Leeda Projects Pty Ltd v Zeng

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2019 0043

LEEDA PROJECTS PTY LTD (ACN 072 077 171)	Applicant
v
YUN ZENG	Respondent

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JUDGES:	TATE, KAYE and McLEISH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	3 June 2020
DATE OF JUDGMENT:	31 July 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 192
JUDGMENT APPEALED FROM:	[2019] VSC 106 (McDonald J)

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CONTRACT –Breach – Damages – Fit-out of private art gallery and residence – Builder failed to complete works in reasonable time – Owner did not intend to reside at or rent property during delay period – Whether owner entitled to damages for loss of use and enjoyment – Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, Robinson v Harman (1848) 1 Exch 850, Hadley v Baxendale (1854) 9 Exch 341, applied – Calabar Properties Ltd v Stitcher [1984] 1 WLR 287, Sweeney v R & D Coffey Pty Ltd [1999] NSWCA 38, GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463, Vautin v BY Winddown, Inc [No 4] (2018) 362 ALR 702, Wyzenbeek v Australasian Marine Imports Pty Ltd [No 2] [2018] FCA 1517, Bella Casa Ltd v Vinestone Ltd [2005] EWHC 2807, considered – Loss of use and enjoyment of land compensable – Whether property owner entitled to damages measured as commercial rental value of property for delay period – Rental value not default measure – Appropriate measure dictated by facts of case – Rental value inappropriate measure where no intention to reside at or rent property – Appeal allowed.

CONTRACT – Breach – Damages for loss of use and enjoyment of property – Whether property owner entitled to damages measured as wasted expenditure on property during delay period – Availability of damages for wasted expenditure governed by general principles of contractual damages – Payments made in respect of property during delay without benefit to owner appropriate measure of damages for loss of use – The Owners of the Steamship ‘Mediana’ v The Owners, Master and Crew of the Lightship ‘Comet’ [1900] AC 113, Pix v Suncoast Marine Pty Ltd [2019] QSC 45, considered – Notice of contention upheld.

PRACTICE AND PROCEDURE – Appeal from Victorian Civil and Administrative Tribunal on question of law – Judge decided issues of mitigation and costs – Whether issues suitable to decide or required remittal – Osland v Secretary, Department of Justice (2010) 241 CLR 320, applied – Hoser v Department of Sustainability and Environment (2014) 203 LGERA 96, considered – Considerations of convenience may permit Court to decide issue on uncontested facts found by Tribunal – Issue of mitigation appropriately decided on basis of uncontested findings and written submissions, avoiding further delay – Issue of costs complex and evaluative and required consideration by the Tribunal – Victorian Civil and Administrative Tribunal Act 1998 s 148(1).

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr C Tran	Mills Oakley
For the Respondent	Mr R Andrew	Russell Kennedy

TATE JA:

I have had the considerable benefit of reading, in draft form, the judgment of Kaye JA and the judgment of McLeish JA. I agree, for the reasons their Honours give, that leave to appeal should be granted and the appeal allowed. I would also uphold the notice of contention, relied upon by Mrs Zeng to support, in part, the judge’s decision, by reference to her claim for wasted expenditure in the sum of $283,802.17.

The first proposed ground of the grounds of appeal is concerned with the appropriate assessment for damages for breach of contract causing the loss of use of an asset, here Mrs Zeng’s apartment. In so far as the question arises of whether a broad or over-arching principle can be identified governing cases where real property, intended purely for personal use, is unavailable by reason of a breach of contract, I respectfully adopt the approach of McLeish JA.[1] I do not accept that there is a settled principle that the appropriate measure of damages for loss of use of real property, arising from a contractual breach, will invariably command an assessment by reference to ‘notional’ or ‘wasted’ costs of ownership.
[1]See the judgment of McLeish JA at [177]–[180].

The second and third proposed grounds raise the question of whether the primary judge ought to have remitted the issues of mitigation of damages and costs, respectively, to the Tribunal. I accept that it was unnecessary for the judge to remit the former but, in the circumstances, he ought not to have entered into the merits of the latter. I wish to specifically endorse the observations made by McLeish JA in respect of the scope of s 148(7) of the Victorian Civil and Administrative Tribunal Act 1998 and the nature and extent of the restraint urged on an appellate court by the High Court in Osland v Secretary, Department of Justice.[2] Those observations are consistent with what was said by this Court in Victorian Legal Services Commissioner v McDonald.[3] In McDonald this Court held that it followed from Osland that ‘there is

some scope, even within the confines of an appeal under s 148, for additional facts to be found if this is necessary for the disposition of the matter’.[4] The Court accepted that, to achieve a convenient disposition of a matter, and avoid the expense and inconvenience of a remitter, a court exercising jurisdiction under s 148 might engage in incidental fact-finding.[5] This would include, as here, the making of factual findings based upon undisputed or primary facts already found by the Tribunal.
[2](2010) 241 CLR 320, 332–3 [20] (‘Osland’). See the judgment of McLeish JA at [196]–[199].
[3](2019) 57 VR 186 (‘McDonald’) (Tate, Kaye and Emerton JJA).
[4]Ibid 233 [158].
[5]Ibid 234 [160].

KAYE JA:

I have had advantage of reading in draft the judgment of McLeish JA. For the reasons stated by his Honour, I agree that leave to appeal should be granted on grounds 2 and 3, and the appeal allowed on ground 3, but not on ground 2.

For the reasons that follow, I also agree that leave to appeal should be granted, and the appeal allowed, on ground 1, and that the notice of contention filed by the respondent be upheld. Accordingly, I agree with the orders proposed by McLeish JA in the conclusion to his judgment.

At the risk of repetition, it is helpful to commence consideration of ground 1 and the notice of contention by identifying the principal factual findings made by the VCAT Member, and the basic premises to the reasons for decision of the Member and of the primary judge on appeal.[6]
[6]Leeda Projects Pty Ltd v Zeng (Building and Property) [2018] VCAT 679 (‘VCAT Reasons’); Zeng v Leeda Projects Pty Ltd [2019] VSC 106 (‘Reasons’).

Factual findings by the VCAT Member

The material findings by the VCAT Member included the following:

(1)The applicant breached the implied term of the contract, to complete the works within a reasonable time, by failing to complete them by 3 December 2014. The works were not completed until 2 June 2017. As

a result, there was a delay period of 130 weeks between the date upon which the works should have been completed, and the date upon which practical completion was achieved (the ‘delay period’).[7]
(2)The respondent and Mr Dong intended that the Eureka apartment be used as a private art gallery and a potential residence for themselves. The respondent never intended to reside permanently in the Eureka apartment.
(3)At all relevant times the respondent and Mr Dong had access to a number of residential premises which provided suitable alternative accommodation to them.
(4)The respondent never resided in the Eureka apartment. She returned to Shanghai in mid-2017 where she has remained.
(5)During the 130 week delay period, the respondent incurred the cost of owners corporation fees, council rates, electricity and water charges associated with the Eureka apartment totalling $283,802.17.[8]
(6)At all relevant times the respondent did not intend to lease the Eureka apartment as a residential rental property.[9]
(7)If the respondent had leased the Eureka apartment during the delay period, the rental value of the apartment would have been $2,500 to $3,000 per week.[10]
[7]VCAT Reasons [154]–[155].
[8]Ibid [167]–[172], [181].
[9]Ibid [183].
[10]Ibid [174]–[180].

Reasons for decision of the VCAT Member

The VCAT Member acknowledged that in a case in which the construction of a domestic dwelling is delayed beyond its due completion date, and the owner of the home intends to reside in it on its completion, the owner might seek compensation for the delay in the form of the cost of alternative accommodation, the cost to store goods and other costs associated with that delay. However, the respondent had not sought compensation on that basis because she had not incurred such loss.[11] The Member also noted that the respondent did not claim loss of rental income, or the fees and charges incurred by her in respect of the Eureka apartment during the delay period, as a ‘direct result’ of the applicant’s breach of contract. Rather, she claimed those amounts on the basis that they represented a reasonable compensation for the loss by her of the benefit of the use of the Eureka apartment for the delay period.[12]
[11]Ibid [181].
[12]Ibid [186]–[187].

The VCAT Member noted that the applicant contended that the claim made by the respondent, for loss of the benefit of the Eureka apartment, constituted a claim for damages for anxiety, disappointment and distress. The Member upheld the submission by the applicant that, in accordance with the decision of the High Court in Baltic Shipping Company v Dillon,[13] such damages are not ordinarily recoverable. The Member found that any inconvenience or distress, that the respondent might have suffered, did not constitute the ‘level of disruption or physical imposition that might attract an award of damages’.[14] Accordingly, the Member concluded that the respondent had failed to prove the damages resulting from the breach of contract by the applicant, so that she was only entitled to an award of nominal damages.[15]
[13](1993) 176 CLR 344.
[14]VCAT Reasons [194]–[196].
[15]Ibid [201].

Reasons for decision of the primary judge

The judge held that the respondent suffered loss as a direct consequence of the applicant’s breach of contract, namely, her inability to occupy the Eureka apartment for a period of 130 weeks. His Honour stated:

This loss is readily capable of being measured. The value of the loss of use of the apartment equates with the rental value of the property.[16]

[16]Reasons [31].

In reaching that conclusion, the judge relied on the decision of Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd.[17] His Honour also noted that there were a number of other Australian authorities which accepted the availability of damages for loss of use, including Wyzenbeek v Australasian Marine Imports Pty Ltd [No 2],[18] Vautin v BY Winddown, Inc [No 4][19] and Yates v Mobile Marine Repairs Pty Ltd.[20] The judge observed that if the applicant had performed the contract in accordance with its terms, the respondent would have had the use of the Eureka apartment as a residence and gallery for the 130 week delay period. He considered that the expenses of $283,802.17 (comprising council rates, owners corporation fees and utility charges) were not an appropriate measure of the loss and damage, because they were a ‘direct consequence’ of the respondent’s ownership of the Eureka apartment, and were incurred irrespective of the terms of the fit out contract.[21] Accordingly, he concluded that the appropriate measure of damages was the rental value of the Eureka apartment for the duration of the delay period.[22]
[17](2003) 128 FCR 1 (‘Marconi’).
[18][2018] FCA 1517 (‘Wyzenbeek’).
[19][2018] FCA 426 (‘Vautin’).
[20][2007] NSWSC 1463 (‘Yates’).
[21]Reasons [71].
[22]Ibid [72].

Analysis

The fundamental principles, for the determination of damages for breach of contract, are well established. Essentially, damages are awarded in order to compensate the injured party for the loss and damage arising from the breach of contract.[23] Thus, damages consist of the sum of money which will put the injured party in the same position as if the breach of contract had not occurred.[24] In order to determine the appropriate measure of damages in a particular case, it is necessary first to identify the kind of loss for which the injured party claims compensation.[25] The loss, which is compensable in an action for breach of contract, is that which may fairly and reasonably be considered as arising naturally, that is, according to the usual course of things, from the breach of contract itself, or such as may be reasonably supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.[26]
[23]Hungerfords v Walker (1989) 171 CLR 125, 143 (Mason CJ and Wilson J).
[24]Robinson v Harman (1848) 1 Ex 850, 855 (Parke B); Livingstone v Rawyards Coal Company (1880) 5 App Cas 25, 39 (Lord Blackburn); Bellgrove v Eldridge (1954) 90 CLR 613, 617–18 (Dixon CJ, Webb and Taylor JJ); Clark v Macourt (2013) 253 CLR 1, 6 [7] (Hayne J) (‘Clark’).
[25]Banque Bruxelles Lambert S.A. v Eagle Star Insurance Co Ltd [1997] AC 191, 211 (Lord Hoffmann); Clark (2013) 253 CLR 1, 7 [9]–[10] (Hayne J).
[26]Hadley v Baxendale (1854) 9 Exch 341, 354; 156 ER 145, 151.

The injured party bears the onus of proving the claim for damages on the balance of probabilities. In order to discharge that onus, the injured party must adduce sufficient evidence to establish the loss that is claimed to have been incurred, so as to enable the court to assess the damages which might be awarded in order to compensate that loss. However, the law recognises that not all kinds of loss and damage are susceptible of exact or precise proof. Accordingly, a mere difficulty in estimating damages does not relieve a court from the responsibility of assessing them as best it can.[27]
[27]Fink v Fink (1946) 74 CLR 127, 143 (Dixon and McTiernan JJ); McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, 411–12 (Dixon and Fullagar JJ); Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 83 (Mason CJ and Dawson J).

In the present case, the loss, in respect of which the respondent claimed compensation from the applicant, was the loss of use by her of the Eureka apartment during the 130 week delay period. As I shall discuss, there are a number of cases in which damages have been awarded to an injured party for loss of use of premises, or for loss of use of other property, notwithstanding that the damages did not comprise compensation for direct financial loss incurred by the injured party, such as loss of rental income or the cost of leasing or acquiring alternative property. Such damages have been accepted as payable, in the case of loss of use of real property, in cases such as Marconi and Bella Casa Ltd v Vineston Ltd,[28] each of which concerned claims for breach of contract. Loss of use damages have also been awarded for breach of contract in respect of recreational marine vessels in Yates, Vautin, Wyzenbeek and Pix v Suncoast Marine Pty Ltd.[29]
[28][2005] EWHC 2807 (‘Bella Casa’).
[29][2019] QSC 45 (‘Pix’).

In the present case, as noted, the respondent intended to use the apartment for a private art gallery and also for occasional residential purposes. As a result of the delay in completion by the applicant, the respondent did not incur any direct expenses, such as the cost of leasing alternative premises, or storage costs in respect of items that might otherwise have been kept by her in the Eureka apartment. The critical issue concerns the proper quantification of the specific loss sustained by the respondent as a result of the breach of contract by the applicant, namely, the inability of the respondent to use the Eureka apartment over a period of 130 weeks for the purposes of maintaining a private art gallery at the premises, and, from time to time, to use it as an occasional residence.

In order to determine whether the judge was correct to conclude that the appropriate measure of damages, for such loss, consisted of the rental value of the premises during the delay period, it is necessary to identify the precise basis upon which damages were awarded in the cases to which I have referred. It is convenient to commence with the two decisions, which were concerned with the award of damages for loss of use of a building or domestic premises.

In Marconi, as a result of the breach of contract by BHP-IT, the Commonwealth was required to provide office accommodation for the staff of BHP-IT for a five month period. The Commonwealth claimed damages for breach of contract against BHP-IT in respect of its loss of use of that building during that period. The Commonwealth was not required to acquire the building. Nor, if it had not been necessary to make it available to the BHP-IT team, would the Commonwealth have leased the building. However, as Finn J found, the building, as Commonwealth property, had a ‘usable value’,[30] in that before and after its occupation by BHP-IT, it was used by government departments. The judge noted that the decision to use the building was taken after evaluating other options, including a commercial option, and that that evaluation involved a comparison between the actual rental charge for commercial accommodation and the ‘notional rentals’ that the Commonwealth charged itself for use of its own buildings.[31] Accordingly, Finn J concluded:

Where the Commonwealth has taken the step of placing a cost to itself upon its use of its own premises — a cost which is apparently comparable to rentals charged in the private sector … and which I infer is related to the efficient use of public resources — that cost … can properly be taken to represent usable value of that property to the Commonwealth. As such, it provides an appropriate measure of the damages that are recoverable by the Commonwealth.[32]

[30]Marconi (2003) 128 FCR 1, 339 [1575].

[31]Ibid 339 [1577].

[32]Ibid.

As the judge in the present case acknowledged, the facts in Marconi may be distinguished from those in the present case.[33] In particular, in Marconi, the premises, which the Commonwealth was required to provide to BHP-IT, had a particular commercial value to the Commonwealth which was equivalent to the market rental value of those premises. That value thus constituted the appropriate measure of the loss and damage sustained by the Commonwealth consequent on the breach of contract by BHP-IT.
[33]Reasons [35].

In Bella Casa, the claimant commenced proceedings against three defendants in respect of alleged defects in the design and construction of refurbishment at the claimant’s premises in Soho. The claimant sought damages for loss of use, consisting, first, of interest on the balance of the purchase price for the period in which the premises were not fit for use, and, secondly, service charges for the property during that period. As a preliminary issue, the defendants contended that, assuming that the claimant succeeded on its claim in respect of the defects in the design and construction of the refurbishment of the property, the two heads of damages, claimed by it, were not recoverable by the claimant.

For the purpose of determining that preliminary issue, Judge Coulson, of the Queen’s Bench Division, noted that the claimant had not pleaded that it would have occupied the property for all or part of the period in question, that there was no pleaded claim for the cost of alternative accommodation during that period, and that there was no pleaded claim that the property would have been rented out for any of that period. Based on those facts, the judge held that the claim for interest on the capital sum, consisting of the purchase price of the property, could not be recovered by the claimant, if it succeeded on the issue of liability, because the capital sum would have been incurred in any event regardless of whether there were defects or the need for the remedial work.[34] In the absence of a claim for the cost of alternative accommodation, or for lost rental income, the authorities demonstrated that claims for loss of use of a property have otherwise been confined to modest awards of general damages.[35]
[34]Bella Casa [2005] EWHC 2807, [24]–[25].
[35]Ibid [28], [31].

The above authorities thus provide little support for the proposition that, in a case such as this, the appropriate measure of damages, for loss of use of premises is the notional market rental for those premises during the relevant period.

Nor, on analysis, does that measure of loss find support in the cases which concern the assessment of damages for the loss of use of marine vessels. On the other hand, those cases, and the decision of Judge Coulson in Bella Casa, provide support for an award of damages, in an appropriate case, which reflects the ‘holding cost’ of the particular property during the period in which the owner was deprived of its use.

As mentioned, in Bella Casa, the claimant sought damages for the loss of use of the Soho apartment, consisting both of interest on the balance of the purchase price, and also of service charges for the property during the period in which it was prevented from using the apartment. In respect of the latter item of damages, Judge Coulson noted that, in the absence of a claim for alternative accommodation, or loss of rental income, the authorities demonstrated that damages awarded for loss of use of a property have been confined to a modest amount of general damages.[36] Accordingly, he considered, subject to questions of causation, mitigation and the like, the claimant might ‘as a matter of principle’ seek to recover the service charges incurred by it during the period of loss of use.[37]
[36]Ibid [31].
[37]Ibid [34].

I turn, then, to the cases that involved the assessment of damages for loss of use of marine vessels. The starting point is the decisions of the House of Lords in The Owners of No. 7 Steam Sand Pump Dredger v The Owners of SS ‘Greta Holme’[38] and The Owners of the Steamship ‘Mediana’ v The Owners, Masters and Crew of the Lightship ‘Comet’.[39]
[38][1897] AC 596 (‘Greta Holme’).
[39][1900] AC 113 (‘The Mediana’).

In Greta Holme, the appellants, who were a body of trustees, were charged with the duty of maintaining the harbour works and waterway of the river Mersey in the interests of the public. In order to maintain their operations, the appellants derived their funds from rates levied on those persons who used the harbour and the waterway. On 6 March 1895, the steamship Greta Holme, belonging to the respondents, collided with a steam sand pumper dredger which was the property of the appellants. In cross-actions brought by the parties, the Admiralty Court found that the Greta Holme alone was responsible for the collision and ordered her owners to pay damages and costs. The appellants claimed two items of damages, totalling £1,591, as damages for the loss of use of the dredger during the period in which it was under repair or could not be used as a dredger.

At the time of the collision, the appellants owned another dredger (the ‘twin dredger’) which they ordinarily used in tandem with the damaged dredger. During the period of repair of the damaged dredger, the twin dredger continued to work the same part of the river, but because the damaged dredger was out of use, the work performed by the twin dredger did not efficiently or effectively dredge the channel. There was evidence that, at that time, an alternative dredger could have been leased by the appellants at a rental of £100 per week. The registrar, who heard the claim at first instance, held that the appellants were not entitled to damages, because they had not sustained any ‘tangible pecuniary loss’. That decision was upheld by the President of the Probate Division, and in turn it was affirmed by the Court of Appeal. On appeal, the House of Lords reversed that decision, and ordered that the respondents pay the appellants £500 for damages for loss of use of the dredger.

In reaching that conclusion, Lord Halsbury LC commenced with the principle that if a person injures the property of another, damages may be recovered, not only for the amount which is necessary to spend in repairs of the property, but also for loss of use of it during the period in which it is being repaired.[40] Lord Halsbury then addressed the basis upon which the registrar had rejected the claim by the appellants for damages, namely, that they had not sustained any ‘tangible pecuniary loss’. His Lordship stated:

If by that it is meant that, in order to entitle a plaintiff to recover, you must be able to shew that during the period of repair to his vehicle, or his cart, or his horse, some specific money has been lost by the period of time during which the article has not been susceptible of being used, the principle so affirmed would, as it appears to me, go very far beyond the particular case now before your Lordships. But to my mind it is a principle for which there is no authority whatever. This public body has to pay money like other people for the conduct of its operations, and if it is deprived of the use of part of its machinery, which deprivation delays or impairs the progress of their works, I know no reason why they are not entitled to the ordinary rights, which other people possess, of obtaining damages for the loss occasioned by the negligence of the wrongdoer.
For these reasons I am of opinion that the judgment of the Court of Appeal ought to be reversed and the appeal allowed.
As I understand it is the wish of the parties not to be sent back for the assessment of damages, and only because it is their wish, I am ready to express the opinion that £500 ought to be granted them in respect of damages hitherto refused.[41]

[40]Greta Holme [1897] AC 596, 601.

[41]Ibid 602.

Lord Watson expressed similar views. In particular, he stated:

[T]he data for estimating the matter of substantial damage are not precise. In cases like the present that difficulty is sometimes inevitable and is of common occurrence; but it is a difficulty which can be easily and is often satisfactorily overcome by a jury under proper directions. Personally I have a dislike, which I have reason to believe is shared by other judges, to the task of assessing damage; but, having taken the whole facts and probabilities of the case into consideration, I have come to the conclusion that, in respect of the two items in question, the sum allowed to the appellants may be reasonably assessed … at £500.[42]

[42]Ibid 604.

Lord Herschell similarly considered that, the fact that the appellants could not prove ‘tangible pecuniary loss’ (that is, loss consisting of a definite sum of money out of pocket) caused by the respondents’ wrongdoing did not preclude the award of damages.[43] He noted that if the appellants had hired a replacement dredger, they would have been entitled to recover the cost of the hire as damages. His Lordship then stated:

How can they the less be entitled to damages because, instead of hiring a dredger, they invested their money in its purchase? The money so invested was out of their pockets, and they were deprived of the use of the dredger, to obtain which they had sacrificed the interest on the money spent on its purchase. A sum equivalent to this, at least, they must surely be entitled to. But I think they are also entitled to general damages in respect of the delay and prejudice caused to them in carrying out the works entrusted to them. It is true these damages cannot be measured by any scale; but that would be equally true in the case of damages in respect of the deprivation of an individual of a chattel which he had purchased for purposes of comfort and not profit. I think the damages proposed to be assessed are reasonable.[44]

[43]Ibid.

[44]Ibid 605.

Pausing there, the following points are clear from the decision of the House of Lords in Greta Holme. First, in order to be entitled to damages for loss of use of a valuable asset, it is not necessary for the owner to have sustained ‘tangible pecuniary loss’, that is, a loss which can be identified and quantified with specificity. Secondly, the manner in which the House of Lords approached the assessment and award of damages was akin to the assessment of general damages by a jury in an action in tort or contract. Nevertheless, it characterised the loss sustained by the appellants as the incapacity to use their valuable asset, the dredger, for the purpose for which it had been acquired by them. In essence, the damages were based — in a broad sense — on the fact that the appellants had incurred the cost of ownership of the dredger, or associated costs in its business, which were in effect wasted for the period in which the appellants were unable to use the dredger.

In The Mediana, the Mersey Docks and Harbour Board was charged, by statute, with the duty of lighting the approaches to the river Mersey. There were four stations which were required to be lighted. For the purpose of discharging its duty, the Board owned six lightships. Four of those ships were always in use, a fifth was kept to replace the lightships when they were brought in for overhaul, and a sixth (the Orion) was moored in the Mersey ready to take the place of any of the four lightships in case of special emergency, such as damage by collision or other accident. On 23 April 1898, the steamship Mediana, belonging to the appellants, collided with and sank one of the lightships, the Comet. As a consequence, the Orion was towed out to take the place of the Comet, and was used for that purpose for 74 days. During that period, the Orion was not required for any other purpose.

The Board brought an action in the Admiralty Division claiming eight items of damages. The first seven comprised actual out of pocket expenses for removing and repairing the Comet. The eighth item was for loss of use of the Comet, or for the hire of the services of the lightship Orion, during the 74 days period. The appellants disputed their liability in respect of the eighth item. However, they agreed that that item should be quantified in the sum of approximately £310 if the Board was held entitled to compensation in respect of that item. The registrar allowed all items, including the eighth item. On appeal, Phillimore J disallowed the eighth item. The Court of Appeal reversed that decision, and confirmed the registrar’s determination. In turn, the House of Lords dismissed the appeal by the appellants.

The Earl of Halsbury LC considered that the case was governed by the principles laid down in Greta Holme.[45] He reiterated the proposition, stated in Greta Holme, that where property belonging to a person is damaged and rendered incapable of being used by the wrongdoing of another person, damages may be awarded to its owner for the loss of use of the property. He then addressed the issue that arose in the present case, namely, that the Board had available to it a replacement lightship (the Orion), and thus did not incur any direct loss as a consequence of the tort of the appellants. He answered that proposition as follows:

What right has a wrongdoer to consider what use you are going to make of your vessel? More than one case has been put to illustrate this: for example, the owner of a horse, or of a chair. Supposing a person took away a chair out of my room and kept it for twelve months, could anybody say you had a right to diminish the damages by shewing that I did not usually sit in that chair, or that there were plenty of other chairs in the room? The proposition so nakedly stated appears to me to be absurd; but a jury have very often a very difficult task to perform in ascertaining what should be the amount of damages of that sort.[46]

[45]The Mediana [1900] AC 113, 115.

[46]Ibid 117.

Lord Halsbury then noted that a jury in such a case might take into account the cost of hire of a replacement chair, and in that way might come to a ‘rough sort of conclusion’ as to the damages to be awarded.[47] He further noted that the claim in the case was not one for special damages, but rather a claim for general damages, in which the Board had not been required to prove a specific sum of damages.[48]
[47]Ibid.
[48]Ibid 117–18.

The other members of the House of Lords, in concurring with Lord Halsbury, similarly considered that the case came within the principles on which Greta Holme was decided. In expressing their agreement, Lord Shand, Lord James of Hereford and Lord Brampton each noted that the Board had incurred an expense in having the Orion available to meet contingencies of the kind caused by the conduct of the Mediana, so that the services provided by the Orion were in that way valuable. Thus, Lord Shand stated:

Instead of waiting for an emergency suddenly occurring, they [the Board] have thought fit to have a ship ready. It cost them £1000 a year to have it ready. It appears to me that the expense of having this ship ready instead of having to look for a ship when the emergency occurs, or rather a part of that expense, must properly fall upon the person who has been guilty of running down the lightship.[49]

[49]Ibid 122.

Similarly Lord Brampton stated:

[The Orion] had been built by the respondents and was maintained by them at great expense in order that as between themselves and the public they might have ready means at their command to obviate the great danger and inconvenience which might arise from such a misfortune as befell the Comet by the negligence of the appellants; but as between themselves and the wrongdoer causing the damage to the Comet they were under no obligation whatsoever to use the Orion at all. They might have used a hired vessel had they so pleased, in which case the liability for the hire would have been clear. But the respondents prudently, having a vessel suited for the purpose lying idle, thought it right in their discretion to use her instead of hiring perhaps a less efficient substitute for the Comet. The services of the Orion, however, were valuable, and why should the appellants claim to have them gratuitously, including the wages of the men who might be employed on board her?[50]

[50]Ibid 123.

Again, as with Greta Holme, the House of Lords, in The Mediana, held that the injured party (the Board) was entitled to general damages on the basis that it had incurred a cost in having available an alternative means by which to enable it to fulfil its duties in the absence of the damaged vessel. The House of Lords apportioned part of those costs as constituting the compensation to be awarded to the Board, by way of general damages, for the loss of its use of the damaged vessel.

As I have stated, on analysis, each of the four cases concerning the assessment of damages for loss of use of a recreational marine vessel are, in essence, based on the principles stated in Greta Holme and TheMediana, with appropriate adjustment for the individual circumstances of the cases in question.

In Yates, the plaintiff claimed damages arising out of the negligent repair of engines of a recreational game fishing vessel owned by him. As part of that claim, he sought damages in the sum of $240,263 for his loss of use of the vessel for the period of 348 days while it was non-operational. That sum was derived from the application of the Supreme Court interest rates of nine per cent per annum on the value of the vessel at the time. The plaintiff claimed that amount as an ‘appropriate measure of the time value of money’, that is, as comprising the ‘holding cost’ of the vessel.[51] The defendants did not challenge the manner in which the plaintiff calculated the damages for the loss of use, but contended that the case was not an appropriate one in which to award any sum of damages for loss of use.
[51]Yates [2007] NSWSC 1463, [77].

In upholding the plaintiff’s claim, in that respect, Palmer J, having referred to the judgment of Lord Halsbury in TheMediana, rejected the submission made on behalf of the defendants that if the plaintiff were awarded anything but nominal damages for loss of use of the vessel, he would be placed in a much better position than he would have been in had no damage been done to the vessel. His Honour stated:

I do not agree. Mr Yates had invested a very great deal of his time and money in planning and building the [vessel]. Doubtless he was looking forward greatly to enjoying it throughout 2004 and 2005. He would have done so had the vessel had not been rendered unusable. This is a case in which, unlike that of the unused chair hypothesised by Lord Halsbury in The Mediana, I am able to find that Mr Yates had a substantial need — in a practical sense, not in a commercial sense — for the use of the [vessel].[52]

[52]Ibid [83].

Two points are relevant. First, Palmer J applied the reasoning of the House of Lords in The Mediana, and, in particular, the passage from the judgment of Lord Halsbury in which his Lordship identified the kind of damages, sought by a plaintiff, as general damages. Secondly, the damages awarded in Yates were calculated as being, essentially, equivalent to the holding costs of the vessel that was under repair.

In Vautin, Derrington J followed and applied the decision in Yates. In that case, the applicant purchased a defectively manufactured yacht from the second respondent. He intended to use the yacht as a recreational fishing vessel. Derrington J held that the defect was such as to render the yacht unseaworthy. His Honour recognised that, based on the decision in Yates, the loss of use of a non-profit making chattel may be compensable as part of general damages.[53] Having considered the authorities, his Honour stated:

It follows that general damages might be awarded for loss of use of a non-profit making chattel such as the [vessel] for the period during which the wrongful act has caused it to be unusable or its value to be ‘infructuous’. Here there is evidence of vessels like [the vessel] is one, depreciate at an effective rate of approximately 10% of the original purchase price per annum.[54]

[53]Vautin [2018] FCA 426, [310].

[54]Ibid [316].

Accordingly, on the basis that the applicant had been denied the use of the vessel for a period of almost three years, Derrington J adopted a depreciation rate on the value of the vessel, holding that the amount so calculated ($1,270,140) should be allowed as general damages for loss of use of the vessel over that period. In essence, again, the damages awarded to the applicant, by way of general damages, equated to the ‘holding cost’ of the depreciating vessel during the period in which it was unusable.[55]
[55]Ibid [318].

The same approach to the calculation of damages for loss of use of a recreational vessel was adopted, at first instance, by Derrington J in Wyzenbeek and, in effect, approved on appeal by the Full Court of the Federal Court.[56]
[56]Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) [2019] FCAFC 167.

In Wyzenbeek, the applicants purchased a recreational motor vessel named ‘Cadeau’ from the first respondent for use as a vessel for extended ocean voyaging. However, it proved to be unfit for that purpose. At first instance, Derrington J found that the applicants had been induced to acquire the vessel by the misleading and deceptive conduct of the respondents. The relevant representation was that Cadeau was a vessel suitable for crossing oceans or for extended ocean voyages when it was not. Derrington J dismissed the applicants’ claim for damages under s 82 of the Trade Practices Act 1974 (Cth), but found in favour of the applicants on their claim for breach of contractual warranty. He awarded the applicants damages, on that claim, in the sum of $168,300, as compensation for loss of use by them of the vessel during the period in which it was under repair. Those damages were calculated on the basis of the amount by which the value of the vessel depreciated while it was under repair.[57]
[57]Wyzenbeek [2018] FCA 1517, [327]–[331].

The Full Court of the Federal Court allowed the appeal of the applicants, holding that the judge had erred in dismissing the claim by the applicants under s 82 of the Trade Practices Act 1974. The Court held that the applicants should be awarded damages comprising the purchase price paid, and consequential and additional loss sustained by the applicants, less the current value of the Cadeau. The Court observed (by way of obiter dictum) that if it had not found that the applicants were entitled to damages on a ‘no transaction basis’, it would have concluded that the applicants would have been entitled to compensation for loss of use of the Cadeau for the entirety of the period during which the vessel was unable to be used. The Court stated:

Such a loss of use has an economic value, notwithstanding that the ship was used only for personal enjoyment. The economic value of that loss of use is in our view a species of loss which would not have been suffered had the [applicants] not been induced to purchase a vessel not suitable for the purposes for which she was represented to be suitable. We accept that the vessel was laid up for 629 days. An appropriate economic measure of that loss would be to apply the depreciation rate, as the primary judge did.[58]

[58]Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) [2019] FCAFC 167, [138] (Rares, Burley and Anastassiou JJ).

Finally, in Pix, the plaintiff purchased a catamaran from the second defendants. He succeeded in an action for damages based on breach by the defendants of the implied term that the vessel would be of merchantable quality.[59] Holmes CJ awarded the plaintiff damages, for that loss of use while the vessel was under repair, based on a depreciation rate for the capital value of the vessel for the period in which it was out of use and under repair. Having considered a number of the authorities including (inter alia) TheMediana, Greta Holme, Yates and Vautin, Holmes CJ stated:

The principle which emerges from the cases is that the owner of a vessel deprived of its use for a period by the wrongful act of another is entitled to general damages, whether that act is a tort or a breach of contract. It does not matter that the vessel was not being used in profit-making or that its owner has not been put to any expenditure to replace it. It is not necessary for a plaintiff to establish what particular use he or she would have made of a chattel in order to recover damages for the loss of its use. The point is made in The Mediana that it is the deprivation of the chattel which gives rise to the right to damages, and the defendant cannot diminish that right by showing that the plaintiff did not usually use the item. (It was unnecessary, then, for the plaintiff here to prove that he would have made any particular use of the vessel during the period it was under repair.) Calculating interest on the capital invested in the chattel (after depreciation) is a suitable method of assessing damages; the point is that an investment has been made in the item which is capable of yielding nothing by way of return in terms of profit or, in this case, enjoyment, during the period it is incapable of being used.[60]
[59]Pix v Suncoast Marine Pty Ltd [2018] QSC 235.
[60]Pix [2019] QSC 45, [25] (citations omitted).

Conclusions

Having reviewed those authorities, the following conclusions may be drawn.

First, it is clear that the decision by the primary judge, that the correct measure of the respondent’s damages for loss of use of the Eureka apartment during the delay period consisted of the equivalent of the rental value of the property during that period, is supported neither by principle nor authority.

As the VCAT Member found, the respondent did not have any intention to lease the Eureka apartment, or otherwise derive any income from it, during the delay period. Neither at the time of purchasing the property, nor at any time before the delay period, did the respondent have any intention or purpose to use the Eureka apartment to earn income, whether by way of rental or otherwise. On the face of it, an award of damages, comprising the rent which the respondent would have earned from the premises during the delay period, was inconsistent with the factual findings by the VCAT Member as to the respondent’s intention and purpose. In terms of the principles governing the award of damages for breach of contract, if the applicant had not breached the contract, and if the premises had been available for use during the delay period, the respondent would not have earned any income from the apartment during that period. An award of damages, comprising the rental value of the property during the delay period, would not therefore put the respondent in the same position as if the breach of contract by the applicant had not occurred. Such an award could not be considered as arising naturally from the breach of contract itself, nor could it supposed to have been in the contemplation of the parties at the time they made the contract, as the probable result of the breach by the applicant of it.

Further, as the foregoing discussion of the authorities reveals, there is no case which supports the conclusion by the primary judge that the appropriate measure of damages in this case consists of the notional rental value of the premises during the delay period. For the reasons that I have discussed, the decision of Finn J in Marconi does not support the conclusion of the primary judge. The facts in that case are materially distinguishable from those in the present case, so that the decision in Marconi does not constitute a precedent for the award of damages, based on the rental value of the property, in the present case. The other authorities, which I have discussed, do not lend any support to the conclusion of the primary judge in this case.

Those cases do, however, support an award of damages for loss of use of a property notwithstanding that the owner of that property has not sustained a direct financial loss, such as loss of rental income, or the cost of obtaining alternative accommodation. In particular, in Bella Casa, damages were recognised as payable, and in the marine vessel cases, damages were awarded, to compensate the property owner for the costs incurred by the owner in respect of ownership of the property during the period in which the owner was unable to use the property due to a breach of contract by the defendant.

In Vautin, Wyzenbeek and Pix, the appropriate measure of damages was the notional depreciation of the vessel during the period in which the owner was deprived of the use of the vessel. That measure of damages was appropriate because the property in question — the marine vessel — was one which was subject to depreciation. In such a case, the amount of depreciation, during the period in question, was a cost of ownership incurred by the owner. Clearly, such a measure of damages, in the present case, would not be appropriate. However, the adoption by the courts of that measure of damages, in such cases, illustrates, in broad terms, the manner in which the law seeks to compensate the owner of a property for the loss of use of that property caused by a breach of contract or tort, namely, the notional cost of ownership to the owner during the period of loss of use. The alternative method of assessment adopted in Yates — the application of a rate of interest to the value of the vessel over the period of loss of use — was comparable to the use of the depreciation method in the other three cases. Damages, consisting of the ‘time cost’ of the vessel, equated to the loss to the owner of owning the vessel during the period of loss of use.

The decisions of the House of Lords in The Mediana and Greta Holme have been relied on, in the marine vessel cases to which I have referred, as authority for the entitlement of a property owner to damages for loss of use, notwithstanding that the owner did not sustain ‘direct’ loss as a result of an inability to use the property during that period. In each of those cases, although the damaged dredger (in the case of Greta Holme) and the damaged lightship (in The Mediana) were not ordinarily used by their owners to generate income, the House of Lords, by what may fairly be described as a ‘broad brush’ method, assessed the damages to compensate the respective owner for the loss of use of that vessel. Thus, in The Mediana, Lord Shand, Lord James and Lord Brampton considered that the appropriate measure of the loss, sustained by the Board, was a notional proportion of the inbuilt cost of maintaining the substitute lightship (the Orion) to be available to cater for contingencies such as that which rendered the Comet unusable.

In the present case, the respondent paid owners corporation fees, council rates, electricity charges and water charges in respect of the Eureka apartment that amounted to the sum of $283,802.17 for the delay period. They were incurred and payable by the respondent by reason of her ownership of the apartment. The electricity charges and water charges (which together totalled a little over $5,000) were directly attributable to the use of the apartment. However, the owners corporation fees and council rates (which totalled $278,558) were incurred and payable as a result of the respondent’s ownership of the property. If the respondent had no intention to use or occupy the property, then those charges might not be claimed by her as damages. However, the evidence was clearly to the contrary. As the VCAT Member found, the respondent always intended to use the property as a private art gallery, and occasionally as a residence. Those charges thus were attributable, not only to the respondent’s ownership of the property per se, but also to the purpose for which that ownership was acquired, namely, that particular use by the respondent of the property.

In each of the marine vessel cases, the apportionment of damages was based on a measure attributable to the wasted cost of ownership of the vessel (as distinct from the wasted cost incurred for the occupation or use of the vessel) during the relevant delay period. In Vautin, Wyzenbeek and Pix, the depreciation measure was, necessarily, based on the original cost of ownership of the vessel. Similarly, in Yates, the notional interest rate (of nine per cent per annum) was based on the original cost of purchase of the vessel. In each case, that measure of damage was appropriate, because the cost of ownership of the vessel was incurred for the purpose of the use and enjoyment of it by its owner.

In the present case, based on the findings of the VCAT Member, the respondent acquired the Eureka apartment for the purpose of her intended use and enjoyment of it as a private art gallery and occasional residence. The building contract described the contract works as ‘Fit-out of Private Art Gallery’. The costs of ownership of the apartment —the rates, service charges and the like — were incurred to enable the respondent to have and use the Eureka apartment for that specific purpose. Thus, the proportion of those costs, that the respondent incurred

during the delay period, are an appropriate measure of the loss and damage occasioned to her by reason of her inability to use the apartment for its intended purpose during the 130 week delay period, which was caused by the breach of the contract by the applicant. In view of the specific purpose of the building contract, that loss and damage was a reasonably foreseeable consequence of the breach of contract by the applicant.

For those reasons, I have reached the following conclusions on ground 1 and the Notice of Contention:

(1)The primary judge erred in concluding that the appropriate measure of damages to be awarded to the respondent, for the loss of use by her of the Eureka apartment during the delay period, consisted of the rental value of the property. To that extent, I would grant the applicant leave to appeal, and allow the appeal.
(2)On the other hand, the respondent should be entitled to damages for loss of use of the premises, during the delay period, consisting of the rates, expenses and service charges incurred by the respondent during the 130 delay period, namely, $283,802.17. I would therefore uphold the respondent’s notice of contention.

McLEISH JA:

The applicant, Leeda Projects Pty Ltd (‘Leeda’), was engaged by the respondent, Mrs Zeng, to perform building works for the fitting out of a private art gallery. In breach of the contract, Leeda failed to complete the works within a reasonable time.

The Victorian Civil and Administrative Tribunal (‘the Tribunal’) awarded Mrs Zeng only nominal damages for Leeda’s breach, on the basis that she was not intending to reside at the property or make it available for rental. A claim that income from the art gallery had been lost was not pursued. On appeal, a judge in the Trial Division awarded Mrs Zeng substantial damages calculated by reference to

the property’s commercial rental value for the period of the delay.[61]

[61]Zeng v Leeda Projects Pty Ltd [2019] VSC 106 (‘Reasons’).

Leeda seeks to appeal. For the reasons that follow, leave to appeal should be granted and the appeal allowed. However, a notice of contention filed by Mrs Zeng, seeking to sustain the judge’s decision in part by reference to a claim for wasted expenditure, should be upheld.

Factual background

Mrs Zeng and her husband are Chinese citizens and Australian permanent residents. They have assembled a contemporary Chinese art collection of some renown. In March 2011, they purchased the eighty-seventh floor of the Eureka Tower in Melbourne, which was then a shell requiring fit-out works before it could be used or occupied. They wished to fit the property out as a private art gallery housing contemporary Chinese art (including works from their collection), with a residential component consisting of two bedrooms with ensuites, together with a lounge, kitchen and laundry. There was evidence that they intended that the property be used as an art gallery to promote Chinese art for the entire year, whether or not Mrs Zeng and her husband were in Australia.[62] As described below, Mrs Zeng and her husband owned multiple residences and Mrs Zeng did not intend to use the property as a permanent residence.
[62]Ibid [69].

On 24 September 2013, Mrs Zeng and Leeda executed a contract for Leeda to fit the property out for $1,168,558.24. The contract was a particular standard form building contract.

Several elements of the contract are relevant. An item in a schedule of the contract described the relevant works as a ‘[fit out] of a private art gallery’. The contract required that:

(a) a nominated architect administer the contract, which involved, among other things:

(i) assessing Leeda’s claims for payment, and issuing a certificate obliging Mrs Zeng to pay to Leeda the assessed claim amount;

(ii) issuing a ‘certificate of practical completion’ on practical completion of the contracted works; and

(iii) issuing a ‘final certificate’ on finalisation of the contracted works (after a six month defects liability period);

(b) Leeda provide to Mrs Zeng a ‘retention sum’ as security for performance, half of which it would be entitled to have released once the certificate of practical completion was issued, and the balance when the final certificate was issued;

(c) Mrs Zeng give Leeda possession of the property after the contract was executed and certain other requirements were met; and

(d) Leeda, while in possession of the property, give Mrs Zeng, as well as other nominated persons, access to the property on reasonable terms.

Shortly after the contract was executed, Leeda took possession of the property and building works commenced. By August 2014, a dispute had arisen between the parties.

The dispute related to two payment claims submitted by Leeda seeking payment for all contracted work and approved variations, as well as release of the retention sum.

Section 42 of the Domestic Building Contracts Act 1995 prevented Leeda from demanding final payment under the contract unless two conditions were met: (a) the work carried out under the contract had been completed in accordance with the contract; and (b) the building owner, Mrs Zeng, had been given a copy of an occupancy permit for the property under the Building Act 1993.[63]
[63]See Building Act 1993, pt 5 div 1. The issuance of an occupancy permit was a condition of occupying the property.

Leeda’s payment claims were premature because these conditions had not been met. The architect nominated to administer the contract, Mr Guo, had not yet certified that there had been practical completion of the contractual works, and an occupancy permit had not yet been issued and received by Mrs Zeng. The claims for payment were rejected.

Shortly afterwards, on 27 August 2014, Leeda suspended work on the project.

In December 2014, Leeda commenced a proceeding in the County Court seeking to recover the amount of the rejected payment claims, as well as interest and costs. The proceeding was stayed before being revived on 21 July 2016 in the Tribunal.

On 22 August 2016, Mrs Zeng, through her lawyers, sought access to the property to arrange an inspection.[64] On 26 August 2016, Leeda refused the request.
[64]See [64](d) above.

Three days later, on 29 August 2016, Mrs Zeng successfully applied to the Tribunal for access to the property. On 1 September 2016, the Tribunal made orders granting her access for the limited purpose of performing inspections.

Shortly afterwards, a new architect, Mr Ng, was appointed to administer the contract. On 21 October 2016, Mr Ng wrote to Leeda, instructing it to attend to certain further works required to achieve practical completion. Initially, Leeda declined to do so. Ultimately, after Mrs Zeng had made a further application to the Tribunal to vary the access orders to allow other contractors to complete work on the property, but before that application was heard, Leeda resumed work on 9 December 2016.

Some five months later, Leeda completed the works. The required occupancy permit was issued on 22 May 2017. On 25 May 2017, Mr Ng issued the certificate of practical completion.

On 2 June 2017, Leeda gave up possession of the property, returning the keys to the property to a representative of Mrs Zeng. On the same day, Leeda issued a payment claim in the amount of $240,049.57, as well as a claim for release of half of the retention sum. As explained above, this claim fell to be assessed by the nominated architect, Mr Ng. Lawyers for Mrs Zeng wrote to Mr Ng, requesting that he factor into his assessment Mrs Zeng’s claimed entitlement to set off the claimed amount against substantial alleged damages resulting from Leeda’s delay in completing the works.

On 16 June 2017, Mr Ng assessed that Leeda was entitled to an amount slightly less than the claimed amount: $211,944.20.

Leeda issued an invoice to Mrs Zeng seeking payment of that assessed amount. Mrs Zeng did not pay. Leeda commenced proceedings in the Tribunal seeking payment. Mrs Zeng counterclaimed for substantial damages on account of the delay in completing the works.

It is Mrs Zeng’s counterclaim which is presently relevant.

Mrs Zeng’s counterclaim

The contract did not specify a date for practical completion or any entitlement to liquidated damages for failure to reach practical completion in a timely way. Instead, by her counterclaim, Mrs Zeng alleged breach of an implied term to complete the works within a reasonable time. That term was said to have been breached by Leeda’s suspension of work from 27 August 2014 until 9 December 2016, and its failure to achieve practical completion of the works until 25 May 2017.

In respect of that breach, Mrs Zeng ultimately claimed two relevant heads of loss and damage:[65]
[65]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [154], [184] (‘Tribunal Reasons’). There was also a claim for rectification costs for defects, which is not presently relevant as it does not relate to the breach of the implied term.

(e) loss of use and enjoyment of the premises, which the Tribunal treated as being measured in either of two ways:

(i) the residential rental value of the property for the period of delay;[66]
[66]Ibid [184], [186].

(ii) wasted expenditure on costs associated with ownership of the property during the period of delay, including owners corporation fees, council rates, and utility charges;[67] and

(f) damages for disappointment, inconvenience and vexation.

[67]Ibid [184], [187]–[188]. Counsel for Mrs Zeng conceded that these were alternative measures at the hearing.

Mrs Zeng had pleaded, but abandoned on the third day of the Tribunal hearing, a claim for another head of loss and damage: actual loss of income during the period of delay. The claimed loss of income was $265,050, being the total amount that, it was said, three Shanghai-based art galleries had agreed to pay to lease the property at different times during the delay period.[68]
[68]Ibid [76], [77].

It is also relevant that, on the ninth day of the Tribunal hearing, Mrs Zeng unsuccessfully sought to amend her counterclaim to introduce an alternative measure of damages for loss of use and enjoyment, namely interest on the capital value of the property.[69]
[69]Ibid [81].

Tribunal’s reasons

The Tribunal found that the term contended for — that the works be completed within a reasonable time — was implied by law.[70] The Tribunal held that this term required Leeda to complete the works by 3 December 2014, fourteen weeks after Leeda had suspended work.[71]
[70]Ibid [113], [119], [127].
[71]Ibid [146]. See also [69] above.

Thus, the Tribunal found that Leeda breached this term. Practical completion was not achieved until 25 May 2017, some 129 weeks later. As it was a further week before Leeda returned the keys to (and possession of) the property to Mrs Zeng, the Tribunal attributed a 130 week period of delay to Leeda’s breach.[72]
[72]Ibid [154]–[155].

None the less, the Tribunal rejected Mrs Zeng’s claim for substantial damages.

Before turning to the Tribunal’s reasons for rejecting Mrs Zeng’s claim for substantial damages, it is necessary to record certain findings relevant to the Tribunal’s conclusion. In particular, the Tribunal found that, during the period of delay: [73]
[73]Ibid [169]–[170].

(g) Mrs Zeng’s primary residence was in Shanghai, China;

(h) Mrs Zeng had access to a number of residential premises in Victoria including two multi-bedroom apartments in central Melbourne which she owned outright or jointly with her husband;[74]
[74]Mrs Zeng’s ownership share in one of those properties was held by her family trust.

(i) Mrs Zeng and her husband, when not travelling internationally, divided their time between residing in the Victorian premises and in Mrs Zeng’s primary residence in Shanghai;

(j) Mrs Zeng had never intended to reside permanently in the property, and had not resided there at all, including since the completion of the works;

(k) Mrs Zeng’s husband has resided primarily in the property since December 2017;

(l) Mrs Zeng and her husband intended to use the property as a private art gallery and potential residential premises, and never intended to use it as a residential rental investment property;

(m) Mrs Zeng’s own living arrangements were unaffected by the delay;[75]

(n) Mrs Zeng did not make any alternative arrangements for the intended private art gallery during the period of delay.[76]

[75]Tribunal Reasons [194].

[76]Ibid [195].

In those unusual circumstances, the Tribunal observed, the period of delay could not be said to have caused forms of loss and damage that might typically flow from a builder’s delay. For example, there was no loss in the form of costs of alternative residential accommodation because Mrs Zeng never intended to reside permanently at the property, and, in any case, already owned alternative accommodation. Similarly, there was no loss in the form of lost rental income because the property was never intended to be a residential rental investment property. Nor was it established that it was intended to derive income by renting space in the art gallery, or that alternative gallery space had been required by reason of the delay.[77]
[77]Ibid [181]–[182].

There remained, however, the heads of loss and damage claimed by Mrs Zeng: (a) the loss of use and enjoyment of the property, and (b) disappointment, inconvenience and vexation.

Ultimately, the Tribunal considered these heads of damage to be indistinguishable and it rejected them on a single basis.[78] Both were held to amount to claims for disappointment, inconvenience and vexation, and in the view of the Tribunal a claim of that type was foreclosed by the principle in Baltic Shipping Company v Dillon.[79]That principle is that damages for breach of contract are not recoverable for disappointment, inconvenience and vexation, unless: (a) the object of the contract was to provide enjoyment, relaxation or freedom from molestation, or (b) damage proceeds from physical inconvenience occasioned by the breach.[80]
[78]The Tribunal rejected Mrs Zeng’s submission that her claim for loss of use and enjoyment of the property was distinct from her claim for disappointment. Further, in respect of her claim for loss of use, the Tribunal only expressly considered the primary measure of damage contended for (rental value) and not the alternative measure (wasted expenditure): see, eg, [173], [189], [197].
[79](1993) 176 CLR 344 (‘Baltic Shipping’).
[80]Ibid 361–3, 365 (Mason CJ), 380–1, 383 (Deane and Dawson JJ), 387 (Gaudron J), 405 (McHugh J).

The Tribunal considered that neither exception was available to Mrs Zeng.

First, the object of the contract was not to provide pleasure, but rather to fit out the property as a private art gallery with a residential component. That the pleasure of a private art gallery would be a consequence of completion of the contract did not make the provision of such pleasure its object.[81]
[81]Tribunal Reasons [193].

Secondly, whatever inconvenience, anxiety and distress Mrs Zeng may have suffered by reason of the breach did not proceed from any physical inconvenience. This was because Mrs Zeng’s living arrangements were unaffected by the breach. During the period of delay, she continued to reside in Shanghai, and there was no evidence that she suffered the inconvenience and disruption of having to make alternative arrangements for the intended private art gallery.[82]
[82]Ibid [194]–[195].

Accordingly, as no relevant loss and damage had been established, the Tribunal awarded Mrs Zeng only nominal damages of $100.[83]
[83]Ibid [225]. This amount was set off against $211,944.20, which the Tribunal ordered Mrs Zeng to pay Leeda. This was the amount which the nominated architect had certified for payment and Leeda had invoiced Mrs Zeng: see [76].

The Tribunal made no order as to costs, other than to reserve costs with liberty to apply.[84]
[84]Tribunal Reasons [226].

Judge’s reasons

By a notice of appeal filed 11 May 2018, Mrs Zeng sought leave to appeal against the Tribunal’s decision on a question of law pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998.

Mrs Zeng’s notice of appeal identified a single question of law; namely, whether the Tribunal erred in law in finding that she was not entitled to general damages in respect of Leeda’s breach of the implied term.

A judge in the Trial Division granted leave to appeal, and allowed the appeal.

The judge set aside the Tribunal’s order that Leeda pay Mrs Zeng nominal damages, and substituted an order that Leeda pay Mrs Zeng damages in the amount of $357,500 (plus interest).[85] As explained further below, that amount represented 130 weeks’ rental of the property at the rate of $2,750 per week.
[85]Again, this amount was set off against the $211,944.20 amount of the certified payment claim: see n 83 above.

The judge considered that the Tribunal erred in treating Mrs Zeng’s claim for damages for loss of use and enjoyment as indistinguishable from her claim for damages for disappointment, inconvenience and vexation. Consequently, the Tribunal erred in treating Mrs Zeng’s claim for damages for loss of use and enjoyment as governed, and foreclosed, by the principle in Baltic Shipping.[86]
[86]Reasons [20], [28], [57].

The judge accepted loss of use of property to be a distinct, compensable head of damage for breach of contract, available subject to satisfaction of the remoteness rule in Hadley v Baxendale.[87] Loss of use of property as a head of contractual damages was said to have been recognised under Australian law in first instance decisions, particularly the decision of Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd.[88]
[87](1854) 9 Exch 341; 156 ER 145; Reasons [49]. The rule requires that the breaching party (or a reasonable person in his or her position) would have realised at the time of contracting that the loss alleged was sufficiently likely to flow from the breach, such that it is proper to hold that: (a) the particular loss flowed naturally from the breach, or (b) loss of the kind alleged should have been within the contemplation of the breaching party.
[88](2003) 128 FCR 1 (‘GEC Marconi’). See also Wyzenbeek v Australasian Marine Imports Pty Ltd [No 2] [2018] FCA 1517 (‘Wyzenbeek’); Vautin v BY Winddown, Inc [No 4] (2018) 362 ALR 702; [2018] FCA 426; Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463.

The judge considered that Mrs Zeng had established her claim for general damages for loss of use. Mrs Zeng had lost her ability to ‘exercise her right of occupation of the apartment’ during the period of delay.[89] The rule in Hadley v Baxendale was satisfied because, as the contract was to fit the property out for use as both an art gallery and residence, a reasonable person in Leeda’s position would have appreciated that Mrs Zeng’s loss of use of the property for those purposes would flow naturally from the breach of the implied term to complete the works within a reasonable time.[90]
[89]Reasons [31].
[90]Reason [62]; see also Tribunal Reasons [168].

The judge held that the appropriate measure of Mrs Zeng’s loss was the rental value of the property during the period of delay.[91] He held that the rental value of property is the normal measure of damages where a builder fails to complete works on time.[92] For this proposition, the judge relied on two academic treatises, one concerned with the relevant law in the United States.[93] The judge also drew support from the measure of damages adopted in GEC Marconi. Though the relevant breach in GEC Marconi was not builder delay, it was said that the award of damages for loss of use of the relevant property was measured by the notional rental value of that property for the additional period it was used by reason of the breach. GEC Marconi is discussed later in these reasons.
[91]Reasons [31], [63].
[92]Reasons [32]–[33], quoting James Edelman, McGregor on Damages (Sweet & Maxwell, 20^th ed, 2018) 970 [31–009], and Dan Dobbs, Dobbs’ Law of Remedies: Damages, Equity Restitution (West Publishing Co, 2^nd ed, 1993) 443–4.
[93]Ibid.

Applying these principles, the judge accepted that Mrs Zeng had adequately proved loss equating to the rental value of the property during the period of delay. The judge stated that there was evidence that the apartment would be used ‘all of the time as a gallery during the delay period’, irrespective of who, if anyone, would be in residence.[94] That evidence included the contract’s description of the works as a fit out of a ‘private art gallery’,[95] and an affidavit sworn by Mrs Zeng’s lawyer, which relevantly stated:

The evidence at the hearing was that during 2010, Ms Zeng and Mr Dong were looking for premises in Melbourne where they could reside when visiting Melbourne, but also where they could establish a private art gallery for the purposes of promoting contemporary Chinese art in Australia.
Both Ms Zeng and Mr Dong collect contemporary Chinese art, and Ms Zeng intended that they would make the art gallery available for artists in Shanghai to exhibit their work for invited guests to view on special occasions. … It was intended that the art gallery would be used for promoting Chinese art even when Ms Zeng and Mr Dong were not in Australia, for the entire year.[96]

[94]Reasons [69]–[70].

[95]See [64] above.

[96]Reasons [69] (emphasis added). This affidavit, as well as relevant witness statements, and the transcripts of the Tribunal and appeal hearings, were provided to this Court by the parties following the hearing.

The judge applied this measure by adopting a weekly rental value of $2,750, the midpoint of the range of rental values for the property canvassed by the Tribunal.[97] Multiplied by the 130 weeks of delay, this yielded loss of use damages in the amount of $357,500.
[97]Reasons [31].

The judge rejected Mrs Zeng’s alternative measure of damages for loss of use: wasted expenditure (namely council rates, owners corporation fees and utility charges) in the amount of $283,802.17. The judge considered this expenditure not to be compensable because it was not incurred by reason of Leeda’s breach.[98] As the expenditure comprised costs of ownership rather than possession, it would have been incurred irrespective of the contract and its breach.[99]
[98]Ibid [42].
[99]Ibid [71].

Finally, the judge rejected Leeda’s submission that the proceeding should be remitted to the Tribunal to consider whether the loss of use damages should be reduced for Mrs Zeng’s failure to mitigate her loss.[100] Instead, the judge determined, on the basis of certain of the Tribunal’s findings, that Leeda had not established that Mrs Zeng had failed to mitigate.[101] The judge considered that he was entitled to determine the issue of mitigation because only one conclusion was open on the correct application of the law to the facts found by the Tribunal,[102] and it was an appropriate case to do so.[103] It was an appropriate case because he had the parties’ written and oral submissions before the Tribunal, and determining the issue would avoid the additional expense and delay that would result from remittal.[104] It is only the judge’s reasons for deciding to determine the issue, not his reasons for determining that there was no failure to mitigate, that are presently relevant.
[100]Ibid [8].
[101]Ibid [99].
[102]Ibid [84], quoting Osland v Secretary, Department of Justice [No 2] (2010) 241 CLR 320, 332–3 [20] (French CJ, Gummow and Bell JJ) (‘Osland’).
[103]Reasons [85], citing Swan v Uecker (2016) 50 VR 74, 104 [78]–[79] (Croft J).
[104]This was said to be facilitative of the overarching purposes of the Civil Procedure Act 2010.

It is also necessary to mention the judge’s separate decision as to costs.[105] The judge ordered Leeda to pay Mrs Zeng’s costs, not only of the appeal, but also of the Tribunal proceeding. It is the order in respect of the costs of the Tribunal proceeding which is now relevant. The judge ordered Leeda to pay Mrs Zeng’s costs of that proceeding because he considered it ‘inconceivable’ that the Tribunal would order otherwise. The judge considered that, having regard to the nature and complexity of the proceeding, and in particular that it was a hard-fought proceeding in which significant sums of money were at stake, it was fair to depart from the default position that parties to a Tribunal proceeding bear their own costs.[106]
[105]Zeng v Leeda Projects Pty Ltd[No 2] [2019] VSC 184 (‘Costs Reasons’).
[106]See Victorian Civil and Administrative Tribunal Act 1998 s 109(3).

In arriving at that conclusion, the judge rejected Leeda’s submissions that, in respect of the costs of the Tribunal proceeding:[107]
[107]Costs Reasons [9]–[11].

(o) Mrs Zeng’s entitlement to costs should be reduced by reason of the abandonment of her claim for loss of income;

(p) Mrs Zeng’s entitlement to costs should exclude costs in respect of an expert whose evidence was rejected; and

(q) Leeda was entitled to a special costs order in its favour by reason of Mrs Zeng’s rejection of a Calderbank offer made by it.

Proposed grounds of appeal

Leeda advances three proposed grounds of appeal:

1. The trial judge erred in concluding that the respondent was entitled to substantial, as opposed to nominal, damages.
2. The trial judge erred in deciding to determine that the respondent’s damages should not be reduced on account of a failure to mitigate her own loss, given:
(a)the Tribunal had heard evidence and received submissions on this issue but not yet determined it for itself in light of its finding that the respondent was only entitled to nominal damages; and

(b) the limited nature of a s 148 appeal.
3. The trial judge erred in deciding to determine the question of costs in the Tribunal proceeding, given:
(a) the Tribunal had expressly reserved the question of costs for the parties to apply to it should they seek costs;
(b)the superior position of the Tribunal to determine the question of costs in the proceedings before it; and

(c) the limited nature of a s 148 appeal.

Notice of contention

Mrs Zeng filed a notice of contention, containing a single proposed ground:

In the alternative to loss of use damages calculated by rental value, the Respondent also claimed wasted expenditure on rates, utility charges and body corporate fees in the sum of $283,802.17. The learned trial judge below did not allow this claim, on the basis that such expenses were incurred irrespective of the terms of the building contract: see Judgment at [42] and [71]. If the Applicant’s submission [as to] loss of use damages based on rental value is accepted, then the Respondent says that the judgment should be affirmed on the basis that his Honour should have allowed general damages for wasted expenditure in the sum of $283,802.17.

Leeda contended that this argument was not properly raised by notice of contention and that it amounted to a proposed cross-appeal. That may be doubted, as Mrs Zeng does not seek to displace the judge’s orders, only to sustain them to the extent identified in the notice of contention in the event that the appeal succeeds. At all events, Leeda did not claim to be prejudiced by any defect in the form of notice of Mrs Zeng’s argument, and full submissions were made in respect of it. It should therefore be determined by the Court.

Submissions

First proposed ground

Leeda submitted that the judge’s conclusion that Mrs Zeng was entitled to substantial damages for loss of use during the period of delay was contrary to principle. Specifically, it was submitted that the judge had contravened the ruling ‘compensatory principle’ that an award of damages for breach of contract is to put the injured party in the position in which it would have been if the contract had been performed rather than breached.[108]
[108]See, eg, Clark v Macourt (2013) 253 CLR 1, 6 [7] (Hayne J) (‘Clark’), citing Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, 286–7 [13] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ) (‘Tabcorp’).

In accordance with this principle, there were said to be only two possible forms of compensable loss: (a) expectation loss, being the loss of the value of the expectancy created by the promised performance;[109] and (b) actual loss, being the ‘real world’ loss which flows from the relevant breach. Leeda submitted that Mrs Zeng could establish neither form of loss.
[109]See Clark (2013) 253 CLR 1, 6 [7], 7 [11] (Hayne J), 19 [61] (Gageler J), 31–2 [109] (Keane J). This, it was said, may be understood as a form of ‘normative’ as opposed to ‘factual’ loss: see LL Fuller and William R Purdue, ‘The Reliance Interest in Contract Damages: 1’ (1936) 46(1) Yale Law Journal 52, 53.

The Privy Council in Inverugie (which was a trespass case) referred to the characterisation of this position and that in The Mediana as the ‘user principle’, an expression used by Nicholls LJ in Stoke-on-Trent City Council v W & J Wass Ltd.[172] By that principle, a person who wrongfully uses another’s property without causing them pecuniary loss is in general liable to pay a reasonable sum for that use, even if the owner would probably not have used the property themselves. It is said that the person who makes wrongful use of property prevents the owner from exercising their right to obtain the economic value of the use in question and is required to give compensation rather than taking something for nothing. In the present case, the judge cited the adoption of this principle by Lord Reed JSC in One Step (Support) Ltd v Morris-Garner,[173] which the judge regarded as being consistent with GEC Marconi.[174] However, Lord Reed JSC was concentrating on the tortious actions of detinue, conversion and trespass.[175] While he accepted that the user principle was ‘of potential relevance’ also in contractual cases,[176] he was at pains to state the different bases for awarding damages in tort and contract and to note that the measure of damages in each will not necessarily be the same:

Damages in contract serve a different remedial purpose from damages in tort, reflecting the different nature of the obligation breached by the wrongdoer in each case. The law of tort is concerned with civil wrongs, that is to say with breaches of duties imposed by the law, sometimes generally and sometimes on those who are party to particular relationships or have assumed particular responsibilities, which protect the interests of others in respect of such matters as their bodily integrity, their liberty, their property, their privacy and their reputation. Damages in tort are generally intended to place the claimant as nearly as possible in the same position as he would have been in if the tort had not been committed. The law of contract, on the other hand, gives effect to consensual agreements entered into by particular individuals in their own interests. Remedies granted by the courts are designed to give effect to what was voluntarily undertaken by the parties. Damages in contract are therefore intended to place the claimant in the same position as he would have been in if the contract had been performed.[177]

[172][1988] 1 WLR 1406, 1416.

[173][2019] AC 649, 671 [29]–[30].

[174]Reasons [43]–[48].

[175][2019] AC 649, 689 [95](1).

[176]Ibid 672 [33].

[177]Ibid 671–2 [31].

Despite the differences, both contract and tort damages are intended to afford compensation.[178] The nature of that compensation is harder to ascertain when no actual financial loss has been caused by the wrong done. Damages in such cases might be seen as exceptions to the general compensatory rule.[179]
[178]Amann (1991) 174 CLR 64, 99 (Brennan J), citing Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185, 191 (Taylor and Owen JJ).
[179]See Lord Nicholls of Birkenhead’s discussion of interference with rights of property (primarily by way of trespass or wrongful detention of goods) in Attorney-General v Blake [2001] 1 AC 268, 278–9.

A case closer to the present is Bella Casa Ltd v Vinestone Ltd.[180] It concerned defective design and construction works which caused the loss of use of an apartment. The anticipated use of the apartment was to be ‘occasional at best’.[181] A claim for loss of use was based on interest on the balance of the purchase price together with other costs, as well as a claim for service charges for the relevant period. Separately to the loss of use claim, there was a claim for utilities bills and sundry other charges.
[180][2005] EWHC 2807 (‘Bella Casa’).
[181]Ibid [58].

On a pleading summons, Peter Coulson QC considered that the claims for service and utilities charges might represent a recoverable head of damage, subject to arguments as to causation, proof and mitigation.[182] The loss of use claim was struck out as being unsustainable as a matter of law. It was held that there was no authority supporting recovery in a building case of general damages of the kind being sought.[183] The judge distinguished the admiralty cases on the basis that they were concerned with the loss of use of a depreciating asset in a commercial situation, whereas real property was not a depreciating asset in the same way and the present case did not involve a commercial property.[184] The point of distinction regarding commercial purpose does not sit comfortably with the Australian cases applying the Mediana line of authority to pleasure craft, but the distinction regarding the nature of the assets is apposite.
[182]Ibid [70].
[183]Ibid [44].
[184]Ibid [58]–[59].

The Mediana line of authority was also confined by Ward J in Lahoud v Lahoud.[185] In that case, a purchaser claimed damages for loss of rent as a result of a vendor of real property delaying transfer of the property. The purchaser did not make a discrete claim for loss of use.[186] The case turned on whether the purchaser had established a causal link between the breach of contract and the loss of rental claimed. However, Ward J considered how a loss of use claim might have been advanced. She concluded that the Australian application of the Mediana principle ‘has generally been restricted’ to tortious interference with non-profit earning chattels and trespass to land, while accepting that the decision in GEC Marconi arguably broadened its application.
[185](2009) NSW ConvR ¶56–245; [2009] NSWSC 623 (‘Lahoud’).
[186]Ibid 55, 365–6 [104].

GEC Marconi was not so much a loss of use case as one of consequential loss occasioned by the breach, because the property had been required to be committed to the contract for a longer period as a result of the breach. In that sense, as Finn J acknowledged, it does not fit neatly within the other loss of use cases.[187] For the reasons given earlier, it was also a special case because the Commonwealth had ascribed a value to the property in question which represented its value to the Commonwealth, albeit one comparable to private market rental. However, as mentioned, the case recognises the application of the Mediana principle in the contractual context and is some endorsement of the extension of that principle to cases involving non-income producing real property.

Conclusions

[187]GEC Marconi (2003) 128 FCR 1, 337 [1569].

In my view, the underlying holding of those cases allowing for recovery, in tort or contract, in respect of loss of use of a chattel applies equally to land — but for the wrong or the breach, the other party would have had the use of the chattel or land, but instead, while they are unable to use it, they suffer compensable loss. The existence of the tort of trespass, which compensates for interference with rights of possession, does not preclude applying the rationale of the chattel cases — the admiralty, pleasure craft, and motor vehicle cases — to appropriate cases involving the loss of use of land.

The authorities recognise the possibility of compensation for such loss. That is not to say that damages will necessarily be substantial (as was observed in The Mediana itself) or that damages in contract will be the same as those in tort. Apart from anything else, the duty to mitigate will come into play in relation to breaches of contract. But the measure of damages, if any, will depend on the particular case.

The question is whether, in the circumstances of a particular breach of contract which has caused a party to lose the use of property for a period, an award of damages for that loss satisfies the tests for causation and remoteness of damage which are applied as part of the general law of contract without yielding unreasonable outcomes.

At this point, in my view, it becomes difficult to state a general principle or to resort to any ‘default’ measure of damages. In that regard, I have had the benefit of reading in draft the reasons of Kaye JA regarding this part of the case. In large part, our reasons are similar. However, to the extent that Kaye JA identifies ‘notional’ or ‘wasted’ costs of ownership as the appropriate measure of damage in cases where real property intended purely for personal use is rendered unavailable by a breach of contract, I respectfully prefer not to embrace any such wider principle. In my view, the cases concerning contractual damages for loss of use of real property are too few to extract a principle of that kind.[188]
[188]Of the authorities, only Calabar, the pleading summons in Bella Casa and (albeit indirectly) GEC Marconi are within this category. Of the cases involving chattels, some involve statutory causes of action and many treat the matter indifferently as involving both tort and contract.

The authorities concerned with chattels reflect the position that loss is caused when an asset depreciates while it is wrongfully kept from the person entitled to it, whether the asset is used for profit or for pleasure alone. As Kaye JA acknowledges, the same cannot be said for real property. It does not ordinarily depreciate (although fixtures on it will generally do so).

Real property also stands in a special position because, when it is used for the purposes of a residence, it is used neither for profit nor for pleasure alone, but to meet a necessity. The multiple purposes for which land may be owned make it hard to say that the measure of the loss of its use is ordinarily calculated by any one measure, including the amount which could have been obtained by renting it. That measure may be appropriate, at least in contract, if the specific loss was caused by the breach and within the reasonable contemplation of the parties — as where, for example, the property is intended to be rented for reward. In another case, if the property is intended as a residence for the owner and is unavailable for that purpose, damages might take the form of the cost of renting an alternative residence (as was referenced in Sweeney v Coffey Pty Ltd, and by analogy with the motor vehicle cases where the cost of a necessary replacement vehicle, rather than the deemed cost of renting the subject vehicle, was the measure used). In another case again, the unavailability of a property for use may cause no compensable loss at all — for example, if a vendor delays settling on a sale of land, the purchaser may simply continue residing in a property which appreciates in value during the period of delay.

For these reasons, the particular approaches taken to assessing damages in the chattel cases are not necessarily applied to cases involving land.

As mentioned earlier, the judge pointed to United States authority, including Dobbs’ Law of Remedies, in support of the proposition that, in that country, rental value is the proper or ‘default’ measure of loss of use damages for builder delay in breach of contract cases even though the owner could not have rented the property and did not require the building at the time when it ought to have been available.[189] The Restatement (Second) of Contracts does not support that position by addressing non‑income producing property specifically.[190] But nor does it contradict it. In any event, the parties did not argue the case before us on the basis of United States authority. It is more significant to consider the status of that authority in Australian decisions.
[189]Reasons [82].
[190]American Law Institute, Restatement (Second) of Contracts (1981) § 348.

In that context, it is clear that the authorities (especially Calabar) do not sustain the position that damages for loss of use of real property caused by a breach of contract are generally to be calculated according to market rental, in cases where the owner did not intend to use that property either for a residence or for any profit-earning purpose.

To the extent that Finn J adopted the United States authorities as going to the measure of damages to be awarded in GEC Marconi, he did so by way of obiter dicta. That is both because GEC Marconi was neither a builder delay nor a loss of use case and because a different measure of damages was chosen. On any view, the facts of that case are very different from the present.

As already stated, it is necessary to decide each case on its own facts. Here, it was within the reasonable contemplation of the parties that the property would be used as an art gallery, but not that it would be rented for reward. No other property was sought or required for use in place of the property during the period when it was unavailable for use by reason of the breach. In those circumstances, an award of damages based on what it would have cost to rent the property, or a replacement, goes beyond the compensatory principle, the principle in Robinson v Harman and the rule in Hadley v Baxendale. While there is a basis for regarding such a measure as potentially applicable for loss of use of property intended to be used for profit or otherwise essential to its owner, that is not this case. As in Calabar, a claim on that basis rests on a fictitious assumption divorced from the value of the apartment to Mrs Zeng.

For these reasons, damages should not have been assessed according to the commercial rental value of the apartment and the first proposed ground of appeal should be upheld.

It is then necessary to turn to the notice of contention.

Notice of contention

By the notice of contention, Mrs Zeng does not in terms advance an alternative measure of damages for loss of use. She claims instead for wasted expenditure in the sum of $283,802.17. That expenditure, as found by the Tribunal, consisted of owners corporation charges in the total amount of $244,190.69, City of Melbourne rates totalling $34,368.94, electricity charges of $3,488.39 and water charges of $1,754.15.[191] In the Tribunal, this was treated as an alternative measure of the damages for loss of use.[192]
[191]Tribunal Reasons [171]–[172].
[192]See [80] above.

The judge rejected the claim because the amounts in question were expended irrespective of the contract or its breach.[193] Mrs Zeng submits that the wasted expenditure claim can be explained as compensation for the loss of the contractual bargain, based on a rebuttable presumption that the value of the contractual benefit must be at least equal to the amount that the claimant is prepared to pay in order to obtain that benefit.[194] She observes that, in Bella Casa, the fact that the payments were to be made in any event did not suffice to have the claims struck out.
[193]Reasons [71].
[194]Royal Devon & Exeter NHS Foundation Trust v ATOS IT Services UK Ltd [2017] EWHC 2197, [58] (O’Farrell J).

Damages for ‘wasted expenditure’ are not true alternative heads of damage, but manifestations of the central principle in Robinson v Harman.[195] It is therefore not to the point that there is a class of case where expenditure made in reliance on the contract being performed may be recovered, and that this case falls outside that class. The label ‘wasted expenditure’ does not work to circumscribe the operation of the general principles for recovery of contract damages to particular kinds of case. Applying those principles, in my opinion, it must have been within the reasonable contemplation of the parties that, if there was a delay on the part of Leeda in completing the works within a reasonable time, Mrs Zeng would be required to make payments in respect of a property which she could not use, being payments from which she acquired no benefit. The fact that the payments would have been made in any event does not mean that they are not recoverable. In that respect, the payments stand in a similar position to the cost of keeping a spare lightship available in The Mediana. In both cases, expenditure was incurred irrespective of any breach of contract (or tortious wrong, in The Mediana), but that does not stop that expenditure from being an apt measure of the compensable loss.
[195]Amann (1991) 174 CLR 64, 82 (Mason CJ and Dawson J).

If one treats this claim, as the Tribunal did, as a differently quantified claim for loss of use of the apartment, the overarching principle in Robinson v Harman still applies. As Holmes CJ said in Pix, the common thread in the Mediana line of cases is that an investment has been made in something which is capable of yielding nothing by way of return in terms of profit or, in this case, enjoyment, during the period it is incapable of being used.[196] By analogy, the ‘investment’ here consists of the regular payments made by Mrs Zeng in respect of the property which, had the contract been performed, would then have been in Mrs Zeng’s possession and available for use for her intended purposes.
[196]Pix [2019] QSC 45 [25].

Mrs Zeng’s damages therefore ought to have been measured by reference to the amount she spent in respect of a period when she would have been able to use the property, had the contract been performed. Instead, contrary to the expectations of the parties when they made the contract, these amounts were spent, without benefit to Mrs Zeng, in respect of a property of which Leeda retained possession for its own use, being the completion of its work.

I would therefore uphold the ground in the notice of contention. Mrs Zeng should have been awarded damages in the sum of $283,802.17.[197]
[197]No question of set-off now arises because Mrs Zeng has paid the amount of $211,844.20 awarded to Leeda by the Tribunal: see Costs Reasons [2].

Proposed grounds 2 and 3

Under each of the remaining grounds, Leeda contends that the judge ought not to have entered into the merits of the relevant issue (mitigation of damages, and costs in the Tribunal) but ought to have remitted the issue to the Tribunal. Although I have reached a conclusion different to that of the judge on the principal question that was before him, each of those issues remained live and it is therefore necessary now to resolve these remaining grounds.

Leeda does not dispute that the judge had jurisdiction to decide the questions of mitigation of damages and costs. Nor does it advance any proposed ground of appeal directed at the manner in which the judge decided those questions. Instead, Leeda contends that the judge failed to exercise the restraint inherently required in determining an appeal from the Tribunal under s 148 of the Victorian Civil and Administrative Tribunal Act 1998.

Section 148(1) relevantly provides that a party to a proceeding in the Tribunal may appeal, by leave, on a question of law. The section further provides:

(7)The Court of Appeal or the Trial Division, as the case requires, may make any of the following orders on an appeal—
(a)an order affirming, varying or setting aside the order of the Tribunal;
(b)an order that the Tribunal could have made in the proceeding;
(c)an order remitting the proceeding to be heard and decided again, either with or without the hearing of further evidence, by the Tribunal in accordance with the directions of the court;
(d)any other order the court thinks appropriate.

(8)If the court makes an order under subsection (7)(c), it must give directions as to whether or not the Tribunal is to be constituted for the rehearing by the same members who made the original order.

In Osland v Secretary, Department of Justice, French CJ, Gummow and Bell JJ explained that s 148(7) does not enlarge the jurisdiction conferred by s 148(1), but confers powers in aid of its exercise.[198] In that context, it was stated, the Court should not ‘usurp the fact-finding function’ of the Tribunal. Their Honours continued:

The Court …, in the exercise of its jurisdiction under s 148 of the VCAT Act, may make substitutive orders where only one conclusion is open on the correct application of the law to the facts found by the Tribunal. Such a case arises when no other conclusion could reasonably be entertained. In that event, the Court can make the order that the Tribunal should have made. The language of s 148(7) is also wide enough to allow the Court … to make substitutive orders in other circumstances. But its powers must … be exercised having regard to the limited nature of the appeal. Absent such restraint, a question of law would open the door to an appeal by way of rehearing. Where there is a factual matter that has to be determined as a consequence of the appeal, it may be that it is able conveniently to be determined by the Court … upon uncontested evidence or primary facts already found by the Tribunal. When the outstanding issue involves the formation of an opinion which is, as in this case, based upon considerations of public interest, then it should in the ordinary case be remitted to the body established for the purpose of making that essentially factual, evaluative and ministerial judgment.[199]

[198]Osland (2010) 241 CLR 320, 332 [19].

[199]Ibid 332–3 [20] (citations omitted).

The Court hearing an appeal under s 148 must therefore exercise restraint to ensure that it does not step outside its jurisdiction to hear an appeal confined to a question of law. If only one conclusion is open on the correct application of the law to the facts found by the Tribunal, then applying that conclusion is plainly a proper exercise of the power. However, the Court in Osland did not confine the power under s 148(7)(d) to this situation. In particular, it acknowledged that considerations of convenience may permit the Court to determine a factual matter upon uncontested evidence or primary facts already found by the Tribunal.

The judge in the present case applied a stricter test and held that only one conclusion was open on the correct application of the law. Especially in respect of the question of costs, that conclusion is open to serious question. But the passage just set out shows that the judge imposed too high a test in any event. It is therefore not necessary to decide whether only one conclusion was open as to mitigation of damage or costs.

Support for a stricter test might be thought to derive from this Court’s decision in Hoser v Department of Sustainability and Environment.[200] That case concerned a Tribunal decision to cancel a particular licence, including on the grounds that the applicant had committed serious breaches of the licence conditions and was not a fit and proper person to continue to hold the licence. The Tribunal’s decision was set aside for legal error. This Court referred to Osland and expressed the view that it could only make a substitutive order where only one conclusion is open, so that it would ordinarily have remitted the matter to the Tribunal. It did not do so, however, because the licence had expired and there was no utility in a remitter.[201] It can be seen that it was unnecessary for the Court to essay the full extent of its powers as described by French CJ, Gummow and Bell JJ in Osland, and that it did not purport to do so. In particular, the Court did not specifically refer to the endorsement in Osland of the appellate court deciding questions of fact when convenient to do so.
[200](2014) 203 LGERA 96; [2014] VSCA 206 (‘Hoser’).
[201]Ibid 115 [76]–[77] (Redlich, Tate and Santamaria JJA).

The question is then whether the judge ought to have remitted the questions of mitigation of damage or costs to the Tribunal.

In my view, the mitigation question involved the making of factual findings based on facts already found or undisputed and was conveniently resolved by the judge. The judge relied on numerous unchallenged findings of the Tribunal.[202] He had access to the written submissions of the parties before the Tribunal and was in as good a position as the Tribunal, despite not having seen the witnesses, to decide whether Mrs Zeng should have mitigated her loss. The mitigatory steps which Leeda submitted that Mrs Zeng ought to have taken involved the exercise of rights under the contract, which the judge could readily consider and evaluate. In such circumstances, remitter may well cause unnecessary delay and the remaining issue is conveniently able to be dealt with under s 148(7).[203]
[202]Reasons [88]–[89], [91].
[203]See also Champion v Rohrt [2016] VSCA 215 [66] (Santamaria and McLeish JJA).

For these reasons, I would not uphold the second proposed ground of appeal.

The costs order stands in a different position. Questions of costs are often both complex and subjective and this case was no exception. Mrs Zeng has succeeded in recovering damages for Leeda’s breach, in the sum of $283,802.17. But she advanced that claim on numerous bases and was unsuccessful in all but one of them. Leeda succeeded in its claim against her in the amount of $211,944.20. There was also a Calderbank offer made by Leeda in an amount substantially higher than she ultimately obtained (and, it appears, at least one other Calderbank offer that was not accepted).

In the circumstances, this Court, and the judge, are at a distinct disadvantage when it comes to determining the costs of the hearing before the Tribunal. That hearing occupied ten days and traversed issues that were not pursued by way of appeal. The manner in which the parties conducted the hearing bears on any decision whether to make allowances in respect of particular issues, and on the reasonableness or otherwise of Mrs Zeng not accepting the Calderbank offer. The Tribunal is in a much better position to decide the multiple contested issues that arise and considerations of convenience did not suffice to warrant the judge taking

any different course.[204]
[204]This is not a case where the decision being remitted has already been made differently by the decision-maker; cf Costs Reasons [8]. The fact that the Tribunal member would be deciding costs after a substantive outcome different to that which he had previously reached does not, without more, prevent him from deciding the question.

I would therefore uphold the third proposed ground and leave intact the order of the Tribunal that costs be reserved.

Conclusion

Leave to appeal should be granted on all grounds. The appeal should be allowed and paragraphs 3, 4 and 5 of the judge’s order should be set aside. In their place, there will need to be orders made setting aside the second order of the Tribunal (awarding nominal damages) and substituting an order that Leeda pay Mrs Zeng $283,802.17. The Tribunal’s order reserving costs will be left intact. There is therefore no need for a remitter.

Provision will also need to be made as to interest and the costs of the appeal. Failing agreement, the parties should make short written submissions as to the appropriate orders in that respect.

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[2020] VSCA 192

31 July 2020