Castle Constructions Pty Ltd v Fekala Pty Ltd & Ors

[2006] HCATrans 528

[2006] HCATrans 528

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S210 of 2006

B e t w e e n -

CASTLE CONSTRUCTIONS PTY LIMITED

Applicant

and

FEKALA PTY LIMITED

JENNIFER GAI DAVIES & LESLIE COULBURT

RONALD REGINAL FITZGERALD & DALICE MONICA FITZGERALD

DOROTHY WINIFRED MICHALK

RAYMOND THOMPSON & MOOREAN THOMPSON

FRANZISKA ANTONIA MANDL

JENNIFER GAI DAVIES

ERMA PTY LTD

WILLIAM MURPHY

CECILIA WOLFSON

WINSTON PARK PTY LTD

C & L CAMERON PTY LTD

DUNCAN FERGUSON GRIERSON & PATRICIA DAWN GRIERSON

EARLE RICHARD WOLSTENHOLME & JANICE ANNE WOLSTENHOLME

ELSA MAY MONSOUR

DIANNE DICKSON

MERIDIAN HOLDINGS PTY LTD

VALDA JOAN GOLDIE

FRANCESCO CARMELO VUMBACA & CORAL AGNES VUMBACA

RUSSELL BRUCE WOOD

ROY ANTHONY NEALE & GLORIA NEALE

MAX FISCHER

PEGGY MARRIOTT & RONALD DAVID MARRIOTT

ALEXANDER MICHARD & IRENE MICHARD

MONSOUR ENTERPRISES PTY LTD

FRANCESCO CARMELO VUMBACA & CORAL AGNES VUMBACA

JENNIFER NORA JEFFREY

Respondents

Application for special leave to appeal

GLEESON CJ
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 29 SEPTEMBER 2006, AT 11.06 AM

Copyright in the High Court of Australia

__________________

MR S.J. GAGELER, SC:   If the Court pleases, I appear with MS K.J. WILLIAMS for the applicant.  (instructed by Aitken McLachlan Thorpe)

MR I.M. WALES, SC:   I appear with MR M.W. YOUNG for the respondents, may it please the Court.  (instructed by Nugent Wallman Carter)

GLEESON CJ:   Yes, Mr Gageler.

MR GAGELER:   Your Honours, this was a case of a contract for the sale of land where the vendor served a notice to complete where the purchaser was ready, willing and able to complete on the date nominated for completion, where the vendor was not and where the purchaser terminated and sued for loss of bargain damages.  So far, so good.  Specifically, however, the purchaser sued for the loss of profit that it as a developer would have made on the resale of the land had the purchase been…..  It is fair enough to say that at no level of the judicial hierarchy has the position of the purchaser been regarded as attractive. 

GLEESON CJ:   We noticed that.

MR GAGELER:   It is also fair enough to say that dealing with the argument of the purchaser has involved a struggle with legal principle. 

GLEESON CJ:   Take President Mason for a starting point.

MR GAGELER:   That is where I was about to go, your Honour.  I can take President Mason.  There are two grounds.  There is the failure to mitigate a ground and there is the damage to remote ground.  Both of those are hurdles that I need to overcome.  It is the damage to remote ground, however, that really does, in our submission, raise a general question of principle and it arises in this way.  The question is whether the second limb of the rule in Hadley v Baxendale operates in some different way in a case of a contract for the sale of land from the way in which it operates in the case of a contract for the sale of goods.

His Honour at page 83 of the application book, about line 35, your Honours will see says:

The wholesale vendor of meat knows that its retailing purchaser is buying with a view to resale.

He draws a contrast between that case and a case of the sale of land but, in our submission, it ought in principle be no different where the vendor of land knows that the purchaser is a developer who in the ordinary course of the purchaser’s business resells land.

GLEESON CJ:   What is the relevance if any to this proposition of the fact I think also observed by Justice Mason that the market for land builds into the purchase price of land whatever potential there is for profitable development?

MR GAGELER:   That, your Honour, can be said to be so in relation to any market.  That is why one has the conventional measure given by the first limb of the rule from Hadley v Baxendale and why one has the additional measure given by the second limb of the rule in Hadley v Baxendale.  Yes, to a point is the answer but not necessarily in circumstances where a purchaser is a developer whose business it is to add value to land.

Your Honours, I never thought that I would have the opportunity to do this, but we have actually provided your Honours with Hadley v Baxendale.  I do not do this for a spurious reason but if your Honours would turn to it, it is rather interesting.  If you go to page 151, which is the second‑last of the pages in the print, what your Honours see at the top of the page, somebody, not me, has marked the passage, the well‑known statement of Baron Alderson.  The statement refers to special circumstances involving what we now refer to as the second limb of the rule.  If your Honours look further down the page at about point 4 of the page, there is this statement:

It is said, that other cases such as breaches of contract in the non‑payment of money, or in the not making a good title to land, are to be treated as exceptions from this, and as governed by a conventional rule.  But as, in such cases, both parties must be supposed to be cognisant of that well‑known rule, these cases may, we think, be more properly classed under the rule above enunciated as to cases under known special circumstances, because there both parties may reasonably be presumed to contemplate the estimation of the amount of damages according to the conventional rule.

What we take from that, which we believe is the way in which it has been interpreted and applied during the 20th century in the United Kingdom, is that there is no special approach to contracts for the sale of land.  Contracts for the sale of land fall within the ordinary rule in Hadley v Baxendale like any other contract and that is the way in which the rule was interpreted and applied by Justice Elwes in the case of Cottrill v Steyning and Littlehampton Building Society [1966] 1 WLR 753. We have also provided that to your Honours, again a three‑page photocopy. I hope your Honours have that. If your Honours look ‑ ‑ ‑

GLEESON CJ:   Just a moment, Mr Gageler, please.  It is the first in your applicant’s list of authorities?

MR GAGELER:   Correct.  If your Honours just look to the third page of the photocopy, it is page 756F of the report, that states, in our submission, the conventional application of the second limb of Hadley v Baxendale:

It is clear, in my opinion, that if the defendants are shown to have known that the plaintiff intended to develop the land for profit special circumstances are established –

which invoke the second limb of the rule.  What has happened in New South Wales, your Honours, is that a stricter approach has been adopted in relation to contracts for the sale of land.  In the present case his Honour Justice Mason at page 87 of the application book endorsed at about line 12 and then applied at about line 51 the approach that had been taken by Justice Bergin in the Sumy Case which is there referred to.  The Sumy Case - and I tell your Honours this is the last time I want to refer to another authority in the bundle – but if your Honours could locate the Sumy Case in the bundle and turn to paragraph [75] towards the end of the judgment, your Honours will see the reformulation ‑ ‑ ‑

GLEESON CJ:   “It appears that Cottrill ‑ ‑ ‑

MR GAGELER:   That is right.  If your Honours would note what is there said and the intrusion of policy, not some general policy of the law but some view as to the possible effect on the commercial property market.  That leads to the view expressed in paragraph [77] that what must be proved are special circumstances, but here the language is taken on not the second limb of the rule in Hadley v Baxendale terminology which has always been there for 150 years, but the special circumstances here become specific knowledge of the particular development.  That is the approach that Justice Mason imported into the analysis of the facts in the present case at the bottom of page 87.

What we say about that is that that sort of policy concern really ought not be the policy of the law.  The law ought operate at a more general or abstract level as it has been seen to operate for the last 150 years.  If there is a policy concern of that type affecting the property market presumably in New South Wales, then it is something that could be dealt with obviously very easily by the insertion of a standard term in a contract.

GLEESON CJ:   Can you go back to that earlier case that you referred to.

MR GAGELER:   Cottrill?

GLEESON CJ:   Yes. 

MR GAGELER:   I think it was the first in your Honour’s bundle.

GLEESON CJ:   Yes.  You stopped reading in Cottrill on page 756 before you got to the sentence that said:

There cannot be the slightest doubt here that the defendants knew what the plaintiff’s intentions were, and knew exactly how he intended to pursue them.

Is that a reflection of the same kind of approach?

MR GAGELER:   No, that is a comment on the facts of that case.  The first sentence, in our submission, is the statement of principle and the application of principle.  The way your Honour suggested it could be read is of course the way in which President Mason sought to deal with it at the top of page 87 in the first line.  In our submission, properly read, inferring what Justice Elwes was treating as the ratio of his decision, it lies in the first sentence, not the second sentence, and as a matter of principle analogising a contract for the sale of land with any other contract, the first sentence ought be enough.

Your Honours, that, in our submission, is the issue of principle warranting the grant of special leave.  I acknowledge that we need to show that we can overcome the mitigation problem.  Can I just show

your Honours how we do it and it is not particularly difficult.  The facts are sufficiently recorded at the top of page 118 and the circumstances were that there was existing litigation in the Supreme Court of New South Wales in which the applicant was seeking a declaration that it had validly terminated the contract and was also seeking damages.  There was a cross‑claim by the respondents, being the vendor, seeking specific performance and damages for delay in completion.

The failure to mitigate that his Honour found is that at the bottom of page 95, about line 45.  What is there said is that there was a failure to mitigate because the reasonable course for the applicant purchaser would have been to submit to specific performance.  Your Honours, that reasoning has at least two problems.  One is it sets a standard for behaviour for mitigation which is extraordinarily high.  Ordinarily it is thought that what mitigation of damages requires is that which a prudent person would have done in that person’s own interests without jeopardising the person’s legal rights.

Here the applicant was apparently expected to consent to an order which was founded on a basis that was inconsistent with the case that it was putting and its case for damages.  It was expected to consent to an order for specific performance in circumstances where its case was and it was ultimately held that it had terminated the contract.  That in itself is, in our submission, somewhat bizarre but it was expected then to remain exposed to a claim for damages for delayed completion and do what?  Pay the damages and then claim back somehow as damages for breach of contract by the vendor the damages that it had paid to the vendor?  It, frankly, just does not work.  That is one problem.

The other problem is that his Honour in that passage had overlooked another insignificant part of the facts and that appears at page 118, about line 25 and that is that the applicant had in fact offered to repurchase the property.  The offer was on the table and the offer had simply been ignored.  So, your Honours, it is hard to make any of that attractive for special leave but we say there it is, there is an answer to the particular way in which the court addressed mitigation and it was wrong but the real special leave point is the Hadley v Baxendale point.  If the Court pleases.

GLEESON CJ:   Thank you, Mr Gageler.  Yes, Mr Wales.

MR WALES:   Your Honours, in one sense it is not surprising that at different levels different approaches have been taken to the way in which the case is to be approached.  It is perhaps because cases of this kind with such outstanding lack of merit come so rarely that some difference in approach is not a matter of surprise.  It will not be forgotten that despite my friend’s opening statement for your Honours, the one thing which the applicant never sought was loss of bargain damages.  It was never his case that at the moment of termination the value of the land was more than the contract price.  All of the conventional measures of damages were eschewed and what was pursued was a loss of profit case.

GLEESON CJ:   A risk-free profit.

MR WALES:   Indeed.  The loss of risk-free profit was the case which was maintained, this from an applicant who had striven manfully for about two years to resist every effort to have the property foisted upon him and who, it was found by Justice Palmer – and this was the evidence that was beyond dispute – simply did not want the property.  Your Honours will recall from the judgments that before the time for settlement approached, the applicant had thought better of the bargain and, for reasons which had no connection with the respondents, simply wanted to get out of the contract.  So when the chance presented itself, he did that.  He came to settlement with his cheques and so on and was in the fortunate position that the vendors could not complete and on the same day the applicant terminated the contract.

True it is that the legal position of the respondents was completely misconceived.  It was entirely inappropriate of them to seek unilaterally to extend the time in their own notice but the fact was that after the actual termination by the applicant, the respondents did not say, “Well, you’re the ones who repudiated.  We now terminate”.  They treated the contract as being on foot. 

So that on 12 September, the date to which the notice had been ineffectually extended, they said, “We want to settle today.  In other words, we want to perform the contract”.  There was then a lapse of a fortnight between that date and the date when the applicant brought proceedings seeking to have its termination vindicated by the court and in the course of that fortnight there was on the one hand no suggestion from the respondents that they did not want to sell the land to the applicant and no suggestion from the applicant that it did want to buy it.  So that then when the claim and counterclaim for a declaration as to termination or specific performance got under way, the position of the applicant was, “The contract is at an end.  We resist bitterly any endeavour to have the contract foisted upon us”.

It was only after Justice Windeyer held, with respect entirely correctly, that the termination was effective and sent the matter off to an assessment of damages that the question of risk-free loss of profits then arose.  In the period between 12 September and 25 September, the period between the ineffectual completion date nominated by the respondents and the commencement of proceedings, it was entirely open to the applicant to say, “Well, you say the contract’s on foot.  We say it’s not but in any event we want the land.  We’re happy to pay the contract price for it.  We will proffer performance.  You’ll give us the land and in due course the court can work out who’s wrong and who’s right and who owes the fairly small amount of damages that might be involved for some postponement in the time for settlement”.

None of that happened because manifestly the applicant did not want the land and in the course of the proceedings themselves there was no breath of a suggestion from the applicant along these lines, “Let’s settle.  We’ll proffer performance.  We’ll give you the money, you give us the land and in due course the court can work out who’s right and who’s wrong”.  So that on any way in which the question of mitigation is approached, whether it is seen as a causation question, as Justice Palmer did, whether it is seen as a mitigation question, mitigation being simply one aspect of causation, it is, we say, the undeniable fact that the applicant simply did not want the land and only at the end of Justice Windeyer proceedings sought, as all developers do, to turn a sow’s ear into a silk purse did he then mount the claim for loss of profits.

So we say firstly that on the mitigation point the applicant is bound to fail and we say that on the Hadley v Baxendale point the applicant is bound to fail.  What is really being proposed is a kind of academic dispute, not a real one.  It is manifest that contracts for the sale of land present particular problems that a contract for the sale of a piece of meat or a side of beef or a Ford truck do not present.  Whether that is seen as something special or simply the application of the rule to facts which are in themselves special does not matter in the least.  The authorities, both the English and the Australian, are all at one, namely that it is not sufficient just to know that the purchaser is a developer; something more specific must be shown.

In this particular case there could not have been a more general statement by the purchaser.  Mr Lahoud said, “I’m considering all options”.  That is to say, he could resell having done nothing, he could operate the place as a hospital – it was fitted out as a hospital – he could have occupied or converted, which was the language of the advertisement, he could have sold with a DA, he could have built the flats himself, he could have done a thousand things.

GLEESON CJ:   There will not be many cases, I suppose, in which a purchaser negotiating to buy land or making an offer for land at auction will explain to the vendor the profit that the purchaser contemplates making after having bought the land or, if he does, the profit will very smartly be reflected in the purchase price.

MR WALES:   That may be so but that really does not affect the general principle.  That is really a matter for the purchaser.  It does not affect, we submit, the general principle.  It is worth noting that when my friend took the Court to Hadley v Baxendale, it presents the opportunity to remind one that although that case involved the carriage of I think the crankshaft for a mill, obviously not an item of personal use but obviously an item which was meant to be used in some kind of commercial or profit‑making venture, the plaintiff lost because the carrier knew no more than that this particular item was to be carried.

One has to know something more than commerce is involved in order to found a Hadley v Baxendale second limb damages case and most often the facts themselves, the nature of the item being sold provides some foundation for that conclusion, but in the case of a parcel of land something more as a matter of necessity we say has to be shown.

GLEESON CJ:   But if there is a proper market for land – I am not suggesting this is against your argument – then ordinarily profitable redevelopment of the land will be reflected in the market value of the land, will it not?

MR WALES:   Indeed, but that was in a sense not the case – I am sorry.  What your Honour says is correct, with respect, but, apart from the perhaps throwaway line in the judgment of the President, it is not really an issue of great importance in this case.  The fact was that the applicant did not ever seek loss of bargain damages.

GLEESON CJ:   Did any of the decision‑makers in this case decide the case by saying, “We don’t believe you would have made this profit and the reason we don’t believe you would have made this profit is because you were so anxious not to have to buy the land”?

MR WALES:   No, although curiously, when the question of fact, namely the likely profits, were dealt with at first instance, the point seems never to have been certainly adopted by the court as a discounting factor.  It seems with hindsight, we would say, somewhat unusual that the question of risk was not taken up as an issue in that factual assessment.  We know as a fact, implausible though it perhaps may seem with hindsight, that Mr Lahoud says that he was put off by the vague threats of persons acting on behalf of some unhappy mortgagees and one would have thought if that is Mr Lahoud’s position, he is an experienced developer.  It must be, as it were, that on a cost benefit analysis the risk of those threats must be equal more or less to the profits to be obtained because otherwise why did he not go ahead and embark upon the venture?  But that was not the approach that was taken and one has to start with the starting point that when the matter was dealt with before the Acting Master, he made findings about the likely profits and those findings in themselves have not been challenged.

GLEESON CJ:   When you began your submissions to us by emphasising the unwillingness of the applicant to actually acquire this land, I was asking myself:  what is the legal relevance of that?  The only possible legal relevance of that that I can see at the moment is that it might have been regarded as making the claims of profit that would have been made after acquisition of the land less plausible.

MR WALES:   No, that is not how the case was put below.  Its only relevance is this, that it in effect underlines the mitigation point.  It explains why it is that the applicant was so silent.  We say manifestly it did not want the land.  It had every chance to acquire it for the contract price but simply chose not to do so.  He was in the same position as the purchaser who correctly terminates the contract for the sale of an item, a truck or whatever, and then on the day after termination sees the truck in the shop window for precisely the same price as was in his contract but chooses for his own reasons not to buy it.

On those simple facts one says he may have been entitled to terminate but his loss did not flow from the vendor’s breach in being a few days late in being able to provide the truck.  It flowed from the fact that he did not want to acquire it even though it was there for the asking.  So that in this case we say that manifestly on the facts the property was there for the asking.  It was just that the applicant did not want it and that is why we say the applicant must lose on any way in which the mitigation question is approached.  Those are our submissions.

GLEESON CJ:   Thank you, Mr Wales.  Yes, Mr Gageler.

MR GAGELER:   My learned friend’s submissions really hark back to the causation point that Justice Palmer found attractive and it was rejected in the Court of Appeal.  It is true that the applicant had found the contract to be problematic but it is true and it was found that the applicant was ready, willing and able to complete on the completion date and that, but for the breach of contract by the vendor, it would have completed the contract and it would have made a profit.  There was no contest to the detailed evidence of the applicant as to the profit that it would have made.  When I use the language of loss of bargain damages, I intend it to cover both limbs of the rule in Hadley v Baxendale.  The President used the same language and I read him as intending to cover both limbs as well.

If there ought be some discount for contingencies, then, assuming against myself that that can be raised now, it leads to nothing more than a discounting of the profit that has been calculated and nothing more.  It is a point that has not been raised in the past.  So, in our submission, your Honours ought be wary of hard and, perhaps at first blush,

unmeritorious cases making bad law.  Your Honours ought correct the error of legal principle.

GLEESON CJ:   Thank you, Mr Gageler.

We think there are insufficient prospects of success of an appeal to warrant a grant of special leave and the application is dismissed with costs.

AT 11.39 AM THE MATTER WAS CONCLUDED