Mills v Ruthol Pty Ltd

[2004] NSWSC 547

Reported Decision: 61 NSWLR 1

Supreme Court

CITATION:	[1] Mills v Ruthol Pty Ltd; [2] Tricon v Ruthol [2004] NSWSC 547
HEARING DATE(S):	10 June, 2004
JUDGMENT DATE:	24 June 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Equitable damages available; assessment date is date of orders of Court of Appeal.
CATCHWORDS:	EQUITABLE DAMAGES - Whether available - whether plaintiffs must have right to specific performance or injunction as at commencement of suit - principles discussed - whether damages to be assessed as at date of judgment or otherwise.
LEGISLATION CITED:	Lord Cairns' Act, 1858 Supreme Court Act 1970 (NSW) - s.68 Supreme Court Act 1958 (Vic) - s.62 Supreme Court Rules - Pt 31
CASES CITED:	- ASA Constructions Pty Ltd v Iwanov [1975] 1 NSWLR 512 - Bosaid v Andry [1963] VR 465 - Boyns v Lackey (1958) 58 SR(NSW) 395 - Davenport v Rylands (1865) LR 1 Eq 302 - Ferguson v Wilson (1866) 2 Ch App 77 - Hasham v Zenab [1960] AC 316 - Hilton v Tipper (1868) 18 LT 626 - Jaggard v Sawyer [1995] 1 WLR 269 - Lavery v Pursell (1888) 39 Ch D 508 - Livingstone v Rawyards Coal Company (1880) 5 AC 25 - Mills v Ruthol Pty Ltd [2002] NSWSC 294 - The Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547 - Oakacre Ltd v Claire Cleaners (Holdings) Ltd [1982] Ch 197 - Phelps v Prothero (1855) 7 De GM&G 722; 44 ER 280 - Price v Strange [1978] Ch 337 - Rosser v Maritime Services Board (No 2) (unrep.) NSWSC, 17 September 1996 - Ruthol Pty Ltd v Mills [2003] NSWCA 56 - White v Boby (1877) 37 LT 652 - Wroth v Tyler [1974] Ch 30 - "Equitable Damages" McDermott, 1994, at p.82 - "Meagher, Gummow & Lehane's Equity Doctrines & Remedies" 4th Ed., R.P. Meagher, D. Haydon, M. Leeming, para. 23-050 - "The Principles of Equitable Remedies" Dr I.C.F. Spry QC, 6th Ed. 2001, at 632
PARTIES :	[1] First Plaintiff - Brian Mills [1] Second Plaintiff - Elaine Mills [1] Defendant - Ruthol Pty Ltd [2] Plaintiff - Tricon (Aust) Pty Ltd [2] First Defendant - Ruthol Pty Ltd [2] Second Defendant - Brian Mills [2]Third Defendant - Elaine Mills
FILE NUMBER(S):	SC [1] 2101/99; [2] 4858/01
COUNSEL:	[1] Plaintiffs - N.A. Cotman SC [1] Defendant - R.S. Angyal, K. Andronos [2] Plaintiff - No appearance [2] First Defendant - R.S. Angyal, K. Andronos [2] Second & Third Defendants - N.A. Cotman SC
SOLICITORS:	[1] Plaintiffs - McCabe Terrill [1] Defendant - David Landa Stewart [2] Plaintiff - No appearance [2] First Defendant - David Landa Stewart [2] Second & Third Defendants - McCabe Terrill

Introduction

1 The Plaintiffs (“the Mills”) have been held to be entitled to damages against the Defendant (“Ruthol”) in lieu of an order for specific performance of a deed of option whereby Ruthol granted to the Mills the right to purchase a property at Manly Vale. On 5 May 2004 I directed, pursuant to Pt 31 Supreme Court Rules , that there be separately determined the question as to the date at which damages are to be assessed. Upon that question having been determined, the parties are agreed that there will be a reference to the Master to enquire what is the amount of the damages.

2    The history of this matter is complex. The factual circumstances are set out in my judgment and in the subsequent judgment of the Court of Appeal: Mills v Ruthol Pty Ltd [2002] NSWSC 294; Ruthol Pty Ltd v Mills [2003] NSWCA 56. I will recount here only such facts and circumstances as are relevant to the determination of the separate question.

The facts

3    By an option deed dated 25 February 1997, Ruthol granted to the Mills an option to purchase a commercial property at Manly Vale for the price of $490,000 (“the Mills Option”). The option period expired on 30 June 1997. Mr Mills, a veterinarian, was keen to acquire the property for use as his surgery.

4    When the Mills Option was granted, the property was subject to a lease which expired on 30 June 1997 and which contained an option to renew the lease for a further term of five years upon the same terms as were contained in the original lease. The Mills Option provided that it was subject to the non-exercise by the lessee of its right to renew, as contained in the lease.

5    Ruthol did not wish to honour the Mills Option because it believed that it could sell the property for a higher price. The only way that Ruthol could avoid the Mills Option was if the lessee exercised its right of renewal of the lease on the same terms. However, although the lessee wished to renew, it was most unhappy about some of the terms of the lease and it refused to accept them in a new lease.

6    Ruthol persuaded the lessee to sign a document purporting to exercise its right to renew the lease on the same terms, on the basis of a “side agreement” which would vary the terms of the lease as the lessee wished but in a way that would not be discoverable by the Mills. Ruthol then used this document to persuade the Mills that the lease had been renewed on the same terms, that the Mills Option had expired accordingly, and that there was no point in their attempting to exercise it within the option period.

7    The Mills were taken in by this deceit and they did not attempt to exercise their option within the option period.

8    Ruthol and the lessee never reached final agreement as to the terms of the new lease when the existing lease expired on 30 June 1997. The lessee held over on a monthly tenancy and was eventually given a notice to quit.

9    By lease dated 6 May 1998, Ruthol leased the property to Tricon (Aust) Pty Ltd (“Tricon”) for a term of five years. The lease contained an option to purchase the property exercisable within three years.

10    In early 1999, the Mills fortuitously discovered that they had been deceived by Ruthol. On 3 March 1999 they gave to Ruthol a notice exercising their option to purchase the property and they lodged a caveat to protect their interest. Ruthol responded that the exercise of the option was of no effect because the option period had long expired. The contract which the Mills said was brought into existence by the exercise of the Mills Option required completion by 24 March 1999. Ruthol failed to complete by that time.

11    On 19 May 1999 the Mills commenced these proceedings by Statement of Claim, seeking specific performance of the Mills Option and, in the alternative, damages at common law for breach of contract. On 22 July 1999, Ruthol filed a Defence in which, essentially, it merely denied the allegations of wrongdoing on its part alleged in the Mills’ Statement of Claim.

12    In August 1999, Tricon first became aware of the Mills’ claim to be contractually entitled to purchase the property. By letter dated 30 August 1999 its solicitors requested the Mills’ solicitors to confirm that the Mills’ claim against Ruthol would be restricted to a claim for damages since Tricon had “a legal estate in the property” pursuant to its registered lease and the option to purchase contained therein.

13    Thereafter, Tricon purported to exercise the option in its lease on a number of occasions, the first of which being by letter dated 22 December 1999. The next purported exercise of the option occurred in early 2000. Finally, Tricon delivered a notice of exercise dated 30 May 2001, which Ruthol acknowledged to be valid. Contracts were exchanged between Ruthol and Tricon on 7 June 2001.

14    On 3 October 2001, Tricon commenced proceedings 4858 of 2001 by Summons, seeking an order for specific performance against Ruthol and an order against the Mills for the removal of a caveat which they had lodged against the title to the property to protect their interest therein.

15    The proceedings brought by the Mills and the proceedings brought by Tricon came on for hearing before me on 19 March 2002, the evidence in one being evidence in the other.

16    On 15 April 2002 in proceedings 2101 of 1999, I delivered judgment, holding that by reason of the wrongful conduct of Ruthol, the Mills Option had been validly exercised on 3 March 1999. In proceedings 4858 of 2001, I held that Tricon had not established that its equitable interest in the property had priority over the equitable interest of the Mills.

17    On 19 April 2001, I made orders in proceedings 2101 of 1999 that the contract between Ruthol and Mills be specifically performed. In proceedings 4858 of 2001, I made a declaration that the Mills’ equitable interest prevailed over Tricon’s equitable interest and an order that Ruthol pay damages to Tricon for breach of contract.

18    Ruthol appealed. Tricon did not formally appeal but its submissions were heard on Ruthol’s appeal.

19    On 26 March 2003, the Court of Appeal delivered judgment. The Court upheld the finding that the Mills Option had been validly exercised on 3 March 1999, but upheld the submissions of Tricon that its equitable interest prevailed over the equitable interest of the Mills.

20    On 5 November 2003, the Court of Appeal ordered that the contract for sale between Ruthol and Tricon be specifically performed, that Ruthol pay damages to the Mills for Ruthol’s breach of the Mills Option, and that it be referred back to me to assess such damages. Those orders were entered on 14 January 2004.

The issues

21    There are only two issues which have been debated before me:


– whether the Mills are entitled to damages in lieu of an order for specific performance under s.68 Supreme Court Act 1970 (NSW) (“SCA”) or whether they are entitled only to damages at common law;

– if the Mills are entitled to damages under s.68, as at what date are damages to be assessed.


22 The significance of the dispute is this. The evidence shows that the market value of the property has risen very considerably since the Mills Option was granted: in 2001 it was more than twice what the Mills were entitled to purchase it for in February 1997. If the Mills are entitled to damages only at common law, it is accepted by both parties that damages must be assessed as at the date of breach of the Mills Option. That date may be as early as 6 May 1998 when Ruthol granted an option to purchase to Tricon. However, if the Mills are entitled to damages under s.68 SCA, damages may be assessed as at the date of judgment. On one view, urged by Mr Cotman SC who appears for the Mills, the date of assessment may be the date upon which the Court of Appeal made orders, i.e. 5 November 2003. On another view, also suggested by Mr Cotman, the date of assessment may be when the Master actually quantifies the damages payable by Ruthol to the Mills upon conclusion of the Master’s enquiry. If damages are assessed as at the date of judgment – whatever date that is – they will obviously be much larger than if they were to be assessed as at the date of breach of the Mills Option.

Whether damages under s.68 SCA available

23 Mr Angyal, who appears with Mr Andronos for Ruthol, submits that on the facts of the present case the Mills cannot have damages under s.68 SCA and are confined to their damages at common law. Mr Angyal relies on the proposition that the Court has no power to award damages to a plaintiff under s.68 SCA unless, at the time of commencement of the proceedings, the facts were such that the Court could then have ordered specific performance, subject only to discretionary defences. In support of this proposition he relies upon the decision of McLelland J in The Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547, at 552.

24    Mr Angyal says that when the Mills commenced their proceedings they could not have obtained specific performance of the Mills Option because such order would have compelled Ruthol to convey an unencumbered and unimpeachable title, which it could not do since Ruthol had validly granted a lease to Tricon containing an option to purchase and Tricon’s equitable interest under its option defeated the Mills’ equitable interest because Tricon took for value without notice.

25    I should observe at this point that the decision relied upon by Mr Angyal, The Millstream , is said by the learned authors of Meagher, Gummow & Lehane , 4th Ed., to be wrong. With great respect, in my opinion this criticism of the decision and the reasons advanced in support of the criticism are without foundation and, indeed, seriously misstate the law.

26    Paragraph 23-050 of the 4th Edition of Meagher, Gummow & Lehane (which repeats paragraph 2310 of the 3rd Edition) states:
“Fourthly, there is some confusion as to the time at which a plaintiff seeking damages under Lord Cairns’ Act has to demonstrate that the court has the requisite jurisdiction. It would seem that the plaintiff is entitled to claim damages if at the time he instituted his suit for relief he could have obtained an injunction or specific performance but his right to that relief has been lost to him in between the institution of the suit and the hearing. Cory v Thames Ironworks & Shipbuilding Co Ltd (1863) 8 LT 237 (where the sale of which specific performance was sought was completed between institution of the suit and its hearing) is the earliest example. Fritz v Hobson (1880) 14 Ch D 542; [1874-80] All ER Rep 75 (where a nuisance sought to be enjoined was abated pending the hearing) is another example. In each case equitable damages were awarded. There are many other instances. It is also clear that if the plaintiff commenced a suit at a time when he had the right neither to an injunction nor to specific performance he could still claim that the court had jurisdiction if such a right had accrued to him before the hearing of the suit .9 Oakacre Ltd v Claire Cleaners (Holdings) Ltd [1982] CH 197; [1981] 3 ALL ER 667 is the most recent example .” [Emphasis added.]

Footnote 9 reads:
“ Phelps v Prothero (1855) 7 De GM&G 722; 44 ER 280; Davenport v Rylands (1865) LR 1 Eq 302; Ferguson v Wilson (1866) LR 2 ChApp 77; Hilton v Tipper (1868) 18 LT 626; White v Boby (1877) 37 LT 652; Bosaid v Andry [1963] VR 465. The decision of McLelland J in The Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547 at 552 to the contrary is incorrect, although Kearney J followed it in Brooks v Wyatt (1994) 99 NTR 12 at 28-9.”

27    A reading of Oakacre Ltd v Claire Cleaners (Holdings) Ltd (“ Oakacre ”) and the other cases cited in footnote 9 demonstrates not only that they do not support the proposition for which they are cited but that they are strong authority directly contradicting that proposition.

28    In Phelps v Prothero , Phelps filed a bill in equity for an injunction to restrain Prothero from proceeding further in a common law action for breach of a lease; Phelps also sought an order for specific performance of an agreement compromising the common law action. Phelps ultimately obtained a perpetual injunction restraining Prothero. Phelps then commenced an action at common law against Prothero claiming damages for breach of the agreement for compromise of the common law action. Prothero in turn filed a bill in equity for an injunction to restrain Phelps from proceeding further in that claim. An injunction was granted and Phelps appealed.

29    It was held that Phelps originally had a right either to sue at common law for damages for breach of the compromise agreement or to sue in equity for an injunction or specific performance of the compromise. He chose to sue in equity and now could not sue in common law for damages as well. That was so because the equity court would have given damages as well as injunction or specific performance, even before the passing of Lord Cairns’ Act in 1858.

30    Turner LJ said at p.734:

“I think that a plaintiff, who has legal rights, and comes to this Court for its aid, is bound to put his legal rights under the control of the Court, and that that principle reaches the present case. The Plaintiff, therefore, having sued in equity for specific performance, was bound, in my opinion, to submit his claim for damages to the judgment of this Court, and was not entitled to proceed at law otherwise than by leave of this Court.

That it was competent to this Court to have ascertained the damages, I feel no doubt. It is the constant course of the Court, in cases between vendor and purchaser, upon a sufficient case being made for the purpose, to direct an inquiry as to the deterioration of the estate pending the contract, and in so doing the Court is in truth giving damages to the purchaser for the loss which he has sustained by the contract not having been literally performed. This Court, when it entertains jurisdiction, deals as far as it can with the whole case, and not with part of it only; and it is well settled by authority that a Defendant cannot be allowed, without the leave of the Court, to proceed at law on the subject-matter of the suit, whilst proceedings in this Court are pending.”

31    Phelps v Prothero was, therefore, not a case where a plaintiff commenced a suit in equity when he had the right neither to an injunction nor to specific performance as suggested in Meagher, Gummow & Lehane ; it was a case in which Phelps filed a bill in equity having at that time a right to an injunction, which was ultimately granted. The decision is authority only for the proposition that equitable damages could have been given as well as an injunction and that a party who sought an injunction, having at the time of filing his bill, an equity to obtain one, could not later seek common law damages for the wrong which he sought to restrain in equity.

32    The next authority cited by Meagher, Gummow & Lehane , Davenport v Rylands , was a case after the passing of Lord Cairns’ Act in which the plaintiff filed a bill seeking an injunction to restrain the defendant from infringing its patent. Some time after the suit was commenced but before the suit came on for hearing, the plaintiff’s patent expired so that the plaintiff had no further right to be protected by injunction. The plaintiff sought damages under Lord Cairns’ Act for the defendant’s past infringement of the patent but the defendant submitted that as the plaintiff no longer had a right to an injunction the Court could not grant equitable damages.

33    Wood VC rejected the defendant’s submission. The headnote sufficiently records the substance of the decision:
“Where a plaintiff has succeeded in shewing that at the filing of the bill he was entitled to an injunction to restrain an infringement of his patent, the Court will not at the hearing refuse him an inquiry as to damages, under Sir H. Cairns Act, although the patent has expired pending the litigation.”

34    Davenport v Rylands is, therefore, no authority for the proposition for which it is cited by Meagher, Gummow & Lehane .

35    In the next authority cited, Ferguson v Wilson , the plaintiff, by his bill in equity, sought specific performance of a resolution passed by a board of directors under which he alleged that he was entitled to be allotted a certain number of shares; alternatively, the plaintiff claimed equitable damages against the directors. It was found that prior to the filing of the bill the directors had allotted to third parties all of the available shares in the company so that specific performance was impossible at the time that the plaintiff’s bill was filed. The plaintiff then asked for equitable damages.

36    The Court of Appeal in Chancery unanimously held that as no relief by way of specific performance was possible at the time the bill was filed, the Court had no power to grant equitable damages.

37    At p.88, Turner LJ said:

“The object, therefore, of [Lord Cairns’ Act] was to prevent parties from being so sent from one Court to the other, and accordingly the Act provides that the Court may either, in addition to or in substitution for the relief which is prayed, grant that relief which would otherwise be proper to be granted by another Court. But that Act never was intended, as I conceive, to transfer the jurisdiction of a Court of law to a Court of equity. If, therefore, a Plaintiff in a suit in equity had no equitable right at the time of filing the bill – for the case would be quite different if there was an equitable right at the time of filing the bill – so that the bill was altogether improperly filed in equity, I am of the opinion that the Act has no application ; otherwise the consequence would necessarily be, that everybody who had a doubtful case at law would come into equity for specific performance, and when it appeared that he had no case in equity at all he would ask for damages, and so almost every action of contract would be transferred from a Court of law to a Court of equity. That, according to my view of this subject, was never intended to be the effect of the Act of Parliament. I have had occasion to consider the Act in many cases, and have always entertained the same opinion about it.

I think, therefore, there being, according to my judgment, no case in equity for the Plaintiff at the time when the bill was filed, it being a mere question of contract between the Plaintiff and the company, the remedy on that contract was at law, and not in equity, and that this bill was improperly filed, and was properly dismissed by the Vice-Chancellor.” [Emphasis added.]
38    The other Lord Justice who heard the appeal was Sir Hugh Cairns, the author of the eponymous Act. At p.91, his Lordship quoted s.2 of the Act and continued:

“That, of course, means where there are, at least at the time of bill filed , all those ingredients which would enable the Court, if it thought fit, to exercise its power and decree specific performance – among other things where there is the subject matter whereon the decree of the Court can act – in a case of that kind, the Court has a discretionary power to award, under certain circumstances, damages in substitution for, or in addition to, the decree for specific performance. The object obviously was to enable the Court of Chancery to do ‘complete justice’, as it was called, a phrase which assumed that there was the power in the Court of Chancery to make a decree to some extent, but not to make a decree to the whole extent which the case required.” [Emphasis added.]

39    Ferguson v Wilson is, therefore, strong authority directly contradicting the proposition for which it is cited in Meagher, Gummow & Lehane .

40    In the next case cited, Hilton v Tipper , the plaintiff sought specific performance of an agreement for a sub-lease. The defendant contended that he was not entitled to sub-let without his lessor’s consent and that as the lessor refused to consent without the payment of a substantial sum, the court could not grant specific performance and could not, accordingly, give equitable damages. The court held that the plaintiff was, in fact, entitled to specific performance of the agreement and that if the defendant was unable to procure the grant of a sub-lease then the defendant would be entitled to equitable damages. The case is not authority for the proposition for which it is cited in Meagher, Gummow & Lehane .

41    The next authority cited, White v Boby , was a decision of a Court of Appeal comprising Sir George Jessel MR and Baggallay and Thesiger LJJ. The plaintiff had sought specific performance of what was, in essence, a contract for personal services by the defendant. At p.652, Jessel MR said:
“But the essence of the agreement is that it is one for personal services, and no court of equity could order specific performance of such an agreement as that. Secondly, as to damages. There are cases where you might get damages at law, or could have, though now they would be got in the same court. But there is no authority which says that, if at the time of filing the bill you could not have got specific performance, yet you might get damages . The Act which is commonly known as Lord Cairns’ Act does not come into operation unless there is equity in the bill. You must start with an equity, and then in certain circumstances you may get, under Lord Cairns’ Act, damages instead of that equity. That rule is still in force. You must show that you had an equity at the time of the issue of the writ .” [Emphasis added.]

The other judges agreed. This case is strong authority directly contradicting the proposition for which it is cited.

42    The next case, Bosaid v Andry , was a decision of Scholl J. The plaintiffs sought specific performance of a contract for sale of land but at the time of the hearing they asked for equitable damages instead. Scholl J held that the defendants had breached the contract and that the plaintiffs would have been entitled to specific performance if they had sought it. At p.479, dealing with the claim for damages under s.62(3) Supreme Court Act 1958 (Vic) (the equivalent of Lord Cairns’ Act), his Honour said:
“It is true that damages given under statutory power in substitution for specific performance cannot be given in a case where the grant of specific performance is impossible: Lavery v Pursell (1888) 39 Ch D 508; but the position is otherwise when the refusal of specific performance is based upon a discretionary ground, such as hardship: see Tamplin v James (1880) 15 Ch D 215; Summers v Cocks (1927) 40 CLR 321; [1928] ALR 107; Dell v Beasley [1959] NZLR 89; 33 ALJ 238, at p. 252.”
43    The case of Lavery v Pursell , to which Scholl J refers, is worthy of note. There the plaintiff sued for specific performance of an agreement which the court held was unenforceable for want of writing so that specific performance could never have been given. At p.519, Chitty J said:
“I point out that in this case when the writ was issued it was impossible to give specific performance. It was suggested that after Lord Cairns’ Act the Court of Equity could give damages in lieu of specific performance. Yes, but it must be in a case where specific performance could have been given. It was a substitute for specific performance. It did not give the old Court of Chancery a general jurisdiction to give damages whenever it thought fit, it was only in that kind of case where specific performance would have been the right decree and there were reasons why it would be better to substitute damages, but that could not apply to a case where you could not have given specific performance.”

Bosaid v Andry and Lavery v Pursell contradict the proposition for which they are cited.


44    I come now to Oakacre , said by Meagher, Gummow & Lehane to be the most recent example of the proposition that a plaintiff needs no right either to an injunction or to specific performance at the time of commencement of the suit in order to empower the court to grant equitable damages under s.68 SCA.

45    In Oakacre the plaintiff, the purchaser under an agreement for the sale of land, commenced proceedings against the vendor seeking specific performance of the agreement and equitable damages in addition to, or in lieu of, specific performance. It was discovered that the writ had, by mistake, been issued a day before the date due for completion of the contract. After the filing of the writ, the defendant conveyed the land to the plaintiff but the plaintiff maintained the suit, claiming equitable damages for the defendant’s delay in completion.

46    The defendant conceded that although the writ had been issued a day before the specified completion date, the writ was not premature in so far as it claimed specific performance. The court accepted that this concession was correctly made in the light of the Privy Council’s judgment in Hasham v Zenab [1960] AC 316, in which it was held that the plaintiff was entitled to an order for specific performance of a contract even though the writ had been issued before the stipulated date for completion since the defendant had by that time indicated a refusal to perform at the stipulated date. Accordingly, the court (Mervyn Davies J) said (at p.200G):
“… there was before me no consideration of the question whether or not the writ was properly issued as respects the specific performance claim.”
47    The defendant, nevertheless, contended that the court could not entertain the claim for equitable damages for delay because at the time that the writ was filed the completion date had not arrived so that there had been no breach of contract for which damages could be awarded under Lord Cairns’ Act. The court held, at p.203:
“In the light of these observations, it seems to me that I am not obliged to consider the damages claim in this case as a claim at law, isolated and apart from the specific performance claim. Since the action before me was originally properly constituted as a specific performance action, I may now deal with the whole case as it now stands between the parties .” [Emphasis added.]

It will be seen that Oakacre , far from being a “recent example” of the proposition for which it is cited in Meagher, Gummow & Lehane , is a strong authority to the contrary of the proposition.


48    I should note three further cases which are not referred to in paragraph 23-050 of Meagher, Gummow & Lehane .

49    In ASA Constructions Pty Ltd v Iwanov [1975] 1 NSWLR 512 ( “ ASA Constructions ” ), the facts were similar to those in the present case. Iwanov entered into a contract to sell certain land to ASA. Shortly afterwards, Iwanov entered into a contract to sell the same land to Hayllar. ASA commenced proceedings for specific performance of its contract, claiming that its contract had priority over Hayllar’s contract. Hayllar commenced proceedings seeking specific performance of his contract and, in the alternative, damages.

50    Needham J held that ASA was entitled to specific performance of its contract. The question then arose whether the court was empowered to award equitable damages to Hayllar in lieu of specific performance of his contract. Iwanov submitted that the court could not, in accordance with Ferguson v Wilson , because the court had no power to order specific performance of Hayllar’s contract at the time that Hayllar commenced his proceedings. That was so because of ASA’s prior right to specific performance of its contract.

51    Needham J accepted the proposition for which Ferguson v Wilson is authority but his Honour distinguished the case before him on its facts. His Honour said, at p.518:
“ When Hayllar commenced proceedings for specific performance there was no inherent or necessary impossibility of obtaining that relief . The Court might have refused A.S.A.'s claim on some discretionary ground (laches was alleged), and then the way would have been open for the Court to grant the primary relief sought by Hayllar. I do not think that the cases relied upon should lead me to say that Hayllar's application was brought to equity without ‘power’ in the Court to grant him the relief primarily sought. Because of the decision in another (A.S.A.'s) case, specific performance cannot be granted, but I am of the view that the power to award damages under s. 68 is attracted.” [Emphasis added.]

52    In Price v Strange [1978] Ch 337, the plaintiff sued the defendant for specific performance of an agreement to grant the plaintiff a new sub-lease in consideration of the plaintiff carrying out building works and repairs to the premises of which the defendant was head lessee. The plaintiff claimed equitable damages under Lord Cairns’ Act in the alternative or in addition to specific performance. The trial judge dismissed the plaintiff’s proceedings on the ground that specific performance of the agreement for the lease could not be ordered because of lack of mutuality as at the date of the contract: the court would not order specific performance of the contract by the defendant because, as at the date of the contract, it could not, in law, have ordered specific performance of an obligation on the plaintiff’s part to perform building works. The court further held that because the plaintiff could never have obtained an order for specific performance of the contract, the court had no power to award any damages under Lord Cairns’ Act. The plaintiff appealed.

53    The Court of Appeal allowed the appeal, holding that when specific performance of a contract is sought, the defence of lack of mutuality is a discretionary defence only and falls to be considered, not as at the date of the contract, but as circumstances exist at the time of the hearing. Accordingly, a defence of lack of mutuality does not result in the court being without jurisdiction, or power, to entertain a claim for specific performance so that, in the instant case, the court had a discretion to award equitable damages under Lord Cairns’ Act at all times from the commencement of the suit.

54    In Jaggard v Sawyer [1995] 1 WLR 269, the plaintiff commenced proceedings for an injunction to restrain the defendant from breaching a restrictive covenant as to the use of a private right of way. The plaintiff had threatened an injunction when the defendant first proposed to use the right of way for the purpose of constructing a dwelling but had then stood by while the house was built. After it was completed the plaintiff commenced proceedings for an injunction. At trial, the judge held that an injunction should be refused but that damages under Lord Cairns’ Act should be awarded. The plaintiff appealed to the Court of Appeal, which dismissed the appeal.

55    At p.284, Millett LJ said:

“The power to award damages under Lord Cairns's Act arises whenever the court ‘has jurisdiction to entertain an application’ for an injunction or specific performance. This question must be determined as at the date of the writ . If the court would then have had jurisdiction to grant an injunction, it has jurisdiction to award damages instead . When the court comes to consider whether to grant an injunction or award damages instead, of course, it must do so by reference to the circumstances as they exist at the date of the hearing.

The former question is effectively one of jurisdiction . The question is whether, at the date of the writ, the court could have granted an injunction, not whether it would have done : City of London Brewery Co v Tennant (1873) LR 9 Ch App 212. Russell LJ put it neatly in Hooper v Rogers [1975] Ch 43, 48 when he said that the question was ‘whether … the judge could have (however unwisely …) made a mandatory order’. There have been numerous cases where damages under Lord Cairns's Act were refused because at the date of the writ it was impossible to grant an injunction or specific performance: for one well known example, see Lavery v Pursell (1888) 39 Ch D 508. The recent case of Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361 appears to have been a case of this character.” [Emphasis added.]

56    With these authorities in mind, I come to the decision of McLelland J in The Millstream and to the criticism of it made in Meagher, Gummow & Lehane .

57    In The Millstream , the defendant had contracted to sell to the plaintiff certain fallow deer. The defendant failed to deliver the deer on the date specified in the contract and the plaintiff commenced proceedings for specific performance. It was later discovered that the defendant was unable to deliver the deer in accordance with the contract because it had disposed of them prior to the commencement of the proceedings. The plaintiff then sought equitable damages under s.68 SCA.

58    At p.552, his Honour said:

“It is established that s.68(b), the branch of the section here in question, confers a power to award damages only where, at the time of the commencement of the proceedings, the facts were such that the Court could then properly have ordered specific performance: see Ferguson v Wilson (1866) 2 Ch App 77; J C Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282, and ASA Constructions Pty Ltd v Iwanov [1975] 1 NSWLR 512, subject, perhaps, only to discretionary defences: see Summers v Cocks (1927) 40 CLR 321; and cf Boyns v Lackey (1958) SR(NSW) 395; 75 WN 451.

It has not been shown that, at the time of commencement of the present proceedings, the facts were such that the Court could have ordered specific performance.”

Accordingly, his Honour concluded (at p.553) that the power to award equitable damages under s.68 did not arise.


59    In view of the authorities to which I have referred, it will be seen that his Honour was, with respect, perfectly correct in his statement of the law as it applies in this country.

60    Dr I.C.F. Spry QC in “The Principles of Equitable Remedies” 6th Ed. 2001, at 632 and Mr P. McDermott in “Equitable Damages” (1994) at p.82 have expressed opinions as to what the law should be in a case where the plaintiff has no equity at the commencement of the suit but, by reason of subsequent events, has an equity by the time of hearing. Such a situation in real life is very difficult to conceive except where the plaintiff has acquired a new cause of action since the proceedings were commenced – which is not the situation addressed by Meagher, Gummow & Lehane . In any event, both authors make it quite clear that their statements are no more than expressions of their opinions. They advance policy reasons in support of their opinions but do not suggest that their opinions have the sanction of authority. This is not the occasion to enter into a discussion of what the law should be. It is sufficient for me to identify what the law is.

61    For the reasons which I have discussed, I am of the opinion that the law is as stated by Needham J in ASA Constructions and by McLelland J in The Millstream , namely, that in order to invoke the discretionary power of the court to award damages under s.68 SCA, the plaintiff must demonstrate that as at the date of commencement of the proceedings the circumstances were such that the court could , not necessarily would , have granted a final injunction or specific performance. If such circumstances change after the commencement of the proceedings so that specific performance or a final injunction becomes impossible or would be refused on discretionary grounds, the court’s power to award damages under s.68 is not thereby lost.

62    Mr Angyal submits that any right that the Mills might have had to specific performance of the Mills Option was effectively extinguished by the grant to Tricon of an equitable interest in the property as optionee in May 1998, before the contract between the Mills and Ruthol came into existence upon exercise of the Mills Option on 3 March 1999.

63    I am unable to accept this submission and, in fairness to Mr Angyal, I think that he had all but abandoned it by the close of his submissions.

64    As at the commencement of the Mills proceedings on 18 May 1999, Tricon certainly had a leasehold estate in the property and an option to purchase it. However, Tricon did not exercise its option until well after the commencement of the Mills proceedings. As at the commencement of the Mills proceedings it was not certain that Tricon would ultimately exercise its option, thereby bringing into existence a contract for sale which would have priority over the Mills’ contract for sale.

65    Further, to use the words of Needham J in ASA Constructions , there was no inherent or necessary impossibility of the Mills obtaining specific performance at the time that they commenced their proceedings. Even if Tricon had exercised its option by the time that the suit came on for hearing, its claim to specific performance might have been defeated on discretionary grounds, if any then existed. In such a circumstance, the Court might have awarded specific performance of the Mills Option subject to the leasehold interest of Tricon in the property and might have awarded equitable damages to the Mills under s.68 to compensate them for the difference between the purchase price of the property unencumbered and free of the lease to Tricon, and the market value of the property encumbered by the Tricon lease.

66 Because the possibility of the Mills obtaining an order for specific performance was lost only after the commencement of their proceedings by reason of the exercise of Tricon’s option, I am of the opinion that the Court has power to award equitable damages under s.68 SCA.

Date for assessment of damages

67 There is no doubt that, as far as the present state of case law in Australia determines the question, damages under s.68 SCA in respect of a contract for the sale of land which has gone off are assessed on a different basis from damages at common law: see the discussion of the authorities by Young J (as his Honour then was) in Rosser v Maritime Services Board (unrep. NSWSC 17 September 1996). The current view in Australia is that damages under s.68 are a substitute for an order for specific performance, i.e., they are to put the plaintiff in the same position as if he or she had obtained the order and a consequential conveyance of the land upon judgment. Accordingly, the monetary substitute for the order reflects the value of the land at the time it would have been conveyed pursuant to the order for specific performance, which is taken to be the date of the judgment: Wroth v Tyler [1974] Ch 30, at 60 per Megarry J; ASA Constructions at 518; Rosser ibid. But this general rule is subject always to the broader considerations of justice which underlie Equity’s discretionary remedies.

68 Assume, for example, that a plaintiff purchaser seeking specific performance in a rising real estate market ought reasonably to have realised, after commencing his suit, that circumstances now made it impossible for him to obtain specific performance, and that he would have to accept damages under s.68. It would be unfair to the defendant vendor if the plaintiff did not seek to mitigate his damages by purchasing an equivalent property (if one could be found) but, rather, waited until judgment in order to receive damages under s.68 assessed on the then current market price of the property. That was the very case found by Needham J to exist in ASA Constructions , which induced his Honour to depart from the general rule that the date for assessment of damages was the date of judgment. Mr Angyal submits that I should do likewise in the present case.

69 Mr Angyal says that it was unreasonable and unfair of the Mills not to mitigate their damages under s.68 SCA by entering the rising property market and purchasing a substitute property at either of two dates, viz. the date upon which the Mills first had notice that Tricon had been granted an option to purchase the property, i.e. about 29 January 1999, or the date for completion of the contract brought into existence by exercise of the Mills Option, i.e. 24 March 1999.

70 Mr Cotman SC submits that there are no circumstances in the present case which warrant departure from the general rule that damages under s.68 are assessed as at the date at which they are given in substitution for an order for specific performance. Here, he says, that date is either the date upon which the Court of Appeal delivered judgment reversing the order for specific performance which was made in the Mills’ favour at trial, or the date upon which the Court of Appeal made orders in accordance with its judgment, or else the date upon which the Master will finally assess the quantum of damages upon an enquiry.

71    In my opinion, the following considerations are relevant in ascertaining where the justice of the case on this point lies.

72    First, I take into account that the Mills’ predicament was brought about by the fraudulent deception of Ruthol. When a plaintiff’s loss has been brought about by the conscious or malicious wrongdoing of the defendant “there could be no doubt that there you would say that everything would be taken into view that would go most against the wilful wrongdoer – many things which you would properly allow in favour of an innocent mistaken trespasser would be disallowed as against a wilful and intentional trespasser on the ground that he must not qualify his own wrong, and various things of that sort” : per Lord Blackburn in Livingstone v Rawyards Coal Co (1880) 5 AC 25, at 39. While those words were spoken in the context of a consideration of damages in tort, the sentiments expressed are not peculiar to tort or to the common law nor are they foreign to equity. They simply express a commonsense notion of justice and fairness which comes into play whenever a conscious or malicious wrongdoer seeks to whittle away the damages to be awarded against him by criticising as unreasonable the conduct of his victim: in such a case, one does not give the wrongdoer the benefit of the doubt.

73    Second, I take into account that the Mills wished to use the property for the purpose of Mr Mills’ practice as a veterinarian. A decision whether or not to abandon pursuit of an order for specific performance at any stage was, therefore, one which must have been founded primarily on commercial considerations.

74    Third, there is no evidence of the Mills’ financial capacity to purchase another comparable commercial property, if one could be found, in a rising market while proceedings against Ruthol and Tricon were pending. For the reasons stated in the first consideration, I should not assume that the Mills had such capacity.

75    Fourth, there is no evidence as to whether or not the property had particular characteristics, important to the use to which the Mills wished to put it, making it difficult to find a comparable substitute property. For the reasons stated in the first consideration, I should not assume that a suitable substitute for the property could readily be found.

76    Fifth, as at about 29 January 1999, when the Mills first discovered the beginnings of the truth about Ruthol’s deception, they could not reasonably be expected to know the whole of the facts and circumstances upon which, ultimately, the Court would find that they were not entitled to specific performance. Further, as at that date, Tricon had not exercised its option to purchase under the lease and the Mills could not know for certain whether Tricon would do so and whether, if it did, its option would be given priority over theirs.

77    Sixth, the Mills’ position would have been no clearer to them by the date for completion of their contract, i.e. 24 March 1999. By that time, the Tricon option still had not been exercised.

78    Seventh, the priority which Tricon ultimately established depended partly on what had transpired between it and Ruthol, to which the Mills were not privy. Bearing in mind the fraudulent deception which Ruthol had practised upon them, the Mills would be justified in waiting to see how the evidence turned out at the trial before conceding that Tricon’s interest had priority to their own.

79    Eighth, it could not reasonably be said that the Mills should have realised at any time up until the delivery of judgment by the Court of Appeal that their case for specific performance was doomed: they had succeeded at first instance.

80    In those circumstances, I am of the view that Ruthol has at not demonstrated that the Mills were unreasonable in not going out into a rising real estate market to purchase a comparable substitute property, at least until delivery of the judgment of the Court of Appeal at the earliest.

81    However, the Mills’ position as to specific performance was not finally unequivocally made clear by the Court of Appeal’s judgment. All that the Court of Appeal decided was that the Tricon option had priority over the Mills’ Option. The Court of Appeal did not immediately make an order for specific performance in favour of Tricon. The matter was stood over in order for the parties to bring in Short Minutes of Order. At the time of judgment, therefore, it was still open to Tricon to elect to take damages in lieu of specific performance if it wished to do so in the circumstances then prevailing.

82 On 5 November 2003, however, when the Court of Appeal made an order for specific performance in favour of Tricon, the Mills’ position was made unequivocally clear. It seems to me that no consideration of justice or fairness warrants that the Mills have the benefit of a rising market after that date so that damages under s.68 should be assessed as at the date upon which the Master finally determines the quantum of damages upon enquiry.

83 I appreciate that there is no evidence that the Mills could afford to buy an equivalent property without first receiving from Ruthol the damages to be assessed by the Master. But it is impossible to say how long it will be before that assessment is made. The Court of Appeal delivered its judgment on 26 March 2003 but, for some reason unexplained in the evidence, it was not until 5 November 2003 that the orders were formally made. The matter was not re-listed before me for hearing of argument on the separate question until 10 June 2004. A line has to be drawn somewhere otherwise, in a continuing rising market, it would be in the interests of a purchaser entitled to damages under s.68 SCA not to have the most expeditious trial of the assessment.

84 Accordingly, in my opinion the Mills’ damages under s.68 SCA should be assessed as at the date when the Mills’ position became finally and unequivocally clear, i.e., 5 November 2003.

Nature of damages to be assessed

85 The remaining question which the parties argued is: for what heads of damage is Ruthol liable. This question was not made the subject of an order under Part 31 of the Rules but, as the parties have debated it, it is expedient that I give my views for the benefit of the Master.

86 There is no dispute that the Mills are entitled to damages for capital loss, i.e., the difference between the purchase price of the property under the Mills Option and the market value of the property as at the date of assessment of damages under s.68 SCA, as determined above. What is in dispute is whether the Mills should have, in addition, rent from the date on which the Mills’ contract should have been completed, i.e., 24 March 1999, until the assessment date.

87    In addition to the capital loss referred to, the Mills will be entitled to receive damages for any other loss which they have actually suffered by reason of Ruthol’s breach of their contract. The property was used as commercial premises at the time that the Mills Option was granted and the Mills desired to use it for commercial purposes also. The evidence before me goes no further than that. On that evidence alone I cannot determine whether the Mills have actually suffered a revenue loss, either because they had to continue paying rent on other commercial property after 24 March 1999 or because they have lost the rent which they would have received from letting out the property after 24 March 1999.

88    It will be a matter for evidence before the Master and for adjudication upon that evidence whether the Mills are entitled to any revenue loss in addition to the capital loss and, if so, the quantum of such loss.

Order

89    I will stand the matter over for a short time to enable the parties to bring in Short Minutes of Order reflecting these reasons. The orders should make provision for a reference to the Master to enquire into the Plaintiffs’ damages and, if possible, a timetable for that reference.

90    When the matter is brought back for the making of orders I will hear argument, if any, as to costs.

– oOo –

Last Modified: 06/25/2004