GIANT RICHES LTD. v. KU KWOK KWAN

HCA14349/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14349 OF 1999

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Assessment of Damages

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1. The Plaintiff is the developer of a residential block known as "The Panorama" situated at 520-526 Castle Peak Road, Tsuen Wan, New Territories. The Defendant is a member of the public.

2. This is one of the many claims against property purchasers who defaulted in completing their land sale transactions during the economic downturn in 1998.

3. By an Agreement signed between the Plaintiff and the Defendant on 1 April 1997 the Defendant agreed to buy Flat E on the 6th floor of the said development at a purchase price of HK$3,842,000.

4. Pursuant to the Agreement the Defendant paid a total of HK$768,400 deposit towards the purchase of the said domestic premises.

5. The said Agreement stipulated the parties' rights and obligations and the payment schedule. Second Schedule of the Agreement reads:-

"The purchase price ... $3,842,000 shall be paid by the Purchaser ......... as follows:-

(i) The sum of HK$384,200 ( including the initial deposit of HK$300,000 ) as deposit money to be paid upon signing of this Agreement.

(ii) The sum of HK$192,100 as further deposit money to be paid on or before 14 April 1997;

(iii) The sum of HK$192,100 as further deposit money to be paid on or before 14 September 1997;

(iv) The sum of HK$192,100 as further deposit money to be paid on or before 14 March 1998;

(v) The sum of HK$192,100 as further deposit money to be paid on or before 14 September 1998;

(vi) The balance of HK$2,689,400 to be paid within 14 days of the Purchaser being notified in writing that the Occupation Permit covering the Property has been issued and the Vendor is in a position validly to assign the Property to the Purchaser.

6. The Defendant defaulted payment since 14 March 1998. Demands for payment were sent to the Defendant in May 1998. On 10 June 1998 the Defendant wrote to the Plaintiff to indicate that she was in financial difficulty, but was nevertheless prepared to pay interest accrued on the arrears so as not to prejudice her rights under the sale and purchase agreement.

7. By 14 September 1998 the Defendant had cumulatively defaulted 2 installment payments, amounting to a total of HK$384,200.

8. On 13 October 1998 the Plaintiff exercised its right under clause 19 of the agreement to:-

(i) determine the agreement;

(ii) forfeit the portion of the Defendant's deposit representing 10% of the purchase price of the property; and

(iii) retain sums over and above 10% of the purchase price paid as security under the agreement for the payment of compensation for loss or damage suffered by the Plaintiff arising from the Defendant's default.

9. On 17 October 1998 the Plaintiff sold off the said unit at HK$2,157,000.

10. On 4 September 1999 the Plaintiff instituted the present proceeding to seek recompense from the Defendant.

11. On 14 February 2000 after hearing argument from both parties, the Court awarded summary judgment to the Plaintiff in the following terms:-

(i) interlocutory judgment with damages to be assessed; and

(ii) the Plaintiff be entitled to forfeit 10% of the purchase price in the sum of HK$384,200 and to hold the balance of HK$384,200 pending the outcome of the assessment of damages.

Quantum of Damages

12. The Plaintiff now claims the following heads of damages:-

(i) Deficiency loss between the purchase price and the re-sale price with credit given to the deposits received from the Defendant.

(ii) Agency fees paid to effect the resale of the property.

(iii) Legal costs incurred as a result of the Defendant's breach.

(iv) Interest on the defaulting sums due and payable by the Defendant.

Deficiency Loss

13. The Plaintiff successfully re-sold the property for HK$2,157,000 on 17th October 1998 through Midland Realty Limited, a real estate agency. According to the surveyor report produced by the Plaintiff, market value of the property was estimated to be HK$2.03 millions on 17th October 1998. In the absence of evidence to the contrary I accept the re-sale price of HK$2,157,000 to be a fair and reasonable market value of the property at the time of the re-sale.

14. The deficiency loss suffered by the Plaintiff after deducting the resale price and the payments made by the Defendant was HK$916,600 ( i.e. HK$3,842,000- HK$2,157,000 - HK$ 768,400 ).

Agency Fees

15. According to Miss Wong, property manager of the Plaintiff, the landed property market was in recession during the year of 1998 when purchasers were few and landed properties were plenty. As an incentive to attract quick re-sale, the Plaintiff offered 1.5% commission to real estate agents and paid complimentary legal fees on behalf of the buyers.

16. Debit note and invoice were produced to show that the Plaintiff had paid Midland Realty Limited an agency fees of HK$32,355, representing 1.5% of the resale price, for its service in negotiating the successful re-sale of Flat 6-E.

Legal Costs

17. The Plaintiff paid HK$3,500 legal costs towards the discharge of the Defendant's interest in the property and incurred a further sum of HK$16,000 legal costs for the assignment and mortgage of the subsequent buyer in the re-sale. The HK$16,000 legal costs were extra expenses incurred by the Plaintiff, for pursuant to clauses 14, 16, 31(iv) & 31(v) of the original sale and purchase agreement, the Defendant was the party responsible for shouldering these legal costs had the Agreement proceeded to fruition.

Interest

(i) Contractual Interest

18. Clause 3(v) of the sale and purchase agreement entitled the Plaintiff to charge overdue interest of 2% above the prime rate specified by the Hongkong and Shanghai Bank on the unpaid sums of the purchase price. The prime rates of the Hongkong and Shanghai Bank were exhibited. A breakdown of the contractual interest calculation appeared in para 11(a) of the witness statement of the property manager Miss WONG made on 12 October 2000.

19. I accept the Plaintiff was entitled to claim contractual interest at 2% above the prime rate specified by the Hongkong and Shanghai Bank on all outstanding payments from the day of the Defendant's breach on 14 March 1998 to the day of termination of the agreement on 13 October 1998. I accept the sum of HK$15,303.53 in Miss WONG's calculation to be a fair calculation of the contractual interest.

(ii) Commercial Interest

20. According to the Land Registry record, occupation permit of the premises was granted on 16 December 1998 and registered on 29 December 1998 while the assignment to the subsequent buyers was executed on 11 January 1999.

21. Schedule 2 of the Agreement specified the due day for payment of the balance of the purchase price to be 14 days from receipt of notification of the issuance of occupation permit.

22. In accordance with the payment schedule the Plaintiff was not in a position to call upon the Defendant to make payment of the balance of the purchase price until notification of the issuance of the occupation permit. Valid notice could not be issued until the occupation permit was received by the Plaintiff. The Defendant was not in breach of his obligation to pay the balance of the purchase price until 14 days after receipt of the notice of issuance of the occupation permit. There was no evidence before court as to when the Plaintiff received the occupation permit and when did the Plaintiff serve the notice upon the subsequent purchasers. Events showed the assignment was executed on 11 January 1999. On balance, I accept 11 January 1999 as the day that the Plaintiff demanded performance. Commercial interest on the deficient sum is therefore only chargeable from 12 January 1999 onwards.

23. The Plaintiff contended that commercial interest at 1% above prime ought be awarded in accordance with the decision of Komala Deccof.

24. In the Court of Appeal decision of Komala Deccof & Co v Perusahaan Pertambangan [1984] HKLR 219 Mr. Justice Cons.J.A. said the award of interest, other than contractual, would be a matter of discretion of the court. His Lordship made reference to the commercial practice then in force in England and the rule of thumb of lending at 1% to 3% above prime in the case of smaller or less well established concerns.

25. Mr. Justice Cons, J.A. further said at page 223 of the judgment, "The rate of interest is also a matter within the discretion of the trial judge, but it is clearly undesirable that there should be arbitrary variations between similar cases and in my view it is desirable that this court should give some general guidance on the question.......I would venture to suggest that a similar approach should be adopted here. Although the practical circumstances of the two jurisdictions may differ in some ways, I do not think there is any significant distinction between our basic mercantile principles. It may be that on the local financial scene 1% above prime is not a realistic rate, but time will tell and if necessary the guideline can be adjusted accordingly. For the time being however I would suggest the use of that rate, unless in any particular case there is evidence which shows some other rate to be more appropriate."

26. Mr. Justice Cons, J.A., of course, was making reference to small or less well established trading entities. What is before me in this proceeding is the Lai Sun group, one of the major land developers in Hong Kong, whose borrowing power is likely to be stronger than any small or medium scale of operation. Futher, during the economic downturn, it was not unheard of that banking institutes did grant bank loans at rates below prime.

27. In the trading climate of 1999, it would not be inequitable to assume a lending rate at prime or below prime for major land developing groups like the Plaintiff. In the absence of clear evidence , I adopt the prime lending rate as the likely lending rate of the Plaintiff.

Conclusion

28. On balance I accept the following computation reflects a fair quantification of the damages suffered by the Plaintiff, and I do award judgment in favour of the Plaintiff in the following sums:-

(i) HK$ 916,600 deficiency loss;

(ii) HK$32,355 agency fees;

(iii) HK$19,500 legal costs;

(iv) Overdue contractual interest of HK$15,303.53; and

(v) Commercial interest on the deficient sum of HK$916,600 at prime rate from 12 January 1999 to the date of judgment.

29. Judgment interest accrues at judgment interest rate from the date of judgment to the date of payment.

30. I further grant Order Nisi for costs in favour of the Plaintiff, with certificate for counsel, for the assessment hearing. Unless parties apply to be heard further on the issue of cost, this Order Nisi would become absolute at the lapse of 14 days from the date of this judgment.