University of Melbourne Law School Research Series
|
|
Home
| Databases
| WorldLII
| Search
| Feedback
University of Melbourne Law School Research Series |
|
Last Updated: 28 September 2010
This article was first published in the Melbourne University Law Review, Volume 32, Issue 3, pp. 684-717, 2009
AFTER TABCORP, FOR WHOM DOES THE BELLGROVE TOLL? CEMENTING THE EXPECTATION MEASURE AS THE ‘RULING PRINCIPLE’ FOR CALCULATION OF CONTRACT DAMAGES
MATTHEW BELL[*]
[The High Court case of Tabcorp v Bowen Investments offers an opportunity to reassess the body of law which has grown around the calculation of contractual damages for defective building work. This article undertakes such an analysis, placing Tabcorp within the dual contexts of defective work damages specifically (in particular, the Court’s confirmation that Bellgrove v Eldridge provides the applicable test) and the broader debate in contract law as to which interest is primarily to be afforded protection through damages. In respect of the latter, it is submitted that the Court’s vigorous restatement of the primacy of Parke B’s ‘ruling principle’, based upon the expectation interest, may be expected to have resonance well beyond the sphere of defective building.]
CONTENTS
I INTRODUCTION
Tabcorp
Holdings Ltd v Bowen Investments Pty
Ltd (‘Tabcorp’) was one of the first judgments to be
handed down by the High Court of Australia under
French CJ.[1]
Decided by the Court in early 2009, the case was set in train more than a decade
prior to that when a tenant acted with ‘contumelious
disregard’[2]
for the provisions of a lease by demolishing and replacing the foyer of a
commercial building in Melbourne.
As conceived by the Court, the case was
ultimately to be decided by applying the principles for the calculation of
contractual damages
for defective building work as laid down by the Court in
Bellgrove v Eldridge (‘Bellgrove’) more
than half a century
earlier.[3] Those
principles were themselves explained by the Court as being based upon the
‘ruling
principle’[4] for
ascertaining the quantum of damages for breach of contract derived from the
famous dicta of Parke B in Robinson v Harman
(‘Robinson’): ‘[The plaintiff] is, so far as money can
do it, to be placed in the same situation ... as if the contract had been
performed.’[5]
Of
itself, the Court’s reiteration of the fundamental nature of this
principle was not
groundbreaking:[6] its
importance has been emphasised repeatedly by the Court over the
years,[7] and the
passage — along with that in which it is identified as the ‘ruling
principle’ — are said to be ‘[t]he
two most quoted judicial
statements on the basis of assessment of damages in
contract’.[8]
Indeed, even within the specific field of damages for defective building
work,[9]
the principle has long been recognised as being the starting point for judicial
analysis and
commentary.[10]
It
has never been seriously doubted that the ‘ruling principle’ in this
context leads to the cost of rectification being
the prima facie measure of
damages.[11]
What has, however, been highly contentious — and continues to be —
is the appropriate formulation of the principle (or
principles) governing the
circumstances in which the applicability of that measure is to be displaced. In
this context, it is submitted
that the Court’s upholding of the right of
the plaintiff in Tabcorp to have their contractual expectations upheld
through an award of damages may well have a significant impact in at least two
areas.
The first of these relates to the application of contract damages
principles within the specific sphere of breach of an obligation
—
typically arising in a construction contract — to design, build or repair
physical works so as to meet a particular
standard. Tabcorp has, in this
context, provided a forceful restatement, with
‘elucidat[ion]’,[12]
of the principles laid down in Bellgrove.
Secondly, Tabcorp may
be viewed within the context of a broader debate which has occupied contract law
scholars for the best part of a century, especially
since the seminal article of
L L Fuller and William R Perdue Jr in
1936[13]
— that is, whether the plaintiff’s expectation ought to be the
default interest protected by contractual damages. Here,
Tabcorp arguably represents an example of the
expectation measure’s bailiwick being further extended, in this case to
the species of
damages quantification applicable to the breach of a lease
covenant against alteration of premises. The effect of the case is to
subsume
the method of calculation of such damages within the Bellgrove principle,
which itself has been explained as being based squarely upon Parke B’s
seminal statement as to the primacy of the
expectation measure.
Hence, it is
the submission of this article that, whilst, on its face, Tabcorp appears
to be a straightforward application of the principles laid down in
Bellgrove,[14]
the case may be regarded as extending the reach of the expectation measure and
therefore further eroding any claims that alternative
measures may have to
general application.
The article lays out this argument as follows:
II DAMAGES IN CONTRACT FOR DEFECTIVE BUILDING WORK
A Establishing the Breach
Put
succinctly, building work is ‘defective whenever it falls short of a
standard that it was supposed to
meet.’[17]
The relevant standard may be stipulated in the contract expressly (such as by
way of a ‘materials and workmanship’ clause
applying generally
across the
work[18]
or a requirement applying to a particular item of the work as set out in a
contractual specification) or it may be the subject of
an implied
term.
Parties undertaking construction works often find themselves seeking
recourse to implied terms, either because the contract does not
deal expressly
with a matter[19] or
— as is not infrequently the case — because no contract is agreed to
by the parties.[20]
Terms may, in the usual way, be implied ad hoc in particular contracts through
the application of the principles derived from BP Refinery
(Westernport) Pty Ltd v Hastings City
Council.[21]
There is, moreover, a considerable body of law about quality-related terms which
(subject to any express terms to the contrary or
supervening statutory
provisions) may be expected to apply in construction contracts
generally.[22]
As
summarised by John Dorter and John Sharkey, the contractor’s implied
warranty as to workmanship will ‘[o]rdinarily
... require that the
building be constructed with the skill, care and competence of an ordinary
contractor and in accordance with
good building
practice’.[23]
Implied warranties of merchantability and (where reliance upon the
contractor’s skill and judgement is established) of fitness
for purpose
also apply; whilst they are ‘analogous’ to those derived from sale
of goods
legislation,[24] the
exact ambit of such warranties is the subject of detailed case law which is
beyond the scope of this
article.[25]
Terms
may also be implied into construction contracts by statute. Depending upon the
type of contract, they may include the terms
as to due care and skill and
fitness for purpose applicable to contracts for the supply of services generally
under s 74 of the Trade Practices Act 1974 (Cth)
(‘TPA’), or the various terms implied into contracts for
residential building work by statute in most states and territories of
Australia.[26]
B Quantum of Damages: The Special Nature of Building Cases
When
Parke B made his pronouncement that the general object of damages for breach of
contract is that the plaintiff ‘is, so
far as money can do it, to be
placed in the same situation ... as if the contract had been
performed’,[27]
Queen Victoria had been on the throne for barely a decade. It was not until a
century had passed and the next Queen had been crowned
that the common law
embraced a principle of sufficient flexibility to be capable of applying the
‘ruling principle’ to
the myriad situations constituting defective
building work. That occurred in 1954 with the High Court’s handing down of
Bellgrove.
Although no comprehensive principle was established during
the 19th and early 20th
centuries, case law and commentary throughout this period reflected the idea
that the default measure ought to be based upon the
cost of
rectification.[28]
Indeed, it is Parke B himself who is credited by McGregor on
Damages as providing the seminal statement of principle to that
effect.[29] Sixteen
years before Robinson and whilst a Justice of King’s Bench, his
Honour allowed the owner to make a deduction from the contract price on account
of
defective slate roofing measured by ‘the sum which it would take to
alter the work, so as to make it correspond with the
specification.’[30]
The
rule was said by Professor Duncan Wallace to be ‘perhaps best summed
up’ by a Canadian case dating from 1895, Allen v
Pierce.[31]
Rejecting difference in value as the applicable measure on the basis that such
would result in there being ‘no point in a man
contracting for the best
materials’, Wetmore J there stated that ‘[t]he owner of the building
is ... entitled to recover
such damages ... as will put him in a position to
have just the building he contracted
for.’[32]
Despite
this, given that, conceptually, construction work may be seen as an activity
akin to the supply and installation of goods,
it is perhaps surprising that
diminution in value did not gain currency as the prima facie
measure.[33]
However, as Professors Tilbury, Noone and Kercher have observed,
‘[c]lassical contract theory does not cope well with situations
where
there is no
market.’[34]
Thus, an analysis based upon difference in value becomes problematic in the
construction context when the individual materials are
formed into the
conglomerate which constitutes the building as a whole. In turn, Professor Davis
has argued that to have diminution
in value as the preferred measure would rest
on an assumption — which, he notes, ‘is not always borne
out in real life’
— that ‘every building owner is a completely
informed, economically rational,
person’.[35]
The
difficulty in achieving what Professor Tilbury has termed ‘equivalence
compensation’[36]
becomes particularly acute where the losses sustained by the building owner as a
result of defective work are non-economic in
nature;[37] such a
situation highlights the importance of Parke B’s acknowledgement —
through the phrase ‘so far as money can
do it’ — that in
certain circumstances there may be limitations upon the ability to achieve
substitute performance through
damages.[38]
In
Tabcorp, the High Court noted that it was concerns of this type which
underlaid the Court’s decision, half a century earlier, in
Bellgrove.[39]
There, the Court had emphasised that the relevant contract entitled the building
owner to ‘have a building erected upon her land in
accordance with the
contract’[40]
and that damages assessed according to the rectification measure — rather
than that of diminution in value — were the
appropriate means of giving
her ‘the equivalent of a building on her land which is substantially in
accordance with the
contract.’[41]
Thus, a significant step was taken towards the establishment of a principle
which has provided flexibility grounded in certainty
in the ensuing decades.
C An Unstable Building Leads to a Foundation Case: Bellgrove
On
6 June 1949, Miss Marjorie Eldridge signed a building contract to have a home
built in a seaside suburb of
Melbourne.[42] The
builder committed ‘a very substantial departure from the specifications
and, indeed, such a departure as to result in grave
instability in the
building.’[43]
Thus legal proceedings were set in train which were to have a deep and lasting
impact upon the jurisprudence of damages for breach
of contract constituted by
defective building work.
Ultimately, the High Court of Australia upheld an
award of damages to Miss Eldridge representing the cost of demolishing and
rebuilding
her
house.[44] In doing
so, the Court laid down the principle that, in cases of defective work, the
building owner is prima facie entitled to damages
representing the cost of
rectification of the work so that it achieves conformity with the contract,
along with any ‘appropriate
consequential
damages’.[45]
The Court imposed two qualifications upon the application of such a measure
— the work must be necessary to achieve conformity
and it must be a
reasonable course to
adopt.[46]
Where
the necessary work was not a reasonable method of dealing with the situation,
the Court said that ‘the true measure of
the building owner’s loss
will be the diminution in value, if any, produced by the departure from the
plans and specifications
or by the defective workmanship or
materials.’[47]
D Testing the Boundaries of Bellgrove
1 A Swimming Pool Muddies the Waters: Ruxley
Some
three decades after Bellgrove, Mr Stephen Forsyth entered into a contract
to have a swimming pool built next to his house in the market town of Cranbrook,
south-east
of
London.[48]
The agreement reached with the defendant builder (trading as Home Counties
Swimming Pools) was that the deep end would be 7 feet
6 inches deep. The pool
originally built by a subcontractor cracked, and the builder replaced it free of
charge (and, later, reluctantly
agreed to a £10 000 price reduction to
compensate Mr Forsyth for disturbance during the rebuilding of the pool).
The
builder commenced proceedings against Mr Forsyth to recover the amount owed to
him. Three days after the trial commenced, Mr Forsyth
amended his defence and
counterclaim to raise, for the first time, the issue that the diving end of the
pool was only 6 feet 9 inches
deep.[49] Whilst it
was safe for diving, it was some nine inches shallower than had been
agreed.
The trial judge, Diamond J, awarded Mr Forsyth £2500 on account
of lost amenity but dismissed his counterclaim, amounting to
£21 560,
for the cost of rebuilding the
pool.[50] By a
majority, the Court of Appeal of England and Wales reversed this decision and
allowed Mr Forsyth to recover damages representing
that
cost.[51] The House of
Lords restored the award of the trial
judge.[52]
In the
result, therefore, the House of Lords confirmed the possibility of recovery in
contractual damages for non-pecuniary loss as
a third measure of damages in
defective work
claims.[53] Their
Lordships also provided guidance on the circumstances in which the other
measures (rectification and diminution in value) would
apply.[54]
Having reviewed Bellgrove, Lord Lloyd emphasised
the central importance of reasonableness in selecting the appropriate measure of damages. If reinstatement is not the reasonable way of dealing with the situation, then diminution in value, if any, is the true measure of the plaintiff’s loss. If there is no diminution in value, the plaintiff has suffered no loss. His damages will be nominal.[55]
Ruxley was generally welcomed as an advance in the law. Despite his criticisms of the case,[56] Professor Duncan Wallace anticipated that the House of Lords’ judgment would ‘prove to be of the greatest importance in all common law jurisdictions’,[57] and Harvey McGregor saw it as an ‘eminently sensible decision’.[58] Likewise, initial reviews of the case regarded Ruxley as opening up the possibility of greater flexibility in the assessment of damages.[59] As will be seen below, however,[60] Ruxley’s influence has — at least in Australia — waned somewhat in the light of Tabcorp.
2 Intention and Ability to Rectify: Difficult Issues Make for Difficult Law
By
the time Tabcorp reached the High Court, it was firmly established that
Bowen Investments was ‘adamant that the foyer should be
reinstated.’[61]
Hence, the matter received scant explicit attention in the
judgment,[62] placing
it beyond the core scope of this article.
Having said that, it seems fair to
say that the greatest controversies in the law relating to defective building
work damages over
the past half-century have related to the issue of the
plaintiff’s intention and ability to
rectify.[63] Moreover,
and as discussed below in Part III(C), in Bowen Investments
Pty Ltd v Tabcorp Holdings
Ltd (‘Bowen’) (which was affirmed in Tabcorp)
each of the judgments, especially that of Rares J, discusses the matter in
detail. It is therefore worthwhile at least putting the
issue in its
context.
The issues have their root in the potential for two competing
objectives to come into conflict. On the one hand, stemming from the
‘ruling principle’, the court has an overriding objective to ensure
that defective work damages ‘reflect, as accurately
as the circumstances
allow, the loss which the claimant has sustained because he did not get what he
bargained
for.’[64] On the
other hand, there exists a legitimate anxiety to avoid a situation where
‘the owner can keep and use the technically
defective, but practically
useful, work and, at the same time, have the whole of the cost of its
rectification in his or her
pocket.’[65]
In
Bellgrove, the Court dismissed as ‘quite immaterial’ the
possibility that Miss Eldridge might retain the damages award and not
undertake
the rectification
work;[66] in other
words, the intentions of the plaintiff in relation to use of the award were
irrelevant to the Court’s decision as
to which measure of damages was
applicable. In Ruxley, however, their Lordships were not so willing to
disregard the distinct possibility that Mr Forsyth might not apply any damages
award
to the reinstatement of the
pool.[67]
Lord Jauncey expressed the concern that the Court might be creating a windfall
for Mr Forsyth, noting that he
has acquired a perfectly serviceable swimming pool ... His loss is thus not the lack of a useable pool with consequent need to construct a new one. Indeed were he to receive the cost of building a new one and retain the existing one he would have recovered not compensation for loss but a very substantial gratuitous benefit, something which damages are not intended to provide.[68]
Moreover, Lord Lloyd characterised the situation, if damages were awarded without an intention to rebuild, as one where Mr Forsyth would be ‘creat[ing] a loss, which does not exist, in order to punish the defendants for their breach of contract’[69] — in other words, such an award would stray from being compensatory to becoming punitive. To his Lordship, whilst he ‘fully accept[ed] that the courts are not normally concerned with what a plaintiff does with his damages ... it does not follow that intention is not relevant to reasonableness, at least in those cases where the plaintiff does not intend to reinstate.’[70]
III TABCORP: BACKGROUND TO THE HIGH COURT PROCEEDINGS
A Demolition of Foyer
The
stage on which the drama of the Tabcorp series of cases played out is the
foyer of a commercial building in the St Kilda Road business district of
Melbourne.
On 14 July 1997, Mrs Mary Bergamin (a director of Bowen
Investments, the owner of the building) arrived for a meeting to discuss with
Tabcorp’s personnel and consultants its proposals to alter the foyer. Even
though she was a few minutes early for the meeting,
Mrs Bergamin was already too
late to stop the destruction of the foyer. As the High Court noted,
she found that the foyer of the building had been badly damaged. A glass and stone partition, timber panelling and stone floor tiles had been removed. She was shocked and dismayed to see what remained of the floor stone work being jack hammered. A large bin was filled with the debris of the foyer.[71]
In the words of Finkelstein and Gordon JJ, hearing (along with Rares J) the appeal from Tracey J’s judgment, Tabcorp had ‘not bother[ed] obtaining [Bowen Investments’s] approval to begin the alteration works — it simply went ahead and demolished the foyer.’[72] This unauthorised action was found at trial to constitute a breach of cl 2.13 of the lease,[73] by which Tabcorp covenanted:
Not without the written approval of the Landlord first obtained (which consent shall not be unreasonably withheld or delayed) to make or permit to be made any substantial alteration or addition to the Demised Premises.[74]
Moreover,
the foyer (which, despite written warnings from Bowen Investments, Tabcorp
subsequently went on to fully demolish and
refurbish)[75] had
been the subject of ‘particular care ... and interest’ by Mrs
Bergamin during its
construction.[76] It
was, noted the High Court, ‘of high quality. It was made of special
materials — San Francisco Green granite, Canberra
York Grey granite, and
sequence-matched crown-cut American
cherry.’[77]
Regardless of its aesthetic qualities, however, Tabcorp’s Chief Executive
Officer had taken the view, as was observed by Tracey
J at trial, that
‘the foyer area required a total redesign in order to project what he
perceived to be Tabcorp’s image
as a progressive, technologically advanced
business.’[78]
Bowen
Investments sought damages of $1.38 million, calculated as the estimated cost of
reinstatement of the foyer to its original
condition ($580 000) along with
the loss of rental income during the reinstatement works
($800 000).[79]
B Trial
At
trial, Bowen Investments sought to make its case against Tabcorp by alleging
numerous causes of action, including actions under
the
TPA.[80] By the
time the case came to the High Court, however, all of these had fallen away
except the claim based upon Tabcorp’s breach
of the
lease.[81] For the
purposes of this article, therefore, only the contractual claim will be
examined.
Bowen Investments based its claim upon cl 2.13 of the
lease;[82] as noted
above, this prohibited Tabcorp from making any substantial alteration or
addition to the demised premises without the landlord’s
prior consent.
Tracey J found that a breach of this provision occurred by dint of the
demolition work on 14
July[83] and that the
continuation of the work despite Bowen Investments’s protests constituted
a further
breach.[84]
The
difficulty for Bowen Investments, however, was that Tracey J regarded the law
applicable to calculation of damages for these breaches
as being derived from
Joyner v Weeks
(‘Joyner’),[85]
a Victorian-era case which — as was noted by the High
Court[86] — had
been referred to by neither party. Along with
Evans v
Balog,[87]
Joyner was cited by Tracey J as the basis for the proposition that, in
order for a plaintiff to recover reinstatement-based damages, it
needed to prove
a ‘special interest in reinstatement arising from a radical change to the
usage to which the property can be
put following renovations by the
tenant’.[88]
As
Bowen Investments was unable to establish this, and Tracey J also found that the
unauthorised renovation was unlikely to lead to
any substantial diminution in
the value of the building by the time Tabcorp’s tenancy ended, the
plaintiff landlord was awarded
only nominal damages for the breach, amounting to
$1000.[89]
C Full Court
The
Full Court of the Federal Court of Australia took a significantly different
approach to the circumstances of the case than Tracey
J had at trial, with the
upshot that Bowen Investments was awarded the $1.38 million it had originally
sought.[90]
Their
Honours needed to unravel a number of complicated jurisprudential and procedural
matters in order to reach this
result[91] — as
Rares J noted, ‘[w]hat should have been a relatively straightforward case
of construing the lease in accordance
with ordinary principles ... regrettably
became beset with
confusion.’[92]
1 Application of Joyner
The
primary legal issue to be dealt with, in the Full Court’s view, was that
the trial judge had misconstrued the applicable
principle, being that, where a
repair covenant is breached at or near the termination of the lease, the prima
facie rule, as ‘firmly
established in Joyner ..., is that the
landlord is entitled to recover the cost of
repairs.’[93]
Underpinning
the Full Court’s conception of the application of Joyner as being
the key issue for resolution was its view that there was ‘no meaningful
distinction between a full repair covenant
and cl 2.13, at least as regards the
extent to which the clause prohibits alterations or additions without
approval.’[94]
The
Full Court’s approach to Joyner was reliant upon viewing the lease
as being close to its conclusion — as Finkelstein and Gordon JJ
acknowledged, where the
tenancy is continuing, the prima facie measure for
assessment of damages for breach of the repair covenant is diminution in
value.[95]
This view was available to the Court, despite the fact that the lease had been
renewed in 2006 so as to expire either five or 10
years
later,[96] because of
the ‘important condition’ included in the renewal agreement to the
effect that the renewal of the lease did
not prejudice the litigation
proceedings in relation to the
foyer.[97]
2 Interplay with the ‘Building Cases’
Whilst,
as noted above, the Full Court’s conception of the applicable provision of
the lease as being a repair covenant meant
that it was bound by Joyner,
both of the judgments refer to the principles in Bellgrove in reaching
their conclusion as to damages.
Finkelstein and Gordon JJ appeared (without
referring explicitly to Bellgrove) to indicate their preference for a
basis for assessing damages which would apply generally to ‘work done (or
not done) or
damage caused to property in breach of contract’ —
namely, reinstatement cost and diminution in
value.[98] In a
statement reminiscent of Lord Mustill’s comment in Ruxley that the
two measures are not
exhaustive,[99] they
then went on to note that ‘[t]he correct measure is whatever is reasonable
for the wronged party to
recover.’[100]
Rares
J emphasised that Bellgrove provides ‘a different test to that
provided by the rule in Joyner ... and
Graham’[101]
and — presumably alluding to the possibility that Bellgrove might
overtake Joyner as stating the common law
position[102]
— that only the High Court is in a position to ‘develop the law of
landlord and tenant to take account of later
developments’.[103]
Clearly, however, his Honour saw the ‘building cases’ as relevant to
the assessment of damages in
Bowen,[104]
especially as to the landlord’s intention to
rectify.[105]
Ultimately,
therefore, all three judges had recourse to the reasonableness of Bowen
Investments’s insistence upon rectification
in deciding that the prima
facie measure under Joyner — reinstatement — was not
to be displaced here.
Finkelstein and Gordon JJ referred explicitly to Mrs
Bergamin’s being ‘adamant that the foyer should be reinstated’
— and the reasonableness of such an attitude — as one of two key
factors in its
decision.[106]
However, they rejected ‘the view that objective reasonableness is to be
determined solely from the viewpoint of an hypothetical
rational economic
actor’,[107]
saying that it was
no answer to say that we are dealing with a commercial building. All over the world there are many beautiful commercial buildings. ... From a businessperson’s perspective a new structure may be as good as an old. But the view of a businessperson is not the only view that is important.[108]
Rares
J recognised that, in order to avoid creating ‘commercial
uncertainty’ through ‘use of a plaintiff’s
subjective
intentions as to what will be done with the award as a criterion for assessing
his or her entitlement to damages for a
breach of
contract’,[109]
application of the test needs to be grounded in objectivity. His Honour sought
to reconcile the subjective and objective elements
by reference to the
parties’ bargain, noting that ‘[r]easonableness goes to whether the
performance provided, defective
as it was, ought be corrected having regard to
the objective intentions of the parties discerned from their
contract.’[110]
In
other words, so long as a matter of personal taste is enshrined in the contract,
‘the other contracting party is not usually
at liberty to depart from that
specification in performing the
work.’[111]
His Honour observed that ‘[t]he purpose of the law of contract is to
enforce bargains, good or bad, according to their terms.
It is not to enforce or
ignore what the subjective views of a party might
be.’[112] This
is a passage which was to find resonance in the High Court’s
judgment.[113]
IV TABCORP IN THE HIGH COURT
A Special Leave Application
By
the time the decision of the Full Federal Court was handed down, it had been
more than half a century since Miss Eldridge’s
case had come before the
High Court. Other cases on defective work had reached Australia’s court of
final appeal, but none
had established any significant new
principle.[114]
On
11 August 2008, the High Court granted Tabcorp special leave to appeal. Mr Young
QC, for Tabcorp, submitted that such leave provided
an opportunity to ventilate
the issue of whether the rule in Joyner should be replaced with the
general principles for assessment of damages for defective
work.[115]
Crennan J observed during her Honour’s exchanges with counsel that
‘there have been developments in the common law, as
in
Bellgrove’s Case, in relation to the measure of damages in
building and land matters reflecting more closely [the] general approach to
contract.’[116]
The
scene appeared set, therefore, for a comprehensive consideration of the
appropriate means of assessing damages by the only Court
within the Australian
system in a position to provide authoritative reconsideration of the application
of Bellgrove.
B Judgment of the High Court
1 Overview
On
12 February 2009, the High Court handed down a joint judgment, finding in favour
of Bowen Investments and dismissing all aspects
of Tabcorp’s
appeal,[117] thus
securing the landlord’s judgment of $1.38 million as awarded by the Full
Federal Court.
As noted below, the Court did not engage with many aspects of
the Full Court’s decision; rather, the Court said, in respect
of
Tabcorp’s ‘numerous complaints about the reasoning of the Full
Court’, that it was ‘convenient to put
them on one side for the
moment, because there is one short ground on which the Full Court’s
orders are plainly to be
supported.’[118]
The focus of the Court’s analysis, therefore, was upon the consequences of
Tabcorp’s breach of cl 2.13 — the covenant
against unauthorised
alterations.
Based upon Tabcorp’s appeal submissions, however, there
were a number of matters which, potentially, could have been the subject
of
broadly applicable guidance from the High Court in this case. These
included:
(a) ‘necessity’ referred to a requirement that it ‘must be necessary that conformity be achieved’[121] — that is, raising an enquiry as to whether conformity was necessary; and
(b) it would be regarded as an example of rectification not being a
‘reasonable course to
adopt’[122]
where the cost of the rectification work exceeds the amount which would have
been recoverable on the diminution in value test.
These three issues are
discussed in detail below in Parts IV(B)(2)–(4); as indicated there, the
High Court dealt explicitly with issues 2 and 3 and, as characterised by
Professor Butt, ‘sidestepped’
the continued applicability of
Joyner.[123]
By
way of overview, the bulk of the judgment is concerned with dissecting
Tabcorp’s submission that ‘the appropriate measure
of damages was
the diminution in value of the
reversion’.[124]
The Court commenced by characterising that submission as being based upon an
assumption ‘dignified as “the doctrine of
efficient
breach”’[125]
— that is, ‘anyone who enters into a contract is at complete liberty
to break it provided damages adequate to compensate
the innocent party are
paid.’[126]
The Court criticised this assumption primarily on the basis that it ‘takes
no account of the existence of equitable remedies,
like decrees of specific
performance and injunction, which ensure or encourage the performance of
contracts rather than the payment
of damages for
breach.’[127]
The
balance of the main part of the judgment, proceeding from the statement that
Tabcorp’s submission ‘misunderstands
the common law in relation to
damages for breach of
contract’,[128]
essentially serves to bring Bowen Investments’s complaint within the fold
of the Bellgrove test. The sequence of reasoning commences with the
‘ruling principle’; the Court then observes — referring to
Oliver
J’s emphasis in Radford v De
Froberville (‘Radford’) that Parke B’s reference
to ‘the same situation’ did not necessarily mean ‘as good a
financial
position’[129]
— that diminution in value damages will not satisfy that principle where
(as here) ‘the contract is not for the sale
of marketable
commodities’.[130]
The Court therefore identified Bellgrove as setting out the applicable
principle.[131] In
turn, the Court concluded that:
here, the Landlord was contractually entitled to the preservation of the premises without alterations not consented to; its measure of damages is the loss sustained by the failure of the Tenant to perform that obligation; and that loss is the cost of restoring the premises to the condition in which they would have been if the obligation had not been breached.[132]
The remainder of the judgment is concerned with explaining why Bellgrove’s dual qualification to the application of the rectification measure did not apply here[133] and dealing with certain other ancillary matters.[134]
2 Application of Bellgrove to Lease Covenants
As
noted above,[135]
the High Court did not share the Full Court’s conception that cl 2.13 was,
in effect, synonymous with a repair covenant. In
turn, the Court was able to
avoid engagement with issues of the continued applicability of Joyner in
jurisdictions where the common law has not been overtaken by
statute.[136]
Professor
Butt has noted that Tabcorp therefore ‘leaves open some tantalising
issues about damages for breach of a covenant to
repair.’[137]
This is largely because the Court did not take up the exhortation of Mr Young
QC, counsel for Tabcorp, to rule that, in the application
of the common law to
repair covenants, Bellgrove should supersede the rule in Joyner.
The thrust of his submission was that Joyner was redundant and promoted
injustice whereas Bellgrove ‘is a flexible rule that allows the
court to consider the best measure in the circumstances of the case to arrive at
the true
loss.’[138]
Had
he needed to do so in the context of the appeal, it would seem to have been
justifiable for Mr Young QC to extend this critique
of Joyner to
Turner v Lamb.[139]
This is the early Victorian-era case which provides the rationale for damages
for breach of repair covenants during the lease being
based upon the diminution
in value of the reversion. As expressed by Finkelstein and Gordon JJ, the
reason for this preference is
that ‘the landlord is not bound to expend
any money recovered as damages in carrying out the repairs and whatever he
recovers
beyond his reversionary interest is regarded as excess
compensation’.[140]
It
will be noted that this basis sits contrary to the view expressed in
Bellgrove that the purpose to which the damages are put by the plaintiff
is irrelevant to the quantum assessed. However, it does appear to
reflect a view
that the landlord’s interest in the reversion is almost exclusively
economic — hence, leading commentators
speak of the potential for
‘injustice’ in the way in which the Joyner rule allows the
landlord to ‘recover the cost of repairs, even though the failure to
repair may not have affected the value
of the
reversion.’[141]
As
noted in the following section, the High Court rejected the wholesale
application of ‘economically rationalist’ theories
to the situation
in
Tabcorp.[142]
In light of the analysis being taken to that point, it may fairly be surmised
that it is not only Tabcorp and its counsel who have
cause to feel somewhat
disappointed that the Court did not go on to engage directly with whether
Joyner remains good law. That, however, was evidently regarded by at
least one Justice as ‘a second order sort of
question.’[143]
Nonetheless,
Tabcorp’s confirmation that the breach of a lease covenant against
unauthorised alteration falls within the bailiwick of Bellgrove may be
expected to have a not insignificant practical impact — as Professor Butt
has observed, in the states (New South Wales
and Queensland) where the
landlord’s right of recovery is limited by statute in respect of repair
covenants,
if the facts and the wording of the particular lease entitles the landlord to sue for breach of either covenant, it would be better for the landlord to seek damages for breach of a no-alterations provision than breach of a repair covenant.[144]
3 Aesthetic Aspects: Ruxley Distinguished
Tabcorp
sought to argue that Bowen Investments had not made a case that its interest in
the building (and therefore the foyer) was
in the building’s particular
aesthetic qualities as opposed to its investment
potential;[145] by
contrast, the trial judge had found that Bowen Investments did regard the
construction and leasing of the building as a commercial
concern.[146]
The
High Court did not engage directly with whether, in fact, Bowen Investments had
established that its contractually reflected interests
extended beyond the
purely commercial. That the Court was satisfied as to such establishment does,
however, seem clear from (for
example) the preamble to the judgment, in which
the Court notes that Mrs Bergamin was ‘shocked and dismayed’ by the
demolition
of the
foyer.[147] It
therefore gave short shrift to Tabcorp’s submission, quoting at some
length a passage from Radford which included the following:
It may be that another person might say that what the plaintiff has stipulated for will not serve his commercial interests so well as some other scheme or course of action. And that may be quite right. But that, surely, must be for the plaintiff to judge. Pacta sunt servanda.[148]
Tabcorp
may, therefore, be seen as supporting a proposition that defective work which
disappoints expectations lacking an easily reckoned
monetary value will
nonetheless be compensated by an award of rectification damages, so long as such
expectations have been clearly
expressed as anticipated outcomes within a
binding contract. The proposition must be further qualified, however, by
reference to
Bellgrove’s dual proviso — especially that
achieving the plaintiff’s aesthetic desires must not be unreasonable.
Nonetheless,
the Court has made clear that it is only matters akin to a
plaintiff’s wish to replace new with second-hand bricks which might
trigger this limb such that the plaintiff’s right to rectification damages
might be
denied.[149]
A
proposition that non-pecuniary damage may be protected in this way was by no
means beyond doubt prior to Tabcorp. This was, primarily, due to the
potential for Ruxley to be an obstacle to a claim by a disgruntled
plaintiff where, as here, the circumstances substantially met those put forward
by
the House of Lords as justifying the refusal to award rectification
damages.[150]
Counsel for Tabcorp may, therefore, reasonably have considered themselves
justified in relying upon Ruxley in their submissions before the Court,
and especially in their emphasis on the importance of
proportionality.[151]
Assuming
that Ruxley did indeed stand athwart the path to Bowen
Investments’s recovery of rectification damages, the High Court was,
conceptually,
faced with two options: to engage directly with the case and
whether it represented good law in Australia, or to distinguish it.
The Court
took the latter approach. The Court observed that, whilst in Ruxley their
Lordships had appeared to accept the principles laid down in Radford
(which, as noted above, underpinned the High Court’s own reasoning), the
‘result at which their Lordships arrived is
on one view inconsistent with
those
principles’.[152]
Nonetheless, the Court’s view was that ‘for present purposes it is
sufficient to say that the facts of Ruxley ..., which their Lordships
evidently saw as quite exceptional, are plainly distinguishable from those of
the present
appeal.’[153]
It
may fairly be regarded as something of a missed opportunity that the Court chose
to distinguish Ruxley rather than confront it head-on. This is especially
the case given that, as proposed above, the circumstances of Tabcorp may
arguably be regarded as disclosing at least four of the five factors which Lord
Jauncey
identified[154] as
justifying reversal of the Court of Appeal’s award of rectification
damages.
Having said that, such an incremental approach as was adopted by the
High Court is consistent with the way in which the leading cases
from Australia,
England and elsewhere in the common law world may be regarded as parallel, and
not uncoordinated, quests by the courts
in each country in grappling with the
appropriate general principle for the assessment of damages in defective
building work
cases.[155] Indeed,
just as there is the apparent paradox that the Australian High Court took in
Bellgrove a significant, independent step in the same year — 1954
— that Australia’s attachment to the apron strings of the
motherland
was arguably at its
zenith,[156] the
Australian and English cases and commentaries have, almost invariably, taken due
note of each
other.[157]
Nonetheless,
it is strongly arguable that — in Australia, at least —
Tabcorp has marginalised the continued currency of Ruxley to the
extent it represents a departure from the ‘ruling
principle’.[158]
In particular, as Graeme Clarke has observed, the High Court ‘in effect
held that the disproportion was no answer to the importance
of enforcing
contractual
performance’.[159]
The
practical impact of this is illustrated below in Part V(B)(3) by reference to
the recent case of Willshee. There, a trial decision which relied heavily
upon the approach in Ruxley was overturned by the Western Australian
Court of Appeal. In the result, therefore, whereas prior to Tabcorp Mr
Willshee was — like Mr Forsyth — required to ‘tolerate
non-compliant
performance’,[160]
the damages award on appeal placed him — like Miss Eldridge — in a
position to obtain the home which he had expected
when entering into the
contract.
4 Guidance on the Two Limbs of Bellgrove
(a) Necessity
The characterisation — apparently accepted by the Court[161] — by counsel for Bowen Investments of Tabcorp’s submission in this regard was that the necessity limb required ‘that the work ... be necessary in the sense that it is essential that you do it.’[162] The High Court regarded this as a misconstruction of the test. Instead, the work in question must be ‘apt to conform with the plans and specifications which had not been conformed with.’[163] In other words, the requirement to achieve conformity is assumed within the essence of the contractual bargain and not to be reopened here as sought by Tabcorp; rather, the limb requires only that the work be ‘apt’ (which has connotations of being ‘suited to the purpose’)[164] to achieve such conformity. Thus, work which is not directed towards such conformity may not be ‘necessary’.
(b) Reasonableness
As noted above, Tabcorp argued that rectification would not be a ‘reasonable course to adopt’ to the extent that the cost of the rectification work exceeded the amount which would have been recoverable on the diminution in value test. In response, the Court simply noted that such a submission
rested on a loose principle of ‘reasonableness’ which would radically undercut the bargain which the innocent party had contracted for and make it very difficult to determine in any particular case on what basis damages would be assessed.[165]
Whilst
this concern based upon uncertainty is, with respect, undeniably well founded,
there seems a more fundamental problem with
Tabcorp’s submission. It
should be borne in mind that, taken to its logical conclusion, the principle as
argued would disallow
the recovery of the prima facie measure of damages —
rectification — to the extent that damages assessed via that measure
exceed those available via the subsidiary measure of diminution in value. As was
succinctly pointed out by counsel for Bowen Investments
(and, apparently,
substantially accepted by the
Court),[166] the
effect upon Bellgrove would be to allow ‘the exception [to] totally
subsume the
rule.’[167]
Quite
apart from this specific issue of the reasonableness of recovery of damages over
and above the diminution measure, the Court
provided some general guidance on
the application of the limb. The Court characterised the test as one of
‘unreasonableness’
and noted that it ‘is only to be satisfied
by fairly exceptional circumstances’, such as the second-hand bricks
example
given in
Bellgrove.[168]
The Court observed that that example ‘align[ed] closely’ with
Oliver J’s statement in Radford: ‘that is, that the
diminution in value measure of damages will only apply where the innocent party
is “merely using
a technical breach to secure an uncovenanted
profit”.’[169]
V ASSESSING THE IMPACT OF TABCORP
A Overview
It
has been proposed above that Tabcorp may be expected to have a
significant practical impact through its extension of the reach of the
Bellgrove principle to breach of lease covenants against unauthorised
alteration.[170] The
Court’s forthright dismissal of the doctrine of efficient breach is also
noteworthy.[171]
Having said that, the aspect which may be expected to have the most substantial
impact upon the quantification of damages for defective
building work is the
guidance provided in respect of, first, the manner in which aesthetic
considerations may be upheld in a damages
award (including the Court’s
distinguishing of
Ruxley)[172]
and, secondly, the operation of the Bellgrove
qualification.[173]
The
Western Australian Court of Appeal case of
Willshee,[174]
which provided the first detailed appellate-level consideration of
Tabcorp, offers an opportunity to reflect upon this impact.
B Willshee
1 Background
Willshee
concerned the limestone cladding of a house in the southern suburbs of Perth.
The complaint by the plaintiff, Mr Willshee, was that
the cladding had begun to
crumble, leaving large holes in the limestone blocks, only three and a half
years after construction was
completed.[175] It
was established at trial (before Templeman J) that approximately half of
the limestone blocks used were ‘seconds’
of inferior quality and
that the builder’s use of them constituted a breach of an implied
contractual obligation only to use
high-quality limestone in the construction of
the
house.[176]
Templeman
J had also accepted that the cost of rectification work, requiring the removal
of all the cladding and its replacement with
high-quality blocks, amounted to
$257 977.91 and found that Mr Willshee would have needed to incur
additional costs, such as those
relating to accommodation and storage, during
the reinstatement
work.[177] However,
his Honour declined to award such rectification (and consequential) costs,
holding such rectification unreasonable as ‘the
structural integrity of
the house is not in doubt and ... the plaintiff’s complaint can now be
based only on the aesthetic
quality of the limestone, about which the contract
was
silent.’[178]
The
appeal hearing occurred on 19 February 2009, five days after Tabcorp was
decided. The judgment, delivered by Martin CJ (with Buss JA and Newnes AJA
concurring),[179]
was handed down on 18 May 2009. The Court of Appeal reversed the trial decision,
which had allowed the plaintiff damages of less
than
$10 000,[180]
finding that the plaintiff was entitled to damages exceeding
$300 000.[181]
2 Key Issues
In
many ways, the facts in Willshee offered an ideal litmus test as to
whether Tabcorp represents a shift in the law. The question before the
Court of Appeal was, essentially, whether Mr Willshee was entitled to claim
the
default measure available under Bellgrove — rectification
plus applicable consequential losses — despite the fact that the building
was not rendered structurally unsound
by the defective work.
Whilst this was
by no means a simple question, the circumstances were such that the Court did
not — or, at least, considered
that it did not — need to deal with
other matters which have caused significant controversy over recent decades,
particularly
that of the relevance of the plaintiff’s intention (or
ability) to rectify the
work.[182] The Court
accepted that, notwithstanding Bellgrove’s conception of intention
to rebuild as being ‘quite immaterial’, the ‘more recent
formulation of the test
in Tabcorp [made it] conceivable that the
subjective intention of a plaintiff may be relevant to the application of the
qualification to the
“ruling principle” of
damages.’[183]
The
Court emphasised, however, the High Court’s conception of the
circumstances in which the qualification might apply as being
‘fairly
exceptional’ and that the defendant bore the onus of proving that Mr
Willshee’s intention was relevant
to the triggering of that qualification
— here, not only had Westcourt not put to Mr Willshee in cross-examination
that he
did not intend to use the damages for rectification, there were
indications from Mr Willshee’s evidence that he did in fact
intend to
undertake the
rectification.[184]
3 Aesthetic Considerations: The ‘Ruling Principle’ Shrinks Ruxley’s Pool of Influence
(a) Trial (Pre-Tabcorp)
Templeman J at trial had regarded the situation with the defective limestone as being ‘in many ways similar’ to that in Ruxley.[185] In particular, his Honour regarded as ‘analogous’ to the present situation the example (and proposed solution in damages), cited by Lord Jauncey, where a builder uses yellow rather than blue bricks for a lower part of the building. In his Lordship’s view (as quoted by Templeman J):
It would clearly be unreasonable to award to the owner the cost of reconstructing because his loss was not the necessary cost of reconstruction of his house, which was entirely adequate for its design purpose, but merely the lack of aesthetic pleasure which he might have derived from the sight of blue bricks.[186]
Hence, in Templeman J’s opinion, as the deterioration had now been halted by the sealing work (the reasonable cost of which formed the basis for the damages award made by his Honour),[187] ‘the plaintiff’s concern can only be “the lack of aesthetic pleasure” which he might have derived from the sight of limestone in pristine condition’,[188] and it was unreasonable ‘to spend some $258 000 in rectifying defects in a house worth $1.7 million.’[189] In other words, as characterised by the Court of Appeal, the trial approach was founded upon whether it was reasonable for Mr Willshee to ask for damages on the rectification measure ‘having regard to the relativity between that amount and the value of the house.’[190]
(b) Appeal (Post-Tabcorp)
The Court of Appeal’s analysis of the quantum of damages proceeded from a different premise. Said to be as ‘elucidated by the decision of the High Court of Australia in Tabcorp’,[191] it was that:
under the terms of the contract for the construction of the house, Mr Willshee was entitled to a house constructed using limestone which was all of high quality. That is not what he got. Under the ‘ruling principle’, he was entitled to damages in the amount required to put him in that position — namely, by demolishing the existing external wall and replacing it with limestone which was all of high quality.[192]
Having
emphasised that Bellgrove ‘stands firmly against the proposition
that diminution in value is the ordinary measure of damages awarded against a
builder
as a result of departure from a building
contract’,[193]
the Court engaged with whether its qualification to the prima facie application
of the reinstatement measure applied. Here, two specific
aspects of the High
Court’s dicta in Tabcorp were of considerable assistance to Mr
Willshee in seeking to overturn the trial decision.
The Court first noted the
trial judge’s reliance upon the fact that there was no objective guidance
available (whether in the
contract or externally via a consensus of opinion)
about the aesthetic desirability of the limestone in his Honour’s decision
that rectification was unreasonable. This reasoning was said, in light of
Tabcorp, to be ‘erroneous’; in other words, much like Mrs
Bergamin,
Mr Willshee entered into a contract which he considered served his interests, and he is entitled to the performance of that contract quite irrespective of the views which other people might form in relation to the advancement of those interests, such as views relating to the aesthetic appearance of the house.[194]
A
second aspect of Tabcorp which strengthened the plaintiff’s case
for full rectification damages was the High Court’s statement that the
‘diminution
in value measure of damages will only apply where the innocent
party is “merely using a technical breach to secure an uncovenanted
profit”.’[195]
Here, the Court found that neither limb of the Radford qualification
applied. The breach relied upon was not ‘in any sense
“technical”’; it was ‘serious and
significant’ in
its impact upon the rate at which the cladding weathered and deteriorated and
upon the appearance of the
house.[196]
Moreover, the fact that evidence of Mr Willshee’s displeasure was
‘plausible and reasonable’ was sufficient for
the Court to find that
he was not pursuing a profit to which he was not entitled under the
contract.[197]
As
Willshee illustrates, it may reasonably be supposed that the High
Court’s clarification that the (un)reasonableness qualification
only applies in these limited circumstances may be expected to result in
the prima facie measure being applied in many more instances
than is presently
the case.[198]
Moreover, although this was not in issue in Willshee, it may be expected
that interpretations of the two limbs of the Bellgrove qualification
which deviate outside of the strict boundaries redefined by the Court in
Tabcorp will in future be given short shrift by Australian
courts.[199]
VI CONCLUSION: THE EXPECTATION MEASURE TRIUMPHANT?
In
presenting Tabcorp’s application for special leave before the High Court,
Mr Young QC invited the Court to substitute, for
Joyner, ‘the
general common law rule that applies to reinstatement covenants and, likewise,
to all contractual
provisions.’[200]
Ultimately, as has been seen, the Court did not endorse such a revolution in the
common law relating to repair covenants; rather,
it contributed to its evolution
by effecting an incremental, yet nonetheless significant, change through
extending the reach of the
Bellgrove principle to breaches of covenants
against unauthorised alterations to
premises.[201]
In
doing so, Tabcorp has tightened the scope within which the qualification
in Bellgrove operates. In particular, the High Court has made it clear
that, absent exceptional circumstances where the plaintiff is ‘merely
using a technical breach to secure an uncovenanted
profit’,[202]
it is unlikely to be regarded as ‘unreasonable’ that a plaintiff
would wish to rectify defective work which has disappointed
their aesthetic
expectations.[203]
The
reiteration, underpinning the High Court’s approach, of the central
importance of enforcement of promises to perform in
the sphere of defective
building work is not remarkable of itself; as noted above in Part II(B), the
expectation measure has been entrenched as the default means of calculating
damages in this area for more than 150 years. Nonetheless,
given the opportunity
presented by Tabcorp to provide general guidance on contract law damages,
the Court’s silence on one particular matter may — like Sherlock
Holmes’ ‘curious incident of the dog in the
night-time’[204]
— itself be worthy of note.
Here, the dog that did not bark in the
night, as it were, was that the Court did not engage with the ongoing debate as
to whether
expectation ought to be the appropriate foundation of damages
assessment generally within contract law. The debate was given impetus
in 1936
with the publication of ‘The Reliance Interest in Contract
Damages’.[205]
In that article, Fuller and Perdue provided a detailed critique of the rationale
for the centrality of the expectation measure, proposing
that, on
‘ordinary standards of justice’, expectation represented the weakest
case for protection among the available
measures.[206]
Instead, they submitted that the ‘restitution interest’ — that
which is to be protected by ‘requiring a defendant
to disgorge any value
conferred by the plaintiff on the defendant in reliance on the contract being
performed’[207]
— through its ‘involving a combination of unjust impoverishment with
unjust gain, present[ed] the strongest case for
relief.’[208]
A
number of commentators have engaged with the possibility of a restitutionary
basis for assessing loss in defective building
cases.[209] Perhaps
the most prominent example of this occurred in 1985, when Professor Allan
Farnsworth considered the issue in the context
of defective building work and
put forward a case for extension of the restitutionary measure in limited
circumstances.[210]
The example he used was of a contract to construct a building for a lump sum of
$150 000 where the builder — undiscovered by
the plaintiff until
after completion of the work — substitutes materials of lower quality than
those specified and thereby
makes a saving in its own costs (and, therefore, an
increase to its profit) of $25 000. In this scenario, the lower quality of
the
materials does not affect the integrity of the building, but it does reduce
its resale value by $10 000 while the cost of remedying
the defects would
be $60 000, due to the cost to demolish and rebuild the
building.[211]
Professor
Farnsworth’s concern in these circumstances was that, assuming they would
only be able to recover the $10 000 diminution
in value by way of damages,
the plaintiff ran the risk of under-compensation through such
‘abuse’[212]
by the builder;[213]
instead, he advocated that the builder be required to disgorge the $25 000
as the most appropriate measure in the
circumstances.[214]
Such
recourse to disgorgement may, at first blush, seem attractive in serving the
interests of justice in these limited circumstances.
However, as Professor Davis
has pointed out, it is unlikely under Australian law that the plaintiff would in
fact be limited to the
diminution in value measure — rather, the plaintiff
could reasonably expect to recover the $60 000 in these
circumstances.[215]
In other words, ‘if the cost of remedying the defects is the correct
measure in all but an extreme case, the whole issue of
recovery of profits from
breach falls to the
ground.’[216]
Consistent
with this analysis, it may be that the reason why the expectation measure has
eclipsed all others in defective work damages
is that construction projects
represent an intensely practical field of law where parties — whether
undertaking home renovations
or building hotels for an international chain
— expect to ‘get what they paid for’. Therefore, the dominance
of
expectation as the protected measure (which has now been further expounded by
Tabcorp) may be ascribed to a reason given by Fuller and Perdue
themselves in their reflection upon the attractiveness of the expectation
measure. This is that expectation ‘furnishes a more easily administered
measure of recovery than the reliance interest’
and, in turn, ‘will
in practice offer a more effective sanction against contract
breach.’[217]
Seen
in this light, it is unsurprising that Tabcorp has already been welcomed
in commentary
for providing wider protection of the performance interest. In awarding the promisee the funds necessary to secure actual performance, the court gave great weight to the interest of the promisee in obtaining the bargained-for performance. ... It ... recognises that contracting parties usually enter into agreements to obtain performance and reinforces the security of transactions.[218]
Tabcorp
represents, therefore, an important step in the continuing evolution of the
Bellgrove principle. The principle has always been capable of flexible
application, allowing justice to be done in the myriad difficult situations
that
remain before the courts after the various filtration systems of construction
dispute resolution procedures have been applied
to the dispute. In this context,
Tabcorp demonstrates that the Bellgrove principle is able to
render efficiently a result which reflects the contractually expressed
expectation of the building owner in
seeking to protect interests which were not
capable of ready expression in purely economic
terms.[219]
In
other words, and with apologies for mangling the famous dictum attributed to
Oliver Wendell
Holmes,[220]
Bellgrove makes a good law for hard cases. Moreover, as a significant
recent milestone in the common law’s ongoing project to strike
the right
balance between certainty and justice in contract damages, it may be expected
that Tabcorp and its aftermath will be of real interest to contract
lawyers around the world.
[*] BA (Hons), LLB (Hons), MConstrLaw (Melb); Lecturer and Co-Director of Studies for Construction Law, Melbourne Law School, The University of Melbourne; Professional Support Lawyer to the Construction and Major Projects Group, Clayton Utz. This article is partially based upon the author’s paper which was adjudged ‘Highly Commended’ in the Society of Construction Law (UK)’s Hudson Prize for 2008. The author acknowledges with thanks the research assistance provided by the Law Research Service at the Melbourne Law School in the preparation of this article.
[1] [2009] HCA 8; (2009) 236 CLR 272. Early commentaries on the case include: Peter Butt, ‘Breach of Covenant against Alterations: Tabcorp v Bowen in the High Court’ (2009) 83 Australian Law Journal 365; Nick Christopoulos and Jack Fan, ‘When Can Rectification Costs Be Recovered as Damages for Breach of Contract? The Australian High Court Clarifies’ (2009) 4(2) Construction Law International 33; W D Duncan and Sharon Christensen, ‘Tenant Fails Reasonableness Test in Making Alterations without Consent’ (2009) 23(8) Australian Property Law Bulletin 91; Mark Holler, ‘Measure of Damages for Breach of Contract — Reinstatement Cost or Reduction in Value?’ (2009) 36(3) Brief 30; Justice G A A Nettle, ‘Landlord and Tenant: Damages for Breach of Covenant’ (2009) 83 Australian Law Journal 296; Anthony Papamatheos, ‘Reinstatement Damages for a Tenant’s Alteration of Premises’ (2009) 125 Law Quarterly Review 397; Solène Rowan, ‘Protecting Contractual Expectations: An Australian Perspective’ (2009) 68 Cambridge Law Journal 276. There are, in addition, numerous reviews of the case published on the internet.
[2] The ‘contumelious disregard’ description, arising from the trial judgment (Bowen Investments Pty Ltd v Tabcorp Holdings Ltd [2007] FCA 708 (Unreported, Tracey J, 18 May 2007) [84] (‘Bowen Investments’)), was regarded by the High Court as ‘not hyperbolic’ (Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 282 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ)). The appearance of this phrase, which has been recognised as a basis on which exemplary damages may be awarded in tort (see, eg, Uren v John Fairfax & Sons Pty Ltd [1966] HCA 40; (1966) 117 CLR 118, 129 (Taylor J), 154 (Windeyer J)), may, at first blush, point to an exemplary (or, indeed, punitive) element to the substantial contract damages award which ultimately was upheld by the High Court. However, nowhere is it suggested in the judgments that the Federal or High Court took the deliberate nature of the breach into account in such a way as to move the damages award away from being compensatory in nature. (As Griffith CJ observed in Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78, 89, absent fraud, ‘[t]he motive or state of mind of a person who is guilty of a breach of contract is not relevant to the question of damages for the breach’; this effectively rules out the availability of a contractual damages award on an exemplary basis unless the breach of contract also constitutes tortious conduct (see, eg, Zhu v Treasurer (NSW) [2004] HCA 56; (2004) 218 CLR 530) or there is a statutory basis for such an award (of relevance to defective building work: see, eg, Domestic Building Contracts Act 1995 (Vic) s 53(2)(b)(ii), which empowers the Victorian Civil and Administrative Tribunal to award exemplary damages in residential building actions).) Rather, as observed by French CJ during argument, the Court’s approach was ‘not ... so much a case of punishing contumelious conduct as not rewarding it’: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 395 (2 December 2008) 3634–5. See also Graeme S Clarke, ‘Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8: Contract Breakers Beware!’ (Paper presented at the Victorian Bar’s Continuing Legal Education Program, Melbourne, 17 March 2009) 13.
[3] [1954] HCA 36; (1954) 90 CLR 613.
[4] As acknowledged by the High Court in Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 286 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ), the ‘ruling principle’ description is derived from Wertheim v Chicoutimi Pulp Company [1910] UKPC 1; [1911] AC 301, 307 (Lord Atkinson for Lords Macnaghten, Atkinson, Collins and Shaw).
[5] [1848] EngR 135; (1848) 1 Ex 850, 855; [1848] EngR 135; 154 ER 363, 365.
[6] Having said that, the reiteration has already been cited in a number of cases at the trial and appellate level in Australia: see, eg, Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 72 ACSR 132, 149 (Pullin JA), 204 (Buss JA); Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd [2009] SADC 30 (Unreported, Judge Tilmouth, 26 March 2009) [97]; Evans & Associates v European Bank Ltd [2009] NSWCA 67; (2009) 255 ALR 171, 185 (Campbell JA); Haviv Holdings Pty Ltd v Howards Storage World Pty Ltd [2009] FCA 242; (2009) 254 ALR 273, 281 (Jagot J); National Foods Milk Ltd v McMahon Milk Pty Ltd [No 2] [2009] VSC 150 (Unreported, Hargrave J, 23 April 2009) [15]; European Bank Ltd v Robb Evans & Associates [2010] HCA 6; (2010) 264 ALR 1, 4 (French CJ, Gummow, Hayne, Heydon and Kiefel JJ); First East Auction Pty Ltd v Ange [2010] VSC 72 (Unreported, Hargrave J, 16 March 2010) [177].
[7] See, eg, Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653, 667 (Wilson, Deane and Dawson JJ); Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454, 460 (Barwick CJ), 471 (Gibbs J).
[8] Michael Tilbury, Michael Noone and Bruce Kercher, Remedies: Commentary and Materials (4th ed, 2004) 194.
[9] For
commentaries on the Australian position in respect of defective work damages,
see generally Bryan Thomas, ‘The Assessment
of Damages for Breach of
Contract for Defective Building Work’ (2004) 20 Building and
Construction Law 230; Chris Fenwick, ‘Necessity,
Reasonableness and Intention to Rebuild: A Reconciliation of the Australian and
English Approaches
to Quantification of Damages in Building Cases’ (2004)
16 BDPS News: Building Dispute
Practitioners’ Society Inc Newsletter 4;
Douglas Bates, ‘The Assessment of Contractual Damages for Defective
Building Work in Australia: Is Loss of Amenity an Available
Measure?’
(1999) 15 Building and Construction Law 2; Jocelyn
Winterton, ‘The Use of Damages for Rectification Works: Should the Courts
Intervene?’ (1998) 14 Building and Construction
Law 2; John Dorter and John Sharkey, Law Book Company, Building
and Construction Contracts in Australia:
Law and Practice, vol 1 (at Update 67) [1.830]; Doug Jones,
Building and Construction Claims and
Disputes (1996) 49–57; Philip Davenport, Construction
Claims (2nd ed, 2006) 184–92; Damien J
Cremean, B A (Toby) Shnookal and Michael H Whitten, Brooking on
Building Contracts (4th ed, 2004)
186–95; Ian H Bailey, Construction Law in
Australia (2nd ed, 1998)
92–3; Jeannie
Paterson, Andrew Robertson and Arlen Duke, Principles of
Contract Law (3rd ed, 2009) 382–4;
J W Carter, Elisabeth Peden and G J Tolhurst,
Contract Law in Australia
(5th ed, 2007) 849–50; N C Seddon and
M P Ellinghaus, Cheshire and Fifoot’s
Law of Contract (9th Australian
ed, 2008) 1105–7; J L R Davis, ‘Damages’ in
P D Finn (ed), Essays on Contract (1987) 200,
211–15. For consideration of the particular issues arising in respect of
design and build contracts, see Bryan
Thomas, ‘Quantification of Damages
for Breach of a Design and Construct Contract’ (2004) 17 BDPS
News: Building Dispute Practitioners’
Society Inc Newsletter 10, and the recent treatment in the
New South Wales courts in Roluke Pty
Ltd v Lamaro Consultants Pty
Ltd [2008] NSWCA 323 (Unreported, Basten, Campbell JJA and Sackville AJA,
27 November 2008) (but note that a component of the damages awarded there was
reassessed
in Roluke Pty
Ltd v Lamaro Consultants Pty
Ltd [No 2] [2009] NSWCA 21 (Unreported, Basten, Campbell
JJA and Sackville AJA, 23 February 2009)). For the English position, see,
eg, Stephen Furst and Sir Vivian Ramsey,
Keating on
Construction Contracts (8th ed,
2006) 284–6; I N Duncan Wallace, Hudson’s
Building and Engineering Contracts
(11th ed, 1995) vol 1, 722–4; John Uff,
Construction Law (10th ed, 2009)
215–17; H G Beale (ed), Chitty on
Contracts (30th ed, 2008) vol 2, 770; Harvey
McGregor, McGregor on Damages
(18th ed, 2009) 988–95; Adrian Williamson,
‘Damages against Construction Professionals — Current
Situations’ [2008] AUConstrLawNlr 71; (2008) 122 Australian Construction Law
Newsletter 46.
[10] See, eg, British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, 689 (Viscount Haldane LC); Beale, above n 9, vol 2, 766; Adrian Chandler, ‘Defective Performance of Building Contracts: Expectations in a Straitjacket’ (1996) 13 International Construction Law Review 255, 255; Dorter and Sharkey, above n 9, vol 1, [1.820]; Cremean, Shnookal and Whitten, above n 9, 185; Bates, above n 9, 4; Paterson, Robertson and Duke, above n 9, 379–80; Uff, above n 9, 215–16; Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344, 355 (Lord Jauncey), 365 (Lord Lloyd); Alfred McAlpine Construction Ltd v Panatown Ltd [2000] UKHL 43; [2001] 1 AC 518, 562 (Lord Jauncey); UI International Pty Ltd v Interworks Architects Pty Ltd [2007] QCA 402; [2008] 2 Qd R 158, 190 (Keane JA); Pacific Century Production Pty Ltd v Tysoe [2005] QCA 189 (Unreported, McPherson, Williams and Jerrard JJA, 3 June 2005) [19] (Williams JA). See also Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2007] NSWSC 349 (Unreported, Nicholas J, 17 April 2007) [86].
[11] For examples of current editions of leading texts which cite rectification as the default measure (subject to applicable qualifications), see, eg, Jones, above n 9, 49–50; Cremean, Shnookal and Whitten, above n 9, 186; McGregor, above n 9, 988–92; Furst and Ramsey, above n 9, 284; Duncan Wallace, Hudson’s (11th ed, 1995), above n 9, vol 1, 722.
[12] Willshee v Westcourt Ltd [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [61] (Martin CJ).
[13] L L Fuller and William R Perdue Jr, ‘The Reliance Interest in Contract Damages’ (Pt 1) (1936) 46 Yale Law Journal 52.
[14] Clarke, above n 2, 4, has made a similar observation about Tabcorp’s impact in respect of property damage cases — he noted that, whilst ‘the High Court’s reasoning at first blush appears conventional, on analysis it represents a considerable shift’ in that context.
[15] [1996] AC 344.
[16] [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009).
[17] Jones, above n 9, 4. See also Cremean, Shnookal and Whitten, above n 9, 182; Dorter and Sharkey, above n 9, vol 1, [11.10].
[18] Standard form construction contracts typically set default benchmarks for such matters — see, eg, Standards Australia, AS 4000-1997: General Conditions of Contract (1997) cl 29.1, which requires that ‘suitable new materials’ be used and that the workmanship be ‘proper and tradesmanlike’. For a detailed analysis of such provisions as set out in commonly used Australian forms, see Ian H Bailey and Matthew Bell, Understanding Australian Construction Contracts (2008) ch 10.
[19] See, eg, Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [4] (Martin CJ), discussed in detail below in Part V, where the plaintiff had to rely upon an implied term as to the applicable standard of the relevant work.
[20] All too often, and even on complex projects with a substantial construction cost, a formal document recording the agreement is never entered into: see, eg, Monarch Building Systems Pty Ltd v Quinn Villages Pty Ltd [2005] QSC 321 (Unreported, de Jersey CJ, 4 November 2005), affd [2006] QCA 210 (Unreported, Williams, Jerrard JJA and Mullins J, 9 June 2006), reported in (2007) 23 Building and Construction Law Journal 121, in which the Supreme Court of Queensland was called upon to unravel the rights and liabilities of the parties where they had failed to sign a formal contract document on a project with a value of about $1 million, due, primarily, to their inability — despite lengthy negotiations — to agree upon a liquidated damages clause. Here, the Court regarded the lack of agreement upon that term as meaning that there was no applicable contract; in turn, the contractor was entitled to be paid upon a quantum meruit basis: Monarch Building Systems Pty Ltd v Quinn Villages Pty Ltd [2005] QSC 321 (Unreported, de Jersey CJ, 4 November 2005) [58], affd [2006] QCA 210 (Unreported, Williams, Jerrard JJA and Mullins J, 9 June 2006) [44], [51] (Williams JA), reported in (2007) 23 Building and Construction Law Journal 121, 127–8. See generally Frazer Moss and Kyle Trattler, ‘Get That Contract Signed!’ (2006) 1(3) Construction Law International 36.
[21] (1977) 180 CLR 266, 283 (Lord Simon for Viscount Dilhorne, Lords Simon and Keith). The five criteria for implication laid down by the Privy Council are referred to in one of the leading construction law texts as ‘well summaris[ing]’ the relevant principle for implication in fact: Duncan Wallace, Hudson’s (11th ed, 1995), above n 9, vol 1, 95. See, however, the recent observations on these criteria by Lord Hoffmann in A-G (Belize) v Belize Telecom Ltd [2009] UKPC 10; [2009] 2 All ER 1127, 1134–5 (discussed in, for example, Elizabeth Macdonald, ‘Casting Aside “Officious Bystanders” and “Business Efficacy”?’ (2009) 26 Journal of Contract Law 97). Lord Hoffmann’s dicta has already been noted in Australia: see, eg, Cifuentes v Furgo Spatial Solutions Pty Ltd [2009] WASC 316 (Unreported, Murray J, 11 November 2009) [373]–[374]; Sam Management Services (Aust) Pty Ltd v Bank of Western Australia Ltd [2009] NSWSC 676 (Unreported, Rein J, 17 July 2009) [28].
[22] See generally Furst and Ramsey, above n 9, 77–82; Duncan Wallace, Hudson’s (11th ed, 1995), above n 9, vol 1, 99; Dorter and Sharkey, above n 9, vol 1, [1.470]–[1.530].
[23] Dorter and Sharkey, above n 9, vol 1, [1.470] (citations omitted).
[24] Ibid vol 1, [1.490].
[25] See generally
John Dorter, ‘Performance’ (1999) 15 Building and
Construction Law 361,
367–88. Moreover, the recent
Victorian Supreme Court case of Barton v Stiff [2006] VSC
307 (Unreported, Hargrave J, 8 November 2006) provides a detailed consideration
and application of the authorities relating to the implied warranty
of fitness
for purpose. Hargrave J concluded that the absolute nature of that warranty is
to be qualified by reference to the ‘purpose
as properly
identified’(at [37]); thus, in this case, the warranty did not extend to
require the supply of bricks that were
able to resist ‘highly
unusual’ salty groundwater (at [39]). The complexity of the common law
applicable in this area
means that parties are generally well advised to enter
into an appropriately worded form of construction contract. As noted above
in n
18, the standard forms which are
commonly used in Australia typically set out express warranties in this
regard.
[26] These implied terms include warranties as to workmanship and materials: see, eg, Building Act 2004 (ACT) s 88; Home Building Act 1989 (NSW) s 18B; Domestic Building Contracts Act 2000 (Qld) pt 4; Building Work Contractors Act 1995 (SA) s 32; Housing Indemnity Act 1992 (Tas) s 7; Domestic Building Contracts Act 1995 (Vic) ss 8–10, 20; Home Building Contracts Act 1991 (WA) s 9 (unlike the warranties contained in the other jurisdictions’ provisions, however, the WA provisions relate only to the obtaining of relevant approvals for the works rather than workmanship and materials). There is no such implication by statute in the Northern Territory. Hrouda v Vermeulen [2009] NSWCTTT 89 (Unreported, Member Hennings, 12 March 2009) provides an example, decided in the wake of Tabcorp, of defective work constituting a breach of a term implied by statute leading to damages being awarded based upon the rectification measure. Whilst there was no formal agreement in place (indeed, the builder claimed that he was simply giving the home owner ‘a hand as a friend’: at 4), the Tribunal was satisfied that the circumstances were such that there was an agreement to carry out residential building work within the meaning of the Home Building Act 1989 (NSW). In turn, the builder’s work in constructing a ceiling, which — among other things — did not comply with current building standards, was in breach of the warranty requiring that work be ‘proper and workmanlike’ under s 18B(a) of that Act. Similarly, the installation of defective hobs was found to be a breach of s 18B (giving rise to reinstatement-based damages) in Owners, Strata Plan 57504 v Building Insurers’ Guarantee Corporation [2008] NSWSC 1022 (Unreported, McDougall J, 3 October 2008) [142], affd [2010] NSWCA 23 (Unreported, Tobias, Campbell JJA and Handley AJA, 15 March 2010).
[27] Robinson [1848] EngR 135; (1848) 1 Exch 850, 855; [1848] EngR 135; 154 ER 363, 365.
[28] See, eg,
I N Duncan Wallace, Hudson’s Building and
Engineering Contracts (10th ed, 1970)
585–7 (and the cases cited therein); A E Randall,
Principles of the Law of Contracts
(5th ed, 1906) 740 fn (d); W Wyatt-Paine,
Chitty’s Treatise on the Law of
Contracts (17th ed, 1921) 942. The last of these
refers to the applicable measure in this context as the ‘difference
between that which should
have been supplied or done and the cost of
obtaining something equally good in work or materials’ (emphasis added).
Davis, above n 9, 203 (citations
omitted), sees the influence of the ‘guiding spirit’ as predating
its formal statement by Parke B, noting
that ‘there would appear to be
little doubt that it has been the guiding spirit in the assessment of damages
since the early
years of the 18th century.’
[29] McGregor, above n 9, 988 fn 31.
[30] Thornton v Place (1832) 1 Mood & R 217, 219; [1832] EngR 767; 174 ER 74, 75.
[31] (1895) 3 Terr LR 319, cited in Duncan Wallace, Hudson’s (10th ed, 1970), above n 28, 588, and Duncan Wallace, Hudson’s (11th ed, 1995), above n 9, vol 1, 1047. Lord Millett in his Lordship’s dissenting judgment in Alfred McAlpine Construction Ltd v Panatown Ltd [2000] UKHL 43; [2001] 1 AC 518, 591, went further, omitting the ‘perhaps’.
[32] Allen v Pierce (1895) 3 Terr LR 319, 323.
[33] The general position at common law, where goods for which there is a market are supplied in breach of contract and retained by the purchaser, is that the purchaser is entitled to ‘the difference between the value of the goods as delivered, and the value they would have had if they had conformed to the contract’: Seddon and Ellinghaus, above n 9, 1104.
[34] Tilbury, Noone and Kercher, above n 8, 195.
[36] M J Tilbury, Civil Remedies (1990) vol 1, 53 (emphasis omitted).
[37] See generally Seddon and Ellinghaus, above n 9, 1105–6; Paterson, Robertson and Duke, above n 9, 382–3.
[38] As noted below in Part IV(B)(1), in Tabcorp, the High Court emphasised the importance of this qualification in upholding the plaintiff’s entitlement to compensation for non-pecuniary loss.
[39] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 287 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[40] Bellgrove [1954] HCA 36; (1954) 90 CLR 613, 617 (Dixon CJ, Webb and Taylor JJ) (emphasis in original).
[41] Ibid.
[42] Ibid 614.
[43] Ibid 615.
[44] Ibid 620.
[45] Ibid 617–18. McDougall J recently applied this aspect of the test in Waterbrook at Yowie Bay Pty Ltd v Allianz Australia Insurance Ltd [2008] NSWSC 1451 (Unreported, McDougall J, 11 December 2008) [76], noting that ‘[i]t is clear from Bellgrove that damages for defective work and materials, in the context of a building contract, may include consequential loss.’ Whilst this statement may, with respect, appear trite at first glance (given that the High Court had pronounced upon the issue in clear terms in Bellgrove), his Honour’s confirmation of its continued application (which was not disturbed on appeal: Allianz Australia Insurance Ltd v Waterbrook at Yowie Bay Pty Ltd [2009] NSWCA 224 (Unreported, Giles, Hodgson and Ipp JJA, 10 August 2009) [69] (Ipp JA)) offers an important measure of certainty in light of the Victorian Court of Appeal’s recent reconception of where ‘consequential loss’ sits within the limbs of Hadley v Bax-endale [1854] EngR 296; (1854) 9 Ex 341; 156 ER 145 (see Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358, 386–9 (Nettle JA), discussed, for example, in Anais d’Arville, ‘Consequences of Excluding Consequential Loss: Australian Development’ (2008) 82 Australian Law Journal 697).
[46] Bellgrove [1954] HCA 36; (1954) 90 CLR 613, 618 (Dixon CJ, Webb and Taylor JJ). In a case decided shortly after Tabcorp was handed down, Hammerschlag J emphasised that the applicability of each limb of the qualification is a question of fact: Campbell v CJ Cordony & Sons Pty Ltd [2009] NSWSC 63 (Unreported, Hammerschlag J, 2 March 2009) [155].
[47] Bellgrove [1954] HCA 36; (1954) 90 CLR 613, 619 (Dixon CJ, Webb and Taylor JJ).
[48] The facts are taken primarily from Lord Lloyd’s speech in Ruxley [1996] AC 344, 361–3. Further insights into the background to the case were provided by I N Duncan Wallace, ‘Cost of Repair or Diminution of Value: An Intermediate Measure? (Or, the Too Shallow Deep End and How Both Sides Lost)’ (1996) 13 International Construction Law Review 338. See also Chandler, above n 10, 265–6.
[49] Ruxley [1996] AC 344, 362 (Lord Lloyd).
[50] Ibid 363.
[51] Ruxley Electronics & Construction Ltd v Forsyth [1994] 3 All ER 801, 811 (Staughton LJ), 812 (Mann LJ). Duncan Wallace, ‘Cost of Repair or Diminution of Value’, above n 48, 342, pointed out, however, that Mr Forsyth claimed the cost of rectification as £33 800.
[52] Ruxley [1996] AC 344, 353 (Lord Keith), 354 (Lord Bridge), 359 (Lord Jauncey), 361 (Lord Mustill), 375 (Lord Lloyd).
[53] See generally Ewan McKendrick and Katherine Worthington, ‘Damages for Non-Pecuniary Loss’ in Nili Cohen and Ewan McKendrick (eds), Comparative Remedies for Breach of Contract (2005) 287, 305–6.
[54] Moreover, Lord Mustill characterised the two measures as being examples of a single means of establishing the quantum — ‘namely, the loss truly suffered by the promisee’ — and emphasised that other measures may apply in appropriate circumstances: Ruxley [1996] AC 344, 360. His Lordship’s observation resonates with the High Court’s reference to the ‘true measure of the building owner’s damages’ in Bellgrove [1954] HCA 36; (1954) 90 CLR 613, 619 (Dixon CJ, Webb and Taylor JJ) — see above n 47 and accompanying text. Duncan Wallace, ‘Cost of Repair or Diminution of Value’, above n 48, 348–9, was critical of Ruxley as being a lost opportunity to apply another alternative measure of damages, namely, ‘the difference in cost to the contractor of providing the work contracted for as against the work actually carried out’ (at 339). This measure could, he proposed, prove appropriate in cases where the owner had in fact paid a premium (and thereby increased the contractor’s profit) for something, such as doubly strong foundations, which went more to the owner’s peace of mind than increasing the objectively determined intrinsic value of the works: at 340. See also Duncan Wallace, Hudson’s (10th ed, 1970), above n 28, 589; Duncan Wallace, Hudson’s (11th ed, 1995), above n 9, vol 1, 723.
[55] Ruxley [1996] AC 344, 368.
[57] Duncan Wallace, ‘Cost of Repair or Diminution of Value’, above n 48, 341.
[58] McGregor, above n 9, 990.
[59] Chandler, above n 10, 255. Likewise, Sir Jack Beatson regarded the position in the light of Ruxley as allowing the assessment of ‘the loss truly suffered by the claimant’ in situations where ‘the claimant’s purpose in contracting is non-monetary’ — in particular, for recovery of the so-called ‘consumer surplus’: J Beatson, Anson’s Law of Contract (28th ed, 2002) 597–8 (citations omitted).
[60] See especially below Part IV(B)(3).
[61] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 502 (Finkelstein and Gordon JJ).
[62] Clarke has proposed, however, that the Court plainly took account of Mrs Bergamin’s evidence in this regard, effectively upholding through the damages award her stated desire to have the foyer reinstated: Clarke, above n 2, 13. Moreover, as noted below in Part III(C)(2), the intention to reinstate underpinned the decision of the Full Federal Court (which was affirmed by the High Court): intention was explicitly identified by Finkelstein and Gordon JJ to be one of two key factors in their decision (Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 502), and the matter was also discussed in detail by Rares J (at 519–23).
[63] A detailed recent survey of the relevant authorities and commentaries on this issue is provided by Rares J in Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 520–3. See also Building Insurers’ Guarantee Corporation v Owners, Strata Plan No 57504 [2010] NSWCA 23 (Unreported, Tobias, Campbell JJA and Handley AJA, 15 March 2010) [51]–[58] (Handley AJA).
[64] Ruxley [1996] AC 344, 353 (Lord Bridge).
[65] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 518 (Rares J).
[66] Bellgrove [1954] HCA 36; (1954) 90 CLR 613, 620 (Dixon CJ, Webb and Taylor JJ).
[67] Mr Forsyth had taken a somewhat ambivalent stand in this respect — as Lord Lloyd noted in Ruxley [1996] AC 344, 362–3, 372–3, he eventually gave an undertaking that he would apply any damages to reinstatement, but the trial judge found as a matter of fact that no such intention would persist after the litigation was concluded.
[68] Ibid 358. As
noted below in Part V(B)(3), this passage was relied upon by the trial judge in
Willshee v Westcourt Ltd [2008] WASC 18
(Unreported, Templeman J, 22 February 2008)
[335]–[336] in finding
that the plaintiff in that case was not entitled to damages assessed by the
rectification measure.
[69] Ruxley [1996] AC 344, 373.
[70] Ibid 372. Lord Jauncey expressed a similar view at 359.
[71] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 282 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ). Perhaps the most detailed descriptions of the course of events to be found in the various judgments are those of Rares J in Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 503–4, 507–10, and Tracey J at trial in Bowen Investments [2007] FCA 708 (Unreported, Tracey J, 18 May 2007) [23]–[33]. The ‘shock and dismay’ reference picked up by the High Court comes from Tracey J’s judgment at [33] and was reiterated by Rares J in Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 510.
[72] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 498.
[73] Bowen Investments [2007] FCA 708 (Unreported, Tracey J, 18 May 2007) [81]. See also below Part III(B).
[74] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 283 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[75] Ibid 282. See also Marc Pallisco and Chris Vedelago, ‘Tabcorp Loses Marathon Dispute with Landlord’, The Age (Melbourne), 28 February 2009, 22.
[76] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 282 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[77] Ibid.
[78] Bowen Investments [2007] FCA 708 (Unreported, Tracey J, 18 May 2007) [29].
[79] Ibid [90].
[80] These are summarised at ibid [55].
[81] As was noted by Finkelstein and Gordon JJ in Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 498, the TPA claims were found to be statute-barred. However, the claim in contract was able to proceed — counsel for Tabcorp noted his client’s concession that a 15-year limitation period applied (presumably on the basis that the lease was in the form of a deed): Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 273 (N J Young QC).
[82] Bowen Investments [2007] FCA 708 (Unreported, Tracey J, 18 May 2007) [77].
[83] Ibid [81].
[84] Ibid [84].
[85] [1891] 2 QB 31.
[86] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 283 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[88] Bowen Investments [2007] FCA 708 (Unreported, Tracey J, 18 May 2007) [92] (citations omitted).
[89] Ibid [103]. Bowen Investments was, however, awarded $33 820 to restore a wall, the movement of which by Tabcorp during the renovations caused a reduction in the net lettable area of the building.
[90] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 503 (Finkelstein and Gordon JJ).
[91] This included the Court’s taking the step, unusual in the appellate context, of itself calculating the quantum of the damages award (albeit that it was identical to the amount claimed by the landlord) rather than remitting such a matter to the trial level. Finkelstein and Gordon JJ noted that such action was appropriate here in view of the claim being relatively small and the costs already accrued in the matter large: ibid 501.
[92] Ibid 504.
[93] Ibid 499 (citations omitted).
[94] Ibid 500. As discussed further below in Part IV(B)(2), the High Court did not support this approach, evidently regarding cl 2.13 as having a function distinct from that of the repair covenant. The Court saw cl 2.13 as serving ‘a function of considerable practical utility in relation to the Landlord’s capacity to protect its legitimate interest in preserving the physical character of the premises leased’: Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 285 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ). In turn, the High Court did not engage with the Full Court’s (or, for that matter, Tracey J’s) conception of the application of Joyner.
[95] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 499. Thus, the dichotomy in damages assessment based upon the timing of the breach continues to be recognised in those Australian jurisdictions — being all states and territories except NSW (see Conveyancing Act 1919 (NSW) s 133A(1)) and Queensland (see Property Law Act 1974 (Qld) s 112(1)) — which have not enacted provisions along the lines of s 18(1) of the Landlord and Tenant Act 1927, 17 & 18 Geo 5, c 36, which provides that damages are not to exceed the diminution in value of the reversion: see, eg, B J Edgeworth et al, Sackville and Neave Australian Property Law (8th ed, 2008) 791–2; Charles Harpum, Stuart Bridge and Martin Dixon, The Law of Real Property (7th ed, 2008) 902–4.
[96] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 501–2 (Finkelstein and Gordon JJ).
[97] Ibid 502. Their Honours went on to note that though ‘[t]his means that damages must be assessed in an artificial environment ... [this was] simply the bargain the parties [had] struck.’ Peter Butt concurs with this assessment: Peter Butt, ‘Damages for Breach of Covenant against Altering Premises without Landlord’s Consent’ (2008) 82 Australian Law Journal 513, 514.
[98] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 503.
[100] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 503. Having said that, it seems from the discussion which follows that statement, concerning the factors pertinent to the choice between those two measures, that their Honours were here referring to the choice of ‘correct’ measure as being between those two, rather than leaving the field open by having reasonableness as the sole criterion.
[101] Ibid 519 (citations omitted); see also at 524–5. His Honour is referring here to Graham v The Markets Hotel Pty Ltd [1943] HCA 8; (1943) 67 CLR 567, 582 (Latham CJ), in which Joyner was applied by the High Court.
[102] As noted below in Part IV(A), it underpinned Tabcorp’s submissions to the High Court (both upon the special leave application and upon appeal) that Joyner be supplanted by the principles generally applicable to assessment of contract damages. However, as discussed below in Part IV(B)(2), this desire was only partially realised in the approach of the High Court, through the extension of the Bellgrove principle to breach of non-alteration covenants rather than the repair covenants to which Joyner applies.
[103] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 525.
[104] See ibid 524.
[105] Ibid 519–23, where Rares J provided a detailed survey of these cases, including discussion of the significant recent decisions in Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 (Unreported, Giles, McColl and Campbell JJA, 20 September 2007) (‘Westpoint’) and UI International Pty Ltd v Interworks Architects Pty Ltd [2007] QCA 402; [2008] 2 Qd R 158.
[106] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 502.
[107] Ibid 503.
[108] Ibid.
[109] Ibid 520.
[110] Ibid 522. Here, Rares J takes issue with Giles JA’s conception of intention as being relevant ‘for the light it sheds on whether the rectification is necessary and reasonable’ (Westpoint [2007] NSWCA 253 (Unreported, Giles, McColl and Campbell JJA, 20 September 2007) [60]). Rares J’s concern seems to be that this view, taking into account as it would that, for example, the plaintiff changed his or her mind about the desirability of what they originally specified in the contract, tends to distract from the key enquiry — rectification of the breach of contract.
[111] Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 519–20 (Rares J).
[112] Ibid 520.
[113] See Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 290 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[114] See, eg, Carosella v Ginos & Gilbert Pty Ltd (1982) 47 ALR 761 (commented upon in Cremean, Shnookal and Whitten, above n 9, 191), in which the Court found no reason to interfere with the finding at trial that the cost of rectification was the appropriate measure of damages.
[115] Tabcorp
Holdings Ltd v Bowen Investments Pty
Ltd [2008] HCATrans 266 (1 August 2008)
78–95.
[116] Ibid 380–3.
[117] Tabcorp [2009] HCA 8; (2009) 236 CLR 272. The Court comprised French CJ, Gummow, Heydon, Crennan and Kiefel JJ. It is respectfully noted that, whilst some questions remain unresolved, the judgment represents a beacon of clarity, brevity (running to a mere 27 paragraphs, or 11 pages in the Commonwealth Law Reports) and speed of delivery (having been handed down barely two months after the appeal was heard).
[118] Ibid 285 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ) (emphasis added).
[119] See Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 395 (2 December 2008) 1416–77 (Gummow, Crennan JJ and N J Young QC). This argument is also set out in detail in ibid 274–7 (N J Young QC).
[120] See Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 395 (2 December 2008) 263–329 (Crennan J and N J Young QC).
[121] See Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 396 (3 December 2008) 4024 (D M J Bennett QC).
[122] See ibid 4039 (emphasis added).
[123] Butt, ‘Breach of Covenant against Alterations’, above n 1, 365.
[124] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 285 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[125] Ibid 286. On efficient breach, see generally Paterson, Robertson and Duke, above n 9, 393–4, and for Tabcorp’s treatment of the subject, see Papamatheos, above n 1, 398–401.
[126] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 285 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[127] Ibid 286.
[128] Ibid.
[129] Ibid, citing Radford [1978] 1 All ER 33, 44 (emphasis in original).
[130] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 286 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ). See also above Part II(B).
[131] See Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 287 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[132] Ibid (citations omitted).
[133] See below Part IV(B)(4).
[134] These matters were: Bowen Investments’s case under s 38 of the Supreme Court Act 1986 (Vic), which, ultimately, the Court decided was better not dealt with given that the Full Court’s orders were upheld (Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 290–1 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ)); the possibility that Tabcorp may have been entitled to a ‘betterment discount’ upon the damages payable in recognition that, if the building was restored at the end of the lease, Bowen Investments would then have a new foyer whereas, if the lease had not been breached, the foyer would have been subjected to wear and tear for 15 or 20 years (as Tabcorp had not argued this, however, the Court decided that ‘nothing more need be said on the subject’: at 291 — this aspect of Tabcorp has been referred to in Great Wall Resources Pty Ltd v O’Sullivan [2009] NSWCA 119 (Unreported, Giles, Ipp and Macfarlan JJA, 4 June 2009) [22] (Macfarlan JA)); and the date for assessment of damages (whilst the Court outlines certain of the applicable principles, the fact that Tabcorp did not seek to argue the point meant that it did not need to be considered: Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 291–2).
[136] See above n 95 for the relevant statutory provisions.
[137] Butt, ‘Breach of Covenant against Alterations’, above n 1, 366 (emphasis in original).
[138] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 395 (2 December 2008) 1468–9. See also Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 277 (N J Young QC).
[139] [1845] EngR 1065; (1845) 14 M & W 412; 153 ER 535.
[140] Bowen [2008] FCAFC 38; (2009) 166 FCR 494, 499 (Finkelstein and Gordon JJ) (citations omitted); see also at 527 (Rares J).
[141] Edgeworth et al, above n 95, 791–2. Rares J likewise speaks of the ‘harshness of this principle on tenants’: ibid 505.
[142] As had Finkelstein and Gordon JJ in the Full Court: see above Part III(C)(2).
[143] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 395 (2 December 2008) 1116 (Heydon J).
[144] Butt, ‘Breach of Covenant against Alterations’, above n 1, 366. This reflects the note by Papamatheos, above n 1, 399, that the statutory restrictions may ‘work an injustice in an exceptional case such as [Tabcorp] where the landlord had particularly unique premises that were altered.’
[145] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 395 (2 December 2008) 263–329 (Crennan J and N J Young QC).
[146] Bowen Investments [2007] FCA 708 (Unreported, Tracey J, 18 May 2007) [102]. See also Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 287 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[147] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 282 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ). See also above n 71.
[148] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 288 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ) (emphasis added), quoting Radford [1978] 1 All ER 33, 42 (Oliver J) (pacta sunt servanda may be understood to mean ‘promises are to be kept’). The similarity of this statement to Rares J’s exhortation in the Full Court decision to ‘enforce bargains, good or bad, according to their terms’ (Bowen [2008] FCAFC 38; (2008) 166 FCR 494, 520) is striking: see above Part III(C)(2).
[149] For further discussion, see below Part IV(B)(4)(b).
[150] Namely, in terms of the factors identified by Lord Jauncey in Ruxley [1996] AC 344, 354–5: the foyer was serviceable despite the breach; the plaintiff’s pecuniary loss was nominal; rectification could not be achieved without demolition and rebuilding; and the cost of such rectification was (at least in purely economic terms) wholly disproportionate to the disadvantage. Having said that, the Law Lords also identified doubt as to whether Mr Forsyth intended to apply the damages to the rectification (see above n 67), a factor which — as was noted above in Part II(D)(2) — did not apply in Tabcorp given Mrs Bergamin’s adamance that the foyer be restored.
[151] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 277 (N J Young QC). Moreover, inclusion of proportionality as having relevance within the reasonableness limb finds support in Australian judgments and commentaries pre-dating Tabcorp: see, eg, Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462 (Unreported, Hodgson, Ipp and Bryson JJA, 21 December 2005) [120] (Ipp JA); Paterson, Robertson and Duke, above n 9, 383. As noted below in n 159, there are indications that, in NSW at least, it remains a relevant factor.
[152] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 289 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[153] Ibid (citations omitted).
[155] For example, the judgment of Cardozo J in Jacob & Youngs Inc v Kent, 130 NE 933 (NY, 1921) from the New York Court of Appeals was heavily influential in Ruxley [1996] AC 344, 357 (Lord Jauncey), 366–7 (Lord Lloyd). See also the list of cases from numerous jurisdictions cited in argument by counsel for Mr Forsyth: Ruxley [1996] AC 344, 347 (B McGuire and M Furmston).
[156] At the conclusion of Queen Elizabeth II and Prince Philip’s tour, being the first visit to Australia by a reigning monarch, the Prime Minister, Robert Menzies, felt able to observe that ‘the common devotion to the Throne is a part of the very cement of the whole social structure’: quoted in Judith Brett, Robert Menzies’ Forgotten People (2nd ed, 2007) 124.
[157] Most notably, the High Court in Bellgrove [1954] HCA 36; (1954) 90 CLR 613, 617–18 (Dixon CJ, Webb and Taylor JJ), based its core statement of principle upon the discussion and case analysis in Alfred A Hudson, The Law of Building and Engineering Contracts: And of the Duties and Liabilities of Architects, Engineers and Surveyors (7th ed, 1946) 343, and, in turn, Lords Jauncey and Lloyd referred, with apparent approval, to Bellgrove in their speeches in Ruxley [1996] AC 344, 357 (Lord Jauncey), 367–8 (Lord Lloyd). Coming full circle, certain of the leading Australian texts on contract law (albeit all written prior to Tabcorp) acknowledge the continued relevance of Ruxley: see, eg, Carter, Peden and Tolhurst, above n 9, 850. See also Paterson, Robertson and Duke, above n 9, 384.
[158] Conversely, the case may be expected to remain influential in relation to, for example, Lord Lloyd’s emphasis (Ruxley [1996] AC 344, 368) upon the ‘central importance of reasonableness’: see above Part II(D)(1).
[159] Clarke, above n 2, 14. Having said that, in Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 (Unreported, McColl, Basten and Macfarlan JJA, 1 April 2010), MacFarlan JA (with whom McColl and Basten JJA agreed: at [1]–[2]) indicated that proportionality remains a relevant consideration within the Bellgrove/Tabcorp test. His Honour noted, apparently by way of obiter dictum, that where the ‘proposed rectification is out of all proportion to the benefit to be obtained’ this might constitute an example of unreasonableness: at [81], quoting South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd [2004] SASC 81; (2004) 88 SASR 65, 85 (Deb-elle J). If it is in fact the case that the ongoing influence of Ruxley is diminished by Tabcorp, it seems unlikely that this will be a matter for widespread regret. Indeed, during the High Court’s hearing of the appeal in Tabcorp, there were indications that at least one Justice took a somewhat dim view of Ruxley: Gummow J told counsel for Tabcorp that ‘[y]ou will not get anywhere by referring me to the House of Lords case about the swimming pool because they just talk about being reasonable. It is the “sound chap” principle’: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 395 (2 December 2008) 1589–91. Likewise, the London-based Queen’s Counsel Adrian Williamson, above n 9, 46, has recently observed that ‘defendants in these sorts of cases often try to make too much of Ruxley. Ruxley was, on its facts, an exceptional case.’
[161] No recitation of Tabcorp’s submission is made in the relevant passage of the judgment: Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 289–90 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[162] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 396 (3 December 2008) 4028–9 (D M J Bennett QC).
[163] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 290 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[164] Susan Butler (ed), Macquarie Dictionary (5th ed, 2009) 76.
[165] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 290 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[166] The Court’s statement, as quoted in the text accompanying above n 165, appears to be consistent with this submission.
[167] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2008] HCATrans 396 (3 December 2008) 4052–3 (D M J Bennett QC).
[168] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 288 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ). The example given in Bellgrove [1954] HCA 36; (1954) 90 CLR 613, 618 (Dixon CJ, Webb and Taylor JJ), was that, if a building contract specified that second-hand bricks would be used and the builder used new bricks, it would be unreasonable for the owner to claim the cost of demolishing the building and rebuilding it with second-hand bricks. The note that the circumstances be ‘fairly exceptional’ has been quoted by the NSW Consumer, Trader and Tenancy Tribunal in Hrouda v Vermeulen [2009] NSWCTTT 89 (Unreported, Member Hennings, 12 March 2009) 8 and by the Western Australian Court of Appeal in Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [72] (Martin CJ). The impact of the phrase upon the decision in that case is described below in Part V(B)(2).
[169] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 288 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ), quoting Radford [1978] 1 All ER 33, 42.
[170] See above Part IV(B)(2).
[171] See above Part IV(B)(1).
[172] See above Part IV(B)(3).
[173] See above Part IV(B)(4).
[174] For commentary, see Emily Griffiths, ‘Calculation of Damages for Defective Building Work Reviewed by Court of Appeal’ (2009) 21 Australian Construction Law Bulletin 42.
[175] Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [8] (Martin CJ).
[176] Willshee
v Westcourt Ltd [2008] WASC 18 (Unreported, Templeman J, 22
February 2008)
[314]–[316]; ibid [31]. The issue of whether the
builder was, in fact, in breach was the subject of a cross-appeal before the
Court of Appeal: at [39]–[58] (Martin CJ). The Court undertook a detailed
analysis of the issue, ultimately concluding that
the cross-appeal should be
dismissed: at [58]. This aspect of the appeal hearing is, however, beyond
the scope of this article.
[177] Willshee v Westcourt Ltd [2008] WASC 18 (Unreported, Templeman J, 22 February 2008) [317]. See also Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [32] (Martin CJ).
[178] Willshee v Westcourt Ltd [2008] WASC 18 (Unreported, Templeman J, 22 February 2008) [328], quoted in Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [34] (Martin CJ).
[179] Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [81]–[82].
[180] Willshee v Westcourt Ltd [2008] WASC 18 (Unreported, Templeman J, 22 February 2008) [354].
[181] Willshee
[2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009)
[80] (Martin CJ). The total awarded was $295 216.91 plus interest, with the
principal
comprising the aggregate of the following: the cost of rectification
as at the date of trial ($257 977.91); the cost of rental accommodation
during the rectification ($16 900); removal and storage costs
($20 339); the cost of cleaning, sealing and repainting already incurred
($9290); and $5000 by way of general damages for the ‘more nebulous
matters’ of distress and inconvenience:
at [77]–[80].
[182] See generally above Part II(D)(2).
[183] Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [72] (Martin CJ).
[184] Ibid [71]–[72].
[185] Willshee v Westcourt Ltd [2008] WASC 18 (Unreported, Templeman J, 22 February 2008) [330]. Whilst there may have been several ways in which the situations were similar, his Honour did not note the apparent discordance between the fact that in Ruxley there was an express requirement that the pool be 7 feet 6 inches deep (as Templeman J acknowledged at [330]) whereas there was no such express provision in Mr Willshee’s contract.
[186] Ruxley [1996] AC 344, 358, quoted in Willshee v Westcourt Ltd [2008] WASC 18 (Unreported, Templeman J, 22 February 2008) [335].
[187] Templeman
J awarded $5000 for the cleaning and sealing work which had been undertaken:
Willshee v Westcourt Ltd [2008] WASC 18
(Unreported, Templeman J, 22 February 2008)
[338]–[339]. The relevant
tradesperson had rendered an account for $12 716, which was apparently paid
by Mr Willshee (this is
not clear from the trial judgment but the amount is
listed in Mr Willshee’s particulars of loss and damage: at [317]).
However,
his Honour awarded the lesser amount, closer to the
tradesperson’s initial estimate of $4000 (but taking into account
inflation
since the estimate was given), on the basis that much of the work
undertaken was ineffective or time-consuming: at [324], [337]–[338].
Whilst it was noted by the Court of Appeal in Willshee [2009] WASCA 87
(Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [36] (Martin CJ)
that Mr Willshee did not challenge such awarding of an amount lower
than that
which was incurred, the basis on which such a discount may be justified is, with
respect, not immediately apparent from
the trial judgment (there may, for
example, have been arguments as to remoteness of damage or mitigation). The
trial decision therefore
provides an example, alongside Ruxley, of how
damages awards made on a basis other than reinstatement (or its alternative, as
anticipated by Bellgrove, diminution in value) tend to reflect their
nominal nature by appearing somewhat arbitrary.
[188] Willshee v Westcourt Ltd [2008] WASC 18 (Unreported, Templeman J, 22 February 2008) [336], quoted in Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [35] (Martin CJ).
[189] Willshee v Westcourt Ltd [2008] WASC 18 (Unreported, Templeman J, 22 February 2008) [328], quoted in Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [34] (Martin CJ).
[190] Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [60] (Martin CJ).
[191] Ibid [61].
[192] Ibid [63].
[193] Ibid [65].
[194] Ibid [68].
[195] [2009] HCA 8; (2009) 236 CLR 272, 288 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ), referencing the second-hand bricks example in Bellgrove and incorporating a passage from Oliver J’s dicta in Radford [1978] 1 All ER 33, 42.
[196] Willshee [2009] WASCA 87 (Unreported, Martin CJ, Buss JA and Newnes AJA, 18 May 2009) [70] (Martin CJ).
[197] Ibid [71].
[198] By way of recent example of a case which may have been decided differently if heard following Tabcorp, see Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd (2009) 25 BCL 29, 40, in which Hammerschlag J held that Bellgrove does not stand for the proposition that ‘the defendant bears the onus of establishing that the case is not reasonable.’ As an example of the approach post-Tabcorp, see Building Insurers’ Guarantee Corporation v Owners, Strata Plan No 57504 [2010] NSWCA 23 (Unreported, Tobias, Campbell JJA and Handley AJA, 15 March 2010) in which the Court of Appeal dismissed an appeal against a finding that the plaintiff was entitled to the cost of demolition and reinstatement. There, Handley AJA (with whom Tobias and Campbell JA agreed: at [1]–[2]) held (at [83]) that such action was ‘the only way ... that the risk of water penetration could be eliminated [so it] was reasonable for the owners’ corporation to undertake that work’.
[199] Those boundaries are, as discussed above in Part IV(B)(4), respectively, a concept of ‘necessity’ meaning ‘apt to conform with the plans and specifications’ and ‘unreasonableness’: Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 288, 289–90 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ). An example of a conception proposed prior to Tabcorp which might, in the light of the High Court’s restatement, no longer find favour, is to be found in UI International Pty Ltd v Interworks Architects Pty Ltd [2007] QCA 402; [2008] 2 Qd R 158. There, Williams JA conceived of the two limbs as requiring that the cost be ‘reasonable’ and the reinstatement ‘possible’: at 169. His Honour was thus giving illumination to an aspect of Bellgrove which has not received a great deal of attention — the note by the joint judges that the building owner is, prima facie, ‘entitled to the reasonable cost of rectifying the departure or defect so far as that is possible’: Bellgrove [1954] HCA 36; (1954) 90 CLR 613, 617 (Dixon CJ, Webb and Taylor JJ) (emphasis added). This was cited (without emphasis) by Williams JA in UI International Pty Ltd v Interworks Architects Pty Ltd [2007] QCA 402; [2008] 2 Qd R 158, 168. Whilst Williams JA cited at 169 the passage in Bellgrove [1954] HCA 36; (1954) 90 CLR 613, 618, where Dixon CJ, Webb and Taylor JJ state the two qualifications of necessity to achieve conformity and rectification being a reasonable course to adopt, he did not provide any justification for the apparent discrepancy between necessity and possibility except to note that the facts of Bellgrove meant that the High Court did not need to consider the issue of possibility further. The feasibility of such a focus on ‘possibility’ seems reduced in view of the Tabcorp restatement of ‘necessity’ as being synonymous with ‘apt’ (which, in turn, has connotations of suitability rather than mere possibility).
[200] Tabcorp
Holdings Ltd v Bowen Investments Pty
Ltd [2008] HCATrans 266 (1 August 2008)
78–80.
[201] See generally the discussion above in Part IV(B)(2).
[202] Tabcorp [2009] HCA 8; (2009) 236 CLR 272, 288 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ), quoting Radford [1978] 1 All ER 33, 42 (Oliver J).
[203] See generally above Part IV(B)(4)(b).
[204] ‘Silver Blaze’ in A Conan Doyle, Memoirs of Sherlock Holmes (1894) 1, 22.
[205] Fuller and Perdue, above n 13. See generally Paterson, Robertson and Duke, above n 9, 392–3.
[206] Fuller and Perdue, above n 13, 56.
[207] Paterson, Robertson and Duke, above n 9, 392.
[208] Fuller and Perdue, above n 13, 56.
[209] See, eg, Chandler, above n 10, 275; Jones, above n 9, 49.
[210] E Allan Farnsworth, ‘Your Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach of Contract’ (1985) 94 Yale Law Journal 1339, 1382–92.
[211] Ibid 1382.
[212] Ibid 1384.
[213] Ibid 1386.
[214] Ibid 1390.
[216] Ibid. The inclusion of ‘if’ in this statement is important: Professor Davis was writing in 1987, before Ruxley and other recent cases which made it more likely than had been the case then that arguments could be raised against the plaintiff’s claim to rectification damages. Nonetheless, in the light of Tabcorp, it may be argued that Davis’s 1987 conception represents, once again, an accurate reflection of the current state of the law in Australia.
[217] Fuller and Perdue, above n 13, 61.
[218] Rowan, above n 1, 278. The ‘performance’ interest referred to here is synonymous with the ‘expectation’ interest: see Alfred McAlpine Construction Ltd v Panatown Ltd [2000] UKHL 43; [2001] 1 AC 518, 546 (Lord Goff). In the Australian High Court, Gaudron J has likewise made explicit the link between expectation and performance, noting that ‘the term “expectation” loss does not indicate that damages are payable simply for thwarted expectations. Rather, damages are payable for the loss involved in non-performance of the contract’: Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 502 (citations omitted).
[219] The meandering route of the lower courts in seeking to find a just result based on the principle in Joyner (see above Part III) may be regarded by way of contrast.
[220] See Northern Securities Co v United States[1904] USSC 64; , 193 US 197, 400 (Holmes J for Fuller CJ, White, Peckham and Holmes JJ) (1904).
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/journals/UMelbLRS/2009/17.html