LAM KIN CHOR v. LIU GUN SING

HCA 1637/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1637 OF 1998

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ASSESSMENT OF DAMAGES

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BACKGROUND

1. The Plaintiff claims against the Defendant for damages and loss arising out of repudiation by the Defendant of the Agreement for Sale and Purchase of the property known as Flat H on the 4th Floor of Block 7 of Belvedere Garden Phase 2, No. 260 Castle Peak Road, Tsuen Wan, New Territories.

2. By an Agreement dated 7th July 1997 the Plaintiff agreed to sell and the Defendant agreed to buy the property at a price of $4,100,000.00. The Plaintiff was not the owner of the property; he himself was in fact a buyer of the property from the registered owner under a different contract dated much earlier, 20th March 1997 at a price of $3,600,000.00. Both agreements had the same completion date i.e. 30th September 1997. For this reason the Plaintiff could have used the purchase money from the later dated contracted to complete the purchase of the earlier contract. It had been the Plaintiff's wish that he could earn $500,000.00 without using his own money at the completion. Neither would he have to raise any loan had the transaction gone through smoothly. The Plaintiff was a computer operator but did some speculation on properties. He had bought and sold properties for six and seven times.

3. On 30th September 1997 the Defendant did not complete the purchase. The Plaintiff forfeited the deposit of $410,000.00 paid by the Defendant and also claimed damages.

4. The Defendant first defended the action. After hearing an application under Order 14 Judgment was entered against the Defendant for the Plaintiff with damages to be assessed. The case now appears before me for assessment.

5. In the Statement of Claim the Plaintiff has listed out the damages and loss claimed under different heads. I intend to deal with each of them as I give my reasons hereafter.

DEFICIENCY IN PRICE

6. The Plaintiff claims for a sum of $1,000,000.00. After 30th September 1997 the Plaintiff offered to sell the property again through two large estate agents' firms, Centaline and Midland. His asking price was $4.1 million, the same as the price in the sub-sale agreement to the Defendant. On 1st December 1997 he succeeded in selling the property and entered into a preliminary agreement for sale at a price of $3,100,000.00. It is not in dispute that the sale and purchase was an arms length transaction.

7. The Defendant's main argument is that the Plaintiff did not take reasonable steps to mitigate the loss by putting up the property for sale earlier. Had he done so, the price would have been much better. The Defendant first produced the Valuation Report of Peter Cheung Surveyors Limited dated 6th September 1999. The Valuer assessed the open market value of the property as at 30th September 1997 was in the order of HK$4.2 million. By consent I was asked to ignore this report, which I did and I would not take this report into consideration in my Judgment. The Plaintiff further complained that because of the delay as the market had suddenly plummeted and price dropped dramatically, the Plaintiff suffered more loss than necessary.

8. The Plaintiff produced a valuation report prepared by Centaline Surveyors Limited dated 13th May 1999 which gave a valuation of $3,900,000.00 as at 30th September 1997 and $3,050,000.00 as at 12th December 1997. Mr. Wong for the Defendant accepted this Report and relied upon the figures to make his submission. In the Agreement of 7th July 1997 the Defendant committed to purchase the property at $4,100,000.00 which was very close to the assessed market value. Similarly the resale price to a 3rd party by the Plaintiff on 1st December 1997 at $3,100,000.00 was also very near to the market value at that time as assessed.

9. As the valuation is not in dispute the point I have to decide is whether there was a delay and if any, whether it was reasonable. The Defendant complained in paragraph 8 of his witness statement that "the Plaintiff did not put up the property for resale after informed by me of my intention not to proceed with the transaction". This argument was put forward by Mr. Wong. I do not know which exact date the Defendant had in mind as he did not specify it in the statement. Neither did he choose to give evidence. The earliest date I can find among the evidence to indicate that the Defendant did not intend to proceed with the purchase is 15th September 1997 when the then solicitor sent a letter to the Plaintiff alleging that there was an agreement. This date is taken by Mr. Wong as the basis for calculating delay.

10. I have the benefit of hearing the evidence of the Plaintiff and seeing him in person. I find that he was an honest and truthful witness. He frankly conceded points even though not in his favour. After receipt of the letter dated 15th September 1997 his solicitors wrote back and denied the agreement. On 16th September 1997 after some telephone conversation between the solicitors for the respective parties the Plaintiff wrote back and treated the Defendant's act as repudiation and accepted the repudiation. However, the Plaintiff did not resell the property and still hoped that the Defendant would complete the sale.

11. Is such a delay of 15 days reasonable? In law there is no reason for the Plaintiff to wait as the Plaintiff accepted the Defendant's repudiation. In reality it is not unreasonable to hope that the Defendant would change his mind. If the Defendant had completed the purchase, the Plaintiff would not have gone through the trouble of looking for mortgage and would have made $500,000.00 profit. The completion date was not far away. It was reasonable to wait. If it had been months away, it would have been wrong to do so. Further, in the two letters it was not a straight forward repudiation by the Defendant. There was an alleged agreement between the parties that the Plaintiff did not claim for further damages. The Plaintiff denied such agreement and threatened that the Defendant was in repudiation. The position was not at all clear. I find it fair and reasonable for the Plaintiff to wait until 30th September 1997 so that he would be on safe ground to claim against the Defendant when the Defendant did not turn up with the money to complete the sale and purchase.

RESALE PRICE

12. The Plaintiff on 1st October 1999 instructed two estate agent companies, Centaline and Midland to do the marketing for resale. His asking price was $4.1 million. According to Centaline's valuation report made on 13th May 1999 the market price was $3,900,000.00 as at 30th September 1997. Was it reasonable for the Plaintiff to set the asking price at $4,100,000.00?

13. It is always easy to look at things with the benefit of hind sight. The Plaintiff asked for $4.1 million. I think it is reasonable. The selling price under the Agreement of 7th July 1997 between the Plaintiff and the Defendant was $4.1 million. No one would have realised that there was a small drop of $200,000.00, i.e. only 5% of the original price. The valuation report of Centaline was made more than one and half a year after 1st October 1997. I do not think anyone could spot a small difference of 5%. Even if he did, it gave room for negotiation.

14. The Plaintiff told us in the witness box that he was prepared to negotiate if someone offered a price. In fact, no one made any offer at all during the month of October 1997. He kept asking the estate agents once or twice a week. Some potential buyers went to inspect the premises but made no offer. The valuation report confirms at least one fact that the market price was dropping rapidly. After October 1997 the Plaintiff reduced the asking price. With a falling market could the Plaintiff easily find a buyer? I do not think the three months he used was an unreasonable period. I do not find there was any delay.

COMPLETION OF THE HEAD AGREEMENT

15. The Defendant in paragraph 8 continued with his complaint as follows:"Instead, the Plaintiff chose to complete the purchase of the Property under the Principal Agreement for the purchase price of HK$3.6 million at 30th September 1997 and then resold the Property to Yung Ping Cheung and Lai Chui Yuk Annie by an Agreement for Sale and Purchase dated 12th December 1997 at the purchase price of $3,100,000.00." Mr. Wong in his submission also adopted such line of defence. He did not complain that the selling price of $3.1 million was unreasonable because he accepted the valuation made by Centaline. He argued that the Plaintiff should not have completed the purchase with the head vendor pursuant to the head agreement of 20th March 1997. His contention was that if the Plaintiff had not completed, he would not have spent the stamp duty, the mortgage charges and the legal fees. The Plaintiff should let the head vendor claim against him and he would be indemnified by the Defendant with a 3rd Party action.

16. The question I have to ask is whether the Plaintiff had made the right decision to complete the sale and purchase under the head agreement. I find that the Plaintiff had legal obligation to complete. It is morally and legally wrong for a legal adviser to advise his client to break the terms of a contract. There is no justification at all for the Plaintiff not to complete. I find that the Plaintiff rightly incurred the expenses for raising the loan and completing the purchase.

TERMS OF THE LOAN

17. The Defendant also contended that the Plaintiff did not shop around the market to find the best terms to do the mortgage. The Plaintiff was introduced by his friend to Honour Finance Co. Ltd. which asked for an interest rate at prime plus 0.25% and with a penalty for early repayment equivalent 2% on the amount outstanding. (At the hearing I disclosed my close connection with Honour Finance Co. Ltd. before joining the Judiciary. Parties raised no objection to my hearing the case.) From the date of the Defendant's indication of rescission on 15th September 1999 to completion the Plaintiff had only a fortnight to manoeuvre. It is public knowledge that interest rate for mortgage has always been above prime until recently. The prepayment penalty after a short period of loan could not be said unreasonable. I find no merit in the Defendant's argument. In fact the finance house did not charge the full 2% but a sum of $21,148.00 approximately 1% of the outstanding loan.

18. For the reasons given I find the Plaintiff's claim proved.

OTHER POINTS

19. For the sake of completeness I deal with the other points raised by Mr. Wong other than those above.

20. He said that damages must be within the reasonable contemplation of the parties. The normal measure of damages is the contract price less the market price. I accept all these principles. But, in this case Clause 22 of the Agreement does not help him because Clause 22 clearly states:

"Should the Purchaser fail ... to complete the purchase in accordance with the terms and conditions herein contained ... the Vendor may ... forthwith determine this Agreement ... Upon determination of this Agreement the Vendor may resell the Property ... 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 reasonable expenses attending such 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 clearly sets out the basis for calculation of damages. It is not possible for the Defendant to argue that it is not within the Defendant's contemplation. I accept that the normal way of measuring damages is the difference between the contract price and market price. But, this is not the only way. As the Agreement has provided for a different method and it has been accepted by the parties, the Court should not interfere with what has been agreed unless it is unconscionable and unreasonable.

21. The Defendant also urges me to take the contract price to mean $3.6 million which the Plaintiff had to pay to the head vendor. I find no reason for doing so as the price in the agreement between the Plaintiff and the Defendant was $4.1 million. The Defendant quoted a passage from Chitty on Contract 1999 at Section 27-001: "Damages for a breach of contract committed by the defendant are a compensation to the claimant for the damage, loss or injury he has suffered through that breach. He is, as far as money can do it, to be placed in the same position as if the contract had been performed.". I do not think it assists the Defendant's case. What the passage says is the Plaintiff had to be compensated as if the sum of $4.1 million were paid in full.

CALCULATION OF DAMAGES

22. For reasons I have given the deficiency in price is $1,000,000.00.

23. I have found the interest and early prepayment fee as fair and reasonable. I allow $92,633.00.

24. It is not challenged that the Plaintiff had to pay 1% of the selling price to Centaline as commission for the resale. I allow $31,000.00.

25. Mr. Mok for the Plaintiff conceded that $17,410.00 had to be deducted from the item in respect of legal charges. I do not wish to make any comment on the concession. Mr. Wong only disputed whether it was right to complete the purchase and to raise the loan. He did not challenge the amount. I have found the purchase and the loan necessary. I take the amount of legal costs and disbursement at $35,040.00 as proved as the amount is not in dispute.

26. As to interest, there are always two questions worrying me and I invite parties to make submission. First, about date from which the charge of interest should commence, the Plaintiff suggested the dates on which each individual item incurred. There will be a number of dates, for example, the deficiency in price can be 1st October 1997 or 1st December 1997 and I also note that the invoices for legal charges were not paid until 8th May 1999. I accept Mr. Wong's suggestion to take the date of the Writ i.e. 4th February 1998. Mr. Mok does not object to this approach.

27. The rate of interest, Mr. Mok has proposed, should be the Judgment rate but Mr. Wong argues that as Judgment has not been entered until today it is wrong to take such rate. He has suggested a rate around the prime rate which I accept. After making reference to the different documents in the evidence I take 8.75% per annum as the pre-judgment rate.

28. The parties also agree that the forfeited deposit of $410,000.00 should be deducted from the compensation, which I will do.

29. The calculation of damages and loss is as follows:

(a)	Deficiency in price .....................................................	$1,000,000.00
(b)	Interest and early prepayment fee ..............................	$92,633.00
(c)	Commission to Centaline ...........................................	$31,000.00
(d)	Legal costs and disbursement ....................................	$35,040.00
	Total:	$1,158,673.00
	Less Deposit:	410,000.00
		$748,673.00

ORDERS

30. I order that final Judgment be entered for the Plaintiff against the Defendant:

(a) the sum of $748,673.00;

(b) interest thereon from the date of the Writ i.e. 4th February 1998 to the date of Judgement at the rate of 8.75% per annum;

and (c) further interest thereafter at the Judgment rate until full payment.

31. I also make an order nisi that the Defendant shall bear and pay the Plaintiff's costs in this action together with certificate for counsel except the photocopying charges for the 140 pages of documents which have been produced to Court in a separate bundle and are no more than duplication of the documents contained in the witnesses' statements. It is environmentally unfriendly and serves no purpose.