Kwok Wai Kong and Another v. Luk Ping Hung and Another

HCA004447/1998

1998 No.HCA 4447

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION No. 4447 of 1998

Coram : Master B Kwan in court

Date of Hearing : 28 October 1999

Date of Handing Down : 4 November 1999

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ASSESSMENT OF DAMAGES

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This assessment arises out of an aborted sale and purchase of a flat in Yuen Long ("the suit premises"). The suit premises is known as Flat D, 8/F, Block 10, Lynwood Court, Kingswood Villas, 3 Tin Kwai Road, Tin Shui Wai, Yuen Long, New Territories. The defendants agreed to buy the plaintiffs' flat for $3,230,000. The Agreement for Sale and Purchase was dated 27.6.97. A total of $323,000 had been paid by the defendants to the plaintiffs as deposit money. Completion was due to take place on 31.21.97. The defendants failed to complete. The plaintiffs treated their failure to complete as repudiation of the contract, and informed the defendants the deposit had been forfeited by a letter on the same day.

The plaintiffs did not re-sell the suit premises until 19.3.99. The resale price was $1,750,000. The plaintiffs are now claiming for damages.

McGregor on Damages 16th edition states at paragraph 992 :-

"The normal measure of damages is the contract price less the market price at the contractual time fixed for completion."

This measure was first stated in Laird v Pym by Baron Parke, (1841) 7M&W474.

Both sides agree that the usual measure of damages is the difference between the contract price and the price at completion, plus interest from the date of completion until judgment. But they also agreed that in certain circumstances damages may be assessed by reference to the value of the property at a different date, see Johnson v Agnew [1980] AC 367.

The crux of the dispute is the appropriate date that should be adopted for the assessment in the circumstances of the present case. The plaintiffs referred to Johnson v Agnew and argued that the date of assessment should be 28.2.98. a date some two months after the breach, saying that this was a reasonable period after the day that the defendants should have completed. The defendants accepted that in certain circumstances, the usual measure of damages laid down in Laird v Pym may be departed from, and damages may be assessed by reference to the value of the property at a different date. However the defendants argued that in the present case the normal measure of damages should apply, therefore date of the assessment should be the date of completion, ie the breach.

I found the following passage quoted to me by Mr Chan from Barnsley's Conveyancing Law and Practice at p657 of the 4th Edn to be relevant and helpful.

" (b) Date for assessment for damages

At common law damages for breach of contract, whether claimed by the vendor or purchaser, are assessed as a general rule at the date of the breach. This follows from the basic principle considered on page 654 that damages are compensatory. Nevertheless, a rigid application of this rule is likely to cause severe hardship during times of high inflation, leaving an injured party considerably out of pocket by the time his case comes to trial. The problem is well illustrated in Wroth v Tyler, where property bought for ￡6000 in 1971 was worth ￡7700 at the time of the breach (the completion date) and had risen in value to ￡11,500 by the date of the judgment some 15 months later.

The House of Lords has now hold in Johnson v Agnew that the common law rule is not inflexible. The court has power to fix such other date for assessment as is appropriate to avoid injustice to the innocent party. Depending on the circumstances the date selected may be the date of the hearing, the date when the contract is finally lost, or some other date. In one case the court moved back the date for valuing the property one year before the judgment date because of the purchaser's tardiness in bringing proceedings to a conclusion. In other situations the appropriate date for calculation will clearly be the date of breach and not any later date, eg where the property decreases in value after a wrongful repudiation."

The plaintiff's case

The plaintiffs drew the court's attention to the cases of Johnson v Agnew, Suleman v Shahsavari [1988]1WLR 1181, and Kwok Ka v Mak Siu Hing & Anor [1999] 2HKC 410, and argued that based on those authorities the date of assessment of the value of the property should be 28.2.98.

Mr Siu submitted that the present case deserves an assessment date on 28.2.98. for the following reasons :

a. The scheduled completion date was 31.12.97. At that time the property market was extremely sluggish and it would be very harsh to say that the plaintiffs could resell the property on 31.12.97. or within a relatively short period of time.

b. The Chinese New Year was on 28.1.98. and it is difficult to sell property before and after Chinese New Year.

c. The plaintiffs actually resold the property on 19.3.99. for $1,750,000. The actual losses suffered by the plaintiffs are $1,480,000 ($3,230,000 - $1,750,000.)

d. The reason for the plaintiffs delay in reselling the property is that the plaintiffs hoped that the property market would rebound so that they could minimize their losses, but the reality was that the property market has been dropping continuously without rebound. The vendors' effort in mitigation results in enlarging the losses.

The plaintiffs only called one witness, the 1st named plaintiff Mr Kwok Wai Kong. Mr Kwok said that the plaintiffs had purchased the suit premises for $2.252 million. It was to be their future matrimonial home. At the time when the plaintiffs sold the suit premises to the defendants, the plaintiffs were intending to buy a better property in the Taipo area. The plaintiffs were looking at houses or alternatively a flat with its own roof area in the region of $3.5 to $4 million. Mr Kwok told the court that after the defendants' breach they tried to resell the property in mid-January for about $2.5 million, but no prospective purchasers came to view the property at that price. Around 3 or 4 months later, the plaintiffs lowered the price again to $2.3 million. A prospective purchaser viewed at that price but made an offer for $2m. The plaintiffs made a counter-offer of $2.2m which was not taken up. After that the market continued to fall. Mr Kwok said that if the property market went up again, the plaintiffs might still realize their plan of getting a better property in the Taipo area. However, with the passage of time and the downward slide in the property market, the plaintiffs realized that the suit premises was in negative equity. They then decided to sell at $1.75 million in order to cut their losses. The property was finally sold on 19.3.99. over one year after the defendants' breach of contract on 31.12.97. The plaintiffs are still not married, and have yet to buy their matrimonial home.

Having seen Mr Kwok in the witness box, and having heard his testimony, I find that the plaintiffs were at all material times driven by their ambition to buy a better property in the Taipo area to serve as their matrimonial home. It was clear from the evidence of Mr Kwok that the plaintiffs' primary concern was not the mitigation of their damages. The plaintiffs' primary concern was whether they could sell the suit premises at a price that would enable them to move up the property ladder. Under cross-examination Mr Kwok conceded that the plaintiffs were hoping for the property market to go up again so that the plaintiffs could realize their plans. Mr Kwok admitted that if the plaintiffs had accepted the offer of $2 million, they would not have been able to change to a better property.

There was very little evidence adduced to show that the plaintiffs had done their best to mitigate the damages they had suffered as a result of the defendants' breach of contract. It was rather difficult to get Mr Kwok to give details about his dealings with the estate agents in the attempts to resell the property. He started out by saying that he could not recall when he lowered the price from $2.5 million. After he was pressed for an answer, he replied "about 3 or 4 months" in a rather tentative manner.

In my view the behaviour of the plaintiffs was inconsistent with that of a reasonable vendor seeking to mitigate his damages. Such a vendor would do his best to resell the property within a reasonable time and at a reasonable price. A reasonable vendor would have considered each and every offer on its merits, bearing in mind the state of the property market at the time. The plaintiffs considered the offers made on whether they would assist in the realization of their plans to buy a better property. Those are different and inconsistent motives. Moreover, the tenor of Mr Kwok's evidence was that amounts of the prices he was offered was of less importance than whether those prices enabled him to move up the property ladder.

The first reason given by Mr Siu above is not supported by the authorities. There is no principle of law that says that if the market is sluggish, the innocent vendor may have longer than a reasonable period to attempt a resale of the property. No evidence was adduced as to the state of the property market in or around Chinese New Year. The state of the property market around Chinese New Year is not something so notorious that the court can take judicial notice of. Third, the loss if any suffered by the innocent vendor on a resale is not one of the factors to be taken into consideration in any of the authorities referred to by Mr Siu. Indeed one would be surprised if that were the case. The loss if any can be affected by any number of factors. The vendor may accept an unreasonably low offer; the price might be affected by local conditions; or the low price might be because the property was damaged on a date between the breach and the resale. In this instance, the price drop was due to the continued fall in the property market for an unprecedented period of time. The longer the plaintiffs held out, the lower the price dropped. In the 4th reason put forward, Mr Siu submitted that the plaintiffs' efforts in mitigating their losses resulted instead in enlarging their losses. This submission is not supported by the evidence adduced.

A case has not been made out by the plaintiffs for damages to be assessed by reference to the value of the property at a different date. I am satisfied that the usual measure of damages at common law, that is, the difference between the contract price and the price at completion should apply here.

The contract price was $3,230,000. Evidence as to the valuation of the property was given by the expert witness Mr Ma Hing Kwun of Savilles. Mr Ma's valuation report on the suit premises is at page of the Bundle. The plaintiffs did not call for their own survey report. Mr Siu was content to rely on the defendants' valuation report save for a minor point on a comparable therein.

I found Mr Ma to be a persuasive and cogent witness. Mr Ma assessed the value of the suit premises at 31.12.97. to be $2,750,000. I am satisfied that this is a reasonable sum. Based on that valuation of the property at the date of the breach, the damages suffered by the plaintiffs as a result of the defendants' breach is $480,000.

Legal Expenses

The plaintiffs have also claimed for the legal costs and expenses thrown away in connection with the aborted sale to the defendants.

Counsel for the defendants argued that the plaintiffs are not entitled to make such a claim, citing Barnsley's Conveyancing Practice 4th Edn at page 654 where it says

"The vendor is not entitled to recover in addition to damages his expenses incurred in connection with the abortive sale (eg legal fees). However, as an alternative to suing for damages for loss of profit, he may elect to claim for wasted expenditure and recovery is not limited to post-contract expenses, but he cannot forfeit the deposit and also recover his expenses. Should the vendor resell the property at a lower figure, he can claim the expenses of the resale in addition to the difference to the price, but again the defaulting purchaser's deposit must be brought into account."

Counsel for the defendants also referred to Kwok Chung Hon & Anor v Lo On Wa [1997] HKLRD 980, at 983 where our Court of Appeal cited In re Daniel [1917] 2 Ch 405, in support of the contention that where a purchaser succeeds in a claim for damages for loss of bargain, he cannot claim in addition his conveyancing costs incurred in the transaction. In Kwok Chung Hon the court was concerned with the payment of stamp duty, not legal costs.

I have considered the authorities referred to. I agree that on the authorities, the innocent vendor cannot claim the legal costs of the abortive sale. This is because the costs relating to the aborted sale can be looked at as losses that have necessarily flowed from the breach of the contract of sale. The expenses of the aborted sale would have been incurred even if the defendants had not defaulted. It is clear then that the costs of the aborted sale cannot be claimed by the innocent vendor.

However, the situation is different when the legal costs claimed relate to the resale, and not the aborted sale to the defendants.

McGregor on Damages 16th Edn says this at para 995

"This head of damages requires to be analysed rather carefully, since the expenses of the abortive sale would have been incurred even had the buyer not defaulted; putting the seller into the position he would have been in had the contract been performed still entails his having incurred these expenses. The true analysis is this. The seller recovers the full contract price less the net market value of the property left on his hands, ie the amount at which a resale has been or could be made deducting therefrom the costs of the resale. Thus the expenses to be looked at are not those of the abortive sale but those of the resale, or, where there has been no resale, the estimated costs of a resale. Since the costs will vary proportionately with the selling price, and the plaintiff is presumably claiming damages in respect of a fall in the market value, the costs, actual or estimated of a resale will be less than those of the original sale to the defendant."

I am satisfied that this passage represents the correct position at law, and find that in all the circumstances of the case the plaintiffs are entitled to claim for their legal costs of the resale. The legal costs of resale were not specifically pleaded, and the arguments proceeded on the basis of legal costs for the aborted sale. However, I believe that the dictates of justice demand that this technical argument should not prevent a just claim to be defeated. If necessary, I give leave to the plaintiffs to re- amend the particulars of sub-paragraph 3 of paragraph 12 of the Statement of Claim by deleting the sum of $10,750 and substituting the word "resale" for the word "sale" in the said sub-paragraph. Re-service of the amendments can be dispensed with.

Since the plaintiffs have only given me the amount of the legal fees relating to the aborted sale, I have not been informed of the amount of legal fees expended on the resale. I had considered asking the parties to come back before me for the purpose of giving me that information. However I have rejected that idea because of costs. It would not be sensible to incur the costs of getting the parties to appear again when it is possible for the court to estimate the legal costs of the resale from the price paid on the resale. The resale price in 1999 was much lower that the contract price of the parties. Doing the best I can in the circumstances I find that a sum of $8000 an appropriate sum for the plaintiffs' legal costs of the resale. Since I have been asked to make a Costs Order Nisi in this case, I will also make the award of $8000 Nisi for 14 days from the date of the Handing down of this decision.

Agent's Commission

Based on the principles of the authorities discussed above in relation to legal fees of the aborted sale, the expenses of the agent's commission would have been incurred even had the buyer not defaulted. In my view, the passage from McGregor on Damages cited above in relation to legal fees is also applicable to the estate agent's fees. The vendor is not entitled to recover in addition to damages his expenses incurred in connection with the abortive sale. However, the agent's fees of the resale can be allowed.

For the reasons given above in respect of legal fees, I am of the view that notwithstanding they have not been pleaded, the estate agents' commission in relation to the resale can be allowed. Since the resale price is lower, and as estate agents fees are normally based on the selling price of the property, doing the best I can in the circumstances I assess the sum under this head to be $17,500. Similarly this sum awarded is Nisi for 14 days from the Handing down of this decision.

Interest

The plaintiffs claimed for damages representing the interest on mortgage repayments they incurred as a result of the defendants' breach from 24.1.98. to 23.3.99.

For the reasons given above, this claim is disallowed. As explained above, the plaintiffs are only entitled to the normal measure of damages, that is the difference between the contract price and the date of the breach, and as the breach occurred on 31.12.97. the plaintiffs are not entitled to claim for the interest paid after the date of the breach.

SUMMARY

There will be judgment to the plaintiffs against the defendants in the sum of $182,500 with interest at judgment rate from 1.1.98. to payment.

There will be a costs order nisi for 14 days from the handing down of this judgment for the costs of the action to be to the plaintiffs against the defendants; and for such costs will be taxed if not agreed.

The sums of $8000 and $17,500 awarded Nisi for the legal costs of the resale and estate agent's commission on the resale respectively will become absolute within 14 days from the date of the Handing down of this decision.

Representation:

Mr M Siu of Messrs Chui & Lau for the plaintiff

Mr HK Chan inst'd by Messrs Chan & Partners for the defendant