UNION BACE CO. LTD. v. CONVENIENT LTD.

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. HCA3250 OF 1998

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J U D G M E N T

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1. The plaintiff and the defendant, respectively vendor and purchaser, are registered limited companies in Hong Kong. The matter comes before me as an assessment of damages following the order of Master Bennett on 15 September 1998 when he granted the plaintiff's application for a declaration that it was entitled to rescind the sale and purchase agreement pursuant to that agreement. Master Bennett further ordered that damages suffered by the plaintiff be assessed.

2. The defendant, hitherto represented by a firm of solicitors, has failed to appear at today's hearing, its solicitors having in the meantime withdrawn from the record.

3. This case concerns premises known as shop No. 1 on the Ground Floor, Hing Shun Mansion, Nos. 70-84, Fu Yan Street, Kowloon.

4. The defendant contracted with the plaintiff to acquire all the interests in the shop premises for HK$63 million. Pursuant to the sale and purchase agreement, substantial deposits totalling $9,450,000 had been paid. It was within the contemplation of the parties and agreed in the terms of the agreement that completion should occur on 23 December 1997. For reasons which are not immediately apparent, the defendant company decided to renege on the land transaction. Under the agreement, the plaintiff forfeited, as it was entitled to, the deposits thus paid.

5. In the proceedings before me, the plaintiff claims damages premised essentially upon the loss of bargain, that is to say, the substantial difference between the contractual price and the price representing the best open market value or price that could reasonably be obtained as at the date of completion. It also seeks consequential damages of an amount equal to the prospective legal costs for the subsequent resale which, to date, the plaintiff has not been able to achieve owing to the downturn in the property market.

6. The plaintiff was represented by one of its Directors, a Mr Lai Yau-fai, whose two statements were adopted by him as his evidence. He also briefly elaborated on one or two matters. There being no evidence to contradict his testimony, I see no reason not to hold that his evidence represented the reality of the situation. I find all the matters that he has referred to as facts properly established.

7. On the evidence, it was plain that the shop had been acquired by the plaintiff for investment purposes. On that basis, it was not surprising the shop had been let at the time of the sale and purchase agreement to a retailer, more particularly known as G2000, a well known clothing retail chain in Hong Kong.

8. It was contemplated that the shop would be sold as was, in other words, with the tenancy. Vacant possession was not a feature of the agreement. Nothing arises in that respect in any event.

9. By way of background, it should also be stated that G2000 had opted to vacate the premises and terminate the lease arrangement with the plaintiff prematurely. This was an acceptable and mutually agreed arrangement. The shop was immediately re-let to what appears to be a congee outlet.

10. I now turn to the first head of damages. In support of this aspect of the case, Mr Ringo Lam (PW2) of AG Wilkinson & Associates testified to the methodology which he had adopted in assessing what he considered to be the open market value of the shop at the date of the breach, namely 23 December 1997. He explained that his approach was the investment approach that also involved a comparative examination of a number of comparables. I found his evidence particularly clear. He admitted that a typographical error had crept into the final calculation which appears at paragraph 4.3 of his report. The figures were put right and I believe he wrote down the re-adjusted figures on a copy of the valuation report that was marked Exhibit P1, the original not then being available for production. Subsequently, the original report was tendered and marked P1A.

11. Mr Lam was the second valuer to be involved in this matter on behalf of the plaintiff. His predecessor was Mr Ambrose Liu who had also provided a valuation. Suffice it to say that Mr Lam has fully acquainted himself with the contents of Mr Liu's report and has verified the factual matters stated in the earlier report. He had also paid a visit to the shop premises and satisfied himself as to the parameters which needed to be included in his assessment.

12. It is Mr Lam's view that the property's market value, for reasons explained which I fully accept, amounted to $46,123,918. That figure, he rounded up to $46,120,000.

13. In respect of this item of loss, the plaintiff therefore pursues the difference between the sum of $46,120,000 and the original contract price of $63 million. That difference worked out at $16,880,000.

14. Mr Vaughan for the plaintiff drew my attention to a number of paragraphs in McGreggor on Damages, 16th Edition. The citations are commonly introduced in cases such as these. For completeness, I think it is apt if I were to quote from paragraph 992 and 993 thereof:

"The normal measure of damages is the contract price less the market price at the contractual time fixed for completion. This measure is first clearly stated in Laird v Pim by Parke B.:

"The measure of damages ... is the injury sustained by the plaintiff by reason of the defendants not having performed their contract. The question is, how much worse is the plaintiff by the diminution in the value of the land, or the loss of the purchase-money, in consequence of the non-performance of the contract? The first relevant price, therefore, is the contract price; the market value at the moment of contracting is not relevant, however much lower than the contract price. The second relevant price is the market price at the contractual time fixed for conveyance; if no time is fixed it will presumably be at the time of refusal to accept a conveyance..."

15. Adopting that approach and accepting that the open market value of the shop was as properly and fairly assessed by Mr Lam, the plaintiff is indeed entitled to loss of bargain calculated at $16,880,000.

16. Before turning to the second head of claim, being the relatively small amount of projected legal costs to be incurred in the future resale of the property, I should note, and this is a matter that counsel has addressed in his written submissions, that the defendant had by its amended Defence and Counter-claim sought to argue that the plaintiff had to give credit for the rentals received. A number of cases have been cited in this regard. Of particular relevance are British Westinghouse Electric & Manufacturing Company Limited v Underground Electric Railways Company of London Limited [1912] AC 673, Hussey & Eels [1990] 2 QB 227 and Prudential Assurance Company Limited v McBains Cooper (a firm) & others, 27 June 2000 per Judge Richard Harvery QC, unreported.

17. Counsel submits, and I am in total agreement, that this contention is untenable as the plaintiff has made no claim for continuing loss. Whatever damages it had suffered would have crystallised at the time when the conveyance should have occurred. The plaintiff has not claimed any continuing loss. Its claim in regard to prospective expenses for resale cannot be viewed as such a claim. Were the defendant to succeed with this argument, then the court would have to embark on an exercise to take into account the mortgage payments which the plaintiff has had to continue to pay owing to the breach of contract by the defendant. In any event, the information before me suggests that such damage if pursued, i.e. the amount of mortgage payments inclusive of interests to date, might well exceed the rentals obtained by the plaintiff in the interim.

18. Turning, therefore, to the final head of claim, this has been put at a figure of $42,987. Mr Vaughan has fairly conceded that this is necessarily an estimate. The plaintiff clearly wishes to liquidate its investment but hitherto has had no success despite advertising the sale of the shop. This amount is recoverable. Reverting once more to McGreggor on Damages, the learned author suggests at paragraphs 994 and 995 that this head of claim is undoubtedly maintainable. The sum in respect of legal fees are expenses not related to the abortive sale but to those of the prospective resale. I grant this claim.

19. Credit must be given for the deposits forfeited pursuant to the sale and purchase agreement. In sum I award the plaintiff damages calculated as follows:

a) Loss of bargain	-	$16,880,000
b) Consequential Loss	-	$ 42,987
Less: Deposits forfeited		$ 9,450,000
TOTAL DAMAGES:		$ 7,472,987

20. To that must be added interest which counsel submits should be at judgment rate from the date of breach, that is 23 December 1997 until payment. I so order.

21. The plaintiff shall also have his costs of this assessment with certificate for counsel.