Fulltrend Co. Ltd. v. Longer Year Development Ltd. and Another

HCMP003211/1989

------------------

---------------

---------------

Coram: Master C. B. Chan in Court

Dates of hearing: 22nd, 23rd October & 9th November

Date of Delivery of Judgment: 27th November 1992

---------------------------------------

ASSESSMENT OF DAMAGES

---------------------------------------

1. This is an assessment of damages by the 1st Defendant in respect of loss and damage suffered by him arising from the wrongful repudiation by the Plaintiff of the Sub-sale and Purchase Agreement made between the 1st Defendant as confirmor and the Plaintiff as purchaser of Unit 819 and 820 on the 8th Floor of Nan Fung Centre Tsuen Wan (hereinafter called "the said premises").

2. The undisputed facts show that the 1st Defendant had on the 17th March 1989 entered into a sale and purchase agreement (the Principal Agreement) of the said premises with Jointa International Limited (hereinafter referred to as "Jointa") to purchase the said premises for HK$1.960,000.00 and the 1st Defendant agreed to complete the said purchase on or before the 17th July 1989. Pursuant to the aforesaid agreement a total sum of $250,000.00 was paid by the 1st Defendant to Jointa as deposit and part payment.

3. On the 3rd May 1989, the 1st Defendant agreed by a Sub-sale Agreement to sell the said premises to the Plaintiff for the sum of HK$2,070,000.00 and the Plaintiff agreed to complete the said purchase on or before the 17th July 1989. It was made clear in the Sub-sale Agreement that the 1st Defendant was to sell the said premises to the Plaintiff as confirmor and the said premises was to be sold subject to and with the benefit of the agreement for sale and purchase dated the 17th March 1989 between Jointa and the 1st Defendant (the Principal Agreement). It was also made clear in the Sub-sale Agreement that the 1st Defendant would derive a profit of $110,000.00 from the Sub-sale to the Plaintiff.

4. On the 22nd June 1989, the Plaintiff wrongfully rescinded the Sub-sale agreement and in wrongful breach of the Sub-sale Agreement refused to complete the purchase of the said premises on or before 17th July 1989 on the ground that the 1st Defendant had failed to answer requisitions on title raised by the Plaintiff's solicitors. By a letter dated the 31st July 1989, from the 2nd Defendant who was then the 1st Defendant's Solicitors, the 1st Defendant accepted the Plaintiff's wrongful repudiation of the Sub-sale Agreement.

5. On the 29th July 1989, Jointa extended the date of completion of the Principal Agreement from 17th July 1989 to 4th August 1989. The 1st Defendant did not complete the Principal Agreement at all. On or about the 7th August 1989, Jointa rescinded the Principal Agreement and forfeited the deposits and part payments made by the 1st Defendant in the sum of HK$250,000.00 as it was entitled to under the Principal Agreement.

6. On the 29th November 1989 the Plaintiff filed an Originating Summons in the present action to seek a declaration that its requisitions on title had not been sufficiently answered; a declaration that a good title to the said properties was not shown, and return of the deposit of $207,000.00 paid under the Sub-sale Agreement. On the 2nd May 1990 the Honourable Mr. Justice Godfrey dismissed the Plaintiff's claims against the 1st Defendant and found, inter alia, that the Plaintiff's objections to title were not well founded, were misconceived and that there was no blot on the title to the said premises, and that the Plaintiff's refusal to complete the Sub-sale Agreement was unjustified.

7. In its Amended Further & Better Counterclaim, the 1st Defendant claims that it suffered loss and damage as follows:-

8. In paragraph 8 of his Amended Defence to the 1st Defendant's Further & Better Counterclaim the Plaintiff avers that the 1st Defendant had failed to mitigate its loss by

(1) failing to complete the purchase of the said premises with Jointa and thereafter accept repudiation of the Sub-sale Agreement by the Plaintiff and forfeit the deposit paid by the Plaintiff,

(2) failing to enter into a supplemental agreement with Jointa to extend the completion date,

(3) failing to explore the prospects of renting out the premises after purchase rather than sub-sell.

9. In paragraph 9 the Plaintiff states that by not going through with the transaction, the 1st Defendant has avoided payment of the legal cost of assignment of the said property at the sum of $7,675.00.

10. Lastly in paragraph 10, the Plaintiff states that it was not within the contemplation of the Plaintiff that the rescission of the sub-sale agreement would render the 1st Defendant's failure to complete the sale and purchase Agreement with Jointa. In the circumstances, the claim for loss of deposit and part payment paid by the 1st Defendant to Jointa under the Principal Agreement and forfeited by Jointa is too remote.

11. In submissions before me Plaintiff's Counsel Mr. Charles Wong stated that the June 4th event and its dramatic effect on the property market was not within the reasonable contemplation of the Plaintiff when he entered into the Sub-sale Agreement with the 1st Defendant. Hence, damages arising from the intervening event of June 4th was too remote and the Plaintiff was at the date of the Sub-sale Agreement not able to see that he would have to bear such loss. It was further submitted by Mr. Charles Wong that the 1st Defendant's decision not to go ahead with completion of the Principal Agreement with Jointa was an event that broke the chain of causation as this was not within the reasonable contemplation of the Plaintiff. Hence the Plaintiff should not have to bear the loss arising from these two intervening events.

12. Expert witnesses, Chartered Surveyors DW2 Mr. Yeung Siu Ming and PW1 Mr. Tsang Tak Ming Patrick both gave evidence that the June 4th event in 1989 had a dramatic impact on the property market immediately and for some months thereafter. It falls on me to find whether the loss suffered by the 1st Defendant as a result of the dramatic drop in the property market arising from the the June 4th event is too remote as being not within the reasonable contemplation of the Plaintiff as submitted by Plaintiff's Counsel. Mr. Yeung, DW2 stated that the drop in property prices was in his opinion mainly due to loss of confidence in the market and in political stability in China. It seems to me that the Hong Kong property market is always subject to this extraneous factor namely confidence in the market arising from investors' perception of the political stability in Hong Kong and in China. Although the Plaintiff might not have had the June 4th event within his reasonable contemplation at the time he entered into the Sub-sale Agreement yet the risk of a fall in the property market as a result of loss of confidence in the property market in Hong Kong arising from political developments would have been within any investors' reasonable contemplation. The 1st Defendant does not have to show that the Plaintiff ought to have contemplated the June 4th incident as being not unlikely, it is enough if the Plaintiff should have contemplated the risk of a loss in value of properties in Hong Kong arising from loss in confidence owing to political factors. I find that this is what the reasonable man in Hong Kong who undertakes an investment in property in Hong Kong would have foreseen. It is also a clear principle enunciated in Chitty on Contract paragraph 1794 that if the Plaintiff ought to have contemplated that type of loss, he need not have contemplated the extent of that loss. I therefore find that the June 4th event is not an event that broke the chain of causation nor is loss resulting therefrom too remote.

13. The general principal for measuring damages in breach of contract is that referred to in paragraph B of the written final submission of the Plaintiff's Counsel. That is and I quote:-

"Where a contract is broken, the injured person is, as far as money can do it, to be placed in the same position with respect to damages as if the contract has been performed."

14. If the contract had been performed, it was a factor known to the Plaintiff that the 1st Defendant as confirmor would have derived a gross profit of $110,000. It was also known to the Plaintiff that the 1st Defendant entered into the Principal Agreement with Jointa to purchase the said premises on the 17th March 1989 and within months thereafter on the 3rd May 1989 and before the stipulated completion date in the Principal Agreement the 1st Defendant entered into the Sub-sale Agreement with the Plaintiff to sell the said premises to the Plaintiff at a sale price which would enable the 1st Defendant to derive the aforesaid profit. It was well known to the Plaintiff that completion of the purchase in the Principal Agreement and completion of the purchase pursuant to the Sub-sale Agreement was contracted to take place within quick succession most probably on the same day the stipulated completion date in both Agreements being "on or before the 17th July 1989". By virtue of the Plaintiff's wrongful repudiation of the Sub-sale Agreement on the 22nd June 1989, the 1st Defendant was put in a position of having to look in the market for another purchaser in order to effect a Sub-sale as confirmor.

15. It is clear that were the 1st Defendant to be put in the same position with respect to damages as if the Sub-sale Agreement had been performed, damages had to be assessed on the basis that the 1st Defendant immediately before wrongful repudiation by the Plaintiff was a Purchaser under a Principal Agreement who contracted to a Sub-sale of the said premises as confirmor at the purchase price of HK$2,070.000.00, which would give rise to a gross profit of HK$110,000, with contractual completion date on both agreements to take place on or before the 17th July 1989 or the extended completion date of the 4th August 1989. I find that the measure of damages to be assessed as reflecting the actual loss of the 1st Defendant has to take the aforesaid into account. The submission by the Plaintiff's Counsel that the 1st Defendant should have proceeded to completion of the purchase of the said premises with Jointa and thereafter rent out the said premises pending an up-turn in the property market in order to mitigate loss is contrary to the principle of measurement of damage espoused by him and referred to above. It does not take into account the position of the 1st Defendant immediately before breach by the Plaintiff nor the fact that damages is for the purpose of placing the 1st Defendant as far as money can do it in the same position as if the Sub-sale Agreement had been performed. Further, one of the rules for assessing the standard of conduct required of the claimant of damages when assessing what steps should have been taken by him to mitigate loss referred, to paragraph 313 page 191 of MacGregor on Damages 15th Edition state "A Plaintiff need not risk his money too far". This rule was derived from the case of Lesters Leather and Skin Co. v. Home and Overseas Brokers (1948) 64 T.L.R. 569 (C.A.). In Jewelowski v. Propp, (1944) K.B. 510 referred to in the same passage, Lewis J. said that a plaintiff "cannot be called on to spend money to enable him to minimise the damages". The 1st Defendant would have had to risk his money in the methods of mitigating loss which the Plaintiff averred that the 1st Defendant had failed to undertake in the Plaintiff's Defence to the 1st Defendant's Further & Better Counterclaim.

16. As a result of the wrongful repudiation of contract by the Plaintiff, the 1st Defendant was put in a position where he had to go the market to find a purchaser to purchase the said premises. In view of the aforesaid, the measure of damages is the contract price stipulated in the Sub-sale Agreement less the market price at the contractual time fixed for completion. I agree with the 1st Defendant's Counsel Miss Lisa Wong that the market price applicable is the price which the said premises could fetch in the open market within a reasonable time of the breach of contract by the Plaintiff and not a possible higher selling price which could have been obtained at a later date by slowly "nursing the property" speculating on an up-turn on the property market. (see Keck v. Faber (1915) 6;0 SJ253 referred to in McGregor on Damages, 15th Edition, paragraphs 937-8.

17. The 1st Defendant gave evidence that after the wrongful repudiation of the Sub-sale Agreement by the Plaintiff he had telephoned a number of estate agents to request them to sell the said premises for an asking price of HK$1.5 M. In his evidence he stated that it was his usual practice when he wished to sell a property to telephone estate agents to request them to look for purchasers. Normally, an estate agent would inform him if they were able to 'find a purchaser in response to his telephone request to look for prospective purchasers. However, he found that he was not able to find a purchaser of the said premises before 4th August 1989 at HK$1.5 M. and because of that he decided not to proceed with completion of the Principal Agreement with Jointa. Although he said he had no record to show that he had actually instructed estate agents to sell the said premises, he said that estate agents in Tsuen Wan did not as a rule confirm instructions to sell in writing. He said he had instructed estate agents on the Ground Floor of Nan Fung Centre. He was not able to give the names of the Estate Agents. I found that although the 1st Defendant did not have written records to confirm the instructions to estate agents referred to, I accept his evidence that he had instructed estate agents to sell the said premises at HK$1.5 M. after the Plaintiff's repudiation of the Sub-sale Agreement. I accept that he had failed to find a purchaser at that price before the extended date of completion on the 4th August 1989 owing to the fact that there was a lack of willing buyers on the market.

18. Now I come to the evidence of expert witnesses, the Chartered Surveyors called on behalf of the Plaintiff and that called on behalf of the 1st Defendant who gave their opinions of the open market value of the said premises as at 17th July 1989 and 4th August 1989. Of the two witnesses I prefer the evidence of DW2, Mr. Yeung. He based his opinion on sale prices of comparables which he was able to find, referred to in his Report and Valuation on page 5 thereof (the original of which Report and Valuation was produced). According to his Report and his evidence the open market value of the said premises as at 17th July 1989 was HK$1.54 M. and that on 4th August was HK$1.6 M. He was shown the comparables which formed the basis of the valuation Report produced at the hearing. DW2 gave his view (contrary to the view of Mr. Tsang) that the last comparable on page 2 of Mr. Tsang's list of comparables, relating to sale of Unit 5, 9/F Nan Fung Centre, which Sale & Purchase Agreement was dated 2nd August 1989, priced at $1,512 per square foot gross, was sold at a price which reflected market value as at that date. He further stated again contrary to Mr. Tsang's view that the first comparable on page 3 relating to Unit 6 on 10/F, with its date of Sale & Purchase Agreement on the 14th August 1989, sold at $1,767 per square foot gross did not reflect the then current open market value because it was not in line with market trends when taking the 2nd and 3rd comparables on page 3 into account. I prefer DW2's reading of the market trend rather than that of Mr. Tsang who stated that the last comparable on page 2 referred to above did not reflect market trend whereas the first comparable on page 3 referred to above reflected the then current open market value. Mr. Tsang stated that taking the 1st comparable on page 3 and its subsequent two comparables on page 3 into account he was able to arrive at a market valuation of $1,820,000 of the said premises as at 17th July 1989 and an open market value of the said premises of HK$1,800,000 as at 4th August 1989. I found Mr. Tsang's reasoning to be speculative and unconvincing. The last comparable on page 2 together with the 2nd and 3rd comparables on page 3 of Mr. Tsang's list of comparables support Mr. Yeung's valuations referred to above. These comparables were based on gross square footage. The gross square footage of the said premises together totalled 1009 square foot gross. Mr. Yeung's valuation of the said premises as at 17th July 1989 comes to a value per square foot gross of $1526.2. His valuation of the said premises as at 4th August comes to a value of $1587.6 per square foot gross. Mr. Yeung's valuation is supported by the 1st Defendant's evidence of his failure to find a buyer in the market at HK$1.5 M before 4th August. Further, Mr. Yeung's valuation is supported by the evidence of the sale of the said premises by Jointa for HK$1.7 M. on the 5th October 1989 to one Hishinuma International Limited (item No. 1 of the 1st Defendant's hearsay notice). If the open market value were that as stated by Mr. Tsang as at the 4th August 1989, surely, Jointa would have been able to sell the said premises at a price higher than HK$1.7 M. or the date of effecting a sale at the price of HK$1.7 M. surely would not have taken so long.

19. I therefore find that the open market value of the said premises as at 17th July 1989 was HK$1.54 M. and that as at 4th August 1989 was HK$1.6.M.

20. The 1st Defendant in his evidence stated that when he failed to find a buyer for the said premises between the period of 22nd June 1989 to immediately before 4th August 1989 at HK$1.5 M. he came to the conclusion that his loss would be greater if he were to complete the purchase with Jointa on the 4th August than if he were to repudiate the Agreement with Jointa and lose his deposit and part-payment of HK$250,000. His opinion on this is supported by the valuation report of DW2 Mr. Yeung accepted by me. The 1st Defendant stated that he repudiated the Principal Agreement with Jointa in order to mitigate his loss. I am of the view that the 1st Defendant acted reasonably in his efforts to mitigate his loss with his interests as well as that of the Plaintiff's in mind. I further find that all loss suffered by the 1st Defendant arising from his acts to mitigate his loss in his repudiation of the Principal Agreement flow from the Plaintiff's wrongful repudiation of the Sub-sale Agreement and has to be borne by the Plaintiff. Having so found I now come to assess the 1st Defendant's loss. The 1st Defendant gave evidence that out of his anticipated gross profit of $110,000 to be derived from the Sub-sale, he had to pay 1% estate agent's commission on his purchase from Jointa which amounted to $19,600. He stated that expenses inclusive of estate agent's fees totalled $20,000. It was agreed between the parties that out of his net profit of $90,000 the 1st Defendant had to pay tax at 16.5% amounting to HK$14,850. The net profit less tax to be earned by the 1st Defendant is therefore HK$75,150.00. The loss of the 1st Defendant is assessed as follows:-

21. Accordingly, damages are assessed at HK$118,150.00. I shall hear the parties on the issue of costs of the assessment.

Representation:

Appearances: Ms. Lisa Wong inst'd by Messrs. Joseph Chu & Co. for 1st Defendant

Mr. Charles Wong inst'd by Lawrence Pang & Co. for Plaintiff