PNC Lifestyle Investments Pty Ltd v REW08 Projects Pty Ltd (No 2)

Case •

[2017] NSWSC 993

•

26 July 2017

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: PNC Lifestyle Investments Pty Ltd v REW08 Projects Pty Ltd (No 2) [2017] NSWSC 993
Hearing dates:On the papers
Date of orders: 26 July 2017
Decision date: 26 July 2017
Jurisdiction:Equity
Before: Darke J
Decision:

Damages awarded for increased building costs sustained by plaintiff due to defendant’s delay in completion of the contract.

Catchwords:

CONTRACTS – damages for breach of contract – separate determination of damages following decree of specific performance of contract for sale of land – delay in completion of contract – claim for damages for increased building costs and lost rental income – date for assessment – whether causation of loss established

EQUITY – equitable remedies – equitable damages pursuant to Supreme Court Act 1970 (NSW), s 68 – claim for damages in addition to decree of specific performance – delay in completion of contract – claim for damages for increased building costs and lost rental income – date for assessment – whether causation of loss established
Legislation Cited: Supreme Court Act 1970 (NSW), s 68
Cases Cited: Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56
European Bank Ltd v Evans (2010) 240 CLR; [2010] HCA 6
Hadley v Baxendale (1854) 156 ER 145
Lahoud v Lahoud (2009) NSW ConvR 56-245; [2009] NSWSC 623
Madden v Kevereski [1983] 1 NSWLR 305
NG v Filmlock Pty Ltd (2014) 88 NSWLR 146; [2014] NSWCA 389
Penrith Whitewater Stadium Ltd v Lesvos Pty Ltd (2007) 13 BPR 24,799; [2007] NSWCA 176
PNC Lifestyle Investments Pty Ltd v REW08 Projects Pty Ltd [2017] NSWSC 27
State of New South Wales v Burton [2008] NSWCA 319
The Mediana [1900] AC 113
Wenham v Ella (1972) 127 CLR 454
Wentworth v Woollahra Municipal Council (1982) 149 CLR 672
Wroth v Tyler [1974] Ch 30
Texts Cited: J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015)
Category:Principal judgment
Parties: PNC Lifestyle Investments Pty Limited (Plaintiff)
REW08 Projects Pty Limited (Defendant)
Representation:

Counsel:
Mr J Doyle (Plaintiff)
Mr P Folino-Gallo (Defendant)

  Solicitors:
Solve Legal (Plaintiff)
Prime Lawyers (Defendant)
File Number(s):2016/123962
Publication restriction:None

Judgment

Introduction

  1. The Court delivered its first judgment in these proceedings on 2 February 2017 (see PNC Lifestyle Investments Pty Ltd v REW08 Projects Pty Ltd [2017] NSWSC 27). The Court ordered that the defendant (“REW”) specifically perform a contract for the sale of certain land in Schofields that was entered into in June 2014 between the plaintiff (“PNC”) as purchaser and REW as vendor. The Court held that that the termination of the contract by REW was invalid (see at [83]). The Court further held that $250,000 advanced by PNC constituted both the deposit under the contract for sale and the principal sum under a related loan agreement between the parties (see at [81]-[82]).

  2. It was agreed at the hearing of the specific performance claim that any claim for damages by PNC would be deferred to a subsequent hearing. On 24 March 2017 directions were made for PNC to provide particulars of the loss it claims, and for the filing and service of evidence on damages. PNC provided particulars and filed an affidavit of Mr Michael Cseh, one of its directors. REW did not file any evidence. On 5 May 2017 directions were made by consent which provided for the issue of damages to be determined on the papers. Written submissions have been provided by both parties in accordance with those directions. As no party suggested that a further oral hearing was necessary, the Court will proceed to deal with the question on the papers.

  3. PNC claims that REW has breached the contract by failing to cause the completion date under the contract to be set, and failing to proceed to complete the contract. PNC alleges that had the breaches not occurred, the contract would have been completed in about April 2016. It seeks damages to compensate for higher construction costs it now faces as a result. PNC also claims that the delay in completion has caused it to lose rental income.

  4. REW resists any award of damages. It contends that PNC is only entitled to the interest payments made under the loan agreement, which it says are greater than the amount of damages that could be awarded in any event. REW also challenges the claim for lost rental income on various grounds.

  5. Before turning to the submissions of the parties in more detail, it is convenient to summarise the dealings relevant to the issue of damages and the further evidence adduced by PNC.

Summary of relevant dealings

  1. As the Court noted in its first judgment, special condition 54 of the contract for sale governed the completion date. It provided:

The Completion Date shall be the date which is 14 days after the date that the Vendor notifies the Purchaser’s Solicitor that the Plan of Subdivision has been registered.

  1. The loan agreement, which was entered into on 13 December 2013, relevantly provided:

3.1 If the Plan of Subdivision referred to in the Contract for Sale is not registered (“the Registration”) by the date which is 12 months from the date of this Deed, interest at the rate of 10% per annum calculated daily, (“Interest Amount”) on the Principal Sum will begin to accrue.

…

3.4 The Interest Amount will become due and payable to the Lender the earlier of 14 days after the Registration occurs or 4 weeks after Clause 3.1 takes effect. The Interest Amount will continue to accrue and be due and payable in monthly instalments to the Lender until the Registration occurs or the Vendor or Purchaser enacts their right to rescind under the Contract.

…

3.6 Interest payable under Clause 3 is a genuine pre-estimate of the Lender’s loss as a result of the Borrower’s failure to complete certain obligations contained within the Contract for Sale.

  1. Letters of termination were sent by Prime Lawyers, the solicitors for REW, on 19 February 2016 and 22 February 2016 (see [64]-[66] of the first judgment). On 15 March 2016 Ms Darby, the solicitor for PNC, sent a letter to Platinum Property Law, who were also acting for REW at that time, indicating PNC’s intention to complete the contract. The same letter was forwarded to Prime Lawyers on 16 March 2016. The letter included the following:

Accompanying this letter is our title search and historical search for the sale property now described as Lot 136 in Deposited Plan 28833. That search records that the plan of subdivision was registered on Friday 11 March, 2016.

For the avoidance of doubt as to the time for completion as noted in the contract, please serve the writer notice of that registration, as anticipated by Special Condition 54.1 of the Contract.

While the Contract does not specify a time within which notice of registration of the plan of subdivision is to be notified, the law implies that it be done within a reasonable period. In the circumstances, that period could not extend beyond 5pm this Friday, 18 March, 2016.

Our instructions are to issue a Notice to Complete immediately upon the completion date noted in the notification of registration of the plan.

I interpolate here that no notice of registration was ever provided by REW.

Summary of evidence on damages

  1. Mr Cseh deposed that he became interested in purchasing the Schofields property due to its potential for development. He stated that it had always been his intention to construct a house on the Schofields property since PNC entered into the contract for purchase with REW. Mr Cseh recorded advice from his accountant in the minutes of a meeting of PNC in January 2016 to the effect that the “best strategy” from a taxation perspective was to build a house on the Schofields property, sell his current residence, and move into the newly constructed house. It does not appear that Mr Cseh had made a final decision at any point as to the use to which he would put the Schofields property. It is clear from his unchallenged evidence, however, that he intended to construct a residential dwelling on it after completion of the contract.

  2. Mr Cseh approached two construction companies in December 2015 and indicated that he wished to build a five bedroom, three bathroom house on the property. Mr Cseh received a quotation from Allworth Homes on 15 January 2016 which indicated a total price of $227,350.00 for the construction of such a dwelling, with payment of a deposit of $4,000.00. It appears that Mr Cseh paid $2,000.00 of that amount on 31 January 2016. In the following weeks Mr Cseh discussed alterations to the design of the home and received a “Deposit Confirmation” dated 23 February 2016 which stated a total price of $307,565.00. A “Revised Deposit Confirmation” dated 18 May 2016 stated a price of $308,015.00.

  3. Mr Cseh sought a further quotation following delivery of the first judgment in February 2017. Allworth Homes issued a second “Revised Deposit Confirmation” dated 3 April 2017, which stated a total price of $317,315.00. That price constituted an increase of $9,300.00 above the price quoted in May 2016.

  4. In relation to interest payments under the loan agreement, Mr Cseh deposed the following:

I have examined my bank account records and have determined that the total amount of interest I have received since 1 April 2016 is $16,780.05 with a final payment being made on 16 November, 2016.

I can produce a copy of those records if there is any disagreement as to the amount so paid.

I have continued to invoice the defendant monthly for interest payments however no payments have been made.

  1. The plaintiff also adduced two expert reports. The first report, dated 28 April 2017, was prepared by Mr David Madden, an experienced quantity surveyor. Mr Madden provided estimates of the increase in construction costs of a residential dwelling from April 2016 to April 2017 by applying the NSW Public Works Building Price Index and the Australian Institute of Quantity Surveying Building Price Index to the prices stated in the Deposit Confirmations of February and May 2016.

  2. Mr Madden concluded that the February Deposit Confirmation price ($307,565.00) had increased by $11,727.57 to $319,292.27 at the date of his report if the NSW Public Works index was applied. Applying the same index to the May 2016 price ($308,015.00) yielded an increase of $11,744.73 to $319,759.73.

  3. Applying the Australian Institute of Quantity Surveying index, Mr Madden concluded that the February 2016 price would increase by $14,178.53 to $321,743.53. The May 2016 price would increase by $14,199.27 to $322,214.27.

  4. Mr Madden also calculated a daily rate of increase in construction costs from April 2017 to December 2017. Based on the February 2016 price, the daily rate of increase would be $33.20. The daily rate of increase would be $33.25 based on the May 2016 price, and $32.99 for the April 2017 price.

  5. The second expert report adduced by the plaintiff was a “Retrospective Rental Valuation” report prepared by Matthew Curtis of Curtis Valuations, dated 19 April 2017. Mr Curtis calculated the market rent for the Schofields property as at 1 April 2016 if a brick 5 bedroom, 3 bathroom home had been constructed on it at that time. He concluded that an unfurnished home built in accordance with the May 2016 Deposit Confirmation would have commanded a rental value of $700 per week in April 2016. That figure is a gross amount which excludes the outgoings and usage costs associated with the property. Mr Curtis calculated the total rental sum from 1 April 2016 to the date of his report and a daily rate as follows:

As instructed we have determined the total rental sum from the period from 1 April 2016 to 17 April 2017. This period comprises 55 weeks and our calculations are as follows:

55 weeks @ 700 per week = $38,500

To determine a daily rate we have adopted the yearly rental of $36,400 and our calculations are as follows:

$36,400 over 365 days = $99.73 per day

Submissions

  1. Mr Doyle of counsel provided written submissions on behalf of PNC. He submitted that REW ought to have provided notification of the registration of the plan of subdivision by 18 March 2016, being seven days after registration occurred on 11 March 2016. Although the contract did not specify a time within which such notice had to be provided, it was submitted that a term would be implied requiring performance of the obligation within a reasonable time. Seven days was said to be a reasonable time, especially in circumstances where PNC called on REW to provide the notice by its letter of 15 March 2016.

  2. Accordingly, pursuant to special condition 54, the completion date would have been 1 April 2016, that date being 14 days after 18 March 2016 when PNC says notification of registration of the plan of subdivision was required under the contract. It was submitted:

On that basis, the defendant’s failure to give the requisite notice by 18 March 2016 was a material breach of the contract entitling the plaintiff to compensation for the loss the plaintiff incurs as a result of that breach.

The loss so arising is to be calculated by an assessment of the lost income arising from the delayed settlement, plus additional building costs that will be incurred, less additional income that has been received as a result of that delay.

  1. Mr Doyle pointed to Mr Cseh’s dealings with Allworth Homes in January and February 2016, which occurred prior to REW’s alleged breach, as reliable evidence of PNC’s intention to construct a house on the Schofields property. He further submitted that Mr Madden’s calculations of increased construction costs demonstrate that the price increase in the April 2017 Deposit Confirmation issued by Allworth Homes is a reasonable figure.

  2. It was further submitted by PNC that the Court should adopt the lowest of Mr Madden’s three daily rates of construction cost increase, namely $32.99, and apply that rate from 3 April 2017 up to the delivery of judgment to cover construction cost increases after April 2017.

  3. As to lost rental income, Mr Doyle submitted that the “most likely outcome” on the evidence was that Mr Cseh would build a home on the Schofields property, move into it, and sell his current home. He submitted that because this is not possible (which I infer to be because of REW’s breach), “allowing the cost of similar alternative accommodation is the fairest method of assessment. The figure would be the same as allowing lost rental.”

  4. PNC’s claim was calculated as follows:

Crediting the interest which would not have been earned if the contract had settled on 1 April 2016, the following total is arrived at:

Extra building costs 18 March 2016 to 3 April 2017   $ 9,300 plus

Lost rental 1 April 2016 to 1 April 2017       $36,400 less

Interest received               $16,780

Total  $28,920

The daily loss claimed to be continuing (noting that an appeal is lodged and a stay is in place) is:

Continuing increase in building prices      $32.99 plus

Continuing lost rental               $100.00

Total  $132.99 per day

  1. Mr Folino-Gallo of counsel provided written submissions for REW. He submitted that the plaintiff had indicated at a pre-trial directions hearing in November 2016 that its claim for damages “was said to be limited to the sum of $7,500.00”, and that the first time any claim for lost rent became apparent was upon service of PNC’s particulars of loss.

  2. Against PNC’s submission that REW breached the contract on 18 March 2016 by not providing notice of registration, Mr Folino-Gallo submitted that seven days from registration was “far too stringent” and could not be regarded as a reasonable time that would be implied into the contract for performance of the obligation. He further contended that it fell to PNC to establish the reasonableness of that time, and that it had failed to do so.

  3. In response to the entire claim for damages, Mr Folino-Gallo relied on cl 3.6 of the loan agreement, which provided that the interest payable under it was a genuine pre-estimate of PNC’s loss due to REW’s “failure to complete certain obligations” under the contract for sale. He submitted that “the interest was, in effect, a liquidated damages clause.” It was further said that the claim for damages “is outstripped by the total amount of interest/liquidated damages that have accrued pursuant to Clause 3.6 of the Agreement, totalling the sum of $60,339.69.” On this basis, he submitted that PNC is estopped from claiming any further loss beyond the amounts of interest already levied on REW.

  4. On the issue of rental income, REW made three submissions. First, it said that lost rental income is too remote to be recovered as damages: Hadley v Baxendale (1854) 156 ER 145. Secondly, it submitted that the quantification of the claim for rental income from 1 April 2016 is misconceived, on the basis that it would have taken time to construct a house on the Schofields property after settlement of the contract. Accordingly, “rental income could not possibly have been earned on the Property from 1 April 2016.” Thirdly, reliance was placed on PNC’s submission that the most likely outcome was that Mr Cseh would have moved into the house once it had been constructed and resided there. On that basis, REW submits that the Court should not engage in “the superficial task of awarding damages in respect of lost rental income from a dwelling that would not have existed on 1 April 2016, and that, had it been constructed, would not have been rented, rather it would have been occupied by Mr Cseh.”

  5. Finally, it was submitted that PNC had not led any evidence that it was ready, willing and able to construct a dwelling on the Schofields property immediately after settlement, and that the amount claimed does not allow for exigencies that may have occurred during construction.

  6. In reply, Mr Doyle stated that PNC is clearly not tied to an estimate of its damages claim made prior to the hearing, as orders were made for filing of further evidence on damages. On the issue of reasonable time to issue the notice, he submitted that REW must have known by 15 March 2016 at the latest (when PNC requested it to issue the notice of registration) that registration of the plan of subdivision had occurred. In circumstances where the parties frequently communicated by email, he contended that the period of seven days was reasonable.

  7. Mr Doyle submitted that even if the interest provisions of the loan agreement governed the damages PNC could claim for breach of the contract for sale, it would still be entitled to claim interest due from REW but not paid at a daily rate of $68.49 per day from 1 April 2016. More importantly, he submitted that cl 3.1 of the loan agreement is irrelevant because it is limited to loss arising “if the Plan of Subdivision is not registered”, whereas PNC’s claim is for damages for breach of contract arising after the plan of subdivision was registered.

  8. As to remoteness of lost rental income, Mr Doyle submitted in reply that it was reasonably foreseeable that PNC, through Mr Cseh, would build a house on the Schofields property and either live in it or rent it out. He contended that it was also reasonably foreseeable that loss would be suffered if REW delayed settlement, as that would necessarily delay the construction of any such house. Finally, in response to REW’s submission that allowance must be made for the time required for construction, it was submitted that “the time that construction would finish … will be delayed by the same period that commencement of construction is held up by the defendant’s refusal to convey the property.”

Determination

  1. It is first necessary to consider whether PNC’s claim for damages should be treated as a claim at common law, or as a claim for equitable damages in addition to a decree of specific performance, also known as Lord Cairns’ Act damages. The precise basis of PNC’s claim does not emerge from its particulars of loss or its written submissions. It was foreshadowed at the hearing of PNC’s specific performance claim, however, that its damages claim would be for Lord Cairns’ Act damages.

  1. It seems to me that it would be open to the Court to proceed on either basis. The Court’s jurisdiction to award Lord Cairns’ Act damages is found in s 68 of the Supreme Court Act 1970 (NSW), which provides:

Where the Court has power:

(a)   to grant an injunction against the breach of any covenant, contract or agreement, or against the commission or continuance of any wrongful act, or

(b)   to order the specific performance of any covenant, contract or agreement,

the Court may award damages to the party injured either in addition to or in substitution for the injunction or specific performance.

  1. Section 68 is the present-day equivalent of Lord Cairns’ Act, which, in 1858, conferred jurisdiction on courts of equity to award equitable damages in addition to or in substitution for the grant of an injunction or specific performance (see Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at 676-7; Penrith Whitewater Stadium Ltd v Lesvos Pty Ltd (2007) 13 BPR 24,799; [2007] NSWCA 176 at [40]). Lord Cairns’ Act extended the jurisdiction of a court of equity by empowering it to award damages for delay in addition to ordering specific performance of a contract: J D Heydon, M J Leeming and P D Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015) at [24-025]. Given that specific performance has already been ordered, the Court has power to award damages under s 68 in the present case.

  2. It would also be open to the Court to treat PNC’s claim as an ordinary claim for damages for breach of contract at common law. If REW breached the contract by not providing notice of registration within a reasonable time, PNC would have a complete cause of action enabling it to seek common law damages for loss caused by any consequential delay in completion of the conveyance.

  3. There are circumstances in which the quantum of damages that would be awarded by a court of equity in connection with a specific performance suit might differ from the quantum at common law (see Wenham v Ella (1972) 127 CLR 454 at 460). In the present case, a potential reason for divergence between the quantum at common law and the quantum under s 68 of the Supreme Court Act may be the date of assessment of damages.

  4. The general rule at common law is that damages are to be assessed at the date of breach. In Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56, Keane J (with whom Crennan and Bell JJ agreed) stated at [109]-[110]:

The value to be paid in accordance with the ruling principle is assessed at the date of breach of contract, not as a matter of discretion, but as an integral aspect of the principle, which is concerned to give the purchaser the economic value of the performance of the contract at the time that performance was promised. In this way, the measure of damages captures for the purchaser the benefit of the bargain and so compensates the purchaser for the loss of that benefit.

The application of the ruling principle to measure value lost at the date of breach of contract serves the important end of bringing finality and certainty to commercial dealings. It ensures that whatever might befall the purchaser after the date of breach, for good or ill, and whether by reason of the purchaser’s acumen, or lack of it, in dealing with other persons who were not party to the contract, and whatever movements may occur in the market, these developments have no bearing on the entitlement of the purchaser and the liability of the seller.

  1. The Court of Appeal considered the principles of assessment of damages at common law applicable to a breach of a contract for the sale of land in NG v Filmlock Pty Ltd (2014) 88 NSWLR 146; [2014] NSWCA 389. The Court of Appeal held that the trial judge had erred in assessing damages by reference to the price the vendor was able to achieve on resale. The appropriate time for assessment was the date on which the vendor accepted the purchaser’s repudiation of the contract, being the date of breach. Gleeson JA observed at [51]-[55]:

As Keane J explained in Clark v Macourt [2013] HCA 56 at [110], the date of breach rule serves the important end of bringing finality and certainty to commercial dealings.

However the general rule that damage is assessed at the date of breach of contract is not inflexible. Johnson v Perez [1988] HCA 64; 166 CLR 351 at 367 recognises that the general rule will yield if “in the particular circumstances, some other date is necessary to provide adequate compensation”. See generally: 355-356, 371 and 386.

In Vieira v O’Shea [2012] NSWCA 21 at [45] Basten and Meagher JJA identified a number of circumstances in which the general rule must give way, in the interests of justice, because another approach is necessary to give the plaintiff an amount of damages which will appropriately compensate for the breach of contract.

One such circumstance identified by their Honours is where the plaintiff has acquired an asset which would not otherwise have been acquired and the asset is not readily marketable at the time of acquisition. The rationale for a later date of assessment of loss is that, in these circumstances, the plaintiff may not have acted unreasonably in retaining the asset.

The date of breach rule assumes that there is a market in which the innocent party can resell the subject matter of the sale in question (or buy a replacement as the case may be). Where there is no such market, a later date may be appropriate to give the plaintiff an amount of damages which will compensate for the breach of contract: Johnson v Perez at 357; Wenham v Ella (1972) 127 CLR 454 at 467; and Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 236 CLR 272 at [13].

  1. Accordingly, there may be circumstances where it is appropriate at common law to determine the plaintiff’s loss at, for example, the date of judgment rather than the date of breach, if that is necessary to provide adequate compensation.

  2. Although there is conflicting authority on the point, it appears that the Court has more flexibility in determining the date of assessment of damages in a Lord Cairns’ Act claim (see Wroth v Tyler [1974] Ch 30 at 57-9). Where specific performance is ordered, it is logical that damages in addition, for loss caused by performance occurring at a time later than that required by the contract, be assessed at the date of hearing. That conclusion is reinforced by the purpose of damages under s 68. In Madden v Kevereski [1983] 1 NSWLR 305, Helsham CJ in Eq stated (at 307):

The damages which the court may award under s 68 are sui generis; the power to award them is a power to enable the court to do complete justice so far as equity considers it ought to be done, by supplementing with money the equitable remedy, or attempting with money to substitute a remedy. The section is simply not available when damages, in the common law sense, are an adequate remedy, or when a plaintiff has to rely on a common law right to damages for breach of contract.

If this be the correct view there is no date which can be said to be the date at which damages under s 68 should be assessed. They will be assessed so as to do that which is just as between the parties in the particular circumstances of each case, so far as the court's special remedies and money can effect this.

  1. I am of the view that the circumstances of this case would permit assessment of damages at the date of judgment, whether at common law or under s 68 of the Supreme Court Act. The claim is for loss caused by REW’s delay in completion of the contract. All of the loss claimed has arisen after the alleged date of breach, and is said to be continuing. In order to appropriately compensate PNC for any such loss, it is necessary in my view to assess PNC’s loss at the date of judgment.

  2. In the circumstances of this case, the assessment of damages will proceed in the same way, regardless of whether PNC’s claim is treated as a claim for common law damages or Lord Cairns’ Act damages.

  3. I turn then to the issue of breach. PNC contends that notification of registration of the plan of subdivision should have been provided within seven days of registration occurring, that being a reasonable time within which to provide such notice. It contends that the fixing of a completion date depended upon service of the notice pursuant to special condition 54, and that if notice had been given within seven days, the completion date would have been 1 April 2016 at the latest.

  4. REW did not dispute that it was in breach of the contract for sale. It submitted, rather, that seven days was not a reasonable time for provision of the notice, and that the plaintiff had not demonstrated why this period of time was reasonable.

  5. I do not accept those submissions. REW effected the registration of the plan of subdivision. It is likely that it became aware of the registration on or shortly after 11 March 2016. The seven day period contended for by PNC would have given REW’s solicitors five business days in which to forward notice of registration to PNC’s solicitors. In circumstances where the parties’ solicitors frequently forwarded letters by email in early 2016, that period is a more than ample time for the notice to be issued.

  6. The issuing of a notice of registration was an important part of the contractual framework, as it was by reference to the notice that the completion date would be set. As PNC submitted, where a contract does not specify a time within which an obligation must be performed, the Court will readily imply a term that the obligation is to be performed within a reasonable time. In my view, a term should be implied that REW was required to provide notice of the registration of subdivision within a reasonable time after registration, and that a reasonable time had elapsed by 18 March 2016. Accordingly, I conclude that REW was in breach of the contract by 18 March 2016 by failing to provide notice of the registration to PNC. A completion date of no later than 1 April 2016 should have been set.

  7. The next matter for determination is PNC’s claim for increased building costs. In my opinion, PNC is entitled to recover the increase in building costs occasioned by REW’s delay in conveying the Schofields property. Had REW conveyed the Schofields property on approximately 1 April 2016, PNC would have been able to commence building works shortly thereafter. At that time, the price of construction offered by Allworth Homes was $307,565.00 (February 2016 Deposit Confirmation). The current price offered is $317,315.00 (April 2017 Deposit Confirmation). Thus, if REW had conveyed the land in April 2016, the cost of construction would have been $9,750.00 less than it will be if construction commences now.

  8. PNC must prove on the balance of probabilities that REW’s delay in conveying the Schofields property has caused it to incur the increased building costs. Where an element of the loss claimed involves a choice to be made by the plaintiff, the fact that a particular choice would have been made must also be proven to that standard: State of New South Wales v Burton [2008] NSWCA 319 at [25]. I am satisfied that Mr Cseh, and thereby PNC, intended and continues to intend to construct a five bedroom, three bathroom brick home on the Schofields property. I am therefore satisfied that REW’s breach of the contract is likely to cause PNC to incur the increased building costs, as those costs are a direct result of REW’s delay in conveying the land to PNC.

  9. I am also satisfied that the increased building costs flow naturally from REW’s breach, so are not too remote to be recovered. A party may recover only those losses which may reasonably be considered as arising in the usual course of things from the breach of contract, or those which may reasonably be regarded as being in the contemplation of the parties at the time of contract: Hadley v Baxendale (1854) 156 ER 145 at 151; European Bank Ltd v Evans of Robb Evans & Associates (2010) 240 CLR 432; [2010] HCA 6 at [13]. In my view, increased construction costs may reasonably be regarded as within the contemplation of the parties as a type of loss which PNC might well suffer if REW delayed completion of the contract to sell vacant land in a newly created residential subdivision.

  10. I accept PNC’s submission that the April 2017 quotation provided by Allworth Homes is an appropriate reflection of PNC’s loss. As noted above, the appropriate quantum is $9,750.00, being the difference between the operative price at the time of REW’s breach, and the price which PNC would now have to pay. The reasonableness of that figure is supported by the expert quantity surveying evidence adduced by PNC.

  11. I do not accept, however, that PNC is entitled to a daily rate of increase in construction costs of $32.99. The April 2017 Deposit Confirmation issued by Allworth Homes provides that the price of $317,315.00 is to “remain firm” until 27 September 2017. Accordingly, PNC is not presently incurring loss by the passage of time, and it would recover more than its actual loss if the daily rate was also awarded.

  12. The next issue is PNC’s claim for lost rental income. As I understand it, PNC’s claim is for the rent that could have been earned by renting out the home currently occupied by Mr Cseh and his family once the house had been constructed on the Schofields property and Mr Cseh and his family had moved into it.

  13. A plaintiff seeking damages for lost rental income as a result of delay in the conveyance of land must establish that it was likely to have actually earned the lost income. In Lahoud v Lahoud (2009) NSW ConvR 56-245; [2009] NSWSC 623, Ward J (as her Honour then was) stated at [163]:

Accepting that the above cases establish that damages by way of loss of rent would be damages of a kind ordinarily seen as likely to flow from a failure to transfer real estate in specie (and hence satisfying the remoteness test in the first limb of Hadley v Baxendale), this does not mean the plaintiff seeking such damages need establish only the relevant breach of contract and the rent which may or could have been received from that property, in order to establish its claim for loss of rent. In almost all of the older cases, the plaintiff is asserting a particular loss suffered. The judgments appear to turn on whether that loss is seen as too remote, and whether that loss has indeed been suffered. (For example, in Jones v Gardiner [1902] 1 Ch 191 Byrne J discounted the award to the plaintiffs, who were asserting that they would have redeveloped and let out the property, because their claim was, in part, untenable and exaggerated and the evidence loose and unsatisfactory.) Nevertheless, those cases do not dispense with the requirement that the plaintiff must prove its loss (whether that be loss naturally flowing from the breach or some kind of special loss).

  1. Her Honour was there referring to lost rent which would have been earned on the particular property which the defendant failed to convey. The same requirement to prove the loss suffered must apply where the claim is for rental income lost on a different property.

  2. In my opinion, PNC has not proved that REW’s breach has caused it to actually suffer any loss of rental income. No evidence was adduced to the effect that PNC was likely to rent out Mr Cseh’s current home once the new house was constructed on the Schofields property. Indeed, the minutes of the directors meeting of PNC in January 2016 noted advice that the “best strategy” would be to sell Mr Cseh’s current home and move into the house on the Schofields property. Further, the evidence before the Court (which is not directed to the rental value of Mr Cseh’s current home) is not sufficient to enable the Court to determine the likely loss of such rent caused by delay in completion of the contract.

  3. PNC has also failed to establish that REW’s delay in completion of the contract has caused it to suffer lost rental income on the Schofields property. On PNC’s own case, the “most likely outcome” was that, after PNC had become registered proprietor, Mr Cseh would construct a home on the land and reside in it once it had been built. There is no evidence before the Court to suggest that that is not still the case. Accordingly, PNC has not established on the balance of probabilities that Mr Cseh would have chosen to rent out this house after construction was complete: State of New South Wales v Burton (supra) at [25]; Lahoud v Lahoud (supra) at [116].

  4. PNC did not explicitly advance any claim for what might be called “loss of user” damages, which are awarded for deprivation of property irrespective of any particular benefit which might result from its use: The Mediana [1900] AC 113 at 117; Lahoud v Lahoud (supra) at [181]. Accordingly, the Court will not proceed to determine damages on this basis.

  5. The final issue for determination concerns the effect that PNC’s entitlement to interest under the loan agreement has on its claim for damages. Pursuant to cl 3.1 of the loan agreement, interest became payable from 13 December 2014 as the plan of sub-division had not been registered by that date. By cl 3.4, interest continued to accrue until 11 March 2016 when the plan of sub-division was registered.

  6. PNC asserted that it had been paid $16,780.00 in interest under the loan agreement in the period from April to November 2016. REW did not dispute that figure, so it may be taken to be common ground. PNC described the interest as “interest which would not have been earned if the contract had settled on 1 April 2016”. PNC appears to have invoiced REW for interest after the date of registration of the plan of subdivision, notwithstanding the terms of cl 3.4 of the loan agreement.

  7. As I understand it, REW’s position is that PNC’s claim for damages is “outstripped” by its entitlement to interest under the loan agreement. It is further said that the interest provisions act as a liquidated damages clause, preventing PNC from claiming further losses beyond the interest already paid.

  8. REW’s calculation of interest seems to be wrong. Interest was to be paid on the Principal Sum of $250,000 at 10% per annum calculated daily. $25,000 divided by 365 gives a daily rate of $68.49. The period between 13 December 2014 and 11 March 2016 is 454 days. 454 multiplied by $68.50 gives a figure of $31,044.46. The figure relied upon by REW appears to be calculated up to April-May 2017, but cl 3.4 provides that interest accrues only up until registration of the plan of sub-division occurs. No interest accrued after 11 March 2016.

  9. I do not accept the submission that PNC is estopped from claiming further losses by reason of its interest entitlement “being, in effect, a liquidated damages clause”, or indeed for any reason connected with its entitlement to interest under the loan agreement. As PNC pointed out in its submissions in reply, the entitlement to interest under the loan agreement arises where there is delay in registering the plan of sub-division. PNC’s claim for damages is based on a breach of contract by REW after the plan of sub-division was registered. Accordingly, the entitlement to interest under the loan agreement cannot be regarded as a liquidated damages clause that would prevent PNC claiming damages for other loss. The interest provisions in the loan agreement and PNC’s claim for damages, which is concerned with delay that has occurred after registration, are not related.

  10. By the same logic, however, I do not agree with PNC’s characterisation of the interest received as “interest that would not have been earned if the contract had settled on 1 April 2016”. The interest would (or would not) have been earned irrespective of when settlement occurred, as the relevant date at which interest stops accruing under the loan agreement (the date of registration of the plan of sub-division) must necessarily be prior to the date of settlement under the contract for sale. Settlement could not have occurred until the lot which PNC contracted to purchase had actually been created in the Register by registration of the plan.

  1. To my mind, the interest PNC has received, or is entitled to, under the loan agreement is separate from and unrelated to its entitlement to damages for delay in completion of the contract for sale. There is no need to credit the interest received in calculating the quantum of damages, as PNC did not receive that interest as a result of the breach of which it now complains. I note that REW has not made any claim for recovery of any amounts of interest it has paid.

Conclusion

  1. The Court will order that REW pay $9,750.00 in damages to PNC to compensate it for the increase in construction costs it will sustain by reason of REW’s failure to proceed to completion as required by the contract. The Court will also order post-judgment interest to run in accordance with Uniform Civil Procedure Rules 2005 (NSW), r 36.7.

  2. I otherwise order that PNC’s claim for damages be dismissed. In view of PNC’s limited success, and its failure to establish the major component of its claim, the Court will order that REW pay 50% of PNC’s costs of its claim for damages.

**********

Decision last updated: 26 July 2017

Actions
Download as PDF Download as Word Document
Cases Cited

15

Statutory Material Cited

1

PNC Lifestyle Investments Pty Limited v Rew08 Projects Pty Limited [2017] NSWSC 27
Baltic Shipping Co v Dillon [1993] HCA 4
Penrith Whitewater Stadium Ltd v Lesvos Pty Ltd [2007] NSWCA 176