Lee Hon Kai and Another v. Wellsburg Industrial Ltd

HCA001485/1994

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

Coram: Master Jennings, in Court

Plaintiff: Mr. S. Yip, instructed by Messrs. Wong & Chan.

Defendant: Mr. Andy Hung, instructed by Messrs. Ho, Li, Lo & Lam. (on the first day only, on the second day the Defendant was unrepresented).

Date of hearing: September 1 & November 28, 1995.

Delivery of Decision on Assessment: December 11, 1995.

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ASSESSMENT OF DAMAGES

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1. On 20 April, 1993, by a Sale and Purchase Agreement one Yeung Yuk Lun agreed to sell to the Defendant Flat C, 34th Floor, Tower 16, Riviera Gardens, Tsuen Wan. By a provisional Sub-Sale and Purchase Agreement the Defendant agreed to sell the flat to the Plaintiffs at the price of $1,910,000. Completion was to take place on or before 18 January, 1994. The formal Sale and Purchase Agreement was dated 20 December. 1993. The Plaintiffs paid deposits amounting to $191,000.

2. Before 18 January, the parties agreed to postpone completion until 25 January. For reasons which need not be gone into, the Defendant's vendor was unable to complete the sale to the Defendant. Thereafter the Defendant failed to complete the sale to the Plaintiffs.

3. The Plaintiffs' writ was issued on 16 February, 1994, claiming inter alia specific performance, or alternatively damages, and the return of the deposits paid.

4. On 22 July, 1994, the Plaintiffs obtained Judgement in default of the service of a defence for the return of the deposits and for damages to be assessed.

5. At the hearing of this assessment, the only form of damages sought was compensation for the increase in the market value of the property. I was informed by Mr. Yip that the only questions for me to resolve were-

6. Date of valuation.

7. According to McGregor on Damages, 14th Edition at para 719, the normal rule in cases of failure to complete a contract for the sale and purchase of land is that damages are "the market value of the property at the contractual time for completion less the contract price". However, in para 722 there appears the following passage-

".....but such a measure could be grossly unfair to a buyer if prices had escalated between the contractual date for completion and the date of judgement ....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."

8. In my view, that passage is entirely appropriate to the situation in Hong Kong when the property market is rising, as both sides agreed it was, between the date of the date of the Sub- Sale and Purchase Agreement and the date when the Plaintiffs went back into the market and signed an agreement to buy another property on 7 March, 1994.

9. The 2nd Plaintiff gave evidence on the question of why he had waited until 7 March to re-enter the market, and during cross-examination he was referred to correspondence between his solicitors and those of the Defendant. Although the Defendant had paid his vendor in full, it was apparent before the delayed completion date of 25 January that the vendor may not be able to complete, and this was made known to the Plaintiffs solicitors. The 2nd Plaintiff was told on 25 January that completion had not taken place. He was still anxious that the transaction be completed because he knew that the market had risen and he told me, and I accept, that it was not until about 10 days after 25 January that his solicitors told him finally that the transaction would not be completed. After that, the 2nd Plaintiff held off going back into the market because he knew the market was rising and hoped it would drop. By this time, he could no longer afford another property in Riviera Gardens. He waited until the end of February and then began the search for another property. After looking at 6 or 7 properties he signed a contract on 7 March to purchase a property in Tsing Yi for $1,780,000.

10. In waiting for a period after he was finally told that completion would not take place on the Riviera Gardens flat, in the hope that the market would drop, the 2nd Plaintiff miscalculated, and the Defendant cannot be held responsible for the whole of the delay. On the second day of the hearing, the Defendant's solicitors obtained my leave to cease to act, and a director of the company, who had given evidence on the first day, was permitted to address me. He requested that valuation be as at the delayed date of completion. In my view, that Plaintiffs were reasonable in waiting until 10 days thereafter before being told that the sale would definitely not go though. I consider that there should then be allowed a reasonable time for them to look around for an alternative property.

11. My conclusion is that the appropriate time for valuation of the property is mid February.

12. Both sides called expert evidence as to the valuation of the flat from firms of surveyors. As is usual in assessments of damages turning on property values, the estimates were based on "comparables", i.e. the value of properties as similar as possible in all respects to the property being valued, that value being established by completed sales. Since Riviera Gardens consists of 20 high-rise blocks of flats, there was no shortage of comparables.

13. The valuations of the experts were as follows:

14. It was the evidence of the Plaintiffs' expert, which was not disputed, that the market was rising evenly during the period. Thus the valuations at mid-February (January valuation plus 1/2 the increase by 7 March) would be:

15. The methods used by the the experts differed in a fundamental way. The Plaintiffs' expert made use of a number of comparables at each date. Having reached a value per square foot for each comparable he then adjusted it having regard to whether the flat concerned was more or less desirable than the suit flat, in regard to height in the block, view, facing aspect (view of a nearby cemetery not being desirable), size, and the fact that the suit flat is the top flat in its block (solar heat problem). The proximity in time of the sale of the comparable was also used in this weighting exercise.

16. The fundamental difference referred to is that the Defendant's expert, instead of using a number of comparables at each date, had selected the comparable he assessed to be the closest to the suit flat and based his valuation on that. It seems to me that there is an obvious flaw in that approach, in that the comparable flat so selected may have brought its particular selling price because of features peculiar to the particular sale, e.g. a vendor particularly anxious to raise cash and willing to accept below the market price, or a flat in a poor condition. Because of this, I prefer the approach of the Plaintiffs' expert. Also I was more impressed with him as a witness.

17. However, I do not think I can simply use his valuation and ignore the opinion of the Defendant's expert. For example, he disputed the weightings mentioned above given by the Plaintiffs' expert to different aspects of the various comparables and the suit flat. For this reason, I shall discount the valuation of the Plaintiffs' expert by the, admittedly arbitrary, factor of 5%. This produces a valuation of the suit flat at the relevant date of ($2,560,000 - 5%) $2,432,000.

18. But another factor must also be taken into account. The director of the Defendant company who gave evidence was the only witness who had actually seen the interior of the flat and its condition. He told me, and I have no reason to doubt it, that the flat was in poor condition in a number of respects which he described to me. He also told me that he had had difficulty in selling the flat before the Plaintiffs came along, a substantial number of potential purchasers having been put off by the condition of the flat. He said that in arriving at the figure of $1.9 million at which he agreed to sell to the Plaintiffs, he had discounted the figure he wanted by $100,000. His list of defects had been given to the Defendant's expert and the expert said in evidence that he would need to reduce his valuation by that figure. The director also told me the estimate given to him by a decorator as to the cost of remedying the defects, but I shall place no weight on this evidence. Nevertheless, I consider some further discount must be given in reaching my assessment and the figure I consider proper is $75,000.

19. My assessment of the valuation of the suit flat in mid-February is, therefore, ($2,432,000 - $75,000) $2,357,000.

20. The sum I award as damages, by subtracting from that figure the contract price of $1,910,000, is $447,000.

21. I award interest on this sum at 2% from the date of the writ until assessment.

22. Costs of this assessment to the Plaintiff with certificate for counsel.

Representation:

Plaintiff: Mr. S. Yip, instructed by Messrs. Wong & Chan.

Defendant: Mr. Andy Hung, instructed by Messrs. Ho, Li, Lo & Lam. (on the first day only, on the second day the Defendant was unrepresented).