,744.42

Total interest = $225,170.44

(c) As to the interest paid by the plaintiff on the mortgage loan from 9.3.98 to 4.6.98 as charged by the bank, I accept the plaintiff's figures, and I make an award of $291,557.70.

(d) As to the management fees of the property paid by the plaintiff from 9.3.98 to 4.6.98, I accept the plaintiff's evidence, and I make an award of $13,549.80

(e) As to the Government rates on the property paid by the plaintiff from 9.3.98 to 4.6.98, I accept the plaintiff's evidence, and I make an award of $11,741.00

(f) As to the estate agent's commission on the re-sale of the property, I accept the plaintiff's evidence that the commission was paid by a company cheque, and I make an award of $250,000.

(g) As to the legals costs on the re-sale of the property, there is no evidence that the CYK waived its fee, and Mr. Cheung gave instructions that the bill is to be paid through his partnership account, and the company will reimburse Mr. Cheung. It does not appear to me to be the kind of situation where legal fees are likely to be waived on the basis of courtesy to a partner of the firm or between members of the profession. On the evidence before me, I am satisfied that the legal costs are recoverable in this case, and I therefore make an award of $45,360.00

In summary the damages awarded are as follows -

(a)	Loss of Profit	$920,000.00
(b)	Loss of Interest	$225,170.44
(c)	Loss of Interest	$291,557.70
(d)	Management fees	$13,549.80
(e)	Government rates	$11,741.00
(f)	Estate agent's commission	$250,000.00
(g)	Legal costs	$45,360.00
	Total	$1,757,378.94

Interest

I order that interest be paid on the damages at judgment rate from the date of judgment until payment.

Costs

77. I make a costs order nisi to be made absolute within 21 days of the handing down of this decision that costs of the assessment be to the plaintiff, together with certificate for counsel, to be taxed if not agreed.