Rich Pacific Holdings Ltd. v. Top Profit Properties Ltd.

HCA006806/1998

HCA 6806/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6806 OF 1998

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Coram: Deputy High Court Judge To in Court

Dates of Hearing: 19 & 20 June 2000

Date of Judgment: 26 June 2000

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J U D G M E N T

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Background:

1. On 25 November 1997, the plaintiff vendor and defendant purchaser entered into a sale and purchase agreement in respect of a property at Flat F, Third Floor, Block 11 of Royal Ascort at No. 1 Tsun King Road, Shatin for a consideration of $7,800,000. On 24 January 1998, the defendant's solicitors wrote to the plaintiff's former solicitors requesting for price reduction in the following terms:

"We are instructed that our clients have encountered difficulties in raising mortgage because of the adverse economic condition and hope your clients would appreciate their problem despite their good faith in closing the deal. Accordingly, they instructed us to request your clients to agree to reduce the purchase price by HK$1,000,000 and postpone the completion date to 31st March 1998 so as to enable them to raise fund, or else, they may be unable to complete."

2. The plaintiff refused. On 25 February 1998, the defendant requested to postpone completion from 3 March to 16 March 1998. Again, the plaintiff refused. Upon the defendant failing to complete on 3 March 1998, the plaintiff forfeited the deposit. On 22 March 1998, the plaintiff resold the property for $6,600,000 under a provisional sale and purchase agreement. The plaintiff now sues for damages in the amount of $420,000, being loss of profit under the sale and purchase agreement with the defendant less the deposit forfeited. The claim is pursuant to Clause 10 of the sale and purchase agreement.

3. The defendant does not dispute liability but disputes on quantum. The issues are (i) whether the vendor has a duty to mitigate; (ii) which is the relevant date for the purpose of assessing damages; (iii) what was the market value of the property on the relevant date and (iv) what is the quantum of damages which the vendor is entitled.

Duty to mitigate:

4. It is trite law that an aggrieved party is under a duty to take reasonable steps to mitigate his loss. What steps are reasonable is a question of fact: Payzu Ltd v. Saunders [1919] 2 KB 581. The law does not impose a very high standard on the plaintiff because the wrongdoer is the defendant. The plaintiff is not under any obligation to do anything other than in the ordinary course of business: Westinghouse Electric Co Ltd v. Underground Electric Rys, [1912] AC 673 at 689.

5. The onus of proof that the plaintiff failed to mitigate is on the defendant, who must show that the plaintiff ought, as a reasonable man, to have taken certain steps to mitigate his loss: Strutt v. Whitnell [1975] 1 WLR 870. Mr Liu submitted that the plaintiff failed to mitigate because prior to the resale, the plaintiff had not obtained a valuation from a surveyor. Secondly, he submitted that according to the opinion of the defendant's expert, the property was sold undervalue.

6. In Keck v. Faber 60 SJ 253, it was held that on a contract for sale of land, the vendor is entitled to recover as damages the difference between the contract price and the selling price if realised within a reasonable time of the breach, and not the selling price if realised slowly and advantageously, as would be done if the property were nursed by a speculative builder. The burden on the plaintiff to mitigate is not a very onerous burden as he is not the wrongdoer. The defendant who, by his wrongful breach, placed the burden to mitigate on the plaintiff, must bear the consequence that the plaintiff may not be able to resell the property at the best price.

7. In my view, what is important is that the steps taken by the plaintiff are reasonable steps to reduce the loss. The plaintiff had not consulted a surveyor. That in my view was not fatal. Surveyors may not be as close to the market as are estate agents. The resale was effected within a reasonable time. The plaintiff instructed a number of estate agents. It was made through one of the agents in the open market and not through private sale. The price was the highest one obtainable. In the absence of any evidence of fraud or underhand practice, I have no reason to doubt this was a genuine resale in the open market. Unless the price was out of line with the general market price as to cast doubt on the genuiness or bona fide of the resale, the plaintiff could not be criticised for failing to obtain the best price.

Relevant date for assessing damages:

8. The scheduled completion date between the plaintiff and defendant was 3 March 1998. The date of the provisional sale and purchase agreement in respect of the resale by the plaintiff was 22 March 1998, while actual completion was on 3 April 1998. The issue is which is the relevant date for assessing damages.

9. Clause 10 of the sale and purchase agreement provides that upon determination of the agreement, the vendor may resell the property and any deficiency in price on resale shall be borne by the purchaser. Thus the date of the provisional sale and purchase agreement of the resale should be the relevant date and not the date of breach or the scheduled date of completion, unless the plaintiff had failed in taking reasonable steps to resell the property.

10. I have held in an earlier decision, Au Siu Fun Amy & Others v. Lenvin Limited and Ng Yik Man, HCA No 3481 of 1998 (unreported), that there is no inflexible rule that damages for breach of contract are to be assessed as at the date of breach. Unlike movable property or usual commodities, there may not be an available and ready market for all forms of real property. Real properties are expensive and offer different attraction to different buyers who may have different needs and preferences. One has to allow for a reasonable time for a genuine buyer with a reasonable offer to come by. The property was resold within a month, which I consider as being a very reasonable time. In my opinion, the date of the provisional sale and purchase agreement of the resale was the date when the damages were crystallised. Any variation in the market price between then and completion could not increase or reduce the damages. Nor was the value of the property at the date of breach relevant. Accordingly, I find that damages should be assessed as at 22 March 1998.

The experts' valuation:

11. The plaintiff's expert, Mr Chung, assessed the value of the property as at 3 March to be between $6,400,000 and $6,800,000. He used as comparables four transactions in respect of the same block, i.e. Block 11, between 20 February and 20 March and two transactions in respect of Block 8 on 2 and 28 March. Three of the units were of the same size as the subject property while four others were larger, i.e. 1,043 square feet. On those transaction prices, he made adjustments in the valuation to take account of the difference in floor level and view. He reduced the value per square foot by 2% for every drop in five floors. He further reduced the value by various percentages to allow for what he thought to be a better view from those properties as compared with the view from the subject property.

12. On the other hand, the defendant's expert, Mr Ngan, valued the subject property at $7,400,000 and $7,100,000 on 3 March and 3 April 1998, respectively. His valuation was based on comparable transactions in March in various blocks but all of the same size as the subject property. He reduced the valuation per square foot by 0.5% for each drop in floor level and made further adjustments to take into account the difference in view.

13. Mr Ngan gave a more generous reduction for drop in floor level. In that sense his valuation is more favourable to the plaintiff than the plaintiff's own expert, Mr Chung. The difference between Mr Ngan and Mr Chung lies in their difference in opinion as to the view from the subject property as compared with the view from the comparables selected. In essence, Mr Ngan said that the subject property overlooked the swimming pool and offered a better view than the comparables which overlooked Kau To Shan and the industrial estate in Fotan. On the other hand, Mr Chung said that the view from the comparables were also very open views of Kau To Shan and the surrounding greenery, while the industrial estates in Fotan would probably be blocked by Ficus Court nearby or in any event are too distant to affect the view. Mr Ngan also criticised Mr Chung for using larger units as comparables as he thought the unit price per square foot was cheaper for larger units.

14. Both experts have not visited the subject property or any of the comparables or indeed any units in the development. Mr Chung himself had not even been to the site. He only checked the valuation prepared by his subordinate staff. He said he was familiar with the development and had bought some units there. Both experts were giving their opinion about the view from the subject property as compared with that from the comparables. No photographs or video of the view were produced. No plan of the vicinity was produced. In reality, Mr Chung was at his office, while Mr Ngan was standing on the podium imagining what the view would be like from the subject property and the comparables immediately above or very high up above. I give little weight to their expert opinion. From the location plan, it appears that probably Mr Ngan is right. Apart from overlooking the swimming pool, the subject property probably overlooked the entrance to the development and beyond to Ma On Shan, while the view from the comparables might also be adversely affected by the adjacent blocks within Royal Ascot.

15. Though I believe Mr Ngan is "more correct", if I may be excused for using this inappropriate description, than Mr Chung, their valuations were intellectual exercises which may not accurately reflect the true market condition. Of the comparables used by both experts was a similar unit in the same block on 22nd floor transacted two days prior, on 20 March 1998. This unit is 17 floors above the subject property, discounting two non-existent floors. That unit was sold at $7,550,000. Allowing for the difference in floor level using Mr Ngan's formula, the value for the subject property would be $6,908,250. This is $308,250 or 4.46% higher than the resale price obtained by the plaintiff. At the time, the defendant had requested a reduction of the purchase price to $6,800,000. There are good indications that the then market price was about $6,800,000 to $6,900,000.

16. In view of the small difference, I am satisfied that the resale was a genuine one, effected through an estate agent in the open market, within a reasonable time. I consider the resale price as the genuine open market price for the property. I recognise there is a difference between that price and Mr Ngan's valuation. In my view, the valuation by the two experts are intellectual exercises which may not have any bearing on the true market condition. In the absence of actual resale, the valuation may be taken as the correct valuation for assessment of damages. But where there is an actual resale, as in the present case, then these valuations serve little purpose. Where the difference between the resale price and the valuation is not substantial, I would accept the resale price as the open market price. These valuations may only be used as a guide or as a reference to test the genuiness or the bona fide of the resale or whether the plaintiff has taken reasonable steps to mitigate his loss. In the present case, in view of the small difference, being 4.46%, I consider these valuations as mere intellectual exercises, which must give way to reality. Accordingly, I find that the plaintiff has resold at a fair open market price and has discharged its duty to mitigate.

Quantum:

17. In the light of the above finding, the plaintiff's loss after taking into account of the deposit forfeited was $420,000 as claimed. Accordingly, I enter judgment for the plaintiff in the amount of $420,000 with interest at half judgment rate from the date of writ until today and thereafter at judgment rate until payment. I also award costs to the plaintiff, to be taxed if not agreed.

Representation:

Mr Stephen Fong, instructed by Messrs Au, Kong & Tang, for the Plaintiff

Mr Liu Man Kin, instructed by Messrs S K Lam, Alfred Chan & Co, for the Defendant