Hong Fok Realty Pte Ltd v Bima Investment Pte Ltd and another appeal

• Judge: Chan Sek Keong J
• Judgment Date: 14 September 1992
• Neutral Citation: [1992] SGCA 57
• Citation: [1992] SGCA 57
• Subject Matter: Contract,Whether within contemplation of parties,Remedies,Damages recoverable,Damages for loss of use,Sale of property,Rescission of contract,Benefit of occupation enjoyed by purchaser to be taken into account,Repudiatory breach,Return of deposit and portion of purchase price already paid,Damages,Claim for interest,Reimbursement for wasted expenditure in setting up premises and conveyancing costs
• Year: 1992
• Published date: 24 December 2003
• Defendant Counsel: Rabi Doraisamy (Cooma Lau & Loh)
• Plaintiff Counsel: Joseph Ang (Lee & Lee)
• Court: Court of Three Judges (Singapore)

Cur Adv Vult

These appeals concern the proper basis for the award of damages where a purchaser rescinds a contract for the purchase of real property on account of the vendor`s repudiatory breach.

The appeals were originally heard by this court consisting of three judges. Chan Sek Keong J has since relinquished his appointment as a judge on taking up another public office. In accordance with s 33(1) of the Supreme Court of Judicature Act (Cap 322), the parties have consented to the two remaining judges of the court continuing with the case and giving this reserved judgment.

The facts

Hong Fok Realty Ltd, as developers and vendors, entered into a contract on 4 August 1983 for the sale of a warehouse unit in a multi-storey warehouse development in Henderson Industrial Park to Bima Investment Pte Ltd at the price of $1,075,200. The property was under construction, and the purchase price was payable under the contract by instalments pegged for the most part to the completion of stages of the construction works. On 14 December 1984, Bima having paid the instalment due on the issue of a temporary occupation licence by the building control authorities, Hong Fok were obliged to give, and Bima were entitled to take, possession of the unit. By that time, Bima had paid a total of $806,400, or 75% of the purchase price.

Bima took possession, and spent money on furnishing the unit to make it into a warehouse for letting out to others for the storage of goods. They soon discovered that there were serious problems of leakage and seepage of waste matter from the floor above. This was eventually traced to defects connected with the plumbing of toilets on the floor above the unit. Hong Fok made attempts to remedy the defect, but the problem remained. In fact, the learned judge in the court below found that the problem was still there at the date of the hearing. On 15 October 1985, Bima by letter told Hong Fok that they were rescinding the contract. They demanded the return of all the instalments which they had paid. On 26 November 1985, they took out an originating summons, seeking a declaration that they had effectively rescinded the contract and the return of the $806,400 which they had paid to Hong Fok, and various other remedies. They also claimed interest.

The originating summons proceeded as an action by writ. In a reserved judgment dated 28 February 1990 [see [1990] 2 MLJ 193 ], the learned judge, Lai Kew Chai J, found that by reason of the defect Bima were not getting substantially the same property which Hong Fok had contracted to sell to them, and that Bima were therefore entitled to rescind the contract. He found that of the total floor area of 3,584sq ft, about 476sq ft (13.28%) were directly, and 905sq ft (25.27%) were indirectly, affected by the defect.

The learned judge awarded Bima the various remedies which they sought. In summary, they are as follows. Firstly, Bima were to have the return of the sum of $806,400 which they had paid to Hong Fok by way of instalments under the contract. Secondly, Bima were awarded damages to be assessed for the loss of use of 38.5% of the warehouse space which was directly or indirectly affected by the leakage and seepage. Thirdly, Bima were to be reimbursed for the cost incurred by them in the setting-up and furnishing of the warehouse, including the cost of the internal partitioning, and the cost incurred by them for dismantling and removal on vacating the premises. (For short, we shall refer to this head of damages as `the setting-up cost`.) Fourthly, Bima were to have the cost and expenses incurred by them `in or about` the sale and purchase agreement, ie the conveyancing cost. The learned judge ordered inquiries to ascertain these heads of damages.

The learned judge also held that Bima were entitled to a lien on the property for the sum of $806,400 and the other damages recoverable from Hong Fok. He held that Bima were entitled to remain in possession in exercise of their lien as purchasers.

Assessment of damages

In pursuance of the judgment, the three heads of damages were assessed by an assistant registrar on 17 April 1991. It is necessary only to mention the assessment of the loss of use of the unusable portion of the unit. The judgment did not in terms direct what period in respect of which the loss of use was to be assessed. The parties argued this point before the learned assistant registrar. Bima contended that the period should be from the date Bima took possession up to the date Bima were to give up possession on being paid all the sums due to them under the judgment. The assistant registrar ruled against Bima and decided that the period should be from 14 December 1984, the date Bima took possession, to 15 October 1985, the date they rescinded the contract.

Bima remained in possession until 30 April 1991, when the damages as assessed by the assistant registrar had been paid to them together with the return of the instalment sum of $806,400.

Hong Fok`s appeal in Civil Appeal No 29 of 1990 is against the remedies granted by the judge in this judgment of 28 February 1990.

Interest

The learned judge reserved the question of interest for argument. Bima submitted that they were entitled to interest on:

(a) the sum of $806,400 which they had paid under the agreement;

(b) the damages for the loss of use;

(c) the setting-up cost; and

(d) the conveyancing cost.

The learned judge dealt with the question of interest in this way. He said that the principle underlying an award of interest is not to compensate a plaintiff for any damage done but to compensate him for being kept out of his money. He then said:

Counsel for the defendants submitted, and I accepted his submissions, that the plaintiffs had the benefit of the usable portion of the warehouse as they had collected storage charges from various bailors and that therefore the plaintiffs had occupation and use of the usable part. See Allen v Smith

[1924] 2 Ch 308 and Lloyd v Stanbury [1971] 2 All ER 267. As for the unusable portion which was affected by the leaks is concerned, I had ordered damages to be assessed. Plainly, those damages would be in lieu of the storage charges the plaintiffs would have earned and would represent the value for the proportionate price of that portion of the warehouse which the plaintiffs had paid.

As for the setting-up cost and the conveyancing cost, he disallowed Bima`s claim for interest on the ground that they had derived substantial benefit from having incurred those costs without which they would not have been given possession and they would not have been able to let out the warehouse space.

The learned judge, in a judgment dated 28 September 1990, thus dismissed with costs all Bima`s claims for interest. Bima`s appeal in Civil Appeal No 72 of 1990 is against this judgment.

Issues in the appeals

As a broad summary, Hong Fok say that the learned judge was wrong in awarding Bima damages for loss of use without taking into consideration the benefit that Bima received from being in possession of the property. Bima, they say, should be charged an occupation rent. They also say that it was wrong for the learned judge to award damages for the loss of use and at the same time the setting-up cost as well. They say that if loss of use was to be awarded, it should be on the basis of the 13.28% of floor space that was directly affected, not the 25.27% that was only indirectly affected. They also say that Bima should not have been awarded the conveyancing cost.

Hong Fok also say that the judge was wrong in holding that Bima were entitled to remain in possession of the premises in exercise of their lien as purchaser.

Hong Fok framed the issues as they saw them as follows:

Issue 1: Were the respondents entitled to remain in possession in exercise of a lien?

Issue 2:

Are the respondents chargeable with an occupation rent?

Issue 3:

Were the respondents entitled to claim damages for loss of use though rescission was ordered?

Issue 4:

Assuming the respondents were entitled to claim damages for loss of use, were they entitled to compensation for the loss of use of 38.55% instead of 13.28% of the total area of the unit?

Bima, on the other hand, say that the learned judge was wrong in refusing interest.

Terminology: `rescission`

Before dealing with these questions, it is necessary to clarify certain problems of terminology which have presented themselves in submissions before the court below and before us. These revolve around the use of the word `rescission`.

There are two main senses in which the word is used in contractual disputes. Dixon J in Mcdonald v Dennys Lascelles Ltd [1933] 48 CLR 457 expressed the position as follows:

When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are

...