Appellate Division: reliance damages can only be claimed in exceptional circumstances

Introduction

The Appellate Division of the High Court (“Appellate Division”) in Liu Shu Ming and another v Koh Chew Chee and another matter [2023] SGHC(A) 15 emphasised the importance of one’s pleadings, and discusses the circumstances where parties are able to claim reliance damages for breach of contract.

Background

Brief Facts

The Defendants were involved in the business of providing condominium units for short-term accommodation. In seeking to expand their business, they reached out to several investors, one of whom was the Plaintiff.

The Plaintiff and the Defendants entered into a series of contracts whereby the Plaintiff agreed to purchase from the Defendant five condominium units in the Philippines (“the Sales Agreement”), and Defendants agreed to lease the condominium units from the Plaintiff for an initial period of three years at a rate which amounted to approximately a 6–7% annual return on the principal purchase price (“the Leaseback Agreement”). The Plaintiff further alleged that it was orally agreed that, if the market price of the condominium units fall at the end of the leaseback period, the Defendants would repurchase the condominium units from the Plaintiff at a sum no less than the principal purchase price (“the Alleged Buyback Term”).

However, the Defendants failed to transfer the legal title of the condominium units, and fell behind on rental payments. Subsequently, the Plaintiff allegedly terminated the contracts and commenced an action against the Defendants primarily for breach of contract. 

Decision by the General Division of the High Court

The General Division of the High Court (“General Division”) in Koh Chew Chee v Liu Shu Ming and another[2022] SGHC 25, inter alia, allowed the Plaintiff’s claim for breach of contract.

On whether the Alleged Buyback Term exists, the General Division held that Plaintiff did not succeed in proving her case. The General Division held that the Plaintiff’s bare assertion that she would not have entered into the contracts without the guarantee of the Alleged Buyback Term carried little weight. In particular, it was noted that there were no documentary evidence to prove the existence of the Alleged Buyback Term. This was significant as the Plaintiff was a seasoned businesswoman and the parties dealt at relative arms-length.

The General Division further held that the Defendants’ obligation to transfer legal title to the condominium units to the Plaintiff is a condition of the contracts. This is because the obtainment of the propriety interest in the condominium units forms an essential part of the contracts, and the parties did not intend for the payment by the Plaintiff to be an outright unsecured loan. Hence, the Defendants breached a condition of the contracts by failing to transfer legal title to the Plaintiff, and thus entitling the Plaintiff to terminate the contracts and sue for damages.

The Plaintiff applied the standard expectation measure and sought to recover her principal investment sum on the sole basis that the Alleged Buyback Term existed. As the Alleged Buyback Term was not proved, the General Division considered that the standard measure of damages would be to take the market value of the condominium units at the time they ought to have been transferred and deduct the contract price (if unpaid). However, the Plaintiff’s pleaded case rests entirely on the existence of the Alleged Buyback Term, and no evidence was tendered on the valuation of the condominium units. As such, an award of expectation damages cannot be properly quantified.

Notwithstanding the Plaintiff’s election to claim for expectation damages, the General Division awarded the Plaintiff reliance damages for two main reasons.

  1. First, it held that it was for the court to select the most appropriate method for assessing damages, and the court’s ability to do justice should not be hamstrung by the Plaintiff’s election.
  2. Second, the Defendants were not prejudiced from not being put on notice that they bore the burden of proof for establishing that the Plaintiff would not have been able to recover her actual expenditure. This is because it was highly unlikely they would have been able to discharge this burden as it was improbable that the value of the condominium units would drop by more than 18.5% (which represents the amount the Plaintiff is supposed to receive in rental revenue under the Leaseback Agreement). Further, even if there was a drop in the market value of the condominium units, the General Division opined that the Plaintiff could have continued to lease out the condominium units to generate rental revenue while waiting for an upswing in the property market.

The Defendants appealed the General Division’s decision to the Appellate Division.

Decision by the Appellate Division of the High Court

Whether the Plaintiff Validly Terminated the Contracts

The Appellate Division held that the Plaintiff was not entitled to terminate the contracts, and did not validly terminate the contracts for two main reasons.

  1. First, the Appellate Division noted that the Plaintiff did not plead that the Defendants breached a condition of the contracts in her Statement of Claim (“SOC”). It held that based on the plaintiff’s SOC, her pleaded case was that the Defendants have renounced the contracts. However, the SOC did not specify which acts amounted to the Defendants evincing an intention to not perform their obligations under the contracts at all.
  2. Second, the Appellate Division noted that the Plaintiff pleaded in the alternative that the Defendant’s failure to make rental payment entitled her to, inter alia, terminate the leases (ie. the Leaseback Agreement). Hence, the Plaintiff only pleaded that she was entitled to terminate the Leaseback Agreement, and not the contracts.

Order for Specific Performance

The Appellate Division held that since the Plaintiff did not validly terminate the contracts, she was not entitled to claim damages on the basis of termination. However, as it was unacceptable that the breach of contract continued to persist, the Appellate Division ordered the Defendants to transfer, free of encumbrance, the legal title of the condominium units, and to give possession thereof, to the nominees of the Plaintiff’s nominee.

Whether the General Division was Correct in Awarding Reliance Damages

The Appellate Division opined that the General Division erred in awarding the Plaintiff reliance damages. Given the Appellate Division’s holding that the Plaintiff was not entitled to damages, its remarks on this are strictly obiter dicta. Broadly, the reasons for the Appellate Division’s opinion can be summarised into three main points.

  1. First, the Appellate Division held that the courts do not have wide discretion to award reliance damages, particularly where it has not been pleaded by the plaintiff.
  2. Second, the Appellate Division disagreed with the General Division that the Defendants would not be prejudiced by the lack of notice that the burden of proof had shifted to them. This is because it was not open to the court to take the view that the value condominium units will not fall by more than 18.5% without the benefit of any expert evidence. Further, the value of a property is to be determined as at a certain date, and it is not open to the court to take into account future possible upswings. In any case, the Appellate Division took the view where reliance damages are considered, there is always prejudice to the defendant because the burden of proof is shifted to him.
  3. Third, and most significantly, the Appellate Division opined that plaintiffs do not have the unfettered option to claim reliance damages. While the impossibility of proving expectation damages is not a prerequisite to claiming reliance damages, it must at least be extremely difficult for the plaintiff to prove his expectation damages; alternatively, reliance damages are also available where the contract was not for profit.

Commentary

The Appellate Division’s decision emphasises the importance of having precise pleadings and adducing sufficient evidence to support their claims. Additionally, there are two points of law that arise from this decision that merits further consideration.

Election of Remedies

As damages are generally regarded as inadequate where a contract for the sale of land has been breached, the order of specific performance against the Defendants was not an unusual one. However, it is unclear why the Appellate Division held that the Plaintiff was not entitled to claim damages despite a clear finding that the Defendants breached their contractual obligations. The Appellate Division reasoned that this was because the Plaintiff failed to validly terminate the contracts. However, the legal principles in support of this reasoning were not explained and no case authorities were cited in support of it. Further, as the Appellate Division did not make a finding that the Defendant committed a repudiatory breach due to inadequacies in the Plaintiff’s pleadings, it is unclear if the Plaintiff was even entitled to terminate the contracts.

It would be highly unorthodox if this decision is to stand for the proposition that plaintiffs are entitled to claim damages for breach of contract only if they validly terminated their contracts, and would otherwise only be entitled to performance of the contracts. However, the order for specific performance may have been made in this case due to the Plaintiff pleading for an order for possession of the condominium units if the court finds the contracts to have been invalidly terminated.

Unfettered Option Between Expectation and Reliance Damages

It is trite that both expectation and reliance damages have the same juridical basis in that both are applications of the compensatory principle. However, as noted above, the Appellate Division suggested that plaintiffs are only entitled to claim reliance damages where: (i) it is extremely difficult (if not impossible) to prove expectation damages; or (ii) the contracts were not for profit. In doing so, the Appellate Division expressly disagreed with case authorities from various jurisdictions that stood for the proposition that a plaintiff has an unfettered option to claim reliance damages instead of expectation damages. This includes the English case of CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16 (“CCC Films”) and the New South Wales cases of Meetfresh Franchising Pty Ltd v Ivanman Pty Ltd [2020] NSWCA 234 (“Meetfresh”) and 123 259 932 Pty Ltd v Cessnock City Council [2023] NSWCA 21 (“Cutty Sark”).

According to the Appellate Division, the English High Court in CCC Films erroneously extended Lord Denning MR’s comments in Anglia Television Ltd v Reed [1972] 1 QB 60 (“Anglia”) to allow plaintiffs to have an unfettered choice between expectation and reliance damages. Instead, the Appellate Division noted that the plaintiff in Anglia took the position that it could not prove its loss of profit, and thus, Lord Denning MR’s remarks on the choice between expectation and reliance damages should be limited to the facts of Anglia. With respect to the cases of Meetfresh and Cutty Stark by the Court of Appeal of New South Wales, the Appellate Division opined that they have misread the Australian High Court case of Commonwealth of Australia v Amann Aviation Pty (1991) 104 ALR 1 (“Amann”). However, it is worth noting that the English High Court has in subsequent cases largely proceeded on the basis that the plaintiff has an unfettered option to elect between claiming reliance and expectation damages, and does not distinguish between the cases of CCC Films, Anglia, and Amann (see, for example, Yam Seng Pte Ltd v International Trade Corpn Ltd [2013] EWHC 111, The Royal Devon and Exeter NHS Foundation Trust v Atos it Services UK Limited [2017] EWHC 2197, and Cardiorentis AG v IQVIA Ltd [2022] EWHC 250).

Significantly, the Appellate Division dismissed a line of Singapore High Court (and General Division) cases that proceeded on the basis that reliance damages may be claimed primarily on the basis that they are not binding on it. However, the Appellate Division does not appear to address how its opinion is consistent with the unanimous opinion (albeit in obiter) of a 5-judge bench of the Court of Appeal in Turf Club Auto Emporium Pte Ltd v Yeo Boong Hua [2018] 2 SLR 655 (“Turf Club”) that “the plaintiff generally has an unfettered choice to claim either expectation loss or reliance loss”.

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