Hee Tak Lee Co. Ltd. v. Keen Lloyd (Holdings) Ltd.

HCA020799/1998

HCA 20799 of 1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 20799 OF 1998

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Coram : Master Poon in Court

Date of Hearing : 15 November 1999

Date of Handing Down : 28 December 1999

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ASSESSMENT OF DAMAGES

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Introduction

1. On 11th December 1997, the parties entered into an agreement for sale and purchase of Flat No 67, 22/F, Tower 11 and Car parking space No 85 on the Car Park Entrance 3 (Level 4) of the Garage of Hong Kong Parkview ("the Property" and "the Carpark" respectively) at the price of HK$32 million. Completion was scheduled to take place on or before 10th August 1998 but was extended to 10th November 1998 by a supplemental agreement dated 9th July 1998. The defendant purchaser had paid deposits totalling HK$8 million. Despite the extension, the defendant failed to complete. On 14th November 1998, the plaintiff resold the Property and the Carpark at a price of HK$17 million.

2. The plaintiff commenced proceedings on 5th December 1998 and subsequently on 19th April 1999 obtained summary judgment against the defendant for damages of breach of the agreements to be assessed. Hence this assessment.

Plaintiff's Claims

3. Initially, the plaintiff claimed for (1) direct loss of HK$7 million, being the difference between the original sale price and the resale price with credit given to the deposits; (2) agency fees for the abortive sale of HK$119,000; (3) legal costs of HK$30,880 for the resale and (4) interest.

4. At the hearing before me, Mr Chain, Counsel for the plaintiff, abandons item (2) as under the sale and purchase agreement, the defendant is directly liable to the agent. Mr. Law, Counsel for the defendant, having examined the relevant receipt, concedes item (3). Only the questions of direct loss and interest are outstanding.

Evidence

5. The plaintiff calls 3 witnesses. Their evidence is summarized as follows.

6. PW3 is one of its directors. His evidence is that after the defendant's failure to complete on 10th November, the plaintiff took immediate steps to mitigate its loss. On the following day, the plaintiff's former solicitors gave notice in writing to the defendant's solicitors that the deposits had been forfeited or alternatively 10% of the same had been forfeited and the balance be retained to settle any loss and damage suffered by the plaintiff; registered with the Land Registry a memorandum of rescission of the agreements with the defendant; and gave instruction to Midland Realty International Limited ("Midland") to resell the Property.

7. The market was sluggish. From 11th to 14th November, about 7 to 8 prospective purchasers introduced by Midland inspected the Property. Only one made an offer. The initial offer of $16.8 million was rejected by the plaintiff. The second offer of $16.89 million was again rejected. Eventually, an offer of $17 million was made which was accepted by the plaintiff on Midland's advice that it was then the best selling price in the market. The provisional agreement was entered on 14th November and the formal agreement, on 27th November. Completion took place on 12th December 1998.

8. Under cross-examination, PW3 explains that only Midland was instructed to resell the Property as it was a very big agency with a wide customer network. He also confirms that both the abortive sale and resale were subject to tenancy, although under the resale agreement, vacant possession was to be delivered.

9. PW2 is a senior property consultant of Midland. She has more than 10 years relevant experience. After receiving instruction from PW3, she had used her best effort to promote the resale of the Property. She input the data of the Property in Midland's computer network and asked her colleagues in other branches to find a buyer. She also explains under cross-examination that she had also asked some of her friends working for other estate agency to look for a buyer. It was her advice to the plaintiff to accept the eventual offer of HK$17 million as it was the best market price in a sluggish market.

10. PW1 is an associate of Chung Sen Surveyors Limited. He gives expert evidence on the value of the Property at the material times. The defendant does not challenge his relevant qualification and relevant expertise.

11. In his valuation report, PW1 adopts 4 comparables within Hong Kong Parkview with the same saleable area as the Property's (2,087 sq ft):

12. He considers the 1st comparable the best: it is only one floor over and above the Property in the same Tower and among all the comparables, had most of the inherent characteristics similar to the Property.

13. After making certain adjustments to the values of the comparables by reference to the floor difference and time difference in the agreement dates, he concludes that as at 14th November 1998, the market value of the Property was about $7,850 per square foot on the saleable area making $16,382,950. The market value of the Carpark was about $600,000. The total market value was thus $16,982,950.

14. Under cross-examination, PW1 explains further the relevant factors in considering the comparables. They include view, floor level, date of agreement, size, lighting, ventilation, nuisance and accessibility. He says that he considers the 1st comparable being one floor above the Property a negative factor as it is less accessible.

15. The defendant calls only one expert witness, who is a managing director of K T Liu Surveyors Limited. Neither his qualification nor his expertise is challenged.

16. DW1 was not aware of the PW1's comparables when he made his first report. Now that he is, he does not consider the 1st comparable the best and on the contrary, says that it should be ignored as its unit rate is remarkably lower than others. He also disagrees with PW1 that higher level is a negative factor in a luxury building. Because of popularity, higher level should be a positive factor. He will prefer the 2nd comparable because of the equally high floor level and closer date of agreement. Alternatively, the average of the 2nd and the 3rd or the average of all should be adopted. In his supplementary report, he adopts the same adjustments used by PW1 for the difference in each floor level and time of agreements. Based on the 2nd comparable, he comes to a sum of $18,070,000 as the market price for the Property and the Carpark. Based on the average of all, the market price is $17,529,744.

17. Under cross-examination, DW1 accepts that to certain extent valuation is not a matter of precise science but of subjective valuation; and that there can be legitimate difference between two expert reports.

18. Both reports were prepared on the basis of vacant possession although the Property was resold subject to tenancy. The parties agree that the valuation will not differ as the tenancy yields very good profit. Further, the experts do not dispute that the relevant market value of the Carpark was $600,000.

Assessment

19. The immediate and direct loss flowing from the defendant's failure to complete is the difference between the price under the agreement and market value of the property at the time of completion: McGregor on Damages, para 992 at 657. Credit must be given for any deposit that has been paid: Ockenden v Henly (1858) EB & E 485; Shuttleworth v Clews [1910] 1 Ch 176.

20. The price at which the seller has resold is strictly not to be taken in preference to the market price, but it has been taken in most cases on the ground that the resale price affords good evidence of the market and there is no suggestion awarding the difference between the contract price and the resale price that the latter differed at all from the market price: see McGregor on Damages, para 993 at 657 & 658.

21. Mr. Chain refers to my decision in Yeung Leung Wai Kwan v Tsang Nui Tai [1999] 3 HKC 618 at 621G-H: "The market value is determined by the price obtained, or obtainable, on a resale within a reasonable time of the breach..." In that case, there was no valuation report on the market value of the property at the time of completion. Having considered all the circumstances, I took the view that the resale price afforded good evidence of the market value (see 621I-622A) and assessed accordingly.

22. Here, I am presented with conflicting views from two experts on the market value of the Property at the time of completion, ie, 14th November 1998. Both parties accept that their evidence is to assist the court in coming to a proper finding on the market value. And the determination of the market value is for the court alone.

23. I have carefully considered the experts' reports and oral evidence. The major difference between them lies in which comparable is to be adopted. DW1 has in effect abandoned his own comparables. He only seeks to challenge the use of the 1st comparable by PW1. His view is that either the 2nd or the average of the 2nd and the 3rd or all should be adopted.

24. In my view, the 3rd appropriate is not appropriate because it is significantly lower than the Property. The 4th is not desirable either because it is in a different Tower and much lower than the Property. For the reasons given by the experts on why the 1st and 2nd comparable should be adopted, I will consider both of them for the present purpose.

25. I do not accept PW1's evidence that a higher level will be a negative factor in the present case. I do not think there is any difficulty in accessibility in a luxury housing estate like Hong Kong Parkview. I accept DW1's evidence that it should be a positive factor because of popularity. It should be noted, however, when adjusting the values of the comparables, PW1 did apply the floor factor correctly. For the 1st comparable which is one floor higher than the Property, a -0.2% adjustment was applied. For the 2nd comparable which is two floors lower than the Property, a +0.4% adjustment was applied. More significantly, such adjustments were in fact adopted by DW1 in his supplementary report. PW1's valuation is thus not affected by his oral evidence in this respect. Incidentally, both experts use similar adjustment for the time difference.

26. The 1st comparable was sold with 2 car parking spaces. I agree with DW1 that a total of $1.2 million for the spaces be deducted from the price instead of $1.1 million as suggested by PW1.

27. For the 1st comparable, I therefore prefer the adjusted value of DW1. For the 2nd comparable, the adjusted values of the two experts are the same. Accordingly, the adjusted values per square foot derived from the 1st and 2nd comparable are $7,643 and $8,369 respectively. And the total adjusted values for the Property are 15,950,941 and 17,466,103.

28. If, following the approach of DW1, an average is to be taken from the applicable comparables, the average of the two adjusted values for the Property is $16,708,522. Adding the value of one carparking space, ie, $600,000, the total adjusted value for the Property and the Carpark will become $17,308,522. When this is compared with the actual resale price of $17 million, the difference is only $308,522. This represents about a mere 1.8% of the resale price. The parties agree that valuation is a not a matter of precise science. It involves to certain extent subjective valuation and there can be legitimate difference between two experts. Applying the average figure strictly is therefore wrong. Rather, I should bear this in mind when determining the market value of the Property.

29. The plaintiff had to and did respond swiftly in a falling market to mitigate its loss. It had acted upon PW2's professional advice when accepting the offer of $17 million. And there is no evidence to suggest that the resale was not bona fide. Having regard to all the circumstances and in particular the various figures derived from the 1st and 2nd comparable, I agree with Mr Chain that $17 million represented the market value of the Property and the Carpark as at 14th November 1998.

30. Mr Law complains that the plaintiff had not faithfully discharged its duty to mitigate when it only appointed Midland to promote the resale. I respectfully disagree. Midland is one of the largest estate agencies in town. PW2 had also made her best effort to promote the resale. In my view, the plaintiff had acted reasonably to mitigate its loss: see Chitty on Contracts (28th edn), para 27-088 at 1318.

31. Accordingly, there will be judgment for the plaintiff:

(1) in the sum of $7 million with interest at the prime rate plus 1% on $24 million from 10th until 14th November 1998; on $23.2 million from 15th until 27th November; on 22.3 million from 28th November until 30th December 1998 and on 7 million from 31st December 1998 until 18th April 1999 and thereafter at the judgment rate until payment; and

(2) in the sum of $30,880 with interest at the judgment from the date of writ until the date of judgment and thereafter at the judgment rate until payment.

32. The calculation of interest under (1) is agreed by the parties.

33. There will also be an order nisi that the plaintiff shall have the costs of the assessment to be taxed if not agreed, to be made absolute after the expiration of 14 days from the date of judgment.

Representation:

Mr Benjamin Chain & Mr Raymond Chow instructed by Messrs Poon Woo Johnny TK Cheng for the Plaintiff.

Mr Dennis Law instructed by Tony Kan & Co for the Defendant.