Mackay v Mitena Pty Ltd 632 381 367
[2024] ACAT 69
•2 September 2024
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
MACKAY v MITENA PTY LTD 632 381 367 [2024] ACAT 69
XD 1088/2023
Catchwords: CIVIL DISPUTES – contract – sale and purchase of home unit off the plan – special condition about defects – whether the respondent fails to rectify defects within time – damages for breach of contract awarded to the applicant
List of Cases: Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd [2009] FCA 1220; 261 ALR 501
British Westinghouse Electric & Manufacturing Co Ltd v. Underground Electric Railways Co of London Ltd [1912] AC 673
Gumland Property Holdings Pty Ltd v. Duffy Bros Fruit Market (Campbelltown) Pty Ltd [2008] HCA 10; 234 CLR 237
Hadley v Baxendale [1905] HCA 20
Hobbs v London & South Western Railway Co (1875) LR 10 QB 111
Baltic Shipping Co v Dillon [1993] HCA 4; 176 CLR 344
Jarvis v Swan Tours [1973] QB 233
Koufos v Czarnikow Ltd [1969] 1 AC 350; [1967] 3 All ER 686
London and South of England Building Society v Stone [1983] 1 WLR 1242
Payzu Ltd v Saunders [1919] 2 KB 581
Robinson v Harman (1848) 1 Exch. 850; 154 ER 363
Sotiros Shipping Inc v Sameietl Solholt (The Solholt) [1983] 1 Lloyds Rep 605
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603
Watts v Morrow [1991] 1 WLR 1421
Tribunal:Senior Member D Hassall
Date of Orders: 2 September 2024
Date of Reasons for Decision: 2 September 2024
Date of Publication: 9 September 2024
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) XD 1088/2023
BETWEEN:
RUTH NAOMI MACKAY
Applicant
AND:
MITENA PTY LTD 632 381 367
Respondent
TRIBUNAL:Senior Member D Hassall
DATE:2 September 2024
ORDER
The Tribunal orders that:
The respondent pay $15,246 to the applicant as damages for breach of contract.
………………………………..
Senior Member Douglas Hassall
REASONS FOR DECISION
This was an application claiming damages for breach of contract. The application was heard by the Tribunal on 18 March 2024 with the applicant appearing in person and the respondent appearing by its authorised representative Mr Kasunic. Each party made extensive submissions, both generally and also upon the various particular points at issue between the parties. In addition, the parties have each provided the Tribunal with their respective detailed written submissions.
Essentially, the claim was based upon a defect rectification clause in the contract of sale dated 14 January 2021 of a residential property unit located at Turner in the Australian Capital Territory, bought “off the plan” by the applicant from the respondent company. Special condition 15.1 of that contract required the rectification by the respondent, within 90 days of receiving notice under that special condition 15.1, of certain types of “defects” as described in that provision of the contract.
On 10 February 2023, the applicant gave to the respondent a list of defects for rectification. The applicant had on 4 February 2023, on-sold the property to third party buyers. Those buyers had, pursuant to clause 69 of the on-sale contract, given the applicant a list of defects for rectification, rectification of defects being identified by clause 70 of the on-sale contract, as a condition of settlement.
The defects relied on by the applicant and notified to the respondent under special condition 15.1 of the parties’ contract of sale, were said to be defects as to:
(a)certain paintwork, a wall mark and scratched veneer on a kitchen cupboard;
(b)paint and surface damage to certain cavity slider doors;
(c)“Water hammer” in the water piping system; and
(d)installation of washing machine taps.
There were a few basic points which were common ground as between the parties, but they were fairly limited and upon the majority of points, the parties were generally at issue, as will shortly appear. The Tribunal has considered the respective cases of the applicant and the respondent under the headings which follow below.
The applicant’s submissions
In written submissions, amplified by oral submissions at the hearing, the applicant set out the case on the following claims.
The parties contracted on 14 January 2021 for sale and purchase of the residential unit property “off the plan”. Their contract included special condition 15.1 – a defect rectification clause requiring rectification of defects within 90 days.
The applicant advised the respondent of their intention to sell the property immediately on settlement upon their contract. The applicant then sold the property on 4 February 2023 and did not live in it or rent it.
The applicant wished to retain rights under the parties’ contract to ensure the property would transfer to its new owners with building defects rectified at no cost to the applicant. Clause 69(b) of the on-sale contract allowed the buyers to give the applicant a list of defects for rectification under it and they did so; and clause 70 (a) (ii) of the on-sale contract identified rectification of defects as a condition of settlement thereon.
The applicant gave the respondent a defect notice listing the claimed defects on 10 February 2023.
One identified defect was paint and surface damage to cavity sliding doors, which the applicant submits the respondent admitted it was required to rectify, but that the respondent disputes the other defects listed.
The respondent did not notify the applicant prior to the present proceedings, that it considers some of the listed defects to be excluded from the said defect rectification clause in the parties’ contract. On one occasion, the respondent indicated it would notify the applicant in relation to “paint chips,” but that the respondent did not do so.
The respondent was given the keys to access to the property, from 17 February 2023 for the purpose of rectifying defects. In April 2023, the respondent was put on notice that:
(a)special condition 15.1 was an essential term of the parties’ contract;
(b)the applicant had sold the property;
(c)failure to complete rectification of defects in time would be a material breach of contract; and
(d)the applicant reserved the right to seek redress for any damages.
On 8 May 2024, the applicant went on a two-month holiday overseas and a real estate agent friend, Mr Andrew White, had agreed to monitor progress regarding rectification of defects and communicate with the respondent in the applicants’ absence.
The 90-day rectification period expired on 10 May 2023. During that period, the respondent’s workers entered the property and damaged it by using incorrect paint and marker pens to attempt to cover the defects. After the rectification period, the respondent retained the property keys and did not communicate with applicant or Mr White.
In June 2023, the respondent’s workers entered the property, removed doors and did other works until 22 June 2023. The respondent failed to rectify “water hammer” of pipes at the property, and on 28 June 2023, the applicant abandoned efforts to have that work done.
On 29 “January” 2023 (it appears in fact on 29 June), the applicant’s lawyer sent the seven-day settlement notice to the on-sale buyers under clause 70(a)(ii) of the on-sale contract. The respondent did not return the property keys until the evening of 4 July 2023 and costs associated with holding the property for about two months beyond the defect period are claimed as losses, together with “other consequential losses” that the applicant claims.
The applicant in submissions also identified the main issues between the parties in this matter as the following:
(a)Mr White’s statement should not be excluded.
(b)The respondent caused damage by application of incorrect paint colour or covering marker on or about 9 May 2023.
(c)The defects were not rectified within the 90-day defect rectification period provided for in Special Condition 15.1 of the parties’ contract.
(d)The respondent breached the parties’ contract because the defects were not rectified within the required timeframes, a failure continuing until 29 June 2023 and is thus liable for losses.
(e)As a result of the respondent’s breach of contract, the applicant incurred losses as a direct result of damage to the property by the respondent and the delay in rectification.
The respondent in their submissions raised other additional issues and differences as being relevant, as will be duly noted below.
The applicant’s amended application claimed an award of damages for breach of contract in the sum of $25,000 being the relevant jurisdictional limit of this Tribunal. The applicant ultimately set out, in detailed written submissions, claimed losses totalling $34,169 but waived the excess over the jurisdictional limit of $25,000. Certain items were adjusted by the applicant to correct some earlier errors and so as to apply as to 51 days.
The losses claimed are:
(a)$10,968 as for interest, insurance, rates, land tax, water rates, body corporate, electricity and gas;
(b)$15,640 as “costs of managing the breach”;
(c)$761 as “cost of lost opportunity” in regard to a residential unit at Orange in New South Wales; and
(d)$6,800 as “damages arising from unauthorised use” of the property by the respondent.
The respondent’s submissions
In written submissions, amplified by oral submissions at the hearing, the respondent set out its case against the claim, submitting the following:
(a)There in fact was no breach of contract.
(b)The respondent’s responsibility was as the developer, and it addressed the defects and went “above and beyond” and had rectified the issues reported through Mr White.
(c)The applicant has not in fact suffered any loss as a result.
(d)The respondent also challenged Mr White’s statements and submitted they were the only means that the applicant, who was overseas at the time, has to establish when things were or were not duly completed and rectified.
(e)Mr White was not an expert with respect to the matters of defects.
The respondent further submitted that the applicant had in any event “failed to mitigate her losses through this whole process”[1] as her on-sale contract allowed for completion of that contract and that a notice to complete could have been issued sooner and that the on-sale contract was not one contingent upon rectification of the defects being completed.
[1] Transcript of proceedings dated 18 March 2024, page 7, lines 37-38
In addition, the respondent submitted that the applicant was in a position of some legal ambiguity and that there was a question of whether the applicant did not enforce the on-sale contract because they did not in fact notify the correct party in accordance with the on-sale contract.
The respondent submitted that the on-sale contract called for defects to be notified to the “builder” and that in fact the defects were notified to the “developer and not the builder” which the respondent suggested was perhaps another “mitigating factor as to why [the applicant] did not issue a notice to complete”[2] sooner.
[2] Transcript of proceedings dated 18 March 2024, page 7, lines 46-47
The respondent submitted that even if this Tribunal found the respondent to be in breach of contract, “some of the losses claimed are too far removed from the contract to be claimed”[3]. These and the following quotations from Mr Kasunic’s submissions on behalf of the respondent are drawn from the transcript of proceedings dated 18 March 2024.
[3] Transcript of proceedings dated 18 March 2024, page 8, lines 17-23
The respondent also submitted that the real situation was that the applicant “had a buyer that was in a financial position where they were unable to settle” and that it was clear from the tenor of communications of Mr White that the applicant was looking to get out of the parties’ contract “due to the falling through of the sale of [the Applicant’s] property”.[4]
[4] Transcript of proceedings dated 18 March 2024, page 8, lines 49-50
The respondent then submitted the applicant:
Used these defects as an opportunity to continually delay settlement and the applicant in her assessment of the situation, with the advice of [Mr White] and her Solicitor, didn’t act in accordance with [the applicant’s] contract to enforce the [on-sale] and so allowed the narrative of [Mr White] complaining [of] defects and whatnot to delay settlement to continue and therefore any losses that [the applicant] may have suffered are of [the applicant’s] own cause, not by the fact [the respondent] was in default of the [parties’] contract and its responsibility to repair defects.[5]
[5] Transcript of proceedings dated 18 March 2024, page 8, lines 16-22
The respondent frankly conceded that “the cavity slider, the scratch to the kitchen door” were defects, but submitted these were duly addressed in rectification by the respondent. The respondent further submitted that under the parties’ contract, it was “clear that any paint scratches, marks and dents need to be identified pre-settlement” and that the applicant had in that regard, thus “identified those through a pre-settlement inspection and we [the Respondent] rectified all of those.”[6]
[6] Transcript of proceedings dated 18 March 2024, page 8, lines 36-37
The respondent added that then “post-settlement the property was open for exhibition”[7] and there were “record numbers of people through” according to Mr White’s communications and that the respondent was, “Then pushed with another list post-settlement which had chips, marks, scratches to the plasterboard and paint surfaces throughout the property.”[8]
[7] Transcript of proceedings dated 18 March 2024, page 8, lines 39
[8] Transcript of proceedings dated 18 March 2024, page 8, lines 43-45
The respondent submitted that when furniture stylists and people come through at an exhibition, “damage can occur that’s not the developer’s fault” but that they “still repaired all those items because we just wanted to try and keep our buyer [viz., the Applicant] happy…”[9]
[9] Transcript of proceedings dated 18 March 2024, page 9, lines 4-5
In reply to the applicant’s submission admitting that the respondent did repair all the defects aside from the water hammer, the respondent submitted that it is “not in fact a defect” as the “mixer still operates fine.” In this regard, the respondent noted it “is an issue of how quickly you close the mixer” and that water hammer only occurs “if you slam it closed” and that “the applicant’s buyer who lives there now still operates the shower … so there are no issues with it.”[10]
Special condition 15.1 in the parties’ contract
[10] Transcript of proceedings dated 18 March 2024, page 9, lines 9-10
Special Condition 15.1 in the Parties’ Contract provided as follows:
15.1 Maintenance
(a) The Buyer may prepare and submit to the Seller in writing during the Maintenance Period a list of defects or faults (in any) in the Unit.
(b) Subject to Special Condition 15.1(i) the Seller must cause all defects (if any) in the Unit due to defective or improper materials or bad workmanship, to be made good in proper and workmanlike manner at no cost to the Buyer;
(ii) as soon as reasonably practicable after receiving the notice if the defects:
(a) concern electricity or gas supply or distribution;
(b) concern sewerage or drainage; or
(c) materially restrict or interfere with the proper use and enjoyment of the Unit by the Buyer; and(ii) otherwise, within 90 days after receiving the notice.
(c) The Seller shall not be required to make good or repair, and will not be liable for:
(i) any item, appliance or inclusion which is covered by a manufacturer’s warranty;
(ii) natural shrinkage in the Unit or defects caused by natural shrinkage in the Unit or Building;
(iii) minor defects or irregularities in natural materials; or
(iv) chips, cracks, marks scratches or stains which are not notified by the Buyer to the Seller prior to Completion.
(d) Other than for matters directly covered by Special Condition 15.1(b)(i) the Buyer may submit only one list of defects during the Maintenance Period.
(e) The Buyer must make the Unit available at the time or times notified by the Seller, to the Seller or the Seller’s tradesmen to permit the rectification of defects in a prompt and timely manner.
Legal principles and consideration
The key legal principles in play here can be summarized as follows. A breach of contract gives the injured party a right of action for damages. However, as outlined in Koufos v Czarnikow Ltd [1969] 1 AC 350; [1967] 3 All ER 686, issues arising will include those of remoteness and measure of damages and the ways in which damages for breach of contract are to be assessed.
A contract breaker is responsible only for resultant damage the breaker ought to have foreseen or contemplated when the contract was made as being not unlikely, or liable to result from his breach, or of which there was a serious possibility or real danger, see Koufos v Czarnikow Ltd [1969].
The requisite degree of foresight is attributed to the contract breaker either:
(a)because the damage is such as may fairly and reasonably be regarded as arising naturally, that is to say according to the usual course of things, from the breach; or
(b)because of special knowledge which the contract breaker had at the time of making the contract. This is known as the rule in Hadley v Baxendale (1859) 9 Exch. 341 which is broadly speaking still accepted.
It is not necessary that responsibility for the relevant loss should have been assumed as a term of the contract, see Koufos v Czarnikow Ltd [1969] 1 AC 350; [1967] 3 All ER 686.
Another issue often arising, is the principle of mitigation of damages by the other party. A plaintiff or claimant must generally take all reasonable steps to mitigate the loss which has been sustained consequent on a defendant or respondent’s wrongdoing and if the plaintiff or claimant fails to do so, damages cannot be claimed for any such loss which ought reasonably to have been avoided, see generally British Westinghouse Electric & Manufacturing Co Ltd v. Underground Electric Railways Co of London Ltd [1912].
A leading case is Robinson v Harman (1848) 1 Exch. 850 ;154 ER 363 where Parke B laid down the principle that broadly, damages in contract are to put a plaintiff in the position the plaintiff would have occupied had the contract been performed that is, the position the plaintiff would reasonably have expected to be in had there been no breach of contract, see generally Heydon on Contract LBC 2019. Certain qualifications also apply, Watts v Morrow [1991] 1 WLR 1421 at 1445 per Bingham LJ stated
A contract breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension, or aggravation which his breach of contract may cause the innocent party.
Nor can damages be recovered, as outlined in Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1993) 176 CLR 344, “that for mere inconvenience… without real physical inconvenience resulting”.
Damages for mental distress and vexation have been recovered for breaches of contract such as a contract to provide enjoyment, by way of a skiing holiday or an ocean cruise (above). However, such is not the case in the present case before this Tribunal.
In addition, the following passage is instructive as to what are termed “Controls on Recovery” as explained by Justice JD in Heydon on Contract (2019):
It is not every loss which a plaintiff suing for breach of contract can recover. The law imposes controls on recovery. The first control is that the plaintiff must prove that the claimed loss was caused by the breach. The second is that the loss caused by the breach must not be too remote. The third is that the capacity of the plaintiff to recover for non-remote loss caused by the breach depends on whether the plaintiff has made gains from the breach which reduce the loss. The fourth is that the plaintiff’s capacity to recover depends on whether the plaintiff has behaved reasonably by seeking to mitigate the loss suffered.
In the present case, the third (gains) does not appear to be relevant in the facts and circumstances before this Tribunal.
What is often called “the duty to mitigate,” as outlined in Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2009) is misleading. It is not an obligation giving rise to a cause of action. There is no positive duty owed to a defendant to mitigate loss unless a term of the contract creates that duty, as seen in Gumland Property Holdings Pty Ltd v. Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237.
A plaintiff is, as outlined in Sotiros Shipping Inc SA v Samuel Solholt (The Solholt) [1983 1 Lloyds Rep 605, “completely free to act as [he or she] judges to be in [his or her] best interests” yet a plaintiff is debarred from recovering loss caused, not by a defendant’s breach of contract, but by the plaintiff’s failure, such as a failure to investigate.
In Payzu Ltd v Saunders [1919] 2 KB 581 at 589, Scrutton LJ indicated that a plaintiff:
Can recover no more than [he or she] would have suffered if [he or she] had acted reasonably, because any further damages do not reasonably follow from the defendant’s breach.
However, a plaintiff is not bound to take all possible steps to mitigate its loss, only those steps which are reasonable, see generally Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603.
Further: “a plaintiff’s conduct in not taking steps to reduce the loss will not be weighed in nice scales at the instance of a party who has occasioned the loss” and also a plaintiff “is not under any obligation to do anything other than in the ordinary course of business and the standard is not a high one, since the defendant is a wrongdoer”, see Heydon on Contract (2019).
Hence, there are instances where damages otherwise recoverable by a plaintiff will not be reduced (for one example) by the possibility that the plaintiff could have minimised them by taking particular legal actions or the like, such as (and just for example) suing parties other than the defendant, see generally London and South of England Building Society v Stone [1983] 1 WLR 1242.
Applying those principles to the facts and circumstances of the present case as disclosed in the materials and submissions before this Tribunal, the Tribunal is thereby satisfied, on the civil standard:
(a)that there was a breach of contract by the Respondent as claimed by the Applicant, by failing to rectify all notified defects within the stipulated 90-day period and thus breaching the terms of Special Condition 15.1 of the parties’ Contract;
(b)that said breach caused certain losses to the applicant, of which more is said below; and
(c)that the respondent accordingly should pay damages to the Applicant on the basis discussed further below in these reasons. It is as well to deal here briefly with certain related points.
This Tribunal is satisfied that Mr White’s statement is not one to be just disregarded, as he was in effect assisting by observing matters for and on behalf of the applicant and reporting upon the same to her. It is noted that neither of the parties in this matter relied upon formal expert evidence as such, except as to a statement of a plumber regarding the water hammer issue.
This Tribunal is not satisfied that the respondent was occupying or using the subject unit as a tenant or the like. Instead, the respondent had access to the unit to rectify in the circumstances and also appears to have been trying to appease the applicant.
This Tribunal is not satisfied that the applicant failed to mitigate her losses so requiring her damages to be reduced in any such respect.
This Tribunal is satisfied in that regard, that the applicant had acted reasonably in all the circumstances. However, as set out below, this Tribunal is not satisfied that the applicant has made out a proper case for the award of all of the various heads and amounts of loss and damage that are claimed in her application as are duly adjusted in her submissions.
It was submitted by the respondent that the defects were only “minor defects” apparently in reliance on that phrase appearing within Special Condition 15.1.
However, its use there is limited to “natural materials” whereas the defects in question were defects beyond ones of that kind. In any event, this Tribunal is satisfied that the defects were not minor ones.
Disposition and orders
This Tribunal is satisfied that the losses identified in the applicant’s submissions as losses incurred in the sum of $10,639 as for interest, insurance, rates, land tax, water rates, body corporate, electricity and gas, being costs arising from the breach of contract, sound in damages in her favour to be paid by the respondent.
As to the losses or costs identified by the applicant as costs “associated with managing the breach,” this Tribunal is not satisfied that the $14,375 claimed for “disruption to holiday” is a loss compensable by way of damages, as it is too remote to be properly regarded as a loss caused by the breach of contract.
As to the remaining balance of $3,846 for items “associated with managing the breach”, this Tribunal is satisfied that they are not too remote and are losses which are duly compensable damages. This includes the $250 for costs of global roaming mobile telephone access, on the basis that it was reasonable in the circumstances for the applicant to have that avenue of ready telephonic communication with her agent friend Mr White or other persons on the spot in Australia in relation to the progress of the rectification of the defects whilst the applicant was overseas.
As to the $761 claimed as cost of lost opportunity regarding the home unit in Orange NSW, the law recognises that “the ‘something of value’ for which damages may be awarded may be a chance or [an] opportunity, see Heydon on Contract (2019).”
This Tribunal is satisfied, upon the balance of probabilities, that such loss of opportunity, limited to stated interest and the cost of a building report, was also one liable to result from the breach.
Accordingly, this Tribunal finds that the applicant has incurred losses totalling $15,246 arising from the respondent’s breach of contract and the respondent must pay to the applicant that sum by way of damages.
This Tribunal, therefore, orders that the respondent pay $15,246 to the applicant as damages for breach of contract.
………………………………..
Senior Member D Hassall
| Date(s) of hearing: | 18 March 2024 |
| Applicant: | In person |
| Respondent: | Mr T Kapunic, authorised representative |
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