ADJEI vs. OTENG ALIAS AMA [1997-98] 1 GLR 725

CASE REFERRED TO

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79; [1914-15] All ER Rep 739; 83 LJKB 1574, HL.

NATURE OF PROCEEDINGS

ACTION by the plaintiff purchaser against the defendant seller for, inter alia, the recovery of the sum of ¢41,550,000 being the balance of the deposit he had paid the defendant to purchase her house plus 50 per cent of the sum as provided for under the sale agreement. The facts are sufficiently stated in the judgment.

COUNSEL

Caiquo (for Opoku-Acheampong) for the plaintiff.

Kwakye for the defendant.

JUDGMENT OF AFREH JA.

The plaintiff’s claim against the defendant is for the sum of ¢41,550,000 being the balance of the purchase price of a building on Plot No Z 25 Tesano, Accra, paid by the plaintiff to the defendant under a contract made between the parties an[sic](1) 27 May 1993; and interest on the said sum at the current banking rate from 27 May 1993 to date of payment.

The plaintiff is a private businessman residing and working in Germany. The defendant is a private businesswoman working in Accra. By a contract for sale dated 27 May 1993 the defendant agreed to sell her building on Plot No Z 25 Tesano, Accra to the plaintiff at the price of ¢55million. On the day the contract was signed, 27 May 1993, the plaintiff paid an initial deposit of ¢35 million, leaving an outstanding balance of ¢20 million to be paid on or before 30 September 1993 when the defendant indicated she

[p.727] of [1997-98] 1 GLR 725 would then have been in a position to give vacant possession to the plaintiff. It was further agreed that upon the failure of the defendant to let the plaintiff into possession of the house by 30 September 1993 the plaintiff would be entitled to a refund of his deposit plus 50 per cent interest calculated on it.

The plaintiff at a later date discovered, when it became apparent that the defendant could not give him vacant possession, that there was pending in court a suit involving the defendant and a third party over ownership of the house. When the defendant was confronted with these facts, she readily agreed to refund the deposit as she was enjoined to do under the contract for sale. She paid only ¢10,950,000 of the sum of ¢52,500,000 the plaintiff expected to receive from her. This amount was made up of the ¢35 million plus 50 per cent of it. The ¢41,550,000 claimed by the writ is the balance of this amount after deducting the ¢10,950,000 from the ¢52,500,000.

On 8 December 1995 I ordered that summary judgment be entered in favour of the plaintiff for the sum of ¢24,050,000, being the balance outstanding of the initial deposit of ¢35 million, and deferred consideration of the claim for 50 per cent of the deposit stipulated in the contract for sale as interest.

Three main issues arise for consideration:

(1) Is the plaintiff entitled to the 50 per cent of the deposit as damages as stipulated in the agreement between the parties?

(2) Failing that, is he entitled to any damages at all?

(3) Is he entitled to interest on the amounts awarded?

Claim for stipulated sum

The main claim in the instant proceedings is for payment of 50 per cent of the deposit as “liquidated damages.” This is stipulated in clause 6 of the contract for sale between the parties dated 27 May 1993. This provides:

“If non-completion of the sale shall be caused by the wilful default of the vendors (ie their non-compliance with paragraph 2(b) and 5), they shall refund to the purchaser the deposit so far paid and in addition half (ie 50%) of the deposit paid by way of liquidated damages and this contract

[p.728] of [1997-98] 1 GLR 725 shall there and then cease to have any effect and shall be treated as void.”

Where the parties to a contract, as part of the agreement between them, stipulated a sum to be paid by way of damages in the event of a breach, the sum stipulated may be classed as liquidated damages or penalty. It cannot be both. In the case of Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86-87 Lord Dunedin laid down certain propositions deducted from the cases which have since then been regarded as “rules” for determining whether a stipulated sum is liquidated damages or a penalty. The passage is well-known but it can still be quoted with profit:

“(1) Though the parties to a contract who use the words ‘penalty’ or ‘liquidated damages’ may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case.

(2) The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage (Clydebank Engineering and Shipbuilding Co v. Don Jose Ramos Tzquierdo y Castanda [[1905] A.C. 6]).

(3) The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the tine[sic](2) of the breach Public Works Commissioner v Bills [[1906] AC 368] and Webster v. Bosanquet [[(1912] AC 394]).

(4) To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:

(a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to

[p.729] of [1997-98] 1 GLR 725 have followed from the breach. (Illustration given by Lord Halsbury in Clydebank Case [(supra)])

(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid (Kimble v. Farron [6 Bins 141]). This though one of the most ancient instances is truly a corollary to the last test … “

Applying these rules and tests, I am of the opinion that the sum stipulated in clause 6 of the contract for sale is a penalty not liquidated damages. There appears to be no basis for estimating that by 30 September 1993, if the defendant was in breach, the plaintiff would have sustained a loss equivalent to 50 per cent of the deposit he paid on 27 May 1993. I do not think this was a genuine pre-estimate, at the time the contract was made, of the loss the plaintiff would incur if the defendant broke the contract. It seems clear to me to be in the nature of a threat held over the defendant in terrorem—as a security to the plaintiff that the defendant would perform the contract.

The plaintiff paid a deposit of ¢35 million. That was what he was entitled to be repaid, with interest. The demand for an extra sum equivalent to 50 per cent of the deposit paid will, or was intended to, give the plaintiff a sum greater than the sum which the defendant ought to refund. It is “extravagant and unconscionable” in amount in comparison with the greatest damage or loss that at the time the contract was made on 27 May 1993 the parties could genuinely estimate the plaintiff would suffer in the event of a breach by the defendant. Since the sum stipulated is a penalty the plaintiff cannot claim it.

Damages

He is however entitled to recover such loss as he can prove in the ordinary way. Counsel for the plaintiff has asked that he should be given nominal damages. This is presumably because although loss can be shown, the necessary evidence as to its amount has not been given. It would have been helpful if some evidence on the real estate market in May to October 1993 had been given. Similarly, since the money was paid in foreign currency, some evidence on rates of exchange or the depreciation

[p.730] of [1997-98] 1 GLR 725 of the cedi during the period would have been useful. In the absence of such evidence, I think nominal damages of ¢5 million—about one-tenth of the cost of the house, the subject-matter of the contract—is reasonable, and is accordingly awarded.

Interest

I have no doubt that the plaintiff is entitled to interest on the total of the unpaid balance of the initial deposit, ie ¢24,050,000 and the damages of ¢5 million at the current bank rate from 1 October 1993 to the date of judgment.

Costs of ¢1 million is awarded in favour of the plaintiff against the defendant. DECISION Judgment for the plaintiff.

Endnotes

1 (Popup – Footnote) [sic] same in document 2 (Popup – Footnote) [sic] same in document