Sopov & Ors v Kane Constructions Pty Ltd [2009] HCATrans 338 (11 December 2009)

Last Updated: 22 December 2009

[2009] HCATrans 338

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M79 of 2009

B e t w e e n -

COLE SOPOV, NORMA WALKER AND STACKS PROPERTIES PTY LTD

Applicants

and

KANE CONSTRUCTIONS PTY LTD

Respondent

Application for special leave to appeal

KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 11 DECEMBER 2009, AT 2.17 PM

Copyright in the High Court of Australia

MR B.W. WALKER, SC: May it please the Court, I appear with my learned friends, MR R.J. MANLEY, SC and MR C.P. YOUNG, for the applicants. (instructed by Pilley McKellar)

MR G.J. DIGBY, QC: If the Court pleases, I appear with MR M. STIRLING for the respondent. (instructed by Deacons Lawyers)

KIEFEL J: Yes, Mr Walker.

MR WALKER: Your Honours, a controversial and generally important matter of doctrine, important intellectually and practically to the profession and commercially to their clients, would lose probably all of its attractiveness as a special leave question if I cannot overcome the objections found in the alternative in the Court of Appeal and heavily relied upon in writing against us in this Court. Can I go straight to that. The objection, of course, is that it is just too late and would render an argument in this Court an intolerable mixture of hypothesis and speculation if the availability of quantum meruit were now to be contested, bearing in mind what was and was not run at trial. We do not cavil with any of that formulation of an objection to special leave, as is put against us. We accept that is a very important test generally and specifically is a killer for us if it is good.

The first inquiry ought to be, well, bearing in mind that the special leave question really turns on, was the plaintiff entitled to be paid upon a quantum meruit given the circumstance of termination by acceptance of the repudiation of the contract? Was the case run below so as to provide an opportunity which was in fact taken for the plaintiff to put a case in the alternative to an entitlement on a quantum meruit, that is, for contractual damages because that, of course, is the critical and abiding importance of the doctrinal question we seek to raise, why, given McDonald v Dennys Lascelles some decades after Lodder v Slowey, the first in the High Court, the second in the Privy Council, why would one look otherwise than to the contract for the adjustment of rights upon termination by acceptance of repudiation?

In fact what happened in this case was that there was proved and the subject of findings at trial so we do not have to speculate or search under stones for whether there were opportunities or whether they were taken, if that matters, there were findings made of the following integers necessary for any contractual damages claim. I stress none of this is speculative or hypothetical. It was done and findings made. The contract sum with the relevant adjustments in question was found at 3,474,000, application book 6. The variations entitlement which of course ought to be seen as adding to the price under the contract for the work is $162,148, application book 336. In the jargon of this area of disputation delay costs which of course also amount to a form of price addition, they were found at $186,311, application book 332. So, a total at that point of what might be called the price to be paid for all the work to be done, the starting point of the contractual measure of damages, particularly loss of bargain upon repudiation, was just over $3.8 million, $3,822.459. Evidence presented, to the extent it was contested, facts decided and conclusions reached. So, no opportunity failed to be given and in fact, if it matters, opportunity taken by the plaintiff.

There was also, if it be relevant to a contractual damages claim, and it would only be relevant to ascertain whether there was any lost profit, proved to the last dollar the costs incurred by the plaintiff in carrying out the work to the point it carried it out. That is obviously critical because you cannot get loss of profit where you were not going to make a profit at all. Those costs, of course, were proved for at least double purpose at trial. They were there for a contractual damages alternative but they were there obviously for the quantum meruit itself.

KIEFEL J: Forgive me for interrupting you, but could I ask you this in summary, what do you say would happen if these findings – what would they enable? Would they enable this Court to come to a figure, having regard to how far into the contract the building works had been performed, so that this Court would award damages or would it have to be remitted for an assessment, having regard to those findings?

MR WALKER: My primary answer is this Court would because it comes to a round figure, that is - - -

KIEFEL J: It is a whole of contract figure, then. There is no question of apportionment.

MR WALKER: No, it becomes a round figure on loss of profit, that is, there was no loss of profit. I am sorry, I am being facetious. You would find on their own proof that they lost no profit by the termination which they became entitled to achieve. That means no loss of bargain damages in the sense of a lost profit on full performance and full price because full performance, they proved, would cost them, had cost them more than full price.

KIEFEL J: Yes, I see.

MR WALKER: So that is why my primary answer is yes. This is one of those cases where all of the integers are there, and they are fully found, for the different approach to financial entitlement, contract rather than quantum meruit, to be done in this Court. It may be – and this is only speculation out of caution on our part – that there is some claim which would have to be in the alternative to loss of profit – it is difficult to see how it could arise in this case, a loss engendered by performing a contract, for example – which might require a remitter, but we think not for this reason, as I am about to come to it. There was full presentation, as can be seen from the findings I have just referred to and the documents I am about to go to, of the heads of loss or damage which were said to arise by reason of the breach of contract or the breaches of contract which gave rise to the termination.

So, our answer is, yes, this is a case where there is certainly nothing in the nature of fact-finding in the Court of Appeal to be corrected in this Court. There is nothing in the nature of fact-finding by the trial judge left undisturbed in the Court of Appeal requiring further attention from this Court. All the amounts are cut and dried for a contract measure. I stress, the $4,746,911 found at application book 347 for the quantum meruit costs, that is, the costs of performing the work under the contract, that immediately, as your Honours see, show that this was a loss-making contract, 3.8 against 4.7. So there could not be a contractual measure which gave them a need to be compensated for the position which they took advantage of, obviously wisely, to terminate by accepting repudiation.

Those figures that I have just given, of course, though they are stark and complete in saying there is no difficulty in this Court in (a) appreciating that there has been no opportunity lost for a contractual measure claim and (b) for this court dealing with the matter completely. They do not take into account matters that make the position, if anything, even more clear on the merits of the opportunity that was available below and was taken. For example, at application book 334, paragraphs 42 and 43, at first instance the Chief Justice found that there were accrued contractual entitlements in my client’s favour of more than $300,000 in aggregate to rectify defects in liquidated damages.

As your Honours know, that is one of the heads that makes it so obvious and concrete in this case and thus a good vehicle to test the doctrinal question because the Court of Appeal said, yes, but when you come to quantum meruit no account is to be taken of that because that is to take account of the position under the contract and under quantum meruit that is not how it is to be calculated. That is our point where we have been accused of a bit of overstatement in saying that the Court of Appeal regarded the contract as of no relevance to the quantum meruit. We stand by that as involving no overstatement. The contract said, as a matter of accrued contractual entitlement, that money was owed to us, more than $300,000, and the Court of Appeal said, so what?

The next thing it does not take into account is that there was about 10 per cent, 9 per cent on some of the figures, of the work left to be done which, of course, meant that under a contractual measure in order to show whether there was a profit you had lost by the termination you had elected to carry out on the basis of the reputation, you would have made a profit by working through, earning your whole contract price, having paid the costs to do so. This is the one thing on which there is no finding at trial but that is no Suttor v Gundowda problem for us because there was full presentation of a case on the point. The full presentation of a case on the point is not found in the application book but we have notified our learned friends of what I am about to say. The plaintiff’s submission at trial on so-called item 10 in paragraph 12 which was before the Court of Appeal at pages G2701 and 2 contains the very terse statement that there was $659,850 worth of work, that is, costs in the work left to be done.

So there it is, the plaintiff put the case, asked for findings at trial, the evidence is still there, completely, and, in our submission, it means that the last of the integers one needs to be assured that this presents an ideal vehicle because it shows a contrast not just doctrinally but financially between quantum meruit and contractual entitlement. It is all in place. It is for those reasons that, with great respect, the Court of Appeal in the, as it were, parting shot it administered to our argument about the right to claim quantum meruit was, with great respect, wrong.

KIEFEL J: What you are saying, though, is that – you are saying that even if they had had the opportunity to seek contractual damages, there are nevertheless findings so that they are - - -

MR WALKER: I am going to go further. Yes, I am saying at least that.

KIEFEL J: And you say that the outcome would be that they do not - - -

MR WALKER: They do not get loss of bargain damages.

KIEFEL J: Which raises the question why it is in the interests of justice for them to be deprived of an award on the quantum meruit when you have not raised the point until now – until the Court of Appeal.

MR WALKER: Quite. Would your Honour mind if I came to that after I have completed my attempt to demonstrate that there was very full opportunity offered and if it matters, taken, because it is not just as Justice Kiefel has put to me, your Honours, namely, that there is the material enabling a contractual measure to be understood. It is more than that. This was no mere coincidence. The error I was referring to by the Court of Appeal is that found at application book pages 370 and 371 summarised sufficiently in their paragraph 15. Quite simply they, that is, these grounds about quantum meruit, availability and the consequential matters, have been raised too late and, in our submission, what follows there fails to pay regard to the material that I have just told this Court about, namely, the clear findings of the components of a loss of contract claim.

Your Honours will recall I started by saying that of course you should not seriously consider special leave to appeal. If it is to consider a point which had not been the subject of any presentation in the sense that the plaintiff had not taken or made a case as to the damages to which it would be entitled if it were not entitled to be paid upon a quantum meruit, if it were not entitled to be paid upon a quantum meruit. In our submission, that is what they did. I have told you so far about the fact that they did it and the way in which it was the subject of findings. None of that is surprising or incidental or, as it were, serendipitous, but I take you to application book page 443. In paragraph 35 you see the very premise in question:

Further, and in the alternative to paragraph 24 herein –

said the plaintiff in its pleading –

in the event that the plaintiff is not entitled to be paid upon a quantum meruit, the plaintiff is entitled –

et cetera – delay costs and the like.

KIEFEL J: That is not the whole of the contract.

MR WALKER: It is virtually the whole of what affects the price. You have the price, you get it adjusted by variations, you get it adjusted by delay costs. I do not quite know where paragraph 39 goes. It suffices to say that they undertook as a premise of how they prepared their pleading, they undertook to show what they were entitled to if they were not entitled to quantum meruit. There really is no qualification of that. That is the premise of their twin-pronged, that is, very orthodox twin-pronged approach.

KIEFEL J: But they nevertheless pursued a quantum meruit.

MR WALKER: They nevertheless pursued also proof of those contractual matters on which findings were made.

KIEFEL J: I am not quite sure where this point is going in the sense that I am not quite sure whether you are saying they pursued that in order to make out a case for contractual damages in the alternative or whether they adduced that evidence so that there would be an evidentiary framework to assist their quantum meruit claim.

MR WALKER: It could not be the latter because they include matters that they successfully said fell under headings, that is, claims under the contract, which ought not to be taken into account in calculating the quantum meruit.

KIEFEL J: I realise they argued that, but I was not sure whether or not they had nevertheless left an evidentiary foundation for a fallback position.

MR WALKER: Your Honour has asked me about motivation. All I can say is look to their pleaded words. The premise of that pleading is what they are entitled to in the event they were not entitled to quantum meruit. The reference to paragraph 24, to which this is an alternative, is of course their reference to the right to elect to sue on quantum meruit which is the question of doctrine that we wish to raise.

KIEFEL J: And do you say that the pleading, the fact that they have pleaded in the way they have, should be weighed against the fact, as we are told, that the trial judge asked your client but your client did not take up the issue of whether or not they are entitled to a quantum meruit and in its written submissions accepted that the builder could do so?

MR WALKER: Yes. I hope we have made it crystal clear in writing and I hope I made it clear in opening here today, there is no ifs, buts or qualifications, the matter was as squarely raised by the trial judge as could be imagined. The deliberateness of our choice - - -

KIEFEL J: Yes. No, I think we have understood your concession.

MR WALKER: So very much I am saying, yes, given that it was not run below, given that it was raised by, I will call it, late amendment in the Court of Appeal and given also the error we say that the finding by the Court of Appeal that we were too late nonetheless everything I pointed to shows by an orthodox application of Suttor v Gundowda, and Whisprun v Dixon does not add anything, with respect to that, that this is a case where, as you would expect from the area in question, it is an election, both are available, as you would expect from the area in question, the evidentiary material is there to serve both purposes.

As it happens in this case, that is not simply because you are talking about work under a contract which has been terminated. It is also because they undertook by their pleadings to prove such things, the way they ran their case, the presentation of evidence, concluding in findings by her Honour at first instance showed that they persisted to the point of judgment in getting those findings, after all, this is an election they had. If they had managed to prove lost profit that had swelled contractual damages above quantum meruit, of course they would have been entitled to press for

that. They did not, of course. The figures I have shown prove that it was a mercy to have the repudiation to stop the losses.

It is in that last matter in particular, bearing in mind the importance of this question of doctrine, is quantum meruit truly to be available, so that somebody can put to one side the strictures of risk allocation, the financial rights and obligations in relation to work to be done under complex contracts by reason of the fact that the contract has been terminated by acceptance of repudiation? Can that term, the bargain made, which would have consigned somebody to a loss making position, to the windfall, as some commentators have seen it, of now no longer being bound by the bargain struck? The answer used to be, well, of course, because the repudiator, the wrongdoer, has, as it were, torn the contract up. That is the fallacy, the basal fallacy, the central problem with doctrine that we submit this Court really ought to confront, it not having been given, in our submission, a vehicle appropriate for that to be done until now.

KIEFEL J: Thank you, Mr Walker.

MR WALKER: If it please the Court.

MR DIGBY: If the Court pleases, on the first point of how the case was put, can we take your Honours firstly to the pleading, and the point being made here in response to our learned friend’s point is that the matter proceeded on two bases. The primary basis was the quantum meruit claim and as an express clear alternative basis there was a series of contractual claims. None of them were claims of breach of contract in the broader sense that could have been brought. They all came through the conduits of the contract that provided for express entitlements in connection with, for example, directions to do extra work or, for example, delays of the type the contract would compensate. So those contractual conduits. There was not a claim for the sort of broad damages that one could bring for the multitude of actions by the proprietor that could give rise to and sounded in contractual damages because of the juxtaposition of the quantum meruit claim, which was the primary claim.

The pleading demonstrates that in terms. If your Honours go to the contractual claim, which is at appeal book 443, your Honours will see the first of the components of the contractual claim which is for delay and time as provided by the contract. Your Honours will see 35(a) of the pleading. It is through the conduit of the specific set of clauses of the contract. It is not at large as damages of the contract. Similarly, at the top of the next page, all of the clauses that are relied upon, the specific period of time, leave a conduit for compensation is all confined to the contract. That is the point we are making.

If it had been said during the running of this case in the pleading by the respondent, you are not entitled to a quantum meruit in these circumstances, or in the way the law has evolved, then it would have been open to greatly expand the case to try and cover the hiatus that it would have created in only claiming under the express terms of the contract for the limited contractual amounts, and that would have been pursued. Now, can we just say two other things to close that point?

KIEFEL J: Would you excuse me just a moment?

MR DIGBY: If your Honour pleases.

KIEFEL J: We will not need to trouble you further, Mr Digby.

In the circumstances of this case, the interests of justice do not require the grant of special leave. Special leave is refused with costs.

MR WALKER: If it please the Court.

MR DIGBY: If the Court pleases.

AT 2.41 PM THE MATTER WAS CONCLUDED