Sun’s Workshop Co Ltd v. Langold Investment Ltd
Read the full judgment text of HCA 94/2022 on BabelCite. This High Court CFI judgment was delivered on 3 May 2024.
1. The plaintiff’s claim arises from the defendant’s breach of a sale and purchase agreement dated 26 February 2021 (“ SPA ”) in respect of Shop 13 on Ground Floor, Dragonfair Garden, Nos 445/485, Queen’s Road West, Hong Kong (“ Property ”).
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HCA 94/2022 [2024] HKCFI 1235 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 94 OF 2022 (TRANSFERRED FROM DCCJ 4096 OF 2021) ________________________
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_________________________________ JUDGMENT _________________________________ A. INTRODUCTION 1.The plaintiff’s claim arises from the defendant’s breach of a sale and purchase agreement dated 26 February 2021 (“SPA”) in respect of Shop 13 on Ground Floor, Dragonfair Garden, Nos 445/485, Queen’s Road West, Hong Kong (“Property”). 2.As a result of the breach, the plaintiff claims, inter alia, three heads of loss, namely, (i) loss of rental income, (ii) stamp duty, and (iii) loss of bargain. 3.On 8 February 2022, by consent, judgment on liability was entered in favour of the plaintiff. The defendant was ordered, inter alia, to pay the plaintiff damages and interest to be assessed. B. BACKGROUND 4.The defendant was at all material times the registered owner of the Property. 5.By a provisional agreement for sale and purchase (“PSPA”) dated 5 February 2021, the plaintiff agreed to purchase and the defendant agreed to sell the Property at the price of HK$16,380,000 (“Purchase Price”). 6.In relation to the provisions of the PSPA:
7.Upon signing the PSPA, the plaintiff paid the defendant an initial deposit of HK$800,000. The plaintiff has also paid the stamp duty for the PSPA, in the amount of HK$100. 8.On 26 February 2021, the plaintiff and the defendant entered into the SPA in place of the PSPA. 9.In relation to the provisions of the SPA:
10.Completion, according to clause 5 of the SPA, was to take place between 9:30 am to 5:30 pm on 21 May 2021. 11.Upon signing the SPA, the plaintiff paid the defendant a further deposit of HK$838,000 (this deposit, together with the initial deposit of HK$800,000, is hereinafter referred to as the “Deposits”). It is not in dispute that the plaintiff paid the stamp duty for the SPA, in the amount of HK$614,250. 12.The defendant failed to complete the sale of the Property on the completion date. By a letter dated 24 May 2021 from Messrs Yuen, Yu, Yuen & Co, solicitors for the defendant (“YYY&Co”), to Messrs Chan, Wong & Yip (“CWY”) (“24 May 2021 Letter”), former solicitors of the plaintiff, the defendant admitted that it was unable to complete the sale and was in breach of the SPA. 13.The 24 May 2021 Letter was preceded by events which, on the evidence, originated from matters concerning the authenticity of the Tenancy Agreement:
14.In the 24 May 2021 Letter, YYY&Co enclosed two cheques in the total sum of HK$1,638,000 in favour of the plaintiff as a refund of the Deposits. 15.By a letter dated 28 May 2021, CWY acknowledged receipt of the cheques, and stated, inter alia, that the plaintiff had accepted the defendant’s repudiation of the SPA. 16.On 24 June 2021, the defendant commenced proceedings against the Purported Tenant in the District Court to, inter alia, claim delivery of vacant possession of the Property. 17.On 25 August 2021, the plaintiff commenced proceedings against the defendant in the District Court (DCCJ 4096/2021). 18.By an order dated 7 January 2022, Master Maurice Lam ordered, inter alia, that the plaintiff’s action to be transferred to the Court of First Instance, hence this action. 19.By a consent order dated 8 February 2022, Master Lai ordered, inter alia, that judgment in this action be entered for the plaintiff against the defendant with damages to be assessed. Interlocutory judgment was entered on the same day accordingly. 20.The following factual witnesses testified at the hearing for assessment of damages:
21.The parties have also adduced expert evidence on the valuation of the Property, which will be detailed below. C. HEADS OF LOSS 22.By its statement of claim, the plaintiff claims against the defendant for the following heads of loss:
23.In relation to head (b), the defendant accepts in its closing submissions its liability for the same. 24.In relation to head (d), the plaintiff confirmed in its opening and closing submissions that the estate agent’s commission had been settled with the estate agent directly on 4 June 2021. The plaintiff no longer pursues its claim under this head. 25.Thus, the only heads in issue are: (i) loss of rental income, (ii) stamp duty, and (iii) loss of bargain. D. DISCUSSION D1. Loss of rental income 26.The plaintiff’s case is that under the SPA the Property was agreed to be sold subject to tenancy, and the Tenancy Agreement was for a fixed term of two years commencing from 1 January 2020 to 31 December 2021 (both days inclusive) at a rental sum of HK$33,000 per month inclusive of government rates and management fees. The defendant, by its breach of the SPA, is therefore liable to pay the plaintiff the income thereunder for the period from the original date of completion (ie 21 May 2021) to 31 December 2021. 27.The defendant’s case, on the other hand, is that the Tenancy Agreement is a forged document, and all that the plaintiff would acquire on a hypothetical completion would be non-existent entitlements under that forged document and a claim for adverse possession. It is therefore not open to the plaintiff to claim that there would be rental income. 28.The object of an award of damages for breach of contract is well established. It is compensatory in nature, in that it aims to place the innocent party, so far as a monetary award can do so, in the same position as if the contract had been performed in accordance with its terms: Richly Bright International Ltd v De Monsa Investments Ltd (2015) 18 HKCFAR 232, at §15, per Ribeiro PJ and Fok PJ. 29.Applying the above principle, the defendant’s contention is invalid. The Tenancy Agreement being forged is a red herring. The plaintiff, being the innocent party, is to be placed in the same position as if the SPA had been performed in accordance with its terms. As is apparent from Clause 6(b) of the SPA, the plaintiff and the defendant entered into the PSPA and the SPA on the basis that the Tenancy Agreement was a valid tenancy:
30.Clause 6(b) is to be contrasted with a clause whereby the vendor expressly refrains from giving any warranty as to the validity of any tenancy. 31.Therefore, the financial position that the plaintiff should be put into includes the financial benefit that the plaintiff would be able to derive from a valid tenancy in the same terms as those of the Tenancy Agreement. 32.For completeness, I would make it clear that, notwithstanding the challenge of the plaintiff, I have considered and accepted the evidence of Mr Chan as to (i) the confession of Ms Wong May Fong which exposed the issue of the authenticity of the Tenancy Agreement, and (ii) how the defendant followed up on such issue, including making a police report against Ms Wong May Fong for forging the Tenancy Agreement, as well as commencing legal action DCCJ 2975 of 2021 against the occupier of the Property to recover possession. The plaintiff could not point to any substantive evidence that could even remotely cast any doubt on the veracity of Mr Chan’s evidence. His evidence apparently does not benefit the defendant in any material way. I see no rational reason for Mr Chan to fabricate any bits of his evidence. 33.The defendant further argues that, in any event, the plaintiff has wholly failed its duty to mitigate to the extent that no award for the loss of rental income should be made. 34.It is trite that the plaintiff cannot recover damages for any part of his loss consequent upon the defendant’s breach of contract that the plaintiff could have avoided by taking reasonable steps: Chitty on Contracts (34th ed, 2021) at §29-096. What is reasonable is a question of fact which requires consideration of the circumstances of each case: Chitty on Contracts, at §29-099. Also, it is the burden of the party in breach, ie the defendant herein, to establish the failure of the innocent party, ie the plaintiff herein, to reasonably mitigate the loss arising from the breach of contract: Chitty on Contracts, at §29-098. 35.The defendant argues that there was no commercial reason why the plaintiff must insist that the money be used to invest in property and the plaintiff has adduced no evidence to show that any steps have been taken. The defendant relies on Mr Cheuk’s evidence at trial that he did not seek to invest the money that he would have paid. The defendant argues that the plaintiff “sat on the situation”. 36.I disagree. It was expressly stated in Cheuk WS that (i) the plaintiff tried to seek for an alternative to realize its investment plans; (ii) after paying for stamp duty and all related costs pursuant to the PSPA and the SPA, the shareholders of the plaintiff decided that the plaintiff was not in a financial position to risk making another purchase; and (iii) the plaintiff had in any event not been able to find another property of a similar market price with the same investment potential as the Property as at the date of the witness statement. 37.I regard the last part of Mr Cheuk’s evidence as the key to rebut the defendant’s argument. When the plaintiff set out to acquire the Property as an investment, reasonable mitigation would normally involve looking for comparable investment opportunities. The defendant was not able to adduce any evidence to demonstrate that the plaintiff was presented with similar investment opportunities at the material times. 38.The defendant’s case on the plaintiff’s purported failure to mitigate therefore also fails. 39.In the premise, I hold that the plaintiff is entitled to the loss of rental income for the period from 21 May 2021 to 31 December 2021 (both days inclusive), in the sum of HK$241,645.16. D2. Stamp duty 40.Insofar as the liability to pay stamp duty for the PSPA and the SPA is concerned, section 29BA and Scale 2 of Head 1(1A) under the First Schedule of the Stamp Duty Ordinance (Cap 117) (“Ordinance”) appear to be pertinent to the present situation. The collective effect of such provisions is that both the plaintiff and the defendant were liable to pay stamp duty for the PSPA and the SPA. 41.Parties usually allocate the liability to pay stamp duty between themselves through contract. In the present case, clause 21 of the SPA is the material provision. 42.There is no dispute that the plaintiff is liable inter se to pay stamp duty pursuant to clauses 21(a) & (b) of the SPA, which provided that:
43.The present dispute concerns whether the plaintiff is entitled to recover the stamp duty in the sum of HK$614,350 from the defendant as a result of the termination of the SPA upon the defendant’s failure to complete the sale and purchase in the manner provided in the SPA. 44.The plaintiff relies on clause 21(d) of the SPA to claim against the defendant for the stamp duty paid. Clauses 21(c) & (d) provided that:
45.The defendant contends that clause 21(d) was only applicable to the situation where the stamp duty was not yet paid to the Collector. In the situation where the stamp duty was already paid by the plaintiff, clause 21(c) mandated the plaintiff to apply directly to the Commissioner of Inland Revenue for refund. Alternatively, the defendant contends that the plaintiff was under a general obligation to mitigate its loss by applying for refund in any event. Given the plaintiff had failed to apply for refund within the allowable period under the Ordinance, the plaintiff should be barred from recovering the same from the defendant. 46.The first issue revolves around the interpretation of clause 21 as a whole, in particular the effect of clauses 21(c) & (d). In conducting the construction exercise, I have borne in mind the well-established principles on contractual interpretation to which the parties referred in their submissions. 47.Clause 21(c) specifically incorporated section 29C(6) of the Ordinance, which however had been repealed at the time of the SPA. It provided that:
48.It is common ground between the plaintiff and the defendant that section 29C(6) was replaced by section 29C(5A)-(5B) in the Ordinance:
49.It is common ground during the oral closing submissions that the reference to section 29C(6) in clause 21(c) could not be substituted by section 29C(5A)-(5B) notwithstanding the repealing of the former. Indeed, the parties have no dispute over the principle that where a contract or deed incorporates the provisions of a statute or subordinate legislation, there is no presumption either way as to whether the reference is to the law for the time being in force: William Hare Ltd v Shepherd Construction Ltd [2010] B C C 332, at §27, per Coulson J. 50.It is also common ground between parties that section 29C(5A)-(5B) provide a wider basis for seeking refund of stamp duty than the one under the repealed section 29C(6). The ground for refund that was provided in section 29C(6) was only subsumed into the wider ground under section 29C(5A)-(5B). In other words, clause 21(c) remained fully operative even though section 29C(6) was repealed. 51.In respect of the defendant’s contentions, first, I do not accept the argument that clause 21(d) only applied to the situation where the stamp duty remained unpaid, which is contrary to the clear wordings of clause 21(d) specifying that: “…in any event, either the Vendor or the Purchaser, fails to complete the sale and purchase in the manner herein contained, the defaulting party shall be responsible and liable for the payment of the stamp duty chargeable…” (emphasis added). There was no reference to stamp duty being paid or otherwise. On the contrary, to limit the defaulting party’s liability to the time before stamp duty was paid would be contradictory to the references of “in any event” and “fails to complete the sale and purchase”. 52.Also, to qualify clause 21(d) to only the time before the stamp duty was paid would put the purchaser to a choice between (i) paying the stamp duty soon after the execution of the SPA, so that the purchaser could have the SPA registered to avoid the risk of the vendor double-selling the Property, and (ii) delaying the payment of the stamp duty for as long as possible to preserve the right under clause 21(d). I do not see any valid ground to find that the parties had indeed structured the bargain as such. 53.The sensible interpretation of clause 21 is that:
54.Therefore, the next material question is whether clause 21(c) applies in the present dispute to bar the plaintiff from recovering the stamp duty. I find that it does not. 55.The circumstances in which the sale and purchase of the Property could not be completed as shown in the correspondence shall be set out in some detail. 56.On 30 April 2021, ie 3 weeks before the agreed completion date (21 May 2021), YYY&Co informed CWY of the allegation of adverse possession made by the Purported Tenant through the 22 April 2021 Letter. 57.On 14 May 2021, YYY&Co further requested CWY to postpone the date of completion to on or before 20 August 2021. 58.Then on 20 May 2021, the day before the completion date, CWY replied to YYY&Co asking a series of questions arising from the defendant’s proposal to postpone the completion date. Most noticeably, CWY made the following inquiry which demonstrates that the plaintiff was concerned as to whether the claim for adverse possession could be resolved by the proposed new completion date, such that the defendant could deliver the Property which would be freed from such claim:
59.Adverse possession by a squatter has the effect of extinguishing the paper owner’s title pursuant to section 17 of the Limitation Ordinance (Cap 347). CWY’s inquiry was clearly concerning the defendant’s title to the property as affected by the claim for adverse possession. 60.On 21 May 2021, CWY counter-proposed that the completion date be postponed to 31 January 2022, subject to, inter alia, the request that “vacant possession of the Property shall be delivered to our client upon completion”. Even though the counter-proposal asked for the “vacant possession” of the Property, CWY was effectively focusing on the ability of the defendant to give good title to the Property eventually. 61.On 24 May 2021, YYY&Co replied to CWY stipulating that: “in view of the potential claim for adverse possession, our client is unable to complete the sale subject to the existing tenancy pursuant to the Formal Agreement for Sale and Purchase dated 26th February 2021”. The gist was once again the defendant’s inability to show and give good title upon completion given the risk that the title might have already been extinguished by adverse possession. YYY&Co enclosed two cheques as the refund of the deposits paid by the plaintiff. 62.On 28 May 2021, CWY replied to YYY&Co. Receipt of the cheques representing the refund of the deposits was acknowledged. More importantly, the plaintiff accepted the defendant’s repudiation of the SPA. The plaintiff did not specify what was the “repudiation” on the part of the defendant at that stage. However, in light of the previous correspondence, it should be clear that the “repudiation” was the defendant’s failure to show and give good title upon the completion because of the claim of adverse possession. The plaintiff never adduced any evidence to suggest that, on the original completion date (21 May 2021), the defendant as vendor was unable to complete the sale and purchase under the SPA for any other reason. On the contrary, the correspondence clearly shows that, since YYY&Co’s letter dated 30 April 2021 informing CWY of the claim for adverse possession, parties had not discussed the mechanism for completion (which normally would involve (i) the plaintiff arranging for payment as purchaser and (ii) parties’ discussion about the execution the assignment) at all. 63.Therefore, the situation appears to fall within the repealed section 29C(6) of the Ordinance to the extent that the defendant was unable to prove its title in accordance with the SPA, which was rescinded[2] by the plaintiff on the same ground. In fact, the plaintiff has not advanced any clear argument as to why the present situation should not fall within the repealed section 29C(6). 64.On one hand, the plaintiff repeatedly emphasized that, notwithstanding the fact that section 29C(6) was repealed at the time of the SPA, clause 21(c) was perfectly workable as is, and the reference to section 29C(6) should not be substituted with the new sections 29C(5A)-(5B). I accept this argument. 65.On the other hand, the plaintiff only cursorily contends that it was the defendant, not the plaintiff, rescinding the SPA in the present case. Such contention is misconceived. There were no provisions in the SPA that would allow the defendant to rescind the SPA should it fail to prove a good title to the Property. As it was made clear in the correspondence, particularly the 24 May 2021 Letter, the defendant accepted that it was in breach of the SPA (which is the opposite to the defendant invoking any rescission clause under the SPA). 66.Nevertheless, there were two provisos in section 29C(6), namely (i) the application for refund must be made within 2 years, and (ii) no legal proceeding (other than legal proceedings in which there fell to be determined the question whether the purchaser was so entitled to rescind the agreement) had been commenced in which the instrument could or would have been given or offered in evidence and, if the Collector so required, the instrument was given up to be cancelled. 67.In respect of the first proviso, the application for refund was made only 1 month before the trial according to Mr Cheuk in cross-examination, ie beyond the 2-year window. The application has failed and the plaintiff has not adduced any evidence as to the reason(s) for the failure. I accept the defendant’s submission that each party to a contract is expected to co-operate to ensure the performance of their side of the bargain: Ying Ho Co Ltd v Secretary for Justice (2004) 7 HKCFAR 333, at §128. It should be the plaintiff’s duty to seek refund of the stamp duty under clause 21(c). The plaintiff could not put itself in a better position by simply failing to apply for refund within the 2-year window as required under the first proviso of section 29C(6) of the Ordinance. 68.Nevertheless, I find that the present situation falls within the second proviso. The SPA has been put into evidence for at least the purpose of the dispute in relation to the loss of rental income under the Tenancy Agreement. Such dispute was raised by the defendant rather than the plaintiff. The second proviso is therefore engaged. 69.I therefore hold that the plaintiff’s claim for reimbursement of the stamp duty paid is not barred by clause 21(c). The situation falls into clause 21(d) such that it is the defendant’s liability to reimburse the plaintiff for the stamp duty paid. D3. Other arguments in relation to stamp duty 70.The defendant has further made the following arguments to resist the claim for reimbursement of the stamp duty paid in the present case:
D3.1 Duty to mitigate 71.If clause 21(c), which provided for the specific situation where the plaintiff had the burden to apply for the refund of the stamp duty, does not apply to the present situation, I could not see how the defendant could still escape the liability under clause 21(d) by blaming the plaintiff for not invoking its statutory right under section 29C(5A)-(5B) of the Ordinance to seek refund of the stamp duty. 72.A similar contention was also rejected in Ip Fong Keng v Fong Yu Shing and Another [2019] HKCFI 1677, where DHCJ Dawes SC (as he then was) held that:
73.The ruling in Ip Fong Keng, which I respectfully agree, is consistent with the general principle that the duty to mitigate does not apply to the claim of a liquidated damage, on the basis that the general duty to mitigate has been implicitly ousted by parties agreement: McGregor on Damages, 21st ed, at §16-025. The claim under clause 21(d) is liquidated in nature[3], as it effectively provided an obligation for the defendant to reimburse the plaintiff in the event of the defendant’s default in completing the sale and purchase under the SPA. The duty to mitigate does not apply, otherwise clause 21(d) is superfluous. D3.2 Election between stamp duty and loss of bargain 74.It is not in dispute that generally one cannot recover both the benefit of the bargain and what he had to pay to achieve that very bargain. In Kwok Chung Hon & Another v Lo On Wa [1997] HKLRD 980, Godfrey JA held, at p 984G-H, that:
75.In Ip Fong Keng, DHCJ Dawes SC allowed the purchaser’s claim for stamp duty in addition to the claim for loss of bargain based on a specific clause in the subject agreement. In doing so, the learned Judge distinguished Kwok Chung Hon on the basis that there was no express contractual term requiring the defaulting party to pay the stamp duty in that case:
76.In Qin Tian v 譚震 (unrep, DCCJ 3712/2014, 22 July 2016), DDJ Winnie Tsui (as she then was), in addressing the issue of whether the plaintiff was entitled to seek reimbursement of the stamp duty he had paid in addition to his claim of loss of bargain, held that:
77.Both Ip Fong Keng and Qin Tian made it clear that the principle stated in Kwok Chung Hon could be disapplied by express term(s) in the agreement. The only issue is whether the contractual provision(s) is clear enough for such purpose. 78.I find clause 21(d) to be sufficiently clear for disapplying the general principle stated in Kwok Chung Hon. As I have held in paragraph 54 above, clause 21(d) provided generally that the liability for paying the stamp duty would be borne by the party in default, unless clause 21(c) applied. Unlike the relevant clause in the subject contract in Qin Tian (namely clause 14 as quoted at paragraph 122 therein) which rolled up the stamp duty with general damage, clause 21(d) provided for the liability for stamp duty solely and distinctly. There is no ambiguity in clause 21(d). 79.For reasons above, I hold that the plaintiff is entitled to recover the stamp duty paid, in the sum of HK$614,350. D4. Loss of bargain 80.It is not in dispute that as a result of the defendant’s breach of the SPA, the plaintiff is in principle entitled to damages for the loss of bargain. The principal disputes between the parties are (1) the date of assessment, and (2) the quantum, which in turn depends on the expert evidence adduced by the parties. D4.1 Date of assessment 81.The general rule is that damages for breach of contract are assessed as at the date of breach: Goldbay Fortis Ltd v Asia Allied Infrasturcture Holdings Ltd [2021] HKCFI 1684, at §332, per K Yeung J; Ever Bright (H.K.) Construction Engineering Ltd v Kosasih Muanto [2019] HKCFI 1391, at §14, per Master Lawrence Hui. It is for the party seeking to depart from the general rule to justify it: Goldbay Fortis Ltd, at §§333-338. The Court has power to fix such other date as may be appropriate in the circumstances, if to follow the general rule would give rise to injustice: Goldbay Fortis Ltd, at §341; Ever Bright (H.K.) Construction Engineering Ltd, at §§13-14. 82.The plaintiff argues that the Court should adopt the date of judgment (viz 8 February 2022), as opposed to the date of the breach (viz 21 May 2021), as the date of assessment on the basis that the price of the Property had escalated between the contractual date for completion and the date of judgment. The plaintiff asserts that it was common knowledge that property prices in Hong Kong had risen and stayed resilient amidst the Covid-19 pandemic. 83.I am unable to accept the plaintiff’s argument, for the evidence in support is plainly insufficient. The so-called “common knowledge” is a bare assertion. The plaintiff in its closing submissions cited a passage in the Hong Kong Property Review 2022 published in May 2022 by the Rating and Valuation Department and produced the relevant excerpt of that publication in its list of authorities for the closing submissions. The defendant was never given a proper opportunity to address that by way of evidence. This manner of advancing the factual argument based on the so-called “common knowledge” is far from fair. I reject such factual assertion accordingly. 84.I also note that Mr Cheuk mentioned in Cheuk WS a valuation report which he said was previously exhibited in his affirmation filed on 16 December 2021, and clearly showed that Hong Kong’s property market was escalating at the time and the market price for the Property was estimated at HK$22,000,000 as of 30 September 2021. That valuation report, however, is not before me, and I cannot therefore properly consider and give weight to it. 85.On the other hand, both expert witnesses have given their opinions on the market value of the Property both on the date of the breach and on the date of the judgment. It was common to their respective opinions that the value of the Property on the date of the judgment was higher than that on the date of the breach by about 1%. 86.Insofar as the delay between the date of the breach and the grant of the judgment is concerned, I note that in both the 24 May 2021 Letter and the acknowledgement of service, the defendant made it clear that it did not contest liability for the breach of the SPA. The time taken to obtain the interlocutory judgment was apparently owing to the need to transfer the present proceedings from the District Court to the High Court. It is unclear why the plaintiff chose to commence the proceedings before the District Court in the first place. In any event, the plaintiff did not seek to lay blame on the defendant for causing such delay. 87.In light of the above, I do not see any cogent reason to depart from the general rule that damages should be assessed on the date of the breach. I shall accordingly proceed to address the issue of quantum on such basis. D4.2 Quantum 88.The plaintiff filed an expert report of Mr Denys Lok Ping Kwan (“Mr Kwan”) of CS Surveyors Limited dated 6 June 2022. The defendant filed an expert report of Ms Dorothy Yeuk Yu Chow (“Ms Chow”) of Colliers International (Hong Kong) Limited of even date. The parties further filed a joint valuation report by the two experts dated 3 October 2022 (“Joint Valuation Report”). 89.The key common grounds between the two experts, according to the Joint Valuation Report, are as follows:
90.According to the Joint Valuation Report, the key differences between the experts relate to the following matters:
D4.2a. The location adjustments for comparables C, E, F, and G 91.The following features in respect of the locations of the Property, and comparables C, E, F and G respectively are not in dispute:
92.Mr Kwan took the view that the location of comparable C was at par with that of the Property (ie 0% of adjustment). On the other hand, the locations of comparable E, F and G were better than that of the Property. He found a -5% adjustment to be appropriate. 93.Ms Chow took the view that the locations of comparables C, E, F and G were all significantly better than that of the Property, and all of them merited a -10% adjustment. 94.Having considered the explanations given by both Ms Chow and Mr Kwan, I find Mr Kwan’s opinion to be more consistent with the objective circumstances in relation to the respective locations of comparables C, E, F and G, as well as the location of the Property:
D4.2b. The frontage adjustment rate 95.Mr Kwan adopted the adjustment rate of +/- 1% for every meter difference in frontage between the Property and the comparables, on the basis that the comparables and the Property were shops providing services to the neighbourhood, and their frontages were not very sensitive to valuation. 96.Ms Chow adopted the adjustment rate of +/-1% for every 0.5 meter difference (in other words +/-2% for every meter), as +/-1% per meter was inadequate. 97.It was apparently a common ground between Mr Kwan and Ms Chow when they were cross-examined that the Property was located in a secondary location which did not merit a high sensitivity in the adjustment for frontage. 98.The only question is how conservative the adjustment should be. In all authorities cited by both sides to me in their closing submissions, +/-2% for every meter (ie Ms Chow’s proposed adjustment) was the rate accepted by the Lands Tribunal, which is a specialist tribunal, for shops located in secondary locations: Ever Great Development Limited v Fong Yau Shan & Ors [2023] HKLdT 50, at §71; Fancy Million Limited v Year Glory Limited [2021] HKLdT 76, at §47; Holly Property Co Ltd v Acewell Investments Ltd [2022] HKLdT 16. 99.The plaintiff did not point out any significant distinguishing features between the Property and those properties involved in the authorities. On the contrary, it contends that “there is no distinctive feature of [the Property] which justifies a departure of the aforesaid observations”. 100.I therefore accept Ms Chow’s proposed rate of +/-2% per meter for the adjustment for frontage. D4.2c. The layout adjustments 101.The differences between the experts’ respective opinions in respect of the adjustments for layout are the most substantial. 102.Mr Kwan regarded the following adjustment rates to be appropriate for comparables A to H respectively: -10%, -5%, 0%, -10%, -5%, 0%, -5%, and -10%. By contrast, Ms Chow took the view that much higher rates of adjustment for those comparables were necessary: -20%, -20%, -20%, -25%, -10%, -5%, -10% and -25%. 103.The layout of the Property comprises two narrow and deep rectangular sections. I shall refer them as the outer section and the inner section. The depth of the inner section is similar to that of the outer section. They are connected by a passage of only about 1 meter wide. 104.Other than comparables C and F, all comparables are simply in the shape of a narrow and deep rectangle. Comparable C is largely in the shape of a narrow and deep rectangle, except the width of it reduces as it goes deeper. There is a small rectangular “pocket” area towards the inner-most section of it. Comparable F, similar to the Property, is also divided into an inner section and an outer section, with a passage of about 1.5 meters wide connecting them. 105.In general, Mr Kwan found that, from the perspective of the potential occupants (whether tenants or owners), the attractiveness of the layout of the Property was similar to the layouts of the comparables. Ms Chow, on the other hand, found the layout of the Property to be significantly less desirable than those of the comparables. 106.In cross-examination, Mr Kwan explained that even though the layout of the Property was not a regular rectangle in shape, it would still appeal to certain types of businesses which required certain degree of privacy, and the inner section of the Property would be ideal for such businesses. The inner section could also be utilized as storage for retail businesses. 107.I am unable to accept Mr Kwan’s opinion on this aspect. It is true that certain potential occupants might find the layout of the Property naturally suitable for certain businesses. However, it is also indisputable that the Property’s layout allows much less flexibility in usage than the layouts of the comparables. Therefore, the number of potential users that the Property can appeal to is naturally much smaller than the number of potential users of the comparables. The lack of flexibility of the Property’s layout should therefore have a significant negative impact on its valuation as compared to the comparables. 108.I have also compared the adjustments proposed by Mr Kwan and Ms Chow respectively. Given my rejection of Mr Kwan’s opinion in respect of the relative appeal (or the lack of which) of the layouts, there is no other reason to suggest that the adjustments proposed by Ms Chow are inappropriate. 109.I therefore accept Ms Chow’s proposed adjustments based on the layouts. D4.2d. Additional access 110.In relation to additional access, Mr Kwan disagreed that it was an appropriate adjustment factor. He took the view that having a back-door is a double-edge sword. It might be welcomed by restaurants, but it might pose security risks or hyenine issues for retail shops. Mr Kwan further remarked that there was in any event no market evidence for reliable adjustment figures. 111.Ms Chow regarded additional access as an adjustment factor, because shops with more than one way of access were considered better in terms of accessibility, and might attract a wider pool of prospective occupants. A uniform adjustment of -5% should therefore be allowed for comparables with more than one way of access. 112.I find Mr Kwan’s opinion more balanced and sensible. Whilst an additional access does provide extra flexibility and appeals to businesses like restaurants, the security risk would be a negative factor for businesses that are sensitive to security concerns. To block the additional access by furniture, or even to seal it off, causes extra labour and expenses. Therefore, I accept Mr Kwan’s opinion that no adjustment should be made for additional access. It is a neutral factor. D4.2e. Efficiency 113.Ms Chow took the view that an adjustment factor of “efficiency” should apply because of a specific feature in the calculation of saleable area. Ms Chow suggested (and Mr Kwan seemed to accept during cross-examination) that the entire thickness of the walls which were adjourning common areas (eg lift lobby etc.) and half of the thickness of the party walls were accountable for the calculation of the saleable area. 114.Ms Chow therefore took the view that adjustments should be made to reflect the differences in the efficiency of use due to the thickness of extremal walls between the Property and the comparables. Mr Kwan simply disagreed, but did not put forward any substantive reasons to support his stance. 115.Given the fact that saleable area does not equate actual usable area, and the difference between the two may be materially impacted by exceptionally thick walls, I accept that it has a material impact on valuation and adjustment should be allowed accordingly. D4.2f. Cross-checking 116.Ms Chow adopted the term and reversion method to cross-check the market value of the Property derived from the direct comparison method on the date of the breach of the SPA. She also adopted the direct capitalization method for cross-checking the market value on the date of judgment. Common to both cross-checking methods was the adoption of 2.5% as the reference yield. Mr Kwan disagreed with the necessity of cross-checking the market value derived from the direct comparison method. 117.During cross-examination of Ms Chow:
118.In light of (i) the admitted limits of those cross-checking methods in the present circumstances, and (ii) my rejection of some of the adjustments proposed by Ms Chow under the direct comparison method, I do not find the cross-checking methods of any assistance in ascertaining the market value of the Property as of the date of the breach. I therefore do not give any weight to this part of Ms Chow’s opinion. D5. Summary of rulings for loss of bargain 119.To summarize, my rulings in respect of the issues for assessing the loss of bargain are as follows:
E. DISPOSITION 120.For the reasons above, I allow the following heads of the plaintiff’s claim:
121.For the loss of bargain, it would be prudent to let the parties re-calculate the market value of the Property based on my various findings in relation to the assessment date, as well as the adjustment factors and rates above. Parties shall jointly write to the Court within 14 days from the date of this judgment in respect of the following matters:
122.I must emphasize that the exercise envisaged at the present stage is arithmetic in nature only. There shall be no room for any further arguments. 123.The defendant shall also pay interest on the damages awarded herein at the rate of 1% above the prime lending rate(s) from 21 May 2021 to the date of this judgment, and from judgment rate onwards. 124.As to costs, the plaintiff is the successful party. I order, on a nisi basis, that costs of the present action be to the plaintiff, with certificate for counsel, to be taxed if not agreed. Also, if the eventual amount of damages the plaintiff can recover, including the loss of bargain the quantum of which is to be computed, falls below HK$3,000,000, the costs shall be taxed on the District Court scale only. Otherwise, the costs shall be taxed on the High Court scale.
Ms Sabrina Leung, instructed by Simon C W Yung & Co, for the Plaintiff Mr Ernest Ng, instructed by Yung, Yu, Yuen & Co, for the Defendant [1] In the statement of claim, this head of loss was pleaded as “Stamp duty in the sum of $614,325.00 or alternatively loss of interest for the said sum until receipt of refund of it by the Plaintiff”. In both of its opening and closing submissions, the plaintiff does not appear to rely any longer on its alternative case on interest. No submissions have also been made by the defendant in this regard. I therefore proceed on the basis that the plaintiff’s claim in relation to stamp duty is one for the sum of HK$614,350 only. [2] During the closing submissions, Mr Ernest Ng, Counsel for the defendant, argued that the word “rescinded” under section 29C(6) should not be so narrowly construed to exclude termination by the purchaser upon the vendor’s failure to prove title. Without the benefit of any substantive research, I tend to agree with such argument. Occasionally, a sale and purchase agreement would provide for the vendor’s right to rescind if the purchaser insists on certain requisitions that the vendor cannot fully answer. However, it is rare that any sale and purchase agreement would provide for a “right” for the purchaser to rescind (in the sense of rescission ab initio) upon the vendor’s failure to prove a good title. An innocent party choosing to rescind a contract ab initio would effectively amount to a waiver of the right to claim for consequential loss. In any event, for reasons to be detailed below, Mr Ng’s argument will not affect the disposition of the present issue. [3] Although not the same as liquidated damage in the sense of a genuine pre-estimate of loss. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment