Chan Kwong Ming and Another v. Capital Fortune Enterprises Ltd. and Good Channel Properties Ltd. (Third Party)

HCA007019/1997

1997, No.A7019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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Coram : Before Master Cannon of High Court In Court

Date of Hearing : 17 of March 1998

Date of Delivery : 2 April 1998

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Assessment of Damages

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Background

1. This assessment of damages arises out of a sub-sale agreement between the purchaser plaintiff and the vendor defendant, which the defendant was unable to complete because the head vendor failed to deliver vacant possession to the defendant under the head sale agreement.

2. On 12th November, l997, final judgment was entered for the return of the total deposits in the sum of $780,000 and interlocutory judgment for damages and interest thereon to be assessed as pleaded in paragraph 26(2) of the re-amended statement of claim.

3. On l9th January, l998, leave was granted to the plaintiffs to issue a notice of appointment of assessment of damages and the assessment came before me on l7th March, l998. The plaintiff's hearsay notice was filed on 7th January, l998, with no counter notice being filed.

4. At the assessment, both parties were represented, and Chan kwong ming, the first named plaintiff, gave evidence, while the defendant called no evidence.

Evidence

5. Mr. Chan gave evidence that he and Chan suk kwan, the second named plaintiff, entered into an agreement with the defendant, dated lst October, l996, for the sub-sale and purchase of a property on the l0th floor, Block 2, l20 Baker Street, Whampoa Garden, Site 3, Kowloon, in the sum of $3.9 million, settlement to take place on 30th April, l997. In accordance with Part IV of the agreement, a deposit of $780,000, being 20% of the price, was paid to the defendant. He agreed to give the defendant company an extension of time for completion to l4th May, l997. Settlement did not take place on that date, and by a letter of l5th May, l997, the defendant repudiated the agreement.

6. After the sale fell through, the plaintiffs did not buy another property because they did not have sufficient funds. Although the plaintiffs obtained final judgment for the payment of the deposit, the 20% deposit has not been refunded to them. The balance of the purchase price was raised on a mortgage. It was not until on l4th May, l997, that he was advised that completion could not take place because the head vendor could not deliver vacant possession to the defendant company. He attended at the property to verify this.

7. Mr. Chan was referred to the Valuation Report prepared by Albert So Surveyors Ltd., dated l8th September, l997, admitted into evidence as exhibit l, which shows that the property was valued at $5,270,000 as at l4th May, l997.

8. In cross examination, Mr. Chan said that the price of $3.9 million was reached after negotiation between the parties. At that time, he had inspected other properties of similar size and quality in the same area and the prices were in the region of $3.9 to $4.0 million.

9. He was aware that the defendant company was a confirmer, but he had not given any consideration to what would happen if the head vendor did not give possession to the defendant. Although he was aware of Clause 25 of the agreement which provides that the agreement "is subject to and with an Agreement made between Good Channel Properties Limited as Vendor of the one part and the Vendor as Purchaser of the other part and registered in the Land Registry by Memorial No. 673l320 ("the said Principal Agreement")", he did not think about all these details when he signed the agreement because his solicitor read the documents for him and he trusted him.

10. I accept the evidence of the plantiff.

Damages for loss of bargain

11. The general rule for contract damages is to put a plaintiff in the same position as if the contract had been performed. In other words, the plaintiff is entitled to the benefit of his bargain.

The rule in Bain v. Fothergill (l874-80) All ER l58

12. The rule is that a purchaser cannot in the absence of fraud recover damages from a vendor who fails to complete the transaction through a defect in the title.

Is the rule applicable in Hong Kong

13. In Roseric Ltd. v. West River Development, Barnett J. in dismissing the appeal, held (l) where a vendor attempts to sell his property twice within a short period, even if there is no fraud or want of good faith, this conduct is enough to oust the limiting rule in B v. F., and (2) further, the rule in B. v. F., should not apply in modern day Hong Kong since there is a sytem of land registration in existence and the uncertainties prevailing in l9th century conveyancing in England did not exist here. If the rule applied in Hong Kong, it could encourage vendors to breach contracts whenever they get better offers. The rule is therefore not 'applicable to the circumstances of Hong Kong or its inhabitants' under the Application of the English Law Ordinance (Cap. 88) s 3(l). Barnett J. did not follow Bain v. Fothergill.

14. The rule is discussed in Hong Kong Conveyancing Law and Practice Vol. l at paragraph (l602) page XV 482, where the authors state that despite the comments of Master Perrior in the earlier case of Poon hoi tin v. Melot Investment Ltd. (l987) 2 HKC 382 and the comments of Barnett J., the rule has been enforced in Hong Kong. However, in the l995 decision in Lee hon kai and Li wing kin v. Wellsburg Industrial Limited (A l485 of l994) Master Jennings awarded a sum for loss of bargain to the plaintiff. The case concerned a defendant vendor who was unable to complete the sale to the defendant, "for reasons which need not be gone into." In the l996 Court of Appeal decision in Kwok chung hon & another v. Lo on wa (l997) HKLRD 980, the judge inter alia awarded a sum for damages for loss of bargain to the plaintiff, the only issue on appeal being the quantum of such damages. The case concerned a vendor who resold the property elsewhere at an enhanced price. On appeal it was said that if the plaintiffs had tendered evidence of the market value of the property they might have succeeded in persuading the judge that their damages for loss of bargain should have been assessed in a sum exceeding $l80,000.

15. The case before me is that of a defendant who is a confirmer, who submits that he could not obtain title from the head vendor.

16. On the day of settlement, the plaintiffs granted an extension to l4th May l997. On l4th May, the defendant was unable to settle, and the defendant confirmed this in writing by its letter of l5th May. In paragraph 2 of the plaintiffs' letter of l6th May, l997, it is stated that "Since your client was unable to deliver vacant possession of the above property on the scheduled date for completion, i.e. l4th May, l997, we are of the view that your client is not ready able and willing to complete the present transaction and is in breach of Clause 23 of the aforesaid agreement herein. In the premises, we hereby on behalf of our client to demand your client to return forthwith all the deposits of $780,000 to our client forthwith. In the meantime, we reserve all our client's right against yours, including the lien on deposits, claim for our costs of investigation of title compensation for late completion commencing from 30th April, l997, to l4th May, l997, at $500.00 per day and other damages whatsoever."

17. The defendant's solicitor submitted that by their letter dated l6th May, l997, the plaintiffs had accepted that the defendant could not get the head vendor to complete, and that the letter indicates that the plaintiffs were not pursuing the contract further. The defendant's solicitor submitted that the only remedy the defendant had against the head vendor was to sue for specific performance, but litigation is always uncertain and lengthy. There was little the defendant could do to save the contract with the plaintiffs.

18. In such a case, the responsibility rests with the defendant to show that there was no failure on his part to obtain good title to pass on to the plaintiffs. There is no evidence before me as to what efforts were made to persuade the head vendor to pass title to the defendant either before the original settlement date or the extended settlement date. The defendant has failed to show that the failure on his part to obtain the title to pass to the plaintiff was not his fault. It is crucial for the defendant to discharge the burden on him in this regard. The existence of Clause 25 and the plaintiff's knowledge of the clause does not affect the incidence of damages. In the event, I am satisfied that in the circumstances the plaintiffs are entitled to damages for their loss of bargain.

The measure of damages

19. McGregor on Damages (l6th Ed.) at paragraph 964 states that "The normal measure of damages is the market value of the property at the contractual time for completion less the contract price." At paragraph 967, it is stated that "such a measure could be grossly unfair to a buyer if prices had escalated betwen the contractual date for completion and the date of judgment in his action for damages, as the award he obtains will fall far short of giving him the means of acquiring an equivalent property. Of course he cannot complain of this if he ought to have acquired an equivalent property before the escalation of prices, but he may be able to show good reason why he did not do so."

20. In the case before me, the plaintiffs tendered evidence as to the market value of the property at the date of completion. On the evidence of the Valuation Report, which is not disputed, the market value at the contractual time for completion was $5,270,000.

Can the plaintiffs show good reason why they did not purchase an equivalent property?

21. The surveyor's report shows a rising market. When the plaintiffs negotiated to buy the property, they looked around other properties nearby, and found them to be priced at around $3.9 million. Completion here took place six months later, and bearing in mind that prices were rising significantly, it was clear that there would be a great difference in the price at the date of completion. Because the defendant did not return the deposit to the plaintiffs, the plaintiffs could not acquire alternative property because of insufficient funds. I can take judicial notice of the well known fact that significant deposits are required when purchasing property. I accept that the fact that the defendant did not return the deposit to the plaintiffs provides a good reason why the plaintiffs could not purchase alternative accommodation in this case.

Jurisdiction Point

22. For the sake of completeness, I address this point.

23. Roseric Ltd. v. West River Development was an appeal from Master's decision arising out of an abortive agreement for sale and purchase of land in which the plaintiff was purchaser and the defendant, vendor. Pursuant to O 86 RSC, the Master ordered, inter alia, that (l) the defendant do repay the plaintiff's deposit of $302,000, (2) judgment be entered in favour of the plaintiff for damages for repudiation of the agreement, and (3) an assessment to be made of the damages sustained by the plaintiff. The defendant appealed against items (2) and (3) on the basis that the case did not constitute an exception to the rule in Bain v. Fothergill, under which a disappointed purchaser of land is restricted to the return of his deposit, the costs of investigating title and other legitimate expenses.

24. The parties appeared before me on l2th November, l997, when I ordered that (l) final judgment against the defendant for the sum of $780,000 being the return of toal deposits under the agreement with interest, (2) interlocutory judgment against the defendant for damages and interest thereon for breach of the agreement to be assessed as pleaded in paragraph 26(2), that is, 'the plaintiffs have suffered loss and damage', of the re-amended statement of claim.

25. Since the defendant has not appealed the order for interlocutory judgment, it is my view that on the basis of that order, the defendant has accepted and submitted itself to my jurisdiction to assess damages for loss of bargain. The plaintiffs took no issue on this point, and in the interests of saving time and costs, I heard the parties on the applicability in Hong Kong of the rule in Bain v. Fothergill at the assessment.

Award

26. Having reached the conclusions I do, I make an award of $l,370,000 for loss of bargain in this case, together with interest thereon at judgment rate from the date of issue of the Writ until payment, with costs to the plaintiffs to be taxed if not agreed.

Other damages

27. I give the parties 2l days liberty to apply.

28. L. Cannon

29. Master

Representation:

Mr. B Wong instructed by Messrs. Lawrence Ong & Chung for Plaintiff

Mr. W. Wan of Messrs. John Ku, Kam & To for Defendant