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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
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:
• Part II provides an outline, by way of background to the Tabcorp series of cases, of the principles generally applicable to the assessment of damages for defective building work in Australia, including the leading case of Bellgrove and the influential — yet not uncontroversial — English decision of Ruxley Electronics & Construction Ltd v Forsyth (‘Ruxley’).[15]
• Parts III (in relation to the Federal Court trial and appeal to the Full Court) and IV (in relation to the appeal to the High Court) set out a detailed analysis of the Tabcorp cases.
• Part V assesses the practical impact of Tabcorp upon the continuing relevance of Bellgrove (the scope of which now includes, as noted above, not only defective building work but also breaches of lease covenants against unauthorised alterations). The May 2009 case of Willshee v West-court Ltd (‘Willshee’),[16] in which the Western Australian Court of Appeal provided the first detailed analysis of Tabcorp by an Australian appellate court, provides a focus for this assessment.
• Part VI places Tabcorp within the ongoing debate as to the primacy of the expectation measure, explaining the distinctive features of commercial expectations in respect of building work which contribute to expectation being the preferred measure in that sphere and proposes, by way of conclusion, that Tabcorp’s forceful reiteration of the centrality of expectation may be expected to find resonance within contract law generally.
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]
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.
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]
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.
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]
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]
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]
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]
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]
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]
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.
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:
1 whether Joyner, as a rule applicable to breach of repair covenants, remains good law in those jurisdictions (including Victoria) in which the operation of the rule has not been modified by statute, or whether it should be esch-ewed in favour of the application of the Bellgrove principle;[119]
2 whether Bowen Investments’s failure to run a case that emphasised the aesthetic value of the foyer should be taken into account in determining the applicable measure of damages (which, in turn, anticipated analysis relating to Ruxley);[120] and
3 in respect of the two limbs of Bellgrove, whether:
(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]
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]
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.
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’.
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]
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.
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]
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]
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]
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]
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) 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) 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) 236 CLR 272, 286 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ), the ‘ruling principle’ description is derived from Wertheim v Chicoutimi Pulp Company [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) 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] UKLawRpAC 43; [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.
[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) 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) 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) 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) 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) 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) 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] UKLawRpKQB 90; [1891] 2 QB 31.
[86] Tabcorp (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) 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) 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) 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) 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) 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) 236 CLR 272, 286 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ). See also above Part II(B).
[131] See Tabcorp (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) 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) 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) 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) 236 CLR 272, 287 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[147] Tabcorp (2009) 236 CLR 272, 282 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ). See also above n 71.
[148] Tabcorp (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) 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) 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) 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) 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) 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) 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) 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) 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) 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) 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).
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