CHIN CHIU CHENG v. KAN FAT COTTON CO. LTD.

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. HCA13402 OF 1997

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J U D G M E N T

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Introduction

1. This is an assessment for damages following an aborted sale of property. At all material times the defendant was the registered owner of the suit premises known as the 2nd Floor and the Roof of Lot No. 1665 in DD 189, Sha Tin, New Territories.

2. On 6 October 1997, pursuant to a provisional agreement for sale and purchase (Exhibit D3), the defendant agreed to sell and the plaintiff agreed to buy the suit premises at a consideration of HK$4,138,000. A formal agreement ("the Agreement") followed dated 20 October 1997 when the plaintiff, as required, paid to the defendant a deposit of $413,800. Completion of the sale was contemplated to occur on or before 28 November 1997.

3. The upshot was that this property transaction fell through when the plaintiff purported to exercise an option given to her under the Agreement to rescind the transaction. By a memorandum of rescission (Exhibit D5), the defendant determined the agreement and forfeited the deposit.

4. Following that the plaintiff brought suit in the High Court against the defendant, claiming for the refund of the deposit and damages for breach of the Agreement. That suit was defended and ultimately resulted in a judgment being given in favour of the defendant upon its counterclaim in February of 1999. It is apparent from the evidence that with a lis pendens registered by the plaintiff against the property, efforts to successfully resell the property by the defendant were rendered difficult. The plaintiff was apparently unhappy with the outcome of the High Court proceedings and proceeded to launch an appeal which, in the event, was unsuccessful.

5. After the defendant had obtained judgment in February 1999, genuine and serious efforts were then undertaken to resell the property.

6. Mr Lee Yiu (DW1) of the defendant gave evidence. His witness statement, which was adopted as his evidence-in-chief, revealed that approaches were made to various real estate agents. Offers resulted ranging between $2 million and $2.5 million. Although the defendant had wanted to resell the property at $2.5 million, the best price it was able to achieve through the estate agent Midland Realty International Limited was $2.438 million. The buyers were Lee Man-mau and Tse Fook. I am satisfied on the evidence that the resale to these two individuals was at arm's length.

7. The provisional agreement for sale and purchase in relation to this transaction was dated 3 March 1999 and the assignment eventually occurred on 8 April 1999, having been preceded by a formal agreement for sale and purchase in the interim.

8. The defendant now pursues the following heads of damages, quantifying each in turn.

9. It pursues damages for loss of bargain. This item is brought alternatively under common law and also under the aborted Agreement for sale and purchase. The amount quantified and claimed under this head is $1.286 million.

10. The defendant also seeks to recover commission paid to Midland Realties in respect of the resale commission of $24,388. That is the second item.

11. The third item consists of the legal fees paid to Messrs Tang & Co., the solicitors handling the resale transaction on its behalf. This amounts to $11,080.

12. The final item is a claim for interests, which the defendant is prepared to accept should run at the judgment rate from 8 April 1999 until payment.

13. Turning first to the loss of bargain, at common law and no authority need be cited for this as the principle is all too clear that upon a breach of agreement the injured party is entitled to be compensated for loss and damage flowing from the breach of the agreement that is contemplated as a consequence of such breach at the time of contract.

14. I am satisfied that under common law the defendant is clearly entitled to claim for the loss of bargain as an item of damage in this case. The alternative basis for such a claim is based on the Agreement (Exhibit D4). Clause 27 thereof is the relevant provision. Counsel for the defendant drew my attention to the decision of Cheung J dated 25 June 1999 in HCMP 3577/98. That is a decision which has previously been submitted in a case not dissimilar to the present one. I am satisfied that the Agreement does provide for recovery of the loss of bargain following the breach. Clause 27 is clearly, in my view, a genuine pre-estimate of loss and not a penalty provision.

15. The defendant is entitled of course to rely on this particular clause, providing always that it acts in a bona fide fashion. Good faith is a paramount prerequisite and that is reflected in the authority which I have just referred to. There is no question in my mind that the defendant has acted in good faith. With the downturn in the market and particularly because of the litigation between the defendant and the plaintiff and the existence of the lis pendens against the property, the property was not really marketable or at least could not be marketed with ease until after judgment had been handed down in favour of the defendant in February of 1999.

16. The property was resold, as we have stated, to Messrs Lee and Tse. That was a bona fide transaction at a price, on the evidence, that reflected the best market price obtainable at the time.

17. The expert evidence from DW2, Mr Ng of Vigers, indicated that the property had been sold very close to their valuation of $2.4 million. I accept the evaluation. It was based on the comparative approach and it remains unquestioned, there being no evidence from the plaintiff to contradict the reliability of that evidence. Mr Ng's approach is the standard one adopted for valuation of property. Comparables are used and afford the best way of identifying the values of any property at any particular time.

18. The original sale and purchase Agreement provided that the property was to be sold for $4.138 million. It was resold at $2.438 million, leaving a substantial shortfall. The defendant would have to give credit for the deposit of $413,800; that leaves a net shortfall of $1.286 million. That represents the loss of bargain and is fully recoverable. I therefore assess damages under this head at $1.286 million.

19. As regards the estate agent commission and legal costs incurred in the resale, which expenses have actually been paid by the defendant, those amounts clearly fall to be recovered. Those amounts are respectively $24,380 and $11,080. That brings damages in total to $1,321,460. That is the quantum that I assess in this exercise as payable by the plaintiff to the defendant following the judgment of Barnett J dated 1 February 1999. To that will be added the defendant's claim for interests as claimed today and this reflects a generous allowance to the plaintiff. The defendant is entitled to interests on the quantum as assessed at the judgment rate from 8 April 1999 until payment.