Nan Feng Enamel Factory (Hong Kong) Ltd v. Lai Sun Garment Co Ltd
Read the full judgment text of CACV 27/1973 on BabelCite. This Court of Appeal judgment was delivered on 17 January 1975.
2. The circumstances out of which the dispute arose may, without unduly simplifying them, be stated as follows : On 14th November 1972 a Mr. Howard Thomas Drue, the Managing Director of the plaintiff company (appellants in the present case) purporting to act on behalf of the company executed an agreement of sale and purchase in respect of the land whereby it was sold to Donald Huk Keung Chow (the second defendant in the action) at a price of $75 per square foot. This agreement was negotiated on
|
CACV000027/1973 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 27 OF 1973 (ON APPEAL FROM O.J. ACTION NO. 784 OF 1973) -----------------
----------------- Coram: Full Court (Huggins, McMullin and Pickering JJ.) Date of Judgment: 17 January 1975 ----------------- JUDGMENT ----------------- McMullin, J. : The plaintiffs, Messrs. Nan Feng Enamel Factory (Hong Kong) Limited, were the owners of a plot of land which the company desired to sell. The endeavour to put this simple plan into operation in the year 1972 has resulted in a tangle of litigation involving, we were informed, the concurrent existence of no less than three distinct actions in which the present appellant and respondent figured variously together with the four other protagonists who originally featured in the several claims out of which the present appeal has arisen. Fortunately, we do not have to pursue all the complications of that litigation. The present action is in a sense the watershed of the whole dispute and, by virtue of a series of settlements and accommodations arrived at between various parties in the course of the hearing, the matters to be considered and the questions to be answered upon this appeal fall within a modest compass. 2. The circumstances out of which the dispute arose may, without unduly simplifying them, be stated as follows : On 14th November 1972 a Mr. Howard Thomas Drue, the Managing Director of the plaintiff company (appellants in the present case) purporting to act on behalf of the company executed an agreement of sale and purchase in respect of the land whereby it was sold to Donald Huk Keung Chow (the second defendant in the action) at a price of $75 per square foot. This agreement was negotiated on behalf of the plaintiffs and the second defendant by Miss Therese P.F. Chow, solicitor in the legal firm which is named as the third defendant in the action. The second defendant was, in fact, the undisclosed agent, for the purpose of this transaction, of the fourth defendants, the Lucky Enamelware Factory Limited. On the 7th November 1972, the fifth defendant, Mr. Richard Chu, who claimed to be the person in full control of the plaintiff company had entered into an arrangement with the first defendants in the action, the Lai Sun Garment Company Limited, (respondents in the present appeal) concerning the sale to the first defendants of the same plot of land. To that end the fifth and first defendants executed a document, referred to as the "written confirmation" and purporting to be dated 7th November 1972 although the plaintiffs alleged that it was executed after 11th November 1972, in which, subject to a formal agreement of sale and purchase to be later executed between them, the said land was to be sold to the first defendants at a price of $70 per square foot upon the payment of a sum of $50,000 by way of initial deposit, which sum was, in fact, handed over upon the signing of the agreement on the 7th of November. The a agreement of sale and purchase dated the 14th of November was registered in the District Office of the Now Territories by the third defendant on the 16th of November 1972; the "written confirmation" was likewise registered on the 21st of November. By that date, therefore, a situation had arisen whereby two different persons purporting to act with the full authority of the plaintiffs had sold the same plot of land to two entirely different purchasers at two different prices. 3. It is hardly surprising that this situation very soon afterwards exploded in a flurry of acrimonious litigation. The first defendants and the fifth defendant, on the one hand, and the second and the fourth defendants, on the other, protested the primacy of their own agreement with the plaintiff. All of them accused the plaintiffs of bad faith and there were demands for specific performance and damages. The plaintiffs resisted these claims professing not to be bound by either of the arrangements purportedly entered into on their behalf. There were counterclaims, based on these allegations between the defendants and the plaintiffs and between the several defendants themselves, although, in the latter case, third party procedure would seem to have been more appropriate. The plaintiffs accused the first and fifth defendants of fraudulent conspiracy in relation to the "written confirmation" and denounced the alleged agreement with the second and fourth defendants principally on the ground that the purported sale was at a gross undervalue and that this had come about through the collusive default of the third defendant who was said to have recommended the sale in breach of her fiduciary duty to the plaintiffs in that she herself, it was alleged, stood to make a substantial profit from the deal as a shareholder in the fourth defendant company. 4. The plaintiffs sought a declaration against the first defendants that the "written confirmation" was null and void and of no effect and a consequential order setting it aside and ordering its registration to be vacated. 5. As against the second defendant an order was sought rescinding the agreement of the 14th of November and a consequential order that its registration should be vacated. The plaintiffs sought damages for conspiracy against the first and fifth defendants and damages for breach of fiduciary duty, or negligence in the alternative, against the third defendant. The several defendant claimants sought specific performance of the agreements upon which their claims were founded and claimed damages for breach of contract and, as between each other, they asked for declarations and injunctions restraining the implementation of the opposing agreements. 6. A substantial settlement of these conflicting claims was, however, reached in the course of the trial, upon the 15th of June. On that date the plaintiffs sought leave to discontinue their action against the second and fourth defendants on terms that those defendants would waive all costs, up to the date of that settlement, against the plaintiff. The plaintiffs also consented to a declaration that the agreement of the 14th of November was a valid and binding agreement and consented, further, to an order, in favour of the second and fourth defendants for specific performance of that agreement. The plaintiffs sought leave to discontinue the action against the third defendant on terms that the third defendant's costs of the action up to that date should be taxed and paid. 7. On the same date, at the same point in the action, the first defendants came to an agreement with the second and fourth defendants whereby the first defendants agreed, on payment to them by the second and fourth of a sum of $225,000, to relinquish their claim to the land and to permit the vacation of the registration of the "written confirmation". No compromise was worked out between the plaintiffs and the first defendants but, in view of the settlements made between the plaintiffs and the other parties at the hearing on the 15th of June, counsel for the plaintiffs announced that he was no longer pursuing the claim for conspiracy against the first and fifth defendants. It was at this point that the views of Mr. Litton for the plaintiffs and Mr. Zimmern for the first defendants as to what was the total result of these manoeuvres came into that degree of collision which has persisted to the conclusion of the hearing of this appeal, Mr. Donnelly, for the respondents, having adopted the position taken by Mr. Litton at the trial. Mr. Litton not unnaturally appears to have taken the view that there was virtually nothing left of the action save for the question of costs, principally in relation to the claim for conspiracy. Mr. Zimmern however urged upon the court the view which eventually prevailed viz. that the settlement or compromise arrangement between the first defendants and the second and fourth defendants was a wholly collateral matter to the claims still existing between the plaintiffs and the first defendants. While he agreed that the respondent company could not, in view of that compromise, proceed with its counterclaim for specific performance against the plaintiffs, he maintained that it was proper for it to continue with its action for damages as claimed. 8. Although, in the course of the exchanges between the bar and the bench on the 15th of June, Mr. Zimmern appeared to associate his claim for damages with the claim for specific performance was being abandoned, he was entitled to claim damages in lieu thereof, an obviously untenable position, the prayer in the counterclaim includes a claim for damages under quite a separate head from the claim for specific performance. As I understand it, that is a claim for common law damages distinct from the claim for damages which, since Lord Cairns' Act, a party may claim in lieu of specific performance. No doubt it was to this separate claim Mr. Zimmern intended to refer. If there is a viable claim for damages at all, persisting in the first defendants after the various compromises, it must be for the bare breach and not in lieu of specific performance where the right to that relief has been expressly abandoned. 9. Following upon the events in the court of trial on the 15th of June the subsequent actions of counsel for the plaintiffs and for the first defendants reflect the logic of the positions they had adopted as to the effect of those events. Mr. Litton, satisfied that there was nothing further to fight, either in respect of the first defendants or the fifth defendant, went his way and made no further appearance in court. Mr. Zimmern on the other hand, upon the resumed hearing, called three witnessed including the fifth defendant, to testify to the signing of the "written confirmation" and having closed his case addressed the court and asked for damages in the sum of $198,385. H persuaded the court that this was the proper measure of damages. He arrived at this figure by contrasting the $75 per square foot, which was the price to be paid by the second and fourth defendants to the plaintiffs under the compromise arrangements which had resulted in specific performance of their agreement, with the price of $70 per square foot which was the stated selling price in the "written confirmation". Since the second and fourth defendants were paying to them in fact a greater sum than the she claimed by the first defendants by way of damaged the logic of this claim may not be immediately clear. What is intended, presumably, is that the first defendants had foregone their right to specific performance which, if enforced, would have left them with a property which could have at once been sold at a price more than $400,000 greater than the price they had paid for it. The measure of damages, that is to say, was the amount of lost profit on such a hypothetical sale. This $198,385 is claimed on the basis that the $225,000 received by the first defendant from the second and fourth defendants in return for the respondents relinquishing their claim for specific performance was a wholly collateral matter between those defendants to the entire exclusion of the plaintiffs who remained bound to the first defendants by an enforceable contractual obligation. The bargain between the first defendants and the other defendants was, in counsel's submission, res inter alios acta and therefore no concern of the plaintiffs. 10. While there is not lacking to this bold contention a certain appearance of logic I am quite satisfied that it is unsound. The respondents' whole prospect of advantage vis-a-vis the plaintiffs rested upon their being able to enforce the agreement between them. If the defendants had proceeded with that claim and if they had succeeded they could have had either the land or else damages in lieu thereof or in addition thereto. In that case some such measure as was proposed by the first defendants might have been the appropriate measure to apply. I cannot regard as valid the analogy which counsel sought to make between the payment of $225,000 by the second and fourth defendants to the first defendants, in compromise of the first defendant's claim, and the payment of an insurance premium. The second and fourth defendants were not insuring themselves against the success of the first defendant's claim for specific performance. They were simply buying it off. A contract of insurance is in the nature of a wager: its outcome depends upon the occurrence or non-occurrence of the contingency to which it is directed. The element of the wager disappears when the payment is made not to secure the payer from the ill effects of the contingency but to remove the contingency itself. Again, it would surely be an unusual contract of insurance which discovered the insured paying, by way of premium, to the insurer a sum which, upon one view of the market value of the land was more than half the amount of the loss which was anticipated to result to the insurer from an unfavourable outcome to the contingency. If the argument is that the true market value of the land is the price which the other defendants were prepared to pay for it plus the sum they were prepare to pay to the first defendants for not persisting in their claim (i.e. $2,723,285 + $225,000, yielding a profit to the first defendants of over $400,000) then it is not easy to think of the $225,000 as an insurance premium. 11. In effect, the first defendants claim that they have last a bargain. The action which they took on the 15th of June to preserve the value of that bargain was directly occasioned by what they regard as a breach of contract on the part of the plaintiffs. The arrangement with the second and fourth defendants is thus not something which is collateral to the ...(illegible) of that breach and independent of it: it is not in any real ...(illegible) res inter al os acta. 12. There would indeed have been a "wager" situation following upon the events of the 15th of June if on that date the first defendants had said to the second defendant :
In those circumstances it might be said that the second and fourth defendants were insuring themselves against the risk of losing the land; alternatively, though perhaps less accurately, that the first defendants were insuring themselves against the risk of losing their bargain. But that is not what happened, and however studiously the first defendants averted their eyes from that the plaintiffs were doing on the 15th of June it was aware of what was done because its eyes were on the second and fourth defendants and its arrangements with those defendants were directly involved with the accord between the plaintiff and the other defendants even if they did not arise from that accord. Whatever the appearance of it, the whole nexus of compromises really was in the nature of a three way accord so far as the claims for specific performance were concerned. The first defendants may not have been directly a party to the accord between the plaintiffs and the other defendants but they were privy to it and the action which they chose to take amounted to a tacit and approval of it. They had, as it were, "joined the conspiracy" and were fixed with the consequences of it. In agreeing with the second and fourth defendants not to press their claim for specific performance they were acknowledging to them the validity and of their agreement and in undertaking to vacate the registration of the "written confirmation" - an arrangement directly negotiated with the plaintiff - they were, in effect, making a similar Acknowledgement to the plaintiffs. From the outset as between the rival agreements there could have been only one which was specifically enforceable. It might have been that neither was enforceable and that was, of course, the plaintiffs case up to the 15th of June. After that date however all the relevant parties were satisfied that the second and fourth defendant are the true claimants not under any renewed or substituted agreement but by virtue of the very terms of their original agreement. The first defendants were not merely giving up their right to possess the land; they were giving up their claim to possess that right. Once they had acknowledged to the second and fourth defendants that theirs was the sole enforceable agreement they had cut away the root of their own claim to anything in the way of damages arising from the fact of being deprived of the land. They could have proceeded to prove their claim without acknowledging the validity and primacy of the rival agreement. Had they won, no doubt they might have disposed of the land at once to the other defendants for what in the event the latter actually paid for it plus what they actually paid to the first defendants not to claim it. It may be that that was the true market value of the land and that in settling with the first defendants for $225,000 the second and fourth defendants were admitting it. If that was so then they had lost a bargain but that was of secondary importance to them since what they really wanted was the land. The first defendants did not want the land, they wanted the bargain that the land would bring. On the 15th of June, before the settlement, the prospect of that profit hung in the balance. This expectancy was there but all was still controversy and contingency. In accepting the $225,000 the first defendants ended the controversy, removed the contingency and quantified the value of their expectancy. Thereafter as between themselves and all the other parties the market value of the land was no legitimate concern. They could still say that they had been damaged by the fact that the plaintiffs had induced them to enter into an unenforceable contract but not that the measure of that damage was the value of the "lost bargain". The bargain was not lost; the prospect of it had been given away for a substantial consideration. 13. By not opposing the order made in favour of the second and fourth defendants and by withdrawing their own claim the first defendants necessarily approved that order. By approving the order they necessarily approved the validity of the rival agreement. They cannot be permitted to say to the other defendants:
and then to turn to the plaintiff and say:
There was only one way to prove that and the defendants chose to forego the proof. There was a certain unreality in the proceedings subsequent to the compromise and in giving judgment the learned Chief Justice was careful to do so in guarded terms saying in effect that the first defendants' agreement was proper in form and subject to no other vitiating circumstance which would have avoided it. The reality against which that decision was given was that the agreement was, by the defendants own act, not enforceable. By awarding damages in the sum of $198,000 for breach of it the learned judge was in effect enforcing it; he was giving the defendants not damages for breach but damages in lieu of specific performance and that he could not do since specific performance had been abandoned. 14. An alternative way of looking at the matter would be this: assuming that the first defendants had an enforceable agreement up to the 15th of June, on that date, in choosing to recognise and approve the rival agreement as the enforceable agreement they had effected a rescission of their contract with the plaintiffs and had thus become disentitled to pursue any further their claim under it. The contract was avoided by this approval of the rival claim and the first defendants could not thereafter pursue any claim based upon their right to the land or the market value of the land since this would be to reprobate in dealing with the plaintiffs the very agreement which they had approbated in settling with the other defendants. I do not see that that course is any the less reprehensible for the fact that the agreement was not one to which the first defendants were themselves parties. 15. Did anything remain for adjudication after the negotiations of the 15th of June? The first defendants had not abandoned their counterclaim subsequent to the compromise with the other defendants and the plaintiffs had not formally withdrawn their action against the first defendants, save as regards the question of conspiracy. Although Mr. Litton for the plaintiffs did not seek to press for a formal order that the first defendants' agreement was null void and of no effect (para. 4(1) of the prayer in the statement of claim) he did not withdraw that claim. It is clear moreover, that he did not pursue the matter because he took the view that once the first defendants had given an undertaking to vacate the registration of the "written confirmation", in lieu of formal judgment in that behalf, this was tantamount to an admission by them that the agreement on which they had relied was void and of no effect. That cannot have been Mr. Zimmern's understanding of the matter since he made it plain that he intended to prove the validity of that agreement. The record of the exchanges between counsel at this point in the proceedings is some what confusing. I was at one point drawn to the view that, notwithstanding Mr. Litton's withdrawal from further appearance, the plaintiffs' claim to have the agreement pronounced null, void and of no effect was still operative and that it had not been disposed of by consent or otherwise. I think however that the better view is that the plaintiffs had withdrawn part of their claim and no longer sought to pursue their remedy for the remainder. It might have been that even then there would have remained in the first defendants a right to regard their agreement with the plaintiffs as valid, though not specificity enforceable, conferring a residual claim for damages for breach of contract which they were entitled to pursue, if only to preserve their position as to costs, a question which had not been settled at the time of the compromise. Certainly damages were claimed apart from specific performance and the court ...(illegible) asked to say that the plaintiffs, by the "written confirmation" had intended to create legal relations. I do not think, however, that there was any such legitimate residual claim after the ...(illegible) of June. Nothing had been paid over under the contract by ...(illegible) deposit or otherwise; there was no evidence of moneys expensed by the first defendants on investigation of title, on legal fees or other expenses connected either with the land itself or with the "written confirmation". Also it is clear that in pursuing his counterclaim Mr. Zimmern was not seeking my other than those which he believed to be due to his clients ...(illegible) footing of the market value of the land and the lost bargain. As such other damages been claimed and claimable he might has been ...(illegible) to do as he did and press for judgment for breach of ...(illegible) . But even then he would not have been entitled to claim an common law damages the value of the "lost bargain". Since no other damages were claimed and since the first defendants had abandoned their claim for specific performance or damages in lieu thereof there was, effectively, nothing left of their counterclaim and I do not think that it should have been allowed to continue merely for the purpose of showing that there had been a valid agreement when that agreement had been rendered void or at beat unenforceable by their own act. 16. I would allow the appeal.
Representation: IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 27 OF 1973 (On appeal from O.J.784/1973) -----------------
----------------- Coram: Huggins, McMullin & Pickering, JJ. Date of Judgment: 17th January 1975. ----------------- JUDGMENT ----------------- Huggins, J.: I have come to a different conclusion. My dissent relates only to the claim at law for damages for breach of contract. I agree that it is clear that the claim under Lord Cairns's Act cannot survive the abandonment of the claim to specific performance, but I do not think it is quite so obvious that the first Defendants cannot pursue their claim to damages at law. 2. A party is not bound to claim the equitable remedy of specific performance and the fact that he has made such a claim but has abandoned it does not necessarily deprive him of his right to claim damages at law. Here the strange position existed that there were in the pleadings a claim by the first Defendants against the second Defendant and, so I understand counsel to say, a claim by the fourth Defendant against the first Defendants. In my view such claims should never have been made or allowed in the Plaintiffs' action and, had they not been made, the issue upon which this appeal turns could never have arisen. I think Mr. Zimmern is right when he says that the claims between the first Defendants of the one part and the second and fourth Defendants of the other were entirely separate and distinct from those between the Plaintiffs and the first Defendants, even though they were, improperly, made in the same action. The first Defendants were entitled to claim specific performance of their contract with the Plaintiffs for purchase and sale of the land or to claim damages for breach of contract. It is suggested that if the claim for damages in substitution for specific performance (under Lord Cairns's Act) cannot be obtained where the claim to specific performance has been abandoned neither can the claim to damages at law subsist after such abandonment. I do not agree and I find some comfort from the fact that the Court of Appeal in Hipgrave v. Case (1885) 28 Ch. 356 did not think that a claim at law would necessarily die with the claim in equity. In that case the Plaintiffs sued for specific performance of a contract and alternatively for damages. The court held that the statement of claim as framed should be construed as claiming damages under Lord Cairns's Act "in case the court for any reason should not see its way to granting specific performance". The court expressly refrained from saying what might have been the result had the statement of claim been amended to include a claim to damages at law. As I understand it, the relevant effect of the Judicature Acts was merely to make all the available remedies available in all Divisions of the High Court: the Acts did not further assimilate the remedies in law and in equity. 3. As it seems to me the only possible bar to the first Defendants' pursuing their claim to damages at law would be if the compromise between them of the one part and the second and fourth Defendants of the other part must be construed as an agreement by them to abandon not only their equitable remedy (with its concurrent remedy under Lord Cairns's Act) but also their legal remedy. For my part I do not see why it should be so construed. This would seem to be the point at which I part company with my bretheen and I do so with particular reluctance because it may be open to question whether we know what was in fact agreed in the court below. The shorthand note contains many obvious omissions where the shorthand writer has indicated that counsel were inaudible and even more passages where the accuracy of the note is open to suspicion. Despite the fact that the appeal would inevitably turn upon what was agreed and the fact that we must consider ourselves bound by the note in the absence of any application to have it amended, no such application has been made. I do not intend to set out in full the passages which have been read to us as being relevant and it is enough for me to say that nowhere do I find anything in those passages to show that the first Defendants conceded that their contract was unenforceable. I cannot accept the suggestion that the first Defendants acknowledged the validity and primacy of the contract between the Plaintiffs and the second and fourth Defendants: they acknowledged neither, nor did they acknowledge the invalidity of their own contract with the Plaintiffs. It is true that counsel for the first Defendants was present when counsel for the Plaintiffs, in stating the terms of the compromise between his clients and the second and fourth Defendants, consented "for what it is worth" to an order declaring that the first Defendants' contract was not valid and binding, but again, for my part, I cannot accept that counsel for the first Defendants thereby implicitly consented to being bound by that compromise. It is clear that he never so intended, for on the same afternoon he asked to be informed whether the Plaintiffs had closed their case: so far as he was concerned his clients and the Plaintiffs were still in the lists. He told the judge that the second and fourth Defendants "are paying [the first Defendants] for forgoing a right [they] have, specific performance, but nothing to do with damages whatsoever". The learned Chief Justice must have understood what had been said to him as indicating that the first Defendants waived their claim to specific performance ("claim against property") and nothing more, for he eventually agreed that the claim to damages was still outstanding: only on that basis could he have proceeded with the trial and entered the judgment against which the present appeal is brought. It would have been open to the first Defendants expressly to reserve their right to sue the Plaintiffs for damages at law but we cannot, in my view, infer an intention to abandon the legal remedy simply because that remedy was not expressly reserved. For their part the second and fourth Defendants have got what they contracted for, namely the abandonment of the claim to the first Defendants' equitable remedy, which was a stumbling block to their obtaining the Plaintiffs' consent to an order for specific performance of their contract, and they cannot complain if they get nothing more. The first Defendants did not agree with the second and fourth Defendants that they would abandon the whole of their contract with the Plaintiffs and it follows that the payment they received could not be a reward for such an abandonment. A fortiori the Plaintiffs cannot set up a jus tertii to the abandonment of the claim to the legal remedy. To suggest, further, that the $225,000 paid by the second and fourth Defendants to the first Defendants was intended to be an assessment of what the first Defendants would, or might, lose as a result of the Plaintiffs' alleged breach of their contract with the first Defendants' is to read into this compromise something which just is not there. It was what counsel for the first Defendants described as an insurance premium, an analogy which I think he pressed too far and which in the result has served him badly. Its sole value lay in emphasising that the payment was the price of an entirely collateral bargain. 4. The danger in this case, as it seems to me, is to assume that the price of $70 a square foot (or $2,524,000) agreed by the first Defendants or the price of $75.50 a square foot (or $2,723,285) agreed by the second and fourth Defendants was the market value of the land. It is true that the price at which property changes hands may be evidence of the market value, but where the purchaser who agreed to buy at a certain price shows himself to be willing to pay another $225,000 to secure the transfer of the property to him, I would have thought that fact might equally be evidence that the market value was higher than the contract price. It is not without significance that the Plaintiffs alleged in their Statement of Claim that the price calculated at $75.50 a square foot was a gross undervalue. I do not think that the first Defendants' prospect of advantage under their contract with the Plaintiffs did rest solely upon their being able to obtain specific performance of their contract, because the contract entitled them to the land whether they sued for specific performance or not and whether the court would order specific performance or not. They never agreed with the Plaintiffs to waive their right to claim specific performance and the fact that to proceed with such a claim would be a fraud on the second and fourth Defendants in no way relieved the Plaintiffs of their liability: it only deprived the first Defendants of one of their remedies. For my part I can see no just cause for relieving the Plaintiffs at the expense of the first Defendants. If the first Defendants had received nothing from the second and fourth Defendants they would have been entitled to recover the market value of the property by way of damages. Having received $225,000 they must, of course, give credit for that (which is why they claimed only $198,385 from the Plaintiffs), but otherwise their position at law is no different. 5. While I am of opinion that there was no waiver of the first Defendants' claim to damages at law, it is still necessary to consider whether the first Defendants took all proper stops to mitigate their damage. The contention on behalf of the Plaintiffs is that the $225,000 paid by the second and fourth Defendants to the first Defendants completely negatived any loss which the first Defendants might otherwise have suffered. The first Defendants said that the payment of $225,000 was too remote from the Plaintiffs' breach of contract to be retarded as mitigation: it was an additional profit they were able to make because the second and fourth Defendants were prepared to pay a higher price than $2,723,285 to ensure that they obtained the land - they would have to pay the $2,723,285 to the Plaintiffs in any event if they were to have specific performance of their contract. If the Court had held that the first Defendants' contract was valid, the damages recoverable by the first Defendants would have been the difference between their contract price ($70 a square foot or $2,524,900) and the price at which they could have resold the land at the date of the breach. The damages were calculated at $2,723,285 at the trial because that was the price which the second and fourth Defendants in fact agreed to pay to the Plaintiffs. What in effect the first Defendants are saying is that even the $2,723,285 they agreed to pay was not the full market price because the compromise they reached with the first Defendants shows that the true market price was still $225,000 higher, i.e. $2,948,285. In other words, the position was no different from that if the compromise had been to the effect that the first Defendants should obtain specific performance of their contract at $2,524,900 and should re-sell to the second and fourth Defendants at $2,948,285. On that basis, of course, the damage suffered by the first Defendants would have been $423,385 but for the fact that they received the $225,000 from the second and fourth Defendants. In awarding only $198,385, therefore, the judge made full allowance for this mitigation of their loss. 6. As it seems to me the real issue to be decided at the trial was this - were the first Defendants entitled to treat the $225,000 paid to their by the second and fourth Defendants as indicative of a true market value of $2,948,285? There was no evidence that in reaching the compromise of their claims the first Defendants and the second and fourth Defendants acted otherwise than bona fide or that the second and fourth Defendants had incurred liabilities to third parties which rendered them willing in the end to pay an artificial price, and I think it follows that we may fairly assume that when the second Defendant entered into the second agreement, on behalf of the fourth Defendant, the price which he in fact agreed was less than he would have been prepared to pay to ensure a contract of purchase and sale. That must have been the view taken by the learned Chief Justice and in my view he was right. 7. I would dismiss the appeal. 17th January 1975. Representation: IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 27 OF 1973 (On appeal from O.J. 784/73) -----------------
----------------- Coram: Huggins, McMullin & Pickering, JJ. Date of Judgment: 17th January, 1975. ----------------- JUDGMENT ----------------- Pickering, J.: As a result of the consolidation of three actions concerning two alleged agreements for the sale and purchase of certain factory premises to two different parties, there emerged Action No. O.J. 784 of 1973. In that action, the proposed vendors, as plaintiffs, sued five different defendants. It is unnecessary, so far as the third and fifth defendants in that action are concerned, to say any more than that the plaintiffs' claims against them were withdrawn on certain terms as to costs. There were left, the plaintiffs and the first, second and fourth defendants. The interests of the second and fourth defendants were identical in that the fourth defendant was the undisclosed principal of the second in the transactions with which the court below was concerned. Thus, in the result, there was a three-cornered fight between the plaintiffs, the first defendants and, in the third corner, the second and fourth defendants. 2. The differences between the parties arose as a result of two written agreements. The first, referred to in the pleadings as "the written confirmation", was dated 7th November 1972 and under it the plaintiff company agreed to sell the property to the first defendant company at $2,520,000. The second (paradoxically referred to as "the first agreement", but which was actually second in point of time and which I propose to refer to as "the second agreement") was dated 14th November, 1972 and under it the plaintiffs agreed to sell the property to the second defendant, who was the agent for the undisclosed principal, the fourth defendant, at $75.50 per square foot. This was $5.50 per square foot more than the purchase price expressed in the written confirmation made between the plaintiffs and the first defendants. 3. In the consolidated action in the court below the plaintiffs alleged conspiracy in regard to both agreements, maintained that the purchase price in respect of each represented a gross undervaluation, and claimed as against the first defendants a declaration that the written confirmation is null and void and of no effect, and certain consequential orders; as against the second defendants and, by implication, against the fourth defendants, an order that the second agreement be rescinded and set aside and a further consequential order regarding the registration of that agreement in the District Office of the New Territories Administration. 4. To these claims the first defendants reacted by counterclaiming against the plaintiffs for specific performance of the written confirmation and damages and, in the alternative, damages for breach of contract. In addition the first defendants brought what was described as a counterclaim against the second defendant counterclaiming a Declaration that the written confirmation was valid, subsisting and binding on the plaintiff company, that the second agreement was null, void and of no effect against the first defendants, and for an injunction. There were also, we are told, though they do not appear in the record before us, certain so-called counterclaims by the fourth defendant. Indeed the pleadings appear to have become confused for no third party notices were apparently issued and various parties were purporting to counterclaim against other parties who had made no claim upon them. 5. These matters, however, became somewhat academic when the plaintiffs sought leave to discontinue their action against the second and fourth defendants and consented to an order that the written confirmation with the first defendants was not valid and binding and to a further order for specific performance of the second agreement, that is the agreement with the second defendant acting for the fourth defendants. In addition there was a compromise between the first defendants on the one hand and the second and fourth on the other, whereby the first defendants abandoned their claim against the plaintiffs for specific performance in consideration of $225,000 paid by the second and fourth defendants. The allegations and cross-claims between the first and second defendants and the first and fourth defendants were, at the same time, withdrawn. 6. At this stage a position had been reached in which the first defendants withdrew their claim to specific performance of the written confirmation and were content to permit the transfer of the property to the second and fourth defendants pursuant to the second agreement made between the first defendants and the plaintiffs. In return the second and fourth defendants aid $225,000 to the first defendants. As we have seen, however, the first defendants had counterclaimed against the plaintiffs not only for specific performance but also for damages. This latter claim was pressed and the learned judge awarded damages against the plaintiffs and in favour of the first defendants in the sum of $198,385. This sum represented $5.50 per square foot in respect of the land in dispute and it will be recalled that this was the difference between the purchase price agreed to be paid by the first defendants and that later agreed to be paid by the second defendants under the second agreement. It is against that award that the present appeal lies, it being the contention of the plaintiffs that the first defendants having, as it were, sold their claim to specific performance, albeit not to the plaintiffs but to the second and fourth defendants, the first defendants cannot now claim in addition, damages for breach of contract from the plaintiffs. 7. It will be useful at this point to set out the precise content of the first defendants' counterclaim against the plaintiffs which was in the following terms:
8. During the earlier history of equitable remedies, it would not have been possible for the first defendants to have framed their counterclaim in this way for in Chancery they could claim specific performance only and any claim for damages would have had to be brought before the common law Courts. With the passing of the Chancery Amendment Act, 1858, (Lord Cairns's Act), it became possible to claim both specific performance and damages in the Courts of Equity. It is important to observe however that under that Act, damages could only be awarded either in substitution for or in addition to the remedy of specific performance. With the passage of the Judicature Act of 1873 the administration of the two streams of jurisdiction merged and all remedies, whether equitable or at common law, could be obtained from the one court. By virtue of ss. 8 & 9 of the Supreme Court Ordinance (Cap. 4) this Court has the same power of granting equitable and legal remedies - but no greater power. 9. In my view the award of damages against the plaintiffs was wrong and the appeal must succeed. As we have been, the claim to damages made in para. 1(1) of the first defendants' counterclaim can only be a claim to damages in substitution for or in addition to specific performance. By their compromise with the second and fourth defendants however, announced in open court and accompanied by the announcement that they withdrew their claim to the property and consented to an order that if they themselves did not vacate the registration of the written confirmation within 14 days it would be automatically vacated, the first defendants put it out of their power to obtain a decree of specific performance. Any request to the court for such a decree must inevitably have been refused by the court as being a fraud upon the second and fourth defendants and in contradiction of the first defendants' stated withdrawal of their claim to the property. But if the claim to specific performance no longer existed, it was a logical impossibility to request damages either "in substitution for" or "in addition to" that claim. Thus the first defendants' claim to damages could not succeed under para. 1(1) of their counterclaim. 10. There remains the claim under para. 1(2), that is the claim to damages for breach of contract. After the results of the various negotiations between the parties had been accounced to the court, the learned judge was of the opinion that the only outstanding issue was that of costs, but he allowed Mr. Zimmern to persuade him that that was not so and to call further evidence directed to the validity of the written confirmation. In my view the judge was right in his initial reaction that the action was at an end save as to costs and was in error in permitting further evidence and argument. The plaintiffs sought nothing more and had indeed retired from the scene. The first defendants, as we have seen, could no longer claim specific performance or damages either in substitution or in addition thereto. What remained of their original counterclaim was the claim for damages for breach of contract. To this they were not entitled for they had voluntarily abandoned their contract and been handsomely rewarded for doing so, albeit not by the plaintiffs. Moreover if the plaintiffs by their settlement with the second and fourth defendants, were in breach of their contract with the first, the first defendants were privy to that breach for it would be idle to pretend that the various negotiations which took place on 15th June were wholly independent of each other. Their very nature and results preclude that possibility. As my brother McMullin has said, however, much as the first defendants professed to avert their eyes they were well aware of what was going on and "joined the conspiracy". It was not open to them to claim damages for a breach of contract in which breach they had freely acquiesced. 11. Put another way, what effectively, the second and fourth defendants did was not only to agree to buy the property at the plaintiffs' enhanced price but also to compensate the first defendants for the transfer to them of the first defendants' bargain. And in settling with the second and fourth defendants upon the terms upon which they did, the first defendants were acknowledging that the agreement between the plaintiffs and the second defendant, was the only valid agreement. 12. In accepting $225,000 (or even $1) and in agreeing, in consideration for that payment, to drop their claim to specific performance and to permit the cancellation in the Land Register of the notices of the written confirmation, the first defendants were voluntarily abandoning their claim to the land. How then can they claim damages for the plaintiffs' "refusal" to convey to them something they had declared they no longer want? It was open to the first defendants to say "We have a claim to specific performance but we elect not to pursue it but instead to ask for damages". It was open to them to say that they had a claim to specific performance but realized that it was impossible to pursue it, because for example, the land had already been sold to somebody else and then to claim damages. But it was not open to them to say "We had a claim to specific performance which we voluntarily surrendered for valuable consideration yet now we seek damages in the place of that remedy which we abandoned and for which abandonment we were compensated at our own figure". 13. If I am wrong in that view I would certainly hold that, in accepting $225,000 from the second and fourth defendants, the first defendants had mitigated their damage to the point of elimination, for their own estimate of damage was $198,385. 14. It is no answer to say that the first, second and fourth defendants need not have announced the terms of the compromise between them. They did announce them and made the court aware that the claim to the land had been abandoned and that the first defendants had received $225,000 in consideration of that abandonment. Nor is the true position that, in paying this money, the second and fourth defendants were doing anything else than buying off the claim of the first to the land. To them, the abandonment of that claim was a sine qua non and the money would not have been paid but for that abandonment. 15. In the court below there was an order, in favour of the plaintiffs, for payment by the first defendants of certain costs. There was before us an application to cross-appeal out of time in relation to that order. It did not appear to this Court that the reasons given for the lateness of the proposed cross-appeal were such as to justify our granting leave and this application was dismissed. 16. The appellants are entitled to the costs of the appeal. Representation: |