Maek Pty Ltd v Beaver
[2021] WASC 253
•26 JULY 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MAEK PTY LTD -v- BEAVER [2021] WASC 253
CORAM: TOTTLE J
HEARD: 22 JULY 2021
DELIVERED : 22 JULY 2021
PUBLISHED : 26 JULY 2021
FILE NO/S: CIV 1422 of 2021
BETWEEN: MAEK PTY LTD
Plaintiff
AND
JOHANNA FLEUR BEAVER
First Defendant
REGISTRAR OF TITLES
Second Defendant
Catchwords:
Application for extension of caveat – Where parties propose alternative security in lieu of removal of caveat – Appropriate quantum of alternative security – Whether plaintiff has serious question to be tried as to quantum of alternative security – Turns on own facts
Legislation:
Nil
Result:
Caveat removed upon giving of alternate security
Category: B
Representation:
Counsel:
| Plaintiff | : | D R Chandler |
| First Defendant | : | S P Tomasich |
| Second Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Lemonis & Tantiprasut Lawyers |
| First Defendant | : | Lavan |
| Second Defendant | : | No appearance |
Cases referred to in decision:
Bashford v Bashford [2008] WASC 138
Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179; (2007) 35 WAR 27
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54, (1991) 174 CLR 64
Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272
TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130, 142
TOTTLE J:
Introduction
By an originating summons filed on 21 May 2021 the plaintiff sought orders extending the operation of a caveat registered over a residential property in Shoalwater (the Property). The first defendant is the registered proprietor of the Property.
The Property is subject to a contract of sale – settlement is due to occur on 30 July 2021. The parties have now agreed that the caveat can be removed upon the payment of an amount from the net proceeds of sale into the first defendant's solicitors' trust account to be held as security.
The dispute between the parties is as to the quantum of the security. By a minute of orders dated 1 June 2021, the plaintiff contends the security should be $294,242.46. In her written submissions the first defendant contends the security should be $147,000.17.
Background
The plaintiff relies on two affidavits affirmed by its sole director and secretary Mr Jonathan Paul McComish on 18 and 25 May 2021. For the purposes of this application there is no dispute about the factual background. It may be summarised as follows.
The plaintiff is a registered building contractor. On 2 August 2019 the plaintiff and the first defendant entered into a contract to build a home at the Property. The contract price was $1,210,602.73 exclusive of GST.[1] On 16 August 2019 the first defendant paid a deposit of $86,558.10.
[1] Unless otherwise stated all figures are exclusive of GST.
The plaintiff alleges the first defendant repudiated the contract. It accepted the alleged repudiation, terminated the contract and commenced an action in the District Court for damages for breach of the building contract. The first defendant is defending the action.
By par 18 of its statement of claim filed on 17 May 2021 in the District Court, the plaintiff's claim for loss and damage encompasses the following losses:
(a)the total costs the plaintiff incurred in discharge of the Contract prior to termination of $114,495.48 (exclusive of GST); and
(b)the loss of profit the plaintiff would have earned if it had completed the Works under the Contract of $231,686.86 (exclusive of GST);
reduced by the sum of $86,558.10 by reason of the deposit that was paid under the Contract by the defendant.
Expert Report dated 30 March 2021 prepared by Mr Sherif Andrawes of BDO.
As will be apparent from the reference to the expert report of Mr Andrawes of (the accountancy firm) BDO, the plaintiff has received accounting assistance in the calculation of its damages claims. In overview BDO undertook two calculations. First, BDO calculated the costs and expenses incurred by the plaintiff in discharging its obligations under the contract, that is, a calculation to support the figure of $114,495.48. Those costs and expenses included amounts paid for goods and services to third parties amounting to $76,346.86.[2] In addition BDO calculated the 'internal costs' of the project by reference to the total overhead costs divided by the proportion of work that project formed in the plaintiff's total workbook. The internal costs amounted to $38,148.61 and were the aggregate of:
(1)overhead expenses in the sum of $5,723.19;
(2)office staff wages in the sum of $13,108.20; and
(3)project staff wages in the sum of $19,317.22.
[2] This figure allows for a reduction in the figure in the report to correct an error.
Secondly, BDO calculated the lost profits of $231,686.86 specified in the (b) of the plaintiff's claim. BDO deducted from the income that would have been received by the plaintiff if the contract had been performed, $1,210,602.73, the estimated building costs of $960,128.42 and internal costs of $18,787.45. The explanation for the difference in the internal costs figure in this calculation ($18,878.45) from that derived from the calculation of the costs incurred in the discharging the contract is that the project staff wages of $19,317.22 were incorporated in the estimated building costs of $960,128.42.
The plaintiff lodged its caveat pursuant to a charging clause in the building contract. There is no dispute that it was entitled to do so.
Caveats – the relevant principles
In the absence of any dispute about the relevant principles it is sufficient to state that a caveat is a form of statutory injunction preventing registration of a dealing against land until the caveator has been given a reasonable opportunity to justify the caveat by pursuing such remedies as he or she may have.[3] The applicable principles may be distilled to two questions:[4]
(a)Has the plaintiff demonstrated that its claim has or may have substance, or as it is sometimes put, has he established that there is a serious question to be tried in respect of the estate or interest in the land claimed by it?
(b)Does the balance of convenience favour the extension of the operation of the caveat?
[3] Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42; Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179; (2007) 35 WAR 27 [68].
[4] Bashford v Bashford [2008] WASC 138 [42] ‑ [57].
The two questions are interrelated. The interrelationship is usually expressed as requiring the court to balance the injustice that might be suffered by the land owner if the application to extend the caveat is granted and the caveator later fails at trial, against the injustice that might be suffered by the caveator if the application is not granted and it later succeeds in establishing its interest in the property. Where, as in this case, the parties are agreed that the caveat should be removed and the controversy concerns the value of the security to be provided, the court must balance the risk of injustice to the caveator if the security is fixed at too low a value against the risk of injustice to the land owner if the security is fixed at too high a value.
An overview of the opposing arguments
In support of her contention that the security should be limited to $147,000.17 the first defendant's primary argument is that the plaintiff cannot recover both an expenses incurred claim and a loss of profit claim as this would put the plaintiff in a superior position than if the contract had been performed. In addition the first defendant contends the loss of profit claim has been overstated by $19,361.16 and therefore the plaintiff's arguable loss is limited to the sum of $233,558.27, and further the sum should be reduced by $86,558.10 to take into account the deposit paid by the first defendant.
The first defendant contends her primary argument is supported by various statements made in the judgments of the High Court in the Commonwealth v Amann Aviation Pty Ltd.[5] The first defendant refers to the statements in the joint judgment of Mason CJ and Dawson J in which their Honours state that an innocent party may recover expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses,[6] and seeks to confine that statement by reference to their Honours' later statement that:[7]
Naturally, the categories of case in which a plaintiff is likely to make a claim for the recovery of expenditure incurred are those in which the plaintiff has not suffered a loss of profits and those in which it is impossible to assess what would have been the outcome had the contract been performed or those in which that outcome had the contract been performed or those in which that outcome is otherwise uncertain… The manner in which a plaintiff frames his or her claim for damages will be dictated not so much by a choice of alternatives giving rise to an election but simply according to whether the contract, if fully performed would have been and could be shown to be profitable (even if the actual amount of the profit is not readily ascertainable). If this can be demonstrated, the plaintiff's expectation of a profit, objectively made out, will be protected by the award of damages. Otherwise, subject to it being demonstrated that a plaintiff would not have recovered any or all of his or her reasonable expenses, a plaintiff's objectively determined expectation of recoupment of expenses incurred will be the protected by the award of damages.
[5] Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54, (1991) 174 CLR 64.
[6] Commonwealth v Amann Aviation Pty Ltd, 81.
[7] Commonwealth v Amann Aviation Pty Ltd, 85.
The first defendant contends her primary argument is supported by the observation of Deane J that:[8]
[T]he breach or repudiation of a contract by a defendant does not ordinarily entitle the plaintiff directly to recover wasted expenditure incurred by him in procuring or performing it. In that sense, the assessment of damages for repudiation or breach of contract is not directed to the restitutio in integrum for which equity strives in, for example, a case where a contract is rescinded for fraud.
[8] Commonwealth v Amann Aviation Pty Ltd, 117.
The first defendant draws further support for her argument from the following observations of McHugh J:[9]
Where the breach of contract occurs after the plaintiff has incurred expense in preparing or performing the contract, the plaintiff's loss is ordinarily the difference between the value of the benefits which it would have received under the contract, as and from the date of breach, and the expense which the plaintiff would have incurred, as and from that date, in performing its own contractual obligations. In the ordinary case of repudiation, any expense which the plaintiff has incurred in preparing to perform or in performing the contract prior to breach is irrelevant to the assessment of the damages to be awarded. Except in very special circumstances, damages for breach of contract are assessed by reference to the circumstances which existed at the date of breach. If a plaintiff has expended or incurred liabilities of $100,000 prior to breach and would have received $200,000 in the future if the defendant had performed its contractual obligations, the amount of the plaintiff's damages is the difference between the $200,000 and the expenditure which the plaintiff would have incurred in performing its future obligations. The $ 100,000 already expended or incurred is irrelevant. Of course, if the breach itself causes the plaintiff some additional expense, it is entitled to recover that expense as part of its 'loss'. (footnotes omitted)
[9] Commonwealth v Amann Aviation Pty Ltd, 161 ‑ 162.
Subject to an argument that, on its own figures, the plaintiff has overstated its lost profits claim by $19,361,[10] the first defendant accepts the plaintiff has a quantifiable claim for loss of profit under the contract but says the plaintiff cannot, in effect, double‑dip, by claiming both expenses incurred to perform the contract and loss of profit.
[10] This figure is close to the figure for project staff wages included in the BDO internal costs calculation.
The plaintiff rests its case on the well‑known statement of principle that the purpose of contractual damages is to put a plaintiff in the position it would have been had the contract been performed. It contends this means damages may include amounts for expenses incurred in performing the contract and the loss of profits are both recoverable. The plaintiff argues the innocent party is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss).
The plaintiff's position was summarised in its written submissions as follows:
20.Simply, had the Contract not been terminated, the plaintiff would have:
(a)earned the profit of $231,686.86 (exclusive of GST); and
(b)had the costs incurred under the contract paid by the Contract sum of $1,210,602.73 (exclusive of GST).
Disposition
Before addressing the parties' submissions it is important that I emphasise that my task on this application is not to answer the question: what is the correct measure of the damages the plaintiff may claim for the alleged breach of contract? My task is more limited in its nature. I must make an assessment of the strength of the plaintiff's claim for the quantum of the damages it seeks, and in the light of that assessment, I must determine the value of the security to be provided by the first defendant out of the net proceeds of sale of the Property. In so doing, I must balance the risks of doing an injustice to each of the parties.
Each side contends its position is supported by the statements of principle in Commonwealth v Amann Aviation Pty Ltd, a decision to which I will return. The oral submissions made by counsel make it clear that there is no dispute between the parties as to the fundamental principle to be applied. As is so often the case, the dispute concerns the application of those principle to the particular facts of this case.
The correct approach to the assessment of damages for breach of contract is explained by French CJ, Gummow, Heydon, Crennan and Kiefel JJ in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd.[11] Their Honour's explained:[12]
The 'ruling principle', confirmed in this Court on numerous occasions, with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman:
The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.
Oliver J was correct to say in Radford v De Froberville that the words 'the same situation, with respect to damages, as if the contract had been performed' do not mean 'as good a financial position as if the contract had been performed' (High Court's emphasis).
[11] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272. See also Willshee v Westcourt Ltd [2009] WASCA 87 [61] ‑ [77] (Martin CJ, Buss & Newnes JJA agreeing).
[12] Tabcorp [13].
Importantly, the measure of damages in contract is to put the plaintiff in the position it would have been in if the contract had been performed and not to the position it would have been in if the contract was not entered into – damages in contract is in this respect qualitatively different to the assessment of damages in tort.[13]
[13] See Commonwealth v Amann Aviation (85 ‑ 86).
It is important also to acknowledge that the authorities deal with an infinite variety of contracts breached in an infinite variety of circumstances. Attention must be paid to the statements of principle in the authorities but caution is required in reasoning by analogy from the outcomes in particular cases when the outcomes are invariably fact specific. The need for such caution is reinforced by the observations made by Kitto, Windeyer and Owen JJ in TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd,[14] about the different meanings given to the word 'profit' according to the nature of the contract and the damages claim being advanced.
[14] TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130, 142.
In Commonwealth v Amann Aviation Pty Ltd, the High Court was concerned with a claim for the recovery of costs incurred in preparing to perform a contract. The innocent party accepted that it could not establish that it had suffered a loss of profits and that is why its claim was confined to a claim for the recovery of costs. Mason CJ and Dawson J explained the nature of a claim in damages for loss of profit:[15]
In the ordinary course of commercial dealings, a party supplying goods or rendering services will enter into a contract with a view to securing a profit, that is to say, that party will expect a certain margin of gain to be achieved in addition to the recouping of any expenses reasonably incurred by it in the discharge of its contractual obligations. It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit. (emphasis supplied)
[15] Commonwealth v Amann Aviation (81).
Their Honours went on to explain how damages can be recovered in circumstances where a contract either would not be profitable or if the amount of profit cannot be proven at trial:[16]
Thus, if a plaintiff's expenditure would not have been fully recouped had the contract been performed, then full compensation for the wasted expenditure would not be awarded. A plaintiff is only entitled to damages for an amount equivalent to that which would have been earned had the contract been fully performed. In this way, the award of damages assessed by reference to a plaintiff's expenditure is in complete conformity with the principle that an award of damages for breach of contract should place a plaintiff in the same position as if the contract had been performed.
[16] Commonwealth v Amann Aviation (84).
Brennan J (as his Honour then was) explained the measure of contractual damages as follows:[17]
The measure of damages prescribed by Robinson v Harman ensures that the parties to the contract are kept to the benefits and the burdens of the contract they have made: the plaintiff recovers no more than the net benefit he would have received under the contract; the defendant acquires no right to profit by his breach.
...
If a contract be profitable and is rescinded for breach, the profits lost and the costs actually and reasonably incurred in performance are proper subjects of compensation. If a contract be a loss contract, the costs actually and reasonably incurred in performance are the subject of compensation, but only to the extent that those losses would have been recovered had the contract been performed.
[17] Commonwealth v Amann Aviation (99).
It was argued on the first defendant's behalf that Brennan J's statements of the general principle must be read in the context of later passages in his Honour's judgment in which his Honour illustrated the application of the general principle by various formulae.[18] I do not accept that interpretation of his Honour's reasons but, given that my task is to make an assessment of the strength of the plaintiff's claim and not determine its merits, it is unnecessary to articulate a detailed analysis of Brennan J's reasons.
[18] Commonwealth v Amann Aviation (100 ‑ 101).
In my judgment the observations of Mason CJ and Dawson J, and Brennan J provide support for the plaintiff's calculation and the submission that the plaintiff's damages claim is being advanced in an orthodox and principled way.
The plaintiff's claim is not undermined because it calculates its claim by reference to two 'distinct heads of damages'. As Mason CJ and Dawson J observed in Amman:[19]
We do not regard the language of election or the notion that alternative ways are open to a plaintiff in which to frame a claim for relief as appropriate in a discussion of the measure of damages for breach of contract. In truth, as has been seen, damages for loss of profits and damages for expenditure reasonably incurred are simply two manifestations of the general principle enunciated in Robinson v. Harman.
[19] Commonwealth v Amann Aviation (85).
I would make one further observation as to the first defendant's reliance on the passage in the judgment of Mason CJ and Dawson J which I quoted in providing an overview of the first defendant's contentions. Their Honour's observation at (85) that the categories of case in which a plaintiff is likely to make a claim for the recovery of expenditure incurred are those in which the plaintiff has not suffered a loss of profits must be understood in light of the fact that their Honours explicitly stated in the passage set out earlier that lost profits are 'constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses' (empahsis supplied). In the passage cited by the first defendant, Mason CJ and Dawson J were not differentiating between claims for wasted expenditure and claims for lost profits simpliciter – they were differentiating between claims for damages for the loss of a profitable contract and claims for damages under an unprofitable contract.
I acknowledge that the passages in the judgments of Deane J and McHugh J appear to provide support for the first defendant's argument but their Honour's observations must be read and considered in the context of the case in which they were made, which was a 'no loss of profit' case.
In my view the plaintiff's argument that its claim has been calculated in accordance with the Robinson v Harman principle is a strong one.
On the plaintiff's case the parties' respective positions if the contract would have been performed are as follows:
(a)The first defendant would have paid the full contract price of $1,331,663 (including GST).
(b)The plaintiff would have by virtue of the payment of the contract price:
(i)recouped its expenses, including the expenses that were actually incurred; and
(ii)earned a profit, being the net amount left over after deducting the expenses.
In my view permitting the plaintiff to recover its actual expenses, reasonably incurred, prior to termination and its lost profits under the contract, does not put the plaintiff in a better position than if the contract had been performed. If the contract had been performed the plaintiff would have recouped its the expenses and would have earned the profit.
It must be accepted, of course, the plaintiff may fail at trial, as a matter of evidence, to establish that the contract would have been profitable. The first defendant may lead evidence that the contract would have resulted in a loss or even a substantial loss. The first defendant may say the expenses incurred were not covered by the contract or that they were not reasonable. These are all matters which may be raised at the trial and involve issues not suited to being addressed on an application such as this.
I am comfortably satisfied that the plaintiff has established a serious question to be tried both in relation to the liability and the quantum claimed by it and that I should order the provision of security covering the entirety of the amount claimed by the plaintiff.
I am not persuaded that the plaintiff's calculations overstated the lost profits claim because the figure for internal costs used for the loss of profits calculation was $18,787.45 and not $38,148.61, being the figure used in the calculation of costs and expenses incurred in discharging the contract. The explanation appears to be that that in the lost profits calculation the project staff wages are included in the building costs and thus, there is no overstatement of profit. In any event, the point raised is an argument about the merits of the quantum claimed that cannot be answered definitively by me. It will be a matter for the trial judge.
In my judgment the calculation of the value of the security to be provided should be as follows:
Total actual expenses claimed: $114,495.47
Total expected profit claimed: $231,686.86
Subtotal: $346,182.33
Adjustment for GST: + $34,618.23
Reduction of deposit paid: - $86,558.10
Total:$294,242.47
I would order that the caveat be discharged upon payment of $294,242.47 into the first defendant's solicitor's trust account.
I certify that the preceding paragraphs comprise the reasons for decision of the Supreme Court of Western Australia.
AS
Associate to the Honourable Justice Tottle
26 JULY 2021
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