KWOK CHUNG AND ANOTHER v. LO ON WA

IN THE COURT OF APPEAL

1996, No. 92
(Civil)

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

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

J U D G M E N T

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

Godfrey, J.A. :

Introduction

1. This is an appeal by the plaintiffs ("the purchasers") from an order made by Miss Maria Yuen (sitting as a deputy judge of the High Court) on 29 March 1996. The purchasers were purchasers under a provisional sale and purchase agreement dated 11 March 1994 for the sale by the defendant ("the vendor") to the purchasers of a property known as Flat D, first floor, Manhattan Heights, Belair Gardens, Shatin, New Territories at a price of $2.57m which was subsequently resold by the vendor elsewhere at the enhanced price of $2.75m.

2. The vendor was held by the judge to have been in breach of the agreement of 11 March 1994. The judge awarded the purchasers $180,000 damages for loss of their bargain (less than they had claimed). She refused to order the vendor to return the purchasers' deposit of $80,000; and she refused the purchasers' claim for a refund of the sum of $70,675 laid out by the purchasers in stamping the agreement.

The appeal

3. The vendor applied at the hearing of the appeal to amend his respondent's notice so as to challenge the judge's finding that the vendor had been in breach of the agreement. But, having regard to the late stage at which his application was made, we refused it. We were therefore left with the purchasers' appeal, which was an appeal (1) against the judge's refusal to order the return of the purchasers' deposit of $80,000; (2) against her assessment, in the sum of $180,000, of the purchasers' damages for loss of their bargain (which the purchasers contend was too low an assessment); and (3) against the judge's refusal to order the vendor to refund to the purchasers the stamp duty of $70,675. I will take these three matters in turn.

The return of the deposit

4. The judge fell into error in failing to order the return of the deposit to the purchasers. A disappointed purchaser is always entitled to the return of his deposit when his vendor wrongly calls off the contract. When the appeal was called on, the vendor conceded his liability to return the deposit and I need say no more about the matter save that if authority is thought to be needed for the proposition that, where it is the vendor who is in default, the purchaser is entitled to recover his deposit with interest, it may be found in Soper v. Arnold (1887) 37 Ch D 96, per Cotton LJ at p.100.

The assessment of damages

5. The purchasers' complaint is that the judge's assessment was too low. They may be right. But the difficulty in their way is that there was no evidence before the judge which would have justified a higher award. In the absence of other evidence the court will normally take evidence of a resale of the property elsewhere at a higher price as evidence justifying an award of a sum equivalent to difference between the contract price and the resale price. The judge put the matter in this way:

"..... the normal measure of damages for breach of contract for sale and purchase of land is the market value of the Property at the contractual time for completion less the contract price.

The Plaintiffs have presented no evidence of the market value of the Property at the contractual time for completion.

I do not accept the price paid by the Plaintiffs in September 1994 (for a different flat on a higher floor) as good evidence of the market value of the suit Property in June 1994. It is not a direct comparable in terms of view, height or time, and no adjustment for comparability has been attempted."

6. If the purchasers here had tendered evidence of the market value of the property in June 1994, showing it to have been worth more than $2.75m, they might have succeeded in persuading the judge that their damages for loss of bargain should have been assessed in a sum exceeding $180,000. But, in the absence of any such evidence, I see no reason at all to interfere with the judge's conclusion, with which I entirely agree. I would therefore dismiss the purchasers' appeal on this point.

The stamp duty

7. The case for the appellant on this point is that the object of an award of damages for breach of contract is to compensate the victim for the loss he suffers by reason of the wrongdoer's breach. In the present case the loss suffered by the purchasers, the victim of the vendor's breach of contract, includes the sum of $70,675 which they have laid out in payment of stamp duty. So, say the purchasers, the judge was wrong not to order that sum to be refunded to them. In answer to this, the vendor says (a) that the purchasers were under a duty to mitigate this "loss" and could and should have tried to do so by invoking the provisions of s.48 or s.52 of the Stamp Duty Ordinance, Cap.117; and (b) that the purchasers cannot have both damages for loss of bargain and a refund of the stamp duty.

8. As to (a), the legislation relating to stamp duty provides that in certain circumstances stamp duty paid on an instrument may be recoverable. One relevant provision is s.48 of the Stamp Duty Ordinance, Cap.117. This section is concerned with allowance for spoiled stamps. S.48(1) lists a number of instances where such an allowance may be made. S.48(2), however, provides that the section shall not apply unless, among other things, in the case of an executed instrument, no legal proceeding other than legal proceedings in which the question whether the instrument is spoiled or falls to be determined has been commenced in which the instrument could or would have been given or offered in evidence; and if the collector so requires the instrument is to be given up to be cancelled.

9. Another relevant provision is s.52, which provides that the Governor may refund wholly or in part the stamp duty paid in respect of any instrument chargeable with stamp duty.

10. So in the present case, says the vendor, the purchasers could have mitigated any loss they suffered in relation to the stamp duty by seeking to recover it, either under s.48 or under s.52.

11. I accept that the purchasers here, like the victims of any other breach of contract, were under a duty to act reasonably to mitigate their loss. However, I am not prepared to hold that the purchasers should have spent money on taking legal advice (as they would have had to do) with a view to finding out whether they would be successful in obtaining a refund of the stamp duty paid here. So far as s.48 is concerned, the agreement of 11 March 1994 was clearly an instrument in respect of which legal proceedings had been commenced and it would have been impossible to succeed in those proceedings without tendering it in evidence. That being so, it seems to me impossible to avoid the conclusion that s.48 is disapplied by the provisions of s.48(2) in that connection to which I have referred. So far as s.52 is concerned, I do not know in what circumstances it might be possible to persuade the Governor to refund stamp duty already paid; but again I am not prepared to hold that these purchasers should have sought to recover that sum by an application under s.52 when it was in any event necessary for them to have the agreement stamped in order to tender it in evidence in their action against the vendor. In the result, I do not find it possible to hold that the purchasers acted unreasonably in failing to take advantage of either s.48 or s.52.

12. That disposes of (a); but the vendor took in this court a new point (b) which had not been taken below. The new point was that the stamp duty was a sum which would have had to be laid out anyway in order to achieve the bargain for the loss of which the purchasers are compensated by the judge's order. This is an interesting and not an altogether easy point. It is clear that where a purchaser succeeds in a claim for damages for loss of bargain, he cannot claim in addition his conveyancing costs incurred in the transaction : see e.g. In re Daniel [1917] 2 Ch 405. From this, it would seem logically to follow that the vendor could claim to be entitled to deduct from the damages any costs for stamp duty that the purchaser would have paid on the transaction being completed. The Court of Appeal in England and Wales has conceded that this might indeed be an appropriate deduction in some cases, although disallowing it on the facts of the case before it; see Ridley v. De Geerts [1945] 2 All ER 654.

13. The facts in that case were that the appellant had agreed to purchase a freehold dwelling-house belonging to the respondent for ￡1,400. Before completion of the sale, the respondent sold the property to a third party for ￡1,600. The appellant then brought an action for specific performance and other relief. The court took the view that there was no contract of sale between the parties and dismissed the action. An appeal from that decision was allowed and, by consent of the parties, the Court of Appeal dealt with the measure of damages to be awarded to the appellant. It was contended for the respondent that, although the amount of damages would be the difference between the two prices, i.e., ￡200, there should be deducted from it the costs, including stamp duty, which the appellant would have incurred if the contract of sale had been completed. It was held that the purpose for which the house was required, whether for occupation or for sale later, did not affect the question of damages which had to be fixed in relation to the pecuniary loss suffered by the appellant who was, therefore, entitled to damages without deduction of any costs. Lord Greene, M.R. says this :

"There is no question of specific performance because the respondent thought it proper to back out of this transaction when she had been offered a higher price, and she has in fact completed that purchase for ￡1,600, that is ￡200 more than the appellant was to pay. The question, then, is what is the measure of damages. Prima facie one would have thought on the evidence before us - and we are asked to assess the damages - the measure of damages would be the difference between the two prices, ￡200. But counsel for the respondent suggests that there should be deducted from that the costs which the appellant would have been put to, including stamp duty, in the event of the transaction going through. It may very well be that in some cases that may be an appropriate deduction, but on the facts of this case I do not think it would be right to deduct those costs."

14. Du Parcq and Morton, L.JJ. concurred.

15. It is to be borne in mind that, in England and Wales, stamp duty is payable only on the conveyance, so that where disputes such as that which has arisen at the present case fall to be dealt with, there will be no question of any stamp duty having already been paid, only of stamp duty being prospectively payable.

16. In the Hong Kong situation, it is not possible for a purchaser to achieve his bargain without first paying the stamp duty on the agreement for sale and purchase. If a purchaser completes his bargain in the ordinary way, he will have had to lay out the stamp duty as part of the price of his bargain. If instead he is forced to sue the vendor for damages for loss of bargain then, as it seems to me, it cannot have it both ways. He cannot claim the benefit of the bargain, or, rather, the damages awarded to him for the loss of it, and also at the same time claim a refund of the money which he had to pay out by way of stamp duty to achieve the bargain in the first place. For these reasons, which are different from those given by the judge, I think she came to the right conclusion in refusing to order the vendor to refund the stamp duty to the purchasers. I would on this point also dismiss the purchasers' appeal.

The result

17. The result, if I am right so far, is that we will order the return of the purchasers' deposit of $80,000; and so to that extent we will allow the purchasers' appeal. We will however dismiss the purchasers' appeal against the judge's assessment in the sum of $180,000 as the purchasers' damages for loss of bargain; and we will dismiss the purchasers' appeal against the judge's refusal to order the vendor to refund the stamp duty of $70,675 to the purchasers.

18. I do not think there is anything I can usefully add.

Ching, J.A.

19. I agree with the order proposed by my Lord, Godfrey, J.A. for the reasons which he has given.

Nazareth, V.-P.:

20. I also agree with the conclusions my Lord Godfrey JA has reached for the reasons he has given.

21. I would add that the only matter that has caused me difficulty is the new point taken as to whether the damage for the loss of the purchaser's bargain should include the stamp duty paid. Counsel before us pursued their different views of the three authorities cited upon the point: In re Daniel [1917] 2 Ch 405, Ridley v. De Geerts [1945] All ER 654 and Wallington v Townsend [1939] Ch 588. I cannot pretend to fully comprehend the reasons in Ridley but I am content to accept the general statement of the position, which accords with our view, given in the following passage at paragraphs 908 and 909 of the 15th Edition of McGregor on Damages:

"Where the plaintiff can and does recover for the loss of his bargain he cannot also recover the expenses of investigating title, for, as was pointed out in Re Daniel where the court so held, 'if they had had the property conveyed to them, of course they would have had to incur all the expense of investigating the title.' Similarly if the plaintiff has not yet incurred the investigation costs, the amount he would have expended will be deducted where it is clear that he would have incurred them. But where the plaintiff might not have incurred such expenses at all, the Court of Appeal allowed no deduction in Ridley v. De Geerts, while recognising that such a deduction might well be appropriate in different circumstances. In this case the plaintiff purchaser 'could then and there have resold the house in question at a profit before even she had investigated the title much less completed the contract. ... The market was an active one. ... It is no answer to say that the appellant was buying for her own occupation.'

On the other hand, where the plaintiff was unable to prove that she had suffered any loss of bargain, Morton, J. held in Wallington v. Townsend that she was then entitled to recover the conveyance expenses as damages, ..."

22. I would also make the order proposed by Godfrey, J.A.