Eedeck Properties Ltd. v. Suen Chi on
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HCA002629/1995 1995 No. A2629 IN THE SUPREME COURT OF HONG KONG HIGH COURT _____________
Coram: Master Woolley in Court Dates of hearing: 4th and 5th January 1996 Date of judgment: 4th and 5th January 1996 ______________________________________________ ASSESSMENT OF DAMAGES ______________________________________________ 1. These proceedings arise out of a sale and purchase agreement entered into between the Plaintiff and the Defendant on 26th April 1994 by which the Defendant agreed to purchase from the Plaintiff shop premises known as Unit No. 3, King's Park Lane, 278-288 King's Road, North Point, Hong Kong for the sum of $10880000. 2. Completion was agreed to be on 14 days notice and a schedule for payment of the purchase price provided for $500000 to be paid on signing, $100000 on or before 15th June 1994, $2120000 on or before 20th July 1994, and the balance of $8160000 on completion. The agreement also provided that, in the event of the Defendant failing to complete, the Plaintiff may resell and the Defendant shall make good any deficiency in price and expenses relating to the sale. 3. On 15th July 1994 the Plaintiff gave notice to complete on 30th July 1994. However, upon receipt of this, the Defendant requested an extension of time for completion, which was agreed to by the Plaintiff, and a supplemental agreement was entered into by the parties on 22nd July 1994. This provided for a new completion date of 20th October 1994, and further interim payments of $100000 on 20th July and 20th August 1994, $200000 on 20th September 1994, and the balance of $9880000 on completion. The parties also agreed that the Defendant should have a licence to occupy the premises from 15th August 1994 at a licence fee of $65000 per month. 4. The Defendant occupied the premises on 15th August and made all the payments up to and including that due on 20th August, a total of $1000000. The payment due on 20th September was not made when it fell due, but the parties again agreed to postpone completion, this time to 20th February 1995, on condition that the September payment of $200000 was made, and arrears of licence fee were paid, which was done. No further payments of the licence fee were made, however, after the middle of November. Separate proceedings were taken against the Defendant in respect of these, and judgment obtained. 5. Completion did not take place on 20th February 1995. The Defendant, through his solicitors, on 21st February 1995, requested a further extension of time to 20th August 1995 and a reduction in the licence fee to $50000 a month, which was refused by the Plaintiff, who instead gave formal notice to the Defendant to complete before 5 p.m. on 28th February 1995. The Defendant also approached the Plaintiff's agent, Mr. Steve Chan, and asked for a delay of 20 days, as he said that he was arranging a bank loan, the lack of which appears to have been the cause of the previous postponements, which was also refused by Mr. Chan. 6. The Defendant failed to complete and pay the balance of the purchase price on 28th February, and the Plaintiff, by a letter from his solicitors dated 1st March 1995, formally terminated the agreement for sale and purchase, and the Defendant's licence. The Defendant left the premises on 9th March 1995, without, however, returning the keys to the Plaintiff, who regained possession with the aid of a locksmith on 27th April 1995. 7. Judgment under the provisions of Order 14 was given to the Plaintiff on 13th September 1995 for damages and mesne profits to be assessed, and trial of the issue as to the date vacant possession was given by the Defendant. 8. The property was resold for $7500000 on 29th April 1995, the Plaintiff having first obtained an up to date valuation of the property of $7300000, the provisional sale and purchase agreement being signed on 15th March 1995 and the formal agreement on 29th March 1995. The Plaintiff now claims the difference in the purchase price, less the $1000000 already paid by the Defendant, the expenses of the resale, and licence fees and/or mesne profits from 15th February 1995, the date up to which the Plaintiff has already entered judgment in respect of the fees. 9. The Defendant's opposition to the Plaintiff's claim for the difference in purchase price and expenses is based principally on the contention that the Plaintiff failed to mitigate the loss, firstly by not granting a further delay of 20 days as requested by the Defendant, by which time, he claims, a bank loan would have been available and the sale at the original price would have been completed, and secondly, by selling at a price well below what could and should have been obtained on the market at that time. 10. I can deal with the first part of that contention very briefly. The Defendant's evidence amounted to no more than a bald assertion that, after a period of some 9 months during which the banks had steadfastly refused to grant him a loan, one Ben Ng of the Bank of Communications had now agreed to one, and he had a guarantor. There was no other evidence of this, documentary or otherwise, and no evidence from the bank or the guarantor. I accordingly find that evidence unconvincing, particularly as he also admitted that he had asked, not just for 20 days, but a further 2 or 3 months. In any event, I am satisfied that the Plaintiff was justified in terminating the agreement even had the Defendant managed to secure financing. There had already been two postponements of completion and a final notice to complete. Time was clearly of the essence of the contract, and the Plaintiff was under no obligation to delay matters further, particularly on the strength of a vague promise that funds would be forthcoming. 11. The Defendant's further contention is that the property was worth more than the price at which it was sold, and they support this with a valuation report dated 28th March 1995, made by Messrs. Chung Sen Surveyors Ltd., giving the open market value of the property at that date as $9500000. This was reduced to $9324000 in the course of the hearing when certain errors were accepted by the Defendant's surveyor, Mr. Mark Staples. 12. The Plaintiff produced, in support of the adequacy of the sale price, a report by Messrs. Richard Ellis Ltd., dated 15th March 1995, giving the value as $7300000. Both Mr. Staples, and Mr. S.K. Lai of Richard Ellis Ltd., gave evidence in support of their reports. 13. This matter has been approached by counsel for the Defendant as if it were merely a matter of the Court arriving at a valuation after considering the reports submitted and the evidence of the makers of those reports. For reasons which I shall come to shortly, I consider that the real question here is whether the Plaintiff acted reasonably in the circumstances at the time and on the information then available. However, for the sake of completeness I shall deal with those reports and the evidence given in respect of them. 14. Both reports were followed by supplementary reports going into more detail of the valuations, and these were both on the usual basis of comparables. I do not propose to go into them in great detail, nor the lengthy evidence which was given in their support. However, for the reasons which follow, I consider on a balance of probabilities that the valuation of the Plaintiff is more likely to be accurate. 15. The Defendant's report was made originally by the mortgage valuation department of the surveyors' firm. It was passed to Mr. Staples late in December 1995 to prepare a report verifying the figure given as the valuation. It was only then that he commenced the exercise of finding comparables, and those in his report he obtained from his firm's computer database. He appears to have looked only at sales which had taken place after the sale of the property in question, although, as a result of errors in the information supplied, two of the dates of agreements for sale quoted were wrong by at least a year. It was this error which caused the revaluation by Mr. Staples during the course of the hearing. Mr. Staples also conceded that he did not know how the original valuation by his firm had been done. His report was a separate exercise to verify the former. 16. On the other hand, the Plaintiff's report was prepared under the supervision of Mr. Lai, and using the method, and the comparables, as set out in his supplementary report, which was made to explain how the valuation had been arrived at, and to expand it, rather than to attempt to verify a report prepared by others. 17. In order to make a comparison with other properties, both surveyors have used similar methods to make adjustments based on the time of the agreement to sell, the size and the location of the property. While they agree largely on the adjustment to be made for location, they differ on time and size adjustments. On time, the difference lies in what they each believe to be the movement in the price of retail properties between the date of the sale of the subject property and the comparables. Mr. Lai has based his calculations on a fall in the prices of such properties since July 1994 of up to 25%, and he supports this not only by examples of actual sales, but by his knowledge of the market in such properties, the number of vacant units for sale or to let, and his experience of that area. Mr. Staples bases his calculations almost entirely, it would appear, on statistical tables he produced: one from the Government Census and Statistics Department, and one from another firm's research department.. These are all very well, but such figures can only give an overall general view, and may be the result of larger variations in some areas than others. For a unit in one building in a particular area, an accurate estimate of movement in prices can only be arrived at by considering similar properties in that area, preferably in the same building. 18. The adjustments as to size of the comparables in the Defendant's report take into account nothing else but size. The Plaintiff's, as explained and clarified by Mr. Lai, also takes into account the length of frontage and space for signage. Mr. Staples sought to contend that these were not significant factors. I regret that I disagree. Mr. Lai's explanation of the matters which make one shop more attractive to a potential purchaser than another make obvious sense to me, and where their evidence differs on these aspects of the valuations, I accept that of Mr. Lai. 19. With regard to their evidence there is only one other matter which deserves mention. While I have no doubt that Mr. Staples is a very competent surveyor, he has only 2½ years experience since qualifying, and has only been practising in Hong Kong since June 1994. Mr. Lai has some 10 years experience in this field and a thorough knowledge of the Hong Kong market. 20. It follows from the above that I accept the Plaintiff's surveyors' report, and valuation of the property in question at $7300000 at the date of that report. 21. However, had I not done so, and believed that the value was that given by the Defendant, I am not persuaded that that would have been sufficient for the Defendant to succeed. He would still have had to convince the Court that the Plaintiff knew that the value was higher than the sale price and it was not a sale at arm's length at market value, and on the evidence before me he has not done that. 22. The property was put on the market again soon after the termination of the agreement between the Plaintiff and the Defendant by a sign on the property and advertisements in the newspaper. Mr. Steve Chan gave evidence that he was handling the sale for the Plaintiff and the price asked was $9500000. At the same time a valuation was obtained from Richard Ellis giving the value as $7300000. Only one offer was received, for $7000000. This was referred to the Plaintiff and rejected. Further offers followed from the same source, and all were rejected until that of $7500000 was made, and it was at this price that an agreement with the new purchaser was reached. It is clear that the Plaintiff hoped to achieve a higher price, but in the face of a valuation from his own surveyor at a much lower figure, and a falling market which might result in an even lower offer if the matter were delayed, I am satisfied that he acted reasonably in the circumstances and may indeed have suffered a greater loss had he declined the offer that was made. Even if the surveyors had been wrong, which I do not believe they were, the Plaintiff could only act on the information available and it would have been reckless to ignore an offer higher than the value that had been advised. 23. I would go further and say that, as there is no evidence that the resale by the Plaintiff was anything other than a sale at arm's length on the open market, the fact of the sale itself at that price is sufficient evidence that it was the market price of that property at that time. 24. I am accordingly satisfied that Plaintiff must recover the full difference in price as set out in paragraph 17 of the Statement of Claim of $3380000, less the $1000000 already paid by way of instalments, together with the agent's commission of $75000 and the legal costs of the resale of $20625, neither of which latter amounts were challenged. 25. Mr. Leong has submitted on behalf of the Defendant that allowance must be made for the $160000 which Mr. Chan said in evidence would have been payable to the agents acting for the Plaintiff at the time of the agreement with the Defendant had the sale gone through. I do not agree with this contention. There is no evidence before me that the commission is not still payable, and as the purpose of such an award of damages is to return the Plaintiff to the same position as if the sale had gone ahead as agreed, I see no reason to make such an allowance. 26. As to mesne profits for the period until vacant possession was obtained by the Plaintiff, there is no dispute that the amount should be $65000 per month. The only matter still in contention is the date vacant possession was given up. 27. The Defendant gave evidence that he left the shop in early March, which agrees with the Plaintiff's record of his ceasing business on 9th March. However, all he did was to move out such furniture and effects that he wished to keep and make it clear that he was giving up his business there. At no time did he hand over the keys either to the management company, to the Plaintiff's solicitors, or to a representative of the Plaintiff. As a result, the Plaintiff had to arrange for a locksmith to break open the lock to regain admission to the premises so that they could be delivered to the new purchaser. While it may have been clear to the management company that the Defendant was ceasing business, this is far from giving up possession and control of the premises, which could only have been done by handing over the keys, as it is also clear that none but the Defendant was in possession of such keys and able to gain admission. 28. I am also therefore satisfied that possession of the shop was not regained by the Plaintiff until 27th April 1995 and mesne profits are payable by the Defendant until then. These I calculate at $32500 for the period of 15th to 28th February, $65000 for the month of March, and $58500 for the 27 days of April until the Plaintiff regained possession, being a total of $156000. 29. The only remaining matter is that of interest. It appears from the letter dated 15th November 1994 from the Defendant's then solicitors that it was agreed that no additional interest should be payable after that date until completion. The question now is whether interest at the rate agreed in the supplemental agreement of 1.5% per month on payments in default should be paid on the sums due on completion. Mr. Mok accepts that interest is solely in the discretion of the Court, but says that the contractual rate should be a starting point. In my view the intention of the agreed rate was to ensure prompt payment of the instalments due before completion and were not intended to apply to the balance due on completion. It is a very high rate of interest and would in those circumstances almost amount to a penalty. 30. I accordingly decline to apply that rate, and order that the Defendant pay interest on the sums awarded for breach of the agreement from 28th February 1995, and on the mesne profits from date of writ, at judgment rate until payment. 31. There will be an order nisi for costs in favour of the Plaintiff to be taxed with a certificate for counsel. (E.T.S.Woolley) 32. Master Representation: Appearances: Mr. Y.C. Mok instructed by Messrs. Winston Chu & Co. for the Plaintiff Mr. A. Leong instructed by Messrs. Charles Yeung Clement Lam & Co. for the Defendant |