XCHRX NG MAN FAI MICHAEL AND ANOTHER v. WORLDPART INDUSTRIAL LTD. AND ANOTHER

HCMP5708/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.5708 OF 1998

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J U D G M E N T

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1. On 8 November 2000 I gave judgment dismissing the plaintiff's claim and giving judgment in favour of the defendants on the counterclaim, for declarations and damages to be assessed.

2. The defendants now seek damages as follows:

Agreed price	$3,431,656.00
Agency fees on sale	$24,450.00
Less deposits forfeited	-$1,029,496.80
Less proceeds of sale	-$1,630,000.00
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Grand total	$796,609.20
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3. The extended contractual date for completion was 17 September 1998, the date on which the plaintiffs rescinded the contract. The Originating Summons was issued on 29 October 1998. It was registered as a lis pendens on 30 March 2000. The registration was removed on 15 February 2001. On 9 March 2001 a provisional agreement for sale and purchase was executed. Completion took place on 9 May 2001. The resale price was $1,630,000.

4. There is no dispute that "the normal measure of damages is the contract price less the market price at the contractual time fixed for completion". See McGregor on Damages, 16th Edn, para.992. However this may be displaced if its application would give rise to injustice; Johnson v. Agnew [1980] AC 367. The defendants say that it would give rise to injustice, because they could, in effect, not sell the flat before they did. The property market in Hong Kong fell drastically from the end of 1997. The plaintiffs say that it was the duty of the defendants to take reasonable steps to mitigate their loss, by selling or attempting to sell the property within a reasonable time after the sale fell through. They did not do this and so the relevant date would be the contractual date.

5. No evidence of valuation was given at the assessment hearing. The issue for decision is whether or not the defendants took proper steps to mitigate their loss. If they did, and still could not sell the property until they did, then they will be entitled to the damages they seek. If not, the normal common law rule will apply and in the absence of any other valuation evidence it must be assumed that there was no loss, or no loss which would not be covered by the forfeiture of the deposits.

6. It is not suggested that the defendants should have sold the property while it was subject to the lis pendens, though it was apparently still on their estate agents' books and no doubt could have been sold, subject to some action being taken to remove the incumbrance, if anyone had wanted it. So the question is whether they took proper steps to sell before 30 March 2000.

7. On the evidence of Mr So, the defendant's project manager, all the properties were ready for completion by March 1998. The suit property was in the first block to be finished. The 2nd defendant then used it as a show flat, furnishing one living room and one bedroom. Nothing specific was done to try to sell the property in the early period after the sale fell through because the 2nd defendant thought it necessary, before it could sell, to get a cancellation agreement from the purchasers. A decision to sell was made in early 1999.

8. The development had 75 apartments, in 25 blocks. 43 were sold before building was completed. Of these sales, 35 did not proceed because of the market downturn in 1997; the purchasers were unable to finance their mortgages. Eight such cases went to litigation, including two ground floor flats, one of them the suit property. By early 1999, the developer had 67 unsold apartments to sell. Accordingly a promotion campaign to sell the flats was instituted. The flats were advertised in the newspapers and put in the hands of a number of large estate agents and small local estate agents for sale. They were offered at a lower price than before. Various extras, such as airconditioners and electrical appliances and the payment of the purchasers' legal fees were offered. A shuttle bus was provided to bring potential buyers to view the flats.

9. The defendants had some success with this promotion. Sales picked up in 1999, and some 22 apartments were sold, although demand dried up again. By the present time some 30 apartments have been sold. Overall the difference between the prices obtained, and the original list prices of the apartments, was about 50%, though this is a rough estimate and does not take into account comparison between similar apartments. Unfortunately the suit property was not sold. It was treated on the same basis as all the others. There was no reason to single it out for different treatment. The defendants never took any steps to hold back or shield the suit property from purchase. Quite simply no one wanted to buy it.

10. The 1999 asking price of the property has not been given, although Mr So says that it was about $2,000,000. He had the discretion to sell if an offer was made within 10% below the asking price; any lower offer had to be referred to his superior. He thinks that there may have been some offers for the apartment, but cannot now remember how much they were, or if they were referred to his superior; and if they were referred, what answer was given. He says that there should be some diary entries recording any such offers, if any. However, no documents have been disclosed.

11. It appears that another ground floor flat, that at Block T, was the subject of litigation because its sale fell through. Its original list price was $2,765,718. It was made subject to a registered lis pendens. A new sale agreement was reached in October 1999 and completed on 6 December 1999. There is no evidence of the price obtained or when the deal was struck; the plaintiffs resisted an attempt by the defendants, at the last minute, to put in that evidence in respect of the resold flats; but the defendants did manage to sell it. It does however seem to have been a special situation. According to Mr So, the buyer had relatives living there, and before he agreed to buy had demanded that a deposit be paid into court, presumably to secure the removal of registration of the lis.

12. It also appears that the second floor flat and rooftop of the Block A, of which the suit premises are the ground floor, and which had an asking price of $3,637,617, was sold on 20 January 1999 for $2,300,000; but it had never been the subject of a previous sale, or litigation arising therefrom.

13. Here the onus is on the plaintiffs to show that the defendants ought reasonably to have sold the suit property at an earlier date; see McGregor on Damages, 16th Edn, para.299. The defendants were only required to act reasonably, and what is reasonable is a question of fact; Ibid. para.322. Did the defendants act reasonably in all the circumstances?

14. There is certainly no evidence that the 2nd defendant ever chose to hold on to the suit premises and not sell it, in the hope of getting a better price later, or out of some kind of grudge against the plaintiffs. I do not believe that they did that. I am satisfied that they included the suit premises in their sales promotion commencing at the end of March 1999. It is not clear what their asking price was, other than it was around the $2 million mark. I accept that no better offer than $1.8 million can have been received, otherwise Mr So had the discretion to accept and would have accepted it.

15. It is argued for the defendants that they took all reasonable steps by including the suit property in their sales promotion. It is accepted that a buyer might be a little less likely to take a show flat simply because it was a show flat, but the furnishings were easily removable and if a prospective buyer had wanted the suit property there would have been no reason for the 2nd defendant to refuse to sell it.

16. Counsel for the plaintiffs has referred me to various Hong Kong cases in which a delay in sale of up to seven or eight months, in a falling market, has been accepted as reasonable, and damages awarded on the basis of the difference between the contract price and resale price at the later date. Counsel for the defendants has referred to a New Zealand case in which a period of 18 months was held to be reasonable. It is argued for the defendants that the Hong Kong cases, dealing as they do with individual resales, are not helpful here, where the defendants had to deal with a "whole basket" of resales. However each case has to be decided on its own facts.

17. On the face of it the 2nd defendant's inclusion of the suit property in their sales promotion seems reasonable enough, although I must say that prudence might have counselled some special steps in respect of the eight apartments which were in litigation. In such cases the question of mitigation of loss would probably arise, while in the other cases it would not.

18. However I think the real difficulty which the defendants face is the fact that from 17 September 1998, until they first started the advertising for their sales promotion on 31 March 1999, no steps were taken to try to sell the suit property. Mr So admits that he knew then that the defendants were obliged to resell it. Granted that he says that they wanted to have a cancellation agreement, they should have known that that was in no way necessary because what the plaintiffs were claiming was the return of their deposits rather than specific performance. This became even clearer when the Originating Summons was served. The 2nd defendant had legal advice and was in any event a property developer. It should have known what its rights were. Granted that it had a whole basket of resales to deal with, we do not know when the basket was filled and as I have indicated not all the properties for resale were in the same position; some, including this one, were in litigation.

19. It is notorious that the Hong Kong property market fell some time around the end of 1997. How the market moved between September 1998 and March 1999 is not so notorious; there is no matter of which I can take judicial notice.

20. However what is significant to my mind is the fact that in January 1999 the defendants sold the top floor and roof of the same block for $2.3 million as against a listed price of $3.63 million. We do not know when the deal was struck but it was presumably some time in late 1998. I realise that this is the top floor and roof, as against the suit property which is the ground floor and garden, and they might have appealed to different types of buyer, but the total areas are not much different and the noisy location near the road would count against both of them. So although on the information supplied by the second defendants there were not many completions of sales in the early part of 1999, there was this one, in the same block; and it may well be that if the second defendants had taken prompt steps to resell, instead of waiting for 6 months, they would have had a similar success in selling the suit property at something over 60% of their contract price rather than the less than 50% which they managed to achieve in May 2001.

21. Of course it is true that the measures which the sufferer from a breach of contract should take to extricate himself from the position in which he finds himself "ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty" (per Lord Macmillan in Banco de Portugal v. Waterlow [1932] AC 452 at 506), and it is easy to criticise from hindsight, but the fact is that the 2nd defendant is a property developer and was in the business of selling its apartments. There was no good reason why it should not promptly put back on the market any of its apartments of which the sale had fallen through.

22. I find therefore that the 2nd defendant did not take proper steps to mitigate the loss suffered by itself and the 1st defendant (if he as the original owner of the lot suffered any). Any losses suffered would be less than the deposits forfeited.

23. It follows that the damages have to be assessed at nil. I asked counsel to address me on costs, in case this should be the outcome. Mr Cheung for the defendants suggested that they should get 80% of the costs of the action. Mr Shum for the plaintiffs asked for the costs of and relating to the assessment to be to the plaintiffs and the costs of the action otherwise be to the defendants. I think the former course is preferable if only to keep down the costs of taxation and will accordingly order that the defendants be awarded 80% of the costs of the action, to be taxed if not agreed.