www.ipsofactoJ.com/archive/index.htm [1990] Part 2 Case 8 [HC,S'pore]    

 

HIGH COURT OF SINGAPORE

 

Chong

- vs -

Viva Realty Pte Ltd

Coram

SK CHAN J

19 MARCH 1990

Judgment

SK Chan J

  1. This action was commenced in February 1985 as an action for rescission of a sale and purchase agreement of a flat (‘the flat’) known as Unit #05-02, Prince Apartments, Datoh Road, Singapore on the ground of fraudulent misrepresentation in relation to the area of the flat and for other consequential reliefs. The defence and counterclaim was filed in March 1985 and amended in August 1985. The reply and defence to counterclaim was filed in September 1985 and the further amended defence and counterclaim was filed in May 1986. In July 1986, the amended reply and defence to counterclaim was filed. In October 1989, the statement of claim was amended to include an alternative allegation of negligent misrepresentation and a claim for an abatement of the purchase price on the ground of a shortfall in the area of the flat purchased by the plaintiffs. In consequence, the defendants filed their re-amended defence and counterclaim some days later. On the date of hearing, the plaintiffs, with the consent of the defendants, served a re-amended reply and defence to counterclaim.

  2. At the trial, the parties agreed to have only one issue tried, and that is whether the plaintiffs are entitled to compensation on the purchase price of the flat for the shortfall in its area. It has also been agreed by counsel for the relevant parties in the other ten consolidated actions that the outcome of this action will also determine the results of those actions where similar claims have been made against the defendants in connection with other flats in Prince Apartments.

  3. The defendants were the developers of the block of flats called Prince Apartments. By an agreement for sale dated 10 November 1982, they agreed to sell the flat to Teo Thian Hock and Lee Lak Nia (the original purchasers) at the price of $425,000. The agreement for sale was in the form prescribed under the Housing Developers Rules 1976 and described the flat in the First Schedule thereof as ‘All that flat .... estimated to contain a floor area of 195.2 sq m (2,100 sq ft)’. On 15 September 1983, the original purchasers gave an option in writing to the plaintiffs to purchase the flat (as described in the agreement for sale) at the price of $460,000. The option was exercised on the same day.

  4. In accordance with r 17 of the Housing Developers Rules 1976 as amended in 1981 (see GN No S 239/81), the defendants agreed to enter into a fresh agreement for sale with the plaintiffs provided certain conditions were fulfilled, i.e. inter alia, that the plaintiffs furnish a stamped deed of assignment, a letter of authority and the surrender of the original agreement of sale for cancellation. All the conditions were duly complied with, as a result of which the defendants, as vendors, and the plaintiffs, as purchasers, entered into a fresh agreement for sale dated 21 January 1984 (the sale agreement). By the deed of assignment dated 9 January 1984 and made between the original purchasers and the plaintiffs, the former assigned to the latter all their ‘rights title and interest benefits advantages permits licences and remedies of the assignors in the agreement of sale’.

  5. At the time of completion in August 1984, the plaintiffs discovered for the first time that the final surveyed area of the flat was only 163 sq m (about 1753.88 sq ft) or 16.47% short of the contractual area. On 6 August 1984, the plaintiffs’ solicitors wrote to the defendants’ solicitors claiming the sum of $70,023.80 (being 16.47% of the purchase price of $425,000) and requesting the same be deducted from the balance due on completion. The defendants’ solicitors replied on 10 August 1984 rejecting the request on the ground that the purchase price was calculated on a unit basis and not on an area basis. The plaintiffs attempted to complete on 14 August 1984 without prejudice to their claim for abatement, but the defendants refused to complete. The defendants’ solicitors ended their letter dated 14 August 1984 with the following sentence: ‘Your clients may wish to complete the purchase or rescind the contract.’ In their letter of the same date, the plaintiffs’ solicitors placed on record that the solicitor for the defendants was of the view that the plaintiffs either complete or ‘commence action to nullify the agreement for sale and purchase’. On 16 August 1984, the defendants’ solicitors replied and stated, inter alia, ‘If you do not proceed with completion of the purchase, our clients will treat that your clients have breached the contract, and/or there is a rescission of the contract’. The plaintiffs’ solicitors protested on 17 August 1984 at being compelled to complete on terms that the plaintiffs would waive their claim for compensation. On 22 August 1984, the defendants’ solicitors gave notice that if the purchase were not completed within seven days thereof their clients would treat the plaintiffs as having ‘breached or rescinded the contract’. On 28 August 1984, the plaintiffs paid the balance of the purchase price.

  6. On 13 September 1984, the solicitors for the plaintiffs wrote to the defendants’ solicitors giving notice that they had instructions to commence proceedings on behalf of 13 purchasers of flats (including the plaintiffs) in Prince Apartments and sought the agreement of the solicitors for the defendants on two issues:

    1. that one case be treated as a test case, and

    2. that the area stated in the subsidiary certificate of title be treated as the conclusive area so that no further resurvey would be necessary.

  7. On 19 September 1984, the solicitors rejected the approach and stated that ‘if your clients do not wish to proceed with the purchase, for any reasons, our clients will agree to any rescission of the contract’. On 11 October 1984, the plaintiffs’ solicitors understood this offer to mean that the defendants were prepared to take back the flats at their original purchase prices and so on 11 October 1984, they replied that all the 13 purchasers accepted the defendants’ offer to ‘repurchase’ the units at those prices, subject to tenancies where applicable. On 16 October 1984, the defendants’ solicitors replied to the said letter as follows:

    We thank you for your letter dated 11 October 1984 on which we are taking our clients’ instructions.

    Meanwhile, we repeat the following:

    (1)

    there is no ground for rescission of the contract;

    (2)

    there is no provision for adjustment of the contractual price; and

    (3)

    the areas of the properties stated in the contracts are gross and are in accord with our clients’ surveyors’ survey.

    On 5 November 1984, the solicitors for the defendants confirmed that their clients did not wish to repurchase the flats but would accept ‘a rescission of the contract’.

  8. I have recounted in some detail the events leading up the completion as it serves to put into its correct perspective one of the elements in the defence that the plaintiffs have waived their rights by completing and refusing the defendants’ offer of ‘rescission’. Reading the exchange of letters as a whole, it is clear to me that the words ‘You may wish’ in the defendants’ letter of 14 August 1984 were not words of offer but were words indicating that the plaintiffs had the choice of completing the contract or ‘rescinding’ the contract without the consent of the defendants. That this was the meaning of those words was confirmed by the subsequent letters and conduct of the defendants. Any offer of rescission from the defendants which could make commercial sense was one on terms of a full refund of the original price which was what the plaintiffs were prepared to accept. The defendants never made this kind of offer. They rejected the acceptance of the plaintiffs’ offer to ‘repurchase’ which, in substance, had the same effect of a consensual rescission with full refund of the purchase price. In my view, the plaintiffs were given a Hobson’s choice: either complete on the defendants’ terms or be treated as having rescinded (i.e. repudiated) the sale agreement. The defendants’ stance at the date of completion is also an important factor to be considered in relation to the defendants’ defence based on the market value of the flat.

    ISSUE

  9. The issue before the court is whether the shortfall of 16.47% of the contractual area is a compensateable shortfall under the terms of the sale agreement and if so, how the compensation should be calculated. The sale agreement incorporated the Singapore Law Society’s Conditions of Sale 1981, condition 11 of which provided:

    The property is believed and shall be taken to be correctly described as to quantity and otherwise and is sold subject to all chief, quit, and other rents and out-goings and to all incidents of tenure, rights of way, and other rights and easements (if any) affecting the same and if any error, misstatement, or omission (not of a serious or vital nature nor considerable, affecting the value of the property) shall be discovered in the particulars special conditions or contract the same shall not annul the sale nor shall any compensation be allowed by or to either party in respect thereof.

    [my emphasis]

  10. The plaintiffs’ case is that they are entitled to compensation under condition 11 on the ground that the misdescription of the area is of a serious nature and/or it affects considerably the value of the flat, and that the compensation should be calculated by way of a proportionate abatement of the purchase price.

  11. Counsel referred to a number of well-known English authorities on compensation provisions similar to condition 11 and also to the decision of KC Lai J in Yeo Brothers Co (Pte) Ltd v Atlas Properties (Pte) Ltd [1988] 1 MLJ 150 in which his Lordship held that a shortfall in area of a flat of 10.77% of the contractual area was a substantial misdescription under condition 11 which entitled the purchaser to a proportionate abatement on the purchase price for the whole of the shortfall.

  12. The defendants’ case is that the plaintiffs are not entitled to any compensation and if they are, the compensation is not a rateable refund of the purchase price but the difference between the market value of a flat of 2,100 sq ft and one of 1,754 sq ft. The defendants advanced the following arguments:

    1. that as there was no breach of contract or warranty on the part of the defendants, no compensation could be claimed;

    2. that the plaintiffs in completing the purchase had waived any right to compensation;

    3. the misdescription by the defendants did not cause the plaintiffs any loss as it was made after the plaintiffs had completed the sub-purchase; and

    4. that condition 11 was not fulfilled in that the market value of the flat (with an area of 1,754 sq ft) was about $425,000 and therefore the misdescription was not of a serious nature nor did it affect the value of the flat.

    I shall now consider these defences.

    BREACH OF CONTRACT / WARRANTY

  13. Counsel for the defendants contended that unless there was a breach of contract or a warranty, the plaintiffs were not entitled to claim compensation under condition 11, that the defendants had not breached any term of the sale agreement as they had not contracted that the flat had an area of 2,100 sq ft, or an area of 2,100 sq ft ‘more or less’, ‘approximately 2,100 sq ft’. The latter two expressions were words of approximation (see the authorities cited in Emmet on Title (1986), para 4.021) which were not used in the sale agreement. What the defendants had contracted with the plaintiffs was that the defendants had ‘estimated’ the flat to be 2,100 sq ft, which warranty had not been breached as the defendants had made such an estimate and the calculation showed it to be 2,100 sq ft.

  14. The substance of this argument is based on the judgment of Watkin Williams J in Joliffe v Baker (1883) 11 QBD 255. In that case, J, in response to an inquiry from B, replied that the land for sale was ‘in all three acres’. B went to look at the land but it was never measured and a contract in writing was signed by the parties describing the land as ‘All that freehold cottage or tenement, garden and land containing by estimation three acres or thereabouts’. Similar language was used in the conveyance to describe the property. After completion, B measured the land and found that it contained 2a 1r 12p. B sued J for damages for misrepresentation. The court held that, after completion, compensation could not be recovered for the shortfall, unless there was fraud or breach of contract or warranty contained in the conveyance. The court held, on the facts, that the action was one for fraud and that there was no false representation as the initial representation was qualified both by the language of the contract and the conveyance. In dealing with the question of whether there was a breach of warranty, Watkin Williams J (who delivered the leading judgment of the court) said (at pp 273–274):

    Now in answering this question we must turn to the conveyance, and there we find the land described as two parcels, each defined in the most particular manner by metes and bounds and other details, and each ‘as containing, by estimation, one and a half acres or thereabouts’.

    It turned out when the lands came to be measured that the two parcels together amounted to only 2a 1r 12p. And the question is, does this amount to a breach of warranty as to quantity? It will be noted that the conveyance does not say ‘Containing by admeasurement so and so, but ‘containing by estimation so and so, or thereabouts’. I am not aware that any exact definition has been judicially given to these words, although there have been several cases illustrating their meaning — for example, it has been held that a discrepancy of five acres out of forty-one was not so serious as to amount to a breach: Winch v Winchester 1 V & B 375; on the other hand, a difference of 100 acres out of 349 was considered too serious to be covered by the qualifying expression: Portman v Mill 2 Russ 570.

    I am not able to extract any principle from these cases, but I would venture to say that the real question is whether the parcels had or had not in truth and if in fact been estimated to contain the quantity stated or thereabouts? If the discrepancy were very small there would be very little difficulty in believing that it might have been so estimated; if the error were very great the statement might be rejected as incredible; but still I would venture to say that in each case it is a question of fact whether the quantity had been so estimated or not, and by this I mean of course a real genuine estimate, and not a merely illusory one. Now what is the evidence upon the point in the present case? It appears that the defendant had himself bought the land by the description that it contained by estimation three acres or thereabouts, that he never measured it, and that he, in fact, believed it to be three acres; that the plaintiff himself saw the land and was content to take it at the estimated quantity, and believed it to amount to three acres, and there is nothing, except the bare fact of the error, to shew that this estimate was an irrational still less an impossible one.

    I come to the conclusion upon these facts that the land had been actually and in fact estimated at three acres or thereabouts, and that the plaintiff, upon whom the onus of proof lay to establish the contrary, did not do so, and that there was consequently no breach of any warranty.

    [my emphasis]

    Counsel also submitted that this point was not taken by counsel for the developers in Yeo Brothers.

  15. Assuming that the word ‘estimated’ was a warranty, what is the evidence that the defendants had made a genuine or bona fide or any estimate of the area? The defendants’ witness, Cheong Wai Ku, who was a director of the defendants at the material time, testified that the defendants’ intention was to sell the apartments at Prince Apartments at unit prices, that they had calculated their development costs and profits on that basis, that when they first fixed the prices they did not have the areas of the apartments, that when the apartments (which were then structurally completed) were released for sale, the defendants had to include the areas of the apartments for the purpose of the price list and the sale agreements. She also testified that she had requested one Chan Wai Kan (her father’s assistant who died about two years ago) to work out the areas. She said that she did not check his calculations when fixing the sale prices. She, however, thought the calculations were reasonable estimates as the defendants had submitted to the planning authorities building plans for flats each with a five-person density which, excluding the wash area and balcony, would have been about 1,800 sq ft. When asked by her counsel whether Chan had made his calculation on the basis of the dimensions of a typical floor as printed in the sales brochure (which stated the dimensions of the outside boundaries of the two flats on each floor to be 30.500 sq m x 12.800 sq m), she replied that he could have.

  16. In my view, the evidence of Cheong on this point, even if true, proves that the defendants were in breach of their warranty. Cheong said she requested Chan to work out the area of the flat, which would either be the gross area or the net area. The floor plan in the sales brochure shows the layout of each of the two flats on the floor and the dimensions of the whole floor (including the common areas, viz the lift shaft, the lift lobby and the staircase, and some air space) as 30.5 sq m x 12.8 sq m = 390.4 sq m (the brochure area). The price list stated the area of each flat as ‘approximately 195.2 sq m/2,100 sq ft’. Cheong said that Chan could have calculated the area of the flat by dividing the brochure area by two. Such a calculation would have given a gross areas for each flat of 2,100.35 sq ft. Given the dimensions of each floor as shown in the sales brochure, it must be obvious that if Chan made any calculation at all, he must have simply divided the brochure area by two. So, if Chan had been told to calculate the net area, then his estimate could only have been made recklessly, without having regard to the truth or, if done deliberately, deceitful. A bona fide calculation would not have thrown up the area of 2,100 sq ft since the brochure area is larger than the gross area of each floor as each floor is not a perfect rectangle (the windows and the lift lobby/ shaft having been set back). We now know that the scaled gross area of the flat is 2,083 sq ft. Moreover, the gross area includes the common areas. So, if Cheong had instructed Chan to work out the gross area of the flat, the instruction was dishonest, as Cheong, as a director, must or ought to have known that the common areas in a condominium development should not form part of the built-up areas of the apartments for the purpose of sale and that it would be fraudulent to include such areas as part of the flat for sale to purchasers.

  17. Cheong admitted that she was aware that the area of each flat was approximately 1,800 sq ft, excluding the wash area and balcony, and yet felt that it was reasonable for Chan to have estimated it at 2,100. That must imply that she knew or ought to have known that the estimate was in respect of the gross area. Furthermore, if what she said about the defendants having decided to sell the apartments at unit prices without reference to area of the apartments was true, it would have not been necessary for her to request Chan to work out the areas at all since her estimated area of 1,800 sq ft would be as good as any estimated area. For these reasons, I find it impossible to believe Cheong’s evidence. In my view, either the defendants did not make a genuine estimate or they deliberately did a fraudulent calculation of the area of the flat. I think that it is salutary to bear in mind that in Joliffe v Baker , Watkin Williams J said that whether or not the parcels had been estimated was a question of fact, and that if the discrepancy were very small, there would be little difficulty in believing that it might have been so estimated; if the error were very great the statement might be rejected as incredible. His Lordship’s words fit my assessment of Cheong’s evidence.

  18. Further, I do not agree with counsel for the defendants on the effect of the word ‘estimated’ when considered in the light of the compensation clause. In Joliffe v Baker, the court did not have to consider what effect a compensation provision might have on the words ‘by estimation’. Where a contract of sale contains a compensation provision, compensation is, as Farwell J said in Rudd v Lascelles [1900] 1 Ch 815 at p 818, ‘part of the bargain’. That being the case, it is, in my view, perfectly reasonable to construe the word ‘estimated’, assuming it is a warranty, to mean that the defendants have estimated the area but that if a mistake is made, the plaintiffs will not be entitled to annul the contract or to compensation unless the estimation has resulted in a misdescription which is of a serious/vital nature or affects the value of the flat. If there is a doubt as to the ambit of the defendants’ warranty, it should be construed in favour of the purchaser: see Lord Westbury in Cordingley v Cheeseborough (1862) 45 ER 1230 at p 1232. It would follow that even if the defendants had made a bona fide estimate of the area, the plaintiffs would still be entitled to compensation if the misdescription falls within the parameters of condition 11. ‘It is not necessary to show that the error or misdescription amounts to a warranty before a right of compensation arises under the present condition’ — per Peter Butt, ‘Compensation for Errors or Misdescriptions in Contracts for the Sale of Land: a New Approach in New South Wales’ (1983) 57 ALJ 93 at p 100. If, of course, the vendor having warranted that he would estimate the area, fails to estimate the area or does it fraudulently, he may be sued for damages for breach of warranty, but that, in my view, does not preclude the purchasers from claiming compensation by way of abatement under a compensation provision, if they do not wish to claim damages for breach of warranty.

    WAIVER

  19. The defendants’ submission on waiver is as follows: the plaintiffs were aware of the misdescription before completing the purchase; they were offered ‘rescission’ or completion without abatement; they attempted to force the defendants to complete with abatement which they were not entitled to under the law, where the misdescription was substantial; also the plaintiffs could have applied to court for relief before completion but they did not, and this obligation to do so was recognized by KC Lai J in Yeo Brothers; the plaintiffs finally chose to complete the purchase, and therefore, notwithstanding their attempt to preserve their right to claim for compensation by completing with a reservation, they must now be taken to have waived their claim for an abatement. Further, no action may be brought for breach of contract after completion as the obligation in the contract merges the obligation into the conveyance; the misdescription therefore cannot survive the completion. The defendants could only transfer what they had to transfer, and the plaintiffs by taking what the defendants could transfer cannot now say that the contractual obligation is capable of fulfilment after completion. Counsel relied on Joliffe v Baker and Clayton v Leech (1889) 41 Ch D 103.

  20. I am unable to accept this argument for the reasons that follow. 

  21. For the above reasons, I reject the defendants’ case on waiver.

    CAUSATION

  22. The defendants’ defence on this ground is as follows: when the sale agreement was signed between the plaintiffs and the defendants, the plaintiffs had already completed the purchase of the flat on a sub-sale from the original purchasers: any loss suffered by the plaintiffs by reason of the shortfall was suffered as a result of the sub-sale and not as a result of any sale by the defendants or by their signing the sale agreement. In short, there was no causal link between the loss and the misdescription. Counsel referred to Chitty on Contracts at p 734 para 1564 and Sykes v Midland Bank Executor & Trustee Co Ltd [ 1971] 1 QB 113.

  23. This argument also has no merit. Not only is it not supported by the evidence, it is also irrelevant. The evidence is that the plaintiffs completed their purchase from the original purchasers on or about 9 January 1984 when all necessary documents and cheques were exchanged. However, the defendants’ professional surveyor had on or about 30 November 1983 already prepared a survey plan (P1) for submission to the planning authorities for the preparation of certificates of title. So the defendants must have known at about that time that the correct area of each flat was 163 sq m and not 195.2 sq m. If they had then informed the plaintiffs of the correct area, the plaintiffs might have been able to rescind the sub-purchase or complete it with compensation from the original purchasers. Instead, the defendants did not disclose this fact and thereby induced the plaintiffs to complete the sub-purchase on the basis of an incorrect area. In my view, there was a causal link between the misdescription and the right to compensation.

  24. In any event, the argument on causation is not relevant to the plaintiffs’ claim. Although the sale agreement forms the basis of the plaintiffs’ claim, their rights are, in substance, derived from the deed of assignment and not from the sale agreement. Even without the sale agreement, the plaintiffs, as assignees of the benefit of the agreement of sale, were entitled to claim against the defendants for compensation. By reason of r 17 of the Housing Developers Rules 1976–81, the sale agreement did nothing more than to substitute the plaintiffs as the original purchasers. There was in effect a novation. The argument on causation therefore fails.

    CONDITION 11

  25. Counsel for the defendants contended that the misdescription of the area of the flat, although substantial, was not of a serious or vital nature and did not affect the value of the flat. Counsel also contended that in Yeo Brothers, KC Lai J had decided, correctly, that the plaintiffs must show that the misdescription

    1. must be of a serious or vital nature and

    2. considerably affecting the value of the property, before condition 11 could be invoked.

    I have found nothing in the judgment of KC Lai J which suggests that this argument was raised before his Lordship. In that case, the parties were concerned with whether the shortfall of 10.77% in the area of the apartment was a substantial misdescription and KC Lai J said that ‘the two criteria which take a misdescription outside the ambit of cl 11 are in effect, the same as the concept of “substantial misdescription”.’ I take his Lordship’s view to mean that, on the facts of that case, the shortfall was of a serious/vital nature and considerably affected its value. His Lordship did not have to decide it was one or the other since it was both. It does not follow from this that he construed condition 11 as requiring both conditions to be satisfied. In my view, condition 11, on its ordinary construction, means that neither party shall be entitled to compensation for any misdescription if it is neither of a serious/vital nature nor considerably affecting the value of the property. Accordingly, if it is one or the other (assuming that the words ‘serious’ and ‘vital’ describe the same condition) then either party is entitled to compensation. If the words ‘serious’ and ‘vital’ describe different conditions, then the fulfilment of any one of the three conditions entitles the relevant party to compensation. Some errors and misdescriptions are serious or vital without affecting the value of the property whilst some affect the value of the property without being serious or vital. It depends on the nature of the error or misdescription.

  26. In any case, I am of the view that in the context of Singapore, a shortfall of 16.47% of the built-up area of a flat is both of a serious nature and considerably affecting the value of the property. Condition 11 has existed in Singapore for a long time. It was construed by a Singapore court in 1930 in Re Elphick & Gaw [1930] SSLR 199. In that case, the purchasers agreed to buy for development a plot of land with an ‘approximate’ area of 28 acres in Bukit Tunggal. The actual area was about 2 acres short (about 7.5%) and the vendors refused abatement on the ground that it was not a serious error under condition 11. The vendors argued that they sold the land as residential property and not as building lots and that it was sold for a lump sum. The purchasers refused to rescind and demanded completion with abatement. They said that they would not have bid so much had they known of the error. Stevens J in his judgment said (at pp 208–209):

    The third point concerns the construction of Singapore condition no 11. It is clear that but for the insertion of the words ‘not of a serious or vital nature nor considerably affecting the value of the property’ this condition would have afforded complete protection to the vendors (see Terry and White’s Contract), unless the misdescription was such as to strike at the whole basis of the contract, so that the parties could not be said to be ad idem. It was contended on behalf of the vendors that the words I have quoted were intended to relate to a misdescription of that nature. But I am of opinion that these words must be construed in their natural meaning. The opposite of the word ‘serious’ is ‘trivial’, and of ‘considerable’, ‘inconsiderable’ or ‘unimportant’. In my opinion the distinction made by these words is between misstatements that are of serious consequence to the purchasers and those that are of trivial consequence. It is, of course, impossible to draw a hard and fast line between the two classes of misstatements, and what I have to determine in this case is whether the loss of rather more than two acres out of 28 acres is a trivial or serious loss. Now it is true that the value of the property purchased depends in a large measure on its site and its extensive road frontage, but those advantages are of value only in relation to the area of land which enjoys them, and I cannot bring myself to hold that the loss of about eight per cent of that area, to a buyer who purchases with the intention of developing the site on a commercial basis, is a matter of trivial consequence. In my opinion, it is sufficiently serious to bring it within the meaning of the words quoted above. I therefore hold that condition No 11 does not in this case protect the vendors.

  27. If, in 1930 in Singapore, a 7.5% shortfall in an area of 28 acres of undeveloped residential land was of a serious nature and considerably affecting its value, the case of a 16.47% shortfall in the built up area of a flat in 1982 is a fortiori. In Yeo Brothers, the shortfall was only 10.77% of the estimated area. However, counsel for the defendants has contended otherwise and this leads me to his next submission.

    VALUE OF FLAT AND CALCULATION OF ABATEMENT

  28. The defendants’ contentions are

    1. the flat, even with the reduced area of 1,754 sq ft, had a market value of about $420,000 in August 1981 and about $450,000 in August 1983 and therefore the misdescription was not of a serious or vital nature nor did it considerably affect its value, and

    2. the compensation, if any, should not be based on a proportionate abatement but on the difference between the market value of a flat of 2,100 sq ft and one of 1,754 sq ft.

  29. The plaintiffs’ case is that they have suffered a loss for which they are entitled to be compensated by way of a proportionate abatement on the purchase price of $425,000 on the basis that the flat was sold to them and they purchased the flat by reference to its price on a per square foot basis and that accordingly the diminution in value should be measured in the same way by reference to the amount of the shortfall.

  30. The first issue is one of fact and the second is one of mixed law and fact. Both parties called experts to testify. The second plaintiff himself testified that prior to buying the flat he was living with his mother in a HDB flat. When he got engaged to the first plaintiff, he decided to move into a bigger flat. He saw a ‘for sale’ advertisement in The Straits Times in respect of the flat and was told by the agent that it was 2,100 sq ft. After inspecting the flat, he negotiated with the agent on the price and eventually agreed on $460,000 as he thought $216 psf was a reasonable price. He said he would not have bought the flat at that price if he had known it was 1,754 sq ft, and that he would have negotiated for a lower price. As far as he was concerned he calculated the price of the flat on a per sq ft basis.

  31. The plaintiffs’ other witness, one Lim Choo Siang, was a professional valuer of about 12 years’ experience. He testified that in Singapore, flats and other properties were advertised for sale and sold by reference to its area. He produced a number of advertisements published by a number of real estate developers in Singapore. He was of the view that the price of about $260 psf ($460,000 divided by 1,754 sq ft) for the flat in the Balestier area was on the high side as there were bigger flats in better locations for sale at lower prices on a psf basis. He referred to flats at Clementi Park, Yong An Park and Cairnhill Road where they were sold at between $222–$254 psf in the latter part of 1984, when property prices were declining as measured by the Property Price Index. He assessed the diminution in value of the flat at about $220 psf and was also of the view that an arithmetical calculation was consistent with established valuation practice.

  32. The defendants’ witness, Cheong, agreed that a shortfall of 16.47% of the area was substantial but said that the defendants sold it on a unit basis and not on an area basis. She testified that the defendants had calculated their development costs and profits on that basis. In my view if her evidence were true, it would be the easiest thing for the defendants to produce documentary proof of such intention and of the calculations they had purportedly made. They did not offer to produce such proof (and here I have taken into account the omission of counsel for the plaintiffs to ask for such proof) even though they had put forward this defence at a time when the documentary evidence would have been available, i.e. at a time when they had not closed their accounts in respect of this development. The evidence of Cheong was nothing more than an assertion and I do not accept it. Since the defendants developed the Prince Apartments not for long term investment but for sale, I must assume that the defendants would, like all real estate developers, have wished to maximize their profit on the development. This would mean embarking on a development with the highest permitted plot ratio and the most appropriate type of flats for the location and the potential purchasers. However the defendants did their sums, they must ultimately need to know the areas of the flats for the purpose of comparing with other flats that were being offered for sale by other developers. In order to sell the flats, the defendants must know whether the prices they are offering are within the ranges of market prices for comparable flats offered by other developers. I am unable to understand how the defendants could have fixed a saleable or competitive price without reference to the price per sq ft.

  33. However, if I am wrong in not believing Cheong’s evidence, I am of the view that as the defendants have stated the estimated areas of the flats in the price list, they must be presumed, until the contrary is proved, to have fixed the prices having regard to the areas of the flats. In this respect, I also do not believe Cheong’s evidence that the areas were included in the price list because they had to. In my view, they had to because they had to persuade prospective purchasers that they would be getting a fair market price for the flats of those dimensions, as it was and is common knowledge that every prospective purchaser, and for that matter, every valuer would and does calculate market value of a flat by reference to its area. There was and is no law that a price list must set out the areas of the units. If the defendants had intended to sell at unit prices without reference to the areas of the flats, they could have done so in a way which did not mislead the purchasers. As it was, the price list was grossly misleading. In my view, the mere assertion of the unilateral intention on the part of the defendants is insufficient to rebut the presumption against them.

  34. In regard to the market value of the flat, the defendants called an expert witness, one Miss Ng Poh Chue. She graduated with a degree (BSc (Estate Management)) in 1985 and has since worked with a firm of professional valuers. She was a student when the flat was sold. She produced a valuation report showing that the open market values of the flats in Prince Apartments (on the basis of the flats having an area of 1,754 sq ft and not 2,100 sq ft). The figures are as follows:

    1. August 1981 — $420,000 to $430,000

    2. August 1983 — $465,000 to $475,000

    3. August 1984 — $445,000 to $455,000

    4. August 1985 — $410,000 to $420,000

  35. Her report stated that she had arrived at the above prices by taking into account the following factors:

    1. a willing seller and a willing buyer;

    2. the nature of the property and the prevailing state of the market;

    3. the property will be freely exposed to the market;

    4. no account is to be taken of an additional bid by a special purchaser.

    Her report also stated that in assessing the open market value of the subject property, she had taken into consideration the market condition and the sales of similar properties, i.e. comparable sales to assess the market value of the flat. She also referred to a direct comparable, i.e. Flat #08-02 in Prince Apartments for which an option dated 8 March 1984 was given at the price of $490,000. However, she did not say whether the said flat was actually sold at that price or what the area was that was stated in the option. She also referred to the trend in property prices for the period 1981–1985 as shown in the property price index.

  36. In her oral evidence she elaborated on her written report. She agreed that a shortfall of 32.2 sq m was a substantial shortfall and that if she, as a valuer, had to make an adjustment to the sale price, she would have adjusted it downwards from 5–8%. She was unable to explain how she arrived at that range of adjustment except to assert that there was such a practice amongst valuers in Singapore. She referred to two comparables in the Balestier district which showed a 10% difference in price for a comparable difference in their built up areas, but when she was asked by counsel whether a 16.5% rebate would be within a valuer’s judgment on her comparable, she was unable to give an opinion on the matter.

  37. I do not find it necessary to examine Miss Ng’s evidence in detail. I note, however, that her valuation report did not state a market value of the flat for August/ November 1982. This is a curious omission. In any case, on the basis of her valuation report and the property price index, the market value would not have been less than $420,000. In fact, of course, the market value of the flat was $425,000 in November 1982 as that was what it was sold for. It is generally agreed that the market value of any property is the price at which a willing seller is prepared to sell and a willing buyer is prepared to buy, assuming that there is no unusual distortions in the market. It is also an established valuation principle that the best evidence of the market price of a property is the price at which it is actually sold and not what a valuer says or thinks it should be sold. In SN Aswani v Collector of Land Revenue [1982] 2 MLJ 104, the Chief Justice, in delivering the judgment of the Court of Appeal, said (at p 105):

    It is settled law that the compensation to be awarded for land acquired under the Act must be determined by reference to the price which a willing vendor might reasonably expect to obtain from a willing purchaser and that what is meant in general by the expression ‘market value’ in the Act is that its value in general can be measured by a consideration of the prices that have been obtained for land of similar quality and in similar positions.

    It follows, as a self-evident proposition, for which no authority is necessary, that where there has been a sale of the acquired land shortly before its acquisition on a willing vendor, willing purchaser basis, then its ‘market value’ must, primarily, be measured by the price obtained by the willing vendor. In other words, the price obtained by the willing vendor from the willing purchaser at a recent sale of land must be the best evidence of the ‘market value’ of the identical land at the date of its acquisition.

  38. Having regard to the established fact that the market value of the flat as at November 1982 as evidenced by its transacted price of $425,000, the evidence of Miss Ng on the market value of the flats in Prince Apartments on other dates does not assist me in this case. In the present case, the defendants sold the flat with an estimated area of 2,100 sq ft at the price of $425,000. They were willing sellers and the original purchasers were willing buyers of the flat with that stated area in an open competitive market for flats. Both parties acted in that belief. The defendants did not purport to sell a flat of 1,754 sq ft and the original purchasers did not purport to buy a flat of 1,754 sq ft. Having sold the flat, with a stated area estimated to be 2,100 sq ft at the price of $425,000, how can the defendants now say or be permitted to say that that was the market value of a flat of 1,754 sq ft?

  39. Counsel for the defendants contends that that is what the expert evidence shows. With respect, I do not agree. In the context of this case, the valuation report of Miss Ng is nothing more than an exercise in fiction in regard to the market value of the flat as at November 1982. On 10 November 1982, there was no willing seller and no willing buyer of the flat or any other flat in Prince Apartments with an estimated area of 1,754 sq ft at the price of $425,000. There was an actual willing seller and actual willing buyer of the flat with an estimated area of 2,100 sq ft at $425,000. The same comment is applicable to her valuation for August 1983 in respect of the flat. The original purchasers were willing sellers and the plaintiffs were willing buyers of the flat (with an estimated area of 2,100 sq ft) at $460,000 in September 1983.

  40. Counsel for the defendants also submitted that at the date of completion in August 1984, the flat was worth about $490,000 (as there was an option given for $490,000 in March 1984 for an identical flat on the eighth floor) and that was why the plaintiffs did not accept the defendants’ offer of ‘rescission’. I do not think that there is any substance in this argument for the reasons following. 

  41. For the above reasons, I reject the submission that the error or misdescription did not affect the value of the flat.

  42. I turn now to the question of abatement. Counsel for the defendants referred to a passage from the judgment of Helsham CJ in Owmist Pty Ltd v Twynam Pastoral Co Pty Ltd [1983] 3 NSWLR 196 at p 198 as follows:

    Normally, I suppose, a compensateable misdescription of property arising from deficiency of area is conveniently assessed by simple calculation. It may be the only sensible way of making such an assessment in contracts that lend themselves to that sort of approach. But if one bears in mind that it is the diminution in value that the standard condition is directed at and that compensation is really to provide recompense to a purchaser for what he did not get as a result of the misdescription or error, that the false approach, of merely choosing between two acreages is demonstrated.

  43. I agree with the observations of Helsham CJ on the principle of compensation. But they do not help the defendants in the present case. I have already found that they have produced no evidence whatever that there was no diminution in the value of the flat by reason of the shortfall. The only question I have to decide now is how is the compensation to be calculated. In the absence of any evidence of diminution in value, it is my view that the compensation should be by way of proportionate abatement. In Hill v Buckley (1811) 17 Ves 394; 34 ER 153, the Master of the Rolls said (at pp 401–402):

    Where a misrepresentation is made to the quantity, though innocently, I apprehend, the right of the purchaser to be to have what the vendor can give; with an abatement out of the purchase money; for so much as the quantity falls short of the representation. That is the rule generally; as, though the land is neither bought nor sold professedly by the acre, the presumption is, that in fixing the price regard was had on both sides to the quantity, which both suppose the estate to consist of. The demand of the vendor and the offer of the purchaser are supposed to be influenced in an equal degree by the quantity, which both believe to be the subject of their bargain: therefore a rateable abatement of price will probably leave both in nearly the same relative situation, in which they would have stood, if the true quantity had been originally known.

    Similarly, Fry J applied a proportionate abatement of the rental payable for a leased property which was less that what was contracted to the lessee in McKenzie v Hesketh (1877) 7 Ch D 675.

  44. Where a purchaser is entitled to compensation, the general principle is that the purchaser is entitled to be put as nearly as possible into the position he would have enjoyed had he obtained the land contracted to be sold without the error or misdescription. In the present case, the plaintiff did not get 2,100 sq ft which he had bargained for. He has to be compensated for his loss of 346 sq ft of built up space. Since the defendants have set a price of $425,000 for 2,100 sq ft of built up space in a flat, there is no reason why I should not apply the general rule referred to by the Master of the Rolls in Hill v Buckley. To adopt his Lordship’s words, ‘a rateable abatement of the price will probably leave both in nearly the same relative situation in which they would have stood if the true quantity had been originally known ....’

  45. When a developer sells a flat, he is not selling four wells of concrete nor is the purchaser buying four walls of concrete with a ceiling. He is selling and the purchaser is buying living space. Every square foot counts to a purchaser as that is what he is buying. Moreover, he is paying a relatively high price for such living space. There is also authority for the rule that where the parties have set higher values upon some parts of the property than upon others, a proportionate abatement is not strictly appropriate, and account is taken of the value of the particular part or parts of the property not available to the purchaser: see Peter Butt, ibid, at p 102, and also Hill v Buckley.

  46. In the case of a flat, some parts of it may well be of less value than other parts, but in the absence of any evidence to the contrary, I can only apply a rateable abatement.

  47. I am also unable to accept Miss Ng’s evidence that the abatement should be 5%–8% of the purchase price. I do not accept her evidence on the existence of a practice amongst valuers of adjusting discrepancies in built up areas of flats by 5–8% is satisfactory as expert evidence. If there were such a practice, I do not think that it should be applied in the present case without evidence justifying first the correctness of that range of adjustment for flats and second its application to discrepancies in areas of flats in the range of 1,700–2,100 sq ft. Miss Ng has not said that the general rule that the larger the land the lower the price per square foot is generally applicable to flats.

  48. For the above reasons, I allow the plaintiffs’ claim of $70,023.80 by way of proportion abatement on the purchase price of $425,000, with interest thereon at the rate of 6% pa from the date of completion up to today, and costs to be taxed. There will also be similar orders for such amounts as are appropriate in Suit Nos 1660/85, 1661/85, 1662/85, 1668/85, 1688/85, 1689/85, 1690/85, 2027/85, 2028/85 and 3208/85.

Cases

Bos v Helsham [1866] 2 LR Exch 72; Clayton v Leech (1889) 41 Ch D 103; Cordingley v Cheeseborough (1862) 45 ER 1230; Elphick & Gaw, Re [1930] SSLR 199; Hill v Buckley [1811] 17 Ves 394; 34 ER 153; Joliffe v Baker (1883) 11 QBD 255; McKenzie v Hesketh (1877) 7 Ch D 675; Owmist v Twynam Pastoral [1983] 3 NSWLR 196; Palmer v Johnson (1884) 13 QBD 351; Rudd v Lascelles [1900] 1 Ch 815; Rutherford v Acton-Adams [1915] AC 866; SN Aswani v Collector of Land Revenue [1982] 2 MLJ 104; Sykes v Midland Bank Executor and Trustee Co [1971] 1 QB 113; Yeo Brothers Co v Atlas Properties [1988] 1 MLJ 150

Authors and other references

Peter Butt, ‘Compensation for Errors or Misdescriptions in Contracts for the Sale of Land: a New Approach in New South Wales’ (1983) 57 ALJ 93

Representations

YH Cheong, Terence Teo and Tommy Ho (YH Cheong) for the plaintiffs.

C Newman QC, TP Cheng and WP Lo (Yap & Yap) for the defendants.

Notes:-

This decision is also reported at [1990] 2 MLJ 389

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