Week 05 - Legal remedies, Damages, Property and economic loss (Lecture) PDF

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5. LEGAL REMEDIES: DAMAGES: PROPERTY AND ECONOMIC LOSS

PROPERTY DAMAGE [P] wishes to claim damages against [D] because s/he failed to fulfil the terms of the contract to ___, damaging ___. [P] thus bears the onus of proof to demonstrate on the balance of probabilities the expectation that ___ (Cth v Amann). If successful, s/he will awarded expectation damages as if the contractual terms had been fulfilled (Robinson v Harmon; Cth v Amann). It is likely [P]’s claim will succeed. Prima facie, s/he is able to recover the amount for the cost of repair/rectification of poor work to ___. Such costs were reasonable and necessary, as ___ (Bellgrove; Tabcorp). Therefore, [P] will be granted the cost of repair which is $___. This applies notwithstanding the fact that [P] has effected different repairs which cost more than the prima facie reasonable cost of repair (Gagner). ///Intention is also irrelevant (Bellgrove), unless the reason why the [P] does not intend to repair/rectify the property is because its impossible (Westpoint Management), or exceptional circumstances arise (Tabcorp). Neither scenario arises on the facts. It is unlikely [P]’s claim will succeed. The cost of repair is unreasonable and unnecessary, as it is clearly disproportionate to the contract price or any benefit [P] would receive (Bellgrove; Tabcorp). Here, it is disproportionate as nothing suggests ___ is relevant to the contract. Impossible/exceptional ///While [P]’s intention to repair is also generally irrelevant (Bellgrove), there are clearly supervening events which prevent him/her from effecting the rectification (Westpoint management). Namely, [P already solved it/rectification out of proportion to the achievement of the contractual objective]. Therefore, [P] will be awarded damages based on the value of the property had the contract been performed and actual value after the breach of contract. This is the difference between $___ and $___, which is $___. Voluntarily assume other repairs However, since s/he voluntarily [effected repairs which cost less] than [the prima facie measure], then the court will award the lesser amount (Hyder). [D] may argue that the repair was unreasonable since ___ was still functional despite the measurements not being identical (Ruxley). While the Court is not bound by Ruxley since it is a UK case, it may be persuasive to absolve him/her of his/her liability to pay the cost of repair. Therefore, [P] will be awarded damages based on the value of the property had the contract been performed and actual value after the breach of contract. This is the difference between $___ and $___, which is $___. Land and fixtures (Tort) [P] wishes to claim damages against [D] because s/he failed to fulfil the terms of the contract to ___, damaging ___. [P] thus bears the onus of proof to demonstrate on the balance of probabilities that the trespass to land (actionable per se)/negligent act/nuisance occurred. If successful, s/he will be compensated for the loss suffered (Livingstone). [P]’s claim is likely to succeed.

Prima facie, s/he is able to recover the amount for the cost of repair/rectification caused by [D ‘s wrongful act]. Such costs were reasonable and necessary, as ___ (Bellgrove). Further, [P] didn’t just lose property, s/he lost their family home (Evans v Balrog). Therefore, [P] will be granted the cost of repair which is $___, even though it costs more than the loss of value of the property after [D]’s wrongful act (Evans v Balrog). [P]’s claim is unlikely to succeed. While it may be inconvenient to find another property for investment, this does not equate to reasonableness (Pantalone v Alaouie). Therefore, [P] will not be awarded the cost of repair. Instead, sh/e will be awarded damages based on the value of the property had the contract been performed and actual value after the breach of contract. This is the difference between $___ and $___, which is $___. > Largely the same approach in both tort and contract (with their respective requirements of ‘guiding principles’, causation and remoteness). > Typical question: should the defendant pay: > The cost of repair/restoration of the property? or > The loss of value in the property? > Ultimately rests on reasonableness. Guiding principle: the position the plaintiff would have been in had the contract been performed (Robinson v Harmon) Bellgrove v Eldridge (1954) 90 CLR 613 FACTS  Builder agreed to build a house for 3.1k pounds  Foundations were badly done, house was uninhabitable  Owner demolished rebuilt for 4.9k pounds, owner sued builder for that cost  Owner could recover cost of rebuilding the house  Repair work was necc, no way to do repair work without knocking it down and restarting  Reasonable, house of no use to owner, unsafe to live in HELD  Builder builds house in a substandard way  House 500k if done properly - Substandard, means its now only 400k on the market  MOL – cost of rebuilding house to standard required by contract or 100k – what was promised and delivered  Can insist on cost of repair because courts will only find that its unreasonable to award COR in exceptional circumstances “The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.” “As to what remedial work is both "necessary" and "reasonable" in any particular case is a question of fact.” (Dixon CJ, Webb and Taylor JJ) ‘In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining

the amount required to rectify the defects complained of and so give to her the equivalent of a building of her land which is substantially in accordance with the contract.’ (Dixon CJ, Webb and Taylor JJ) Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 FACTS  Rented several floors in building from B  Breached lease, staircase between floors without permission  Vacated building B removed staircase restored property for 1.38mil  Sued T for that amount  If stairs had been left in place loss of value of property was only about 35k  T argued that its unreasonable for it to pay 1.39 mil when loss of value in the property to B was just 35k HELD  HC applied bellgrove test, work done by B was necc to restore the property, test of unreas in exceptional circumstances  Reasonable for B to restore the property and have T pay for it [13] 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" (emphasis added). In some circumstances putting the innocent party into "the same situation ... as if the contract had been performed" will coincide with placing the party into the same financial situation. Thus, in the case of the supply of defective goods, the prima facie measure of damages is the difference in value between the contract goods and the goods supplied. … However, in cases where 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 Court) [17] The Tenant stressed that in Bellgrove v Eldridge this Court pointed out that there was a qualification to the rule it stated in regard to damages recoverable by a building owner for the breach of a building contract. "The qualification ... is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt." The example which the Court gave of unreasonableness was the following: "No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of secondhand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks." That tends to indicate that the test of "unreasonableness" is only to be satisfied by fairly exceptional circumstances. The example given by the Court aligns closely with what Oliver J said in Radford v De Froberville, 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." (The Court) Ruxley Electronics and Construction Ltd v Forsyth [1994] 1 WLR 650; [1994] 3 All ER 801* ENGLISH NOT BINDING BUT PERSUASIVE FACTS  Unreasonable, not awarded here  R agreed to build a 7 ft deep pool for Mr F for 18k pounds  Pool installed was only 6ft deep but safe and fit for purpose

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22k to replace pool with one of 7ft F sued for that amount Necc to reip out pool to start again yes 7ft deep pool, work was unreasonable, pool installed was fully functional and usable Only 6ft deep still worth 18k pounds paid for it Additional benefit F expected to receive from reinstalling the pool was minimal to nothing F was awarded 2.5k pounds in NEL for disappointment Contract was partly for the provision of a pleasurable amenity which been disappointed by breach 2 things to note 1 English case, not binding in Australia 2 decided before Tab corp HC referred to R, exceptional outcome Most cases it is reasonable for P to get damages for repair

         HELD ‘A man contracts for the building of a house and specifies that one of the lower courses of brick should be blue. The builder uses yellow brick instead. In all other respects the house conforms to the contractual specification. To replace the yellow bricks with blue would involve extensive demolition and reconstruction at a very large cost. 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. Thus in the present appeal the respondent has acquired a perfectly serviceable swimming pool, albeit one lacking the specified depth. His loss is thus not the lack of a usable pool with consequent need to construct a new one.’ (Lord Jauncey of Tullichettle) LAND AND FIXTURES (TORT) > The Bellgrove v Eldridge reasonableness test applies in tort (trespass, negligence, nuisance, etc). > Damages can be: > The cost of repair/reinstatement; or > Loss of value of the land after the tort. > Remember object of damages in tort: compensate for loss, rather than fulfil expectations. Evans v Balog [1976] 1 NSWLR 36, 40 FACTS  Leading case on cost of repair for prop dmg in tort  Ps family home situated on a hill, Neighboured Ds property, lower down the hill  D used heavy machinery to develop prop, caused P land to subside, serious cracks, signs of collapse  Livingroom split from home and collapsed, fled from house fearing for safety, uninhabitable  Sued developer in neg and nuisance  D developer argued awarded on loss of value basis  As Ps house was build on land for high rise development, undeveloped, no loss of value when it collapsed HELD  Awarded dmges restore home to pre tort condition  CA rejected Ds submission  Ps could have cost of repairing their home

 Nature of Ps damage was loss of family home not just loss in value to the land  Fact house was P home was important factor in awarding damages  Even though it was more than diminution in value  Belgrave applied, satisfied work done by Ps was necc and reasonable  TJ rejected argument, cost of rebuilding home, appealed “I merely observe in passing that the consequence that unless the plaintiffs get the costs of reinstatement they may get nothing, is enough to suggest that any rule which produces such a result in the present case cannot be soundly based. The question is whether it was reasonable for the plaintiffs to desire to reinstate their property. In my opinion, there is only one answer. It undoubtedly was. They had, in effect, lost their family home. That is the nature of their damage, and not some diminution in the value of their land. Fair compensation requires that they be given back what they had before; and the only way in which that purpose can be achieved is to award them the sum reasonably necessary to restore their property to the condition in which it was before the defendants effectively destroyed it. This the learned judge did; and, in my opinion, he was right. … (The Court) … It is not to the point that the diminution in value basis might on one view produce no damages, while the reinstatement basis produces a substantial sum. The disproportion in question in cases of this kind are not always to be revealed by arithmetical comparison. The cost to a defendant of competing measures is a significant factor. But it is but one ingredient in the calculation of whether the plaintiffs' claim is reasonable or not. There are cases, and this, in my opinion, is one, where the nature of the plaintiffs' loss is such that there is only one mode of fairly repairing it. If that turns out to be more expensive than another, the wrongdoer has no one but himself to blame. (The Court) I agree. I only wish to add that I regard the appeal as quite ridiculous, and I regret that the cross-appeal was not pursued. (Hutley JA) Pantalone v Alaouie (1989) 18 NSWLR 119 FACTS  L owned land in Syd, build a two story building with parking in the basement  Ps owned building next door, relied upon an easement of support intruded on Ls land  Commercial property leased to two tenants  Excavator worked on the basements, in L, destroyed support, Ps building collapsed  P successfully sued L in nuisance and neg  Should dmges be cost of rebuilding or difference in value  Cost of rebuilding 172k but dif in value after collapse 116k HELD  Unr for P to sue for the cost of rebuilding  Persuaded by many things, just a commercial investment, unlike house in Evans  Fairly typical commercial building Ps could replace by another purchase elsewhere, quite ordinary  Inconvenient of looking for another no more onerous than building being reconstructed  Disproportionate to cost to D ‘I apply the test adopted as the true criterion in Evans v Balog: how reasonable is the Pantalones' desire to rebuild, judged in part by the advantages to them of rebuilding in relation to the additional cost to the defendants over the diminution in value? … It is understandable that the Pantalones do not wish to embark upon the search for another investment property, and do not wish to run the risk of choosing wisely. But I do not think that the inconvenience of the search counts for much, as there would also be the inconvenience of seeing to rebuilding.’ (Giles J) REASONABLENESS, IMPOSSIBILITY, INTENTION

Impossible to repair Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 (20 September 2007) [61] But the plaintiff’s intention to carry out the rectification work, it seems to me, is not of significance in itself. The plaintiff may intend to carry out rectification work which is not necessary and reasonable, or may intend not to carry out rectification work which is necessary and reasonable. The significance will lie in why the plaintiff intends or does not intend to carry out the rectification work, for the light it sheds on whether the rectification is necessary and reasonable. …  Maybe P solved the property before the trial  Unr to award cost of repair or rectification  BOC case, Ps intent not to repair is not the critical Q, applicable to BOC [62] So if supervening events mean that the rectification work cannot be carried out, it can hardly be found that the rectification work is reasonable in order to achieve the contractual objective: achievement of the contractual objective is no longer relevant. If sale of the property to a contented purchaser means that the plaintiff did not think and the purchaser does not think the rectification work needs to be carried out, it may well be found to be unreasonable to carry out, the rectification work. An intention not to carry out the rectification work will not of itself make carrying out the work unreasonable, but it may be evidentiary of unreasonableness; if the reason for the intention is that the property is perfectly functional and aesthetically pleasing despite the non-complying work, for example, it may well be found that rectification is out of all proportion to achievement of the contractual objective or to the benefit to be thereby obtained. Different repairs done Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd [2001] NSWCA 313 (14 November 2001) FACTS  W engaged James Teason who was an architect and highly consulted engineer construction on its land  Original plans, pavement on land to handle certain traffic load for 20 years  W decided it needed pavement to handle heavier traffic loads  Instructed JT to convey to H, failed to convey instruction  Pavement installed wasn’t robust to handle traffic that used it  4 years, large sections became unusable  Ps had crumbling pavement, decide what to do  Replaced some of it with strong ones, but rather than all of it constructed a new building over failed pavement  Spent less than would've spent than they would’ve replaced all of it  350k doing partial repair and building, would've spend 560k if just repaired all of it  Sued for the cost of replacing all the pavement HELD  Court of appeal NSW limited claim to just what they actually spent  When the actual cost of repair work is known then that prima facie is what P should get  Award anymore would result in over compensation  P had mitigated its loss, therefore reduced Ds liability [96] … Neither Bellgrove v Eldridge … nor the other cases cited supported damages based on the theoretical cost of reconstruction of the pavement when the actual cost of reconstruction of the pavement was known, and the actual cost was powerful evidence of an alternative method of calculating rectification costs. … [99] … If the rectification work has not been carried out, then a theoretical reasonable cost must be found

and, because damages must be assessed once and for all, must be awarded even though the rectification work might not be carried out. … But if the rectification work has been carried out and the actual cost is known, that provides sound evidence of the reasonable cost and should ordinarily provide the basis for damages. Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009] NSWCA 413 (16 December 2009) FACTS  G operated restaurant about C, C owned luxury jewelry store in CBD  Water leaked form D restaurant kitchen damaged C store  Prior leakage, C had been thinking about refurbishing its entire store  After leak rather htan close store to fix water damage and close store again for fit out  C trade up until time it was going to refit, fix water damage, did the refit in one swoop  Single period closed 29 days  Result, C didn’t restore damaged parts to way they were prior to leakage, some part completely changed, spend more than it would have for an entire refit than just to repair the damage it self  C sued G in neg for only how much it would’ve cost to do a strict repair of water damaged parts and lost profits store needed to close just to repair water damage  Estimated as 10 working days HELD  Tj awarded those amounts, CA agreed  G neg caused to C’s property, created a right to comp  Court obliged to ascertain cost of work re necc to undo damage and award that amount  C spent more money refitting the entire store than just repairing water damage, no bar to claiming full r cost of repair for how muc...