Gagner Pty Ltd v Canturi Corporation Pty Ltd - [2009] NSWCA 413

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: Gagner Pty Ltd trading as Indochine Cafe v Canturi Corporation Pty Ltd [2009] NSWCA 413

HEARING DATE(S): 2 October 2009

JUDGMENT DATE:
16 December 2009

JUDGMENT OF: Campbell JA at 1; Macfarlan JA at 165; Sackville AJA at 166

DECISION: (1) Appeal allowed.
(2) Set aside the judgment in the court below.
(3) Direct the parties, within 14 days (excluding legal vacation) of the date of delivery of these reasons for judgment:
(a) to provide to each judge hearing this appeal agreed short minutes of the orders necessary to give effect to these reasons for judgment, other than the order for costs;
(b) in the event that agreement is not possible, to provide to each judge hearing this appeal their respective written submissions about the orders that should be made to give effect to these reasons for judgment, other than concerning costs;
(c) to file any evidence on which either seeks to rely bearing on the question of costs.
(4) Direct the Appellant to provide to each judge, and to the Respondent, within 14 days (excluding legal vacation) of the date of delivery of these reasons for judgment, its written submissions about the costs orders that should be made.
(5) Direct the Respondent, within 24 days (excluding legal vacation) of the date of delivery of these reasons for judgment, to provide to each judge and to the Appellant, its written submissions about costs.
(6) Reserve further consideration of the orders appropriate to give effect to these reasons for judgment, and costs.

CATCHWORDS: DAMAGES – tort – negligence – damage to property – whether damages are payable if a plaintiff undertakes more extensive rectification work than was strictly necessary to make good the damage – whether rectification work was reasonable – whether award of damages was theoretical – application of Bellgrove v Eldridge (1954) 90 CLR 613 to tortious damage to property – DAMAGES – goods and services tax (GST) – whether an award of damages should include the amount of GST that is part of the price of goods and services acquired to make good the damage when the plaintiff is registered for GST purposes – role of ability to receive an input tax credit in deciding whether an allowance for GST should be included in damages – whether consistent with compensatory principle – TAXES AND DUTIES – goods and services tax (GST) – whether an award of damages should include the amount of GST that is part of the price of goods and services acquired to make good the damage when the plaintiff is registered for GST purposes – role of ability to receive an input tax credit in deciding whether an allowance for GST should be included in damages – whether award of damages for tortious damage to property is itself subject to GST

LEGISLATION CITED: A New Tax System (Goods and Services Tax) Act 1999 (Cth)
Civil Procedure Act 2005

CATEGORY: Principal judgment

CASES CITED: Admiralty Commissioners v SS Chekiang [1926] AC 637
Beach Retreat Pty Ltd v Mooloolaba Yacht Marina Ltd [2009] QSC 84
Bellgrove v Eldridge (1954) 90 CLR 613
Bennett v Goodwin [2005] NSWSC 930; (2005) 62 ATR 515
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co Ltd [1912] AC 673
Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185
Central Coast Leagues Club Ltd v Gosford City Council (Supreme Court of NSW, Giles CJ Comm D, 9 June 1998, unreported)
ChongHerr Investments Ltd v Titan Sandstone Pty Ltd [2007] QCA 278
Commissioner of Taxation v D B Rreef Funds Management Ltd [2006] FCAFC 89; (2006) 152 FCR 437
CR Taylor (Wholesale) Ltd v Hepworths Ltd [1977] 1 WLR 659; [1977] 2 All ER 784
D B Rreefs Funds Management Ltd v Commissioner of Taxation [2005] FCA 509; (2005) 218 ALR 144
Darbishire v Warran [1963] 1 WLR 106; [1963] 3 All ER 310
De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28
Diamond v Lovell [2002] 1 AC 384
Director of War Service Homes v Harris [1968] Qd R 275
Dodd Properties Ltd v Canterbury City Council [1980] 1 WLR 433; [1980] 1 All ER 928
Evans v Balog [1976] 1 NSWLR 36
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Golden Strait Corporation v Nippon Yusen Kubishika Kaisha [2007] UKHL 12; [2007] 2 AC 353
Harbutt’s “Plasticine” Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447
Hennessey Glass and Aluminium Pty Ltd v Watpac Australia Pty Ltd [2007] QDC 57; (2007) 69 ATR 374
Hoad v Scone Motors Pty Ltd [1977] 1 NSWLR 88
Hole & Son (Sayers Common) Ltd v Harrisons of Thurncoe Ltd [1973] 1 Lloyd’s Rep 345
Hollebone v Midhurst and Fernhurst Builders Ltd [1968] 1 Lloyd’s Rep 38
Hyder Consulting (Aust) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd [2001] NSWCA 313; (2001) 18 BCL 122
Johnson v Perez (1988) 166 CLR 351
Keen v Telstra Corporation Ltd [2006] FCA 834; (2006) 153 FCR 28
Kirkby v Coote [2006] QCA 61
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Livingstone v Rawyards Coal Co (1880) 5 App Cas 25
Lodge Holes Colliery Company Ltd v Wednesbury Corporation [1908] AC 323
Martin v London County Council [1947] KB 628
McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187
Merringtons Pty Ltd v Luxottica Retail Australia Pty Ltd (VSC, Wood M, 16 June 2006, unreported)
Minter v Eacott (1952) 69 WN (NSW) 93
Murphy v Brown (1985) 1 NSWLR 131
Nemeth v Prynew Pty Ltd [2009] NSWSC 511
Philips v Ward [1956] 1 WLR 471; [1956] 1 All ER 874
Piling Contractors (Qld) Pty Ltd v Prynew Pty Ltd [2008] NSWSC 118
Ruxley Electronics & Construction Ltd v Forsyth [1996] 1 AC 344
Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462
South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd [2004] SASC 81; (2004) 88 SASR 65
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 237 CLR 272
Tenderwatch Pty Ltd v Reed Business Information Pty Ltd [2008] FCA 931; (2008) 78 IPR 329
Thornton v Apollo Nominees Pty Ltd [2005] TASSC 38; (2005) 15 Tas R 35
UI International Pty Ltd v Interworks Architects Pty Ltd [2007] QCA 402
Vrkic v Otta International [2003] NSWSC 641
Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253

TEXTS CITED: Australian Master Tax Guide, 44th ed (2009) CCH Australia
Australian Taxation Office, GSTR 2001/4
Australian Taxation Office, Practice Statement Law Administration PS LA 2008/16
McGregor on Damages, 14th ed (1979) Sweet & Maxwell
McGregor on Damages, 13th ed (1972) Sweet & Maxwell
Restatement (First) of Torts §929 (vol 4, p 660)

PARTIES: Gagner Pty Limited t/as Indochine Cafe (Appellant)
Canturi Corporation Pty Limited (Respondent)

FILE NUMBER(S): CA 40081/09

COUNSEL: TGR Parker SC; DT Miller (Appellant)
RJ Brender (Respondent)

SOLICITORS: Moray & Agnew (Appellant)
Lander & Rogers (Respondent)

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): 2960/06

LOWER COURT JUDICIAL OFFICER: Gibson DCJ

LOWER COURT DATE OF DECISION: 19 December 2008

CA 40081/09
DC 2960/06

CAMPBELL JA
MACFARLAN JA
SACKVILLE AJA
16 DECEMBER 2009

GAGNER PTY LIMITED T/AS INDOCHINE CAFÉ v CANTURI CORPORATION PTY LIMITED

HEADNOTE

(This headnote does not form part of the Court’s judgment.)

Gagner operated a restaurant located above Canturi, a boutique jewellery store in the Sydney CBD. On 28-29 October 2005, the kitchen in the restaurant flooded and water escaped into the jewellery store below, causing damage to the store fit-out. Nevertheless, apart from several hours of being closed on the day the flood was discovered, Canturi continued to trade in the damaged shop for some months. Prior to the flood, the owner of Canturi had been in the planning stages of a complete refurbishment of the interior. As a result of the flooding, Canturi made the decision to completely refurbish, so as to avoid a lengthy closure and to be able to re-open in time for the Christmas shopping period. Canturi did not repair only the damaged portion of the store, to restore it to its previous condition, but refurbished the entire fit out. The refurbishment resulted in the parts of the store that had been flooded being different in various ways to how they had been before the flood. The judge awarded a sum of damages equivalent to the amount that would have needed to be expended to return the store condition to the state it was in before the flood. Canturi did not seek the full cost of the refurbishment it actually carried out.

That award of damages included an amount intended to reflect the quantum that would have been paid as GST on purchases that Canturi would have been required to spend to replace those items damaged in the flood (see para [25]). Canturi was registered for GST purposes, and thereby entitled to receive an input credit under the GST legislation for any payments of GST incurred on acquiring goods and services for the purpose of improving the appearance or usability of its shop.

The trial judge found that, although Canturi was considering a major refurbishment of its fit out, the decision to refurbish was not yet made, and that the flood caused Canturi to make the reasonable decision to carry out both the repairs and renovations at the same time. The store fit out was already at a very high standard.

Held (per Campbell JA, Macfarlan JA and Sackville AJA agreeing):

Entitlement to recover damages

(1) Entitlement to damage: There was an entitlement in the circumstances to a measure of damages equal to the cost of what the restoration of the premises to their former condition would have been, even though the refurbishment actually carried out was more extensive.

(2) Comparison with damages for breach of contract: Discussion of case law concerning principles for assessment of damages for negligent damage to real property, and relationship of those principles to principles for assessment of damages for breach of contract by defective performance of building work.

The inclusion of GST on amounts to be paid during refurbishment in the quantum of damages

(3) Operation of the GST Act: The respondent would have made a taxable supply whenever it sold in the course of its business an item on which it would be obliged to pay GST, and would make a creditable acquisition for which it would receive a GST input credit when acquiring goods or services for the purpose of improving the appearance or usability of its retail shop: [135]-[142]. Under the GST Act, obtaining an input credit for GST paid on a creditable acquisition results in the payer effectively receiving back the amount of that input credit either as a reduction in its GST liability or an increase in its refund entitlement: [143]-[145]. Hence, for a person registered for GST purposes, payments of GST on goods and services which an award of damages was intended to cover would not be a loss suffered if the acquisition of those goods and services was a creditable acquisition by that person: [147].

(4) GST payments for which an input credit would be received to be excluded from quantum damages: If a plaintiff in an action for tort is registered for GST purposes, and stands to receive an input credit for any GST payments incurred in making good its damage, and there is no impediment to the plaintiff receiving the full benefit of the input credit, that GST amount should be excluded from the quantum of damages recoverable, as it is not a loss suffered by the plaintiff: [151].

(5) Damages award itself not subject to GST: As an award of damages is not considered to be a “taxable supply”, no allowance should be made in an award of damages for an amount of GST on the damages themselves. That is to be distinguished from a situation where the damages are for expenditure that would need to take place to make good the plaintiff’s loss: [157].

**********

CA 40081/09
DC 2960/06

CAMPBELL JA
MACFARLAN JA
SACKVILLE AJA

GAGNER PTY LIMITED T/AS INDOCHINE CAFÉ v CANTURI CORPORATION PTY LIMITED

Judgment

:

2 The Appellant operated a restaurant in leased premises on the first floor of a city building. The Respondent operated a jewellery store in leased premises in the same city building. The Respondent’s premises were located immediately below those of the Appellant.

3 During the evening of Friday, 28 October 2005 and the early morning of Saturday, 29 October 2005 water escaped from the Appellant’s premises and entered the premises of the Respondent, causing damage to some of the internal fit-out. In a judgment delivered in the District Court on 19 December 2008, JC Gibson DCJ found that the escape of water was caused by the negligence of people for whom the Appellant was vicariously liable. There is no appeal from that finding of liability.

4 Some grounds of appeal have been abandoned. The remaining grounds of appeal relate solely to the measure of the damages that the trial judge ordered the Appellant to pay to the Respondent.

5 The water damage caused the Respondent to lose some trading hours on Saturday, 29 October 2005. There is no dispute about the damages payable for those lost hours. The damage also gave rise to a need for some immediate drying out and cleaning up works, but the cost of those works has been met by the landlord. A computer belonging to the Respondent was damaged, and there is no dispute about the damages attributable to it.

6 The dispute arises from the fact that the Respondent did not have repair work done that brought the premises back into exactly the same condition they had been in prior to the flooding. Instead, it traded on in the premises, in their damaged condition, for over seven months. The Respondent closed the premises on 13 June 2006, and re-opened for business on 17 July 2006. As the business traded on six days a week, that closure was for 29 working days.

7 During the time the premises were closed there was a complete internal refurbishment of the premises, involving some internal reconfiguration. Only about 10% of the floor area of the premises became wet as a result of the flooding, but the whole of the premises was refurbished. In particular, without being exhaustive, an internal wall that had been damaged by the flooding was completely removed. Some vitrine cabinets, used for display of goods, were damaged and not replaced by an exact equivalent, though other means of displaying goods were incorporated into the refurbished premises. The flooded area had included part of a back-office area. Part of the back-office area was included in the part of the shop accessible to customers. The whole look of the premises was changed. The cost of the refurbishment actually carried out was substantially greater than would have been the cost of repairing the water damage in a way that would have brought the premises back to their pre-damaged condition.

8 The measure of damages that the judge allowed concerning rectification costs to the premises was, in broad terms, the amount it would have cost to bring the premises back as close as was possible to their undamaged condition (including goods and services tax (“GST”) on that cost), together with an allowance for 10 working days’ business interruption, at a daily rate that the parties had agreed. Ten working days was the time that the premises would have been closed if the Respondent had restored the premises as exactly as possible to their pre-accident condition.

9 The Appellant contends that the judge was wrong to assess the damages for damage to the premises in this way. It submits that, apart from the small items of damage concerning which the Appellant accepts it has liability, the action of the Respondent in embarking on a total refurbishment had the effect that it did not continue to suffer any loss in consequence of the tort, so far as making good damage to the fitout of the shop is concerned.

10 The grounds of appeal that had not been abandoned by the start of the hearing of the appeal were:

“(b) The respondent’s claim for rectification or repair costs was, in the circumstances, a claim for betterment.

(c) The refitting of the tenancy was not a mitigation of the respondent’s loss and damage.

(d) The respondent’s damage should not have been quantified by reference to theoretical cost of repairing the confined water affected sections of the tenancy in circumstances where the respondent did not in fact replace the damaged sections to the same layout or design but rather replaced the fitout in its entirety to a new layout and new design, with new fixtures and fittings, and to a new ceiling layout.

(e) The respondent should not in the circumstances have been awarded as damages a theoretical 10-days of lost profits where that period was referable to the theoretical time that it would have taken to undertake repair works that, in the circumstances, were not in fact carried out and were rendered redundant by the replacement fitout to the new design and new layout.

(f) The respondent’s damages should not have included any allowance for GST on theoretical rectification costs in circumstances where no GST liability arose for the respondent or where any GST liability would have been revenue neutral for the respondent.”

11 Mr Stefano Canturi has at all relevant times had practical control of the Respondent. The Respondent first occupied its premises under a five-year lease, the term of which commenced on 1 September 1998. It held over for several months at the end of that lease. On 1 March 2004, it began to occupy the premises under the terms of a seven-year lease. That lease conferred no right to an option.

12 Clause 18.1 of the lease obliged the Respondent to carry out certain refurbishment works:

“Within two (2) years except for any delay caused or contributed to by the Landlord from the Commencing Date the Tenant must, as an essential term of this Lease, carry out the Refurbishment Works at its own cost.”

13 The lease defined “Refurbishment Works” as meaning:

“… the refurbishment of the Premises and the shopfront in accordance with the Tenant’s corporate image and in accordance with the Landlord’s fitout guide for the Building which may include:

(a) new finishes to internal walls;

(b) new floor coverings;

(c) new signs and new lighting; and

(d) new shop fixtures, fittings and shopfront.”

“Landlord’s Fitout Guide”

“corporate image”

“may include”

14 Before the 2004 lease was entered the Respondent had obtained some drawings, from designers called Chrysalis, for both internal and external refurbishment of the premises. Those drawings were submitted to the landlord’s agent in February 2004. By letter of 15 March 2004 the landlord’s agent said that, “Generally the proposed design is acceptable”.

15 In November 2004, the Respondent paid a total of $4,458.30 for some new marble tops, and two showcases. In early 2005, the Respondent received the landlord’s approval to go ahead with some work involving modifications to the exterior of the premises. The work on the exterior was completed and paid for by 30 June 2005, at a cost of $27,313. The Respondent paid an additional amount of $19,800 in May 2004 for “repairs and maintenance for Sydney salon”. There was no finding that those works completely satisfied the Respondent’s obligations under clause 18.1, but neither was there a finding that they did not.

16 In August 2005 a different designer, Inset Group (Australia) Pty Ltd, produced drawings that the Respondent had commissioned for an interior refurbishment of the whole of the premises. Those drawings included three different options for the layout of the premises. Each differed in some respects from the drawings that had been produced by Chrysalis.

17 It will be recalled that the water damage to the premises occurred on 28/29 October 2005. On 4 November 2005, the Respondent obtained a quotation from Inset Group to repair the water damage. The amount quoted was $52,537.50 plus the standard rate of 10% for GST. Mathematically that would work out at $57,791.25. On 29 May 2006, the Respondent obtained a quotation from another builder to repair the water damage for an amount of $39,555 plus GST. Mathematically that would work out at $43,510.50. The May quotation was subject to some qualifications – it assumed that some wall studs were in a satisfactory condition, and warned that it might not be possible to obtain wall tiles exactly the same as some which had been damaged, which “may result in slight colour and texture variation”. Further, it was not a fixed price quotation, as some items had been allowed for on a provisional sum basis. Neither quotation was proceeded with.

18 The way the Appellant put its case on damages concerning the physical damage to the premises is summarised by the judge at [108]:

“The plaintiff not only had an obligation to replace the fittings under its lease, but had been planning a complete refit of the premises for some time … the plaintiff was always going to remove these fittings [that were damaged by the flooding] and … the plaintiff should not be entitled to compensation because, prior to their removal, some of these fittings fortuitously suffered damage by reason of the defendant’s negligence.”

19 The judge rejected the factual basis on which the Appellant put its damages case. At [115] her Honour said:

“I find that the plaintiff was indeed considering a major refit of the store to take place some time during 2006. While a part of this was because of the obligation to refit under the lease, this was at the bottom of the plaintiff’s list of reasons for carrying out a refit. The plaintiff was in the course of carrying out a major refit of all of its premises to present its wares to the top end of the market. This refit was far in excess of any obligations under the refit provision in the lease. It was while the plaintiff was planning this substantial refit that it made the unwelcome discovery of a flooding of its flagship jewellery shop at the busiest time of its trading, namely immediately before Christmas. As the analysis below of the competing estimates of damage will show, the impact of that flooding was, on any analysis, a cause of substantial damage. Clearly the damaged store fixtures and fittings had to be replaced. It would have been ridiculous for the plaintiff to make an insurance claim, shut its store for up to 10 days to carry out the work, only to carry out a substantial complete refit. Clearly, the plaintiff had to carry out repairs to the damaged premises whilst at the same time accommodating and adapting its plans for a total refit of the store. Had he closed its store twice, once for repair of the water damage and a second time for a total refit, this would not only have had a serious impact on its business, but require the plaintiff to do the same work twice within a short period of time, perhaps even a few months. Clearly the responsible and sensible way for any plaintiff mitigating its loss was to combine the two.”

20 At [141](e) her Honour rejected a submission that there was no causal connection between the closure of the store in June/July 1996 and the need to make good after the flood. She posed the question “Did Mr Canturi close the store for the renovations or did he close the store for both the repairs and renovations at the same time?” Her Honour’s answer to this question was:

“Mr Canturi was frank and straightforward in his evidence on this issue. He made a pragmatic decision to carry out both the repairs and renovations at the same time. His concern was his store’s reputation as a top of the line jeweller, his need to be opened over the Christmas period, and his need to keep the period of downtime for his store to a minimum. While one of the factors may have been that he allowed an insurance [policy] concerning downtime to lapse, his principal concern was as the shop owner who did not want to have his shop closed unless it was absolutely necessary, and his conduct in keeping the premises open even on the day of the flood is indicative of this.”

21 At [158] her Honour declined to accept that before the flood the plaintiff’s fitout was nearing the end of its working life. She found that:

“… the fit out was at a very high standard already … Mr Canturi was planning to update the corporate image but … both before and after the fit out, the plaintiff’s store’s image was that of a high-end jeweller.”

22 Her Honour rejected a submission that the flooding was not a cause of the refit because Mr Canturi had already decided, before the flooding, to carry out a full refit. She found, at [159], that:

“Mr Canturi was considering a refit of the premises. However, these plans were far from being finalised. Mr Canturi said, and I accept, that his mind was always open and he was not committed to an expensive refit leading up to October 2005. He certainly had a refit of the store in mind, but the existing standard of the fittings and fixtures in his store can be ready appreciated from the photographs which had been tendered. The most likely result of the flood is that this was the last straw for him and it was following the flood that he committed himself to the expensive refit that he subsequently undertook during 2006.”

23 At [161] the judge found that the damage precipitated a business decision on the part of the Respondent to carry out the refit “because it meant that the store would have to be closed for a period of time in relation to repairs. It was because Mr Canturi decided to close the store only once that he decided to include in his major refit repairs to the water damage.”

24 Her Honour found, at [163]:

“… What Mr Canturi is doing, on behalf of the plaintiff, over this period of time is clear; he is seeking to minimise the loss as best he can. It would be a mistake to read into Mr Canturi’s activities some kind of acknowledgment of a pre-existing intention to perform one or more of these tasks. Mr Canturi considered and discarded a number of plans before eventually deciding upon a total refit of the premises. This is reasonable and understandable behaviour from a person whose property has been damaged. The defendant’s concentration upon one or more of these proposed plans considered by Mr Canturi as evidence that the damage to the premises made no difference to Mr Canturi’s plans misses the point entirely.”

25 The elements of the material damage that her Honour allowed were as follows:

1. Carpet	$16,665
2. Sandstone wall cladding	$10,000
3. Ceiling bulkhead and dry wall cladding repair	$3,700
4. Airconditioning	$1,600
5. Display vitrine units	$16,500
6. Painting	$2,500
New Sub-total	$50,965
Add preliminaries, margin and contingencies at 17.5%
Sub-total	$59,883.87
GST	$5,988.38
Total	$65,872.26

26 Each of these items was an item of a type that had been allowed by the Appellant’s expert, Mr Makin, as an item that would have been required to be spent if the water damage was rectified by restoring the premises to their pre-damaged condition. Her Honour altered Mr Makin’s figures for individual items somewhat, for reasons that she gave. There is no challenge on the appeal to those alterations.

27 In oral submissions Mr TGR Parker SC, counsel for the Appellant, made clear that the Appellant was not challenging any primary finding of fact that the judge had made. Para [26] of the Appellant’s written submissions had challenged a primary finding of fact, namely the judge’s finding that the fitout was not undertaken in consequence of the requirements of the provision in the lease concerning refurbishment. In my view abandonment of that particular challenge to the judge’s decision was well advised, as there were no facts that could be pointed to that provided a basis, consistent with Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, for rejection of the judge’s finding.

28 I am not persuaded that the Appellant has made out any of its challenges to the judge’s decision on quantum of damage, apart from the inclusion of the GST component of the material damages claim. Concerning the other grounds, I am not persuaded that the judge’s assessment is shown to be wrong.

29 In its submissions the Appellant dealt with the first four of its grounds of appeal together, and made separate submissions about the ground of appeal relating to GST. I will approach this judgment in the same way.

PART A – GROUNDS (b)-(e)

30 It is elementary that the fundamental object of an award of damages for tort is to provide “that sum of money which will put the party who has been injured … in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation”: Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39 per Lord Blackburn; Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 at 191 per Taylor and Owen JJ; Johnson v Perez (1988) 166 CLR 351 at 355 per Mason CJ, 367 per Wilson, Toohey and Gaudron JJ, 386 per Dawson J.

31 While the law has developed some conventional practices about the ways one applies that compensatory principle in particular fact situations, those conventional practices must yield if the facts of the instant case require some different method to be adopted for assessing the appropriate amount of compensation: Johnson v Perez at 355-6, 367, 386-7 (concerning the general rule that damages are assessed at the date of breach); Admiralty Commissioners v SS Chekiang [1926] AC 637 at 643 per Lord Sumner; Philips v Ward [1956] 1 WLR 471 at 473; [1956] 1 All ER 874 at 875-6 per Denning LJ; CR Taylor (Wholesale) Ltd v Hepworths Ltd [1977] 1 WLR 659 at 669; [1977] 2 All ER 784 at 793 per May J; McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187 at 193 per Jordan CJ.

32 A repeated criticism that the Appellant made of the judge’s finding, was that the damages she had allowed were “theoretical”, because they related to the cost of work that had never actually been carried out, and the loss of trading time that would have been involved in carrying out that work.

33 One flaw in that argument is that there were some items, namely carpet replacement and painting, that appeared in both the damages allowed by the judge, and the cost of the work that the Respondent actually had carried out. While the vitrine cabinets were not replaced with identical objects, they were replaced with display facilities that were to some extent functionally equivalent. In the course of oral argument Mr Parker accepted that the Respondent could recover damages for what it had actually spent on the carpet, and on the painting. However, as will appear, in my view the criticism that the damages awarded were “theoretical” should be rejected in its entirety, not merely concerning these two particular items of damage.

34 We were referred to several cases concerning the damages recoverable from a builder or architect whose breach of contract had resulted in defective work being performed. The proposition sought to be established from those authorities (sometimes by arguing that an authority of apparent relevance was in truth not relevant) was that “if there were supervening events which meant that the rectification couldn’t take place, you couldn’t get damages on the basis that it would” (appeal tp 21). The application of that proposition in the present case was that the refurbishment works that the Respondent in fact carried out had rendered the precise work by reference to which the judge quantified the damages irrelevant, and thus it was wrong to quantify the damage in that way. The cases involved are Bellgrove v Eldridge (1954) 90 CLR 613; Director of War Service Homes v Harris [1968] Qd R 275; De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28; Central Coast Leagues Club Ltd v Gosford City Council (Supreme Court of NSW, Giles CJ Comm D, 9 June 1998, unreported); Hyder Consulting (Aust) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd [2001] NSWCA 313; (2001) 18 BCL 122; Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462; Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253, and UI International Pty Ltd v Interworks Architects Pty Ltd [2007] QCA 402.

Bellgrove v Eldridge

35 Bellgrove v Eldridge is a case the Appellant referred to but distinguished. It concerned the proper measure of damages that a plaintiff could recover from a builder for breach of a contract to construct a house on the plaintiff’s land, when the builder had erected the house with such defective foundations that the house could safely be rectified only by demolition. In Bellgrove v Eldridge the plaintiff had retained the home, and no rectification work had been carried out at the time of the trial.

36 Dixon CJ, Webb and Taylor JJ held at 617-18, that the case before them could be distinguished from the situation where a purchaser of goods has accepted defective goods, in which the measure of damages is the difference between the value of the goods at the time of delivery and the value they would have had if they had conformed to the contract. They saw it as essentially different that the case before them involved, not the sale of a marketable commodity, but a contract for the erection of a building upon the plaintiff’s own land in accordance with particular plans and specifications. Their Honours said:

“… 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 on her land which is substantially in accordance with the contract.”

37 Even concerning a departure from the contract that made the end product no less valuable, and that was purely a matter of taste rather than function (such as the specified colour the contract required a room to be painted) they held that the owner “is entitled to the reasonable cost of rectifying the departure or defect so far as that is possible.”

38 They held (at 617-18) that, subject to one qualification, the proper measure of damages was:

“… the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach.”

39 Their Honours held that if producing conformity with the building contract required the demolition of part, or even all, of the work, that was immaterial. The qualification, that their Honours expressed at 618-9, was that:

“… not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt. No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand 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. In such circumstances the work of demolition and re-erection would be quite unreasonable or it would, to use a term current in the United States, constituted ‘economic waste’. … We prefer, however, to think that the building owner’s right to undertake remedial works at the expense of a builder is not subject to any limit other than is to be found in the expressions ‘necessary’ and ‘reasonable’, for the expression ‘economic waste’ appears to us to go too far and would deny to a building owner the right to demolish a structure which, though satisfactory as a structure of a particular type, is quite different in character from that called for by the contract …

As to what remedial work is both ‘necessary’ and ‘reasonable’ in any particular case is a question of fact.”

40 The judgment makes no mention of whether the plaintiff did, or did not, intend to actually carry out the rectification work, or of whether that question was gone into at the trial. Their Honours said, at 620:

“It was suggested during the course of argument that if the respondent retains her present judgment and it is satisfied, she may or may not demolish the existing house and re-erect another. If she does not, it is said, she will still have a house together with the cost of erecting another one. To our mind this circumstance is quite immaterial and is but one variation of a feature which so often presents itself in the assessment of damages in cases where they must be assessed once and for all.”

41 Insofar as the damages were assessed as a sum that had not actually been expended, and might never be expended, it could be said that that sum was “theoretical”.

Bellgrove v Eldridge

42 Mr Parker submitted that the present case is not governed by Bellgrove v Eldridge, because Bellgrove was a case concerning damages for breach of contract, while the present case involves the measure of damages for tort. He submits that there is a clear difference between the principles upon which damages for breach of contract are assessed, and those on which damages for tort are assessed. The objective of compensation for breach of contract is to put the plaintiff into the situation it would have been in had the contract been performed, while the objective of damages for tort is to put the plaintiff into the situation it would have been in had the tort never been committed.

43 These submissions are correct. Further, the passages that I have quoted from the reasoning of the court in Bellgrove v Eldridge show how that reasoning is closely tied to it being damages for a breach of contract that were being assessed – the court was seeking to ascertain the quantum of the sum of money that would make up to the plaintiff for the failure of the defendant to perform the contract. The matters to which Mr Parker points, are sufficient to show that Bellgrove v Eldridge does not bind me in the sense that it provides a precedent that is indistinguishable from the present case. They are not, however, sufficient to show that Bellgrove v Eldridge does not provide useful assistance in deciding the present case.

44 Deciding to what extent Bellgrove v Eldridge might provide assistance requires an examination of the issues the court had to decide in that case. The trial judge had assessed damages on the basis that the High Court ultimately upheld, of the cost of rectification. The first issue for the High Court was whether to accept the submission, recorded at 616, that the proper measure of damages was the difference between the value of the house and land in its defective condition, and the value it would have had if the house had been erected in accordance with the contract. The reasoning from Bellgrove v Eldridge that I have set out above was directed to that issue. There was another issue of fact, not presently relevant, that the High Court decided by holding that replacement of the foundations, rather than a cheaper underpinning solution, was a reasonable course to adopt. The present case is not one where the decision presented for this Court is a choice between loss of value and cost of restoration as the appropriate measure of damages. Even so, I later conclude that the manner in which the High Court quantified the appropriate amount to allow for the cost of restoration provides relevant assistance in the present case.

Harris

De Cesare

45 Director of War Service Homes v Harris and De Cesare v Deluxe Motors were both cases involving measure of damages for breach of contract for defective building work, in circumstances where the landowner who had entered the contract for performance of the building work had sold the land by the time of trial without having effected any rectification work. In each case the court followed Bellgrove v Eldridge, and came to the result that the damages allowed were assessed on the basis of how much it would have cost to rectify the defects.

46 It has sometimes previously been pointed out that in Harris the plaintiff had rectified the defects for the purchasers, after completion of the sales, and it has been argued that thus Harris does not represent an example of a case where the rectification would never be carried out. However, it was not suggested in Harris that the plaintiff had any obligation to the purchasers to rectify those defects, or even that it did so as a matter of business prudence, such as to protect its reputation. Rather, on the reasoning that was adopted in Harris, the fact that the rectification had occurred seems to be irrelevant. Thus, both these cases appear, at first sight, to be examples of a court awarding damages assessed on a basis that is “theoretical”.

47 In Harris at 278, Gibbs J (with whom Stable and Hart JJ agreed) held that the fact that the building had been sold was no reason why the measure of damages laid down by Bellgrove v Eldridge should not be applied, and gave this reason for so doing:

Bellgrove v Eldridge

his accrued right

assuming

48 Gibbs J held, at 280, that the repair of the houses was a reasonable course for the plaintiff to have adopted, so the assumption he had made at 278 was made out.

49 At 279, Gibbs J explained how the builder’s liability to pay damages could continue even after the other contracting party had sold the building:

“The owner of a defective building may decide to remedy the defects before he sells it so that he may obtain the highest possible price on the sale; he may sell subject to a condition that he will remedy the defects; or he may resolve to put the building in order after it has been sold because he feels morally, although he is not legally, bound to do so. These matters are nothing to do with the builder, whose liability to pay damages has already accrued.”

50 It is understandable that, in 1968, a judge could have held that the innocent party involved in a breach of contract had an accrued right to receive damages in a particular amount as soon as the breach had occurred. Even as at August 1979, the date to which the 14^th edition of McGregor on Damages stated the law (page (ix)) it was possible for that well-regarded text to say, at [499]:

“It is in complete accord with principle that damages should be calculated in contract at the date of breach and in tort at the date of determination of loss even if the loss, contractual or tortious, is a loss incurred in a foreign currency.”

51 The certainty of that principle concerning the time as at which damages are assessed has now been eroded. For example, in Johnson v Perez at 355-6, Mason CJ said:

Johnson v Agnew

Miliangos v Frank (Textiles) Ltd

Dodd Properties Ltd v Canterbury City Council

County Personnel Ltd v Alan R Pulver & Co

52 Dodd Properties Ltd v Canterbury City Council [1980] 1 WLR 433; [1980] 1 All ER 928, a case relied on by Mason CJ in this passage and also cited by Wilson, Toohey and Gaudron JJ at 367, was a case similar to the present one in that it involved tortious damage to the plaintiff’s property. The question of as at what date the damages should be assessed arose because the effecting of restoration was delayed, and it was held that it was commercially reasonable to defer effecting the restoration, and the damages allowed were the cost of restoration at the later date.

53 Mr Parker reminded us of the endorsement in Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 292-4 of the appropriateness of courts taking account, in assessing damages, of any events that have occurred between the time of accrual of the cause of action and trial that bear upon the damage that a plaintiff has actually sustained, and the preferability of relying on facts rather than prophecies to assess damages. See also Golden Strait Corporation v Nippon Yusen Kubishika Kaisha [2007] UKHL 12; [2007] 2 AC 353.

54 It follows that, even though a cause of action for breach of contract has accrued at the time the breach occurs, it cannot now be said that there is an accrued right at that time to receive any particular sum of damages. That is because it must await the trial to decide what is the most appropriate way, in light of events then known, to give effect to the compensatory principle of damages.

55 In De Cesare at 35, Doyle CJ said of the passage that I have cited from Harris at 278 that “what is said there may be expressed in terms that are too absolute”. I would go further and say that, to the extent to which the reasoning is based on the existence of an “accrued right … to damages” calculated in a particular way, it is reasoning that can no longer be supported. That does not necessarily lead to the conclusion that the result in Harris was wrong, merely that, if it is right, a different route to that conclusion would nowadays need to be found.

56 Both the fact that Harris was a case involving breach of contract rather than tort, and the fact that its reasoning based on “accrued right to damages” cannot now be accepted in relation to either contract or tort, provide a reason why Harris is distinguishable from the present case.

57 In De Cesare, the plaintiff had rectified some of the defects before sale at its own cost, and Doyle CJ was prepared to infer that the sale price had been depressed by the existence of the remaining defects, so the plaintiff had clearly suffered some loss by reason of the defects. In applying the “necessary and reasonable” qualification of Bellgrove v Eldridge, Doyle CJ regarded the appropriate time (or, perhaps, an appropriate time) as at which to consider the reasonableness of rectifying the defects was before the building was sold. He said (at 32):

“This is not a case in which one can say, in my opinion, that it would have been unreasonable for the building owner to carry out the necessary remedial work before the building was sold. Nor does the sale of the building without that work being done suggest that.”

58 Later, he said (at 35):

“The performance of that work, and a claim for the cost of doing it, does not cease to be reasonable because the building has been sold. The fact that the building owner in the present case no longer intends to carry out the work throws no light on the reasonableness of doing so. The reasonableness of doing so is to be judged, in a case like this, objectively and does not depend in any way upon an inquiry as to the likelihood of the work in fact being done.”

59 When his Honour said that the reasonableness of doing the rectification work “does not depend … upon an inquiry as to the likelihood of the work in fact being done” he was not, as I read it, intending to say that the likelihood of the work in fact being done was totally irrelevant to an enquiry about the reasonableness of doing it. I say that because earlier in his judgment (at 33) he had quoted with approval the statement of Lord Jauncey of Tullichettle in Ruxley Electronics & Construction Ltd v Forsyth [1996] 1 AC 344 at 359 that:

“Intention, or lack of it, to reinstate can have relevance only to reasonableness and hence to the extent of the loss which has been sustained. Once that loss has been established intention as to the subsequent use of the damages ceases to be relevant.”

60 Doyle CJ also said (at 34) that Lord Lloyd of Berwick in Forsyth “also saw intention as relevant to reasonableness.”

61 The judgment of Nyland J in De Cesare (with which Bollen J agreed) arrived at the same conclusion by application of Bellgrove v Eldridge, without consideration of the complexities that Doyle CJ’s judgment took into account. Nyland J (at 41) distinguished the case before him from Forsyth on the ground that in it:

“… substantial performance had been achieved because the difference in value between the pool which had been the subject of the contract and the pool received was in effect nil. Accordingly, it would have been unreasonable to ask for reinstatement.”

62 He noted (at 42) that in the case before him “There had not been substantial completion of the contract prior to [the builder] going into liquidation.” Both the fact that De Cesare was a contract case, and this emphasis in the majority reasons of the importance of substantial completion of the contract provide, in my view, sufficient reason for concluding that I could not safely decide the present case simply by following De Cesare.

Central Coast Leagues Club

was an action brought by the Club against the architect who had designed certain building work at the Club’s premises and the Council that had approved it. Giles CJ Comm D (as his Honour then was) found that the architect had breached its contract (at 111, 205-6) and had been negligent (at 116, 208), while the Council was liable in negligence (at 209-10). After the work was complete the Club came to be subject to an obligation, arising from orders of the Land and Environment Court, to rectify some of the deficiencies that the judge found to exist. His Honour found that to the extent that rectification work was not required by the orders of the Land and Environment Court, in fact the Club would not carry out the rectification work (at 217). The Club relied on Bellgrove v Eldridge, and in particular the passage at 620, to establish that it was entitled to damages quantified by reference to the costs of rectification. The judge rejected that submission at 216-7:

Bellgrove v Eldridge

Ruxley Electronics & Construction Ltd v Forsyth

Tito v Waddell (No 2)

Bellgrove v Eldridge

Alucraft Pty Ltd (in liquidation) v Grocon Ltd (No 2)

De Cesare v Deluxe Motors Pty Ltd

64 Several judges (Hodgson JA in Scott Carver Pty Ltd v SAS Trustee Corporation at [39], Giles JA in Westpoint Management Ltd v Chocolate Factory Apartments Ltd at [62] and Williams JA in UI International Pty Ltd v Interworks Architects Pty Ltd at [22]) have spoken of Central Coast Leagues Club as being a case where the rectification work would not be carried out because other more extensive work had to be carried out in order to comply with later court orders. In my respectful view that is a mistaken account of the facts of the Central Coast Leagues Club case – the finding was that to the extent that the works were not required to be carried out by the court orders they would not be carried out at all. The mistake is of no significance to the result in Scott Carver, UI International or Westpoint, but it needs to be recognised that Central Coast Leagues Club really was a decision to the effect that, in a situation where the plaintiff still retained, and was likely to continue to retain, the defective premises, and was also likely to do nothing to rectify the defects, damages equal to the cost of rectification were not recoverable.

65 However, though the passage I have quoted from Central Coast Leagues Club at 216-7 on its face appears to provide some support for Mr Parker’s present contention, that passage cannot now be relied upon, as it has later been qualified by its author and the course of subsequent appellate decision, as will appear below.

Hyder Consulting

66 In Hyder Consulting, an architect had been found liable for breach of a contract with its client. The breach was in failing to pass on to an engineer the client’s instructions about an increase, beyond that which had originally been intended, in the load that a particular pavement in industrial premises was required to bear. The engineer designed the pavement to withstand the originally-intended load, in consequence of which, comparatively soon after it was completed, the pavement failed in use.

67 The owner did not effect a total replacement of the failed pavement. Instead, as part of a major redevelopment of the site, it replaced part of the failed pavement with new pavement of the ultimately required strength, and constructed a new building over the remainder of the site of the failed pavement. That new building had a concrete slab floor of lesser load-bearing capacity than had been ultimately required, and was cheaper to construct than pavement of the load-bearing capacity that the client had ultimately required.

68 The trial judge allowed as damages $566,560, which was the amount it would have cost to replace the entire failed pavement with a new pavement of the ultimately-required strength, minus the additional costs that would have been involved in constructing a pavement of the ultimately-required strength. The damages so awarded exceeded the amount that the owner had actually spent when it actually replaced the failed pavement.

69 This Court reduced the damages to the amount actually spent in rectification. The reason of Meagher JA at [19] was:

Bellgrove v Eldridge

70 Giles JA (with whom Sheller JA agreed on this point) said (at [99]-[100]):

Central Coast Leagues Club Ltd v Gosford City Council

Director of War Services Homes v Harris

De Cesare v Deluxe Motors Pty Ltd

71 In UI International at [22], Williams JA said of this case:

Hyder

72 In both Hyder Consulting and the present case, work had been done that could be called rectification work in a loose sense, in that it resulted in the premises no longer being defective, but that work was not rectification work in a more precise sense of doing exactly what was needed to make good the contractual shortcoming (in Hyder Consulting), or to get the premises back as close as was possible to their pre-accident condition (in the present case). In both cases, it could be said that therefore the rectification work (in the more precise sense) would never be carried out. However, the result in Hyder was not consistent with the result that the Appellant urges in the present case, namely that the Respondent receive nothing for its material damage (or, as Mr Parker conceded in oral argument, only the costs of painting and carpet). Rather, the result in Hyder was that the plaintiff received only the amount it had spent on rectification, in the loose sense. Further, it received that amount notwithstanding that at least part of the amount awarded was the cost of doing work that, while it was rectification in the loose sense, involved construction of something quite different to that which had been the subject of the original contract.

73 To the extent that the damages allowed a component that was the cost of constructing something that was not rectification in the precise sense, it allowed damages that were “theoretical”. Giles JA expressly contemplated at [99] that when rectification work had not been carried out, an award of damages could be made that was a “theoretical reasonable cost”. Further, those “theoretical” damages were allowed in circumstances where, because of the rectification work that had actually been done, rectification in the precise sense would never be carried out. I respectfully agree that it was right in principle to calculate the damages in that way.

74 An important difference between Hyder Consulting and the present case, apart from the fact that Hyder involved a claim for damages for breach of contract, is that, in the present case, the costs of the rectification work (in the loose sense) that the Respondent has carried out exceed what would have been the cost of the rectification work (in the precise sense). When the Respondent has actually rectified the damage, in the loose sense, it is consistent with the result in Hyder that a “theoretical” measure of damages be allowed, provided it does not exceed the cost of the rectification work (in the loose sense) that has actually been carried out.

Scott Carver

concerned some defective building work, in relation to which SAS (the owner at the time the work was carried out) sued the architect and various other entities involved in the work. The action was for breach of contract (at [32]). After the defects had been discovered, but before they had been rectified, SAS sold the building to a related entity for a price that explicitly made a deduction for the estimated costs of rectifying the defects. A referee found that the defects had caused no diminution in value of the property. A Master adopted the referee’s report, and (as summarised by Hodgson JA at [31]):

“… held that SAS was entitled to the costs of rectification of the defects, because rectification for those costs would be reasonable, and it did not matter that the defects did not reduce the value of the property or that the property had been sold.”

76 That decision was challenged in this Court, on the basis of the remarks in Central Coast Leagues Club and Hyder Consulting that I have earlier quoted. The challenge failed. Hodgson JA at [40] said of the proposition that “if it is found that rectification work will never be carried out, no damages should be awarded” that he had “some reservations”, “if it is taken unqualified and out of context”. One was (at [41]-[42]), in essence, that it was inconsistent with the decision in De Cesare. Another was (at [44]) that whether the rectification work would be carried out was a matter of future fact “which according to Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 should generally not be decided in an all or nothing manner on the balance of probabilities.”

77 Ipp JA and Bryson JA each had their own reasons for upholding the award of damages, so no clear ratio emerges from the case.

Westpoint Management

78 In Westpoint Management v Chocolate Factory Apartments, Giles JA (in a judgment with which McColl JA and I agreed) accepted, at [62], the reservations that Hodgson JA expressed in Scott Carver v SAS. He said, of his comment in parenthesis in para [99] of Hyder, quoted at para [70] above,

“… my words were apt to mislead; it is necessary to ask why the rectification work would never be carried out.”

79 In Westpoint Management, after an extensive review of the authorities, Giles JA concluded, at [60]-[61]:

Bellgrove v Eldridge

So if supervening events mean that the rectification work can not 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.”

80 The factual situation being addressed in Westpoint Management was that a developer sued a builder and project supervisor concerning defects in building work that those defendants had either carried out or supervised. By the time of the action all the units in the development had been sold, there was no evidence of any purchaser seeking to have the alleged defects in the building work rectified, and a referee had found that “there was clear evidence that if [the developer] recovered money for the alleged breaches, it did not propose to remedy most of them, but rather to pay the money to its shareholders” (at [28]).

81 As the appeal related to a trial judge’s adoption of a referee’s report concerning the claims for damages, the focus of the judgment was on whether the referee’s report showed legal error. Giles JA accepted the applicability of Bellgrove v Eldridge for that purpose, and said, at [64], that the developer “was entitled to rectification damages unless the rectification work was unnecessary and unreasonable”. Concerning one alleged defect, Giles JA said, at [69], that the referee:

“… declined to award damages simply because the rectification work had not been carried out. This was erroneous.”

82 Concerning another alleged defect, Giles JA said, at [71]:

“The mere fact that the doors were not going to be removed and replaced did not make their replacement unreasonable, although lack of complaint may have warranted a finding that it was not reasonable. An intention to pass on damages to shareholders did not mean unreasonableness.”

83 Concerning another alleged defect, Giles JA said, at [78]:

Bellgrove v Eldridge

84 Consistently with these reasons, damages could have been awarded for work that was “theoretical” in the sense that it had not actually been carried out, and possibly would not be carried out, provided it was reasonable and necessary for such work to be carried out if the contractual object was to be achieved.

UI International

concerned the striking out of a statement of claim for breach of contract concerning building works that the defendants had done for the plaintiff, in circumstances where (as Keane JA said at [104]):

“… the building is sold for a value unaffected by the defects and the rectification work cannot be done.”

86 The reason why the rectification work “cannot” be done, rather than was merely unlikely to be done, was that “it is not suggested that the new owners of the development require or permit the rectification work to be done” (ibid). The outcome in UI International was that the claim for damages was unsustainable. However, that situation is distinguishable from the present case not only because it is a case concerning breach of contract, not tort. More importantly, in UI International no rectification work in the loose sense had been done, while in the present case it has.

87 The principles for assessment of damages for breach of contract contained in Bellgrove v Eldridge have recently been affirmed by the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 237 CLR 272. French CJ, Gummow, Heydon, Crennan and Kiefel JJ at 288 [17] referred to the example given in Bellgrove v Eldridge at 618 of the builder who used first quality bricks instead of the second-hand ones that the contract called for (para [39] above). They concluded from that example that: “… the test of ‘unreasonableness’ is only to be satisfied by fairly exceptional circumstances.”

88 All the cases I have listed in para [34] above are ones that talked about how the measure of damages could be affected if rectification work did not take place. However, they were talking about the rectification work “not taking place” in the sense that the person who had been wronged had not rectified the defects, and (in some of the cases) was unlikely to rectify the defects, in the sense that the property remained in its defective condition. That is not the situation in the present case. Once the flood had occurred, the Respondent had manifestly suffered damage in consequence of it. The condition of the premises was manifestly such that it was reasonable for the Respondent to make good the damage. Even though the Respondent did not make good the damage in the sense that it rebuilt the premises to exactly their pre-flood configuration, it still made good the damage in the sense that it did work that resulted in it having its premises no longer in a damaged condition. Here, it is only because the defects have been remedied (in the loose sense) that there is no occasion, now, to carry out further work because of the flood. But the rectification (in the loose sense) has cost the Respondent money. If the occurrence of the flood had been a breach of contract by the Appellant, the damages in accordance with Bellgrove v Eldridge would have been the amount of money it would have cost to restore the premises to their pre-flood condition, notwithstanding that the Respondent chose to do more extensive work than that.

89 Even though Bellgrove v Eldridge was not a case of tortious damage to property, there have been repeated examples of courts obtaining guidance from it in assessing damages for tortious damage to property.

90 In Murphy v Brown (1985) 1 NSWLR 131 at 133, Mahoney JA (with whom Hope JA agreed) said, concerning assessment of the measure of damages for negligent damage to a motor vehicle:

Bellgrove v Eldridge

91 In Central Coast Leagues Club, Giles CJ Comm D proceeded on the basis that there was no relevant difference between an action for breach of contract, and an action for negligence, so far as the applicability of Bellgrove v Eldridge was concerned.

92 In South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd [2004] SASC 81; (2004) 88 SASR 65 at 85 [89], Debelle J at [89] referred to the compensatory principle upon which damages for tort were to be assessed, and said:

“When assessing damages in a building case such as this, there is no relevant difference in principle between the law of contract and the law of tort.”

93 He went on to apply Bellgrove v Eldridge to the assessment of damages, in a case for negligent advice provided by architects and engineers concerning a structure that later proved defective.

94 In Kirkby v Coote [2006] QCA 61, Keane JA (with whom Williams JA agreed) at [47] and McMurdo J at [93] acted on a concession of the parties that, in an action for negligence in the design of a house, damages should be assessed in accordance with Bellgrove v Eldridge.

95 This repeated application of Bellgrove v Eldridge is not an overlooking of the differences between Bellgrove v Eldridge and the present case, to which Mr Parker has rightly pointed. Rather, it is a reflection of the very close similarity between the way that the principles operate for a court to assess damages for a breach of contract consisting of or resulting in building work that is not in accord with the contract, and for a court to assess damages for tortious damage to property. In both situations, it must be reasonable to take remedial action before the cost of that remedial action is allowable as damages.

96 If a chattel is damaged, and can be replaced with a reasonable substitute in the market for a price significantly less than the cost of repair, the measure of damages recoverable is the replacement cost, not the cost of repair: Darbishire v Warran [1963] 1 WLR 106; [1963] 3 All ER 310. Harman LJ, at 1071; 312 said:

“The principle is that of restitutio in integrum, that is to say, to put the plaintiff in the same position as though the damage had not happened. It has come to be settled that in general the measure of damage is the cost of repairing the damaged article; but there is an exception if it can be proved that the cost of repairs greatly exceeds the value in the market of the damaged article. This arises out of the plaintiff’s duty to minimise his damages.”

97 A particular application of the requirement that the restoration be reasonable is that damages in tort for damage to property, when measured by reference to cost of restoration, are subject to the mode of restoration being one that it is reasonable to adopt to make good the consequences of the tort. Thus, when a public road has been tortiously damaged, the roads authority is entitled to recover from the tortfeasor not the cost of restoring the road into precisely the same condition it was before the tort, but only (if it is less) the cost of making a road equally commodious as the old one: Lodge Holes Colliery Company Ltd v Wednesbury Corporation [1908] AC 323.

(1952) 69 WN (NSW) 93 was a decision of the Full Court of the NSW Supreme Court concerning an action for (relevantly) nuisance by withdrawal of lateral support for land. All judges in the Full Court were of the view that the trial judge had made a mistake by totally excluding the value of the plaintiff’s land from his consideration of the appropriate quantum of damage. KW Street CJ adopted a principle from the American Restatement (First) of Torts §929 (vol 4, p 660) that he paraphrased by saying:

“… the plaintiff has an election to claim as compensation the difference between the value of the land before the harm and the value after the harm, or he may claim the cost of restoration which has been or may be reasonably incurred. I think that due emphasis has to be given to that word ‘reasonably’.”

99 He then quoted from pages 661-2 of the Restatement (§929, cmt b):

“Even in the absence of value arising from personal use, the reasonable cost of replacing the land in its original position is ordinarily allowable as the measure of recovery. Thus where a ditch is dug without right upon the land of another, the other normally is entitled to damages measured by the expense of filling the ditch, if he wishes it filled. If, however, the cost of replacing the land in its original condition is disproportionate to the diminution in the value of the land caused by the trespass, unless there is a reason personal to the owner for restoring the original condition, damages are measured only by the difference between the value of the land before and after the harm …”.

100 He limited that statement to one where damages were claimed for loss of lateral support of land, and said that the trial judge:

“… was in error in excluding the value of the land as one factor to which he should pay regard in determining whether the appropriate measure of damages in this case would be the difference between the value of the land before the lateral support had been removed and after it had been removed, or whether this was an appropriate case in which he should allow the cost of restoring the original situation and replacing the plaintiff in the same situation as that in which he would have been if the defendants had not dug away the lateral support to which the plaintiff was entitled.”

101 Owen J, at 96, also endorsed the passage from the Restatement, and added:

“… if that statement is correct the value of the land before and after the tortious act which caused the damage is relevant, because if the cost of restoration of the land to its former state is sought to be recovered it can only be recovered if that cost is not entirely disproportionate to the diminished value of the land.”

102 Clancy J, at 97, was to similar effect.

[1976] 1 NSWLR 36 is a decision of this Court in an action for tortious damage to land. At 40, Samuels JA (with whom Moffitt P and Hutley JA agreed) said that “the true criterion of the selection between diminution of value and the cost of reinstatement” as the measure of damages was correctly stated by McGregor on Damages, 13^th ed, at 713:

“The test which appears to be the appropriate one is the reasonableness of the plaintiffs’ desire to reinstate the property; this will be judged in part by the advantages to him of reinstatement in relation to the extra cost to the defendant in having to pay damages for reinstatement rather than damages calculated by the diminution in value of the land.”

Evans

Bellgrove v Eldridge

Evans

Bellgrove v Eldridge

104 A similar result was arrived at in Hollebone v Midhurst and Fernhurst Builders Ltd [1968] 1 Lloyd’s Rep 38. There, a plaintiff whose family home was damaged by a negligently caused fire was held entitled to the cost of restoration, even though that cost exceeded the diminution in value of the land by virtue of the fire.

105 What counts as making good the damage, for the purpose of assessing damages for torts, needs to be understood bearing in mind what the purpose is for which one is asking what counts as “making good”. That purpose is ascertaining what the work is that is necessary to undo the consequences of the tort having been committed. The only interest of the defendant that bears upon the question of whether rectification work is reasonable is a financial one, sometimes expressed in the principle that a plaintiff must mitigate his damage. Thus, if, for instance, carpet of a particular shade of green has been damaged and objectively needs to be replaced if the damage is to be made good, it is immaterial that the plaintiff chooses as the replacement carpet one of a different colour. This is so even if carpet of the original shade of green had been available, provided only that the carpet actually chosen is not more expensive than the exact replacement would have been. If the plaintiff chooses a more expensive replacement when an exact replacement is available, the damages are limited to the cost of the exact replacement. As Pearson LJ said in Darbishire v Warran at WLR 1075; All ER 315, a plaintiff “is fully entitled to be as extravagant as he pleases, but not at the expense of the defendant.”

128 The Appellant submits that there is no evidence of what it says is an important matter, namely evidence that work of installing the new fitout cost more, took longer, or was made more complex than it otherwise would have been because of the water damage. The implicit submission is that it is only to the extent that the water damage increased the cost of carrying out the new fitout, beyond what it would have cost had the water damage never occurred, that damages are recoverable.

129 If, before the tort occurred, the Respondent had already embarked on and was likely to carry through a plan for the installation of new fitout of the type it eventually installed, the proper measure of damages may well have been the increased cost of carrying out the new fitout by reason of the water damage, beyond what it might have cost had the water damage never occurred. Such a measure of damages would be consistent with Hole & Son (Sayers Common) Ltd v Harrisons of Thurncoe Ltd [1973] 1 Lloyd’s Rep 345 and CR Taylor (Wholesale) Ltd v Hepworths Ltd. In Hole & Son, cottages owned by the plaintiff were seriously damaged when the defendant’s motor vehicle ran into them. However, before the accident occurred, the plaintiff intended to demolish the cottages and rebuild as and when the opportunity presented itself. The damages were thus not the cost of reinstatement, but some comparatively small items of temporary repair actually carried out, and actual loss of rent.

130 In CR Taylor (Wholesale), the plaintiff’s building was gutted by a fire caused through the defendant’s negligence. At the time of the fire the building was disused, and had been disused for several years, with the plaintiff:

“… merely holding on to the premise in only one particular sense as an investment, that is to say an investment which might over the years show capital appreciation by way of increase in development value. That development value lay in the site itself, not in the buildings whole or destroyed which had previously been erected upon it.” (WLR 669-70; All ER 794)

131 However, the principle involved in those cases is not applicable in the present case, because the judge has found that the water damage was one of the contributing causes to the whole of the new refit being put in place.

132 For these reasons I would not uphold any of grounds (b)-(e).

PART B – GST

No GST Because Payment is “Theoretical”?

133 The Appellant challenged the inclusion of an amount for GST in the material damage component of the damages award. One basis for that challenge was that the Respondent had never spent the sums of money concerning which material damages were allowed, and in relation to which GST was also allowed, and thus the claim for GST was “theoretical” in the same way as the claim for damages equal to the cost of restoration of the premises to their pre-flood condition was “theoretical”. For the same reasons as I have already given, I would not uphold that particular challenge.

No GST Because No Net Loss Re GST?

134 The Appellant has a separate argument concerning why GST should not have been included in the damages. It starts from the common ground that the Respondent is and at all relevant times has been a trading corporation that is registered for GST purposes. Mr Parker submits that even if (as one would ordinarily expect to be the case) the Respondent paid amounts including GST to suppliers of goods or services, involved in restoration of the premises, the Respondent would not be permanently out of pocket for that amount of GST. Thus, he submits, it is contrary to the compensatory principle, and thus wrong, to include the GST in the amount of damages, when the damages are an amount that the Respondent can permanently keep. He submits that even if the Respondent had a cash outflow of the amount of GST paid, that cash outflow does not give rise to any net loss, because it is balanced out by an input credit of an equal amount to which the Respondent becomes entitled.

135 The reasoning for that conclusion is as follows. GST is imposed under the legislation called A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“the GST Act”). Under section 7-1(1) GST Act, GST is payable on “taxable supplies”. Under section 7-1(2), an entitlement to an input tax credit arises on “creditable acquisitions”. Under section 7-5,

“Amounts of GST and amounts of input tax credits are set off against each other to produce a net amount for a tax period (which may be altered to take account of adjustments).”

136 Section 7-15 provides:

“The net amount for a tax period is the amount that the entity must pay to the Commonwealth, or the Commonwealth must refund to the entity, in respect of the period.”

137 In accordance with subdivision 9-A of the GST Act, the Respondent would make a taxable supply whenever it sold an item in the course of its business in Australia. Pursuant to section 9-40, it is the Respondent that is obliged to pay the GST that is payable on any taxable supply that it makes.

138 Section 17-5 GST Act says:

net amount

GST – Input tax credits

where:

GST

input tax credits

139 Pursuant to section 17-5(2), the “net amount” can be altered by any “adjustments”. Neither party submitted that the outcome of the present case was affected by the provisions of the GST Act concerning adjustments.

140 The meaning of “creditable acquisition” emerges from section 11-5 GST Act:

creditable acquisition

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide, or are liable to provide, consideration for the supply; and

(d) you are registered, or required to be registered.”

141 While there are some exceptions not presently relevant, the meaning of “creditable purpose” is adequately conveyed by section 11-15(1) GST Act:

creditable purpose

142 We have seen that the Respondent is liable to pay GST concerning all the taxable supplies that it makes in the course of its business. Those “taxable supplies” would be wholly, or predominantly, its sales of merchandise to customers. If the Respondent were to acquire goods or services for the purpose of improving the appearance or usability of its shop, that would be a “creditable purpose” so far as it was concerned. Thus, acquiring those goods or services would be a “creditable acquisition”, that would entitle it to an input tax credit concerning the amount of GST it paid in making that creditable acquisition. In this way, the payment of the GST component of the cost of goods or services for the purpose of making good the damage to the shop would reduce the “net amount” by the amount of that GST component.

143 Section 33-3 GST Act provides:

“If:

(a) the net amount for a tax period applying to you is greater than zero; and

(b) the tax period is a quarterly tax period;

you must pay the net amount to the Commissioner …”

144 Under section 35-5 GST Act:

“If the net amount for a tax period is less than zero, the Commissioner must, on behalf of the Commonwealth, pay that amount (expressed as a positive amount) to you.”

145 Thus, obtaining an input credit for the GST paid on a creditable acquisition results in the taxpayer effectively receiving back the amount of that input credit, in the form of either a reduction in the amount of GST that it must pay, or in the form of a refund.

146 Though it might not take account of all the nuances of the operation of the provisions to which I have referred, in broad terms their effect is as described in the Australian Master Tax Guide, 44^th ed, (2009) at ¶34-010, p 1,617:

“… registered business entities receive an amount representing GST but do not keep it, and pay GST but get a credit for it. This means that they act essentially as collecting agents for the tax. The ultimate burden of the tax falls on the private consumer of the goods and services, as this person gets no credit for the GST they pay.”

D B Rreefs Funds Management Ltd v Commissioner of Taxation

Commissioner of Taxation v D B Rreef Funds Management Ltd

147 I accept that the consequence of these provisions is that, even though the Respondent might pay out an amount of GST in connection with the goods and services which it acquired for the purpose of making good the damage to its premises, it would be able to recover that amount back, either in the form of a reduction of the net amount it must remit to the Commissioner for the quarter in which the payment was made, or as a refund. Thus the amount of GST component of any payments it made for making good the premises would not ultimately be a loss that it suffered. Given the compensatory purpose of the damages award, it was wrong to include that component in the award of damages.

148 Having reached that conclusion as a matter of principle, I turn to see to what extent the conclusion is consistent with previous decisions. I proceed in this way because all the previous decisions, apart from one of the Queensland Court of Appeal that is not directly in point, are first-instance decisions.

149 Some awards of damages for a tort have included GST on the individual items that go to make up the quantum: eg, my judgment in Bennett v Goodwin [2005] NSWSC 930; (2005) 62 ATR 515 at [16]-[17] (which related to conversion of goods); Nemeth v Prynew Pty Ltd [2009] NSWSC 511 at [3]-[6] per Macready AsJ (which related to nuisance through removal of lateral support to land – Piling Contractors (Qld) Pty Ltd v Prynew Pty Ltd [2008] NSWSC 118). Similarly, in Martin v London County Council [1947] KB 628, where damages were awarded against a bailee for having failed to exercise care concerning the bailed items, the quantum of damages was assessed as the cost of replacement articles including (English) purchase tax. Other decisions have included GST in the amount properly payable under an indemnity for legal costs: my judgment in Vrkic v Otta International [2003] NSWSC 641 at [25]-[26]; Thornton v Apollo Nominees Pty Ltd [2005] TASSC 38; (2005) 15 Tas R 35 per Evans J. In Tenderwatch Pty Ltd v Reed Business Information Pty Ltd [2008] FCA 931; (2008) 78 IPR 329 at [21], Heerey J, in quantifying the profits for which a copyright infringer was being required to account, deducted GST that the infringer had paid in the course of his infringing activities because it “reduced the actual profit or benefit derived by [the infringer] from the infringement.”

150 It is important that, in each of the Australian cases just mentioned neither the recipient of the damages, the person with the benefit of the costs order, nor the copyright infringer was shown to be registered for GST purposes, and thus entitled to the benefit of an input credit on any GST paid. Because the tort plaintiffs were not entitled to an input credit on any GST paid, they would suffer a net loss that included the amount of GST paid. Similarly, in Martinv London County Council, the owner of the articles was an ordinary person, not shown to be engaged in any business activity. Similarly, the people entitled to the indemnity for costs would be out of pocket by the amount, including GST, that they owed their lawyers, because they could not receive an input credit concerning those legal fees. Similarly, the infringer had actually parted with an amount that included GST, and would not receive an input credit concerning that amount. Thus, those cases do not affect the reasoning above about the situation of the Respondent. I also note that there are no complications in the present case of the type that might arise if a plaintiff had not been registered for GST purposes for the whole of the time that was relevant to the assessment of damages. These matters point up, however, the importance of consideration being given to how the compensation principle applies to an individual plaintiff, when deciding whether an award of damages should include the GST that is payable on the individual items that go to make up the award of damages.

151 In summary, as the GST legislation currently stands, if the plaintiff in an action for tort is registered for GST purposes, and stands to receive an input credit for any GST payments incurred in making good its damage, and there is no impediment to the plaintiff receiving the full benefit of the input credit, that GST amount should be excluded from the quantum of damages recoverable.

152 There have been cases consistent with the analysis that I have given that concern the extent to which an entity registered for GST purposes is entitled to recover the GST component of legal costs and disbursements pursuant to an order for costs in its favour. In courts where party-party legal costs are payable in accordance with a court scale, and an order for party-party costs has been made:

the total amount of professional costs assessed in accordance with the scale can be recovered: Merringtons Pty Ltd v Luxottica Retail Australia Pty Ltd (VSC, Wood M, 16 June 2006, unreported) at [34]; Keen v Telstra Corporation Ltd [2006] FCA 834; (2006) 153 FCR 28 at 36-7 [46] per Rares J; Hennessey Glass and Aluminium Pty Ltd v Watpac Australia Pty Ltd [2007] QDC 57; (2007) 69 ATR 374 at [138]-[139]; ChongHerr Investments Ltd v Titan Sandstone Pty Ltd [2007] QCA 278 at [9] per de Jersey CJ, Keane JA and Philippides J. This is subject to a qualification that the costs actually paid by the party entitled to the costs order exceed the scale amount plus what the GST would be on that scale amount. If the costs actually paid do not exceed the scale amount plus what the GST would be on that scale amount, the principle of indemnity requires that the party with the benefit of the costs order should receive no more than the amount it has actually paid: Hennessey at [139]-[140], ChongHerr at [9]. That seems consistent with the position in England and South Africa, as discussed in Merringtons at [22]-[26].

If a disbursement has been paid in an amount inclusive of GST, the amount recoverable is the amount paid minus the GST component, because the entity with the benefit of the costs order has been entitled to the benefit of an input credit for that amount of GST: Merringtons at [35]-[36], [41], Hennessey at [142]-[143], ChongHerr at [9]. It is this situation that is most closely analogous to the present case.

Hennessey

153 Even in courts where party-party legal costs are payable pursuant to a court scale, if an order has been made for indemnity costs in favour of an entity registered for GST:

the amount of professional costs recoverable is the amount actually paid, minus the GST: Beach Retreat Pty Ltd v Mooloolaba Yacht Marina Ltd [2009] QSC 84 at [113]-[115].

Beach Retreat

154 The results of these cases concerning the GST consequences of a costs order in favour of an entity registered for GST accord with the conclusion I have come to in the present case. They also are consistent with the instructions to the staff of the Australian Taxation Office contained in a Practice Statement Law Administration of the Australian Taxation Office PS LA 2008/16.

155 For these reasons, I conclude that the trial judge was in error in including the GST component in the damages awarded.

Damages Award Itself Subject to GST?

156 Mr Brender, counsel for the Respondent, put forward in oral argument an alternative basis for allowing GST. It was that the damages award itself would be subject to GST. I do not accept that argument.

157 An essential prerequisite for there being an obligation to pay GST concerning (relevantly for present purposes) a supply of goods or services is that there is a “taxable supply”. Under section 9-5 GST Act, an essential prerequisite of there being a “taxable supply” is that “you make the supply for consideration”. The Australian Taxation Office has issued a public ruling, GSTR 2001/4, concerning the GST consequences of court orders and out-of-court settlements. It states, at para [60], that “a court, in giving judgment, does not make a supply for GST purposes”. Nor is there any relevant “taxable supply” involved in the events that led to litigation such as the present. At [71]-[73] the ruling considers situations, including “claims for damages arising out of property damage” and concludes:

GST Act

158 Nor would a judgment in the present case later, of itself, generate a liability for GST. The ruling says, at [61]:

“The payment, in money, of a judgment debt will not itself be a supply for GST purposes. It is excluded from being a supply under subsection 9-10(4).”

159 When this public ruling has been issued, it decides for practical purposes the way in which the GST legislation will be administered. It would be pointless for me to examine in any more detail the correctness of the Commissioner’s views expressed in that ruling.

PART C – ORDERS

160 Both parties asked us not to deal with costs in the course of the judgment, but to allow them to make submissions on that question in light of the Court’s eventual decision on the questions of principle involved in the case.

161 It is preferable for this Court to hear argument on all questions involved in a case, including costs, at the one hearing if it is practicable to do so. Proceeding in this way advances the Court’s obligation to seek to resolve litigation in a way that is just, quick and cheap (section 56(1) Civil Procedure Act 2005). Only for good reason should the Court proceed in any different way.

162 We have been informed that the appropriate costs order might be affected by the terms of an offer or offers that one or other of the parties has made to the other. (Of course, we were not informed which party had made an offer, or anything about its terms.) In that circumstance it is appropriate to defer the question of costs for later argument. At present I would expect that there will be no dispute about the evidentiary basis on which any such argument occurs, and I see no reason why that argument should not take place by written submissions without oral argument.

163 My decision concerning GST, and the need to calculate interest on the reduced judgment sum to a date that approximates the date when final orders will be made, provide a further reason why it is not practicable to make orders now that finally dispose of the appeal. I envisage that if interest is calculated to a date that approximates when the final orders will be made, that date can be nominated as the effective date of the judgment, from which post-judgment interest will then run in accordance with the rules. Proceeding in that way means that any discrepancy between the date nominated as the effective date, and the date when the final orders are actually made, prejudices neither party. The parties should endeavour to agree upon short minutes of the orders needed to give effect to these reasons for judgment, apart from the costs orders.

164 I propose the following orders:

(1) Appeal allowed.

(2) Set aside the judgment in the court below.

(a) to provide to each judge hearing this appeal agreed short minutes of the orders necessary to give effect to these reasons for judgment, other than the order for costs;

(b) in the event that agreement is not possible, to provide to each judge hearing this appeal their respective written submissions about the orders that should be made to give effect to these reasons for judgment, other than concerning costs;

(c) to file any evidence on which either seeks to rely bearing on the question of costs.

(4) Direct the Appellant to provide to each judge, and to the Respondent, within 14 days (excluding legal vacation) of the date of delivery of these reasons for judgment, its written submissions about the costs orders that should be made.

(5) Direct the Respondent, within 24 days (excluding legal vacation) of the date of delivery of these reasons for judgment, to provide to each judge and to the Appellant, its written submissions about costs.

165 MACFARLAN JA: I agree with Campbell JA.

166 SACKVILLE AJA: I agree with Campbell JA’s conclusion that the appellant has not made out any of grounds of appeal (b) to (e).

167 In my opinion, the unchallenged findings of the primary Judge ([18]-[26], above) require the conclusion that her Honour did not err in her approach to the assessment of damages. Putting to one side that the respondent actually carried out certain remedial works ([33], above), it was in accordance with compensatory principle ([30]-[31]) to award damages by reference to the costs that the respondent would have incurred if, instead of carrying out the complete internal refurbishment, it had reinstated the premises to their original condition. It is to be remembered that the primary Judge found that the refurbishment had been brought forward by reason of the flood (the tortious act) and that the respondent had acted reasonably in undertaking the refurbishment, thereby subsuming the works required to reinstate the premises. In these circumstances, it seems to me in accordance with established principle, as Campbell JA explains, to assess damages by reference to the reasonable cost of rectification.

168 I agree with Campbell JA’s reasoning and conclusions on the inclusion of an amount for GST in the damages award.

169 I agree with the orders proposed by Campbell JA.

**********

Citations

Gagner Pty Ltd trading as Indochine Cafe v Canturi Corporation Pty Ltd [2009] NSWCA 413

Most Recent Citation

Fulton Hogan Construction Pty Ltd v Grenadier Manufacturing Pty Ltd (in liq) [2012] VSC 358

Citations to this Decision

20

Cases Cited

0

Statutory Material Cited

2

Actions

Download as PDF Download as Word Document

CITATION:	Gagner Pty Ltd trading as Indochine Cafe v Canturi Corporation Pty Ltd [2009] NSWCA 413
HEARING DATE(S):	2 October 2009
JUDGMENT DATE:	16 December 2009
JUDGMENT OF:	Campbell JA at 1; Macfarlan JA at 165; Sackville AJA at 166
DECISION:	(1) Appeal allowed. (2) Set aside the judgment in the court below. (3) Direct the parties, within 14 days (excluding legal vacation) of the date of delivery of these reasons for judgment: (a) to provide to each judge hearing this appeal agreed short minutes of the orders necessary to give effect to these reasons for judgment, other than the order for costs; (b) in the event that agreement is not possible, to provide to each judge hearing this appeal their respective written submissions about the orders that should be made to give effect to these reasons for judgment, other than concerning costs; (c) to file any evidence on which either seeks to rely bearing on the question of costs. (4) Direct the Appellant to provide to each judge, and to the Respondent, within 14 days (excluding legal vacation) of the date of delivery of these reasons for judgment, its written submissions about the costs orders that should be made. (5) Direct the Respondent, within 24 days (excluding legal vacation) of the date of delivery of these reasons for judgment, to provide to each judge and to the Appellant, its written submissions about costs. (6) Reserve further consideration of the orders appropriate to give effect to these reasons for judgment, and costs.
CATCHWORDS:	DAMAGES – tort – negligence – damage to property – whether damages are payable if a plaintiff undertakes more extensive rectification work than was strictly necessary to make good the damage – whether rectification work was reasonable – whether award of damages was theoretical – application of Bellgrove v Eldridge (1954) 90 CLR 613 to tortious damage to property – DAMAGES – goods and services tax (GST) – whether an award of damages should include the amount of GST that is part of the price of goods and services acquired to make good the damage when the plaintiff is registered for GST purposes – role of ability to receive an input tax credit in deciding whether an allowance for GST should be included in damages – whether consistent with compensatory principle – TAXES AND DUTIES – goods and services tax (GST) – whether an award of damages should include the amount of GST that is part of the price of goods and services acquired to make good the damage when the plaintiff is registered for GST purposes – role of ability to receive an input tax credit in deciding whether an allowance for GST should be included in damages – whether award of damages for tortious damage to property is itself subject to GST
LEGISLATION CITED:	A New Tax System (Goods and Services Tax) Act 1999 (Cth) Civil Procedure Act 2005
CATEGORY:	Principal judgment
CASES CITED:	Admiralty Commissioners v SS Chekiang [1926] AC 637 Beach Retreat Pty Ltd v Mooloolaba Yacht Marina Ltd [2009] QSC 84 Bellgrove v Eldridge (1954) 90 CLR 613 Bennett v Goodwin [2005] NSWSC 930; (2005) 62 ATR 515 British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co Ltd [1912] AC 673 Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 Central Coast Leagues Club Ltd v Gosford City Council (Supreme Court of NSW, Giles CJ Comm D, 9 June 1998, unreported) ChongHerr Investments Ltd v Titan Sandstone Pty Ltd [2007] QCA 278 Commissioner of Taxation v D B Rreef Funds Management Ltd [2006] FCAFC 89; (2006) 152 FCR 437 CR Taylor (Wholesale) Ltd v Hepworths Ltd [1977] 1 WLR 659; [1977] 2 All ER 784 D B Rreefs Funds Management Ltd v Commissioner of Taxation [2005] FCA 509; (2005) 218 ALR 144 Darbishire v Warran [1963] 1 WLR 106; [1963] 3 All ER 310 De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28 Diamond v Lovell [2002] 1 AC 384 Director of War Service Homes v Harris [1968] Qd R 275 Dodd Properties Ltd v Canterbury City Council [1980] 1 WLR 433; [1980] 1 All ER 928 Evans v Balog [1976] 1 NSWLR 36 Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 Golden Strait Corporation v Nippon Yusen Kubishika Kaisha [2007] UKHL 12; [2007] 2 AC 353 Harbutt’s “Plasticine” Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 Hennessey Glass and Aluminium Pty Ltd v Watpac Australia Pty Ltd [2007] QDC 57; (2007) 69 ATR 374 Hoad v Scone Motors Pty Ltd [1977] 1 NSWLR 88 Hole & Son (Sayers Common) Ltd v Harrisons of Thurncoe Ltd [1973] 1 Lloyd’s Rep 345 Hollebone v Midhurst and Fernhurst Builders Ltd [1968] 1 Lloyd’s Rep 38 Hyder Consulting (Aust) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd [2001] NSWCA 313; (2001) 18 BCL 122 Johnson v Perez (1988) 166 CLR 351 Keen v Telstra Corporation Ltd [2006] FCA 834; (2006) 153 FCR 28 Kirkby v Coote [2006] QCA 61 Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 Lodge Holes Colliery Company Ltd v Wednesbury Corporation [1908] AC 323 Martin v London County Council [1947] KB 628 McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187 Merringtons Pty Ltd v Luxottica Retail Australia Pty Ltd (VSC, Wood M, 16 June 2006, unreported) Minter v Eacott (1952) 69 WN (NSW) 93 Murphy v Brown (1985) 1 NSWLR 131 Nemeth v Prynew Pty Ltd [2009] NSWSC 511 Philips v Ward [1956] 1 WLR 471; [1956] 1 All ER 874 Piling Contractors (Qld) Pty Ltd v Prynew Pty Ltd [2008] NSWSC 118 Ruxley Electronics & Construction Ltd v Forsyth [1996] 1 AC 344 Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462 South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd [2004] SASC 81; (2004) 88 SASR 65 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 237 CLR 272 Tenderwatch Pty Ltd v Reed Business Information Pty Ltd [2008] FCA 931; (2008) 78 IPR 329 Thornton v Apollo Nominees Pty Ltd [2005] TASSC 38; (2005) 15 Tas R 35 UI International Pty Ltd v Interworks Architects Pty Ltd [2007] QCA 402 Vrkic v Otta International [2003] NSWSC 641 Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253
TEXTS CITED:	Australian Master Tax Guide, 44th ed (2009) CCH Australia Australian Taxation Office, GSTR 2001/4 Australian Taxation Office, Practice Statement Law Administration PS LA 2008/16 McGregor on Damages, 14th ed (1979) Sweet & Maxwell McGregor on Damages, 13th ed (1972) Sweet & Maxwell Restatement (First) of Torts §929 (vol 4, p 660)
PARTIES:	Gagner Pty Limited t/as Indochine Cafe (Appellant) Canturi Corporation Pty Limited (Respondent)
FILE NUMBER(S):	CA 40081/09
COUNSEL:	TGR Parker SC; DT Miller (Appellant) RJ Brender (Respondent)
SOLICITORS:	Moray & Agnew (Appellant) Lander & Rogers (Respondent)
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	2960/06
LOWER COURT JUDICIAL OFFICER:	Gibson DCJ
LOWER COURT DATE OF DECISION:	19 December 2008