WIN PROFIT CORPORATION LTD v. WORLD ORIENT INVESTMENT LTD

HCA 1487/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1487 OF 2009

J U D G M E N T

_______________________

INTRODUCTION

1.  By a formal sale and purchase agreement dated 23 October 2007 (“the Agreement”), the plaintiff agreed to sell and the defendant agreed to purchase a property known as 8^th floor of Tower A, Mandarin Plaza (also known as New Mandarin Plaza), No. 14 Science Museum Road, Kowloon, Hong Kong (“the Property”) at the price of $107,200,000, with completion set to take place on 17 September 2008.  Pursuant to the Agreement, the defendant had paid a deposit of $10,720,000.

2.  The Property was subsequently subsold several times with completion set at the same date of completion.

3.  Shortly before the completion date, i.e. on 16 September 2008, the plaintiff agreed to the defendant’s proposal to extend completion for 2 months on payment of further deposit of 5% of purchase price.  The defendant however did not respond and failed to complete the transaction on 17 September 2008.

4.  The plaintiff later resold the Property at $80,019,900 in April 2009.

5.  It now claims damages in the sum of $17,234,949.61, particulars of which are as follow:

6.  Alternatively, plaintiff claims for damages to be assessed.

7.  On 24 August 2009 defendant conceded liability and judgment on liability was entered against the plaintiff with damages to be assessed.

APPLICABLE LEGAL PRINCIPLES

8.  Ms G Lan, counsel for the plaintiff invited this court to consider the case of Lui Chun Wai HCA 20373 of 1998, where Master B Kwan in her judgment considered McGregor on Damages 16^th edition paragraph 992: -

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

9.  In that case, Master Kwan was satisfied that the plaintiff had made out a case for damages to be assessed by reference to the value of the property at a date other than the completion date.  She said the plaintiff had shown that he had done all he could to mitigate the damages in a hostile environment.  The resale took place over 10 months later.

10.  Ms Lan said the plaintiff here only managed to resell the Property 7 months after the aborted sale in April 2009 at $80,019,900.  She submitted that the plaintiff was entitled to damages representing the price difference between the contract price and the resale price.

11.  She relied on clause 15 of the Agreement which reads: -

“Should the Purchaser fail to complete the purchase in accordance with the terms and conditions herein contained the Vendor may (without tendering an Assignment to the Purchaser) forthwith determine this Agreement by giving notice of termination in writing to the Purchaser or its solicitors to such effect and the Vendor shall thereupon be entitled to re-enter upon the Property and repossess the same and the Furniture if possession shall have been given to the Purchaser free from my right or interest of the Purchaser therein and the Vendor shall be entitled to forfeit the deposit. Upon determination of this Agreement the Vendor may resell the Property and the Furniture either by public auction or by private contract or partly by one and partly by the other subject to such stipulations as the Vendor may think fit and any increase in price on resale shall belong to the Vendor. Without prejudice to the Vendor’s right to recover the actual loss arising from the Purchaser’s breach of this Agreement, on such resale any deficiency in price shall be made good and all reasonable expenses attending such resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor as and for liquidated damaged. On the exercise of the Vendor’s right to determine this Agreement as aforesaid the Vendor shall have the right, if this Agreement shall have been registered in the Land Registry to register in the Land Registry an instrument signed by the Vendor evidencing determination as aforesaid of the sale of the Property and the Furniture.”

12.  Ms Lan also cited the case of Teng Fuh Company Limited v Keen Lloyd (Holdings) Limited, HCMP 2348 of 1998, 27 May 1999, unreported, where the seller only resold the property 4 months after the aborted sale.  The seller sought damages on the basis of the difference between the contract price ($82 million) and the price at which it was able to resell the property ($31 million) based upon clause 21 of the agreement, a provision almost identical to clause 15 in this case.

13.  At the hearing before Findlay J, the learned judge said, at page 8 of the judgment:

“… The obligation on the plaintiff was to re-sell with proper diligence; in other words to mitigate its damages reasonably. There is no suggestion in the evidence that the plaintiff did other than its best to sell for the best price in a very rocky market. Indeed, the plaintiff would have been very foolish to have done otherwise. I do not accept that the plaintiff can properly be criticized for selling when it did.”

“In any event, even without this specific contractual provision, I would have assessed damages on the basis contended for by the plaintiff. The defendant reneged on his deal knowing that the plaintiff wanted to sell, leaving the plaintiff with a property to sell in a very uncertain market. The defendant must have contemplated that the plaintiff would be able to sell only after considerable effort, making difficult decisions and in a market that was very volatile. The defendant cannot now reasonably complain that the plaintiff did not do the right thing. To do justice to the plaintiff, I would have felt obliged, in these circumstances, to assess its damages in the sum it actually suffered.”

14.  Later, the Court of Appeal in CACV No. 193 of 1999, 5 November 1999, unreported, affirmed the decision and at page 11 of the judgment, Cheung J (as he then was) said:

“Re-sale within a reasonable time

As to the time in which the Plaintiff was to exercise the resale, Mr. Warren Chan SC, Counsel for the Plaintiff, accepted that the resale must be carried out within a reasonable time. An implied term to those effect forms part of the Agreement.

We agree.  To give business efficacy to this Agreement, such a term must be implied, without which the Agreement would be ineffective.  As to the difficulties in deciding what is a reasonable time, that, by itself, is not a reason for not implying the term.  In any event, in our view any resale within six months after the determination of the Agreement should be considered as reasonable.”

15.  Ms Lan agreed that the plaintiff here was entitled to rely on clause 15 and to claim damages for loss being the difference between the contract price and the resale price.  She asked this court to consider whether a resale effected in a period of 7 months after the breach was within a reasonable time under the then prevailing market conditions.

16.  Ms Lan contended that the six-month period mentioned in the case of Teng Fuh was not a strict jacket in determining whether any resale was carried out within a reasonable time and that this court should decide on the reasonable period according to facts of an individual case.

17.  The case of First Shanghai Enterprises Ltd v Dahlia Properties Ltd (No 2) [2003] 2 HKC 297, was also referred to where the learned master helpfully summarized the guiding principle in this regard at 301A:

“9. It is accepted that the normal measure of damages is the contract price less the market price at the contractual date stipulated for formal completion: see McGregor on Damages (16^th Ed) para 992. Damages are assessed so as to place an innocent party in the position he would have found himself, so far as is possible, where the contract to have been performed: Chitty on Contracts (28^th Ed) Vol 1, 1-061. Where injustice may ensue, a subsequent assessment date can be taken instead for the purpose of calculating loss: Johnson v Agnew [1980] AC 367.”

18.  In IKI Trading Limited v Ho Ting Sun, HCA No. 20745 of 1998, 1 February 2000 unreported, the Buyer agreed to purchase the property for $7,080,000 but failed to complete the sale on 21 March 1998.  On 7 November 1998, over 7 months later, the seller resold the property at $3,450,000.  The learned Master referred to the conservative view in that the date of breach is the usual assessment date for common law damages, and, at page 8 of the judgment, said:

“… But it has been recognized that this is not an absolute rule of law if to follow would give rise to injustice. The court has power to assess damages by reference to the value at a different date if it would be more just to do so: Johnson v Agnew [1980] AC 367. As Mr. Justice Cheung pointed out in Alucase Company Limited and Another v. Keen Lloyd (Holdings) Ltd. HCMP 3577/98 (unreported) that one must regard the reality of the situation. One just cannot expect a vendor to conduct a sale of the property on the same date as the termination of the agreement. In the present action, and having considered the evidence admitted by agreement and the reality of the situation, I am of the view that it is unjust to adopt the market value of the Property at the date of the completion for measuring the damages suffered by the plaintiff. It is common knowledge and well-known fact that the property market in Hong Kong had collapsed after October 1997. This is supported by the surveyors’ reports produced by the parties. In a falling market, one cannot expect the plaintiff to be able to achieve a sale of the Property on the same date the agreement was terminated by the plaintiff. I therefore reject the contentions by Mr. Lam that the market value at the date of the breach should be used for assessing damages. I accept that the market value should be determined by the price obtained, or obtainable, on a resale within a reasonable time of the breach, but excluding any inflated price which the property might fetch by nursing it: see Yeung Leung Wai Kwan v. Tsang Nui Tai [1993] 3 HKC 618 citing Kech v. Faber, Jellet and Keeble (1915) 60 Sol Jo 253. However, the questions in the present case are whether the resale of the Property by the plaintiff about 8 months after the date of the breach is a reasonable time; and whether the steps taken by the plaintiff to resell the Property amounted to reasonable efforts to mitigate his loss.”

19.  The court there held that as the property market at the material time had dropped drastically, the resale that took place almost 8 months later was still within a reasonable time after the breach.

20.  Ms Lan relied also on the case of Lau Suet Ling v Ng Goon Lau, HCA No. 20587 of 1998, 8 October 1999, unreported, where in an aborted sale, the seller resold it 4 months later.  The buyer complained that the seller had failed to act promptly and reasonably by setting the appropriate price to resell the property as soon as possible after the breach.  The learned master allowed the seller’s claim for deficiency in price.  At page 8 of the judgment, the learned master said:

“… One has to bear in mind that the property market situation was very fluctuating at that period of time. The Plaintiffs could not possibly know the trough of the market at a given time. If the Plaintiffs had lowered the price too much, they failed to mitigate their loss. This will also be contrary to their own benefit because there is no guarantee that they can recover damages from the Defendant at the end of the day. That they could not resell the Property within a short time could be explained by the fact that the market for the property of the size of the Plaintiff’s Property was particularly poor at that time. This is born out by the reports of the surveyors of both parties. Both surveyors said in evidence that during the period of June to 10 November, only 3 properties of the same size were sold. This includes the Property in question. Other properties of small sizes in the same building had a better market. Having considered all those factors, I come to conclude that the Plaintiffs had acted reasonably to resell the Property after the breach.

As I hold that the Plaintiffs are entitled to rely on Clause 24 of the Agreement, the measure of damages is to be considered at the time of the actual resale of the Property. I therefore do not have to deal with the expert evidence on the value of the property on 17 October 1998: See Alucase Company Limited & Credit Champion Development Limited v Keen Lloyd (Holdings) Limited HCMP 3577 of 1998. Per Mr. Justice Cheung at page 7.

Even if I were to consider the experts’ evidence, I am of the opinion that the assessed open market value of the Property can only serve as an indication.  They are not reliable because there are only 2 samples of similar size for comparison … In Keck v Faber [1915] 60 S.J. 36, C.A., the court held that the price to be taken was the selling price realized within a reasonable time of the breach.  In the absence of any evidence that it was a sham resale, the actual sale price should be the best evidence of the market price: see Central Gem Limited v Harvest Fair Investment Limited, HCA No. 10222 of 1998 as per J. Yuen at page 7.”

21.  Again, in Teng Fuh Company Limited v Keen Lloyd (Holdings) Limited, supra, the Court of Appeal, in considering whether damages should be assessed at the date of the breach, held that the court has the discretion to fix such other dates as may be appropriate in the circumstances, citing Lord Wilberforce’s judgment in Johnson v Agnew [1980] AC 367, and at page 12:

“In this case, in October 1997, Hong Kong was faced with a financial crisis and the value of properties had a sudden drastic drop. The parties agreed that by 28^th May 1998 the market value of the property had dropped from $82 million to $50.5 million. There is evidence in this case that the Plaintiff had, after the termination of the Agreement, immediately put the property in the market but was only able to effect a sale in September 1998 for $31 million. In the circumstances, it is clearly unjust to hold the Plaintiff to the date of the breach in measuring the damages.”

22.  The Court of Appeal upheld the award of damages representing the deficiency in price upon resale conducted 4 months after the aborted sale.

23.  In Great Choice Investment Limited v Kam Wai Chee, HCA No. 13015 of 1998, 24 December 1999, unreported, the buyer agreed to purchase the property but failed to complete the sale and the seller resold it over 4 months later.  The seller gave evidence that the property market was at that period of time going down, with potential purchasers making very low offers.  Regarding the market condition, the learned master observed, at page 6 of the judgment:

“I accept that the property market at that [time] was falling, which is the reason for the defendant to back out on the Agreement. I also appreciate that in a falling market, the potential purchasers will make counter-offers that are far below the market price. This is a common phenomenon. The plaintiff would have difficulty in fixing the market price for the property as the property market was fluctuating more vigorously than in normal market condition.”

24.  Further, in Alucase Company Limited v Keen Lloyd, HCMP 3577 of 1998, 21 June 1999, unreported, the buyer failed to complete and the seller resold the property 2 months later.  Cheung J (as he then was) held that immediate sale was not required and that the measure of damages was to be considered at the time of the actual resale of the property.

25.  He said one must regard the reality of the situation and one just cannot expect a vendor to conduct a sale of the property on the same date as the termination of the agreement.

26.  He said further that while the common law principle is that damages of breach of contract are assessed at the date of the breach, it has been recognized that this is not an absolute rule if to follow it would give rise to injustice.  The Court has power to fix such other date as may be appropriate in the circumstances: Johnson v Agnew [1980] AC 367, and Barnsleys Conveyancing Law and Practice, 4^th Ed. p.657.  It is a well-known fact that the property market in Hong Kong collapsed after September/October 1997.  In a falling market, to use the date of the breach as the yardstick for measuring damages would prejudice the vendor who might only be able to sell the property at some time after the breach.

“I will accordingly hold that the Plaintiffs are entitled to rely on Clause 14(b) and the measure of damages is to be considered at the time of the actual resale of the property.”

“The Plaintiffs had clearly demonstrated that they had made reasonable efforts to sell the property. The offers they had received were in fact lower than the actual resale price of the property. The Plaintiffs are entitled to the deficiency in price as claimed.”

27.  Ms Lan agreed that when the seller was unable to resell the property immediately after the aborted sale due to difficult market condition, the Courts would not assess the damages as at the date of breach but a later date, usually the actual resale date in order to avoid injustice to the seller.

28.  But is it the case here?

29.  This court, agrees, as submitted by Ms Lan, the issue was whether it was reasonable for the plaintiff to resell the property 7 months after the aborted sale.  This was a question of fact having regard to the circumstances of the case.

30.  Ms Lan submitted further that in the event that the court is not satisfied that the plaintiff had resold the property within a reasonable time after the breach, the defendant being the wronger doer is still liable for loss that the plaintiff would suffer had the plaintiff sold the property at the time when plaintiff could and should.

31.  In the First Shanghai Enterprises Ltd case, where the property was not resold 5 years after the aborted sale, the Court of Appeal gave judgment in favour of the seller with damages to be assessed.  At the hearing for assessment of damages, the property had by then remained unsold for 5 years, the learned master held that the seller was not entitled to hold on to the property for as long as 5 years.  He fixed the date for assessment of damages to be 12 months after the aborted sale, which was the date when the first offer was received.  The learned master, at 302I, said:

“ 16. When ought the defendant to have re-sold the property? Was the defendant acting reasonably in rejecting the few offers made to date?

17. The plaintiff contends that had the property been swiftly unloaded immediately after the breach in October 1997, no loss would have been sustained. The agreed valuation for 31 October 1997 reflected an enhanced value of $232m, some $8m over the contract price. In my view, to expect the property to be sold in such a short time displays ignorance of real world conditions. Agents were taken on board almost immediately by mid November 1997. By 17 December 1997, the agreed valuations reflected a drop in the value of the property. On that date, its value was $193m. From then, its value continued to plummet as evidence from the valuations adduced and accepted by both sides, save the valuation for January 1998 to which I shall revert. By 8 February 2003, the realistic resale value was put at $83,684,970.

  18.     In my considered judgment, the defendant was not entitled to hold on to the property as it did.  Such behavior tantamounted to nursing the property in the vain hope of seeing a reversal of market conditions which, as transpired from agreed valuations, never happened.  It would neither be equitable nor right to expect the plaintiff to have to make good the resulting fall in property value.  The defendant wholly aware that there was very little genuine interest in the property between 31 October 1997 and November 1998 when two offers had been received for the first time, ought to have resold the property for $74,470,000.  That was the best market price it could legitimately have obtained at the time.  It matters little that subsequently obtained valuation for November 1998 demonstrated a higher value of $90,973,800, a fact unknown at the material time.  The reality was that no one was prepared to make any higher offer than those actually received in November 1998.”

32.  Both parties agree to the principle as set out in McGregor on Damages, 18^th Ed, 7-004: -

“(1) The first and most important rule is that a claimant must take all reasonable steps to mitigate the loss to him consequent upon the defendant’s wrong and cannot recover damages for any such loss which he could thus have avoided but failed, through unreasonable action or inaction, to avoid. Put shortly, the claimant cannot recover for avoidable loss.”

33.  It is said in Chitty on Contracts, 30^th Ed, Vol 1, at 26-013: -

“… The onus of proof is on the defendant, who must show that the claimant ought, as a reasonable man, to have taken certain steps to mitigate his loss, and that the claimant could thereby have avoided some part of his loss. Any loss which is directly caused by a failure to meet this standard is not recoverable from the defendant.”

34.  Mr Yu SC for the defendant said it is established principle that plaintiff has a duty to take all reasonable steps to mitigate its losses caused by defendant’s breach.

35.  He said a reasonable vendor seeking to mitigate his damages would do his best to resell the property immediately upon the termination of the agreement, and would consider each and every offer on its merits, bearing in mind the state of the property market at the time (see Kwok Wai Kong v Luk Ping Hung (unreported, HCA 4447/1998, 4 November 1999, at page 5).

36.  He submitted also that if a vendor adopts a wait and see attitude and refrains from actively taking steps to effect a resale of the property, he would not be considered as having taken reasonable steps to mitigate his losses.  Any loss that is occasioned by reason of the fall in value of the property between the date of breach and the subsequent resale would not have been caused as a result of the breach (see First Shanghai Enterprises Ltd v Dahlia Properties Ltd [2003] 2 HKC 297, 303C-D; AKAS Jamal v Moola Dawood [1916] 1 AC 175, 179 (Privy Council); The “Elena D’Amico” [1980] 1 Lloyd’s Rep 75, 87-89 per Robert Goff J; Treitel, The Law of Contract, 12^th ed, §§20-098 and 20-099).

37.  Mr Yu SC contended that even if one relied on contractual terms in relation to recover the difference between the contact price and the price at which the property was subsequently resold, it would not abrogate or affect the principle that the plaintiff must take reasonable steps to mitigate his damages and was subject to the implied term that plaintiff had to act reasonably and in good faith in effecting the resale within reasonable time and at a reasonable price in the circumstances (see Teng Fuh Company Limited v Keen Lloyd (Holdings) Limited (unreported, CACV 193/1999, 5 November 1999) at §§28-29, 34; First Shanghai Enterprises Ltd v Dahlia Properties Ltd supra at p. 301C).

38.  Ms Lan said however that Chitty on Contracts, 30^th Ed, Vol 1, at 26-104 stated: -

“The claimant is not ‘under any obligation to do anything other than in the ordinary course of business’; the standard is not a high one, since the defendant is a wrongdoer.”

39.  It is said also that in Strong Offer Investment Limited (In Liquidation) v Nyeu Ting Chuang, CACV No. 384 of 2004, 4 April 2006, unreported, the Court of Appeal, on the issue of mitigation, at para. 46, said:

“46. Before referring to the evidence relied on by the parties, it is relevant to point out that it is well settled that the onus of proof on the issue of mitigation is on the defendant (see McGregor on Damages, 17^th Ed para. 7-019). Hindsight is to be avoided in reviewing the relevant circumstances, and the plaintiff is not under any obligation to do anything other than in the ordinary course of business. In Banco de Portugal v Waterlow and Sons [1932] AC 452 at 506, Lord Macmillan stated:

‘… where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measure which he may be driven to adopt in order to extricate himself ought not to be weighted in nice scales at the instance of the party whose breach of contract has occasioned the difficulty.  It is often easy after an emergency has passed to criticize the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency.  The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.”

EVIDENCE

Market Condition

40.  In this case, defendant failed to complete the purchase 2 days after Lehman Brothers filed Chapter 11 bankruptcy petition.

41.  The Property was a whole floor premises of 19,980 sq ft in a grade A office building in Tsim Sha Tsui East area.

42.  This court was referred to the bimonthly magazine “Office Skeleton” issued by Centaline (CIS) Property Agency in October 2008, December 2008, February 2009 and April 2009.

43.  It was said in the Office Skeleton that the property market in Hong Kong at the time was adversely affected as investment confidence dropped and property buying sentiment was less eager.  A lot of the investors and users of properties adopted a cautious wait and see attitude or alternatively they expected to buy property at lower prices.  Property sales registered dropped substantially, so was the total consideration.  Both office sales market and prime office lease market also contracted sharply.

44.  I take the view that these issues told merely of the view of Centaline on the property market in general during the period covered but could not be used to tell with certainty whether a particular property was actually well sought in the market.  In fact, it was pointed out by Lam Nan (“LN”), an estate agent in court that even in the period after the Lehman Incident, there were investors who wanted to buy.  It was also the evidence of Jess Tai (“JT”) another estate agent that in September/October 2008, there were more enquiries by interested purchasers, usually end users who could not afford to buy previously in the rapidly rising market.

45.  Although plaintiff said the property was unappealing as a lot of companies would be downsizing their office or relocating to less prime areas to save cost, defendant retorted and said that according to the only witness of the plaintiff, Frank Chu (“Chu”), there were a lot of offers and letters of intent sent to them immediately after the Agreement fell through.

46.  Further, according to both estate agents Phoebe Leung (“PL”) and JT, the Property was rare in the market and in short supply at the material times.

47.  Plaintiff insisted that the Property was not attractive as the subsubsub-purchaser of the property De Monsa Investments Limited (“De Monsa”) had since May 2008 put the Property back to the market for sale, despite efforts of the estate agents, the Property could not be sold.  Defendant said however that it might be because De Monsa was asking for $7,000/sq ft, a much higher price for the Property than that in the ultimate resale.

Experts’ evidence

48.  During the period from the date of the aborted sale on 17 September 2008 and the date of resale on 17 April 2009, only 3 sale transactions were recorded for Mandarin Plaza and their price ranged roughly from $4,980 to $6,000/sq ft (gross).  These transactions all involved small size properties of less than 1,500 sq ft.

49.  Parties’ experts agreed that there was a lack of transactions for larger units or whole floor office with similar quality to the Property to make a comparison and therefore both agreed to use the small size office within the same building as comparables.

50.  Parties also agreed that the average figure for the experts valuation of the Property shall be the agreed market price of the Property.  The agreed market value of the Property as at 17 September 2008 was $127,150,000.

Plaintiff’s Evidence

51.  Mr Frank Chu (“Chu”) was plaintiff’s only witness.  He was at the material time the corporate legal counsel of plaintiff and together with his supervisor Wong Wai Chung (“Wong”) were the only persons within the plaintiff responsible for handling matters concerning the Property.

52.  Chu admitted having experience in dealing with conveyancing transactions in the past, prior to the aborted sale.  It was said that Chu’s conveyancing experience was limited to block sale by developers.

53.  Wong was not called by the plaintiff to give evidence at trial.  No explanation has been given as to why he was not called.

54.  It was submitted by Mr Yu SC that an adverse inference should be drawn against such failure.  He submitted that this court can property infer that even if Mr Wong was called, his evidence would not be able to rebut the case that plaintiff failed to mitigate its loss (see Ip Man Shan Henry & Anor v Ching Hing Construction Co Ltd & Ors (No. 2) [2003] 1 HKC 256).

55.  According to Chu, the Property was purchased by plaintiff’s holding company as an investment and thus plaintiff’s intention was all along to sell it as opposed to leasing it out.  He said all along, the instructions from the senior management of plaintiff’s Australian head office (the “Head Office”) was to sell the Property and thus there was no basis to suggest that plaintiff would have deliberately refused to sell the Property shortly after the subject transaction fell through, although plaintiff did not rule out leasing the Property if no reasonable offer to buy was forthcoming.

56.  He said after the aborted sale, plaintiff was anxious to sell the Property and therefore the Property was “put back to the market for sale immediately after the aborted sale” and “All along, the Plaintiff invited offers from everybody in the market”.

57.  Chu said although he was the person responsible for handling the resale of the Property, he was not familiar with selling property or dealing with estate agents.

58.  Chu said also that the news about the aborted sale to defendant “spread like wild fire” in the estate agency field and that the agents were “anxious” to get their clients to consider purchasing the Property.

59.  Chu said further in his 2^nd affirmation that he would, on receipt of genuine offers, pass the same to the Head Office for their consideration as he himself did not have authority to make the decision to sell or to lease the Property.

60.  He confirmed that in the one or two weeks after 17 September 2008, plaintiff’s office received everyday at least 20 phone calls from estate agents, 8 to 10 communications by fax and 3 to 4 groups of estate agents coming to plaintiff’s office all claiming to have interested buyers with genuine offers.  Some came with a price and some did not.

61.  Chu also said as plaintiff was being approached by “lots of agents”, in person or by fax, he was unable to have any clear recollection of any individual offers sent to him.

62.  Despite what was said in the Office Skeleton, the Property was said by Chu to be well sought after in the market after the aborted sale.

63.  After the aborted sale, there were large number of offers received for the purchase of the Property.  He said in order to screen out the genuine offers, he as instructed, later told all estate agents that plaintiff would only consider the offer evidenced by a signed provisional agreement with a cheque, or at least a copy of it, for initial deposit.

64.  Chu admitted the market value of the Property at September 2008 was around HK$120M i.e. much higher than the contract price in the Agreement.

65.  According to Chu, plaintiff had been advised by their legal adviser by 18 September 2008 that the Property could be resold.

66.  However, the Australian Head Office of plaintiff who had the authority to give instructions as to the resale of the Property, including the price and sale terms, did not give such instructions until 7 months later in April 2009. No explanation was given as to why they took so long to give instructions.

67.  Chu did say that Wong told him in around early/mid October 2008 that if they received offers of over HK$90 m with signed provisional agreement, they could pass to the Head Office for consideration.

68.  Chu admitted in examination that he might not have told every estate agent in detail the need for signed provisional agreement and cheque before the offer would be considered.  He could not therefore deny LN’s saying that she was not so informed.

69.  Despite the large numbers of offers and letters of intent tendered to the plaintiff during the period from 17 September 2008 to early October 2008, evidence before the court was that plaintiff did not proceed to enquire or negotiate with any of the estate agents any of the offers, letters of content nor did they disclose the price they were willing to sell.

70.  Chu only said the reason why he did not carry out any negotiations was because he had not yet received any instructions from the Australian Head Office as to the price at which the Property should be resold until April 2009.

71.  Chu admitted that he did not take active steps to contact estate agents to negotiate better offers.  Despite Chu admitted that the plaintiff received a lot of offers or letters of intent without provisional agreement and deposits, Chu did not proceed to inform/remind these interested persons the need for signed provisional agreements and deposit payments.  He did not even keep record of the many offers the plaintiff received save and except three which were dated 20 February 2009, 30 March 2009 and 31 March 2009, the offers of which were not more than $70,000,000.

72.  Chu accepted also that very often, the estate agents could not get hold of him.  In fact, in the first few days after the aborted sale, he received numerous calls a day but he never replied them.

73.  Chu admitted that copies of the numerous offers received from estate agents were not kept as evidence despite plaintiff was aware that the matter in respect of the aborted sale of Property may have to be litigated.  Chu confirmed that there were a large number of documents which have been discarded.

74.  Chu accepted that there was not a single document disclosed in these proceedings that went to show the steps taken by plaintiff in mitigation of its losses.

75.  Chu also did not pay much attention to whether there was advertisement of the Property in the bulletins or property magazines.

76.  Chu in fact confirmed in court that the article in the Sing Tao financial news dated 21 September 2008 which said that after the aborted sale, plaintiff forfeited the deposit paid by the defendant and did not intend to take further action at that time was correct.

77.  When questioned, Chu was also unable to explain the statement in the affirmation of Aaron Chow, plaintiff’s solicitor, which said that since the aborted sale, plaintiff did not receive any offer to purchase the property at a price higher than HK$80,019,900, which was obviously untrue.

78.  Despite the many offers received, as admitted by Chu, save for 3 offers which were dated February and March 2009, no other offers were disclosed by plaintiff.  Chu explained that the other offers were lost or discarded but when cross-examined, he could not explain why plaintiff had only kept copies these 3 offers but not any of any other offers.  He admitted that he knowingly allowed disposal of such offer documents although he knew plaintiff might litigate over the aborted sale.

79.  Chu and the plaintiff likewise failed to produce any internal correspondence evidencing any communications between plaintiff and the Australian Head Office in respect of the resale of the Property.  Chu testified and explained that all communications between plaintiff and the Head Office was oral, which was considered by the defendant to be rather incredible.  Plaintiff also failed to show any communications with estate agents or interested purchasers during the material time.

80.  Chu was also not able to produce any written correspondence or communications in relation to the resale of the Property in April 2009 to Sunrich Traders Limited, save for the signed agreements which had already been disclosed.

81.  It was submitted by Mr Yu SC that a party should not be allowed to gain an advantage from his own wrong in intentionally destroying a document or record that may materially assist his opponent in the proof of his case (see HSBC v Chan Yiu-wah & Anor [1988] 1 HKLR 457).  The maxim omnia praesummuntur contra spoliatorem applies here.  The Court should presume against plaintiff that the documents which have been destroyed would have proved that the plaintiff did not suffer any loss.  At the very least, the presumption leads to the conclusion that the plaintiff failed to show that it has mitigated its loss.

Defendant’s evidence

82.  Mr Yu SC for the defendant submitted that estate agents called to give evidence were independent witnesses with no interest to serve.

83.  Plaintiff on the other hand said that the court should note that since the defendant were, as opposed to plaintiff, well known property investors who used to be or would possibly in future be clients of these estate agents, they might testify with a view to assist the defendant in order to gain business from the defendant in future.

a)  Phoebe Leung (“PL”)

84.  PL was an estate agent with Livingstone, an estate agency at the time.

85.  PL said that as she had expected the defendant to abort the sale, she had, in August 2008, prepared a proposal to her client suggesting the purchase of the Property when the sale aborted and subdivide the Property for resale. She produced the said written proposal to court.  She said her client was interested and she did make an offer of HK$88,000,000 for the Property.

86.  She said on the day after the sale aborted, she drafted a letter of intent (addressed to Wong and Chu) on behalf of her client offering to purchase the property at HK$88,000,000.  She left the same at the reception of plaintiff’s office, in an envelope with her name card and addressed to Wong, stating that it related to the Property.

87.  She heard nothing from the plaintiff and so on 19 September 2008, PL personally delivered another letter addressed to Wong, also copied to Chu referring to the letter of intent the day before and asked whether plaintiff would accept the offer.  At the same time, she enclosed with the letter a provisional agreement signed by her stating the purchase price to be HK$88,000,000.  As Wong was not in the office, she left the documents.  Later, she called and as she could not reach Wong, she left messages for him to return call.

88.  Further since about 23 September 2008, PL again personally visited plaintiff’s office in the morning with a copy of the letter of intent dated 18 September 2008 trying to see Wong but was told that Wong was not in the office. She was also told that Chu was responsible for the Property but he was not in Hong Kong.  PL left a message for Chu to call back.  She then went back to the office to draft another letter dated 23 September 2008 and faxed it to Chu and then also personally delivered it to plaintiff’s office in the afternoon together with the letter of intent, in case Chu had an assistant who handled the Property whilst he was away.

89.  She again went to plaintiff’s office 4 to 5 days after 23 September 2008 but was unable to meet either Wong or Chu.  Neither of them returned her phone calls.  She therefore thought plaintiff had no intention to sell the Property.

90.  PL said in her experience, if plaintiff was willing to sell the property for HK$88,000,000, her client would certainly have agreed to purchase it.  She also had confidence that as long as the counter-offer was within 2-3% of HK$88,000,000, she would have been able to persuade her client to agree to such price ie $906,400 or at $4,500/sq ft, totalling around $89,910,000.

91.  PL said market price of the Property at that time was around $4,500 to $4,800/$4,900 per sq ft and that as the Property was a whole floor unit, it was rare in the market.

92.  She confirmed that Chu never told her about any need for a signed provisional agreement and a cheque before the offer would be considered.

93.  For the purpose of the present proceedings, Livingstone did produce a signed letter which said that in September 2008, there were numerous enquiries concerning the Property but despite their many attempts to contact the plaintiff, plaintiff never responded and showed no interest to sell.

94.  Chu in court said he could not remember receiving the letter of intent or offer from PL.  He further said as the offer did not come with a provisional agreement and a cheque and it came the day after the aborted sale, the plaintiff would not have accepted it anyway.

95.  It was noted however that if Chu did not respond to offers received without a signed provisional agreement and a cheque, it was not possible for the estate agent to be aware of the provisional agreement and cheque requirement of the plaintiff.  I agree.  The stated intent of the plaintiff to sell the Property was, in my view, very doubtful.  It was reasonable that PL formed the view that the plaintiff was not really interested in selling the Property at the time.

b)  Jess Tai (“JT”)

96.  JT was an estate agent with Midland until November 2008 when she left.

97.  According to JT, in around October/November 2008, she had faxed to the plaintiff an offer of $4,500/sq ft ie $89,910,000 for the Property for one of her clients who was very interested in purchasing the Property.

98.  JT said that at the time, the bank had valued the Property at $5,000/sq ft, ie $99,900,000.  She said around that time, there were 2 transactions in the same building with unit price per sq ft at $4,950 and $5,895 respectively. She said her client was willing to pay more than the offer price of $89,910,000 to purchase the Property.  She said before she faxed the offer, she did ring and talk to Chu whom she understood at the time was the one responsible for the resale.  She said Chu never told her about the provisional agreement and cheque requirement.  She was later told by Chu that plaintiff was waiting for instructions from head office in Australia and since then she received no further response from Chu or anyone from the plaintiff.

99.  JT was asked why she did not increase her offer if there was no response from the plaintiff.  She replied that she would not do so because she knew plaintiff in Hong Kong could not decide what to do.

100.  Later, she e-mailed the Managing Director of the Australian Head Office (Toll Holdings Limited) Mr Paul Little to persuade him to sell the Property. In return, a Mr Michael Fox (“Fox”) of the Head Office replied her by e-mail on 27 November 2008 stating that the Property could be sold or leased out.

101.  Subsequently, there was a meeting in Hong Kong at Grand Hyatt Hotel with JT (who had then already resigned from Midland), Tony Kam (“TK”) from Midland and Fox on 15 December 2008.

102.  JT said as TK and Fox talked in English and it was quite noisy at the time, she could not hear much of the conversation.  However, they were definitely talking about the Property and whether it was to be sold or leased out.  She said she did not hear any price being mentioned or offered on behalf of plaintiff by Fox.

103.  JT said this client of her was interested in the Property for his own use as an office as his existing office in Nanyang Centre in Tsim Sha Tsui was not big enough.  Property of such size was rare at the time.

104.  JT said therefore she believed that she could have persuaded him to purchase the property at the then market price of HK$5,000/sq ft in November 2008 ie $99,900,000.

105.  Unfortunately there was again no response from the plaintiff.

106.  JT said the market in November 2008 was affected by Lehman incident but still not as bad as SARS especially when the Property was rare on the market. She said there were still cautious end user buyers eager to buy quality property for own use.

107.  JT opined that had the plaintiff been genuine in selling the Property, they could also have conducted public auction, advertising the Property in papers and magazines, arrange open days to allow inspection etc.  The plaintiff did nothing to secure the resale in this case.

108.  JT said throughout Chu never mentioned any price figure nor did he indicate if the offer by JT was low.

109.  In court, Chu said he could not remember receiving JT’s offer nor did he know anything about the email from JT to Paul Little.  He also said he knew nothing about the meeting in Grand Hyatt and he was not asked to follow up after the Grand Hyatt meeting.

110.  JT said had the plaintiff responded then, plaintiff could have resold the property at $5,000/sq ft, if not at least at $4,500/sq ft.

Lam Nam (“LN”)

111.  LN, an estate agent with Centaline, gave evidence and said that before the aborted sale of the Property on 17 September 2008, there were serious buyers for the Property.  The negotiations failed as the price seeked for was too high.

112.  After the sale aborted, these interested buyers tried to buy at a lower price, on the assumption that the plaintiff would be willing to sell at a lower price because it had forfeited 10% deposit paid by the defendant already.  They were keen to get a good deal.  LN said she advised clients to use a 10% discount on the price in the Agreement as the basis for negotiations.  She said that in September/October 2008, there were still a lot of interested purchasers.

113.  LN told the court that from around 15to 16 September onwards for a few days, she paid daily visits to plaintiff’s office.  She also made phone calls to Chu several times a day and make enquiries on the Property.

114.  In fact, she said on or about 18 September 2008, she had made an offer to plaintiff on behalf of her client, Three Garden Limited, to purchase the Property at HK$89,910,000 (equivalent to $4,500/sq ft).  A signed provisional agreement and a cheque for the initial deposit were also tendered to the plaintiff.

115.  At the time, LN said there were also other interested buyers.  LN said as Three Garden had provided a cheque, the colleagues would not, as a rule, approach other interested buyers for cheques to compete with Three Garden for purchase of the same property.  LN added that at that time there were many clients who inquired about the Property, so they negotiated on behalf of the first client who provided a cheque.  LN stated that if Three Garden had not issued the cheque for the Property, she would have approached other interested clients to consider the Property.

116.  LN testified that at the time ie on 18 September 2008, apart from the Property, there was no vacant property of the size comparable to the Property in Tsim Sha Tsui for sale (although there were some with existing tenancy).

117.  That morning, she went to plaintiff’s office with two other colleagues and met Chu.  She told Chu that her client was interested to purchase the Property and had provided a signed provisional agreement and a cheque as the initial deposit.  LN said Three Garden asked that the provisional agreement had to be signed at or before 12 noon on 22 September 2008 as the property price fluctuated and a deadline had to be imposed.  Plaintiff or Chu never responded nor did they seek for any extension of the deadline.

118.  LN said Chu indicated at the time that plaintiff had not decided whether to sell or to lease the Property and that they would confirm later.

119.  On 2 October 2008, Three Garden increased their offer to HK$91,908,000. LN informed Chu of the same by e-mail.

120.  Again, plaintiff did not respond.  LN said she opined that plaintiff was not serious in considering the offers.

121.  In response to evidence of LN, Chu did not question the authenticity of the second offer HK$91,908,000.  Chu never requested LN to ask the client for a signed provisional agreement and cheque in respect of the second offer.

122.  According to LN, Chu never told her that plaintiff would only consider offers with signed provisional agreement and cheque for initial deposit.

123.  Chu did not respond to the second offer although LN had chased him.  Chu however did also ask LN to fax over to him transaction records, which she did on 3 October 2008.

124.  LN was cross-examined on the transaction records, in particular concerning Unit 20-21 on 3^rd Floor of Mandarin Plaza Tower B which was sold at HK$4,800/sq ft on 26 August 2008.  LN said that the preliminary sale and purchase agreement for this transaction was signed in August 2008 ie prior to the Lehman incident.  LN said she would have told Chu (although she did not remember whether she had done so) that such price could not taken as a good indicator of the market price of the Property after the aborted sale.

125.  LN said that it was not necessarily the case that smaller units are generally more expensive, it depends on the supply in the market.

126.  She also told the court that Tower A of New Mandarin Plaza in which the Property situate was more popular with users than Tower B as it had better view and higher usable area.  Further the unit on the 3^rd Floor would carry a higher management fee as it was supposed to be a unit in the shopping arcade converted into an office and it was also less bright as it was on a lower floor than the Property.  LN said that she should have mentioned these matters to Chu after the transaction records were sent to him although she could not actually remember.

127.  LN said she continued to call Chu even up to around end of October 2008 but there was no feedback and so eventually she stopped chasing Chu.  In late October 2008, LN said Chu told her that he was still waiting for instruction from plaintiff’s holding company and thus was not in a position to respond to the offer.  Chu did not tell her whether plaintiff would sell or lease the Property, let alone the sale price acceptable to the plaintiff.  LN said she regarded plaintiff having no intention to sell the Property.

128.  LN said throughout the entire period between the aborted sale in September 2008 and when the Property was actually resold in April 2009, Chu or plaintiff never informed LN or anyone of their intention.

129.  LN said in around November 2008, a person called Mark from plaintiff’s Singapore office indicated that plaintiff had not decided whether they would sell or lease the Property and asked LN to prepare a proposal for plaintiff’s head office to consider.  LN suggested that plaintiff should appoint Centaline as sole agent to which Mark agreed and the Sole Agency Proposal was issued on 27 November 2008.

130.  However, plaintiff refused to accept proposal later.

131.  LN had produced such proposal to court to support her contention that plaintiff and/or its Head Office had not made up their mind to sell or to lease.

132.  LN said further that in around November 2008 or close to the new year, plaintiff indicated that they would put a hold on the Property and that no decision would be made until after the new year.

133.  The computer records of Centaline apparently indicated that a lot of estate agents had contacted plaintiff from September to December 2008 and had obtained the message that plaintiff had not yet decided whether to sell or lease out the Property as they were awaiting instructions from the head office.

134.  The computer records of Centaline entered by LN on 18 September 2008 and 21 October 2008 respectively were also indicative of the fact that plaintiff then had not yet decided on whether to sell or lease the Property.  As regards the “may have decision next month” entry by LN on 21 October 2008.  LN explained that she may have put this down by reason that Chu told her during their telephone conversations at around end of October that they were not expecting any news that month, that LN might contact him again next month.

135.  LN also doubted if plaintiff was eager to sell the Property as it had not taken any steps to procure a sale such as a public auction, appointing sole agent etc.

136.  LN echoed what JT said and stated that after the collapse of Lehman, some investors were still optimistic and would still buy properties, although starting October/November 2008, purchasers began to adopt a wait and see attitude.

137.  She stated that in September/October 2008, there were still a lot of purchasers interested in the Property as the price had reduced significantly and those who were unable to buy before would look for bargain deals and good quality properties.

138.  LN gave evidence that had plaintiff been willing to sell at HK$89 m to HK$91 m, she was sure that Three Garden would have agreed to purchase the Property at that price.  She further testified that even if plaintiff had counter-offered a price equivalent to 90% of the original sale price ie $4,828/sq ft or below, she was confident that Three Garden would have agreed to purchase the Property as Three Garden was already interested in this Property even before the aborted sale.

139.  LN stated that she in fact did discuss the price of HK$4,828/sq ft with Three Garden on about 17 September 2008 but they wanted her to try a lower price first.  This price (which was 10% below the price in the Agreement) was used on the assumption that plaintiff would be agreeable to sell at the price given it had already forfeited 10% deposit from the defendant and thus the price would result in no loss being suffered by plaintiff.

140.  According to LN, if price of HK$4,828/sq ft was not acceptable to the client, it would not even have issued the cheque on the basis of HK$4,500/sq ft.

141.  Plaintiff however did not respond.

142.  LN also gave evidence and said she had a client interested in the Property in about April 2009 at a price higher than the price at which the Property was actually resold.  However, although such offer was tendered to the plaintiff, plaintiff did not follow up on such offer.

143.  As regards Chu’s evidence in respect of LN’s offers:

(1)       Chu admitted having received the first offer from LN, the signed provisional agreement and the cheque and that he informed LN that plaintiff had not decided on the sale price of the Property.

(2)       He admitted also that he did not tell LN if the price was too low.

(3)       Even after receiving the record of transactions from LN, Chu should have known by then that the price offered was roughly the market price, and they should have then started negotiation but they did not.

144.  Chu did not deny having received the $91,908,000 offer from LN in cross-examination but stated that he did not recall whether he had received the same and/or had followed up on the same.

145.  He confirmed that he never asked LN for an extension of time beyond 22 September 2008 to sign the provisional agreement in respect of the first offer from LN as he was still waiting for instructions from the head office.  This was consistent with LN’s evidence.

Tung Che Keung (“TCK”)

146.  TCK was a director of the defendant.

147.  According to TCK, he had various conversations with TK after the aborted sale and was told that TK did give a written offer to plaintiff in late September 2008 on behalf of an intended purchaser to purchase the Property at HK$98,000,000 (ie HK$4,904.90/sq ft) which plaintiff did not accept.  TCK said TK had, despite his request, failed to provide a copy of the offer or to make affirmation in this action to confirm such facts.  It was said that Tung did not obtain approval from the legal department of the Midland Group to do so.

148.  TCK said he was told that the same client had offered to purchase the Property at $100,000,000 before the scheduled completion date but as the completion date was not postponed, no agreement was reached.

149.  Ms Lan for the plaintiff criticized that as JT also came from Midland, why was it that JT could make witness statement for the present proceedings and TK could not.  This court noted that when JT made her witness statement on 3 September 2010, she had already left the employ of Midland.  TK however was then still in the employ of Midland.

150.  In face of this piece of hearsay evidence from TCK, Chu in his second affirmation said he had no recollection of such a written offer or even the person TK.  He admitted he was unable to verify whether he had been sent such offer as alleged.  He said he could only safely say that had there been such an offer, the same did not come with a signed provisional agreement and a cheque as he might have not considered offer without a signed provisional agreement and a cheque.

151.  There was no denial of such an offer from Chu.

152.  TCK also gave hearsay evidence in respect of the offers to plaintiff given by JT, LN and PL which was largely consistent with the evidence given by these witnesses.

153.  He also mentioned the written confirmation provided by Office One Property Consultants by letter dated 17 August 2009 to defendant that it too had tried to contact Chu to enquire about the sale of the Property but Chu failed to respond and showed no interest to sell the Property.  Such letter also showed that in late September 2008, there were still many enquiries about the purchase of the Property from plaintiff but plaintiff indicated that it would not even allow inspection of the Property which led potential buyers to think that plaintiff was not sincere in selling the Property and thus did not make any offer.

154.  This court noted however that at that time, Lehman incident had not occurred.

155.  It was said that evidence of TCK or indeed that of the testifying estate agents should be preferred because firstly, Chu had deliberately allowed the destruction of all written offers received at the material times in September 2008 (except three), from which the court was entitled to draw an adverse inference that TK’s offer was amongst the many offers destroyed by him.  This court however reminded itself most of the evidence of TCK was hearsay and that for those relating to TK, TK was not cross-examined though he had been made available for such purpose.

156.  Secondly, though Chu himself said he had no recollection, he could not deny the possibility of having received higher offers than those from LN because according to his evidence, he would only consider offers when the same was evidenced in signed provisional agreement with cheque payment of deposit.

157.  Ms Lan however urged this court to prefer evidence of Chu over those from the defence witnesses.

DISCUSSION

158.  From the authorities cited, it is clear that although the plaintiff was entitled to rely on clause 15 of the Agreement, he had to make reasonable efforts to sell in order to mitigate the loss as there was this implied duty to mitigate the loss: Alucase Company Ltd case.

159.  Mr Yu SC on behalf of the defendant criticized the plaintiff for failing their duty to mitigate its loss after the aborted sale.

160.  In fact, Chu admitted that on the day after the aborted sale, the plaintiff had obtained legal advice and was aware that they could resell the Property.

161.  It was also clear from the evidence before this court, unchallenged, that immediately after the aborted sale, there were a lot of offers received by the plaintiff everyday for at least 2 weeks.

162.  Chu, the only witness for the plaintiff admitted receiving the offer of $89,910,000 from LN and he did not challenge the authenticity of the second offer of $91,908,000 on 2 October 2008 from LN although he said he could not remember such offer.

163.  PL said her client offered $88,000,000 to purchase the Property the day after the sale aborted and she was confident that her client would increase the offer to $906,400,000.  Again though Chu could not remember if there were such offers, he admitted he could not deny the evidence of these offers.

164.  JT said October/November 2008, she faxed to plaintiff offer in sum of $89,910,000.  She believed her client would be willing to buy at $99,900,000.

165.  If plaintiff was to resell without suffering any loss, the resale price needed only be 90% of the contract price in the Agreement, i.e. $96,480,000, or $4,828.8/sq ft.

166.  On Chu’s admission, a lot of other offer documents were discarded.

167.  The court was therefore not assisted in knowing the price in these other offers.

168.  It was submitted by Mr Yu SC that a party should not be allowed to gain an advantage from his own wrong in intentionally destroying a document or record that may materially assist his opponent in the proof of his case (see HSBC v Chan Yiu-wah & Anor [1988] 1 HKLR 457).  The maxim omnia praesummuntur contra spoliatorem applies here.  The court should presume against plaintiff that the documents which have been destroyed would have proved that the plaintiff did not suffer any loss.  At the very least, the presumption leads to the conclusion that the plaintiff failed to show that it has mitigated its loss.

169.  In my judgment, it is understandable that others would suspect why Chu, corporate legal counsel of the plaintiff, allowed this to happen when he admitted knowing that the plaintiff might litigate on the breach of the Agreement by the defendant.  Obviously, he should be aware of the duty to mitigate the loss by the plaintiff.

170.  His explanation that the plaintiff did not have any records of communication between the plaintiff and their head office in Australia as these were all conducted orally was unbelievable, despite he being found an honest witness in the case of Nan Fung Finance Ltd v Chan Chun Huen & others HCMP 2765/2003, 1 November 2004.

171.  Chu said plaintiff would only consider offer with signed provisional agreement and cheque deposit payment but he admitted he might not have informed the estate agents in detail of the same.  The estate agents who testified in court, PL, JT and LN all said they were not aware of such requirement from the plaintiff.  Obviously, a lot of offers and letters of intent were discarded without even being forwarded to the Australian Head Office.  There was simply no follow up by plaintiff to achieve possibly better offers.

172.  It was said by the defendant that despite not disclosing their selling price, that should not affect the estate agents helping in selling the Property. The problem in this case was that there was simply no response to offers and letters of intent, even to the offer evidenced in signed provisional agreement and cheque deposit payment.

173.  Despite all these offers, the plaintiff never responded.  Chu explained that the plaintiff needed to wait for instruction from head office.  Evidence showed that Chu maintained such response on enquiries/chasers from estate agents for a substantial period.  In fact, Chu admitted that he had no instructions as to how the Property was to be sold until the Property was sold in April 2009.  There was no explanation at all from the plaintiff for this inaction for 7 months.

174.  The circumstances of this case clearly could be distinguished from the cases where despite efforts, the plaintiff only managed to sell the Property after long period of time: Lui Chun Wai case and Teh Fuh Company Ltd case.  Here, the plaintiff was flooded with offers and they did not even start negotiating with any of these interested purchasers.

175.  Despite Chu said plaintiff all along intended to resell the Property, he agreed that if that was not possible, they would consider leasing the Property.

176.  In my view, the sole agency proposal (sale or lease) prepared for the plaintiff by LN was supportive of plaintiff’s true intention at the time.

177.  According to Findlay J in Teng Fuh Company Ltd case, the plaintiff was under an obligation to resell the Property with proper diligence. That was an implied term to our clause 15 which was nearly identical to clause 21 of the agreement in Teng Fuh case.

178.  I agree, as submitted by Mr Yu SC that plaintiff had failed this implied duty to mitigate his loss.  Before arriving at this conclusion, I have fully considered the difficulty of the purchaser in a volatile market.

179.  I accept the submission of Mr Yu SC that once the plaintiff had failed his duty as aforesaid, then following the guiding principle in the First Shanghai Enterprises Ltd case, we should adopt the normal measure of damages as being the contract price less the market price at the contractual date stipulated for formal completion.

180.  Ms Lan argued that even if this court finds the plaintiff had failed to mitigate, then the defendant still had to pay for loss suffered by the plaintiff.  The question was “what was the loss suffered by the plaintiff?”

181.  Parties agreed that market price of the Property at 17 September 2008 was $127,150,000.

182.  According to the report of defendant’s expert Mark Staples, “market value” is defined as “estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and with compulsion.

183.  Plaintiff’s expert Kevin CY Chu did not disagree to this definition when commenting the report by Mr Staples.

184.  In fact, his valuation of the Property at time of the aborted sale on 17 September 2008 was higher than that by Mr Staples being $129,309,000 as opposed to the valuation of $125,000,000 by Mr Staples.

185.  Accordingly, there would be no loss to the plaintiff as the value of $127,150,000 was higher than the contract price in the Agreement.

186.  In fact, in the circumstances of this case, the plaintiff could have easily resold the Property much earlier and at higher price than the actual resale price in April 2009.  It would be unfair for the defendant to have to bear the loss as I did not find the same had resulted from the defendant’s breach.

187.  Had I been wrong and the damages should be assessed having reference to resale at reasonable time, what the reasonable time within which the plaintiff should have resold the Property in this case?  My answer was that since the plaintiff were advised by their legal adviser that they could resell on the day after the sale aborted, in view of the volume of interests in the Property at the time, the same would be no more than three months.

188.  As the plaintiff failed to negotiate with these intended purchasers, the best evidence that we could have in order to reasonably estimate the price that the plaintiff would be able to fetch on resale would be evidence from the estate agents.  There would and should also be adverse inference drawn against the plaintiff as they had discarded a lot of these other offers.  Again, as said, on evidence before this court, I do not find proved in these circumstances that there would be any loss to the plaintiff.

189.  Had the plaintiff here discharged their duty to mitigate and had made reasonable efforts to sell at the best price in a volatile market and yet only been able to secure a sale few months later and suffered loss, I have no hesitation to rule that the court should assess the damages by reference to the date of resale i.e. relying on clause 15 but this was not what happened in our case here.

190.  Further, I do not find assessing the damages by reference to the difference between the contract price in the Agreement and the market price of the Property on the scheduled completion date would result in injustice in this case although I am aware that this court has power to assess damages by reference to the value at a different date if it could be more just so to do: Johnson v Agnew [1980] AC 367.

191.  From evidence of JT, which I accept, her client would be willing to pay $99,900,000 which would not result in any loss to the plaintiff anyway.

192.  Again, according to LN, she was confident that Three Garden would agree to pay a price equal to 90% of the contract price of the Agreement, which would again result in no loss to the plaintiff.

193.  I placed little weight as far as evidence relating to TK was concerned.

194.  One should also not forget further that Chu had discarded a lot of offers, the offer amount of which he could not tell.

195.  The evidence of the estate agents were in my view not shaken after cross examination and I accept their evidence, in particular those from PL, JT and LN, that had the plaintiff been negotiating with their clients, it was more probable than not that the Property could be resold at a price not less than $96,480,000 or 90% of the contract price in the Agreement.

196.  As the plaintiff should not suffer any loss should the plaintiff effect the resale earlier, there was no good reason for them to hold onto the Property and asked the defendant to bear their loss.  Their loss did not result from the breach of the defendant.

197.  It would be totally unfair to the defendant if plaintiff were allowed to have damages assessed, relying on clause 15 of the Agreement, using the actual resale period 7 months later when they had totally disregarded their duty to mitigate.

198.  I do not find it reasonable for the plaintiff in this case to resell the Property only 7 months later.

199.  Obviously the plaintiff here had been nursing the Property for too long and was not, as said by Chu, eager to resell until 7 months later.  In fact, Chu/Fox of the plaintiff had confirmed to JT their interest also to lease the Property despite so many offers to purchase the Property given to them.

CONCLUSION

200.  By reasons of matters aforesaid, I do not find any loss and damages of the plaintiff proved.

COSTS

201.  As costs normally follow the event, I make an order nisi that the plaintiff shall pay the defendant costs of the proceedings (including all costs reserved), the same to be taxed if not agreed, with certificate for two counsels.

202.  I thank all counsels for their assistance.

HCA 1487/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1487 OF 2009

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RULING  ON  COSTS

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1.  On 29 December last, I delivered judgment on the Defendant’s appeal against certain orders made by Master Kwan on the 15-minute call-over of the Plaintiff’s summons under Order 14, RHC.  The appeal was allowed and I made an order nisi directing that the Plaintiff should pay the Defendant’s costs of the appeal in any event.  It is now submitted on behalf of the Plaintiff that I should make another form of order.  Miss Lan, who appears for the Plaintiff, submits that the appropriate order should be costs in the assessment of damages, in circumstances where the Defendant has submitted to judgment with damages to be assessed.  Alternatively, Miss Lan submits that, at worst, the order should be Defendant’s costs in the assessment. 

2.  Whilst it is right to say that at the hearing before the Master, it was the Master who made most of the running by being highly critical of the fact that the Defendant was not ready and required more time to file its evidence in reply to the application for summary judgment, the fact remains that the Plaintiff, through Miss Lan, was perfectly content to go along with the Master’s approach to the hearing and the orders that she eventually made.  It is also worth observing that Miss Lan’s skeleton for that initial hearing was directed at obtaining judgment on that hearing.  And so, there is no doubt that the Plaintiff’s stance was going to be very firm, resisting any suggestion that any indulgence should be given to the Defendant to get its evidence in and if Miss Lan could persuade the Master, she had come prepared to ask for judgment there and then.

3.  I have no doubt that this was an appeal against orders that the Plaintiff was perfectly content with and this was reflected in the strong support of the Master’s Orders that Miss Lan had argued for on the appeal.  Now, in seeking to vary the order nisi, Miss Lan has put in a 13-page skeleton raising a variety of points which she says should be taken into account on the costs of the appeal.

4.  For my part, the matter falls to be decided on a much more straightforward basis.  The Master’s Orders were in my judgment quite wrong in the circumstances.  The Plaintiff was supportive of them at the time and strongly sought to uphold them on appeal.  The appeal was allowed and my Orders represent a very marked departure from the Master’s approach.  This has turned out to be a discrete matter which can and ought to be reflected by an order for costs which gives the successful party its costs in having had to come to court to correct what had occurred in the court below.  These costs should follow the event and accordingly I propose to confirm the order nisi.  The costs of preparing the written argument for this ruling will also be to the Defendant in any event, to include counsel’s fees in preparing the written argument.

HCA1487/2009

   IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   ACTION NO. 1487 OF 2009

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BETWEEN

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REASONS  FOR  DECISION

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1.  This was the hearing of the plaintiff’s inter partes summons for the continuation of a Mareva Injunction granted by me ex parte on 24 December 2009.

2.  At the same hearing, the defendant sought to discharge the injunction, alternatively to have certain terms varied.

3.  After hearing submissions from both parties, I ordered that the injunction be discharged in its entirety and indicated that I would give my reasons in due course in written form which I now do.

Background

4.  The defendant carries on business as a property investor.

5.  The plaintiff and the defendant entered into a written Sale and Purchase Agreement dated 23 October 2007 (“the Agreement”) in respect of a property situated at 8^th Floor, Tower A, Mandarin Plaza, No.14 Science Museum Road, Kowloon, Hong Kong (“the Property”) at the price of HK$107,200,000 with the plaintiff being the seller and the defendant being the buyer. Completion was scheduled for 17 September 2008.

6.  The defendant had paid deposits totaling $10,720,000 to the plaintiff pursuant to the Agreement.

7.  The defendant entered into a sub-sale agreement with 823 Investment Limited (“823”) on 5 November 2007 for sub-sale of the Property to 823 at a sub-sale price of $123,467,130 with the same completion date as the Agreement.

8.  When the time for completion came, due to the inability of 823 to complete the sub-sale, it resulted in the defendant failing also to complete the Agreement.

9.  The total deposit paid by the defendant were forfeited by the plaintiff. In like manner the deposit paid by 823 to the defendant was also forfeited by the defendant.

10.  On 9 June 2009, the plaintiff re-sold the Property at $80,019,900, the agreement for such resale being executed in April 2009.

11.  By its solicitor’s letter dated 18 June 2009, the plaintiff demanded from the defendant the amount of $17,253,849.61 to be paid within seven days, being damages arising from the re-sale of the Property.

12.  The defendant not having met such demand, the Writ was issued by the plaintiff on 25 June 2009. The Writ, which was amended on 13 July 2009, claimed against the defendant the sum of $17,253,849.61 as being liquidated damages in purported reliance on Clause 15 of the Agreement, alternatively, damages to be assessed.

13.  The plaintiff issued Order 14 application for summary judgment on 16 July 2009.

14.  On 24 August, upon the hearing of the Order 14 application, the master granted judgment to the plaintiff on liability with damages to be assessed.

15.  No appeal was lodged by the defendant in respect of the granting of judgment on liability by the master. However, the defendant did appeal against two other directional orders of the master, the first imposing conditions upon the defendant for the filing of affidavit evidence, and the second relating to direction for the hearing for assessment of damages. That appeal was heard and allowed by deputy judge Carlson on 29 December 2009. I shall come back to the appeal in more detail later in this Reasons for Decision.

16.  On Christmas eve, five days before that appeal was due to be heard by Deputy Judge Carlson, the plaintiff made an ex parte application for and obtained a Mareva injunction before me against the defendant seeking to freeze such assets of the defendant up to the amount of the plaintiff’s claim.

Arguable case

17.  At the ex parte application, the plaintiff showed that there was an arguable case on the basis that while the plaintiff’s claim was, as indicated above, a claim for $17,253,849.61 as being the difference between the contract price and the re-sale price of the Property (as well as taking into account the forfeited deposit), the defence raised by the defendant, at least in respect of damages, was that the plaintiff had failed to mitigate its loss by reason of the fact that the plaintiff had been given offers (which were declined by the plaintiff) which had exceeded the re-sale price of the Property almost immediately after the breach by the defendant in September 2008.

18.  On the other hand, the plaintiff’s case was that it relied on the provisions of Clause 15 of the Agreement and claimed the difference between the contract price and the resale price as liquidated damages.

19.  This issue was further argued before me at the inter partes hearing.

20.  It was submitted by the defendant, relying on the decisions in Teng Fuh Co. Ltd v Keen Lloyd (Holdings) Ltd (CACV193/1999) and Alucase Co. Ltd and anr. v Keen Lloyd (Holdings) Ltd (HCMP3577/1998), that even where a provision such as Clause 15 can be relied upon, it was subject to an implied term that the resale must be carried out within a reasonable time and that the plaintiff could not simply resale at their convenience, especially in a falling market. In the former case, it was further held that any resale within six months after the determination of the agreement should be considered as reasonable.

21.  In the present case, the resale was agreed only in April 2009 and completed in June 2009.

22.  In response to that submission of the defendant, the plaintiff submitted that of the several offers which may have been communicated to the plaintiff through estate agents in respect of the Property after the breach by the defendant on 17 September 2008, there was only one which came with a signed provisional agreement and a cheque for the initial deposit. That was an offer by Three Gardens Ltd made through an estate agent named Lam Nam. The offer there was for $89,910,000.

23.  The plaintiff further explained that with the other offers made only by estate agents, although termed by them as offers, the plaintiff was clearly skeptical of same since it was not uncommon for estate agents to be testing the temperature of the water to see the plaintiff’s reaction.

24.  Therefore the plaintiff insisted on a firmer basis for such offers being a signed provisional sale and purchase agreement and accompanied by a cheque for the initial deposit.

25.  As for the offer from Three Gardens Ltd, the plaintiff further explained that the offer was made on 18 September 2008 (which was a Thursday) and was expressed to be valid for only four days up to 22 September, being the following Monday.

26.  It was contended by the plaintiff that since at the time, the plaintiff was seeking legal advice regarding the aborted sale by the defendant, in the short space of four days, it was not possible for the plaintiff to properly and seriously consider that offer.

27.  Furthermore, at the time of the breach by the defendant, the valuation of the Property was at $110 million such that the plaintiff felt that the offer by Three Gardens Ltd was well below the market value.

28.  In those circumstances, it was not unreasonable for the plaintiff not to have considered or accepted that offer by Three Gardens Ltd.

29.  There was also evidence from the plaintiff that even in February and March 2009, the offers received by the plaintiff in respect of the Property only ranged from between $68 million to $70 million.

30.  As for the six months period, the plaintiff submitted that although the decision in the Teng Fuh case said that a resale within six months would be considered reasonable, it does not follow that a resale just outside of the six months would not be reasonable. It all depended on the circumstances, and here the property market was suffering the effects and aftermaths of the financial tsunami of mid-2008.

31.  A further point made by the plaintiff was to the effect that even if the plaintiff had accepted the offer from Three Gardens Ltd. in the amount of $89,910,000, and taking into account the amount of the forfeited deposit of the defendant, the plaintiff will still have a claim of $6,570,000 against the defendant pursuant to Clause 15 of the Agreement.

32.  Having heard the argument of the parties, I was of the view that there are valid arguments for both sides on damages and the matter will have to be determined at the assessment hearing.

33.  As such therefore there is here an arguable case.

Risk of dissipation of assets

34.  The main dispute between the parties at the inter partes hearing was whether there was a real risk that the assets of the defendant would be dissipated by the defendant to render any judgment obtained by the plaintiff of no effect.

35.  At the ex parte hearing, the plaintiff’s case on dissipation of assets by the defendant was put on the following basis :

(a)  that the defendant had stopped buying properties and/or might assign properties of the defendant to other corporate entities also controlled by Tung Che Keung (“Tung”);

(b)  the defendant had started to sell off properties that it was holding, even at a loss, and had put other properties held by it on the market, thus increasing the risk of dissipating the proceeds from such sales;

(c)  charging all of its assets after commencement of the present proceedings against it; and

(d)  delaying the present proceedings by launching an unmeritorious appeal against two directional orders of the master, impliedly to buy time to facilitate its dissipation of assets.

36.  It should be noted at once that none of the above four factors per se could be said to be direct evidence of dissipation of assets so as to render any judgment obtained to be of no effect. However, the plaintiff’s case was that when the above four factors are looked at together there is a very strong inference that this was what the defendant was doing, and therefore a real risk of the dissipation of assets by the defendant.

37.  The details of each one of those four factors referred to above will need some elaborating.

38.  Firstly, it was pointed out at the ex parte hearing that the defendant was only one of the corporate vehicles used by Tung for property investment and that land searches carried out relating to the defendant has shown that since the aborted sale of the Property in September 2008, the defendant has not purchased any more properties.

39.  Reference was also made to two units in Lippo Sun Plaza purchased by the defendant but was put into the name of Apex Link Ltd at the nomination of the defendant.

40.  Upon query by the court as to the timing, it was conceded by counsel for the plaintiff at the ex parte hearing that the nomination for Apex Link Ltd to hold the two units in Lippo Sun Plaza was made in early 2008, before the breach complained of in the present case. With that concession counsel explained that the plaintiff was not relying on that evidence to suggest that the defendant did so with the intention of defeating any judgment obtained, but only to show that potentially it was possible for the defendant to do something similar.

41.  In respect of the second factor, it was pointed out by counsel for the plaintiff at the ex parte hearing that at the commencement of these proceedings in June 2009, the defendant still owned two carparks in East Ocean Centre, units 14 and 15 in Mandarin Plaza, and 807 of Harbour Crystal Centre.

42.  A provisional sale and purchase agreement was entered into on 22 September 2009 to sell off 807 Harbour Crystal Centre with completion scheduled for 10 November 2009. Not only was it pointed out that this property was sold by the defendant for $14,360,000 which was a loss to the defendant, the property having been acquired by it at $15,639,890 in May of 2008, but that it was also emphasized that the sale of this property at a loss was “unlike the defendant’s previous investments.” Therefore the price and the timing of this sale was suggestive of the defendant’s dissipation of its assets to render any judgment which may be obtained by the plaintiff to be of no effect.

43.  It was also pointed out that from enquiries with estate agents, it came to be known that the defendant has already put on the market both the units it held in Mandarin Plaza which are estimated to be worth around $12.5 million, leaving only the two carparks in East Ocean Centre estimated to be worth about $600,000.

44.  As for the third factor, it was brought to the notice of the court that the defendant has entered into a new all monies legal charge on 21 July 2009 using all its assets as securities and again emphasis was placed on the timing thereof being shortly after the commencement of the present proceedings.

45.  Lastly, in relation to the fourth factor, it was pointed out by the plaintiff at the ex parte hearing (which was just five days before the defendant’s appeal was due to be heard by Deputy Judge Carlson on 29 December 2009) that the appeal brought by the defendant against, firstly, the master’s order imposing upon the defendant the payment of $50,000 as security for the plaintiff’s costs and secondly, a further order of the master to set down the assessment of damages hearing estimated to last for three hours, was an appeal which was devoid of merits but only brought by the defendant to delay the proceedings so as to allow the defendant to buy time in order to dissipate its assets.

46.  At the ex parte hearing, which quite obviously was not attended by the defendant, only the plaintiff’s evidence and submission was before the court.

47.  The Mareva injunction was therefore granted ex parte on the basis as put forward by the plaintiff, in particular as to the risk of dissipation of its assets by the defendant which the court was asked to infer from the four factors relied on by the plaintiff.

48.  At the inter partes hearing, I heard evidence and submissions from the defendant relating to the issue of dissipation of assets.

49.  Mr Yee for the defendant submitted firstly, the defendant having stopped buying properties after September 2008 that itself is not and cannot be evidence of dissipation of assets in order to render any judgment obtained to be of no effect.

50.  It was also submitted that there can be no inference of anything sinister in the fact that Apex Link Ltd was nominated to hold the two units of the defendant in Lippo Sun Plaza since that was something done in January 2008, before the breach sued upon was even committed in the present case.

51.  In relation to the second factor, namely the defendant started to sell its properties, in particular the unit in Harbour Crystal Centre which was sold in September 2009 at a slight loss, it was pointed out to the court that was not the only occasion on which the defendant had sold off its properties at a loss.

52.  Documentary evidence was adduced by the defendant to show that it had also previously sold off the following properties at a loss :

(a)  a property in Padek Palace was sold in March 2009 at a slight loss of $400,000 which had been purchased by the defendant in March 2004;

(b)  a unit in East Ocean Centre was sold off in June 2000 by the defendant seemingly at a substantial loss and leaving only the two carparks already referred to above;

(c)  a property in Mega International Commercial Building was also sold by the defendant in December 2005 at a loss of over $3 million.

53.  The point was made by Mr Yee that the plaintiff was wrong to have submitted at the ex parte hearing that the Harbour Crystal Centre property was “unlike it’s previous investment, the defendant sold it at a loss this time”. The gloss and the implication of that submission by the defendant to infer dissipation of its assets is now shown to be completely wrong and unjustified.

54.  A further pointed made by Mr Yee was that since the defendant’s business was in property investment, there is nothing wrong or sinister for the defendant to have sold off the unit in Harbour Crystal Centre at a slight loss in September 2009, particularly when that sale transaction was done openly with nothing to hide.

55.  Furthermore, having sold off the unit in Harbour Crystal Centre, there is now evidence that the proceeds of that sale was used to partially pay off a bank loan from the Shanghai Commercial Bank. However, in the absence of any evidence or suggestion that that was not done in the usual course of the defendant’s business, it is not evidence of dissipation of asset.

56.  It was also submitted by the defendant that units 14 and 15 in Mandarin Plaza had all along, ever since its acquisition by the defendant in February 2008, been put on the market for sale. This was at a time well before any breach by the defendant.

57.  As regards the third factor, that of charging all of its assets after commencement of the present proceedings, evidence was adduced by the defendant which was backed up by documentary exhibits that this was not a newly created charge, but that the defendant was merely switching from one bank, namely the DBS Bank, to another bank, the Bank of East Asia, by reason of the fact that the Bank of East Asia was offering a better rate of interests. Therefore the creation of the all monies legal charge with the Bank of East Asia in July 2009 was merely taking over from the mortgage (also an all monies charge) which had been created in February 2008 with DBS Bank. This was therefore not something done by the defendant only after commencement of the present proceedings which was the suggestion at the ex parte hearing.

58.  Finally, as to the fourth factor, the simple point made by the defendant was that the appeal having been heard by Deputy Judge Carlson on 29 December 2009, that appeal was allowed by the deputy judge with an order for costs made against the plaintiff.

59.  It was therefore submitted that the result of that appeal speaks for itself in so far as the merit of it goes. Given that result, it cannot be said that the appeal was launched with the purpose of stalling for time as suggested by the plaintiff at the ex parte stage, at a time before the appeal was heard.

60.  Ultimately, and given the above circumstances and evidence put forward by the defendant, it was submitted by Mr Yee that there is not a shred of evidence which could show that the defendant was dissipating its assets so as to put beyond reach any judgment which the plaintiff may obtain in these proceedings and accordingly the Mareva injunction ought to be discharged on that basis alone.

Material non-disclosure

61.  A number of points as to material non-disclosure was made by the defendant, however, it would not be necessary to go into each and every one of the points submitted.

62.  Two significant matters stand out amongst all the points made.

63.  Firstly, as to the defendant having sold off the unit in Harbour Crystal Centre at a loss, the court’s attention was not drawn to the fact that there were previous or other occasions that the defendant had sold off properties at a loss. Instead the picture that was attempted to be painted at the ex parte application was that this was done “unlike the defendant’s previous investment” suggesting that the defendant never did sell of its investments previously at a loss.

64.  The evidence relating to the sale of the unit in Padek Palace at a loss by the defendant was not before the court, albeit that the explanation of the plaintiff was that they had no knowledge of that transaction.

65.  Furthermore, although the material relating to the sale of the property in East Ocean Centre and Mega International Commercial Building was there, the court’s attention was not drawn to those transactions where the defendant had sold off those properties at a loss.

66.  Secondly, in submitting that the defendant had entered into a new all monies legal charge on 21 July 2009, again it was not pointed out to the court that this was a mortgage replacing an earlier mortgage created with the DBS Bank.

Decision

67.  In coming to a decision in this matter, the main focus was on the inability of the plaintiff to show a real risk of dissipation of assets by the defendant in order to defeat any judgment which may be obtained by the plaintiff.

68.  Given the result in the appeal heard on 29 December 2009 by Deputy Judge Carlson and given the documentary evidence now produced by the defendant showing that the all monies charge created in favour of the Bank of East Asia in July 2009 was no more than a re-financing of the mortgage originally created with DBS Bank in February 2008 because lower interests rates were offered by the Bank of East Asia, it follows therefrom that the third and fourth factors initially relied on by the plaintiff at the ex parte hearing have been totally eliminated.

69.  That leaves only the first two factors, namely that the defendant has stopped purchasing properties, and that it has commenced selling some of its properties and have put others on the market.

70.  I take the point already made that stopping to purchase further property is not dissipation.

71.  As for the second factor, a substantial portion of that has been discredited by the defendant showing that there were previous occasions when the defendant had sold off properties at a loss since the gloss which the plaintiff sought to put on by making that point is no longer applicable.

72.  What remains cannot, in my view, substantiate any suggestion made that the defendant have been dissipating its assets with a view to defeating any judgment that may be obtained against it.

73.  Once the position is reached whereby the plaintiff cannot show that the defendant has been dissipating its assets, or that such an inference cannot properly be drawn from the evidence, the Mareva injunction must be discharged and that it is unnecessary for me to consider further any other matter which points in the same direction, such as non-disclosure of material facts.

74.  However, for the sake of completeness, having heard the submissions of counsel and having considered all the evidence in this matter, I shall deal briefly with the other matters argued before me.

75.  In so far as material non-disclosure goes, the law does not require that to be done deliberately or with intention to mislead. If material matter is omitted even by an error of judgment, that could amount to material non-disclosure.

76.  That is particularly so where, as here, the plaintiff is, at the ex parte stage, asking the court to draw an inference (being dissipation of assets in the present case) which inference is to be drawn based on a number of factors collectively put before the court, and all the more so where the gloss which the plaintiff seeks to ascribe to each of the individual factors can have a significant bearing as to the ultimate inference which will or will not be drawn.

77.  The inability of the plaintiff to bring to the attention of the court the matters referred to above had an important and significant effect in the present case for if those matters had been put fairly before the court, it was unlikely that the court would have made the inference which the plaintiff submitted was the correct inference to be made.

78.  Apart from material non-disclosure, there were two further matters which caused me considerable uneasiness.

79.  The first matter related to the fact that at the ex parte stage, the plaintiff merely stated that “recently” they had discovered by a land search from the Lands Registry of the sale of the Harbour Crystal Centre property by the defendant. It was never spelled out the exact timing when the plaintiff or its solicitors came to know of that sale.

80.  My attention has now been drawn by Mr Yee for the defendant that the date shown on the relevant land search carried out by the plaintiff’s solicitors was 13 November 2009.

81.  Had the timing of that land search, which seemingly on the plaintiff’s case, was the lynch pin for launching the application for Mareva injunction, the plaintiff would have been hard pressed to explain to the court why it took them some forty days to come to court for the ex parteMareva application.

82.  Secondly, the fact that after obtaining the order for a Mareva injunction ex parte from the court on the morning of 24 December, being Christmas eve, the solicitors for the plaintiff was able to serve copies of the sealed order on a number of banks on the afternoon of that same day, but that the defendant was only served through the defendant’s solicitors some time after 3 p.m. on 28 December when the return date given by the court at the time the order for Mareva injunction was made was 31 December. This effectively gave the defendant four days less to prepare for the return date.

83.  I am unable to accept the plaintiff’s explanation that they were short handed when it came to service, particularly when there is an express undertaking given and contained in the order for Mareva injunction that the plaintiff was to serve that order upon the defendant “as soon as practicable”.

84.  If the plaintiff’s solicitors could serve the order on a number of banks on the afternoon on Christmas eve, there can be no valid reason for not serving the defendant with the order that same afternoon, which must have priority given the undertaking.

85.  Even though it is not necessary for me to make a decision as to whether or not there was a breach of the undertaking given, in this respect, the blame must be attributed to the plaintiff’s solicitors.

86.  For the above reasons, the Mareva injunction was discharged.

Costs

87.  After having indicated to the parties at the hearing after the conclusion of their submissions that the Mareva injunction will be discharged but that I will give my reasons in due course in writing, I heard submissions from counsel regarding costs.

88.  Mr Yee for the defendant asks for costs of the application and hearing including the costs reserved by Sakhrani J on the return day on 31 December to be taxed and paid forthwith.

89.  On the other hand, Mr Wu for the plaintiff submitted that costs should be in the course of the assessment.

90.  For my part, I am unable to see why the costs of the discharged Mareva injunction, for the reasons given above, should be in the course of the assessment hearing.

91.  In my view, the Mareva injunction should not have been applied for in the present case at all. There is simply no evidence of dissipation of assets by the defendant but for the gloss which was quite wrongly put on to the four factors used by the plaintiff as the basis to show dissipation of assets.

92.  Accordingly, there will be an order that the plaintiff is to bear all the costs of the application for Mareva injunction which includes paying the defendant’s costs for discharging same both at the hearing before Sakhrani J and the inter partes hearing before me on 8 January 2010, such costs to be taxed and paid forthwith by the plaintiff.

HCA1487/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1487 OF 2009

Dates of Hearing: 29 December 2009

Date of Judgment: 29 December 2009

J U D G M E N T

Introduction

1.  These are appeals against two orders made by Master Kwan on 17 and 24 August this year.  Both are out of time by 15 and 8 days respectively.  I am asked to enlarge time to allow the appeals to proceed.  I have heard out the appeals on their merits.  If I am of the view that they have merit, I will make orders extending time.  If the appeals have no merit, it would be appropriate to refuse the extensions of time and the appeals would therefore fail.

2.  This is an action by the Plaintiff to recover its losses from the Defendant on the sale of a whole floor of an office building in which the Plaintiff was vendor and the Defendant was the purchaser.  A sale and purchase agreement had been entered into on 23 October 2007, under which the Defendant agreed to purchase the premises for $107,200,000.  It paid two deposits totalling $10,720,000 but failed to complete the conveyance.  As a result, the deposits were forfeited, about which there is no complaint by the Defendant.

3.  Then some nine months after the scheduled completion date, the Plaintiff wrote a letter to the Defendant dated 18 June 2009, stating that it had sold the premises for $80,019,000 and demanded from the Defendant payment of $17,253,849.61, substantially being the difference between the agreed sale price to the Defendant and the eventual selling price of $80,019,000.  Seven days later, it issued its writ in this amount, claiming that sum or, alternatively, for damages to be assessed.  On 16 July 2009, it issued a summons for judgment under Order 14 in the amount of $17,253,849.61.  Its summons was supported by an affirmation by Mr Frank Chu, which provided the basis for its claim.

4.  On the issue of the Order 14 summons, the court provided the parties with a 15-minute call-over to be heard on 17 August 2009.  On 13 August 2009, Madam Cora Tung gave an affirmation on the Defendant’s behalf, the purpose of which was to ask that the call-over be adjourned for a period of three months, this in order to allow the Defendant more time to mount its defence, the basis of which is that, notwithstanding the Defendant’s failure to complete the conveyance, the Plaintiff should have suffered no loss because it had other offers made to it after the passing of the completion date which it had unreasonably failed to act on.  Madam Tung’s affirmation said that the Defendant was having difficulty in marshalling its evidence and that it required more time to do so.  It also required time to obtain evidence from a valuer and that it would require discovery from the Plaintiff.

The Hearing of 17 August

5.  The hearing was on a Monday and Madam Tung’s affirmation came to the notice of the Plaintiff’s solicitors on the previous Friday.  They instructed Miss Lan on the Saturday to appear on the Plaintiff’s behalf on the call-over.  Mr Ching, an assistant solicitor in the firm of solicitors acting for the Defendant appeared on its behalf.  I have a transcript of both hearings before the Master.  Mr Ching was provided with Miss Lan’s skeleton argument and an affirmation in reply to that of Madam Tung at the door of the Master’s chambers.  I have read Miss Lan’s skeleton argument and it is one directed to obtaining judgment on the Order 14 summons and not one which really addressed the matters which might usually arise on a first call-over. 

6.  When Mr Ching explained to the Master that he needed more time to get his evidence in order, she was unsympathetic to his request.  I am sorry to say that she proceeded to give him an extremely uncomfortable time for the next 50 minutes or so (on a 15-minute appointment) as to why, in her view, he had had more than enough time to get his evidence ready.  In the event, she persuaded herself to allow him a further four days to file his evidence on terms that the Defendant should pay the Plaintiff’s costs in any event with certificate for counsel, and directed that the Defendant should also pay $50,000 as security for the Plaintiff’s costs.  The order was in terms of an unless order with failure to comply being visited by judgment for the Plaintiff.

7.  On the resumed hearing on 24 August, Miss Tong was instructed to appear for the Defendant.  At this hearing, the Master directed that the $50,000 was not to be returned to the Defendant without leave of the court.  Without objection, the Master entered judgment on the claim with damages to be assessed and, based on her perception of the issues and the amount of time required to resolve them, directed that the assessment should be heard with a three-hour time estimate. 

8.  The three-hour time estimate was one that both counsel had told her was going to be insufficient with the matter inevitably having to go part-heard on a three-hour hearing.  The assessment for damages has now been fixed before Master de Souza for three hours on 5 February 2010, this with seven witnesses expected to give live evidence and be cross-examined. 

9.  On 24 August, Miss Tong had also indicated that the Defendant was proposing to have two witnesses subpoenaed to give evidence, these being two estate agents whose employers had not permitted them to give witness statements or affirmations to the Defendant’s solicitors.  In respect of this, the Master has included in her order of 24 August a paragraph to this effect:

“For the avoidance of doubt, the three-hour estimation is based on the time required for the testimony of the deponents of the affirmations filed to the date hereof.  No allowance has been made for the Defendant to introduce additional witnesses such as Tony Kam or Jass Tai referred to in the first affirmation of Tung Chi-keung.  Therefore, if the Defendant makes an application for the writ of subpoenas to be issued for the attendance of Tony Kam and Jass Tai, the Defendant should be prepared to pay the costs of and occasioned by such an application.”

The Appeal

8. The appeal is brought on the basis that the Master has acted unreasonably and has not had proper regard to the nature of the task before her.  She has been driven by her desire to impose firm case management and, as a result, has done an injustice to the Defendant.  The tone of the exchanges between the Master and Mr Ching on 17 August - he was hectored by the Master for the whole of the 50-minute hearing - and Miss Tong on 24 August, indicated that the Master’s almost sole preoccupation was to case manage the Order 14 summons and to conclude it as quickly as possible without having any sufficient regard to what it was that the Defendant’s solicitors were trying to do in collating their evidence in opposition to a $17 million claim. 

9. Whilst there is no doubt that they could have done more in the eight weeks from the date of the Order 14 summons until the call-over and that there was never any prospect of them getting a further three months’ adjournment, which was an impertinent application to make when they already had had two months, the fact of the matter was that this was the first call-over.  It was not an occasion for the Master to aggressively question the Defendant’s solicitor on the detail of his client’s case and the evidence that it was proposing to call.  Whilst muscular case management undoubtedly has its place, and under the new CJR regime is to be expected where the circumstances require it, this was not such an occasion. 

10.  In saying this, it is worth considering what the rules provide for on the occasion of a first call-over such as this.  At page 225, 14/2/3, Hong Kong Civil Procedure 2010, the note says this:

“The summons should be made returnable before the Master save for claims for an injunction and commercial list actions where the summons is returnable before the judge.  The first hearing before the Master will be a 15-minute hearing.  Where the Defendant contests the claim and it is not clear that it can be disposed of there and then, the application will be adjourned for argument.  The Master will give directions for the filing of any further evidence if necessary and seek the parties’ estimate as to the length of the adjourned hearing.  However, if the Defendant has not filed evidence by the time of the first hearing, judgment may be entered for the Plaintiff unless the Master is not satisfied with some part of the Plaintiff’s claim.”

11.  It is also helpful to refer to 14/4/5 at page 229 which is in these terms:

“Though the rule does not specify any time for the service of the Defendant’s affidavit in opposition to the application for summary judgment, the form of summons generally in use contained an express notice of the Defendant requiring him to send a copy of any affidavit in answer to the Plaintiff or his solicitor to reach him not less than three days before the return day.  Defendants who produce an affidavit at or immediately before the hearing should not assume any adjournment will be granted.  Judgment may be entered on affidavits before the court, leaving an appeal as the Defendant’s only remedy with the difficulty of persuading the judge in chambers to admit further evidence.”

12.  What is clear is that Madam Tung’s affirmation was not intended to be the Defendant’s substantive or definitive answer to the Plaintiff’s summons.  Its purpose was to try and obtain an adjournment and to do so by indicating the efforts so far by the Defendant’s solicitors to obtain that evidence and the general nature of the defence to this $17 million-plus claim. 

13.  It must have been plain to the Master that what she had before her was to be a seriously contested assessment as to the quantum of the Plaintiff’s claim.  This was never going to be the occasion for any sort of final disposition.  Two matters needed to be considered.  Firstly, how much longer would the Defendant reasonably require to marshal its evidence, given the two months that had already passed, and secondly, having regard to what the Defendant had already done to obtain that evidence and its difficulties as it had presented them in obtaining that evidence, what the terms of the inevitable adjournment ought to be. 

14.  The rules, as I have set them out, clearly expect a party to get on and prepare its case well in advance of the first call-over.  On this occasion, I am satisfied that the Defendant could have done more than it had to get itself ready.  Unsurprisingly, the Master was not going to be impressed with what had been achieved by 17 August but, equally, I am satisfied that she grossly over-reacted, firstly, in the manner in which she dealt with Mr Ching who did remarkably well in the circumstances in arguing his corner but, more importantly, in making the peremptory orders that she did.  This was not the occasion for a four-day unless order where there had not been any previous breaches of a court order.  The correct course, given the nature of this claim for a not insubstantial amount, would have been to give 14 days for the completion of the Defendant’s evidence and for its solicitors to prepare the praecipe for the two subpoenas. 

15.  As to costs, I would have thought that the best that the Plaintiff would have expected to obtain was Plaintiff’s costs in the summons, thereby protecting it from ever having to pay the Defendant’s costs of the first call-over, and certainly not an order requiring the payment into court, within five hours, of $50,000.  Whilst she undoubtedly had jurisdiction to order such a payment (see Order 1B rule 3(a)) it seems to me that such a direction is one that should not be made except where a party’s conduct is considerably worse than the Defendant’s was on this occasion and in these circumstances.

16.  Accordingly, where I am satisfied that this is an appeal with merit, I will enlarge time to allow it to proceed and I will allow the appeal on the order for costs and the order directing the payment in of the $50,000.  This was an unreasonable order in the circumstances and it should be replaced with an order of Plaintiff’s costs in the summons.  This better reflects the relative rights and wrongs of the matter where the Plaintiff could have done better to prepare itself but, nevertheless, a request for further time - I would have allowed 14 days - ought to have been given in all the circumstances of this case.

17.  The final matter in respect of this order relates to certificate for counsel.  Whilst the Plaintiff was fully entitled to instruct Miss Lan, this is not something which the Defendant should ever be expected to pay for.  It needs to be stressed that this was always going to be a 15-minute call-over and the issue was always going to be for how long any adjournment should be for and on what terms.  This sort of issue was well within the range of advocacy that a solicitor would be expected to undertake.  This part of the order should also go.

The Hearing of 24 August

18.  In this case too, I find the appeal has merit and time should be enlarged to allow it to proceed.  Firstly, the order relating to the $50,000 in court will be revoked where I have found that it should never have been made.  I direct that the money should be paid out to the Defendant’s solicitors immediately. 

19.  As to the hearing date of the assessment now fixed for three hours on 5 February 2010, this simply cannot stand.  It was made by the Master who was determined to deal with the matter expeditiously without, in my judgment, sufficient regard to the nature of the dispute before the court.  There are real issues here which require consideration and resolution.  Up to seven witnesses will have to give live evidence.  All of this will inevitably take time.  Miss Lan appreciated this before the Master and said so, but now, on appeal, she has changed her mind.  Miss Tong says three days and I agree with her.  The way these things go, even that may not be enough but, hopefully, the evidence can be concluded within two and a half days, leaving over half a day for speeches.

20.  So I vacate 5 February 2010 and I direct that the assessment should be re-fixed before a master in consultation with counsel’s diaries, with a three-day estimate.

21.  Finally, as to paragraph 13 of this order - which I have already set out - the Master should not have made any reference to this which was all part and parcel of her wish to manage the Order 14 summons to a swift conclusion.  In the event, having provided a hopelessly inadequate time estimate, she added this paragraph in respect of something which was never before her.  In the event, these subpoenas have been issued by Master de Souza.  The date before him has now been vacated and the Defendant should not be at risk of any cost implications over the issuing of these subpoenas.  This part of the order will therefore also be set aside.  To this extent, the appeal against this second order will be allowed.

The Costs of the Appeal

22.  Finally, the costs of the appeal.  It seems to me that the costs of the appeal should follow the event and that the Plaintiff should pay the Defendant’s costs.  The appeal has succeeded in respect of matters which the Plaintiff had supported before the Master and sought to uphold on the appeal.  This order will be an order nisi and any submissions to the contrary must be put in writing, with the Plaintiff going first, within 14 days, the Defendant’s reply within 14 days thereafter, and any consequential response by the Plaintiff within seven days thereafter. 

Gekko Lan, instructed by Messrs V Hau & Chow for the Plaintiff

Sara Tong, instructed by Messrs Alfred Lam, Keung & Ko for the Defendant