Wee Poh Hueh Florence v Performance Motors Ltd

Judith Prakash J:

[1] This appeal is about the correct amount of damages payable to the purchaser of a luxury car which subsequently turned out to be defective.

[2] The plaintiff, Ms Wee, purchased a top-of-the-line BMW car (then known as the BMW 728iA) from the defendant, Performance Motors Limited (“PML”), in November 1997. She drove the car without complaint for some one and a half years. In May 1999, the car’s engine experienced an abnormally high rate of loss of coolant. This was the first manifestation of the overheating complaint that was to bedevil the car thereafter. On this first occasion, Ms Wee lost the use of the car for two days while the problem was dealt with. The remedial measures taken proved to be short-term and the problem recurred thereafter at ever-decreasing intervals. Ms Wee complained that the coolant level indicator came on frequently and that she continually had to top up the coolant. Various work was done which did not rectify the problem. In 2001, the car was in the workshop for much of the year. It remained in the workshop until February 2002 when PML, having determined that the car could not be satisfactorily repaired, returned it to Ms Wee.

[4] The assessment of damages took place before the assistant registrar in July 2003. The damages claimed fell under two broad heads and that these were the correct heads of claim was not really disputed. What was hotly disputed was how each head was to be computed. The first head related to the correct measure of general damages and the second head related to the recovery of consequential loss. On behalf of Ms Wee it was contended that she was entitled to:

(a) the difference between the value of the car at the time of the discovery of the breach of warranty (June 1999) and the value that the car would have had at that time had it been of satisfactory quality and that, on the evidence before the assistant registrar, this sum was $137,511.94;

(b) loss of use of the car for 778 days calculated as amounting to $77,363,51; and

(c) loss of interest paid during the period when she was deprived of the use of the car calculated as amounting to $18,746.

Item (a) related to the first head of damage and items (b) and (c) related to the second head.

[5] In relation to the first head, PML contended that the date at which the diminution in value had to be calculated was not June 1999 but was either February 2002 when it was clear that repairs were not possible or, at the latest, April 2002. On the evidence, if either of these dates had been adopted, the loss to Ms Wee would have been between $8,000 and $9,500. As for the claim for consequential damages, this was disputed on various bases that I do not need to detail here.

[6] The assistant registrar held as follows:

(a) that the diminution in value should be assessed as at the time when repair attempts were abandoned and the defects were proclaimed as not being rectifiable and that although this determination took place in February 2002, the appropriate date was April 2002 as Ms Wee should be given a further two months to assess her position and take advice before scrapping the car;

(b) the difference in value between a defective car and a working car as at April 2002 was $8,000;

(c) Ms Wee should have mitigated her damages by selling or scrapping her car no later than mid-April 2002;

(d) Ms Wee was entitled to be compensated for 302 days’ loss at the rate of $2,000 a month so that the monetary value of the loss was $19,857.53. The assistant registrar arrived at this sum on the basis that Ms Wee was entitled to the use of a BMW 7 series car like her own and therefore the replacement vehicles that PML had provided her with did not compensate completely for her loss as they were only BMW 3 series or BMW 5 series cars. The difference in the rental costs of such vehicles and that of a BMW 7 series car was approximately $2,000 a month;

(e) Ms Wee was also entitled to recover $6,085.50 as the rental she expended on a substitute car between February 2002 and mid-April 2002 and road tax and insurance amounting to $549.10 for the same period; and

(f) the claim for bank interest was disallowed as the payment of this sum did not arise out of PML’s breach of contract.

The total amount awarded as damages under the foregoing paragraphs was $34,492.13.

[9] In an action for damages arising from breach of contract, the innocent party is entitled to recover such damages as may fairly and reasonably be considered as arising naturally, in the ordinary course of events, from such breach of contract. This was the measure laid down by the first rule in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145. In relation to the sale of goods, this first rule was incorporated as the normal measure of damages for breach of a contractual warranty by s 53 of the Sale of Goods Act (Cap 393, 1999 Rev Ed). Section 53 reads:

[10] This was a case of breach of warranty of quality. Therefore, the first consideration was whether the measure of damages prescribed by s 53(3) had to be used to determine what was recoverable by Ms Wee. Applying that measure would mean determining the difference in the value of the car in its defective state at the time of delivery to Ms Wee and the value it would have had if it had been sound. It is clear from the section itself that what I will call “the s 53(3) measure” is only a prima facie measure and may not apply in every case. In Bence Graphics International Ltd v Fasson UK Ltd [1998] QB 87, the issue was whether the purchaser who had bought vinyl film for the production of decals for resale to end users was entitled to recover as damages for the defective film delivered by the seller the s 53(3) measure, or whether the damages were limited to the purchaser’s liability to the subsequent purchasers of the decals arising because of the defects. In that case, using the s 53(3) measure would have resulted in greater compensation being awarded to the purchaser. At first instance, the s 53(3) measure was applied but this decision was reversed on appeal. The UK Court of Appeal held, by a majority, that the s 53 measure would be displaced where it had been in the contemplation of the parties at the time the warranty was given that the goods sold would be used in making a product for resale. Otton LJ expressed the view that s 53(3) lays down only a prima facie rule from which the court may depart in appropriate circumstances and that the burden of proof will lie on the person who seeks such a departure (at 97). Auld LJ on the other hand considered that the starting point for a claim for a breach of warranty is not the determination of whether one or the other party has “displaced” the prima facie test in that sub-section but the Hadley v Baxendale principle reproduced in s 53(2). The evidence may be such that the prima facie test never comes into play at all. Auld LJ went on to say (at 102):

[11] In the present case, neither party argued that the s 53(3) measure had been or could be completely displaced and that the damages should be calculated on some other basis. Both parties agreed that Ms Wee was entitled to recover the difference between the value of the car in its defective state and the value of a sound car. What they could not agree on was the date at which such difference in value should be assessed. On the appeal, Mr Kenneth Tan SC, counsel for Ms Wee, moved away from the position advocated before the assistant registrar that the date of such assessment was June 1999 when the defect first manifested itself. He contended that the s 53(3) measure had to be applied in full and that consequently the date of assessment was the date of delivery of the car. Ms Indranee Rajah SC, counsel for PML, disputed this and maintained PML’s position that the correct date of assessment was that chosen by the assistant registrar.

[12] Ms Rajah’s submissions were basically derived from the principles of law on assessment of damages for breach of contract set out in Treitel’s The Law of Contract (9th Ed, 1995) (“Treitel”). Treitel explains at 864–865 that the starting principle is that damages are assessed by reference to the time of breach and that the theory behind this rule is “that any loss suffered by reason of market movements after the time of breach is not caused by the breach, but rather by the injured party’s failure to mitigate”. The discussion goes on (at 865–867)

Whilst there can be no quarrel with the above as a statement of general legal principle, whether in fact passages (b) and (d) above apply so as to make it reasonable to fix as the date of assessment the date when PML decided it could not repair the car is another matter.

[13] It was common ground that in this case, there were three possible dates at which damages could be assessed viz:

(a) date of breach ie November 1997;

(b) date of discovery of breach ie June 1999; and

(c) the date when it became clear that there was no possibility of repair and the contract was effectively lost ie February or April 2002.

It was agreed that the date of the breach was the time when the car was delivered in November 1997 because the defect was a latent one and therefore, although it did not cause any trouble at the beginning, it was present in the car from the start. The breach of contract by PML was a breach of the warranty of satisfactory quality. That warranty was a warranty as to the state of the car at the time it was sold and delivered. It was delivered in November 1997 and should have been of satisfactory quality on that date. Despite outward appearances, it was not satisfactory on delivery since it contained a defect which resulted in it having to be prematurely scrapped. Therefore, on delivery, PML was in breach of the warranty.

[14] Ms Rajah’s submission was that it would not be appropriate to take either November 1997 or June 1999 as the date on which damages should be assessed. As regards November 1997, assessing damages at that date would be to give Ms Wee a benefit because she had the use of a car which showed no defect from November 1997 to June 1999 and she had substantial use of the car for another one and a half years thereafter ie between July 1999 and the end of 2000. As regards June 1999, at that time it was reasonable for Ms Wee to expect PML to make good the default by repairing the defect and therefore it would not have been reasonable to have expected her to immediately scrap the car in June 1999 on discovery of the defect. From June 1999 to 2000, the problem was minimal and Ms Wee had substantial use of the car. It was only in 2001 that the problem became really serious. Further, Ms Wee was provided with a replacement car by PML on the days when the car was in the workshop during the period from June 1999 to February 2002. It would be wrong to have damages assessed as at June 1999 and at the same time allow Ms Wee to have the benefit of the use of a replacement vehicle between June 1999 and February 2002. It was only in February 2002 that it could be said that the possibility of repair ceased to exist and the contract was well and truly lost. This was also the point of time at which Ms Wee ought to have mitigated her loss. Accordingly, the correct time at which damages should be assessed would be February or April 2002.

[15] I find the above arguments in relation to June 1999 and February 2002 to be topsy-turvy. The prima facie date for assessment of the damages is the date of delivery. If that date is to be displaced because of the failure to discover the defect until later, then the prima facie date of assessment is the date of discovery of the defect. In either case, the party that wishes to change the date from the prima facie date which the law specifies must bear the burden of showing why the prima facie date is not applicable. In the Bence Graphics International Ltd case, Otton LJ recognised that when a party wishes to depart from a prima facie rule of law, that party bears the burden of proof of establishing that this is justified. On this point at least he was at one with the trial judge who had held in favour of the s 53(3) measure of damages on the basis that the defendants had failed to satisfy him that the normal measure should be displaced.

[16] Here, PML, the party that delivered a defective vehicle to Ms Wee, is, in effect, arguing that it is the party entitled to determine when her damages should be assessed. This is because the time for assessment is being delayed from delivery right up to the date when PML decided that it could not remedy the defect. To accept this argument would be to give the contract breaker a control over damages to which it is not entitled. There was no magic in PML’s decision in February 2002 that the repair could not be rectified. This is a decision that it could have made any time between June 1999 and February 2002. The car was in its hands for substantial periods of time and, as the manufacturer’s local agent, it had (or should have had) the necessary expertise to determine the seriousness of the defect at the earliest possible moment. It cannot be seriously argued that PML was entitled to take its own time to investigate the defect and at its own convenience decide when nothing further could be done and that the date of determination of damages depended on when PML came to such a decision. With respect, I cannot uphold the finding below that the date of assessment had to be calculated in relation to PML’s decision to give up trying to rectify the car.

[17] As for the argument that June 1999 should not be taken as the date of breach because it was reasonable of Ms Wee to give PML the opportunity to rectify the problem, in my opinion, such a contention is not justified by legal principle. Assuming, for the time being, that June 1999 as the date of discovery of the breach is the correct date to assess damages, then on the basis of the principles that Treitel set out, that would also be the date on which Ms Wee should have mitigated her loss so that movements in market prices thereafter did not aggravate the loss. If the prima facie rule was that Ms Wee should have mitigated in June 1999, then whether she acted reasonably or not by giving PML the opportunity of effecting a cure would only be a relevant consideration if she herself was putting forward a date after June 1999 as the date for assessment of damages. In fact, in the court below, she did not take this course but argued for June 1999 as the relevant date. The reason why PML objected to June 1999 as the date of assessment was that it knew that Ms Wee would be awarded more damages if that date was chosen than if February 2002 was chosen as the correct date. In this situation, PML cannot argue that because it was reasonable of Ms Wee to allow it to rectify the defect instead of scrapping the car immediately, the time for assessing the damages must be pushed forward to a date which is more favourable to itself rather than to Ms Wee.

[18] I am now left with the question whether the correct date is the date of breach or the date of discovery. The principles explained in Treitel indicate that where the injured party does not know of the breach as soon as it is committed and cannot at that time take steps to mitigate the loss, the date of breach as the prima facie date of assessment is displaced and the court can assess the damages by reference to another date. That principle is for the protection of the injured party and not for the protection of the contract breaker. Therefore the fact that the injured party is ignorant of the breach when it occurs does not mean that damages should not be assessed as of that date.

[19] Mr Tan submitted that when Ms Wee chose, as a consumer, to buy a top-of-the-series car, both she and PML contemplated at the time of the sale and delivery that she was buying the car for her own use and enjoyment over time. It was not in contemplation that she would sell a car after a short period or that she would have to be concerned with overheating and frequent workshop repairs. If at the time of delivery Ms Wee had known of the serious inherent defect in the car, she would not have bought it. She would have returned it and obtained a refund or a replacement car. The value of the car as at 5 November 1997 was already that of a seriously defective BMW 7 series. After the defect manifested itself, PML gave the impression that it could be rectified. Any use that Ms Wee put the car to after 5 November 1997 did not detract from the value of the car as at 5 November 1997 as being that of a seriously defective car and of a car that she had not bargained to buy. Accordingly, he submitted that the diminution in the value to Ms Wee was the difference between the value of a BMW 7 series car of proper quality and the value of a seriously defective BMW 7 series car as at the date of delivery. Such diminished value did not change because Ms Wee used the car. The concepts of value and use should not be confused. The argument, that the value of the defective car should be taken as at the time when the defect manifested itself, confused use with value and ignored the reality that any use was of a car that was not the sound car that was bargained for. Such use would not have taken place had Ms Wee known of the serious defect from the outset. Further, it wrongly attributed to the parties a contemplation that Ms Wee would be content with a limited use of the car and intended to value the car for a premature sale if her use was interrupted by the serious latent defect. This was clearly not the case. Ms Wee bought a top-of-the-range car to use and enjoy over the years. As a result of PML’s breach she lost the opportunity to continue such use and instead was compelled to sell prematurely at a depreciated value.

[20] I accept the above submissions and hold that, in this case, the proper date for assessment of the diminution in value of the car is the date of its delivery to Ms Wee. I also consider, however, that an allowance has to be given for the fact that for a substantial period of time the car appeared to be exactly what it was supposed to be and Ms Wee used it and enjoyed it during this period as if it was a sound BMW 7 series car. I think that to totally disregard such use and enjoyment for the purpose of quantifying her damages would be to over-compensate Ms Wee for the breach of contract.

[21] I now turn to the quantification of the s 53(3) measure of damages in the present case. The first figure to be determined is the value that the car would have had if it had fulfilled the warranty of satisfactory quality. Ms Wee paid $289,000 for the car inclusive of the Certificate of Entitlement, goods and services tax, registration fees and one year’s road tax. I think that this price has to be taken as the value of a sound car as it was the price in October/November 1997 at which a new and apparently sound BMW 728iA was available from PML, the sole dealer in new BMW cars.

[22] The second figure to be determined is the value that the car, in its defective state, had in November 1997. One Mr Au Eng Choon, a dealer in new and used cars, was called as a witness by PML. He gave it as his opinion that at that date a defective car would have been worth $225,000. His opinion was, however, based on the supposition that a buyer in the second-hand market would be willing to take the car at a lower price even with a coolant loss problem. In cross-examination, he agreed that he had not seen a copy of the expert’s report on the car when he gave his opinion. After being told that the expert’s report stated that the car could not be repaired and could not be driven like a normal car because its cooling system was unpredictable, Mr Au stated that in these circumstances, no one would buy and use the car. He confirmed that this car had no second-hand value in November 1997 or any time thereafter if the true condition of the car had been made known to potential purchasers.

[23] On the basis that there was no second-hand market for the car, its only value in its defective state in November 1997 would have been its scrap value. The evidence was that in Singapore, at any given point in time, between the date of registration of a car and the tenth anniversary of that date, the scrap value of the car can be calculated on the basis of its Preferential Additional Registration Fee (“PARF”) rebate plus its Certificate of Entitlement (“COE”) rebate plus a value for the body of the vehicle. In this case, the evidence was that if the car had been scrapped within the first five years of registration, the PARF rebate would have been 130% of its open market value (as stated in the records of the Land Transport Authority) of $68,228 ie $88,696.40. It was also in evidence that if the car had been scrapped within two years of registration, the COE rebate would have been 80% of $74,150 ie $59,320. As for the third component, Mr Au’s testimony was that the value of the body, if scrapped locally, would be $2,000. Accordingly, in November 1997, the value of the car in its defective state was $150,016.40. This means that the diminution in value of the car by reason of the defect was $138,983.60 being $289,000 minus $150,016.40.

[26] Accordingly, I think the correct figure to award Ms Wee as general damages for the defect in the car is $138,983.60 minus $55,192.50 ie $83,791.10 which I would round off to $83,790.

[28] Ms Wee’s appeal against the foregoing decision was on the basis that the cut-off date for the damages should not have been February 2002 or April 2002 but instead November 2002, when the trial started. Ms Wee had testified that she had kept the car in case parties needed to inspect it and in fact PML did go to her home in April 2002 for an inspection. PML had never intimated to her that she should scrap the car and in the circumstances she had acted reasonably in not disposing of the car in February 2002.

[29] As Ms Rajah pointed out, however, Ms Wee’s own evidence was that after she brought back the car from PML’s workshop in February 2002, she checked with a couple of car dealers. She told them about the problem that the car had and asked them how much it could fetch in the market. She was informed that no one would want to buy a car with such a problem and, taking into consideration the high COE price that she had paid for it, it would be a better idea for her to scrap the car. She knew therefore that the car could not be sold in the open market and that it could only be scrapped. Additionally, by the end of March 2002 her expert had inspected the car. The assistant registrar gave Ms Wee up to mid-April 2002 to decide what to do with the car and I think that was correct. The period of two months was more than sufficient for her to get advice on the car. The car being unusable, I agree with Ms Rajah that Ms Wee ought to have scrapped it by mid-April 2002 instead of keeping it without using it, thereby continuing to incur road tax and insurance payments. Ms Wee’s appeal on this point must fail.

[33] Both cases cited were, however, tortious claims where the plaintiff’s car had been damaged in an accident and the plaintiff was obliged to act reasonably in procuring a substitute for a short period. The present case is somewhat different in that Ms Wee had been offered replacement vehicles of lesser quality and had acted reasonably in accepting them instead of going out and hiring a luxurious substitute. This acceptance does not mean, however, that she did not suffer any loss of use since her claim arose from the breach of a contract for the purchase of a car of a particular quality.