Family Food Court (a firm) v Seah Boon Lock and Another (trading as Boon Lock Duck and Noodle House)

[1] The appellant, Family Food Court, is an operator of several food courts, including one at Block 642, Choa Chu Kang Street 62, Singapore 689142 (“the Yew Tee Food Court”) and one at 55 Sungei Kadut Street 1, Singapore 729358 (“the Sungei Kadut Canteen”). The appellant is a partnership between two brothers, Lim Chye Teng and Lim Chai Kwee.

[2] The respondents are a husband-and-wife team who manage and operate the “Yu Kee” chain of duck rice stalls island-wide. The first respondent is Mr Seah Boon Lock, who was originally the sole plaintiff at the trial below. The second respondent is Mdm Wee Lay Teng, who was added as the second plaintiff on the second day of the trial. The respondents operated Stall No 10 at the Yew Tee Food Court (“the Yew Tee Stall”) and Stall No 14A at the Sungei Kadut Canteen (“the Sungei Kadut Stall”).

[3] In the court below, the respondents succeeded in their claim against the appellant for wrongful repudiation of the licence agreement entered into between the appellant and the first respondent for the use of the Yew Tee Stall (“the Agreement”) and were awarded damages to be assessed (see Seah Boon Lock v Family Food Court [2007] 3 SLR 362 (“the Judgment”)). The appellant’s counterclaim for $31,201.45 for sums alleged to be owing by the respondents in respect of the Sungei Kadut Stall was dismissed (ibid).

[5] On or about 10 March 2003, one Lim Fah Choy (“Lim”), who was the first respondent’s operations manager and brother-in-law, entered into a tenancy agreement with the appellant for the Sungei Kadut Stall (“the Tenancy Agreement”). On or about 1 April 2003, the first respondent signed a letter of offer prepared by the appellant confirming his intention to enter into a three-year fixed term licence agreement (ie, the Agreement) in respect of the Yew Tee Stall (“the Letter of Offer”). Clause 5 of the Letter of Offer stated that:

(We shall refer to the above limit on the licence fee of the Yew Tee Stall as “the Licence Fee Cap” in these grounds of decision.) The Agreement was subsequently signed on 10 July 2003 by the first respondent and business at the Yew Tee Stall commenced on 22 August 2003.

[6] The appellant later sent the first respondent a letter dated 21 October 2003 confirming that the licence period for the Yew Tee Stall had commenced on 22 August 2003. This letter was acknowledged by the first respondent on 1 November 2003.

[7] In the meantime, the first respondent was facing problems at the Sungei Kadut Stall. On 5 May 2003, the first respondent informed the appellant that he would be terminating the Tenancy Agreement and that the last day of operations at the Sungei Kadut Stall would be 30 June 2003. However, the first respondent continued to operate that stall beyond 30 June 2003 until January 2004.

[8] In a letter to the first respondent dated 15 August 2003, the appellant stated that:

Notwithstanding the above letter, on 5 September 2003, Lim wrote to the appellant again to inform the latter that they would be terminating the Tenancy Agreement and that operations at the Sungei Kadut Stall would cease with effect from 30 September 2003. Operations at that stall eventually ceased in January 2004. Lim wrote to the appellant on 11 February 2004 informing the latter that the Tenancy Agreement would be terminated on that day itself (ie, 11 February 2004) and that the tenancy of the Sungei Kadut Stall would be taken over by one Teo See Han.

[9] The appellant proceeded to inform the first respondent that it was going to lift the Licence Fee Cap in respect of the Yew Tee Stall. In, inter alia, a letter dated 18 March 2004, the appellant stated that it would “left [sic] up the minimum rental target from S$29,000 to S$40,000”[note: 1] [emphasis in bold in original] for that stall and that the Licence Fee Cap would be removed.

[10] Nothing further occurred for almost a year until 30 March 2005, when the appellant sent a letter titled “Notice to Quit” to the first respondent informing him to cease all operations at the Yew Tee Stall by 15 April 2005. The first respondent’s solicitors informed the appellant on 12 April 2005 that any attempt to prematurely evict the first respondent from the Yew Tee Stall before the expiry of the three-year licence term in August 2006 would be unlawful. Nonetheless, the appellant proceeded to terminate the electricity supply to the Yew Tee Stall and retained the sales proceeds from that stall for the period 1 March 2005–15 April 2005. The appellant also purported to forfeit the security deposit of $18,000 under the Agreement and retained the equipment, goods and effects at the Yew Tee Stall. In a letter to the first respondent’s solicitors dated 15 April 2005, the appellant’s then solicitors alleged that the appellant had validly terminated the Agreement pursuant to a tie-up arrangement entered into between the parties (“the Tie-Up Arrangement”).

[11] The Tie-Up Arrangement concerned an oral agreement allegedly entered into between the appellant and the first respondent, whereby the former would grant a licence to the first respondent to operate the Yew Tee Stall provided the first respondent took up a concurrent lease of the Sungei Kadut Stall. According to the appellant, in consideration of the first respondent taking up a concurrent lease of the Sungei Kadut Stall, the appellant also agreed to the Licence Fee Cap on the Yew Tee Stall. More importantly, the termination of business at the Sungei Kadut Stall by the first respondent entitled the appellant to terminate the licence in respect of the Yew Tee Stall without any further negotiation and/or to lift the Licence Fee Cap.

[12] The first respondent vehemently denied the existence of the Tie-Up Agreement and brought an action against the appellant seeking the following reliefs:

(a) damages in the sum of $204,914.98 for repudiation of the Agreement in respect of the period 16 April 2005–21 August 2006;

(b) an account of the sales proceeds collected by the appellant from the Yew Tee Stall for the period 1 March 2005–15 April 2006 after deduction of the relevant charges under cl 7.7 of the Agreement;

(c) a refund of the security deposit of $18,000;

(d) the sum of $30,574.73, being the overcharged licence fees in respect of the Yew Tee Stall for the period from February 2004 till February 2005;

(e) damages for conversion of the equipment, goods and effects which the first respondent had brought to the Yew Tee Stall in connection with his business; and

(f) interest and legal costs.

As mentioned earlier (at [2] above), the second respondent was subsequently joined as a co-plaintiff to the first respondent’s suit.

[13] The appellant in turn counterclaimed for the sum of $31,201.45 which it claimed was owing in respect of the Sungei Kadut Stall.

[14] The trial judge (“the Judge”) found in favour of the respondents (see [3] above). Central to his decision were two issues which he resolved in the respondents’ favour. First, he held, inter alia, that the appellant had wrongfully repudiated the Agreement as the appellant’s case at the trial in relation to the Tie-Up Arrangement was riddled with inconsistencies. He reasoned that, considering that the appellant had access to lawyers at all material times (see [37] of the Judgment):

[15] Second, the Judge had to consider whether the respondents had the requisite locus standi to sue for the alleged losses claimed in the action. This issue arose in the course of the trial when it transpired that the first respondent might not be the owner of the business at the Yew Tee Stall. This resulted in the first respondent applying to join the second respondent in the action as his undisclosed principal (which application the Judge allowed). The statement of claim was accordingly amended by the inclusion of the following paragraph:[note: 2]

[16] Subsequently, a further complication arose when the Judge found that the second respondent was not the owner of the business at the Yew Tee Stall either. Faced with this predicament, the Judge held that the first respondent had acted as an agent for an undisclosed principal. He explained (at [65] of the Judgment):

This led the Judge to embark on a detailed discussion on the law relating to an undisclosed principal, dealing mainly with the question of whether the first respondent could claim for losses that were not suffered by him personally but only by the undisclosed principal. The Judge held in the affirmative.

[17] Having decided these two issues in favour of the respondents, it followed, almost as a matter of course, that the Judge ultimately found in favour of the respondents.

[18] The appellant appealed, inter alia, against the following aspects of the Judge’s decision:

(a) that the appellant had wrongfully repudiated the Agreement;

(b) that the first respondent, as the contracting party and agent for an undisclosed principal, was legally entitled to claim damages arising from the appellant’s repudiation of the Agreement; and

(c) the costs awarded.

In our view, these stated issues could be resolved into two main issues, which we will deal with in the following sequence:

(a) whether the Judge’s findings of fact in respect of the appellant’s repudiation of the Agreement were correct; and

(b) if those findings were correct, whether the respondents had the requisite locus standi to sue for damages arising from such repudiation.

[19] In respect of whether the appellant had wrongfully repudiated the Agreement, counsel for the appellant, Prof Tan Cheng Han SC (“Prof Tan”), in the course of his oral submissions, made several points suggesting that the Judge had not arrived at the right inferences of fact in this regard. He argued that the evidence showed that the first respondent had initially approached the appellant with the intention of entering into a licence agreement for the Yew Tee Stall alone. However, the first respondent decided to enter into a tenancy agreement for the Sungei Kadut Stall as well. Prof Tan submitted that it was logical to infer from this that, although the first respondent had not been keen on operating the Sungei Kadut Stall, he had nevertheless commenced operations there because the appellant had promised to grant him a licence for the Yew Tee Stall if he agreed to operate the Sungei Kadut Stall. Prof Tan went on to refer to the failure on the first respondent’s part to respond to the appellant’s letter dated 15 August 2003 (see [8] above) as an indication that there was some truth in the arrangement set out in that letter.

[20] Counsel for the respondents, Mr Harpreet Singh Nehal SC (“Mr Singh”), argued, on the other hand, that the burden of proving that the Judge’s findings of fact were plainly wrong based on the totality of the evidence available rested on the appellant, and that the appellant had failed to discharge that burden. Mr Singh pointed to inconsistencies arising from the appellant’s version of the facts at the trial. The appellant had alleged, inter alia, that the discussion concerning the licences for the Sungei Kadut Stall and the Yew Tee Stall respectively had occurred concurrently and that, sometime in January 2003, an oral agreement (ie, the Tie-Up Arrangement) had been reached whereby, among other things, the appellant was entitled to terminate the licence of the Yew Tee Stall if the first respondent ceased operations at the Sungei Kadut Stall. Mr Singh submitted that the fundamental problem with this version was that the terms of the Tie-Up Arrangement were nowhere to be found in any of the contractual documents. One would, he argued, have expected such crucial terms to be reflected in at least one contemporaneous document. An obvious example was the Tenancy Agreement, which had been prepared by the appellant: Mr Singh pointed out that no credible explanation had been proffered by the appellant as to why there was no mention of the existence and/or the terms of the Tie-Up Arrangement in that document.

[21] Since the case put forth by the appellant was that it was entitled to terminate the Agreement pursuant to the Tie-Up Arrangement, the onus was on the appellant to prove the existence of the latter. As Prof Jeffrey Pinsler SC pointed out in his book, Evidence, Advocacy and the Litigation Process (LexisNexis, 2nd Ed, 2003), at pp 250–251 with regard to the burden of proof in civil cases:

[22] We found that the evidence presented by the appellant was not strong enough to show that the Judge was wrong in arriving at his conclusion that the appellant had wrongly repudiated the Agreement. The reasoning of the Judge on this particular issue was both logical and persuasive. We were therefore of the view that the parties had not entered into the Tie-Up Arrangement and that the appellant had wrongfully repudiated the Agreement.

[23] The other main issue at the trial was who the actual owner of the business at the Yew Tee Stall was. The Judge held that the first respondent was not the owner and had instead acted as an agent for the undisclosed owner when he entered into the Agreement, but, for the purposes of the respondents’ suit, it was not necessary to identify the undisclosed principal as that was immaterial to the question of damages (see the Judgment at [65]; see also above at [16]). With respect, we found both conclusions surprising.

[24] As regards the first, the Judge had in fact observed (at [70] of the Judgment) that:

He also observed thus (id at [71]):

Having also observed that “the true owner of [the business at] the Yew Tee [S]tall [was] very likely to be [the first respondent] and [the second respondent] under a different legal persona” (id at [93]), he said (id at [99]):

[25] In our view, these observations clearly indicated that the first respondent had contracted with the appellant as a “family business unit” (ibid) in the sense that he had merely been using different names for different entities to carry on the business of his family. The business was really his. Indeed, that this was what the first respondent had tried to convey to the court below could be seen in his answers when cross-examined by the appellant’s counsel on this issue, as follows:[note: 3]

[26] In our view, the Judge should have found, since there was ample evidence on which he could have done so, that there was no undisclosed principal and that the first respondent had in fact acted for himself when he signed the Agreement. As a matter of principle, the court should not accept a situation where, as in this case, the appellant is allowed to allege that the first respondent is not the principal, but it (the appellant) cannot identify who the principal is. In such a situation, the court should reject the allegation and find the first respondent to be the only licensee (and, hence, the principal) under the Agreement. In our view, there can be no halfway house as was decided in the court below. The situation should not be any different from that where a plaintiff alleges that he entered into an agreement as an agent acting for an undisclosed principal. When such a plaintiff sues for breach of the agreement and claims damages for his undisclosed principal, he must identify the principal.

[27] Accordingly, in our view, this case should have been decided on a simple finding of fact that the first respondent was the only party to the Agreement vis-à-vis the appellant. Such a finding would have made it unnecessary for the Judge to consider the question of whether the first respondent could sue the appellant for damages suffered by an undisclosed and unidentifiable principal.

[28] As we have mentioned earlier (see [16] and [23] above), the Judge held that the first respondent was entitled to sue the appellant for losses suffered by his undisclosed principal. Although, given the views which we have expressed in the preceding paragraph, it is not necessary for us to consider the law in this respect, we think that it is desirable for us to summarise the current legal position under the common law as decided by the English courts. This is an area of law that is complex and thorny, and the last word on it, as we shall see (especially at [56] below), has not been laid down by either the English courts or our courts. Indeed, there is a dearth of case law in the local context, save for the leading decision of this court in Chia Kok Leong v Prosperland Pte Ltd [2005] 2 SLR 484 (“Prosperland (CA)”), which we will discuss in more detail below.

[29] The doctrine of the undisclosed principal is described by Prof M P Furmston in Cheshire, Fifoot and Furmston’s Law of Contract (Oxford University Press, 15th Ed, 2007) (“Cheshire, Fifoot and Furmston”), as follows (at pp 575–576):

This intervention by C, the undisclosed principal, has been heavily criticised as it offends against many contractual principles, including (most notably) the principle of privity of contract. Yet, the undisclosed principal has become a familiar (and, more importantly, an established) concept in the law of agency. It is now well accepted as a general principle that the undisclosed principal can sue and be sued on a contract made by its agent, although it is not a party to the contract (see the decisions of this court in Hongkong & Shanghai Banking Corp v San’s Rent A-Car Pte Ltd [1994] 3 SLR 593 at 599–600, [23] and The Rainbow Spring [2003] 3 SLR 362 at [24], where the doctrine of the undisclosed principal was endorsed locally). This unique state of affairs with regard to the doctrine of the undisclosed principal is well summarised by F M B Reynolds, Bowstead and Reynolds on Agency (Sweet & Maxwell, 18th Ed, 2006) (“Bowstead and Reynolds”) at para 8-071 as follows:

Essentially, the doctrine comes into play “[w]here an agent, having authority to contract on behalf of another, makes the contract in his own name, concealing the fact that he is a mere representative” (see Cheshire, Fifoot and Furmston at p 621).

[30] The undisclosed principal has also been described, albeit in a slightly different manner from the perspective of the third party, by Prof G H L Fridman in The Law of Agency (Butterworths, 7th Ed, 1996) (“Fridman”), as follows (at p 253):

The existence of the principal does not have to be known by the third party, and the third party has no obligation or duty to inquire as to whether there is an undisclosed principal (see, for example, Butterworths Common Law Series: The Law of Contract (Michael Furmston gen ed) (LexisNexis, 2nd Ed, 2003) (“Butterworths Common Law Series”) at para 6.19 as well as Fridman at p 253). Since the third party is of the view that he is dealing only with the agent, and since the agent does not contract in a representative capacity, the agent clearly assumes personal liability under the contract. So long as the agent executes a deed or enters into a contract in his own name, he is personally liable upon it, regardless of whether he discloses the name and the existence of his principal (see Butterworths Common Law Series at para 6.160). Therefore, the agent can sue or be sued on the agreement since the agent contracts personally in the situation of an undisclosed principal and the principal’s existence is, ex hypothesi, unknown to the third party (see the Privy Council decision of Siu Yin Kwan v Eastern Insurance Co [1994] 2 AC 199).

[31] The primary question is whether an agent can claim substantial damages for losses suffered, not personally by him, but only by his undisclosed principal who has not intervened. This question is especially important when viewed from the perspective of justice and fairness as a negative answer could result in the party who breached the contract (“the defendant/promisor”) escaping with, in effect, no legal liability (save, perhaps, for nominal damages) – in other words, as Lord Keith of Kinkel put it graphically in the House of Lords decision in the Scottish case of GUS Property Management Ltd v Littlewoods Mail Order Stores Ltd (1982) SLT 533 (“GUS Property Management”) at 538, the claim of the party injured by the breach of contract (“the plaintiff/promisee”) “would disappear … into some legal black hole, so that the wrongdoer escape[s] scot-free” [emphasis added]. Implicit in the question raised is the difficulty that the plaintiff/promisee – where he is the agent of an undisclosed principal – faces in seeking to recover substantial damages. This difficulty has been aptly stated as follows (see Bowstead and Reynolds ([29] supra) at para 9-013):

To this end, the English courts have formulated two exceptions, which we will refer to as “the narrow ground” and “the broad ground” respectively, to the general rule that the plaintiff/promisee can only recover nominal damages for a breach of contract where it has suffered no loss (for instance, where the substantial loss is suffered by the third party who is the intended beneficiary of the contract). These exceptions may possibly avail the agent (who is the plaintiff/promisee) in a situation involving an undisclosed principal. The narrow ground permits the plaintiff/promisee to recover substantial damages on behalf of the third party. In contrast, the broad ground permits the plaintiff/promisee to recover substantial damages for its own benefit on the basis that it is recovering for its own loss. “Substantial damages” in this context simply means damages which are more than nominal damages. It should also be noted that it may be a misnomer to describe the broad ground as an “exception” since it is in fact consistent with the basic rationale of contract law.

[32] Both the narrow ground and the broad ground (collectively referred to as “the two exceptions”) figured prominently in two House of Lords decisions (viz, Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 (“Linden Gardens”) and, more recently, Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 (“Panatown”)), as well as in the English Court of Appeal decision of Darlington Borough Council v Wiltshier Northern Ltd [1995] 1 WLR 68 (“Darlington”).

[33] As already mentioned (at [32] above), the two exceptions were considered in, inter alia, Linden Gardens, Darlington and Panatown. They are not new. Indeed, as we shall see, the narrow ground can be traced as far back as 1839 to the English decision of Williams Dunlop v George Anthony Lambert (1839) 6 Cl & Fin 600; 7 ER 824 (commonly cited as Dunlop v Lambert) (“Dunlop”). Its more modern restatement is to be found in the House of Lords decision of The Albazero [1977] AC 774, which we will be considering in a moment (see especially [36] below; see also generally Norman Palmer & Gregory Tolhurst, “Compensatory and Extra-compensatory Damages: The Role of the ‘The Albazero’ in Modern Damages Claims” (1997) 12 JCL 1 (Part I) and (1997) 12 JCL 97 (Part II)).

[34] The broad ground constitutes an integral part of the common law of contract where protection of the performance interest – ie, the plaintiff/promisee’s interest in the contract being performed and (consequently) his receiving the benefit which he had contracted for – is concerned. It is a relatively recent development which can be traced to the influential judgment of Lord Griffiths in the House of Lords decision of Linden Gardens, where the two exceptions were discussed in some detail. The subsequent English Court of Appeal decision of Darlington not only endorsed the broad ground, but also extended the narrow ground. This extension of the narrow ground appears to have been endorsed in Panatown, which, as the current leading decision in this area of the law, has been the subject of much learned academic commentary (see, in particular, Prof Ewan McKendrick, “The Common Law at Work: The Saga of Alfred McAlpine Construction Ltd v Panatown Ltd” (2003) 3 OUCLJ 145 (“The Common Law at Work”), which is an expanded and revised version of an inaugural lecture delivered at the University of Oxford on 4 March 2002).

[35] The narrow ground is (as mentioned above at [33]) of rather ancient origin, having its roots in the context of the carriage of goods, and is commonly known as “the rule in Dunlop v Lambert” (referring to the seminal decision of Dunlop ([33] supra)). It has since been restated in The Albazero ([33] supra), and was extended in Linden Gardens ([32] supra), Panatown ([32] supra) and (especially) Darlington ([32] supra) to the context of construction contracts.

[36] From a strictly historical perspective, the rule in Dunlop v Lambert is flawed inasmuch as it is now clear that the court in Dunlop did not intend to state that rule in the way that it has now come to be understood (see, for example, Brian Coote, “Dunlop v Lambert: the Search for a Rationale” (1998) 13 JCL 91; The Albazero, especially at 844 per Lord Diplock; as well as Panatown, especially at 523–529 (per Lord Clyde) and 563–565 (per Lord Jauncey of Tullichettle)). However, as alluded to above (at [35]), this rule has since been given its modern imprimatur and restatement in The Albazero – in particular, in the oft-cited words of Lord Diplock, as follows (id at 847):

[37] It will be seen that the rule in Dunlop v Lambert (as restated by Lord Diplock in the above quotation) is a very specific one, surrounded by very specific and clear parameters as well as prerequisites. It may be noted that this classic formulation was cited by this court in Prosperland (CA) ([28] supra) at [12].

[38] However, notwithstanding the very specific parameters in which the narrow ground was confined via Lord Diplock’s formulation in The Albazero ([33] supra), it was nevertheless extended in another House of Lords decision – namely, Linden Gardens ([32] supra) – to the construction context. In that case, Lord Browne-Wilkinson observed thus (at 114–115):

[39] The narrow ground was extended even further in Darlington ([32] supra), where it was applied (also in the construction context) even though proprietary interest in the contractual subject matter in that case had always been vested in – and remained with – the third party (and not the plaintiff/promisee). This extension was endorsed by the House of Lords in Panatown ([32] supra), although the majority held that the narrow ground did not apply on the particular facts of the case. Lord Browne-Wilkinson also described the narrow ground in that case, taking the hypothetical scenario of the plaintiff/promisee (referred to as “A” in the quotation below) contracting with the defendant/promisor (“B”) for the erection of a building on land which, as at the date of the contract, belonged to A but which, before the date of the breach, was transferred to the third party (“C”), as follows (at 575):

[40] The restatement by Lord Browne-Wilkinson set out in the preceding paragraph is very similar to his statement (again of the narrow ground) in Linden Gardens (reproduced above at [38]) (it should be noted that Lord Millett’s formulation of the narrow ground in Panatown at 583 was likewise in similar terms). This is significant because, despite the apparent endorsement in Panatown of the extension made to the narrow ground in Darlington, this particular restatement by Lord Browne-Wilkinson in Panatown (as reproduced in the preceding paragraph) still appears to endorse the key elements which were first stated by Lord Diplock in The Albazero ([33] supra) and subsequently reiterated (albeit in an extended context) by Lord Browne-Wilkinson in Linden Gardens (as set out at [38] above) – in particular, it emphasises the requirement that “it [be] in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods” [emphasis added] (per Lord Diplock in The Albazero at 847 (see the quotation reproduced at [36] above)).

[41] Turning to the other elements of the narrow ground, it is important to note the condition that the plaintiff/promisee, where it recovers substantial damages which represent the third party’s loss, must account to the third party for such damages (see, for example, Panatown at 532 (per Lord Clyde), 544 (per Lord Goff of Chieveley), 575 (per Lord Browne-Wilkinson) and 579 (per Lord Millett)).

[42] Finally, it is also important to note that the rationale underlying the rule in Dunlop v Lambert (from which the narrow ground is derived (see [35] above)) is to ensure that, in the words of Lord Keith in GUS Property Management ([31] supra) at 538 (reproduced at [31] above), there is no “legal black hole” into which the plaintiff/promisee’s claim disappears (see also Panatown ([32] supra) at 529 per Lord Clyde). Put simply, there would be such a legal black hole if the plaintiff/promisee were allowed to claim only nominal (as opposed to substantial) damages, whilst the third party is disallowed from recovering damages on the basis that it is not privy to the contract between the plaintiff/promisee and the defendant/promisor.

[43] Of course, the legal black hole itself will cease to exist if the third party is given a direct cause of action against the defendant/promisor (see The Albazero ([33] supra) at 847–848 per Lord Diplock, Linden Gardens ([32] supra) at 115 per Lord Browne-Wilkinson and Panatown at 575 (reproduced above at [39])). Indeed, this was the crux of the majority’s decision in Panatown, where the duty of care deed entered into between the defendant/promisor and the third party (“the DCD”) was found to constitute precisely such a direct cause of action.

[45] At first instance, Judith Prakash J, after a careful examination of the English authorities, held that Prosperland was entitled to sue the Defendants for substantial damages. She acknowledged that the legal position in Singapore on the correct principle to be applied to the specific instance before her was still open, but she preferred the broad ground and, in fact, held the Defendants liable for substantial damages on that ground (id at [64]). Prakash J further held, alternatively, that Prosperland’s claim fell within the narrow ground (id at [64]–[65]), and rejected the Defendants’ contention that the Court of Appeal’s decisions in RSP Architects Planners & Engineers v Ocean Front Pte Ltd [1996] 1 SLR 113 (“Ocean Front”) and RSP Architects Planners & Engineers (Raglan Squire & Partners FE) v MCST Plan No 1075 [1999] 2 SLR 449 (“Eastern Lagoon”) had provided the MCST with an action in tort against the Defendants, such that there was no legal black hole that required the application of the narrow ground to prevent injustice. The learned judge reasoned as follows (see Prosperland (HC) at [64]):

[46] Civic did not appeal against Prakash J’s decision, but the architects did. On appeal, the architects (again) argued that Prosperland could not sue them for substantial damages as it had not suffered any loss, and as the MCST had, following Ocean Front and Eastern Lagoon, a direct remedy in tort against them. This court similarly rejected this argument and upheld Prakash J’s decision in respect of the narrow ground for the following reasons (see Prosperland (CA) ([28] supra) at [43]–[45]):

[47] Two points are made patently clear from the above passage. First, the narrow ground is only applicable in the context of a breach of contract; specifically, where the person who suffers loss as a result of the breach of contract (ie, the third party) has no contractual remedy to recover substantial damages against the defendant/promisor (this point is, in fact, implicit in our discussion thus far above). It does not apply in every other (non-contractual) situation where a person sustains loss but has no recourse against the person who caused it. Second, an alternative cause of action in tort that may be available to the third party does not mean that the “legal black hole” mentioned at [31] above is eradicated or filled up. A claim in tort (subject to all the usual limitations and defences in tort) is not the same as a claim in contract, and, thus, the existence of an alternative cause of action in tort does not render the narrow ground inapplicable.

[48] We have earlier mentioned (at [34] above) that the performance interest (sometimes also referred to as the “expectation interest” (see, eg, Panatown ([32] supra) at 546 per Lord Goff)), which lies at the very heart and soul of the broad ground, is an integral part of the common law of contract, and that it may be a misnomer to label the broad ground as an “exception”. Proponents of the performance interest approach to claims for damages for breach of contract include Prof Daniel Friedmann (see “The Performance Interest in Contract Damages” (1995) 111 LQR 628); Prof Brian Coote (see “Contract Damages, Ruxley, and the Performance Interest” [1997] CLJ 537 (“Contract Damages”) and “The Performance Interest, Panatown, and the Problem of Loss” (2001) 117 LQR 81 (“The Performance Interest”)); I N Duncan Wallace (see “Third Party Damage: No Legal Black Hole?” (1999) 115 LQR 394 (“Third Party Damage”)) and Prof McKendrick (see “The Common Law at Work” ([34] supra) in the specific context of Panatown ([32] supra)).

[49] As mentioned earlier (likewise at [34] above), the broad ground first found expression in the judgment of Lord Griffiths in Linden Gardens ([32] supra). In that case, the learned law lord observed thus (at 96–97):

[50] Although the other law lords in Linden Gardens took a relatively more cautious approach in this regard, what, in substance, was a majority of the House of Lords in Panatown endorsed the broad ground. Both Lord Goff and Lord Millett (who were the dissenting minority in holding that the plaintiff/promisee in Panatown could recover substantial damages from the defendant/promisor notwithstanding the existence of the DCD (see [43] above)) clearly relied upon the broad ground for their respective decisions. Indeed, Lord Goff was of the view that Lord Griffith’s approach in Linden Gardens was “not ... a departure from existing authority” [emphasis added] (see Panatown at 552), but was, instead, “a reaffirmation of existing legal principle” (ibid). Lord Goff added that he “[knew] of no authority which [stood] in its way” (ibid). In comparison, Lord Millett adopted a more cautious approach, and stated that the broad ground should be restricted to “building contracts and other contracts for the supply of work and materials where the claim [was] in respect of defective or incomplete work or delay in completing it” (see Panatown at 591). Lord Browne-Wilkinson assumed that the broad ground was “sound in law” (id at 577), although he disagreed with both Lord Goff and Lord Millett with respect to the application of that ground on the facts of the case; in particular, he was of the view that the existence of the DCD resulted in the plaintiff/promisee not having suffered any damage to its performance interest (id at 578). It should also be noted that whilst Lord Clyde and Lord Jauncey did not expressly disapprove of the broad ground, they adopted a much more restricted approach to the plaintiff/promisee’s right to recover substantial damages. Lord Clyde was of the view that there must be an obligation on the part of the plaintiff/promisee to account to the third party for any damages awarded (id at 534), while Lord Jauncey was of the view that there could be no recovery where the plaintiff/promisee had “neither spent money in entering into the contract nor intend[ed] to do so in remedying the breach and ha[d] therefore suffered no loss thereby” (id at 574).

[51] There thus appears, on balance, to be an endorsement of the broad ground in the English context. The broad ground has also been endorsed in the Singapore context both by Prakash J in Prosperland (HC) ([44] supra) at [64] (see [45] above) and, upon appeal from that decision, by this court in Prosperland (CA) ([28] supra) at [52] and [59]. Indeed, although this court decided in Prosperland (CA), first, that the narrow ground applied (id at [33]–[45]; see also [46] above), it proceeded nevertheless to consider the broad ground and held that it applied “in principle” as well in that case (Prosperland (CA) at [59]). Chao Hick Tin JA, who delivered the judgment of this court in Prosperland (CA), expressed the view that “the broad ground [was] probably more consistent with principle” (id at [52]). Strictly speaking, the views expressed by Chao JA in respect of the broad ground in Prosperland (CA) were obiter. It should also be noted that a significant factor which influenced this court’s view as to why the broad ground should also (apart from the narrow ground) be of avail to Prosperland was that the MCST was, in fact, contemplating an action against Prosperland in respect of the defects in the condominium (id at [58]):

In other words, Prosperland was technically facing a potential claim for loss suffered by the MCST in respect of the defects in the condominium and was, in fact, prepared to make good those defects using the damages recovered in its suit against the Defendants. Thus, arguably, the “fact” that Prosperland had suffered no substantial loss was not entirely accurate.

[52] Further, notwithstanding that the application of the broad ground to the facts of Prosperland (CA) did not, strictly speaking, form part of the ratio decidendi of that case, it is noteworthy that Chao JA reaffirmed the performance interest approach to contractual damages as the foundation of the broad ground, as follows (id at [53]):

Hence, unlike the narrow ground, the broad ground is not concerned with filling up any legal black hole (see Prosperland (CA) at [55]):

The fact that the broad ground is grounded in protection of the plaintiff/promisee’s performance interest would mean that it applies only in the context of a breach of contract, just like the narrow ground (see [47] above), the key difference being (as mentioned at [31] above) that, under the broad ground, the plaintiff/promisee is recovering substantial damages for its own loss, and not on behalf of the third party. Thus, in Prosperland (HC), although Prosperland’s action against the Defendants was founded in contract and/or negligence (id at [4]; see also [44] above), it is clear from a reading of both the judgment of Prakash J and the judgment of this court (in Prosperland (CA)) that the passages therein relating to the two exceptions dealt only with the breach of contract by the Defendants.

The above approach is calculated to arrive at a just and fair result between the parties. How these principles are to be translated for application in an actual assessment of damages remains to be seen, with the precise facts concerned being (as mentioned above) of the first importance. Suppose, in the example given in Prosperland (CA) at [57], the contract value of the koi pond is $50,000, but the koi pond is so badly built that it has to be abandoned. The owner will recover his $50,000 for total failure of consideration. Presumably, he can also recover damages for loss of the enjoyment of keeping koi, and need not ask another contractor to construct another koi pond in order to recover such damages; otherwise, the original contractor would have an unmerited windfall (viz, not having to pay damages for the owner’s loss of enjoyment). The question of the owner receiving “an uncovenanted benefit” (per Chao JA at [57] of Prosperland (CA)) would not arise as he would have lost the enjoyment of keeping koi.

[54] Returning, more generally, to the objective test of reasonableness laid down in Ruxley, it is clearly a legal constraint on recovery by the plaintiff/promisee for loss of the performance interest. Indeed, writers have emphasised the role that this test can play as a legal control mechanism in so far as claims for loss of the performance interest are concerned (see, for example, “Third Party Damage” ([48] supra) at 404 and 410, and Alexander F H Loke, “Damages to Protect Performance Interest and the Reasonableness Requirement” [2001] Sing JLS 259, especially at 259–260 and 263–266).

[55] It should, in fact, be pointed out that, apart from the principle of objective reasonableness laid down in Ruxley, the traditional legal control mechanisms relating to contractual claims would also apply, and these mechanisms are both general as well as significant. They include the principles of causation, remoteness of damage (as to which see also Bowstead and Reynolds ([29] supra) at para 9-013), mitigation of loss and the requirement of certainty of loss. It should be mentioned that, in so far as the doctrine of remoteness of damage is concerned, this is separate and distinct from the element of contemplation or foreseeability contained in the narrow ground (see the passages quoted at [36], [38] and [39] above); to this extent, a learned author’s attempt to correlate the broad ground with the first limb in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 and the narrow ground with the second limb in that same case (see “Third Party Damage” at 396–397 and 406) is, with respect, erroneous.

[56] An extremely important point to emphasise is that the two exceptions, are conceptually inconsistent with each other (this is a point that has not gone unnoticed by either the Judiciary (see, for example, Panatown ([32] supra) at 587 (per Lord Millett)) or academics (see, for example, “The ‘Broad Ground’ and the Not-so-narrow Ground in Singapore” ([44] supra)). Hence, although the two exceptions are commonly discussed together in the same case (as in Linden Gardens ([32] supra) and Panatown, for instance), they cannot apply simultaneously. The crucial issue that arises, as a result, is whether – and, if so, how – the two exceptions can be applied in a consistent and coherent manner. To this end, there ought to be an objective legal point which, when reached, will result in the broad ground being applied in place of the narrow ground. One approach might be to stipulate that, in order for the narrow ground to apply, the plaintiff/promisee must originally have possessed a proprietary interest in the contractual subject matter, which interest was contemplated by the contracting parties as possibly being passed or transferred to a third party; if not, the broad ground would potentially apply. However, this approach would entail holding that the extension of the narrow ground in Darlington ([32] supra) was erroneous and should not be followed. Another possible approach is the principle of “transferred loss” suggested by Prof Hannes Unberath (see generally his book, Transferred Loss: Claiming Third Party Loss in Contract Law (Hart Publishing, 2003) (“Transferred Loss”), and, by the same author, “Third Party Losses and Black Holes: Another View” (1999) 115 LQR 535). Put simply, this particular principle is as follows (see Transferred Loss at p 192):

The principal difficulty with Prof Unberath’s approach is that it would entail discarding the broad ground. As can be seen, the relationship between the broad ground and the narrow ground is a thorny legal problem. However, since it does not arise – as a live issue – before us in the present appeal, we will say no more about it at the present time. What is relevant is the applicability (if any) of the two exceptions in a situation involving an undisclosed principal.

[57] The doctrine of the undisclosed principal (as described briefly at [29]–[30] above) is a well-established one, despite the fact that its origins are far from clear and continue to be the subject of academic commentary even today (see Bowstead and Reynolds ([29] supra) at para 8-071). The precise jurisprudential justification for the doctrine need not detain us in the present appeal. It is also important to note that the analysis which follows is premised on the doctrine of the undisclosed principal, as opposed to the doctrine of the unnamed principal (see generally F M B Reynolds, “Practical Problems of the Undisclosed Principal Doctrine” (1983) 36 CLP 119, especially at 120–122, for an overview of the distinction between the two). This is an important point since, where the former doctrine applies, the very existence of the undisclosed principal would, ex hypothesi, be unknown to the defendant/promisor at the time it enters into the relevant contract with the plaintiff/promisee. In order to avoid possible terminological confusion, we will regard the undisclosed principal as the third party in the ensuing discussion, although, in common legal parlance in the context of the law of agency, it would be the defendant/promisor who would be referred to as the third party. For ease of exposition, we will also refer to the agent who is the plaintiff/promisee as the “plaintiff/agent”.

[58] It will be recalled that the narrow ground applies where it is in the contemplation of the contracting parties that the proprietary interest in the contractual subject matter may be transferred from one owner to another after the contract has been entered into and before the breach occurs (see [36] and [40] above). As noted, however, in the preceding paragraph, in a situation involving an undisclosed principal, the very existence of the undisclosed principal would be unknown to the defendant/promisor (in the present case, the appellant, assuming that this appeal did involve an undisclosed principal). It follows, therefore, that the narrow ground would not be applicable. Indeed, how would it be possible to argue that the loss of the plaintiff/agent (here, the first respondent) is that of the third party (here, the alleged undisclosed principal) when the defendant/promisor (ie, the appellant) was not even aware that a third party existed in the first place? More specifically, it would be impossible for the contracting parties to have contemplated any transfer of the proprietary interest in the contractual subject matter simply because one of the parties (here, the appellant) was totally unaware of the existence of the third party. The present appeal is, in fact, a straightforward case in so far as the applicability of the narrow ground is concerned, and does not bring into play the various possible difficulties which we alluded to briefly (at [56] above) with respect to the relationship between this ground and the broad ground.

[59] Notwithstanding the fact that the narrow ground is inapplicable in the present appeal (on the assumption that an undisclosed principal was indeed involved), this is not the end of the matter. The broad ground might still apply in order to enable the plaintiff/agent (here, the first respondent) to obtain substantial damages. However, unlike the narrow ground (which allows the plaintiff/agent to obtain substantial damages for the loss of the undisclosed principal (who is the third party)), the broad ground allows the plaintiff/agent to obtain substantial damages based, instead, on its own loss.

[60] Before this court, Prof Tan argued against the application of the broad ground. He submitted that the undisclosed principal, if it wished to recover damages for loss which it had suffered, must sue in its own name (the doctrine of the undisclosed principal gives the principal a direct claim against the defendant/promisor (see [29] above)), and that the plaintiff/agent could not recover damages for what was essentially the principal’s loss, relying, in the main, on Panatown ([32] supra) (see also Tan Cheng Han, “Undisclosed Principals and Contract” (2004) 120 LQR 480 at 486, fn 32). Prof Tan argued, further, that the defendant/promisor might be entitled to defences that could be raised against the undisclosed principal (ie, the third party) but not against the plaintiff/agent (but cf Fridman ([30] supra), especially at p 271). All this set the stage for what was, in effect, a potentially controversial application (in the context of the doctrine of the undisclosed principal) of legal principles (namely, those relating to the broad ground) that were themselves potentially controversial (see, for example, Transferred Loss ([56] supra), especially at pp 169-175 and Bowstead and Reynolds ([29] supra) at para 9-013).

[61] Suffice it to say here that the state of law in this area is still very much in a state of flux, and that there are arguments both for as well as against the application of the broad ground in the context of an undisclosed principal. The main arguments against the application of the broad ground are already reflected in the arguments raised by Prof Tan in this appeal (see the preceding paragraph). On the other hand, a plausible argument for the application of the broad ground would be that, unlike the fact situation in Panatown – and this is a significant point – the law mandates that the plaintiff/agent (as a fiduciary) is accountable to the undisclosed principal for all damages recovered in an action brought in the plaintiff/agent’s own name to enforce the contract on behalf of the principal (see, for example, Alexander Corfield v David Grant (1992) 59 BLR 102 at 111; Garnac Grain Company Incorporated v H M F Faure & Fairclough Ltd [1966] 1 QB 650 at 685; and The World Era [1992] 1 Lloyd’s Rep 45 at 52). This being the case, it is clear that any damages recovered by the plaintiff/agent would have to be handed over to the undisclosed principal, and it is equally clear that the undisclosed principal cannot recover damages from the defendant/promisor twice over for the law clearly does not, as a matter of both principle and fairness, allow double recovery for the same loss. Thus, strictly speaking, no unfairness would arise in allowing a plaintiff/agent to recover substantial damages on the basis of the broad ground. Another argument for the application of the broad ground would be that there may be situations where the undisclosed principal cannot bring an action in its own name, such as when it is precluded from doing so by virtue of the terms of the contract between the defendant/promisor and the plaintiff/agent (see Bowstead and Reynolds ([29] supra) at paras 8-081 and 9-011). This may arise because the contract may contain an express term that the plaintiff/agent is the only party to it, or the plaintiff/agent could have impliedly contracted on the basis that he alone was the principal (such implication being derived from “the interpretation of words [in the contract] descriptive of the agent himself, and of the contract as a whole, that he [ie, the agent] alone answers the description in question”) (id at para 8-081)). In such situations, the proposition to the effect that the plaintiff/agent should be entitled to recover substantial damages would, a fortiori, apply (in order to prevent, in effect, a legal black hole from occurring, although, arguably, the broad ground is only concerned with the protection of the performance interest (see [52] above)).

[62] Notwithstanding the conflicting arguments both for as well as against the application of the broad ground in the context of an undisclosed principal, we are of the view that there is no need to determine conclusively which set of arguments should prevail and, in the process, descend into the legal controversy surrounding the application of the broad ground. The relevant rules of civil procedure render the potential difficulties vis-à-vis the extent of recovery of damages available to a plaintiff/agent a moot point in most cases in the light of the fact that these rules permit the court to order the undisclosed principal to be joined as a party to the proceedings if the latter chooses not to intervene of its own accord. Indeed, Prof Tan himself referred to the requirement of joinder, although (as can be seen from [60] above) this was not the main thrust as such of his arguments before this court. It is to these rules and their effect that our attention must now turn.

[63] If the undisclosed principal cannot be identified (which was the Judge’s finding in the present case (see [16] above)), he cannot be joined as a co-plaintiff to the plaintiff/agent’s action. However, assuming that the undisclosed principal is identifiable on the evidence, it seems obvious to us that, in order to do justice between the parties and to avoid a multiplicity of proceedings, the undisclosed principal should be made a party to the proceedings. Once the undisclosed principal has been made a party to the proceedings, the court will simply award to the undisclosed principal itself the full measure of damages that it is entitled to. The court has the power to order joinder under O 15 r 6(2)(b) of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (“the ROC”) (see Singapore Supreme Court Practice 2006 (Jeffrey Pinsler gen ed) (LexisNexis, 2006) (“Pinsler”) at para 15/6/1, as well as Singapore Civil Procedure 2007 (G P Selvam gen ed) (Sweet & Maxwell Asia, 2007) at para 15/6/2), whether or not the relevant parties have effected joinder under O15 r 4. Indeed, it may even be possible for the court to exercise the power of joinder pursuant to its inherent jurisdiction, albeit subject (not surprisingly) to the strict criterion of “need” [emphasis added] (see the decision of this court in Wee Soon Kim Anthony v Law Society of Singapore [2001] 4 SLR 25 at [27]; see also Pinsler at para 15/6/10). This simple procedural solution would obviate all the difficulties referred to above. Indeed, there would no longer be any need to invoke the broad ground in a situation involving an identifiable undisclosed principal.

[64] The underlying purpose of O 15 r 6(2)(b) of the ROC is “to bring all parties to disputes relating to one subject matter before the court at the same time so that the dispute may be determined without the delay, inconvenience and expense of separate actions and trials” (per K S Rajah JC in the Singapore High Court decision of Abdul Gaffar v Chua Kwang Yong [1994] 2 SLR 645 (at 654–655, [48]) in the context of O 15 r 6(2)(b) of the Subordinate Courts Rules 1986, which is in pari materia with O 15 r 6(2)(b)(i) of the ROC ). In a similar vein, Lai Kew Chai J observed, in the (also) Singapore High Court decision of Lee Kuan Yew v Tang Liang Hong (No 1) [1997] 2 SLR 819, as follows (at 822) in relation to O 15 r 6(2)(b) of the Rules of Court 1996 (which is likewise in pari materia with O 15 r 6(2)(b) of the ROC):

In the Privy Council’s decision in the Malaysian case of Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52, Lord Diplock, delivering the judgment of the Board, observed thus (at 55):

And, in Prosperland (CA) ([28] supra), Chao JA observed thus (at [56]):

[65] It should also be noted that if a person who has an interest in the proceedings decides not to be a party, he is bound by the court’s decision in those proceedings and cannot seek to re-open the case. As Lord Penzance observed in the English High Court decision of Wytcherley v Andrews (1871) LR 2 P & D 327 at 328-329:

Reference may also be made, in this regard, to the Singapore High Court decision of Sheriffa Zeinab v Syed Hood Al Joffree (1910) 2 MC 12.

[67] What, then, about the situation where an undisclosed principal exists but this is not brought to the attention of the court? In such a situation, the plaintiff/agent would necessarily be treated as the principal and would therefore be awarded the full measure of damages accordingly (assuming that a breach of contract is proved). And, the undisclosed principal would be precluded from later re-opening the matter in accordance with the principles set out above (at [65]). This does not, however, preclude the undisclosed principal from asking the plaintiff/agent to account (as a fiduciary) for the damages recovered from the defendant/promisor (see [61] above).

[68] For the reasons given above (at [21]–[22] and [25]–[27]), we dismissed the appeal with the usual consequential orders to follow.

[note: 1]See Exhibit “SBL-9” of the first respondent’s affidavit of evidence-in-chief filed on 3 January 2006.

[note: 2]See “Statement of Claim (Amendment No 3)” filed on 18 July 2006 (at vol 2, pp 128–146 of the appellant’s core bundle (“ACB”)).

[note: 3]See ACB, vol 2 at pp 165–166.