MILLI-LINK INVESTMENT LTD. v. HO YUEN CHI

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO HCA 765 OF 1998

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JUDGMENT

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Introduction

1. This is an assessment of damages consequent upon interlocutory judgment having been given against the defendant by Master Chung on 13 January 1999. For convenience, I shall simply refer to the parties as the plaintiff and the defendant.

Background

2. The facts of the case can shortly be stated.

3. By a provisional sale and purchase agreement made on 29 August 1997, the plaintiff as vendor agreed to sell a penthouse at No. 35B, House 35, Forest Hill, No. 31 Lo Fai Road, Tai Po, New Territories ("the property") to the defendant as purchaser at the price of HK $12,480,000. The formal sale and purchase agreement followed on 19 December 1997. Completion was contemplated and agreed to occur on or before 29 December 1997. The defendant reneged on the purchase and the plaintiff duly forfeited as was its right the deposit of HK $1,248,000 paid to date. The present suit was launched to recover damages for breach of agreement, culminating in interlocutory judgment for damages to be assessed and costs in the plaintiff's favour. In the process, the defendant's counterclaim was also dismissed, a ruling she failed to overturn on appeal.

Quantum

4. Several heads of damages were originally pursued. In the event, for lack of proof, the plaintiff abandoned its claims in respect of the 1% agency commission and the auctioneer's fees said to have been paid. It was content before me to seek quantification for loss of bargain and for damages arising from its continuing obligation to make interest repayments on the mortgage loan for the property following the defendant's repudiation.

5. As respect the claim for loss of bargain, counsel for the plaintiff invited me to calculate damages by applying a market value for the property as at 15 March 1999, some fourteen and a half months after the date of completion. This, it was submitted, would produce a fairer result in circumstances where property values were declining across the board with the economic downturn and where the defendant by her very action in registering the Defence and Counterclaim as a lis pendens and subsequently using it to force a withdrawal of the claim had made it virtually impossible to sell the property in mitigation of damages. In this connection, the plaintiff relied on a decision of Master Jones in Lee Kam Kwan & Lee Kam Ping and Li Sau Lan, HCA 13775/1998 for the proposition that a frustrated vendor should be allowed a reasonable period from the date of the breach to attempt to sell the property at a fair market price. The elapse of 14 1/2 months, it was contended, was reasonable on the facts.

6. As no alternative purchaser could be found to take the property and to lessen its burden in respect of its obligation to meet continuing interest repayments on the mortgage, the plaintiff eventually let out the property on a two year tenancy with a reserved rental of HK $18,000 per month. In lieu of the usual interest on its damages award, it sought an order for payment of all mortgage interests paid following breach of contract less the rental received.

Loss of Bargain

7. The plaintiff's second witness was Mr. Alex Ng Siu Lam ("Mr. Ng") of Chesterton Petty. He gave meticulously clear and cogent evidence of the comparative basis of his calculations in rendering the valuations in his report, exh. P2. I have no difficulty in concluding that his valuations at the date of completion, namely 29 December 1997 and on15 March 1999 fairly represented the realistic market values of the property. The defendant did not in the result produce her own valuation report.

8. It was plain on the evidence of Mr. Ng and from the Monthly Price Indices of the Rating & Valuation Department, exh. P3 that properties in the New Territories where the property was situated, were consistently falling in value from December 1997 to October 1998. A slight rebound became evident only from November 1998 onwards. This was consistent with the evidence of the plaintiff's first witness, Mr. Lee Wah Chiu ("Mr. Lee") who gave an account of a total lack of interest in the property despite the intervention of an auction house and three real estate agencies. The market had become totally inactive, frustrating the plaintiff's attempt to mitigate its losses as it was duty bound to do. The auctioneers were brought in in January 1998, but it is unclear when the estate agents were instructed. From the thrust of Mr. Lee's statement exhibited as P1, that would likely have occurred towards the beginning of 1998 as the plaintiff was moving swiftly at all times to mitigate its loss.

9. In the decision prayed in aid by the plaintiff, Master Jones had observed:

"However, once it becomes apparent that the property is not moving, I do not accept that the injured party can continue to accrue increasing damages in a declining market at the expense of the party in breach. There has to be certainty at some point, and I place that point at the expiry of a reasonable time after the breach to allow the injured party to market the property." (at pages 3 and 4 of his ruling)

With that, I respectfully agree. The inherent difficulty in the instant case is to determine what that reasonable period was. A further complication is that no valuations other than for December 1997 and March 1999 have been forthcoming. It would have been of considerable help to me and of much assistance to the plaintiff if valuations for the first quarter of 1998 have been given. In the circumstances, it would be neither just nor commonsense to adopt the later valuation as it must have been apparent to the plaintiff in the opening months of 1998 that the market was free falling with no reasonable prospect of re-sale. I would therefore adopt the valuation of Mr. Ng as at December 1997. Mr. Ng opined that the property would have fetched HK $9,000,000 on 29 December 1997. That being so, I assess the loss of bargain at HK $2,232,000. This quantum represents the difference between the contract price and the valuation I adopted after giving full credit for the deposits of HK $1,248,000 forfeited.

Mortgage Interests

10. Under this remaining head of damages, the plaintiff has sought to recover interests paid less rental received. I need not trouble myself with the alternative calculations advanced by counsel in this regard. Although I am satisfied that such payments have been incurred in large amounts each month, it was far from established that the defendant had been made aware of such obligation to the mortgagee bank at the time of contract. Whilst I am further of the view that a claim of this nature is competent as in Teng Fuh Company Ltd v Keen Lloyd Holdings Ltd, MP 2438 of 1998, where the defendant was apprised of the plaintiff's obligation under an existing mortgage and should accordingly have known that the purchase money was earmarked for mortgage repayments, the present claim is too remote to succeed. There is of course solace in an award of interests on the adjudged sum.

Conclusion

11. It is ordered that the defendant do pay to the plaintiff damages assessed at HK $2,232,000 with interests at judgment rate from the date of the writ till payment with costs of the assessment including the costs reserved on 29 April 1999 to be taxed if not agreed. There shall be certificate for counsel additionally.