Case Note – Calculation of Damages for Breach of Contract
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8 (12 February 2009)
The decision was a joint decision of the High Court comprised of FRENCH CJ, GUMMOW, HEYDON, CRENNAN AND KIEFEL JJ and appears to be the first decision written by French CJ in that capacity.
Facts
Tabcorp, as tenant, in breach of the lease and with “contumelious disregard” for the landlord Bowen, demolished a foyeur in a commercial office block in North Sydney without the consent of the landlord. The original foyeur had been carefully constructed by the landlord. Tabcorp then installed a foyeur of their own style. The quality of the foyeur installed by Tabcorp was not materially different to that installed by the landlord although was of some less value.
Legal Issues
It was not in dispute that the tenant performed works without the consent of the landlord and was in breach of the lease. The question was how was damages to be measured – by the diminution in value of the foyeur, or, by the costs of reinstatement.
First instance
At first instance, the primary judge gave judgment for the Landlord in the sum of $34,820. Most of that figure was made up of the difference between the value of the property with the old foyer and the value of the property with the new foyer constructed by the Tenant.
Appeal to the Full Court of the Federal Court
On appeal by the landlord the Full Court of the Federal Court of Australia increased the judgment sum to $1.38m. That sum comprised $580,000 as the cost of restoring the foyer to its original condition and $800,000 for loss of rent while that restoration was taking place.
Appeal to the High Court
By appeal to the High Court the Tenant sought restoration of the trial judge’s figure.
The High Court again confirmed the “ruling principle”, with respect to damages at common law for breach of contract as that stated by Parke B in Robinson v Harman:
“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
The High Court considered that Oliver J was correct to say in Radford v De Froberville that the words “the same situation, with respect to damages, as if the contract had been performed” do not mean “as good a financial position as if the contract had been performed”.
The High Court said that, in cases where [for example] the contract is not for the sale of marketable commodities, selling the defective item and purchasing an item corresponding with the contract is not possible. In such cases, diminution in value damages will not restore the innocent party to the “same situation … as if the contract had been performed”.
The High Court said in this case, the Landlord was contractually entitled to the preservation of the premises without alterations not consented to; and the Landlord’s 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.
After considering and dimissing a possible defence of the tenant as to whether it was “unreasonable” for reinstatement daamges to be applied, the High Court determined to dismiss the appeal.
The High Court distinguished (without detailed explanation) the facts from those in Ruxley Electronics and Construction Ltd v Forsyth, a building case considered by the House of Lords, where damages were awarded according to diminution of value rather than reinstatement.