LUCKY SKY ASIA PACIFIC LTD v. LUO SHU FAN

HCA 842/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 842 OF 2010

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ASSESSMENT OF DAMAGES

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Case Summary

1. This is an assessment of damages payable by the defendant to the plaintiff for breach of an agreement for sale and purchase dated 10 April 2008 (the “Agreement”) for a property situates at Flat A, 23/F, Tower 3, Bel-Air, No 8 Bel-Air on the Peak Island South, No 8 Bel-Air Peak Avenue, Hong Kong with private cars parking no 80 on car park level 6, Bel-Air, No 8 Bel-Air on the Peak Island South, No 8 Bel-Air Peak Avenue, Hong Kong (the “Property”).

2. The plaintiff issued the writ herein on 9 June 2010 and obtained final judgment on 18 July 2011 by way of summary judgment.  The defendant appealed against the summary judgment.  The appeal on quantum was allowed.  Interlocutory judgment was entered on 30 September 2011 on liability in favour of the plaintiff with damages to be assessed.  This is the assessment.

3. The Property was in a new development.  The plaintiff had entered sale and purchase agreement with the developer to purchase the Property (the “Head Agreement”) and sub-sold it to the defendant.  In other words, the plaintiff was what is commonly known as a confirmor in property transactions in Hong Kong. Upon completion, the Property would be assigned directly by the developer to the defendant.

4. The contract price for the Property under the Agreement was $19,000,000. The date of completion for the sale and purchase under the Agreement was within 14 days of the defendant being notified in writing that an occupation permit relating to or covering the Property had been issued and no further certificate was required before the developer was in a position validly to assign the Property to the defendant.

5. The plaintiff’s then solicitors issued notice of completion to the defendant’s then solicitors on 29 November 2008 notifying the defendant that the completion would take place on 12 December 2008.  The defendant failed to complete on 12 December 2008.  The plaintiff agreed to extend the completion date to 16 December 2008.  The defendant still failed to complete.  The plaintiff terminated the Agreement and entered into agreement on 16 December 2008 to sell the Property to a third party at the price of $12,850,000.  The sale to the third party was completed on 21 January 2009.

6. The diminution in price was $6,150,000.  The plaintiff also claimed commission paid to estate agent for the Agreement in the sum of $190,000 and legal costs for selling the Property to the third party in the sum of $9,000. The plaintiff had forfeited the defendant’s purchase money paid under the Agreement in the sum of $3,800,000.  The plaintiff in its Statement of Claim claimed the net amount of $2,549,000.

7. The normal measure of damages for breach by purchaser for sale of land is the difference between the contract price and the market price of the property at the contractual time fixed for completion.  (McGregor on Damages (18^th ed.) paragraph 22-034)

8. The court had on 23 November 2011 granted leave for the plaintiff to adduce the valuation report prepared by RHL Appraisal Limited (“P’s Expert”) dated 9 December 2010 and for the defendant to adduce valuation reports prepared by Lawson David & Sung Surveyors Limited (“D’s First Expert”) dated 28 February 2011 and by Dudley Surveyors Limited (“D’s Second Expert”) dated 9 March 2011.

9. All valuation reports valued the Property as at 16 December 2008.  P’s Expert’s valuation was $13,300,000.  The valuations of D’s First Expert and D’s Second Expert were $15,500,000 and $15,520,000 respectively.

10. It is common ground of the parties that the proper measure for damages in this case is the difference between the contract price of $19,000,000 and the market price of the Property as at 16 December 2008.

11. The court had also directed the parties to file and serve List of Documents and to exchange witness statements.

12. The plaintiff filed its List of Documents on 24 November 2011 and filed the witness statement of Mr Chui Wai Man (“Mr Chui”) on 20 February 2012.  The defendant filed her List of Documents on 15 December 2011 but had not filed any witness statement.

13. Notice of Appointment for Assessment of Damages was issued on 2 December 2011 setting the hearing for this assessment to be commenced on 31 May 2012 (the “Assessment Notice”).

14. The defendant was represented by Messrs Danny Lau & Lam in this proceeding until 16 January 2012 when the defendant filed a notice to act in person.

15. The Assessment Notice had been served to Messrs Danny Lau & Lam when they were still acting for the defendant.  Although the defendant subsequently acted in person, she should have notice of the assessment hearing date.  The defendant did not attend the assessment hearing.  I proceeded with the hearing in her absence.

16. The plaintiff called Mr Chui as its witness.  The plaintiff also called Mr Siu Leung Hung (“Mr Siu”) of P’s Expert as its expert to testify at the assessment hearing.

The Terms of the Head Agreement and the Agreement

17. The following clauses of the Head Agreement are relevant:

(1)  Clause 5(2)

  The sale and purchase shall be completed at the offices of Messrs Woo, Kwan, Lee & Lo [solicitors for the developer] during office hours within 14 days of the date of notification to the Purchaser [the plaintiff] that the Vendor [the developer] is in a position validly to assign the Property to the Purchaser.

(2)  Clause 16(1)

  Should the Purchaser fail to observe or comply with any of the terms and conditions herein contained or to make the payments in accordance with Schedule 4 or any interest payable hereunder within 7 days of the due date, the Vendor may (subject to Clause 3(3)) give to the Purchaser notice in writing calling upon the Purchaser to make good his default.  In the event of the Purchaser failing within 21 days from the date of service of such notice fully make good his default, the Vendor may by a further notice in writing forthwith determine this Agreement.

(3)  Clause 16(2)

Upon determination of this Agreement pursuant to sub-clause (1):-

(a)  The sum paid by the Purchaser under item (i) of Schedule 4 by way only of deposit shall be forfeited to the Vendor; and

(b)  ….

(4)  Clause 16(3)

  Upon determination of this Agreement under sub-clause (1) the Vendor may resell the Property either by public auction or private contract subject to such stipulations as the Vendor may think fit and any increase in price on a resale shall belong to the Vendor.  On a resale, any deficiency in price shall be made good and all expenses attending such resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor as for liquidated damages … .

(5)  Schedule 4

  The purchase price mentioned in Clause 3(1) shall be HK$14,836,900.00, payable by the Purchaser to Messrs Woo, Kwan, Lee & Lo, Solicitors, as follows:-

(i)  the amount of HK$741,845.00 has been paid as deposit on signing the agreement preliminary to this Agreement;

(ii)  a further amount of HK$741,845.00, shall be paid on or before the 10^th day of April 2007 towards part payment of the purchase price;

(iii)  a further amount of HK$741,845.00, shall be paid on or before the 25^th day of June 2007 towards part payment of the purchase price;

(iv)  the balance of purchase price in the sum of HK$12,611,365.00, shall be paid within fourteen (14) days of the Purchaser being notified in writing that the Vendor is in a position to validly assign the Property to the Purchaser.

18. The following clauses of the Agreement are relevant:

(1)  Clause 3

The purchase shall be completed at the offices of Messrs N.K. Tsang & Co., Solicitors [the plaintiff’s then solicitors]:-

  (i) within fourteen (14) days of the Purchaser [the defendant] being notified in writing that an Occupation Permit relating to or covering the said premises has been issued and no further certificate is required before the Head Vendor [the developer] is in a position validly to assign the said premises to the Purchaser (“the Completion Date”). The Vendor [the plaintiff] undertakes to notify the Purchaser in writing upon receipt of such notification from the Head Vendor or its Solicitors.

(2)  Clause 17

  Time shall in every respect be of the essence of this Agreement.

(3)  Clause 18

  Should the Purchaser (other than due to the default of the Vendor) fail to complete the purchase in accordance with the terms and conditions herein contained, the Vendor may (without tendering an Assignment to the Purchaser) forthwith determine this Agreement by giving notice of termination in writing to the Purchaser or his Solicitors to such effect and the Vendor shall thereupon be entitled to re-enter upon the said premises and repossess the same if possession shall have been given to the Purchaser free from any right or interest of the Purchaser therein and the Vendor shall be entitled to forfeit all or any part of the purchase money paid hereunder.  Upon determination of this Agreement, the Vendor may resell the said premises either by public auction or by private contract or partly by one and partly by the other subject to such stipulations as the Vendor may think fit 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 reasonable expenses attending such resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor as for liquidated damages ….

The Plaintiff’s Evidence

19. Mr Chui adopted his witness statement filed herein as his evidence-in-chief.

20. In his witness statement, Mr Chui stated that on 27 March 2008 the plaintiff and the defendant entered into a preliminary sale and purchase agreement for sale and purchase of the Property at $19,000,000.  The parties subsequently entered into the Agreement dated 10 April 2008.

21. The defendant paid $950,000 to the plaintiff as initial deposit upon signing of the preliminary sale and purchase agreement.  The defendant paid a further deposit of $950,000 upon signing of the Agreement.  The defendant paid another sum of $1,900,000 as further deposit on 10 May 2008.  The balance of purchase price in the sum of $15,200,000 was to be paid upon completion.

22. The plaintiff was represented by Messrs N.K. Tsang & Co. (“NKT”) in the sale of the Property.  Messrs Terry Yeung & Lai (“TYL”) acted for the defendant in the purchase.

23. On 29 November 2008, NKT gave written notification to TYL under clause 3 of the Agreement.  NKT informed TYL that the completion of the sale and purchase of the Property should fall on 12 December 2008.

24. NKT did not receive the balance of the purchase price for the Property on 12 December 2008.  By a letter dated 12 December 2008 from NKT to YLT, NKT stated that the plaintiff would nevertheless suspend enforcement of its rights and would waive any claim against the defendant under the Agreement if the defendant tendered the balance of the purchase price payable under the Agreement by 3 pm on 16 December 2008 for completion.

25. No payment was received by NKT on 16 December 2008.  The plaintiff instructed NKT to issue a notice to LYT accepting the defendant’s repudiation of the Agreement.  On the same day, the plaintiff entered into a provisional sale and purchase agreement with a third party, Ms Tsoi Sheung Ho (“Ms Tsoi”), and sold the Property to Ms Tsoi at $12,850,000.

26. Mr Chui stated in his witness statement that he was informed by Mr Max Ong (“Mr Ong”) of Centaline Property Agency Limited (“Centaline”), the estate agent handling the Agreement, in around mid-December 2008 that the defendant had contacted Centaline and said that the defendant would not honour the Agreement.

27. When Mr Chui learned from Mr Ong that the defendant would not be able to complete the purchase on the original completion date ie 12 December 2008, he instructed two estate agents namely Hong Kong Property Services (Agency) Limited (“HKPSAL”) and Colliers International Agency Limited (“CIAL”) to look for potential purchasers for the Property.

28. The plaintiff also obtained a four-day extension from the developer and allowed the defendant to complete the purchase by 16 December 2008.

29. Before 16 December 2008, Mr Bierre Ho (“Mr Ho”) of CIAL informed Mr Chui that a potential buyer would buy the Property at around $12,750,000.  Mr Wong Ka Nam of HKPSAL found Ms Tsoi who was also interested in buying the Property at similar price.  After negotiation, Ms Tsoi agreed to improve her offer by $100,000 while Mr Ho’s client was not prepared to increase his offering price to beat Ms Tsoi.  The plaintiff decided to sell the Property to Ms Tsoi and signed a preliminary sale and purchase agreement with Ms Tsoi on 16 December 2008.  The sale was completed on 21 January 2009.

30. Mr Chui said that the plaintiff had paid $190,000 as commission to estate agent for sale of the Property to the defendant and had paid a further sum of $128,500 as commission to estate agent for sale of the Property to Ms Tsoi.  The plaintiff had also incurred additional legal costs for the sale to Ms Tsoi in the sum of $9,000.

31. Mr Chui stated that the property market had dropped quickly and vigorously in the second half of 2008 as a result of the economic tsunami caused by the bankruptcy of Lehman Brother Holdings Inc.  The plaintiff had not arranged mortgage to finance completion with the developer.  When the defendant failed to complete on 16 December 2008, the plaintiff was forced to sell quickly even at a lower price to avoid further loss.

Expert Reports

32. As stated above, the plaintiff had submitted one expert report prepared by Mr Siu, a director of P’s Expert.  Mr Siu valued the Property at $13,300,000 as at 16 December 2008.  Mr Siu also testified at the assessment hearing.

33. Mr Siu enrolled as a registered professional surveyor in the General Practice Division under the Surveyors Registration Ordinance (Cap. 417) in 2000.  He had over 13 years of professional experience in the General Practice Surveying field in Hong Kong.  He was elected in 1998 a professional member of the Royal Institution of Chartered Surveyors in the General Practice Division and a professional member of the Hong Kong Institute of Surveyors in the General Practice Division.

34. I accept Mr Siu as expert and I accept his report as expert report.

35. In Mr Siu’s Report, he adopted the methodology of direct comparison.  He used eight properties of similar size in the same development as comparables. They are:

(1)  Flat C on 16^th Floor of Tower 5;

(2)  Flat C on 20^th Floor of Tower 5;

(3)  Flat C on 21^st Floor of Tower 5;

(4)  Flat C on 32^nd Floor of Tower 5;

(5)  Flat A on 30^th Floor of Tower 3;

(6)  Flat A on 38^th Floor of Tower 3;

(7)  Flat C on 15^th Floor of Tower 2; and

(8)  Flat C on 33^rd Floor of Tower 2.

36. All the comparables, except comparable (7), included a car park.  He attributed $600,000 of the transaction price as value for the car park.  Mr Siu said that this was value of a car park in the Southern District.

37. The agreements for sale and purchase of the comparables chosen by Mr Siu were entered between 7 August 2008 and 24 March 2009.

38. All comparables except (6) and (8) were of the same size of the Property ie 1,158 square feet/108 square metres in saleable area.  The saleable area of comparables (6) and (8) were 1,156 square feet/107 square metres.  As their difference in size was minimal, Mr Siu made no adjustment for the factor of “size” in his report.

39. Mr Siu said that all comparables had similar view of the Property and it was not necessary for him to make adjustment for the factor of “view” in his report.

40. All comparables and the Property were in the same development.  It was not necessary to make adjustment for the factor of “location”.

41. Mr Siu only made adjustments for the factors of “time” and “floor” in his report.  Mr Siu said that as the view of the Property and the comparables was mainly sea view, the price would not change much for difference in each floor level.  He adjusted the transaction prices by 0.5% for difference in each floor level.

42. Mr Siu said that he adopted the index for Class E properties published by the Rating and Valuation Department to make adjustment for the factor of “time”. Class E properties were properties with a saleable area of over 100 square metres.  The Property and all comparables belonged to this class of properties.  He used the index of 16 December 2008 as base and make upward or downward adjustments for each comparable in accordance with the Class E index at the time of the relevant transaction.

43. Mr Siu excluded comparable (2) in calculating the average unit rate after his adjustments on the ground that the transaction price for that comparable was out of range to other comparables.  The sale and purchase agreement for comparable (2) was dated 14 November 2008.  Mr Siu said that there were few transactions on properties in the same development between September 2008 and early 2009 and as such the transaction price of comparable (2) was not a representative transaction price.  Accordingly, he excluded comparable (2) from his calculation of the average unit rate.

44. According to Mr Siu’s valuation the average unit rate as at 16 December 2008 was $123,245.10 per square metres.  The market value of the Property should be about $13,300,000 as at that date.

45. The defendant had submitted two expert reports from D’s First Expert and D’s Second Expert.  None of the defendant’s experts testified at the assessment hearing.

46. D’s First Expert valued the Property at $15,500,000 as at 16 December 2008 whereas D’s Second Expert’s valuation was $15,520,000.

47. The defendant’s experts also adopted the direct comparison approach. However, they used different comparables (except one, ie Flat C on 20^th Floor of Tower 5) in the same development.

48. D’s First Expert chose the following comparables:

(1)  Flat A on 29^th Floor of Tower 8A;

(2)  Flat B on 18^th Floor of Tower 8B; and

(3)  Flat B on 19^th Floor.  (The Tower number of this comparable was illegible from the report produced in the trial bundle.)

49. According to D’s First Expert, the saleable area of the Property was 1,158 square feet/107.58 square metres.  The sizes of the comparables chosen by D’s First Expert were either 137.59 square metres or 177.72 square metres, ie they are about 27% to 65% bigger than the Property.

50. The dates of transactions for the comparables chosen by D’s First Expert were between 3 January 2009 and 14 January 2009.

51. D’s First Expert also attributed $600,000 of the transaction price as value of the car park.

52. D’s First Expert made adjustments to the transaction prices of the comparables on account of the factors of “floor”, “time”, “orientation” and “size”.

53. D’s First Expert also adopted a 0.5% adjustment for difference in each floor level.  They made fix adjustments of -1.9% for the factor of “time” and +5% for the factors “orientation”.  They also made adjustments for the factor of “size” of the comparables from -1% to -3%.

54. As the writer of the report of D’s First Expert had not testified at the assessment hearing, no information had been provided as to how these adjustments were made.

55. D’s Second Expert chose the following comparables:

(1)  Flat A on 33^th Floor of Tower 8B;

(2)  Flat C on 20^th Floor of Tower 5;

(3)  Flat A on 29^th Floor of Tower 8A;

(4)  Flat B on 16^th Floor of Tower 8A; and

(5)  Flat A on 31^st Floor of Tower 8A.

56. According to D’s Second Expert, the salable area of the Property was 1,175 square feet.  The saleable areas of the comparables chosen by D”s Second Expert ranged from 1,175 square feet to 1,947 square feet.  Other than comparable (2) which was of the same size of the Property, saleable areas of the other comparables ranged between 1,530 square feetand 1,947 square feet, ie about 30% to 65% bigger than the Property.

57. The dates of transactions for the comparable chosen by D’s Second Expert were between 8 October 2008 and 16 February 2009.

58. D’s Second Expert made adjustments to the transaction prices of the comparables chosen on account of the factors of “floor”, “aspect”, “time” and “size”.

59. D’s Second Expert adopted adjustments of 0.3% for difference in each floor level and 1% for difference in each 500 square feet in size.  They made adjustments of +2% to +2.5% for “aspect” and 0% to 8.31% for “time”.  They also made adjustment of 2% to comparable (5) for additional car park included for that comparable.

60. As the writer of the report of D’s Second Expert also had not testified at the assessment hearing, no information was provided as to how these adjustments were arrived at.

61. In Zhuang PP Holdings Limited & Ors. v Lam How Mun Peter & Ors. (HCA 1589/2003, unreported, 19 August 2009) the court was concerned with valuation of a basement with a saleable area of 11,388 square feet. Deputy Judge A To (as he then was) said in paragraph 77:

“In Hsin Kuang Restaurant (Holdings) Limited and Commissioner of Rating and Valuation LDRA 52 of 1997, it was held that it was inappropriate to use a property of 181.4 square metres as a comparable in valuing a property of 4,000 square metres, i.e. less than 4.5% in area. To use the unit rate in transactions of properties which are not comparable in size to the Basement as comparables and then inflate it by size adjustment is just like asking blind men to feel parts of an elephant and then to imagine what an elephant is. Depending on where the blind men feel, they may come up with different ideas of what an elephant is. Another way to describe the anomaly is to ask someone to compare a cat with a tiger and then by adjustment to blow a cat up into a super tiger.”

62. Direct comparison is to compare like with like.  Although the comparables chosen by the defendant’s experts were not as extreme as that chosen in the Hsin Kuang Restaurant (Holdings) Limited case referred to the Zhuang PP Holdings Limited case, the defendant’s experts in this case chose comparables of different sizes and with different aspect when comparables of similar size and aspect were available as shown in Mr Siu’s report.  This had necessitated further adjustments for the factors of “size” and “aspect” in their reports which could otherwise be avoid as in Mr Siu’s report.  These further adjustments will reduce the value of these comparables as “likes” of the Property and reduce the reliability of the resultant valuation.

63. Furthermore, no explanation was provided to the court on the adjustments made by the defendant’s experts.  I place no weight to the reports of the defendant’s experts.

64. I accept the report and evidence of Mr Siu and find that the ordinary market value of the Property as at 16 December 2008 was about $13,300,000.

Findings

65. Usually the price at which the seller has resold the property is strictly not to be taken in preference to the market price.  (See McGregor on Damages (18^th ed.) paragraph 22-034)  However, the learned author of McGregor on Damages pointed out that the resale price had been taken in most cases presumably on the ground that it afforded good evidence of the market price.

66. In this case, although I accept that the ordinary market value of the Property as at 16 December 2008 was $13,300,000, I have to take into consideration the pressing time element for the plaintiff to find a new purchaser.

67. The time for the plaintiff to complete under the Head Agreement with the developer had passed.  If the plaintiff could not find a new purchaser before the developer exercised its right to terminate the Head Agreement, the plaintiff would lose its deposit paid and face a claim from the developer for breach of contract.

68. The plaintiff did not have the privilege of looking for a buyer at leisure.  I accept Mr Cheung’s submission on behalf of the plaintiff that this was a force sale situation.  The plaintiff had to take the best available offer.

69. The offer from Ms Tsoi was the best available offer at the material times.  The plaintiff had no choice but to take it.  The offer made by Ms Tsoi was in fact close to the market price stated in Mr Siu’s report.  The difference was less than 4%.

70. There was no evidence to show that the sale to Ms Tsoi was not a sale at arm’s length and the transaction price was closed to the ordinary market price for similar properties.  Taking into account the force sale situation, I accept $12,850,000 was the market price of the Property as at 16 December 2008 in the circumstances of this case.

71. I find that the plaintiff suffered diminution in value of the Property in the sum of $6,150,000 being the difference between the sale price to the defendant and the re-sale price to Ms Tsoi.

72. The plaintiff also suffered further loss for addition estate agent fee for sale to Ms Tsoi in the sum of $128,500 and additional legal costs in the sum of $9,000.  After giving credit to the purchase money paid by the defendant to the plaintiff under the Agreement in the sum of $3,800,000, the defendant shall pay $2,487,500 to the plaintiff as further damages for her breach of the Agreement and I so order.

73. I make an order nisi for the defendant to pay to the plaintiff interest on the said sum of $2,487,500 at judgment rate from the date of Writ to the date of Interlocutory Judgment and thereafter also at judgment rate until payment in full.

74. I also make a costs order nisi against the defendant in favour of the plaintiff for the assessment of damages proceedings.

75. The above orders nisi shall become absolute after 14 days from the date hereof unless any party shall apply to vary the said orders within this 14 days period.