LEUNG CHUNG SING AND ANOTHER v. PAN LI

DCCJ 356/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 356 OF 2016

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REASONS FOR DECISION

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1.  On 25 Nov 2016, the plaintiffs applied by way of summons (“the summons”) for final judgment in this action against the defendant, pursuant to O.14 r.1 of the Rules of District Court, Cap.336H (“RDC”).This action arose from defendant’s failure to complete her purchase of a residential property from plaintiffs.

2.  I heard the summons on 10 Feb 2017. Mr Fung Pak Kay of counsel (“Mr Fung”) appeared for the plaintiffs while Ms Petra Lui of counsel (“Ms Lui”) appeared for the defendant. 

3.  After hearing both counsels, I gave final judgment in this action against defendant in sum of $804,957.05 together with interest, with costs of the action and this application to plaintiffs.

4.  Now I give my reasons.

Background

5.  On 23 Sept 2015, the plaintiffs as registered owners and vendors entered into an agreement with the defendant as purchaser (“the agreement”) to sell to defendant the property known as Flat B, 25/F, Tower 6, Manhattan Hill (“the property”) for $21,380,000 (“the sale”) to be completed on 31 Oct 2015 (“the original completion date”). According to the agreement, the property was then subject to an existing mortgage.

6.  The defendant had prior to the agreement paid plaintiffs initial deposit in sum of $641,400. At the signing of the agreement, she paid plaintiffs further deposit in sum of $1,496,600. That is, she has paid a total of $2,138,000 (i.e. 10% of purchase price) to plaintiffs by the entry of the agreement.

7.  By clause 13 of the agreement, time shall in every respect be of the essence of the agreement.

8.  Clause 14(a) of the agreement provides that, should the purchaser fail to complete the purchase, the vendor may forthwith determine the 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 said deposit or further deposits or instalments of the purchase price paid to the vendor absolutely as liquidated damages (and not as penalty).

9.  Clause 14(b) of the agreement reads:

“Upon determination or rescission of this Agreement pursuant to any provision herein, the Vendor may resell the Property …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 (after taking into account the amount, if any, forfeited by the Vendor) shall be made good and all reasonable expenses attending such resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor from the Purchaser as and for liquidated damages. Neither this Clause nor the exercise by the Vendor of any right of forfeiture shall preclude or be deemed to preclude the Vendor from taking other steps or remedies to enforce the Vendor’s rights whether hereunder or otherwise or prevent the Vendor from recovering, in addition to liquidated damages, any damages which he may have suffered, including but not limited to, damages representing interest paid or lost by reason of the Purchaser’s failure… (bold added by way of defence emphasis and italics my emphasis)”

10.  At defendant’s request and with plaintiffs’ agreement, the original completion date of the sale had been postponed 3 times ultimately to 7 Dec 2015 (“the ultimate completion date”), with 3 separate sums of $120,000, $180,000 and $110,000 paid by defendant to plaintiffs on each occasion respectively. That is, a total sum of $410,000 was paid by defendant to plaintiffs.

11.  On the ultimate completion date, the defendant failed to complete her purchase of the property.

12.  On 7 Dec 2015, plaintiffs’ then solicitors wrote to defendant’s then solicitors pointing out that plaintiffs, pursuant to clause 14 of the agreement, hereby determine the agreement, rescind the sale, forfeit deposit in sum of $2,138,000 already paid, and gave notice that plaintiffs are entitled to resell the property and may claim any deficiency in price and all expenses attending such resale from defendant in due course if it is necessary.

13.  On 22 Dec 2015, the plaintiffs as vendors entered into a provisional agreement (“the resale provisional agreement”) in the form of an estate agency company (“the agent”) to sell the property to new purchasers (“the new purchasers”) for $18,680,000 (“the resale”) to be completed on 15 Feb 2016 (“the resale completion date”).

14.  On 5 Jan 2016, the plaintiffs and the new purchasers entered into an agreement for the resale of the property (“the resale agreement”). According to the resale agreement, the property remained subject to the same existing mortgage. It also provides for each party to pay his own solicitors’ costs and expenses of and incidental to the resale agreement and the assignment.

15.  On the resale completion date, the resale was completed by the new purchasers.

16.  On 13 Jan 2016, plaintiffs’ solicitors wrote to defendant informing her that the property was resold for $18,680,000 on 22 Dec 2015 and demanded payment of plaintiffs’ loss and damage in total sum of $855,885 particularized therein within 7 days or else legal proceedings will be commenced.

17.  On 22 Jan 2016, plaintiffs’ solicitors on behalf of plaintiffs issued writ of summons in this action against defendant seeking a total of $855,885 being loss and damage suffered by them due to defendant’s breach of the agreement.

18.  On 1 Mar 2016, a statement of claim was filed seeking damages for different heads of claim set out in Schedule 1 thereof (“schedule 1”) in the total sum of $864,285.

19.  On 20 Jun 2016, a defence was filed on behalf of defendant by her former solicitors.

20.  On 12 Aug 2016, a reply was filed on plaintiffs’ behalf.

21.  On 25 Nov 2016, the summons was taken out by plaintiffs’ solicitors.

Evidence

22.  In support of the summons, Mr Leung Chung Sing of plaintiffs (“Leung”) filed two affirmations on 25 Nov 2016 and 20 Jan 2017 (“plaintiffs’ 1^st and 2^nd affirmations”).

23.  The defendant filed an affirmation on 15 Dec 2016 (“defendant’s affirmation”) to oppose the summons.

Particulars of plaintiffs’ claim

24.  The particulars of plaintiffs’ different heads of claim are set out in schedule 1 as well as in a table at para 19 of plaintiffs’ 1^st affirmation. The heads are the same in both places but the figures for some heads are slightly different in the 2 places.

25.  Before me, Mr Fung formally abandoned on plaintiffs’ behalf the pleaded head of “rental expenses for accommodation”. The remainder heads that plaintiffs seek final judgment are as follows and, according to him, are in the following sums:-

1)  deficiency in price between the sale and the resale in sum of $2,700,000;

2)  agency commission for the resale in sum of $186,800;

3)  legal costs and expenses for the resale in sum of $27,000;

4)  bank mortgage interest from 7 Dec 2015 to 14 Feb 2016 in sum of $14,277.91; and

5)  miscellaneous (government rent, rates and management fee from 7 Dec 2015 to 14 Feb 2016) in sum of $14,879.14.

26.  The plaintiffs, Mr Fung confirmed, will give credit for initial and further deposit totaling $2,138,000 forfeited and seek final judgment in total sum of $804,957.05 from defendant.

Analysis

27.  I have fully and carefully considered all evidence, submissions and authorities before I made my decision.

Applicable principles of law

28.  I believe that legal principles under O.14, RDC, are trite law and both counsels have helpfully cited to me relevant cases and passages from Hong Kong Civil Procedure 2017, Vol.1 (“HKCP”), which I have already taken into account. But I would like to stress and highlight the following ones.

29.  If the plaintiff’s application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed. If the plaintiff has raised a prima facie sustainable case in the first place, the burden then shifts to the defendant to satisfy the court why judgment should not be given against him: see HKCP, para 14/4/1.

30.  The defendant’s affidavit must “condescend upon particulars”, and should, as far as possible, deal with specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it. It should also state whether the defence goes to the whole or part of the claim, and in the latter case it should specify that part. A mere general denial that the defendant is indebted will not suffice. If a legal objection is raised, the facts and the point of law arising thereon must be clearly stated. Indeed, in all cases, sufficient facts and particulars must be given to show that there is a triable issue: see HKCP, para 14/4/4.

31.  In light of the above principles, I proceed below to consider below such arguments, if any, run in the defence, defendant’s affirmation or Ms Lui’s submissions to liability and quantum of (and each heads of) plaintiffs’ claim.

Liability

32.  Looking at the defence and defendant’s affirmation, as Mr Fung submitted and I agree, the parties’ entry to the agreement, its terms, the postponement of its completion and defendant’s failure to complete on the ultimate completion date are either admitted or not disputed as I have set out above.

33.  At para 4 & 20 of defendant’s affirmation, regarding plaintiffs’ loss, which they bear the onus of proof, defendant claimed there are multiple triable issues and difficult questions of law which render this case unsuitable for summary judgment. Ms Lui, I note, made no submission or argument on liability in her written skeleton or oral submissions either.

34.  As such, granted that plaintiffs’ case on liability is prima facie sustainable and their application properly constituted, I agree with Mr Fung that there is no arguable defence on liability and judgment shall at least be entered for damages to be assessed.

Quantum

Forfeiture of deposit

35.  It was, one notes, denied in the defence that plaintiffs are entitled to forfeit initial deposit and further deposit, to resell the property and to claim deficiency in price and consequential expenses against defendant[1]. If the deposits were liquidated damages, they would, it was said, cover the whole of plaintiffs’ entitlement. Their forfeiture would satisfy the whole of plaintiffs’ claim[2].

36.  Having forfeited deposits and having further claimed deficiency in price, defendant also argued at para 19 of defendant’s affirmation that there exists triable issue that plaintiffs’ claim had fully been satisfied.

37.  But the law is crystal clear. Bokhary PJ said at Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234, 249A-B, F-G:

”Provided that what the vendor takes as a deposit is within the bounds of an earnest of performance, it will constitute a true deposit. As such, it will be forfeited to the vendor if the purchaser wrongfully fails to perform his part of the bargain. This is so even if the vendor’s loss is less than the deposit. It is so even if the vendor suffers no loss at all. Indeed, it is so even if the vendor makes a profit by selling the property to someone else at a higher price. If the vendor’s loss exceeds the deposit, he is of course entitled to recover the full extent of his loss, giving credit for the deposit forfeited to him”.

“Contracts for the sale of land routinely provide that the purchaser shall pay a deposit of 10% and that such deposit shall be forfeited to the vendor if the purchaser wrongfully fails to complete. Deposits of 10% are routinely forfeited to vendors when purchasers wrongfully fail to complete. It is routinely accepted without question that a deposit of 10% is a true deposit”.

38.  The total 10% deposits plaintiffs forfeited are, I think, without doubt true deposit (and not as liquidated damages) as it is of the routine percentage. And Ms Lui did not seek to argue otherwise before me.

39.  Having so forfeited, the plaintiffs remain entitled at common law to sue for damages, giving credit for the forfeited deposits, where such unliquidated damages exceed their amount, or upon resale, to claim deficiency in price as liquidated damages plus expenses and interest. These common law principles are incorporated into clauses 14(a) & (b) of the agreement: Polyset Ltd, supra, 259F-260B, 262H-263C, 274J-275D, per Ribeiro PJ. Again, Ms Lui did not pursue this line of argument pleaded in the defence or raised by defendant.

Deficiency in price

40.  It was also averred in defence that plaintiffs may not claim deficiency in price in addition to other heads of claim (save for bank mortgage interest, government rent, rates and management fees between the completion date with defendant and the date of the resale) as they would have to incur those expenses in any event to gain that bargain[3].

41.  Defendant also said at para 11 of defendant’s affirmation that it would be unjust to award deficiency in price and agency commission & legal costs on the resale at the same time, and that is a difficult question of law for trial.

42.  Mr Fung repeated that the plaintiffs could recover deficiency in price, reasonable expenses attending the resale and interest pursuant to clause 14(b) of the agreement and also on general contractual principles at common law.

43.  I agree with Mr Fung that commission due to the agent, and legal costs payable, on the resale are expenses attending the resale recoverable from defendant under clause 14(b) and also at common law. But not for defendant’s failure to complete the sale, the plaintiffs would not have incurred these resale expenses.

44.  Any loss of bargain should, it was also pleaded, be calculated by the difference between the market price of the property at the original completion date and its sale price in the agreement.

45.  The objective of an award of damages for breach of contract is to place the innocent party in the same position as if the contract had been performed in accordance with its terms. In the case of a contract for the sale and purchase of property, where the purchaser breaches the contract by failing to complete, it is often said that the vendor will, in the ordinary case, be entitled to an award of damages equal to the difference between the contract price and the market value of the property at the completion date: Richy Bright International Ltd v De Monsa Investments Ltd (2015) 18 HKCFAR 232, para 42 & 43, per Ribeiro & Fok PJJ. Granted that completion had by parties’ agreement been postponed, it is, I think, not right to use the original completion date to assess such damages due to plaintiffs.

46.  Furthermore, the above common law principle is not absolute if to follow it would give rise to injustice. The court has power to fix other date as may be appropriate in the circumstances. On the basis of clause 14(b) the plaintiffs are entitled to rely, their damages can, I think, be assessed as at the date of the resale, albeit a short 15 days after the ultimate completion date: Alucase Co Ltd & another v Keen Lloyd (Holdings) Ltd, unreported, HCMP 3577/1998, 25 June 1999, p.7, per Cheung J (as he then was).

47.  Again, Ms Lui did not take issue on this point before me.

48.  It was further pleaded that the resale price did not reflect the market price of the property and was grossly undervalued. The plaintiffs had failed their duty to mitigate[4].

49.  On the latter point of mitigation, Ms Lui conceded that clause 14(b) of the agreement is a liquidated damages clause and thus there is no duty to mitigate. That concession is, I think, validly made as there is authority to that effect: Diamond Jubilee Investment Ltd v Chan Yiu Chung Sidney [2010] 1 HKLRD 638, 646 (para 21 & 22), per Ma CJHC (as he then was).

50.  But, in Diamond Jubilee Investment Ltd, supra, Ma CJHC (as then then was) also remarked at para 23 at p.646 that, in the context involving a resale, it must necessarily be implicit that any resale must be effected in good faith and at arm’s length. His lordship was prepared to go as far as to say that the duty is also not to act unreasonably in the circumstances.

51.  At para 15 of plaintiffs’ 1^st affirmation, Leung affirmed that they had received 3 to 4 offers from third parties through several independent property agents. The price of the resale was, he affirmed, the highest offer among the said offers received.

52.  Defendant at para 6 of defendant’s affirmation said these alleged 3 to 4 offers are bare assertion without the exact amount particularized. Their numbers “3 to 4” are ambiguous and throw doubt on the authenticity of the course of event. She said that it is unclear if the resale price was indeed the highest as alleged.

53.  Defendant added at para 7 that the property market was at a boom when she entered into the agreement in Sept 2015. It was in her reasonable contemplation that the market price of the property would increase toward the end of 2015. It was not natural or probable that the resale price would fall below the sale price to her on 22 Dec 2015. She produced and exhibit as ”PL-1” copy EPRC record showing property prices for apartments in Manhattan Hill as proof.

54.  Ms Lui in her written & oral submissions repeated defendant’s query above.  She submitted that there is triable issue as to whether the resale was effected in good faith or at arm’s length.

55.  Mr Fung stressed that the resale provisional agreement was made within 15 days after the failed sale, that the new purchasers are third parties and the resale was handled by independent estate agent like the agent.

56.  The transactions in exhibit “PL-1”, Mr Fung submitted, are not comparable. While it purported to show agreements entered between 15 Dec 2014 and 15 Dec 2016, those listed out were all entered into from April to Nov 2016 (our material period is the failed sale on 7 Dec 2015 and the completion of the resale on 15 Feb 2016). Moreover, while 5 of those listed transactions had prices over $25M, the size of the flats concerned are all at least 25% larger than the property[5].

57.  Mr Fung instead relied on transaction records Leung produced in para 10 to 13 of plaintiffs’ 2nd affirmation as exhibit “LCS-16”, in particular the sale records of Flat B, 28/F, Tower 3 of Manhattan Hill exhibited in “LCS-18”. The size of this comparable is similar to the property and the date of its instrument is 26 Feb 2016, which is close to the resale completion on 15 Feb 2016. It was sold for $18,280,000 i.e. $400,000 lower than the resale price. It strongly suggests that the resale was at market price.

58.  Ms Lui in reply submitted that this comparable came from a different tower and different floor and there could be many factors which affected transaction price. A mere comparison with this single comparable is, she submitted, insufficient to show that the resale was made in good faith and at arm’s length.

59.  Ms Lui submitted there exists serious factual disputes as to the value of the property at the material times which must be resolved at trial. In particular, expert opinion is required to ascertain the true market value of the property.

60.  I cannot accept Ms Lui’s submissions. The sum total of evidence before me fail, I think, to raise any triable issue that the resale was done otherwise in good faith and at arm’s length.

61.  The exact number of futile offers, and their exact amounts, plaintiffs had received for the property is, I think, immaterial so long the  resale price was the highest offer. It would certainly be in plaintiffs’ interest to accept the highest offer for the property. Such market transaction evidence already adduced by defendant casts no doubt on the resale price being the highest offer. The resale was done shortly after the failed sale. And there is nothing before me to suggest that the resale was e.g. a sale to a related party.

62.  All in all, the defendant had not discharged her burden to raise triable issue on this point.

Sums paid for completion postponement

63.  It was pleaded that the total sum of $410,000 received by plaintiffs to account for their “loss” in the delayed completion date should be justly deducted from their claim to avoid double compensation and/or unjust enrichment[6]. At para 8 of defendant’s affirmation, defendant also said there is a triable issue or complex question of law as to construction of the words in bold in clause 14(b) of the agreement.

64.  Ms Lui in her submissions also laid emphasis on such words in bold. She submitted that the total sum of $410,000 was “amounts forfeited by” plaintiffs as per clause 14(b) and thus credit should be given for them in any claim for deficiency in price.

65.  The object and basis for these sums being paid was, she said, to achieve completion of the sale. The plaintiffs had demanded these sums and received monetary benefit. However, the completion of the sale never went through. Accordingly, the basis these sums were paid wholly failed and they should either be refunded or set-off against plaintiffs’ claim. Otherwise, the plaintiffs would be unjust enriched at the expenses of the defendant. Hence, it is at least, she submitted, a serious dispute which ought to be tried whether plaintiffs should take into account the total sum of $410,000 they received.

66.  In reply, Mr Fung submitted that the parties had agreed that the total sum of $410,000 paid by defendant to plaintiffs did not form part of the price or be treated as deposit for the sale[7]. The 3 sums concerned were, he stressed, solely agreed for delayed completion of the sale at defendant’s request.

67.  In support of his submissions, Mr Fung led me through the then solicitors’ correspondences on these 3 postponements exhibited as “LCS-3”, “LCS-4” & “LCS-5” and, importantly, WhatsApp messages from defendant, her agent or representative to Leung’s mobile phone exhibited as “LCS-20”.He emphasized that these 3 sums totaling $410,000 were never “forfeited” by plaintiffs at all.

68.  I agree with Mr Fung for the following reasons.

69.  To start with, the 3 sums were never “forfeited” at all. Plaintiffs’ then solicitors had never so written to defendant or her then solicitors. In fact, they were “paid” to plaintiffs for plaintiffs agreeing to delay the completion of the sale. In WhatApp messages, the word “interest” was used; these sums were plainly asked for to compensate for delayed payment of the balance of purchase price due to delayed completion. Not a word of “deposit” or “installment of price” was used by the parties in WhatApp messages or by parties’ former solicitors in their correspondences to describe these 3 payments and all existing terms of the agreement were said to stand.

70.  The consideration for their payment, I think, never failed at all as each postponement did happen as plaintiffs agreed for their receipt. There was no total failure of consideration as alleged, let alone any alleged unjust enrichment to plaintiffs. Ms Lui’s submission is, I think, plainly misconceived at law.

71.  It is, I think, clear beyond doubt that the total sum of $410,000 should not be taken into account as per clause 14(b) of the agreement.

Agency commission & legal costs on resale

72.  It was pleaded that the lesser amount of agency commission payable by plaintiffs in the resale should be taken into consideration and be equitably set-off against its claim[8].

73.  In short answer to that, had the sale been completed, one thinks that the plaintiffs would not have incurred such agency commission on the resale at all.

74.  At para 10 of defendant’s affirmation, she underscored the word “reasonable” in the phrase “all reasonable expenses attending the resale” in clause 14(b) of the agreement. She complained of lack of breakdown or details of agency commission and of legal fee paid, and argued against their reasonableness, which was said to be required to be investigated at trial. 

75.  Ms Lui in her oral submissions repeated the same complaints made by defendant.

76.  Mr Fung referred me to clauses 12a & 12b of the resale provisional agreement, which provided that vendor commission of $186,800 shall be paid by the plaintiffs no later than 15 Feb 2016, and also a receipt dated 17 Feb 2016 issued by the agent addressed to the plaintiffs in respect of the resale of the property in the same amount exhibited as “LCS-9”. He submitted that such commission paid to the agent on the resale was “reasonable expenses attending the resale” as per clause 14(b) of the agreement. I agree.

77.  In addition, Mr Fung pointed out that Leung had at para 21 of plaintiffs’ 1^st affirmation exhibited copy receipts in total sum of $27,650 dated 4 Jan 2016 and 15 Feb 2016 from their former solicitors as “LCS-10”.

78.  Mr Fung submitted these receipts must, as was affirmed by Leung, refer to the resale of the property. Their dates are close to the resale. And the one dated 15 Feb 2016 was, on its face, said to receive payment from the new purchasers’ solicitors for the account of the plaintiffs. Again, he submitted that such legal costs incurred by plaintiffs on the resale are “reasonable expenses attending on the resale” recoverable under clause 14(b) of the agreement and at common law. I agree.

79.  Despite the total legal costs on these 2 receipts amount to $27,650, Mr Fung on instructions agreed to limit the amount he seeks final judgment on this head to $27,000 as was pleaded in schedule 1. This is, I think, a fair and sensible approach.

Bank mortgage interest

80.  Defendant at para 12 of defendant’s affirmation pointed to discrepancies as to loss figure for this head in plaintiffs’ 1^st affirmation and in schedule 1.

81.  Mr Fung pointed out that Leung had at para 22 of plaintiffs’ 1^st affirmation exhibited copy bank mortgage interest statements of the property issued by the bank concerned as “LCS-11”.

82.  Mr Fung demonstrated in court how to read the statements exhibited and how to calculate to arrive at the lower figure of $14,277.91 he now seeks final judgment. After such demonstration, this lower figure is, I note, fully supported by bank statements.

83.  Mr Fung also submitted that this head is recoverable under clause 14(b) of the agreement and at common law for failure to complete the purchase of a property known to be subject to existing mortgage. He cited Alucase Co Ltd, supra, where a similar claim was allowed by Cheung J (as he then was) at pp.7 & 8 of the judgment. I agree with his submissions.

Miscellaneous

84.  Mr Fung finally pointed out that Leung had at para 25 of plaintiffs’ 1^st affirmation exhibited as “LCS-13” copy receipts of government rate, rents for the relevant quarters and months.

85.  At para 18 of defendant’s affirmation, defendant again pointed to discrepancies in loss figure for this head in plaintiffs’ 1^st affirmation and schedule 1.

86.  At the said para 25 of plaintiffs’ 2^nd affirmation, Leung had made calculations using figures of the receipts arriving at the lower figure of $14,879.14 which plaintiffs now seeks final judgment.

87.  Mr Fung seeks recovery of the above payments by general principles of contract law. I agree.

Conclusion

88.  Hence, the defendant had failed to show any triable issue of facts or law, or any other reason, to warrant a trial of this action.

Disposition

89.  Accordingly, I gave final judgment in this action against defendant as I did in para 3 above.

90.  Finally, it remains for me to thank Mr Fung and Ms Luifor their assistance.