Castle Constructions Pty Ltd v Fekala Pty Ltd

Castle Constructions Pty Ltd (the purchaser) appealed a decision of the Supreme Court of New South Wales concerning a contract for the sale of a development site to Fekala Pty Ltd (the vendor). The purchaser alleged the vendor was in breach of the contract and sought damages for loss of bargain.

The primary legal issues before the Court of Appeal were whether the purchaser's subjective, uninformed views about the profitability of the development broke the causal link between the vendor's breach and the purchaser's loss, and whether the vendor could be imputed with knowledge of the purchaser's intention to resell at a profit. The court also considered the principles of remoteness and mitigation, specifically whether the purchaser was reasonably compelled to accept late delivery of the property or whether an alternative property on the market constituted a direct substitute.

The Court of Appeal reasoned that the purchaser's decision not to affirm the contract, influenced by their own uninformed views, did not sever the causal connection to the vendor's breach. The court affirmed that where a vendor's breach prevents a purchaser from realising an expected profit, that loss is recoverable if it is not too remote. The court held that the loss of bargain damages, calculated as the difference between the contract price and the market price at the time of the breach, should reflect the present value of economic potentialities, including the potential for profitable resale. However, it was clarified that only discounted profits, excluding holding costs, are recoverable if not too remote, and a subsequent resale price shortly after the breach is prima facie evidence of market value.

The appeal was dismissed with costs.