IKI TRADING LTD. v. HO TING SUN

HCA 20745/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. HCA 20745 OF 1998

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ASSESSMENT OF DAMAGES

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Background

1. This action is brought by the plaintiff against the defendant for breach of a sale and purchase agreement of a property.

2. The plaintiff was at all material times the registered owner of a property known as Flat No. C3, 4th Floor, Block C and Car Park No. 30 on Ground Floor (site A) of Garden Vista, Shatin, New Territories, Hong Kong ("the Property"). The Property was built in 1989.

3. By a Sale and Purchase Agreement made between the plaintiff and the defendant dated 20 October 1997, ("the said Agreement"), the plaintiff agreed to sell and the defendant agreed to purchase the Property at the price of $7,080,000. The completion was to take place on or before 12.30 pm on 21 March 1998 and time was of the essence of the Agreement. A deposit in the sum of $708,000 was paid by the defendant to the plaintiff.

4. In breach of the said Agreement, the defendant failed to complete the transaction on the scheduled completion date. By a letter dated 21 March 1998 from the plaintiff's solicitors to the defendant's solicitors, the plaintiff terminated the said Agreement pursuant to clause 16 thereof. On 7 November 1998, the plaintiff re-sold the Property to a Man Lai Shan and Tse Mei Chun at the price of $3,450,000. The resale was completed on 23 December 1998.

5. By a writ of summons issued on 4 December 1998, the plaintiff claimed against the defendant for damages for breach of the said Agreement. By a Consent Order dated 15 January 1999, Interlocutory Judgment was entered for the plaintiff against the defendant for damages to be assessed with costs of this action reserved. This is the hearing for the assessment of damages.

The plaintiff's claim

6. At the hearing, the plaintiff sought damages in respect of the following items of losses:-

(a)	Damages in the sum of $3,630,000 being difference between the contract price and the resale price;
(b)	Mortgage interests paid by the plaintiff for the Property from date of breach to date of resale. (i.e. from 21 March 1998 to 23 December 1998) in the sum of $326,350.69;
(c)	Advertising fee for the resale of the Property: $8,976;
(d)	Legal costs for the resale: $15,825;
(e)	Government rate and rent, management fees and other expenses paid for the period from 21 March 1998 to 23 December 1998: $33,539.02;
(f)	Agency commission: $31,050; and
(g)	Fee for the valuation report prepared by the surveyor for these proceedings: $5,000.

7. At the hearing, Mr. Lam, counsel for the defendant, confirmed that the defendant would not dispute the items claimed under (c) to (f) save that the parties agreed that the sum under item (e) should be $31,172.32 instead of $33,539.02. Mr. Sher and Mr. Lam, the respective counsel for the plaintiff and the defendant, also agreed that the deposit paid by the defendant to the plaintiff should be deducted from the damages, if any, awarded by the court. As for item (g), Mr. Sher quite rightly abandoned this claim. In my view, there is no merit for such a claim. Firstly, it is not pleaded in the Statement of Claim. Secondly, it could not possibly amount to a consequential loss that flows from the breach. This item should form part of the legal costs of these proceedings. The issues thus remain to be determined by the court are items (a) and (b). However, for item (b), Mr. Lam only disputed entitlement and not quantum.

The Evidence

8. At the assessment hearing, the parties agreed that the following documents be adduced as evidence namely:-

(1)	the witness statement of a Mr. Yiu Kwok Chu, a director of the plaintiff dated 10 July 1999 marked as exhibit 'P1';
(2)	the valuation report prepared by the plaintiff's surveyor, Francis Lau & Co. (Surveyors) Ltd. dated 19 March 1999 marked as exhibit 'P2';
(3)	the valuation report prepared by the defendant's surveyor, Jones Lang LaSalle Ltd. dated 16 March 1999 marked as exhibit 'D1'; and
(4)	The Bundle of Documents prepared by the plaintiff's solicitors marked as 'Agreed Bundle C'.

9. Mr. Sher and Mr. Lam confirmed that both parties would not dispute the contents of the above documents. Both parties accepted the contents of the witness statement of Mr. Yiu and of the two surveyors' reports. Mr. Sher and Mr. Lam further confirmed that they need not required Mr. Yiu to give evidence and to be cross-examined nor would they require the writers of the two surveyors' reports to give evidence. Both counsel agreed to proceed with the matter by way of legal submissions.

10. In respect of item (a), Mr. Sher and Mr. Lam agreed that as at the date of the completion (i.e. 21 March 1998) the market value of the Property was $5,100,000 as per the report by Jones Lang LaSalle Ltd; and as at the date of the resale (i.e. 7 November 1998) the market value was at $3,400,000 as per the report by Francis Lau & Co. (Surveyors) Ltd.. The point in dispute is whether the market value of the Property at the completion date should be accepted for the purpose of calculating the loss of the plaintiff as submitted by Mr. Lam or damages should be calculated at the actual date of resale as canvassed by Mr. Sher.

11. I shall refer to the evidence in more detail in the later part of this Judgment.

Deficiency In Price

12. It is not disputed that the normal measure of damages is the contract price less the market price at the contractual time fixed for completion: McGregor on Damages (16th Edition) Para 992, at p.657. On this basis, Mr. Lam argued that the market value of the Property at the completion date should be accepted for calculating the loss suffered by the plaintiff. He further argued that only if there was no evidence on the market price at the time of the breach, should the court then take the resale price for assessment purpose. He said that if there was evidence on the market value of the property at the date of completion as in the present case, the resale price had no preference. He relied on the case of Kwok Chung Hon & Another V. Lo On Wa [1997] HKLRD 980. I do not agree with the contentions of Mr. Lam.

13. In the Kwok Chung Hon case, the defendant contracted to sell to the plaintiffs a property at the price of $2.57 million. In breach of the contract, the defendant resold the property elsewhere at the enhanced price of $2.75 millions. In the proceedings brought by the plaintiffs, the trial judge awarded to the plaintiffs a sum of $180,000 as damages for loss of their bargain (i.e. $2.75m - $2.57m). Plaintiffs appealed contending that the award of $180,000 was too low. At the trial before the judge below, the plaintiffs presented no evidence of the market value of the property at the contractual time for completion. On appeal, the Court of Appeal held that in the absence of other evidence, the court would normally take evidence of a resale of the property elsewhere at a higher price as evidence justifying an award of a sum equivalent to the difference between the contract price and the resale price. However, and in my view, it does not necessarily follow, as Mr. Lam tried to put it, that if there is evidence as to the market value of the property at the contractual completion date, the court should accept that evidence and not the evidence regarding the market value of the property at the date of the resale.

14. As mentioned above, the usual measure of damages at common law is that damages for breach of contract are assessed at the date of the breach. But it has been recognised that this is not an absolute rule of law if to follow it would give rise to injustice. The court has power to assess damages by reference to the value at a different date if it would be more just to do so: Johnson V. Agrew [1980] AC 367. As Mr. Justice Cheung pointed out in Alucase Company Limited and Another V. Keen Lloyd (Holdings)Ltd. HCMP 3577/98 (unreported) that one must regard the reality of the situation. One just cannot expect a vendor to conduct a sale of the property on the same date as the termination of the agreement. In the present action, and having considered the evidence admitted by agreement and the reality of the situation, I am of the view that it is unjust to adopt the market value of the Property at the date of the completion for measuring the damages suffered by the plaintiff. It is common knowledge and well-known fact that the property market in Hong Kong had collapsed after October 1997. This is supported by the surveyors' reports produced by the parties. In a falling market, one cannot expect the plaintiff to be able to achieve a sale of the Property on the same date the agreement was terminated by the plaintiff. I therefore reject the contentions by Mr. Lam that the market value at the date of the breach should be used for assessing damages. I accept that the market value should be determined by the price obtained, or obtainable, on a resale within a reasonable time of the breach, but excluding any inflated price which the property might fetch by nursing it: see Yeung Leung Wai Kwan V. Tsang Nui Tai [1993] 3 HKC 618 citing Kech V. Faber, Jellet and Keeble (1915) 60 Sol Jo 253. However, the questions in the present case are whether the resale of the Property by the plaintiff about 8 months after the date of the breach is a reasonable time; and whether the steps taken by the plaintiff to resell the Property amounted to reasonable efforts to mitigate his loss.

15. In my view, what is a reasonable time must depend on the particular facts or circumstances of each case. In the present case, there is unchallenged evidence from the plaintiff, for which I accept, that after the defendant had failed to complete the sale, the plaintiff had experienced difficulties in trying to resell the Property. This was due to the fact that the property market in Hong Kong had plummeted. Mr. Yiu, the director of the plaintiff, stated that since 21 March 1998 (i.e. the date of the breach) the plaintiff had retained a number of well-known property agents to sell the Property for the plaintiff. These included Ricacorp Property Agency, Centaline Property Agency, Hong Kong Lands Property Agency, Midland Property Agency. On 25th and 26th of April, 1998, the plaintiff had further advertised the sale of the Property by way of tender in the Sing Tao Daily News and Sing Pao Daily News. But all these efforts taken by him were in vain. According to Mr. Yiu, he had been advised by the estate agents that unless he was prepared to sell the Property at a very low price such as $2.5 million, it was impossible for him to sell the Property at that time. He had to wait for the market to change and become active again.

16. Mr. Yiu stated that it was not until 7 November 1998 that he managed to resell the Property to the new buyers Man Lai Shan and Tse Mei Chun at the price of $3,450,000. He said this was the best market price he could negotiate for and obtain at that time. He confirmed that the Ricarorp Property Limited was his handling agent for the resale.

17. Mr. Lam agreed with the evidence of Mr. Yiu above and did not challenge it. However, Mr. Lam complained that there was no evidence from Mr. Yiu as to his asking price when he retained the estate agents to resell the Property. Mr. Lam further argued that the sale by tender by the plaintiff was not the normal way of sale of a private property. He said that the more appropriate method of sale would be by public auction. As such, Mr. Lam argued that the plaintiff had not taken reasonable efforts to resell the Property.

18. I have considered the submissions by Mr. Lam. With respect to Mr. Lam, I do not think there is substance in his arguments nor would they assist the defendant's case. The fact that there was no evidence as to the asking price for the Property is neither here nor there. If Mr. Lam took the view that this matter was relevant to the issue in question, he should have cross-examined Mr. Yiu on this matter so that the court could also consider the same. Unfortunately he had chosen not to do so in which case he was bound by what he had agreed regarding Mr. Yiu's evidence.

19. Regarding his second point on sale by tender, in my view, it is not appropriate for Mr. Lam to argue, by way of submission, that sale by public auction was a more appropriate method of sale than by tender. If Mr. Lam wanted to establish such a point, he had to call evidence to prove the same. The court just could not accept his legal submissions as evidence of the case. Besides, I should point out that according to clause 16 of the said Agreement, the plaintiff was entitled, upon determination of the said Agreement, to resell the Property either by public auction or by tender or by private contract or partly by one and partly by the other(s) of such methods subject to such stipulations as the plaintiff may think fit and any increase in price on resale shall belong to the plaintiff (see page 5 of 'Agreed Bundle C').

20. Further and in support of the plaintiff's case, Mr. Sher had referred me to the expert report prepared by a Miss Serena Lau of Francis Lau & Co (Surveyors) Ltd., the surveyor for the plaintiff. According to Miss Lau, the Asia economic crisis began to take its toll on Hong Kong in October 1997. Since then, the Hong Kong economy deteriorated sharply from the first quarter of 1998 to the third quarter of 1998. It only slightly improved in the fourth quarter of 1998. She stated that the effect of the economic turmoil on the Hong Kong property market was immediate and significant. She said that in general, the capital value of most assets had depreciated to an extend of nearly half since October 1997. She attributed the drop in the property market during this period of time to four major factors namely (1) the high unemployment rate which rose sharply from 3.5% in the first quarter of 1998 to 5.3% in October 1998; (2) the marked increase in the supply of residential property in the primary market; (3) the high interest rates which discouraged potential buyers to purchase property; and (4) the general reluctance on the part of the banks to finance new purchases (see p.4 of exhibit 'P2').

21. Again, Mr. Lam did not dispute the contents of Miss Lau's report above. In fact, Mr. Edmond Yu, the surveyor for the defendant, also made a similar finding in respect of the sluggishness of the property market in Hong Kong since October 1997, save that Mr. Yu was of the view that there was a sign of slight improvement in the residential market in March 1998. He stated that the number of sales and purchase agreements registered with the Land Registry was nearly treble that of February 1998. However, there is no evidence from Mr. Yu as to whether the increase in sales and purchases had continued to April and/or May 1998 bearing in mind the said Agreement was terminated on 21 March 1998. Moreover, there is no evidence from Mr. Yu as to how much of such increase was attributable to the increase in the sales and purchase of residential property in the primary market and how much it was attributable to the sales and purchase in the secondary market bearing in mind that the Property was built in 1989. On the contrary, there is evidence from Miss Lau that there was a marked increase in the completion of residential property in the first month of 1998 because the property developers had been expediting work on existing projects in order to advance sales. She said that such increase in supply had led to a decrease in the market price of residential property. But more importantly, the substantial reduction in price in the primary market couple with the offer of second mortgage to be arranged by the developers; the waiving of legal costs and stamp duty had further pushed down the property price in the secondary market. As a result, the number of transactions in the secondary market had quickly reduced to a historical low level.

22. On this issue, I accept the evidence of Miss Lau as stated above. I accept that during this period of time, the property price, especially in the secondary market, had dropped considerably because of the economic turmoil and because of a marked increase in the supply of new residential property in the primary market. As a result, it was very difficult for the plaintiff to resell the Property.

23. Having considered all the evidence and the submissions, I am satisfied, on a balance of probabilities, that the plaintiff had taken all reasonable steps and efforts to mitigate his loss. He had immediately after the termination of the said Agreement on 21 March 1998, retained the well-established local estate agents to resell the Property. In addition, he had offered to sell the Property by tender as provided by the said Agreement. All his efforts proved to be in vain. And in view of the downturn in the property market especially in the secondary market caused by the financial crisis as per Miss Lau's report, I accept, on the particular facts and circumstances of this case, that the resale by the plaintiff on 7 November 1998 was within a reasonable time of the defendant's breach. I also accept, and which is not disputed, that the resale price was the market value of the Property. Indeed, and as pointed out by Madam Justice Yuen in Central Gem Limited V. Harvest Fair Investment Limited HCA 10222 of 1998 (unreported), that in the absence of any evidence that it was a sham resale, the actual sale price should be the best evidence of the market price. In the present case, there is no evidence that the resale was not a bona fide resale or otherwise not an arm's length transaction. I therefore award the sum of $3,630,000 as claimed by the plaintiff.

Additional Mortgage Interests

24. According to the evidence of Mr. Yiu, because of the breach of the said Agreement by the defendant, the plaintiff had to continue to pay mortgage interests from 21 March 1998 until the Property was assigned on a resale to the new buyers on 23 December 1998. The plaintiff therefore claimed for additional mortgage interests that he had paid in the sum of $326,350.69.

25. Mr. Lam did not dispute quantum under this item of loss but he argued that the plaintiff was not entitled to this claim on the basis that this amounted to a double benefit. He said that the plaintiff would be entitled to interests on the damages awarded. If the court allowed this item of claim, it would mean that the plaintiff would be awarded interests twice. I must say that I fail to follow Mr. Lam's argument. In my view, it must be within the reasonable contemplation of the defendant that the plaintiff had to pay mortgage instalments (inclusive of interests) in respect of the Property. If not for the defendant's default, the completion would have taken place as scheduled in which case the plaintiff's obligation to pay further mortgage interests would cease on 21 March 1998. But for the breach, the plaintiff had to continue with interest payments. In my view, this is clearly an incidental loss which flows naturally from the breach and which has nothing to do with the interests ordered to be paid by the court on damages awarded. I allow the sum of $326,350.69 as claimed by the plaintiff.

Conclusion

26. The total amount of damages which the defendant is liable to pay to the plaintiff is summarised as follows:-

(a)	Deficiency in price	$3,630,000.00;
(b)	Additional mortgage interests	$326,350.69
(c)	Advertising fee	$8,976.00
(d)	Legal costs for the resale	$15,825.00
(e)	Government rate, rent, management fees and other expense	$31,172.32
(f)	Agency commission	$31,050.00
		$4,043,374.01
	LESS Deposit paid	$708,000.00
	Total:-	$3,335,374.01

27. Accordingly, there will be judgment for the plaintiff for the sum of $3,335,374.01 together with interests at the judgment rate from date of the writ to date of payment. I also make an order nisi that the defendant do pay the plaintiff's costs in this action including costs of the assessment hearing with a certificate for counsel and to be taxed if not agreed. The order nisi will become absolute after the expiration of 14 days from the date of handing down this judgment.