HONDON DEVELOPMENT LTD AND ANOTHER v. POWERISE INVESTMENTS LTD AND ANOTHER

CACV 297/2003

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 297 OF 2003

(ON APPEAL FROM HIGH COURT ACTION NO. 1208 OF 1998)

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J U D G M E N T

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Hon Le Pichon JA :

1.  I agree with the judgment of Cheung JA and the orders he proposes.

Hon Cheung JA :

2.  This is an appeal from the decision of Deputy High Court Judge Anthony To.

Facts

3.  The appeal is concerned with the sale of a shop space known as Shop 1A on the ground floor of Ka Wing Building, No. 534-538 Nathan Road, Kowloon, Hong Kong (‘the Shop’).  The 1^st defendant was the vendor of the Shop.  The 1^st plaintiff was the purchaser.  The 2^nd plaintiff was its nominee which took up the assignment.  The 1^st defendant acquired the premises which consisted of the ground to third floors of Cheung Hing Building, Wing Kiu Building and Ka Wing Building (‘the premises’) from Staric Limited (‘Staric’) by way of a Sale and Purchase Agreement (‘the Staric/Powerise Agreement’) on 15 November 1996.  Completion was due on 15 September 1997.  Staric had acquired the premises from Wing Kiu Enterprises Limited and sold the premises as a confirmor to the 1^st defendant.

4.  The 1^st defendant initially also wished to sell the premises as a confirmor but was unable to find any buyer.  The premises used to house a department store.  The 1^st defendant then decided to convert the premises into a shopping mall by sub-dividing the first to third floors into small retail units.  Staric under the Staric/Powerise Agreement had already agreed to partition the ground floors of Ka Wing Building and Wing Kiu Building into shops (Cheung Hing Building did not have any ground floor area at the relevant location).  The 1^st defendant appointed a property agent to be responsible for the sale of the sub-divided units.  The premises was renamed as the “In’s Point”.  A brochure was prepared for the promotion of the sale of “In’s Point”.

5.  On 5 August 1997, the 1^st defendant also instructed the 1^st Third Party which was a well known property agent in Hong Kong to look for a prospective buyer for the Shop.  The 2^nd Third Party (‘Lau’) was employed by the 1^st Third Party as an agent and he was in charge of the transaction in question.

6.  The judge found that Mr. Fung Kok Po (‘Fung’), who was in charge of the 1^st defendant had made the following representations about the Shop to Lau :

(1)	The shop was about 8 feet by 9 feet;
(2)	The Shop should be partitioned as shown in the plan attached to the brochure (‘the Brochure Plan’) and the Architect Plan of the ground floor of the premises (‘the Architect Plan’);
(3)	The partition between the Shop and the lift lobby would be made of glass if the purchaser so requested;
(4)	Two lifts would be installed in the lift lobby.

Fung gave Lau the Brochure Plan and the Architect Plan.

7.  Lau on the same day i.e. 5 August 1997 informed Mr. Chan Chi Hin (‘Chan’) of the 1^st plaintiff of the Shop and also supplied him with the Brochure Plan on the next day i.e. 6 August 1997.  On 7 August 1997 Lau and Chan went to the premises to view the Shop but they could not gain access to it because at that stage the Shop was enclosed by the external wall of the premises.  Lau told Chan of the representations made by Fung.

8.  Chan was interested in the Shop.  After negotiation Chan agreed to buy the Shop for $14,500,000.  Lau prepared a Provisional Agreement for the sale and purchase of the Shop (‘the Provisional Agreement’).  He also prepared a plan of the Shop from the Architect Plan.  He also attached the plan to the Provisional Agreement (‘the Provisional Agreement Plan’).  As the plan did not delineate the Shop from the lift lobby, Lau obtained directions from Fung over the telephone to draw a vertical line extending from the long side of a storeroom to identify the boundary of the Shop. 

9.  The Provisional Agreement was signed first by Chan and later by Fung.  This agreement was dated 7 August 1997.  A deposit of $500,000 was paid by the 1^st plaintiff.

10.  A further deposit of $1,675,000 was paid by the 1^st plaintiff on 20 August 1997.  The 1^st defendant and the 1^st plaintiff later signed a Formal Sale and Purchase Agreement (‘the Formal Agreement’).  This agreement included a plan (‘the Formal Agreement Plan’).  The Shop delineated on the Formal Agreement Plan was much smaller in size and was of a different shape to the Provisional Agreement Plan. 

11.  The Assignment of the Shop was signed by Chan.  On 13 September 1997 the balance of the purchase price of $12,325,000 was paid. 

12.  The sale was completed on 15 September 1997.  Vacant possession of the Shop which was not yet partitioned was notionally delivered to the plaintiffs on the same day but the parties agreed that the actual delivery of possession of the Shop with proper partition was to be deferred to 15 October 1997. 

13.  On 11 October 1997, Chan inspected the partition work and discovered that the Shop was much smaller in size than what he had expected and the partition between the Shop and the lift lobby was not made of glass but of concrete.  Complaints were immediately made to the 1^st defendant.  There were negotiations between the parties which were not successful.  The plaintiffs then sought to rescind the sale and commenced proceedings against the 1^st defendant.

Sale rescinded

14.  The judge found for the plaintiffs and ordered a rescission of the sale.  The basis of the decision was that, other than the matter concerning the lifts, the representations made by the 1^st defendant through the third parties to the 1^st plaintiff were false and untrue.  This entitled the plaintiffs to rescind the sale on the basis of misrepresentation.  The judge ordered the 1^st defendant to repay the purchase price of $14,500,000 to the plaintiffs.  He also awarded them damages at $525,645.  This consists of estate agent commission, legal costs and disbursements and stamp duty of the transaction.  Interest on these two sums was also awarded.

15.  The 1^st defendant sought an indemnity from the 1^st and2^nd Third Parties.  This was dismissed by the judge. 

Claim against the solicitors

16.  The 2^nd defendant was a firm of solicitors and was engaged by the plaintiffs to be their solicitors in charge of the purchase of the Shop.  The plaintiffs sued the 2^nd defendant for breach of duty and negligence. 

17.  The judge also found for the plaintiffs against the 2^nd defendant.  He found that the 2^nd defendant was liable but he also found that the plaintiffs were contributorily negligent to the extent of 50%.  He assessed damages at $6,704,229 which were to be reduced by half on account of the plaintiffs’ contributory negligence.  He also awarded the plaintiffs interest on this sum. 

18.  As the remedy against the 2^nd defendant was in the nature of an indemnity and was only payable in the event that the 1^st defendant was unable to repay the purchase price, the judge ordered that the judgment against the 2^nd defendant can only be executed with the leave of the court.

The appeal

19.  The plaintiffs now appeal against the decision on contributory negligence and the amount of damages assessed by the judge.  The 2^nd defendant filed a respondent’s notice, challenging the finding on liability.  It also contends that if the issue of contributory negligence was to be reopened, then the plaintiff’s responsibility should be higher than 50%.  It also claimed that the judge was wrong to award interest at judgment rate to the plaintiffs.

The evidence

20.  On 9 August 1997, the 1^stplaintiff instructed the 2^nd defendant to be its solicitor in the transaction.  Instructions were given to Chau Hing (‘Chau’) a conveyancing clerk of the 2^nd defendant.  The Provisional Agreement with the plan was forwarded by the plaintiffs to the 2^nd defendant. 

21.  On 29 August 1997, an architect’s certificate dated 27 August 1997 was sent by the 1^st defendant’s solicitors Messrs K. C. Ho & Fong to the 2^nd defendant certifying that the partition wall between the Shop and the lift lobby was non-load bearing and ‘do not constitute any structural alterations and/or additions and are exempted works under section 41(3) of the Buildings Ordinance and therefore do not require any application to or approval from the Building Authority’.  The certificate enclosed a plan showing the shape of the Shop.  The shape is similar to the subsequent Formal Agreement Plan and Assignment Plan but there are other differences in other parts of these plans.  This plan was different from the Provisional Agreement Plan.

22.  On 8 September 1997, the 2^nd defendant received from K.C. Ho & Fong, a copy of the draft Assignment Plan showing the Shop.  The shape is similar to the Formal Agreement Plan and the Assignment Plan.

23.  The Formal Agreement was signed by Chan in the office of the 2^nd defendant on 9 September 1997.  It was then signed by the 1^st defendant and later returned to the 2^nd defendant on 11 September 1997.  The Formal Agreement was dated 11 September 1997.  Although it referred to a plan which identified the Shop, however, the Formal Agreement as registered in the Land Registry on 3 October 1997 did not include any plan at all.

24.  On 12 September 1997, K.C. Ho & Fong sent a ‘final draft Assignment Plan’ to the 2^nd defendant. 

25.  On 13 September 1997 Chan signed the Assignment and other documents and paid the balance of the purchase price of $12,375,000.  The 2^nd defendant sent the Assignment to K.C. Ho & Fong on the same day.

26.  On 26 September 1997, K.C. Ho & Fong sent the 2^nd defendant the Assignment duly executed by the 1^st defendant.  It also sent two Assignment Plans of the Property and also ‘An amended Plan (for replacing the previous plan to the Architect’s Certificate)’.  The plan attached to the Assignment bears the date of 19 September 1997.

27.  After the plaintiffs discovered the discrepancies in the Shop, they changed lawyers.  On 28 October 1997, the 2^nd defendant sent the new lawyers the title deeds of the Shop which included the Formal Agreement.  A plan of the Shop was attached to the Formal Agreement. 

Basis of the 2 nd defendant’s liability

28.  The judge found the 2^nd defendant liable on the following basis :

1)	The subject matter of the sale was the space as delineated on the plan forming part of the Formal Agreement.
2)	There was a significant difference between the Provisional Agreement Plan and the Formal Agreement Plan.
3)	This significance must suggest to a reasonably competent solicitor that there was a real risk that the plaintiffs were operating under some mistake or misunderstanding and were not getting from the Formal Agreement what they had bargained for.
4)	A solicitor is under a duty to ascertain the subject matter of the sale in the mind of his client and seek clarification if in doubt.
5)	The 2nd defendant totally failed to discharge this duty by not seeking clarification or instructions or to consult with the plaintiffs.
6)	Had the 2nd defendant sought clarification or instructions from the plaintiffs, they would have advised the plaintiffs not to complete and to seek rescission of the Provisional Agreement for misrepresentation and return of deposit.  Had the 2nd defendant done so, the plaintiffs would not have paid the further deposit and balance of the purchase price of $14,000,000.  Thus the plaintiffs did suffer damage as a result of the 2nd defendant’s breach of duty.

Liability established

29.  In my view the judge was clearly right in finding liability against the 2^nd defendant.  The difference in the size and shape of the Shop between the Provisional Agreement Plan on the one hand and the Formal Agreement Plan and the plan attached to the Assignment on the other is so apparent that the 2^nd defendant was clearly negligent in not drawing this to the attention of Chan and ascertaining from him what he actually intended to buy in the first place.  Had he taken this course, Chan might have taken steps to protect the rights of the plaintiffs instead of simply continuing with the purchase.

30.  Mr. Whitehead S.C., counsel for the 2^nd defendant forcefully argued that while the 2^nd defendant might be negligent in not discovering the difference in the plans, it could not be held liable on the exceptional facts of this case : Chan was an experienced property speculator who had conducted a large number of transactions with a very high value; he was in as good a position to notice the difference in the plans as the 2^nd defendant; Chan had also not disclosed to the 2^nd defendant the representations made by Fung to him, and the judge found that the actual subject matter of the sale was stated in the Formal Agreement which was of a much smaller size shop.  Taking all these factors into account the 2^nd defendant could not be criticised for not advising the plaintiffs ‘to walk out of a binding contract’.

31.  The 2^nd defendant should only be held liable for losses which fall within the scope of its duty of care, see : Aneco Reinsurance Underwriting Ltd (In liquidation) v. Johnson & Higgins Ltd [2002] 1 Lloyd’s Rep. 157.  In Carradins Properties Ltd v. D J Freeman & Co (a firm) (1982) 126 SJ 157 it was held that the scope of that duty depends on the client’s apparent need for advice.  An inexperienced client required more advice than an experienced one.

32.  These are well established principles.  However in this particular transaction, the 2^nd defendant was entrusted by Chan to be responsible for the legal work in order to complete the purchase of the Shop.  At a minimum the scope of the duty is to ensure that Chan would get what he intended to buy.  The requirement of checking plans and inquiry with the client are duties one would expect any reasonable solicitor would do in a conveyancing transaction.  They are certainly well recognized duties : see Jackson & Powell on Professional Negligence 5^th ed. para. 10-194 and para. 10-199.  The experience of Chan is irrelevant to the discharge of this duty.  Whether Chan would be in a position to discover the discrepancies in the plans will be discussed later.  But this will only go towards the issue of contributory negligence and not the primary liability of the 2^nd defendant.

33.  The judge said the plaintiffs had not given full instructions to the 2^nd defendant.  Chan was told by Fung that the Shop should be partitioned as shown on the Brochure Plan and Architect Plan.  The shape of the Shop in both of these plans is the same.  The Provisional Agreement Plan was based on the Architect Plan with a line drawn on it to identify the boundary of the Shop.  Although Chan had not informed the 2^nd defendant of what Fung told him, the 2^nd defendant had been provided with the Provisional Agreement together with its plan.  The Provisional Agreement stated that the subject matter of the sale was the Shop.  The Provisional Agreement Plan identified the location and the layout of the Shop.  The Shop was coloured yellow on the plan.  It also contained the handwritten words ‘The area □[coloured yellow] in the plan shows Shop 1A on G/F, Ka Wing Building, Nos. 534-538, Nathan Road, Kowloon’.  Hence as far as the subject matter of the sale and the layout of the Shop are concerned the plaintiffs really had provided the 2^nd defendant with all the instructions it needed to proceed with the sale.  The fact that the Provisional Agreement Plan mentioned that it was not to scale and for identification purpose only will not assist the 2^nd defendant at all given the obvious differences in size and shape between the Shop as shown in that plan and as shown in the later plans.

34.  Chan had of course not informed the 2^nd defendant of the other representations made by Fung, namely the size of the Shop, the glass partitions and the location of the lifts, but in the context of this case, these are strictly speaking not essential instructions because the focus here was on the differences in the plans which the judge held the 2^nd defendant ought to have noticed and raised with Chan.  On this basis, even if Chan had not provided the other information to the 2^nd defendant, I fail to see why it should not be held liable in the first place.  In my view, the failure of Chan to disclose the representations and the issue concerning the actual subject matter of sale (the finding of which is challenged by Mr. Neoh S.C., counsel for the plaintiffs) are irrelevant to the duty arising.  This is because the scope of duty of the 2^nd defendant clearly required it to find out what Chan actually intended to buy in the first place.  The discrepancies in the plans should have alerted the 2^nd defendant that his client might not be getting the property he intended to buy in the first place and he should have raised this with his client so that his client could consider his position.  In this connection, even if the plan to the Formal Agreement had been the same as the Provisional Agreement Plan, the 2^nd defendant would still have had a duty to draw the plaintiffs’ attention to the discrepancy that plainly existed between the area shown on that plan and the area to which the 1^st defendant was able to deduce title which was considerably smaller.  This is what is expected of a reasonable solicitor in a situation such as this.  Had the 2^nd defendant drawn the discrepancies to Chan’s attention, it is inconceivable that the representations would not have come to light.  Those representations, as the court found, entitled the plaintiffs to rescind the contract.  This failure caused the plaintiffs to suffer loss because they ended up paying for something different instead of rescinding the sale.  This loss was clearly caused by the breach of duty on the part of the 2^nd defendant.

Contributory negligence

The Principle

35.  The principle of contributory negligence is well established and is correctly set out by the judge.  The 2^nd defendant has to establish that the plaintiffs failed to take such care as a reasonable man would have taken in protecting their interests in the transaction and that the failure to take such care was a substantial or material cause leading to the damage they suffered. 

36.  As a solicitor is remunerated for his services and it is his duty to advise his lay client and protect his interest, public policy requires that such a professional’s claim of contributory negligence by the client may only be successfully raised in very limited circumstances : first, where the lay client is particularly well placed to spot or correct the professional’s mistake, second, where the lay client has done something quite separate which aggravates the consequence of the professional’s breach of duty : Jackson & Powell,para. 5-115.

37.  In my view it is the first situation that is of relevance here.  Despite Mr. Whitehouse’s contention, I really do not see any evidence in this case which would suggest that the plaintiffs had done something which aggravated the consequences of the breach by the 2^nd defendant.

38.  The judge found that the plaintiffs were contributorily negligent to the extent of 50%.  The judge held that :

‘ On the facts of the present case, the only act which the Plaintiffs were guilty of was their failure to give full and proper instructions to the 2^nd Defendant.  However, on the facts as I found, Chan was shown the Formal Agreement Plan and the Assignment Plan.  Had he examined the plans with some care, it would not have been difficult for him to realise that the Shop to be conveyed was much smaller or at least different from the Shop he had in mind to purchase.  He was particularly well placed to spot or correct the 2^nd Defendant’s mistake.  He did not inform the 2^nd Defendant at the time of signing the Formal Agreement or the Assignment of any of the representations.  I find as a fact that his inaction or silence in the circumstances was a substantial cause to the damage he suffered.  I consider that a serious neglect and assess his contributory negligence to be 50%.’

My view

39.  I have difficulty in accepting the judge’s finding on contributory negligence.  I have already dealt with the issue of the plaintiffs not giving full instructions to the 2^nd defendant when I considered the liability of the 2^nd defendant.  What is said there equally applies to the issue of contributory negligence : the focus was on the difference of the plans; the plaintiffs by providing the 2^nd defendant with the Provisional Agreement and the plan had provided it with the information on the intended purchase and this would be sufficient to alert the 2^nd defendant to take appropriate steps when it received the subsequent plans.

40.  Further I do not agree that the plaintiffs should be held liable for not pointing out the discrepancies in the plans to the 2^nd defendant. If Chan had provided the Provisional Agreement Plan to Chau, could he not assume that the plans in the Formal Agreement and the Assignment would be the same?  What was there to alert him as a purchaser, although an experienced one, that there might be differences in the plans?  The parties’ case on the plans was of course completely different.  Chau of the 2^nd defendant said that the differences in the plans were in fact drawn to the attention of Chan.  This was rejected by the judge.  Chan said that he was not shown the plans at all.  This was also rejected by the judge.  But since the judge had rejected Chau’s evidence that the differences in the plans were drawn to Chan’s attention, there really was no other evidence to show that somehow Chan must still pay attention to the plans when he signed the legal documents to see if there was any discrepancies. 

41.  The judge made the following observations :

‘ ......As Chau had the plan on 8 September 1997, there was no reason why he would not have done the very minimal of showing Chan the plan when explaining the Formal Agreement or the Assignment or Deed of Mutual Covenant to him.....’  (paragraph 73)

‘ As I find both Chan and Chau incredible.  I have to resolve the dispute of fact on the basis of the burden of proof.  The Plaintiffs bear the burden of proving negligence on the part of the 2^nd Defendant.  For reasons as I have explained above, I cannot be satisfied that Chau had not shown Chan the various plans attached to the Formal Agreement, Assignment and Deed of Mutual Covenant, though I reject Chau’s evidence that he has drawn the difference between the Formal Agreement Plan or Assignment Plan and the Provisional Agreement Plan to ‘ Chan.’  (emphasis added) (paragraph 74)

42.  The judge did not make a positive finding on this issue.  Specifically he did not make an express finding as to when the plans were shown to Chan.  Reading between the lines a possible view is that the judge was in effect saying that the plans were shown to Chan at the time when he signed the Formal Agreement and the Assignment.  But even on that basis it is unclear what plans were shown to Chan.

43.  The Formal Agreement Plan was not registered in the Land Registry.  The plan was only found attached to the Formal Agreement when this document together with other documents were supplied to the plaintiffs’ new lawyers on 28 October 1997.  The Formal Agreement Plan was different from the ‘Assignment Plan’ supplied by the 1^st defendant’s solicitors on 8 September 1997.  The plan that was dated 19 September 1997 and attached to the Assignment was also different from the ‘final draft Assignment Plan’ supplied to the 2^nd defendant on 12 September 1997.  The plan dated 19 September 1997 could only have come into existence after Chan had signed the Assignment on 13 September 1997. 

44.  In view of the unsatisfactory nature of the evidence on the plans, how could it be said that Chan would necessarily have discovered the differences in the plans and then drawn it to the attention of the 2^nd defendant.

45.  Again much had been said of Chan’s vast experience in property transactions and the huge value of these transactions.  But I really do not see how on the facts of this case these matters would assist the 2^nd defendant at all.

46.  In my view, the judge’s finding on contributory negligence is incorrect.  The plaintiffs are not liable for contributory negligence.

Whether contributory negligence is available as a matter of law

47.  Since I have found that the plaintiffs were not contributorily negligent, it is not necessary for me to decide on the interesting but difficult question of whether contributory negligence was available to the 2^nd defendant as a matter of law.  Out of deference to counsel who had dealt with this issue, I will simply set out in brief the conflicting approaches but will leave the matter to be decided in an appropriate case in the future.

48.  The starting point is that a solicitor may be sued both in contract i.e. under the retainer and in tort for negligence.  This is because the contract for services contain an implied promise to exercise reasonable care and skill in its performance : see Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 193-4.  The plaintiffs sued the 2^nd defendant both in contract and in tort.

49.  The English Court of Appeal in Forsikringsaktieselskapet Vesta v. Butcher [1989] 1 AC 852 held that where the cause of action is based both in contract and in tort, the defence of contributory negligence is available to the defendant to reduce the amount of the claim of the plaintiff.  This is based on the Law Reform (Contributory Negligence) Act 1945 (‘the English Act’).  The Hong Kong equivalent is Section 21 of the Law Amendment and Reform (Consolidation) Ordinance Cap. 23 (‘LARCO’).

50.  The relevant sections of the English Act are section 1(1) (i.e. section 21(1) of LARCO) and 4 (i.e. section 21(10) of LARCO).

51.  Section 1(1) : Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage : Provided that —(a) this subsection shall not operate to defeat any defence arising under a contract; (b) where any contract or enactment providing for the limitation of liability is applicable to the claim, the amount of damages recoverable by the claimant by virtue of this subsection shall not exceed the maximum limit so applicable.

52.  Section 4 : ‘fault’ means negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to the defence of contributory negligence.

53.  O’Connor L.J., in Vesta following the approach of Prichard J in Rowe v. Turner Hopkins & Partners [1980] 2 N.Z.L.R. 550 who made his decision on the basis of the construction of ‘fault’ in the section 4.  As I understand the argument, section 4 consists of two limbs : the first is referable to the defendant’s conduct but the second is referable to the plaintiff’s conduct.  The defendant’s conduct relates to the plaintiff’s cause of action.  If the plaintiff’s cause of action is based on tort (i.e. one involving the defendant’s conduct), then it is covered by section 1(1) and the damage has to be reduced by the plaintiff’s own contributory negligence.  While the defendant may be concurrently liable in contract, this is immaterial.

54.  Neill L.J. agreed with this approach.  While Sir Roger Ormrod said that he was unconvinced that contributory negligence had any place in contract, he seemed to agree with the above analysis as well.

55.  The High Court of Australia in Astley and others v. Austrust Ltd [1999] 161 ALR 155, reviewed the conflicting decisions including Vesta and the majority of the court firmly rejected the defence of contributory negligence where the claim was based both on contract and tort.  The court was concerned with provisions of section 27A of the Wrongs Act which is identical with the relevant provisions of the English Act.  Gleeson C.J. and the majority of the judges held that those decisions which followed the Vesta approach were wrong because :

(1)	Their interpretation was strained. They relied principally if not exclusively, on the term ‘negligence’ in the definition of ‘fault’.  They ignored the context of that term in the definition itself and also the context provided by the various equivalents of section 27A(3) of the AustralianWrongs Act [i.e. section 1(1) of the English Act].  They ignored the mischief which the legislation was intended to remedy [paragraph 70].
(2)	The Wrongs Act envisaged damages may be awarded for breaches of a tortious duty and separately for breaches of a contractual duty.  This suggested that the causes of action are independent of each other and the finding of damages under a tortious cause of action would not necessarily be equivalent to a finding of damages under a contractual cause of action.  Section 27A recognized a hierarchy of the two claims.  This suggested that the contractual agreement was to have precedence over the damages awarded under the apportionment legislation and the award under a contractual claim should not be reduced to aligning it with an award of damages under the Wrongs Act.
(3)	Historically, no case could be found that contributory negligence was ever held to be a defence to an action for breach of contract.

56.  Callinan J dissented.  He preferred the other view.

57.  Subsequent to Astley, legislative changes were made in Australia which allowed damages to be reduced by contributory negligence in concurrent and co-extensive claims for negligence and damages : see Richardson & Another v. McKinnon [2001] NSWSC 388.

Quantum

58.  On the amount of damages the judge held that the amount should be reduced by matters which cannot be attributed to the 2^nd defendant’s negligence but by the 1^st defendant’s deliberate breach of contract which was not reasonably foreseeable.

59.  He assessed the damages as the difference between the $14,000,000 which the plaintiff would not have paid but for the 2^nd defendant’s breach of duty and the value of the notional shop with the area as shown in the Formal Agreement as at the date of actual delivery of possession.  The figure was $7,295,771 which was calculated as follows :

(1)	Based on the purchase price of $14,500,000 and the area of 76 sq. ft. (i.e. the size as represented by the 1st defendant) the market value of the Shop at the time of contract or delivery was $190,789 per sq. ft.
(2)	The area of Shop on the Formal Agreement Plan was 47.8 sq. ft.
(3)	A 20% discount should be given for reduced usage and marketability as a result of the reduced area of the Shop to 47.8 sq. ft.
(4)	The value of the notional shop was :
	$190,789 X 47.8 X 80% = $7,295,771

60.  The difference of $14,000,000 and $7,295,771 was $6,704,229.

61.  As the judge found the plaintiffs to have been 50% contributorily negligent, the amount of damages was further reduced by 50% to $3,352,114.50.

Purchase price less mitigation

62.  Mr. Neoh S.C., counsel for the plaintiffs argued that the loss suffered by the plaintiffs was $14,500,000 less the sums they may be able to recover by way of mitigation of damage.  The plaintiffs had obtained a winding up order against the 1^st defendant and misfeasance summons had been issued against the directors of the 1^st defendant.  He argued that the notional value of the Shop should not be taken into account in the assessment of damages.  

63.  It is difficult to understand why the judge adopted the approach he had made in this case.  He held that,

‘ Had the 2^nd Defendant properly advised the Plaintiffs, the Plaintiffs would not have paid the further deposit and balance of the purchase price totalling $14,000,000.  Had it not been for the breach of contract on the part of the 1^st Defendant, the Plaintiffs would have obtained a shop of 47.8 square feet of the value of $7,295,771 on 15 October 1997.’

64.  The first part of this passage is easy to understand but the second part is somewhat cryptic.  May be the judge meant that the plaintiffs would not have obtained a smaller shop had it not been for the breach of contract on the part of the 1^st defendant.

65.  But even if it is to be read in such a way it is still difficult to see why the value of the notional shop should be taken into account. 

66.  Although the judge had rescinded the sale, the Shop had not been reassigned back to the 1^st defendant and the plaintiffs still have the Shop.  As a matter of fact the actual size of the Shop is even smaller than 47.8 sq. ft.  It is only 28.5 sq. ft.  In order to mitigate the loss, the value of this Shop has to be taken into account in the ultimate damages to be awarded to the plaintiffs.  But this is quite different from the approach taken by the judge.

67.  The judge had found that the subject matter of the sale based on the terms of the Formal Agreement was the shop as indicated on the Formal Agreement Plan i.e. a shop of a smaller size and of a different layout.  While this finding is challenged by the plaintiffs in the Re-Amended Notice of Appeal, Mr. Neoh did not seek to rely on this because it was not necessary to do so in order to succeed on the appeal. 

68.  But even if the subject matter of the sale is that of a shop with a smaller size, the cause of action relied upon by the plaintiffs against the 1^st defendant was based on the misrepresentation that, among other things, the Shop to be sold to the plaintiffs was as indicated in the Provisional Agreement Plan which was of a bigger size.  Had the 2^nd defendant performed its duty and drawn the plaintiffs’ attention to the discrepancies in the plans the plaintiff would rely on this cause of action in not continuing with the sale.  They did not wish to buy a different shop.  Hence the notional shop is really a red herring and its notional value has no bearing on the loss sustained by the plaintiffs as a result of the 2^nd defendant’s breach except for the purpose of mitigation of damage. 

Interest

69.  The 2^nd defendant also argued that it should not be ordered to pay interest at judgment rate on the award from the date of issue of the writ until payment because of the punitive element.

70.  The rate of the pre-judgment interest is a matter of discretion for the judge.  He ordered both the awards against the 1^st defendant and the 2^nd defendant to carry interest at judgment rate.  I think this is to achieve uniformity so that if the plaintiffs are unable to recover the damages from the 1^st defendant they would not be prejudiced in case a different rate is used as against the 2^nd defendant.  Accordingly I will not disturb the award of judgment rate interest.

Conclusion

71.  Accordingly I will allow the appeal and set aside the judgment below except as to costs.  In its place there will be judgment for the plaintiffs against the 2^nd defendant in the sum of $14,500,000 with interest at judgment rate from the date of the service of the writ to judgment less the amount they may recover by way of mitigation of damage.  The parties are required to submit an agreed form of judgment for the court’s approval.  The judgment will not be enforced without the leave of this court.

72.  The respondent’s notice of the 2^nd defendant is dismissed with an order nisi that costs be to the plaintiffs.

73.  There is also to be an order nisi that the plaintiffs are entitled to the costs of the appeal.

Hon Barma J :

74.  I agree.