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Jin-Chuan v Li [1999] TongaLawRp 27; [1999] Tonga LR 140 (23 July 1999)

IN THE COURT OF APPEAL OF TONGA
Court of Appeal, Nuku’alofa

CA 5/99

Jin-Chuan

v

Li

Ward CJ, Burchett and Tompkins JJ
15 July 1999; 23 July 1999

Appeal — finding by trial judge — function of appellate court — influence of demeanour of witness
Damages — loss of bargain — proper amount to be allowed

The respondent sued under a contract in writing, made on 11 July 1997, for the purchase of a business from the appellants for $110,000. A deposit of $20,000 was paid at the time of the contract, and settlement was due on 1 August 1997. For some reason, the appellants decided they did not wish to complete, and the respondent, who accepted the repudiation of the contract, sued for the return of the deposit plus interest, and for damages for the loss of his bargain. The appellants defended the claim, contending that the contract (if actually binding) had been terminated by a payment of $25,000 in cash on 21 July 1997, this payment having been made up of a refund of the deposit together with the sum of $5,000 “as apology for the contract not going ahead”. On the same day, they said, a further $2,500 was paid on the basis that the $5,000 was not enough. The respondent denied receiving the $25,000, and claimed that the $2,500 was a part payment of a separate debt. The trial judge rejected the first appellant’s account of the payment of the $25,000, although there was documentary evidence to support the withdrawal of that sum at the relevant time from a bank account. What weighed ultimately with the trial judge was his impression of the first appellant and of the respondent. The trial judge awarded the sum of $20,000 together with interest, as to which there could be no complaint, and then added to those sums an amount of $38,400 plus interest as being damages for the loss of the respondent’s bargain. The sum of $38,400 was calculated on the basis that the business the subject of the contract returned a gross rental income of $3,200 per month, and that the fair compensation for the loss of the bargain would be equal to 12 months of income.

Held:

1. A trial judge’s findings of fact based on the credibility of witnesses, where their demeanour may have influenced the decision, will only be set aside in quite rare circumstances. The trial judge reached a firm decision that the respondent’s evidence was to be preferred to that of the first appellant. It was not possible for the Court of Appeal to disturb this finding, which was not improbable, and was not contradicted by any indisputable fact. Accordingly, the appeal did not succeed on the issues of liability.

2. Damages for the loss of the respondent’s bargain should have been quite modest given that there was no evidence to demonstrate the amount of the anticipated net income of which the respondent was deprived. Certainly, the gross income could not properly have been allowed.

3. The damages awarded by the trial judge were substituted with the sum of $27,500 (being the $20,000 deposit together with $7,500 additional damages) plus interest at 10% per annum from 1 August 1997.

4. The appeal was otherwise dismissed. The respondent was ordered to pay half the appellants’ costs of the appeals.

Cases considered:

Abalos v Australian Postal Commission (1990) 171 CLR 167; 96 ALR 354

Powell v Streatham Manor Nursing Home [1935] AC 243; [1935] All ER Rep 58

Rennie v Commonwealth (1995) 61 FCR 351

SS Hontestroom v SS Sagaporack [1927] AC 37

Watt v Thomas [1947] AC 484; [1947] 1 All ER 582

Counsel for appellants : Mr Tu’utafaiva
Counsel for respondent : Mrs Vaihu

Judgment

In this matter, the first appellant (the first defendant below) and the respondent (the plaintiff below) gave opposite versions of the facts in evidence at the hearing. Although the first appellant had a number of supporting witnesses and the respondent also had a supporting witness, the case ultimately turned on which of the two protagonists was to be believed.

The respondent sued under a contract in writing, made on 11 July 1997, for the purchase of a business from the appellants for T$110,000.00. A deposit of T$20,000.00 had been paid at the time of the contract, and settlement was due on 1 August 1997. For some reason, the appellants decided they did not wish to complete, and the respondent, who accepted the repudiation of the contract, sued for the return of the deposit plus interest, and for damages for the loss of his bargain. The appellants defended this claim, saying that the contract (if actually binding) had been terminated by a payment of T$25,000.00 in cash on 21 July 1997, this payment having been made up of a refund of the deposit together with the sum of T$5,000.00 “as apology for the contract not going ahead”. On the same day, they said, a further T$2,500.00 was paid on the basis that the T$5,000.00 was not enough. The respondent denied receiving the T$25,000.00, and claimed that the T$2,500.00 was a part payment of a separate debt.

A quite different factual dispute gave rise to a counter claim brought by the appellants. They asserted that, in about July 1997, they agreed to allow the first appellant’s car to be used as security for a loan for the benefit of the respondent. For that purpose, he had been given the registration papers. However, according to them, the respondent had the car transferred into his ownership and persuaded the police to seize it, on 12 September 1997, on his behalf. Accordingly, they raised a cross claim for damages for the loss of the car. The respondent’s defence denied the alleged arrangement, and claimed that, on the contrary, there was a sale of the car at the price of $6,000.00, which was paid in cash. The respondent could produce no receipt, but he was able to produce a photostat of a letter, admittedly signed by the first appellant, which purported to confirm the sale. The photostat was in part illegible, and almost all of it was difficult to read. However, the signature was clear, and it is possible to read “Police” as part of the writing of the name of the addressee, followed by the words:

“Dear Sir,

This is to inform you that the vehicle with registration no. C-3660 has been sold to Mr Kevin Li.

It is ... requested that the ownership of the ... vehicle is transferred to Mr Kevin Li.

Your kind assistance ...

Sincerely

Lynath Liou

Approved

Li [followed by a date which could be 22/2/92 or 22/7/97].”

The first appellant’s evidence in answer to this letter was that he had been persuaded, on a pretext relating to the provision of a loan by a bank, to sign a blank sheet of paper, which must later have had the letter typed onto it.

The trial judge referred to the case as “a contest of credibility”. He said:

“In order to assess the credibility of each [party] I have been given some documentary exhibits, and the accounts of subsidiary witnesses.”

The judge discussed the various documents, none of which he regarded as conclusively establishing either version, in respect of the claim or the counter claim. He also discussed the inherent probabilities of the respective versions on both questions. In particular, he made it clear that he did not think the appellant’s story about the car was at all believable. On the face of it, the photostat letter, the loss of the original of which was satisfactorily explained, plainly provided strong support to the respondent’s evidence.

As regards the claim, the trial judge rejected the first appellant’s account of the payment of the $25,000.00, although there was documentary evidence to support the withdrawal of that sum at the relevant time from a bank account. The judge said:

“It seems to me that the more likely account of the failed purchase ... is the one given by the plaintiff. I have reached this conclusion after assessing the documentary evidence, the demeanour and credibility of each of the two parties while they were giving their evidence and the submissions filed by counsel for both parties.”

It will be observed that this conclusion makes the case turn squarely on the impression made upon the judge by the oral evidence of the two principal witnesses. Although he had earlier referred to “the accounts of subsidiary witnesses” as bearing on credibility, there is no doubt that what weighed ultimately with his Honour was his impression of the first appellant and of the respondent. In forming that impression, he made it clear that he had received assistance from the submissions filed by counsel. But he did not go into the detail of those submissions, nor did he refer in detail to the evidence of the supporting witnesses, which the submissions discussed.

It was the absence of reference to one of the supporting witnesses that counsel for the appellants emphasized at the hearing of the appeal. He pointed out that his Honour had said nothing of the evidence of a Mr Rong, who supported the first appellant’s version of the payment of the $25,000.00. The argument was that the judge must simply have overlooked this evidence. However, Mr Rong’s evidence was plainly in dispute, and his genuineness and his independence were under attack. The written submissions of counsel, to which the reasons for judgment refer more than once as having significance in the consideration of the matter, explicitly debated the value of his testimony. In the circumstances, it is impossible to believe that his Honour simply overlooked the support the first appellant’s version had received from Mr Rong. It is much more likely that his Honour assessed that support as of little weight, and that he concentrated on the impression made upon him by the principal protagonists themselves.

It is, of course, well established that a trial judge’s findings of fact based on the credibility of witnesses, where their demeanour may have influenced the decision, will only be set aside in quite rare circumstances: SS Hontestroom v SS Sagaporack [1927] AC 37 at 47, Watt v Thomas [1947] AC 484 at 487 and 488; [1947] 1 All ER 582, Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178 and 179; 96 ALR 354, Rennie v Commonwealth (1995) 61 FCR 351. In Powell v Streatham Manor Nursing Home [1935] AC 243 at 255; [1935] All ER Rep 58, Lord Atkin stated the reason for this rule in vivid words, when he said that the appellate court “can never recapture the initial advantage of the judge who saw and believed”.

In the present case, the trial judge referred in general terms both to the supporting witnesses and to the inconclusive documentary evidence. Having done so, he reached a firm decision that the respondent’s evidence was to be preferred to that of the first appellant. It is not possible for the Court of Appeal to disturb this finding, which is not in itself improbable, and is not contradicted by any indisputable fact. Accordingly, the appeal cannot succeed on the issues of liability.

However, counsel for the appellants pursues an alternative argument. He submits that the award of damages cannot be sustained. What the trial judge did was to award the sum of T$20,000.00 together with interest, as to which there can be no complaint, and then to add to these sums an amount of T$38,400.00 plus interest as being damages for the loss of the respondent’s bargain. The sum of T$38,400.00 was calculated on the basis that the business the subject of the contract returned a gross rental income of T$3,200.00 per month, and that the fair compensation for the loss of the bargain would be equal to 12 months of income. But in order to earn that income, the respondent would have had to outlay the balance of the purchase price, namely, T$90,000.00, and he would not have had the T$20,000.00 deposit returned to him. Furthermore, there was no evidence of the amount of the deductions which would have to be made from the gross income in order to derive a net income. In this case, the bargain went off very soon after it had been concluded, and there was no reason to think the purchaser could not, within quite a short time, have found an alternative investment for his money. In the absence of evidence to demonstrate the amount of the anticipated net income of which the respondent was deprived, damages for the loss of his bargain ought to have been quite modest. Certainly, the gross income could not properly have been allowed.

The conclusion that the award of damages involved error requires this court to consider the appropriate award. On the extremely sparse material available, perhaps the best guide is the first appellant’s own evidence that he was willing to pay $7,500.00 “as apology” for the termination of the contract. In all the circumstances, there should be substituted for the damages awarded by the trial judge the sum of $27,500.00 (being the $20,000.00 deposit together with $7,500.00 additional damages) plus interest at 10% per annum from 1 August 1997. The appeal should otherwise be dismissed. The respondent should pay half the appellants’ costs of the appeals.