CENTALINE PROPERTY AGENCY LTD. v. LAI YUK CHUN

CACV 115/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 115 OF 2002

(On appeal from HCA 18369/99)

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JUDGMENT

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Hon Yuen JA:

1. This is an appeal by the Defendant (the Plaintiff by Counterclaim) from the judgment of Deputy Judge To awarding her (a) only nominal damages in her Counterclaim and (b) costs of the action on the District Court, and not on the High Court, scale.

Background facts

2. The facts which were undisputed or which were found by the judge were as follows. The Defendant owned Flat 9B in a block of flats called Pearl Court in Beacon Hill. She had emigrated in 1993, and had put the flat on the market for some time, but there was no pressing need for her to sell it.

3. In 1995, the Defendant was approached by the caretaker of the block on behalf of the resident of the flat downstairs, a Mr Wong ("Mr Wong Senior"), who was interested in buying her flat. However there was a history of discord between Mr Wong Senior and the Defendant. The Defendant was reluctant to sell the flat to Mr Wong Senior but as a favour to the caretaker stated a price of $15m. There was no counter-offer from Mr Wong Senior. Apparently the Defendant further took exception to Mr Wong Senior's view that the flat was not worth it.

4. In 1996, the Defendant was approached by her then estate agents (not the Plaintiff) to state her price to Mr Wong Senior. This time the Defendant stated a price of $17m. Again, there was no counter-offer.

5. In 1998, the Defendant retained the Plaintiff as her estate agents to manage and market the flat.

6. In 1999, the Defendant returned to Hong Kong for the summer. It was during this period that the events the subject-matter of this action occurred.

7. Recognizing that the market price for flats had fallen by then, by 20 July 1999 the Defendant informed the Plaintiff that she would reduce the price for the flat to $12m. for persons who were not neighbours. By 22 July 1999, this price had dropped to $11.5m and by 23 July, to $11.48m.

8. However the judge found that the Defendant had given clear instructions to the Plaintiff that she would not sell the flat to neighbours at less than $13m.

9. Eventually, by a Provisional Sale and Purchase Agreement dated 24 July 1999 but signed on 26 July 1999, the Defendant sold the flat for $11.48m. However the purchaser turned out to be Mr Wong Senior's son ("Mr Wong") who, with his wife, lived with his father at Pearl Court after returning from abroad.

10. The judge found that the Plaintiff's employee, in breach of its contract with the Defendant, had told her that the prospective purchaser lived in another building called Beacon Hill Court. It was on this understanding, that he was not a neighbour, that the Defendant signed the Provisional Sale and Purchase Agreement.

11. Two days later, the Defendant discovered the purchaser's identity, but on legal advice, proceeded to completion.

12. However the Defendant refused to pay commission to the Plaintiff, who sued for it in the District Court. The Defendant raised a counterclaim for damages (which will be referred to later in this judgment), and by consent, the action was transferred to the High Court.

13. The judge found that the Plaintiff was in breach of its contract with the Defendant and dismissed its claim to commission. He gave judgment to the Defendant on her counterclaim but awarded only nominal damages of $1, and he gave the costs of the action to the Defendant on the District Court scale.

14. The Plaintiff has not appealed the judgment.

15. The Defendant has appealed the award of nominal damages and the scale of costs.

Counterclaim

16. Before considering the grounds of appeal, it may be helpful to first examine the scope of the Counterclaim.

17. It was pleaded in paragraph 15 that by reason of the Plaintiff's breach of the agency contract, negligence, and/or misrepresentation, the Defendant had suffered loss and damage.

18. It should be noted that there was no pleading of conspiracy, nor of fraudulent misrepresentation. Although it was pleaded that "the misrepresentation is false and untrue", there was no unequivocal pleading that the Plaintiff or its employee knew the representations to be untrue.

19. It should also be noted that under paragraph 15, the damages sought were pecuniary. The damages were said to be the difference between the Defendant's asking price of $13m. and the actual sale price of $11.48m. (i.e. $1.52m.). That quantification was on the basis that if the Plaintiff had told the Defendant that the purchaser was Mr Wong so that the Defendant would have demanded the asking price for neighbours, Mr Wong would have met her price and paid $13m. for the flat.

20. In the Defendant's Amended Counterclaim, paragraph 15A was added which pleaded:-

"further and in the alternative, the Defendant suffered loss and damage in losing the opportunity to hold onto the property and refuse to sell it at HK$11.48m. to [Mr Wong] or his nominee who by reason of his special liking for the property may be prepared to pay an even higher price for it, and the Defendant thereby lost the opportunity to sell the property at such higher price".

21. It should be noted that the reference to "such higher price" showed that the damages sought were still pecuniary.

22. The relief sought was for $1.52m. alternatively, damages to be assessed. However, by reference to paragraphs 15 and 15A, any damages to be assessed would be understood to be of a pecuniary nature only.

New ground of appeal based on Farley v Skinner

23. At the hearing of the appeal, Mr Benjamin Chain, counsel for the Defendant, sought to add a new ground of appeal, as follows:

"5A. That the learned Deputy Judge ought to have awarded damages to the Defendant for the Plaintiff's breach of contract in failing to follow a specific instruction of the Defendant, which specific instruction was plainly a matter of importance to the Defendant and was made clear to the Plaintiff that it was important, resulting in the Defendant being deprived of the chance to make an informed choice, even if such loss or damage may be non-pecuniary".

24. Mr Chain submitted that this ground was based on Farley v Skinner [2001] 3 WLR 899, a House of Lords decision reported on 26 October 2001, which happened to be the last day of the trial in the present case.

25. Before Farley, the law as to the exceptional situations where the court would award non-pecuniary damages for disappointment or physical discomfort as a result of breach of contract had been set out by Bingham LJ in Watts v Morrow [1991] 1 WLR 1421, at 1445:-

"(1) A contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party. This rule is not ... founded on the assumption that such reactions are not foreseeable ... but on considerations of policy.

(2) But the rule is not absolute. Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided for or if the contrary result is procured instead. If the law did not cater for this exceptional category of case it would be defective. ...

(3) In cases not falling within this exceptional category, damages are ... recoverable for physical inconvenience and discomfort caused by the breach, and mental suffering directly related to that inconvenience and discomfort. ..." (Emphasis supplied).

26. The general rule in paragraph (1) above, founded on Addis v Gramophone Co Ltd [1909] AC 488, had been affirmed by the House of Lords in Johnson v Gore Wood & Co [2001] 2 WLR 72, 97, 101, 115, 127.

27. In Farley, the House of Lords extended the scope of the exception at paragraph (1) by holding that it need not have been the "very object of the contract" to provide pleasure or peace of mind. It was sufficient "if a major or important object of the contract is to give pleasure, relaxation or peace of mind" (at 910B).

28. However it remained essential (in a case where there was no physical discomfort) that the contract was one which had to do with the provision of pleasure or peace of mind. Thus, Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 was a case where the contract was for the building of a swimming pool where the house-owner had specified a certain depth at the diving end. Farley itself was concerned with a contract for the survey of a retirement country house where the potential purchaser had specifically wanted investigation of noise disturbance from aircraft.

29. In the present case, Mr Chain submitted that since the Defendant had specifically instructed the Plaintiff to inform her if the prospective purchaser was a neighbour, and the Plaintiff had been in breach of that part of the contract, she should be compensated for the breach even though no pecuniary loss had been suffered. She was entitled to damages for being "let down" by the Plaintiff. (Presumably, the damages sought would be for disappointment, since there was no evidence whatsoever of physical inconvenience or discomfort).

30. We did not give leave to add this new ground of appeal. We did not agree with Mr Chain that the point can be raised in this court now without a further amendment of the Counterclaim and without further evidence. Whilst it is correct that the Defendant had given evidence below of the discord she had with Mr Wong Senior which was not challenged, in the light of the pleaded case then it was not necessary for the Plaintiff's counsel to explore that aspect.

31. If the Defendant's new point were raised, it would be necessary for the Plaintiff to probe why the identity of the prospective purchaser was relevant to the Defendant:- was it because it gave her some sort of truculent pleasure to demand a higher price from her neighbours? Or was it simply to enable her to make a hardheaded calculation of maximum profit from a captive corner of the market?

32. Even though the judge accepted the Defendant's evidence that she did not get on with Mr Wong Senior and did not want to sell her flat to him, that did not explain her evidence that she would not reduce the asking price for all neighbours, and not only Mr Wong Senior.

33. These are issues of fact that would need to be explored if a claim is made for non-pecuniary damages for disappointment under Farley.

34. Further, it would be an issue of fact to what extent the information about the identity of the prospective purchaser was a major or important object of the contract between the Plaintiff and the Defendant. Whilst the judge accepted the Defendant's evidence that she had given instructions to the Plaintiff to ascertain the prospective purchaser's identity, the degree of importance of those instructions was not explored. It is neither appropriate nor fair to read the transcript of evidence for inferential evidence on this new point when neither the questioner nor the answerer had directed his mind to it at the time.

Nominal damages

35. I then come to the Defendant's other grounds of appeal. The Defendant submitted that the judge should have awarded her more than nominal damages for the Plaintiff's breach of contract.

36. It is undisputed that damages for breach of contract are awarded on the basis as if the contract had been performed. Mr Chain submitted that if the contract had been performed i.e. if the Plaintiff had informed the Defendant that Mr Wong was the prospective purchaser, the Defendant would have refused to sell the flat to him at $11.48m. and there was a chance that Mr Wong would have paid more for the flat.

37. As for the quality of the chance required, it was held in Allied Maples Group v Simmons and Simmons [1995] 1 WLR 1602 that where a claimant's loss depended on the hypothetical action of a third party (in this case, Mr Wong), the claimant would succeed if he could show that there was a real and substantial, rather than a speculative, chance that the third party would have acted so as to confer the benefit on the claimant.

38. So the issue is:- was there a real and substantial chance that Mr Wong would have paid more for the purchase of the flat?

39. The judge found that if the Plaintiff had performed the contract and informed the Defendant that Mr Wong was the prospective purchaser, no sale would have taken place. The judge was entitled to make that finding on the evidence. A contract of sale required two parties to act, (a) Mr Wong being ready willing and able to pay more than $11.48m. and (b) if he was willing to pay more than $11.48m. but less than $13m., the Defendant being ready and willing to receive less than $13m.

40. As far as Mr Wong was concerned, the judge found that $11.48m. was Mr Wong's "near final" offer and that he would not have offered "much more". Mr Chain attacked that finding on the basis that the initial deposit was $390,000. This was 3% of $13m. and Mr Chain submitted that this showed that Mr Wong was prepared to go up to $13m. if necessary to acquire the flat. Mr Chain submitted that in holding that he was unable to draw an irresistible inference from the amount of initial deposit that there was a conspiracy between the Plaintiff and Mr Wong, the judge had set too heavy a burden on the Defendant.

41. It is of course correct arithmetically that $390,000 is 3% of $13m. but that is of little consequence unless there was some significance in 3%. There was no evidence of any such significance. Insofar as it may have been intended that the initial deposit would reflect stamp duty payable, the applicable rate at the time was 3.75%, not 3%. So if the initial deposit was meant to reflect stamp duty, the amount of $390,000 would only have been enough for a purchase price of even less than $11m.

42. Nor was it put to Mr Wong at the trial that the amount of initial deposit was chosen because he was willing to pay up to $13m. If the point had been put to him, reasons might have been given why the amount of $390,000 was adopted as the initial deposit.

43. In any event, the judge's finding that $11.48m. was Mr Wong's "near final" offer was supported by other pieces of evidence. The judge accepted Mr Wong's evidence that the Defendant's flat was not his only option, as his wife preferred a duplex in Sky Lodge where they would be close to their daughter. Perhaps more importantly, the market value of the flat was only $9.8m. Mr Wong had increased his offer a few times already and he had got to the stage when, on the evidence, he wanted a reduction (which he got, of $20,000) so that he could feel that he had obtained some concession, however slight.

44. The judge therefore had evidence before him, which he accepted, that Mr Wong would not pay "much more" to buy the flat. It may have been that he might have paid a little more. He agreed with a question put in cross-examination that if the Defendant had not accepted $11.48m. he would have carried on negotiating, whilst considering other options. In this respect, a figure of $11.6m was mentioned by counsel for the Defendant without rejection by Mr Wong.

45. However, the fact that Mr Wong's offer of $11.48m. was only "near final" and not "final" does not lead to the conclusion that the Defendant should therefore be entitled to substantial damages from the Plaintiff for the loss of a chance, for that does not translate to a real and substantial chance that the Defendant would sell the flat to him. The Defendant was adamant in her evidence that she would not sell the flat to any of her neighbours except at the price of $13m., and (other than the amount of initial deposit, which has been found to be of no significance), there was sufficient evidence to support the judge's finding that Mr Wong would not have gone up to $13m.

46. It is not possible for Mr Chain to contradict the Defendant's own evidence and suggest that she might have been persuaded to take less than $13m. The Defendant's evidence (at p.97 F-G of the transcript and which was accepted by the judge) was that she would have preferred not to have to sell the flat to Mr Wong, but if he adopted a good and earnest attitude, and as she had previously quoted him a price via the caretaker, she would sell it to him but only at the price of $13m.

47. Therefore when the judge had found that the price that one party was prepared to pay was so far apart from the price that the other party was prepared to accept, he was clearly right to find that there was no real or substantial chance that a contract for the sale and purchase of the flat would have been concluded.

48. As for the chance that the flat would have been sold to a party other than Mr Wong (at more than $11.48m.), there was no evidence of any other interested parties.

49. In the premises, the damages for breach of contract would have to be restricted to nominal damages. However reprehensible the Plaintiff's conduct may have been, and even though the judge disbelieved parts of the evidence of the Plaintiff's employee and Mr Wong, there had been no pleading of conspiracy and even if there had been, there would have had to be some pecuniary loss before damages at large could be considered.

Scale of costs

50. As for costs of the action, the judge had made an order at the end of his judgement that the Defendant should have her costs of the action. There was no reference however to the scale of costs, and the parties indicated that they wished to be heard on this matter.

51. By mistake, the order was sealed before the hearing, but Mr Chain abandoned his ground of appeal that the order had been sealed.

52. The judge decided that the Defendant should only get her costs on the District Court scale and ordered accordingly. In the course of the argument at that hearing, reference was made to s.44A(6) District Court Ordinance Cap.336, which the judge held did not apply.

53. Mr Chain's submission on appeal was that the judge was wrong to so hold. This subsection provides:-

"Where proceedings in which the [District] Court has jurisdiction are brought in the Court of First Instance, the Court shall order costs on the scale and in the amount as if the proceedings had been brought in the Court, unless the proceedings were brought by leave of the Court of First Instance or unless the Court of First Instance otherwise orders".

54. Mr Chain submitted that as there had been a consent order made in the Court of First Instance for the transfer of the action to it, that was equivalent to the giving of leave for the bringing of proceedings.

55. With respect to Mr Chain, that subsection does not apply to the present situation. That subsection applies only to a situation where proceedings were started in the Court of First Instance and were then transferred to the District Court. In the present case, the proceedings were started in the District Court and were then transferred to the Court of First Instance on the Defendant's application. Clearly therefore s.44A(4) applies, to the effect that the Court of First Instance has the power to order costs to be taxed on the District Court scale.

56. As s.44A(3) makes clear, the costs are in the discretion of the judge. As far as the exercise of that discretion is concerned, the judge has set out clearly his reasons for ordering costs on the District Court scale. It is well-established that an appellate court would not lightly interfere with the exercise of a judge's discretion unless he had applied the wrong principles or had made a mistaken inference of facts or had reached an abhorrent decision (Hadmor v Hamilton [1983] 1 AC 191). It has not been shown that any of those situations occurred here.

Order

57. In the circumstances, this appeal should be dismissed with an order nisi that the appellant should bear the costs of the appeal, to be taxed if not agreed.

Hon. Chung J:

58. I agree.

Hon. Kwan J:-

58. I agree.