CHAN YU LEUNG AND ANOTHER v. WONG SHUI FONG

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. This is an assessment of the damages claimed by the plaintiffs as a result of the defendant causing the cancellation of a provisional sale and purchase contract with a third party. Initially, the plaintiffs had concluded a provisional sale and purchase contract with the defendant on 27th March 1997 for a price of $3.5 million. However, on 5th April 1997 the plaintiffs entered into a second provisional agreement relating to the same property with one Au Hau Wing (the 2nd purchaser) for the sum of $3.85 million. Shortly thereafter, the defendant registered the first agreement against the plaintiffs' title.

2. After entering into the second agreement the plaintiffs sought to terminate the agreement with the defendant. It is not disputed that they validly did so by paying to the defendant the various sums stipulated in the first agreement to cover that eventuality. The damages claimed by the plaintiffs are said to flow from the defendant's failure thereafter to execute a cancellation agreement and to vacate his registration of the first provisional agreement against the plaintiffs' title. This apparently resulted in the 2nd purchaser's refusal to complete the second agreement, and the plaintiffs being obliged to compensate the 2nd purchaser when that agreement also had to be terminated.

3. On the defendant's failure to vacate the registration of the first agreement and to execute a cancellation agreement, the plaintiffs commenced these proceedings on 2nd May 1997. The originating summons sought a declaration that the first provisional agreement had been discharged, and an order that the defendant's registration be vacated. On 28th May an order was made by consent of the parties granting the declaration and the order to vacate the registration, together with an order that damages be assessed and costs be to the plaintiffs.

4. At the hearing the parties agreed that the witness statement of Chan Man Fung, the plaintiffs' son, should stand as evidence in chief for the plaintiffs. Ms. Fong closed the plaintiffs' case on that evidence, and Mr. Cheung declined both to cross-examine and to call evidence for the defendant. Mr. Cheung then argued that despite the order for assessment, the plaintiffs were not entitled to any damages. His submissions related both to law and to lack of evidence of causation. Alternatively Mr. Cheung contested the quantum in the event of an adverse finding on his primary submissions.

5. Mr. Cheung argued that the defendant had no legal obligation, following termination of the first provisional agreement, either to enter into a cancellation agreement with the plaintiffs, or to vacate the registration of the first agreement. He contended that the plaintiffs could have answered a requisition on the registration against their title by producing the correspondence leading to the agreed termination of the first agreement, as well as proof of the compensation paid to the defendant. On that, Mr. Cheung argued, the plaintiffs could have forced the second purchaser to complete. He conceded that he had no authority for this submission.

6. On the parties' agreeing to terminate the first provisional agreement, the plaintiffs assumed the obligation to pay the stipulated sum in compensation. The defendant's obligation was to withdraw from the agreement leaving the property freely disposable by the plaintiffs. The property was not however freely disposable so long as the registration of the first provisional agreement represented an encumbrance on the title. I therefore find it a necessary incident of the termination agreement that the defendant would vacate the registration of the first agreement as soon as reasonably possible.

7. The execution of a cancellation agreement between the parties terminating, although advisable, would be merely precautionary provided that the intention and fulfilment of termination were well documented elsewhere. However there can be no alternative to vacating the registration, and a subsequent purchaser could not be forced to completion with anything less. I therefore disagree with Mr. Cheung's first submission and find that the defendant's failure to vacate the registration was a breach of his obligations under the agreement to terminate the first provisional agreement.

8. The second limb of Mr. Cheung's submission attacks the plaintiffs' evidence as failing to disclose causation of the damages claimed. Mr. Cheung argues that there is no proof of efforts by the plaintiffs to secure completion by the second purchaser, and no evidence as to why the plaintiffs should have paid him compensation.

9. The second purchaser was entitled to refuse completion so long as the registration of the first agreement encumbered the plaintiffs' title. Evidence of efforts by the plaintiffs to secure completion by the second purchaser would therefore be otiose so long as there exists so fundamental a reason why the purchaser could anyway lawfully refuse.

10. The evidence of compensation paid to the second purchaser is found in paragraph 9 of the witness statement of Chan Man Fung. It is supported by the documentary evidence of the second provisional agreement, item 2 of the plaintiffs' discovery and page 3 of the bundle. Ms. Fong has pointed out that clause 7 of the agreement provides for refund of the deposit of $200,000, plus liquidated damages in the sum of the deposit, in the event of the vendor's failure to complete. The $200,000 claimed in paragraph 9 as "double deposit" therefore represents the liquidated damages equivalent to the deposit, and the $200,000 of the deposit itself is included in the sale price.

11. The evidence of Chan Man Fung has not been disputed, and in paragraphs 8 and 9 he draws the connection between the defendant's failure to vacate the registration and the second purchaser's refusal to complete. I accept that the second purchaser's refusal was a necessary consequence of the failure to vacate, and find that the defendant should be liable to the plaintiffs for consequent damages.

12. There remains the question of quantum, and I accept that the figure of $200,000 compensation paid to the second purchaser reflects the plaintiffs obligations under clause 7 of the second agreement. The respective agency commissions payable by the second purchaser and the plaintiffs in terms of clause 8 of the second agreement are normal incidents of such a contract. The commission paid by the plaintiffs has been wasted and is therefore recoverable from the defendant as a direct consequence of his breach of the first termination agreement. The agency commission payable by the second purchaser would (if not already paid to the agent) be recoverable by the agent from the plaintiffs as the defaulting party in terms of clauses 8 and 9 of the second agreement. Alternatively it would be recoverable from the plaintiffs by the second purchaser if he had already paid it to the agent in terms of clause 8. Either way the plaintiffs are liable to pay it and are entitled to reimbursement from the defendant as part of their damages.

13. The amount of the two agency commissions is therefore recoverable from the defendant as a direct consequence of his breach of the first termination agreement. The sums of $200,000 and $63,500 are therefore awarded to the plaintiffs, representing respectively the compensation paid to the second purchaser, and the sum of the two agency commissions.

14. The plaintiffs' remaining head of damage relates to loss of profit in the sum of $350,000. This figure represents the difference between the purchase prices of $3.85 million and $3.5 million payable under the second and first provisional agreements respectively. This method of calculating loss of profit is however misconceived. The true loss of profit, if any, would be the difference between the $3.85 million of the second agreement and whatever the plaintiffs could obtain in mitigation of their loss on sale of the property after the second agreement fell through. If they were unable to sell, their loss would be established by the market price if it were less than the sale price of $3.85 million. If the market price had risen, or if the plaintiffs were able to sell for the same or for a higher price, they would suffer no damage.

15. Save that it indicates a rising property market between 27th March and 5th April last year, the $3.5 million of the first provisional agreement is not relevant to the present exercise. Thereafter, so far as I recall, the property market continued to rise for a few weeks before dropping sharply in the middle of the year. The vacating of the registration of the first agreement against the plaintiffs' title was ordered on 28th May 1997, and at this point the property became freely disposable. This is the relevant time for establishing the plaintiffs' loss, if any, by way of either the market price or an actual price on re-sale after due mitigation. I do not however have any such evidence and I am unable to speculate. I therefore decline to make an award for loss of profit.

16. The plaintiffs are awarded damages of $263,500 as indicated. The award will carry interest at the judgment rate from writ to payment, and costs will be to the plaintiffs.