Ace Ceramics Pty Ltd & Ors v SAS Trustee Corporation & Ors [2006] HCATrans 325 (16 June 2006)

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Ace Ceramics Pty Ltd & Ors v SAS Trustee Corporation & Ors [2006] HCATrans 325 (16 June 2006)

Last Updated: 3 July 2006

[2006] HCATrans 325

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S37 of 2006

B e t w e e n -

ACE CERAMICS PTY LIMITED

Applicant

and

SAS TRUSTEE CORPORATION (FORMERLY STATE AUTHORITIES SUPERANNUATION BOARD)

Respondent

Office of the Registry
Sydney No S38 of 2006

B e t w e e n -

SCOTT CARVER PTY LIMITED

Applicant

and

SAS TRUSTEE CORPORATION (FORMERLY STATE AUTHORITIES SUPERANNUATION BOARD)

First Respondent

NUBRA CONSTRUCTIONS PTY LIMITED

Second Respondent

RIGHTWAY ROOFING PTY LIMITED

Third Respondent

ACE CERAMICS PTY LIMITED

Fourth Respondent

O’BRIEN GLASS INDUSTRIES LIMITED

Fifth Respondent

O’BRIEN GLASS HOLDINGS PTY LIMITED

Sixth Respondent

SPACETECH PTY LIMITED

Seventh Respondent

Office of the Registry
Sydney No S39 of 2006

B e t w e e n -

RIGHTWAY ROOFING PTY LIMITED

Applicant

and

SAS TRUSTEE CORPORATION (FORMERLY STATE AUTHORITIES SUPERANNUATION BOARD)

First Respondent

SCOTT CARVER PTY LIMITED

Second Respondent

NUBRA CONSTRUCTIONS PTY LIMITED

Third Respondent

ACE CERAMICS PTY LIMITED

Fourth Respondent

O’BRIEN GLASS INDUSTRIES LIMITED

Fifth Respondent

O’BRIEN GLASS HOLDINGS PTY LIMITED

Sixth Respondent

SPACETECH PTY LIMITED

Seventh Respondent

Office of the Registry
Sydney No S69 of 2006

B e t w e e n -

NUBRA CONSTRUCTION PTY LIMITED

Applicant

and

SAS TRUSTEE CORPORATION (FORMERLY STATE AUTHORITIES SUPERANNUATION BOARD)

First Respondent

SCOTT CARVER PTY LIMITED

Second Respondent

RIGHTWAY ROOFING PTY LIMITED (NOW KNOWN AS RIGHTWAY SALES PTY LIMITED)

Third Respondent

ACE CERAMICS PTY LIMITED

Fourth Respondent

O’BRIEN GLASS INDUSTRIES LIMITED

Fifth Respondent

O’BRIEN GLASS HOLDINGS PTY LIMITED

Sixth Respondent

SPACETECH PTY LIMITED

Seventh Respondent

Applications for special leave to appeal

KIRBY J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 16 JUNE 2006, AT 3.21 PM

Copyright in the High Court of Australia

__________________

MR S.R. DONALDSON, SC: In those matters, if your Honours please, I appear with MR M.R. GRACIE on behalf of all the applicants for today’s purposes. (instructed by Whitfields, Ebsworth & Ebsworth, Henry Davis York and Colin Biggers & Paisley)

MR F. CORSARO, SC: May it please the Court, I appear with my learned friend, MR R.T McKEAND, SC, for the first respondent in each of those applications. (instructed by Clayton Utz)

KIRBY J: Is it convenient to take all of these applications together? They raise the common point.

MR DONALDSON: It is. They raise the common point and each applicant relies upon the same written submissions and, for that reason, the applicants are not separately represented. In the event of leave being granted, we would not anticipate they would be on the hearing of the appeal either. It has made something of a mess of the application book, I regret to say, and I apologise to your Honours for that, but in order to comply with the Rules everyone had to file identical applications. It is rather thicker than it would otherwise have been.

KIRBY J: Yes.

MR DONALDSON: Your Honours, the issue in respect of which special leave is sought is a fairly short and simple point on one view of it, but it is one which involves an area of some significance in terms of the importance to plaintiffs seeking damages for rectification of faulty building work and it is one which is surrounded by considerable uncertainty, as is illustrated by the divergent approaches of the judges of
the Court of Appeal to the problem with which they are faced. In particular, the judgments of his Honour Mr Justice Hodgson and his Honour Mr Justice Ipp show irreconcilable approaches.

Your Honours would be aware that in Bellgrove v Eldridge this Court answered an argument that was put that the claimant in that case, being the owner of a defectively built residence, should not succeed in an action for damages in the absence of evidence that the house as built was less valuable than it would have been had it been built in accordance with the requirements of the contract.

The Court held that prima facie the claimant’s measure of damage was the cost of rectifying the work and that subject to one qualification, whether or not the work had been carried out and whether or not there was evidence of intention to carry out the work, that would be the appropriate measure of loss subject to one qualification, that qualification being that the work was reasonable, that is - - -

KIRBY J: Just pause at that moment. You accept that principle. You have not ever challenged that principle - - -

MR DONALDSON: No, we accept that in - - -

KIRBY J: - - - and that is not in dispute. The only question is whether when you inject into that the factor of on-sale that alters the equation.

MR DONALDSON: That is so. We have made reference in the written submissions to the observations of his Honour Mr Justice Meagher in Rentokil v Channon where he said in a slightly different context that rules in connection with the proper measure of damage are to be regarded as rules which are intended to give effect to the overarching principle, overarching compensatory principle of damages, and that where they produce a result which is inconsistent with that principle they have to yield to the overarching principle.

KIRBY J: Can I tell you quite candidly why I am a bit inclined against you, because it seems to me the fundamental principle has been stated by the Court in Bellgrove and therefore what is happening is this is simply a teasing out of one factual element of which there will be many factual factors that tease out from the fundamental principle that the Court has stated which is not contested the rule that will apply in a particular and slightly different case and that there are an awful lot of facts in the case and that the High Court would not really be grappling with an issue of public importance and general legal principle but would be ploughing through endless facts in a building dispute, which is not really the proper province of the national final appellate court. So I put that up front so that you can address it.

MR DONALDSON: Yes. Can I say two things in response to that. The first is that there is a fundamental issue of broad importance in the interpretation of Bellgrove and how it is to be applied. That fundamental issue, which I will come to in a moment, is illustrated by the divergent approaches of his Honour Mr Justice Ipp and his Honour Mr Justice Hodgson. In substance it is that Justice Ipp, based upon a Queensland decision of Harris v Director of War Service Homes, interpreted Bellgrove as indicating that any subsequent sale or disposition of a property or change of plan must be treated as strictly collateral, that once there is a cause of action for defective building work, it is in effect a vested cause of action, and if the owner later disposes of the property without loss or gives the property away, that is not a matter of any concern to the court in determining whether there is a compensable loss.

Now, that is a matter of important principle which does not involve the Court being bogged down in particularly esoteric or unique factual circumstances.

KIRBY J: Can I ask you this. Is not the principle for which your side argues one which ought in Bellgrove to have led to the contrary result? That is to say that you are looking at the value of the building as distinct from the cost of the repairs, but Bellgrove said you get the repairs. I could understand a principle in a compensatory situation that said you only get the difference in the value of the building, but that is not what Bellgrove said.

MR DONALDSON: The difference between our case and Bellgrove’s Case and the difference between Hyder Consulting which has been referred to in the submissions and Bellgrove is that Bellgrove was not a case where there had been avoided loss, in effect, if I could use that concept. It is one that arises in other contexts and merely collateral arrangements are often excluded in that sense. In Bellgrove the plaintiff still owned the property. The plaintiff still lived in the property and there was no evidence that the property was of a lesser value but the Court said, “Well, that doesn’t matter. She’s living in a defective house and she’s entitled to fix it”.

In our case, a property trust had owned the property and had disposed of the property some six or so years before the hearing without rectifying the defects. The trustee company was not going to suffer a loss in the sense of incurring the cost of repairs of - - -

KIRBY J: You say they are not sitting there living in the place?

MR DONALDSON: No.

KIRBY J: They are going to get money for repairs which they will not ever carry out?

MR DONALDSON: Absolutely.

KIRBY J: And that effectively they are getting money for damage that they suffered but did not stop them selling the place, and apparently at a profit?

MR DONALDSON: Yes.

KIRBY J: But they reserved this element. Now, for all we know there might be some, as it were, cross-obligations which the respondents have to make good the repair amount that is recovered.

MR DONALDSON: The Court will not be faced with that submission, your Honour. It has never been suggested that the original trust that owned the property, the plaintiff, assumed or retained an obligation to fix it. The appeal will proceed, I would assume, on a consensus as to the fact that the plaintiff will never incur the repair costs.

CRENNAN J: What about adjusted sale prices?

MR DONALDSON: That is the one complication. In our submission, your Honours ought be happy that this is a proper matter for special leave, subject to one potential complication and one potential complication only, and that is that it might be said that this is not an appropriate vehicle, if I can use that expression, because of the fact that there was - - -

KIRBY J: Just as well Justice Callinan is not here. He hates that expression.

MR DONALDSON: Yes, I heard his Honour the Acting Chief Justice decline to use it, which is why I did it with hesitation. The one complicating factor in this case, to be frank, is that there was a reduction in the sale price which was agreed, but there is a finding of fact that was made by the Referee, adopted by the Master, and which has never been the subject of dispute, which we say means that in this case that circumstance can be put entirely to one side. That finding of fact was that the reduction in the sale price was for the purpose of preserving a cause of action against the defendants in this case.

KIRBY J: So what? So be it.

MR DONALDSON: Well, as his Honour Mr Justice Hodgson recognised in his judgment, no one else actually dealt with the issue. He recognised in his judgment – and we would submit that it is, with respect, clearly correct – that cannot form the basis of a claim for damages.

KIRBY J: You say the cause of any loss is not your doing but their private agreement?

MR DONALDSON: Precisely, and it would be extraordinary for the Court to accept that a claimant could effectively voluntarily submit to loss with a view to preserving a right to recover it from a third party. So we say that extraordinary circumstance of a finding that this was only done effectively as a device so that they could continue to sue us enables what might otherwise be a complicating factor to be put entirely to one side.

KIRBY J: It is a complicating factor though. It does not make this a nice pure case. It is something where we could take the view that you are urging on us as a matter of principle, but then we have to try and fuss about trying to work out what happens in this particular case where this - - -

MR DONALDSON: Well, what it really means in a practical matter – and it is more a peril for the appellants than a problem for the Court, in our submission – the point of principle, which is an important one, can still be dealt with quite cleanly and neatly; it is just that we might end up losing the appeal on the basis that - - -

KIRBY J: We have enough to do without sorting out great matters of principle. They will come in their due time.

MR DONALDSON: Well, your Honour, we would not in submission elevate this complication to a fatal flaw in our case. We say - - -

KIRBY J: It sounds like a flaw. Whether it is fatal, I am not sure.

MR DONALDSON: It gives rise to a complication that might not exist in another – the relevant finding, your Honour, and the background to it can be found in Justice Hodgson’s judgment at 233 of the application book. The background facts are at 225 to 227 where Justice Hodgson recited passages from the Referee’s original report relating to, first of all, the finding that the value of the property was not affected by the defects. It was a finding which the Court of Appeal greeted with somewhat of a lack of enthusiasm but ultimately all accepted that it was one they were bound by, notwithstanding that these defects existed, they did not affect the value of the property. Then at the bottom of - - -

CRENNAN J: At paragraphs 45 and 47 his Honour deals with this.

MR DONALDSON: Yes, that is so, and at 47 his Honour Justice Hodgson says that:

On the contrary, the price was reduced by an amount in excess of the cost of rectification, by reason of the defects. The Referee found that this was done, in a sale not at arm’s length, to preserve the value of the cause of action; but while I accept that such a consensual reduction could not give rise to damages claimable by SAS, I see no reason why it cannot prevent the sale from displacing the Bellgrove measure of damages.

There are two issues if leave is granted here. The first is – and it arises from paragraph 38 of Justice Hodgson’s decision:

I accept that Bellgrove does not require that damages for breach of contract by reason of defective building work must in all cases include the cost of rectification, so long as rectification would be a reasonable course to adopt. If by reason of subsequent events, the owner has suffered a different or no loss, then the underlying principle expressed by Deane J in Amann at 116 does mean that the damages must be measured by the loss actually suffered.

Now, that is the case that we would be seeking to put on appeal. The alternative – if one then turns to Justice Ipp’s judgment, he starts at page 259, paragraph 112, to identify the Bellgrove v Eldridge principle. He says at paragraph 114 – he relies on Bellgrove v Eldridge to point out that it is immaterial that the proprietor might retain the damages and not do the work, and then identifies at paragraph 115 various things which he says are established by Bellgrove v Eldridge:

(b) Subject to one qualification, the loss is not to be measured by comparing the value . . .

(c) The qualification is that, not only must the rectification work be necessary to produce conformity, but also, it must be a reasonable course to adopt.

Then at paragraph 116 he refers to Director of War Service Homes v Harris, which was the decision that I referred your Honours to a little bit earlier, where Justice Gibbs, as he then was, effectively determined that a subsequent sale of the property is a collateral arrangement which is not to be taken into account in assessing damages. There is a vested cause of action, being for recovery of reasonable rectification expenses, and no subsequent change of heart can alter that.

So we have quite opposed views of two members of the court in relation to an important issue and whether we are right or wrong about the significance of the reduction in the purchase price, that issue is an important issue which warrants determination.

His Honour Mr Justice Giles in Hyder – and this is referred to in our written submissions – came to a view consistent with that expressed by his Honour Mr Justice Hodgson. That was a case where a pavement was defectively constructed. A quote was obtained for the rectification of the entire pavement. The owner decided that rather than rectify the pavement he would redevelop the property in another way that meant a smaller area of pavement had to be rebuilt.

Justice Giles in that case said – and his Honour Mr Justice Sheller concurred – the amount recoverable is the actual cost of rectification which involved construction of a smaller pavement, not the rectification of the whole of the defects. That is quite inconsistent with Justice Ipp’s approach as reflected in Director of War Service Homes v Harris. Justice Meagher in that case did not suggest an order inconsistent with the position as found by Justice Giles, but he did express as the ratio of Bellgrove v Eldridge a proposition which is inconsistent with the Giles J/Hodgson J approach. He said:

The ratio of that case is that where the price of rectification is ascertained, that price cannot be discounted because of the fact that the plaintiff will not, or might not, spend all the money on the rectification in question.

So he takes what might be described as the Gibbs J interpretation of Bellgrove v Eldridge, whereas his Honour Mr Justice Hodgson and his Honour Mr Justice Giles take the opposite view.

His Honour Mr Justice Bryson in this case – and his judgment is at pages 264 and 265 – decided the case on a basis which, with respect, was not argued by anyone. He says that because this involved the sale by one trust to another and the vendor was going to have a 50 per cent interest in the purchaser trust, the case should be approached on the basis that the property has not been sold at all. Now, if that had been argued, we would have addressed that argument. We would have addressed it on the basis that these two entities are different legal entities and there was a sale and the very nature of valuation is that the claimant had an asset which was capable of being realised for $170 million.

We have also made reference in the written submissions to De Cesare which is a South Australian case which in its result falls on the Gibbs J Harris v Director of War Service Homes side of the line but in which it can be seen that the Chief Justice in South Australia felt some disquiet about it. That was a case in which the property was sold prior to repairs being carried out and, consistent with Director of War Service Homes v Harris, it was held that that did not preclude recovery of the rectification costs, but the Chief Justice in that case was minded to identify on two occasions that it should not be assumed that the sale price was not deflated by reason of the existence of the defects. That, in our submission, reflects the fact that in South Australia, though the Gibbs line has been adopted, it is not without some level of discomfort arising from the apparent inconsistency with overarching compensatory damages principles.

So, your Honours, we submit that Justice Hodgson’s decision or his conclusion that deliberately submitting to a reduction in the purchase price with a view to preserving a cause of action does not provide a basis for recovery of damages. The case then becomes a very clear-cut exercise in determining whether or not the sale of a property or some other action which leads to the circumstance that rectification will not be carried out is to be treated as purely collateral and preserving an entitlement to recover rectification costs, or whether applying compensatory principles that require damages to put and only to put the claimant in the position that they would have been had the contract been performed, it is incumbent on the court to take those circumstances into account.

There is only one other thing I should mention, and I am sorry I have gone slightly over time. There is a need for an extension of time in relation to one applicant’s application. That is apparent from - - -

KIRBY J: Is there any problem with that, Mr Corsaro?

MR CORSARO: No, not at all, your Honour.

MR DONALDSON: Thank you, your Honours.

CRENNAN J: And those submissions stand in respect of all four applications?

MR DONALDSON: Yes, they do.

KIRBY J: We do not need to hear you, Mr Corsaro. I think it is only one applicant that requires the extension of time.

MR DONALDSON: Yes, it is.

KIRBY J: Which one is that?

MR DONALDSON: The applicant in S69 of 2006, Nubra Constructions Pty Limited.

KIRBY J: In matter No S69/2006, Nubra Constructions Pty Limited v SAS Trustee Corporation (formerly State Authorities Superannuation Board) & Ors, the applicant requires an extension of time within which to bring this application. There is no opposition to the grant of that extension and it is granted.

The applicants seek special leave to appeal in proceedings concerning the measure of damages for breach of a contract for building work. It is common ground that the starting point for the assessment in such damages is the holding of this Court in Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613. The applicants did not challenge what was said by this Court in that case; nor do they seek to modify the principles that are there stated. In the result the appeals, if special leave were granted, would involve no more than the application, or elaboration, of the principles in Bellgrove in the particular factual contexts of these cases. That would not, of itself, be a matter that would attract the grant of special leave.

There was a point as to whether a subsequent resale of the subject property deprives parties of the benefit to damages in accordance with the principles in Bellgrove. That is a question that might possibly attract a grant of leave. However, the adjusted on-sale price proved in these matters renders them cases that are not the appropriate occasion for this Court to consider the consequences of on-sale of the subject property for the application of any extended principles in Bellgrove.

On that basis, the Court will refuse special leave and order that the applications be dismissed. The applicants must pay the respondent’s costs which should be limited to one set of costs.

May I compliment you on your presentation of the application, Mr Donaldson. You had obviously thought it through very thoroughly and conceptualised it, which is a great pleasure to hear and it helped the Court greatly.

MR DONALDSON: Thank you very much, your Honour.

KIRBY J: Adjourn the Court now until 2.15 pm next Monday, 19 June 2006 in Brisbane.

AT 3.46 PM THE MATTERS WERE CONCLUDED