EVER BRIGHT (H.K.) CONSTRUCTION ENGINEERING LTD v. KOSASIH MUANTO

HCA 1037/2013

[2019] HKCFI 1391

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1037 OF 2013

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J U D G M E N T

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INTRODUCTION

1.  This is the hearing for assessment of damages suffered by the plaintiff pursuant to the Judgment dated 27 March 2012 (“the Judgment”) made by Deputy District Judge Harold Leong (as he then was). 

2.  The defendant was absent in the hearing.  Upon reading the Affirmations of service provided by the plaintiff, I was satisfied that the defendant was notified about the present proceedings.  Thus, the hearing proceeded in his absence.  

3.  After the hearing, I reserved my decision. 

BACKGROUND

4.  On 16November 2009, the plaintiff as purchaser and the defendant as vendor entered into an agreement for the sale and purchase (“the Agreement”) at a consideration of HK$1,200,000 of Unit 10 on the 20^th Floor of Block C of Wah Tat Industrial Centre, No. 8 Wah Sing Street, Kwai Chung, New Territories (“the Property”).  Pursuant to the Agreement, the transaction was to be completed on or before 31 December 2009.  However, the Agreement stipulated that if the plaintiff failed to obtain a bank mortgage by that date, the completion date would be extended to 30 January 2010. 

5.  On 22 April 2010, the plaintiff took out an action against the defendant in the District Court for breach of the Agreement and claimed for the return of deposits and damages.  Later, the claim was amended to seek specific performance in lieu of or in addition to damages.  

6.  On 27 March 2012, the learned Judge entered Judgment for the plaintiff after trial.  He held that specific performance was not a proper remedy under the circumstances.  The learned Judge ordered damages to be assessed.  At paragraph 57 of the Judgment, the learned Judge found that the defendant was never in a state suitable for assignment on any given date because the title was “clearly ‘wholly bad’ at all relevant time”.  At paragraph 62, the learned Judge also made several criticisms about the plaintiff for not having “clean hands”. 

7.  It is also pertinent to note some other findings in the Judgment: 

a) At paragraph 19 c: “After reviewing all the evidence, the court finds that the intention of the parties at the time of the contract must have been as follows:- The plaintiff … was willing to take the risk in search of a bargain…”

b) At paragraph 32: “ … On receiving the title deeds on or around 21 January 2010, Mr Law has tried but failed to obtained a bank mortgage so he asked his friend, Mr Cheung, to help in around early February 2010.”  Note: Mr Law was one of the directors of the plaintiff.  Also note: February 2010 is past the extended completion date. 

c) At paragraph 47 a: “the plaintiff, by remaining silent under the mistaken belief that there had already been a repudiatory breach, failed to raised any requisition in the stipulated time according to Clause 7(a) of the Formal Agreement. ”

d) At paragraph 55: “In this case, it is quite obvious that the title has been, at all relevant times, “wholly bad” and in fact could not be much worst.” 

8.  An assessment hearing was subsequently fixed to be heard on 30 May 2013.  At that hearing, Registrar Lui of the District Court made an Order that, inter alia, the hearing for assessment of damages be transferred to the High Court.  This is when the District Court jurisdiction was still limited to HK$1 million. 

9.  On 30 September 2013, Registrar K W Lung of the High Court made an Order for, inter alia, the exchange of list of documents and the service of expert reports regarding property valuation.  Before the Order, the plaintiff had already prepared and served an expert report dated 13 May 2013.  Subsequently, the defendant served an expert report dated 30 October 2013. 

10.  I was informed by Ms Kwok, counsel for the plaintiff, that neither party had proceeded with the proceedings for some 5 years, until the Notice of Appointment of Assessment of Damages was filed in March 2019.  According to the Affirmation of Cheng Siu Wai (another director of the plaintiff), the plaintiff took no action, because it believed that the defendant would not have the means to satisfy the amount of damages as may be assessed against the defendant.  However, the matter revived, when in May 2018 it came to the knowledge of the plaintiff that the defendant might receive a sum of about HK$2,900,000.  

11.  For the present purpose, Ms Kwok argued that I should only be concerned with the return of deposits of HK$112,000 paid by the plaintiff and the loss of bargain of HK$1,140,000 (ie valuation of the Property on the date of the Judgment dated 27 March 2012 of HK$2,260,000 minus the consideration under the Agreement of HK$1,120,000).  Ms Kwok further submitted that only in the event that I refused to exercise my discretion to award the damages for the loss of bargain, should I adjudge on the legal costs paid by the plaintiff for the purchase of the Property of HK$5,300 and the registration fee of HK$210. 

LEGAL PRINCIPLES

12.  The normal measure of damages was the market value of the property at the contractual time for completion less the contract price: McGregor on Damages (2018, 20^th edn), p 861, §27-005. 

13.  However, such a measure may be departed from in order to avoid causing injustice to the innocent party.  As stated in McGregor on Damages (2018, 20^th edn), p 864-865, §27-009: 

“… such a measure could be grossly unfair to a buyer if the prices had escalated between the contractual date for completion and the date of Judgment in his action for damages, as the award he obtains will fall far short of giving him the means of acquiring an equivalent property. Of course he cannot complain of this if he ought to have acquired an equivalent property before the escalation of prices, but he may be able to show good reason why he did not do so. Thus if he brought a claim for specific performance in circumstances where he had a reasonable chance of obtaining such a decree but in the event was refused one and awarded damages instead, it would clearly be pointless for him to have acquired an equivalent property while he was awaiting the outcome of his specific performance suit.”

14.  The general rule is that damages for breach of contract shall be assessed as at the date of breach.  However, the court has power to fix such date as may be appropriate in the circumstances if to follow the general rule would give rise to injustice. In Johnson v Agnew [1980] AC 367, Lord Wilberforce in the House of Lords said, at 401A-B and C-D, that-   

“In cases where a breach of a contract for sale has occurred, and the innocent party reasonably continues to try to have the contract completed, it would to me appear more logical and just rather than tie him to the date of the original breach, to assess damages as at the date when (otherwise than by his default) the contract is lost….

In the present case if it is accepted, as I would accept, that the vendors acted reasonably in pursuing the remedy of specific performance, the date on which that remedy became aborted (not by the vendors’ fault) should logically be fixed as the date on which damages should be assessed.  Choice of this date would be in accordance both with common law principle, as indicated in the authorities I have mentioned, and with the wording of the [Lord Cairn’s] Act ‘in substitution for… specific performance’.”

15.  The principles stated above have been analysed and applied in Chan Wai Ching v Hui On Yin Ada [2012] 2 HKC 151.  In that case, the defendant vendor failed to reply to the plaintiff purchaser’s requisition on or before the date of completion, the latter accepted the wrongful repudiation of the agreement and sued for the return of deposit and damages for breach.  Master I Wong stated that, be it pursuant to clause 11 of the contract or under the common law, the plaintiff was entitled to damages for loss of bargain (at 155H-I). The learned Master then proceeded to adopt the market value on the date of interlocutory judgment for the assessment of damages. 

16.  In Silver Mart Trading Limited v Hong Kong Four Seas Tours Limited [2004] HKCFI 1097, the plaintiff purchaser opted not to proceed with its claim for specific performance in the opening of its case, but only proceeded with the alternative claim for the return of deposit paid and damages for breach.  When coming to the appropriate date for assessing damages, Suffiad J accepted the position that, “in a rising market, the material time to calculate the difference between the market price and the contractual price in cases of sales of land is at the date of Judgment” (at §10). 

17.  Regarding the deposits, it is trite that where a vendor was in default in failing to complete a sale, the purchaser is entitled to recover his deposit with interest: Kwok Chung Hon & Another v Lo On Wa [1997] HKLRD 980, at 982E-F. 

EVIDENCE

18.  The defendant’s expert assessed the market values of the Property on different dates as follows:- 

	Valuation Date	Market Value
(1)	14 May 2013 (the date used by the plaintiff’s expert, adopted by the defendant’s expert)	HK$3,650,000
(2)	27 March 2012 (the Judgment date)	HK$2,260,000
(3)	30 January 2010 (the extended completion date)	HK$1,120,000

19.  The plaintiff does not dispute the outcome of the valuations on all these specified dates.  For the purpose of this assessment hearing, the plaintiff is content to adopt the findings as stated in the defendant’s expert report. 

20.  Ms Kwok had also fairly drawn my attention to the content of the plaintiff’s Expert Report, which was not in the hearing bundle.  The valuations appear to be less advantageous to the plaintiff, because the lower end of the band for 27March 2012 is less than the estimated market value stipulated in the defendant’s expert report. 

21.  The plaintiff’s expert report stated:  

	Valuation Date	Market Value
(1)	14 May 2013	HK$3,810,000 to HK$4,210,000
(2)	27 March 2012 (the Judgment date)	HK$2,200,000 to HK$2,440,000
(3)	30 January 2010 (the extended completion date)	HK$1,120,000 to HK$1,240,000

22.  The hearing was purely on paper, there was no live witnesses for factual matters.  No experts were called to give evidence.  

23.  There were no affirmations regarding why I should (or should not) exercise my discretion in the plaintiff’s favour. 

DISCUSSION ON LOSS OF BARGAIN

24.  In the instant case, if the normal rule was to apply, the plaintiff’s damages would be assessed with reference to the market value of the Property as at 30 January 2010, the extended completion date.  That means: nil damages. 

25.  However, Ms Kwok asked me to depart from that rule and instead, to exceptionally assess the plaintiff’s damages based on the market value of the Property as at the date of the Judgment, ie 27 March 2012.  Her argument, in a nutshell, was that adopting the normal rule would cause injustice to the plaintiff. 

26.  I agree that in appropriate circumstances, damages may be assessed by reference to the value of the property at a different date.  To give a realistic substitute for specific performance, assessment could be made by reference to the market value of the subject property at a date later than the breach.  I also accept that the property market in Hong Kong has been rising since 2010.  The present question, nonetheless, is whether this case warrants a departure from the normal rule. 

27.  To start with, I find that there is a world of difference between the present facts in relation to the title deeds and the mistake, versus those relevant facts in Chan Wai Ching v Hui On Yin Ada (supra) and Silver Mart Trading Limited v Hong Kong Four Seas Tours Limited (supra). 

28.  Although I am sympathetic to the plaintiff, for the damages claimed under loss of bargain, I refuse to exercise my discretion in its favour, because:

a) of the findings in the paragraphs of the Judgment that I have quoted above;

b) the plaintiff did not have a reasonable chance in obtaining a decree of specific performance; 

c) there is no evidence to show that the plaintiff would nevertheless have entered into another purchase of property (let alone its inability to obtain a mortgage and the fact that it never entered into any other purchases of properties); and 

d) lack of exceptional factual circumstances, be it on paper or from live witnesses, to show the alleged injustice suffered by the plaintiff. 

29.  Therefore, the plaintiff’s damages are only to be assessed with reference to the market value of the Property as at 30 January 2010, ie the extended completion date. Thus, I rule and assess that there was no loss of bargain and no damages under this head. 

OTHER CLAIMS OF THE PLAINTIFF

30.  I would allow the return of the deposits claim of HK$112,000.  This is because, as found by the learned Judge, the defendant was in breach of the Agreement.  The defendant has no reason not to return it to the plaintiff, see Kwok Chung Hon & Another v Lo On Wa (supra).  

31.  By the same logic, since the loss of bargain claim failed, I would allow the claims for the legal costs of HK$5,300 and registration fee of HK$210.  This is because it is reasonable to do so as the defendant was the one breaching the Agreement. 

32.  For the sake of completeness, Ms Kwok confirmed that in any event I do not need to deal with:  

a) the additional legal costs and expenses for the purchase of a new property of similar type;

b) additional estate agent’s commission; and

c) additional purchase price payable for another new property of similar type. 

This is because the plaintiff did not purchase any property of similar type after the subject transaction had fallen through.

33.  The interest for the deposits of HK$112,000, legal costs of HK$5,300 and registration fees of HK$210 shall run at prime rate plus 1% from the date of Writ (ie 22 April 2010), to the date of Judgment, and thereafter at judgment rate until payment. 

COSTS

34.  I see no reason why costs shall not follow event.  I make an order nisi that the defendant do pay costs of the assessment of damages in the action.  Costs of and incidental to this hearing for assessment of damages be to the plaintiff, to be taxed if not agreed.  There also be a certificate for counsel for the plaintiff. 

35.  Since the jurisdiction of the District Court was expanded in late 2018 and the plaintiff applied to set down the present matter in March 2019 to attempt to seek damages of HK$1,252,000 (the best case scenario for the plaintiff), the costs from 29 March 2019 to the date of the handing down of this decision should be taxed on the scale of the District Court. 

36.  This cost order is to be made absolute upon the expiration of 14 days from the date of the handing down of this decision. 

37.  Lastly, I thank Ms Kwok for her helpful assistance.