Zeng v Leeda Projects Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

JUDICIAL REVIEW AND APPEALS LIST

S CI 2018 01765

YUN ZENG	Appellant/Cross-Respondent
v
LEEDA PROJECTS PTY LTD (ACN 072 077 171)	Respondent/Cross-Appellant

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JUDGE:	McDonald J
WHERE HELD:	Melbourne
DATE OF HEARING:	31 January 2019
DATE OF JUDGMENT:	27 February 2019
CASE MAY BE CITED AS:	Zeng v Leeda Projects Pty Ltd
MEDIUM NEUTRAL CITATION:	[2019] VSC 106

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APPEAL – Application for leave to appeal on question of law – Victorian Civil and Administrative Tribunal – Senior Member awarded nominal damages for respondent’s breach of implied term requiring building works to be completed within reasonable period of time – Appellant could not access property for 130 weeks due to respondent’s breach of contract – Loss of use damages for breach of contract – Measure of damages by reference to rental value of property during delay period – Application for leave to appeal granted and appeal upheld – Loss of use damages awarded – Whether damages should be reduced by reason of failure to mitigate loss – Whether proceeding should be remitted to the Victorian Civil and Administrative Tribunal – No remittal of proceeding – Civil Procedure Act 2010 s 7 – Domestic Building Contracts Act 1995 ss 42, 53, 57, 57A – Victorian Civil and Administrative Tribunal Act 1998 ss 109, 148.

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APPEARANCES:	Counsel	Solicitors
For the Appellant/Cross-Respondent	Mr R Andrew	Russell Kennedy
For the Respondent/Cross-Appellant	Mr C Tran	Mills Oakley

HIS HONOUR:

In March 2011, Yun Zeng and her husband, Mr Dong, purchased a whole floor apartment at Level 87, Eureka Tower, Melbourne (‘apartment’). The purchase price was $5,838,000. The apartment was a shell and required fit-out works before it could be occupied. On 24 September 2013, Ms Zeng and Leeda Projects Pty Ltd (‘Leeda’) entered into a building contract pursuant to which Leeda agreed to carry out internal fit-out works including a private art gallery and residence (‘fit-out contract’). The contract price was $1,168,558.24 (inclusive of GST).

The fit-out contract contained an implied term that ‘the works must be completed within a reasonable time.’[1] The contracted works should have been completed by 3 December 2014. In breach of the implied term, the works were not completed for a further 130 weeks. On 2 June 2017, Leeda returned the access cards to the apartment to Ms Zeng.
[1]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [113].

Disputation between Ms Zeng and Leeda led to a proceeding in the Victorian Civil and Administrative Tribunal (‘Tribunal’), heard over ten days between late January and mid-March 2018. Leeda claimed damages equivalent to the sum owing under the fit-out contract upon practical completion of the work. In June 2017, Ms Zeng’s architect certified for payment to Leeda in the sum of $211,944.20. Leeda claimed this amount. Ms Zeng claimed damages in the Tribunal for the loss of use and enjoyment of the apartment for the delay period, such loss measured as:

·A sum equivalent to the residential rental value of the apartment for the delay period. The Senior Member accepted evidence that the residential rental value was within a range of $2,500 to $3,000 per week;[2] alternatively,
·The sum of $283,802.17, being the owners’ corporation fees, council rates and utility charges incurred by Ms Zeng during the delay period.

[2]Ibid [175], [180].

The Senior Member rejected Ms Zeng’s claim for damages for loss of use of the apartment. He concluded:

In my view, the claim falls within the ambit of the Baltic Shipping principle. It may well be unusual that a lengthy delay in completion of a building project, caused by a builder’s breach contract, does not warrant an award of damages. But such outcome in this case is, in my view, a reflection of the unusual facts in this case.[3]

[3]Ibid [199].

The Senior Member concluded that Ms Zeng had proved breach of contract by the builder, but had failed to prove damages resulting from the breach.[4] He awarded nominal damages of $100. The Senior Member awarded Leeda $211,944.20 in respect of its claim:

For the above reasons, I will order the owner to pay the builder $211,944.20. On the counterclaim, I will order the builder to pay the owner nominated [sic] damages in the sum of $100. The effect is that the owner must pay the builder $211,844.20.[5]

[4]Ibid [152]–[153], [201].

[5]Ibid [225].

The order made on 4 May 2018 erroneously awarded $211,844.20 to Leeda and $100 nominal damages to Ms Zeng . This is plainly a slip and I proceed on the basis that the sum awarded to Leeda was $211,944.20. After deducting the nominal damages of $100, the net amount awarded to Leeda was $211,844.20.

Ms Zeng seeks leave to appeal from the Tribunal’s decision. The sole question of law upon which leave is sought is whether the Tribunal erred in law in finding that Ms Zeng was not entitled to general damages arising from Leeda’s breach of the implied term which required Leeda to complete the building works within a reasonable time.

I have concluded that the Senior Member erred in finding that Ms Zeng was not entitled to general damages. The Tribunal’s order requiring Leeda to pay Ms Zeng nominal damages of $100 will be set aside. Leeda is liable to pay Ms Zeng damages of $357,500. This sum represents 130 weeks’ rental at $2,750, being the mid-point between the $2,500 to $3,000 residential rental range accepted by the Senior Member as the rental value of the apartment during the delay period. I have rejected the submission advanced by Mr Tran, who appeared for Leeda, that the proceeding should be remitted to the Tribunal for consideration of whether the sum of $357,500 should be reduced by reason of Ms Zeng’s failure to mitigate her loss.

By notice of cross-appeal dated 26 June 2018, Leeda contends that the Tribunal denied it procedural fairness in rejecting its claim for interest on the sum of $211,844.20 which Ms Zeng had been ordered to pay, being $211,944.20 less $100 nominal damages. Leeda’s contention that it was denied procedural fairness is rendered moot by the primary finding that Ms Zeng is entitled to damages of $357,500. The sum of $211,944.20 will be set off against the sum of $357,500. As such, Leeda shall be ordered to pay Ms Zeng $145,555.80. If the alleged denial of procedural fairness had not been rendered moot, I would, in any event, have concluded that the Tribunal’s decision not to award interest did not entail any denial of procedural fairness.

Leeda unlawfully denied Ms Zeng access to the apartment for a period of 130 weeks

Pursuant to cl A4(1)(c) of the fit-out contract, Ms Zeng was required to ‘give possession of the site in accordance with this contract’. Clause F1 stated:

Owner to give contractor possession of the site
The owner must give the contractor possession of the site within ten working days after the owner:
(a)has received, or the architect as the agent of the owner has received, a copy of the contract executed by both parties;
(b)is satisfied that all of the insurances required under section E to be provided by the contractor, are in place; and
(c)has received, or the architect as the agent of the owner has received, any official document required under item 30a of schedule 1.

Pursuant to cl F2, Leeda was obliged to give Ms Zeng, her architect and consultants, and a representative of her lending institution access on reasonable terms to the apartment after reasonable notice. Pursuant to cl M8, if Ms Zeng took possession before her architect issued a notice of practical completion, there would be deemed practical completion.

Ms Zeng’s application for leave to appeal was supported by an affidavit of Joseph Gerard Mulcahy sworn 10 May 2018. Mr Mulcahy’s affidavit includes the following:

Immediately after the directions hearing [on 19 August 2016] I spoke with Mr Edwin Fah, the solicitor acting for Leeda at Mills Oakley about access arrangements. Mr Fah confirmed to me that access to the Premises was only available with the consent of, and by prior arrangement with, Leeda.
Given Leeda was exercising its rights of possession over the Premises and given the terms of the Contract, I formed the view that Ms Zeng was not in a position to disregard Leeda’s asserted rights.
On 22 August 2016, I sent a letter to Mills Oakley in which I required the delivery up of the access cards and in which I set out my concerns in relation to the fact that Ms Zeng had been denied access to her Premises (including her car parks) for in excess of 2 years from the dates on which Leeda asserted that practical completion was achieved. In that letter, I acknowledged that Leeda had a contractual licence to the Premises in accordance with the Domestic Building Contracts Act 1995 (Vic) and I asked Mills Oakley if Leeda still required unfettered access to the Premises notwithstanding Leeda’s position that all obligations under the Contract were complete …
Later that day [on 26 August 2016], I received a telephone call from Mr Fah in which he stated that Leeda refused to provide the access cards/keys to Ms Zeng. I replied that I would be requesting an urgent directions hearing from the Tribunal.[6]

[6]Ibid [91]–[96].

As foreshadowed in Mr Mulcahy’s affidavit, a directions hearing took place at the Tribunal on 1 September 2016. The Senior Member made an order on 1 September 2016 for Ms Zeng to access the apartment. The order required Leeda, by not later than 4.00 pm on 5 September 2016, to deliver up to Ms Zeng’s lawyers ‘such access cards, keys, security codes and other information or devices required to allow access to the subject premises, Lot S28, Level 87 Eureka Towers, 7 Riverside Quay, Southbank, Vic (“the apartment”) and the relevant car park for the apartment (“the car park”).’[7]
[7]Ibid [94].

Ms Zeng did access the apartment in accordance with the order made by the Tribunal on 1 September 2016. During the Tribunal proceeding, Leeda submitted that, by accessing the works under that order, Ms Zeng took possession and the works reached deemed practical completion. The Tribunal rejected this submission, and held that it was not satisfied on the evidence that Ms Zeng accessed the apartment other than in accordance with the order.[8] The Tribunal concluded that the unlawful delay continued until Leeda returned the access cards to the apartment and thereby ended its possession thereof on 2 June 2017.[9]
[8]Ibid [103].
[9]Ibid [155].

For a period of 130 weeks from 3 December 2014 to 2 June 2017 when Leeda returned the access cards, Ms Zeng was denied use of the apartment. That denial was a direct consequence of Leeda’s breach of the implied term in the fit-out contract that the building works would be completed within a reasonable period of time.

The Tribunal’s award of nominal damages

Nominal damages are awarded where the elements of a cause of action are established, usually for breach of contract or torts actionable per se, but no injury, loss or damage is proved.[10] A breach of contract entitles the plaintiff to at least nominal damages.[11]
[10]Y P Barley Producers Ltd v E C Robertson Pty Ltd [1927] VLR 194, 208 (McArthur J); Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286, 301 (Latham CJ); New South Wales v Stevens (2012) 82 NSWLR 106, 108 [7] (McColl JA, Ward JA and Sackville AJA agreeing); Huppert v Stock Options of Australia Pty Ltd (1965) 112 CLR 414, 424 (Barwick CJ), 431 (Taylor J).
[11]Chappel v Hart (1998) 195 CLR 232, 254 [58] (Gummow J), 270 [93] (Kirby J), 290 [149] (Hayne J); Bowen v Blair [1933] VLR 398, 402 (Mann ACJ, delivering the judgment of the Court); Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286.

The Senior Member concluded that, although Ms Zeng had established a breach of contract, she had failed to prove any damage resulting from the breach. On this basis, the Senior Member considered it appropriate to award Ms Zeng nominal damages of $100.

In the Tribunal proceeding, Leeda submitted that ‘the law in Australia in relation to damages for loss of use and enjoyment arising from a breach of contract is clearly established by the High Court in Baltic Shipping Co v Dillon.’[12] Leeda also submitted that Ms Zeng’s ‘claim for loss of the benefit/use of the apartment is caught by the Baltic Shipping principle, and that the claim does not fall within the exceptions to the general rule that precludes damages for anxiety, disappointment and distress for breach of contract.’[13]
[12]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [190], citing Baltic Shipping Co v Dillon (1993) 176 CLR 344.
[13]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [192].

The Senior Member referred to the judgment of McLeish JA in Archibald v Powlett[14] as providing ‘helpful commentary in respect of the Baltic Shipping principle’.[15] The Senior Member set out the following passage from McLeish JA’s judgment:

The general rule is that damages for anxiety, disappointment and distress are not recoverable in an action for breach of contract. The principal exceptions to that rule are where the contract is one whose object is to provide enjoyment, relaxation or freedom from molestation, and where the damages proceed from physical inconvenience caused by the breach.[16]

[14](2017) 53 VR 645.

[15]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [191].

[16]Ibid, quoting Archibald v Powlett (2017) 53 VR 645, 660 [62].

In Archibald v Powlett, the trial judge had awarded damages for breach of contract for distress, anxiety and depression. No damages had been sought or awarded for loss of use and enjoyment of property. Archibald v Powlett is not authority for the proposition that the law in Australia in relation to damages for loss of use of property arising from breach of contract is governed by Baltic Shipping. Baltic Shipping is authority for a much narrower proposition, namely, that, subject to a number of established exceptions, damages for anxiety, disappointment and distress are not recoverable in an action for breach of contract.[17]
[17]Baltic Shipping Co v Dillon (1993) 176 CLR 344, 361–3 (Mason CJ), 380–3 (Dean and Dawson JJ), 387 (Gaudron J), 404–5 (McHugh J).

The Tribunal erred in concluding that Ms Zeng’s claim for damages for loss of use of the apartment for 130 weeks ‘falls within the ambit of the Baltic Shipping principle.’[18] As recorded in the Tribunal’s decision, Ms Zeng had a discrete claim for damages for disappointment, inconvenience and vexation.[19] This claim was subject to the principle in Baltic Shipping. The claim for damages for loss of use of the apartment for 130 weeks was not.
[18]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [199].
[19]Ibid [200].

Five judgments were delivered by the High Court in Baltic Shipping.[20] None of the judgments lend any support to the proposition that damages for breach of contract for loss of use of property are not recoverable. The High Court confirmed that damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach or unless the object of the contract is to provide enjoyment, relaxation or freedom from molestation. However, the Court did not give unqualified endorsement to this principle. Mason CJ (Toohey J agreeing) observed:

We are then left with a rule which rests on flimsy policy foundations and conceptually is at odds with the fundamental principle governing the recovery of damages, the more so now that the approaches in tort and contract are converging.[21]

[20]Toohey J delivered a separate judgment in which he agreed with Mason CJ.

[21]Baltic Shipping Co v Dillon (1993) 176 CLR 344, 362.

McHugh J stated:

Various explanations of the rationale of this rule have been proffered. None of them is satisfactory.[22]
…
While it can be accepted that not all principles relating to an award of damages in tort ought to be applicable in an action for breach of contract, it is difficult to see why no damages should be awarded for distress or disappointment arising directly from the breach of the contract itself.[23]

[22]Ibid 395.

[23]Ibid 396.

McHugh J also stated:

If the matter were free from authority, the object of an award of damages for breach of contract and the principles of causation and remoteness would require the conclusion that damage for disappointment or distress, resulting from breach of contract, was compensable if it was within the reasonable contemplation of the parties when the contract was made.[24]

[24]Ibid 404.

Deane and Dawson JJ stated:

One of the general rules relating to the assessment of compensatory damages for breach of contract which has been accorded the status of settled principle is the rule that a plaintiff is not entitled to recover damages for the ‘disappointment of mind’, distress and injured feelings ‘occasioned by the breach of the contract’. That rule, where applicable, represents an essentially pragmatic and judicially imposed assumption which is to be made for the purposes of the application of the second limb of the rule in Hadley v Baxendale, that is to say, it is to be assumed that disappointment or distress flowing from the breach of contract would not have been in the contemplation of the parties, at the time they made the contract, as a likely result of breach.[25]

[25]Ibid 380–1.

Mason CJ observed that it was preferable to adopt the general rule because an ‘innocent party’s disappointment and distress are seldom so significant as to attract an award of damages on that score.’[26]
[26]Ibid 365.

Brennan J stated:

The institution of contract, by which parties are empowered to create a charter of their rights and obligations inter se, can operate effectively only if the parties, at the time when they create their charter, can form some estimate of liability in the event of default in performance. But no approximate estimate of liability could be formed if the subjective mental reaction of an innocent party to a breach and resultant damage were added on as further damage without proof of pecuniary loss by the innocent party. If the mental reaction to breach and resultant damage were itself a head of damage, the liability of a party in breach would be at large and liable to fluctuation according to the personal situation of the innocent party. If a promisor were exposed to such an indefinite liability in the event of breach, the making of commercial contracts would be inhibited, the assignment of a contractual right would carry new risks for the party subject to the reciprocal obligation, and trade and commerce would be seriously impeded.[27]

[27]Ibid 369.

The policy considerations identified by Mason CJ and Brennan J have no application to a claim for damages for loss of use of property. In the present case, the measure of damages, based on the residential rental value of the apartment, is not liable to fluctuation according to the personal subjective response of Ms Zeng.

The Senior Member erred in concluding that Ms Zeng’s claim for damages fell within the ambit of the Baltic Shipping principle. However, it does not follow that the Tribunal’s order awarding nominal damages of $100 should be set aside. If the Senior Member was correct in concluding that Ms Zeng failed to prove any damage resulting from Leeda’s breach of contract, there would be no basis for setting aside the award of nominal damages.

Ms Zeng is entitled to general damages for loss of use of the apartment for 130 weeks

The Senior Member concluded that the ‘unusual facts in this case’ justified no award of general damages.[28] The unusual facts included the following:

(a) There was no loss in the form of foregone residential rental income because Ms Zeng never intended to lease the apartment as a residential rental investment property;[29] and

(b) Ms Zeng did not incur the expense of having to rent other accommodation during the delay period because at all relevant times she and her husband had access to a number of their own residential properties in Melbourne, rural Victoria and China.[30]

[28]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [199].

[29]Ibid [170].

[30]Ibid [169].

Loss of rental income and expenses incurred in obtaining alternative accommodation are well recognised categories of consequential loss for which damages are available.[31] It does not follow from the unavailability of these categories of damages in the present case that Ms Zeng did not suffer loss for which she is entitled to be compensated by being deprived of the use of her apartment for 130 weeks.
[31]Justice James Edelman, McGregor on Damages (Sweet & Maxwell, 20^th ed, 2018) 970–1 [31‑010]–[31-011].

Ms Zeng suffered loss as a direct consequence of Leeda’s breach of contract. The loss was the value of what Ms Zeng would have received if Leeda had complied with its contractual obligation to complete the fit out within a reasonable period.[32] Had Leeda complied with its contractual obligations, Ms Zeng would have been able to exercise her right of occupation of the apartment for a period of 130 weeks. This loss is readily capable of being measured. The value of the loss of use of the apartment equates with the rental value of the property. The Tribunal accepted that the rental value during the delay period was $2,500 to $3,000 per week. Adopting a mid-point of $2,750 per week, the loss of use equates to $357,500.
[32]Clark v Macourt (2013) 253 CLR 1, 7 [9] (Hayne J).

McGregor on Damages states that the ‘normal measure’ (as opposed to claims for consequential loss) for assessing damages for delay in completing a building is as follows:

If the builder fails to complete the building by the time required by the contract the normal measure of damages should be the value of the use of the building during the period of delay, the value generally being taken as the rental value. Unfortunately, there appear to be no cases on this.[33]

[33]Justice James Edelman, McGregor on Damages (Sweet & Maxwell, 20^th ed, 2018) 970 [31‑009].

The principles governing loss of use damages for breach of contract in the United States of America are summarised in Dobbs Law of Remedies as follows:

When the contractor breaches by delay in delivering the completed work, the owner is entitled to damages for the delay. Those damages are usually measured by the rental value of the land during the period of delay. The rental value is the value of the land with the building in its completed state as contracted for, not the value of the unimproved or partly improved lot. Rental value is the proper measure even though the owner would not in fact have rented the land and did not in fact need the building on the date called for. Like many other damages awards, the rental value measure may be considered a ‘default’ measure, a kind of liquidated damages to be used unless the parties provide something they prefer. It is close enough to accurate compensation, easy to use, and far preferable to an unlimited award based on subjective guesses about the worth of delay to particular plaintiffs.[34]

[34]Dan B Dobbs, Dobbs Law of Remedies (West Publishing Co, 1993) vol 3, 443–444 (citations omitted).

In GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd,[35] the Commonwealth was awarded $104,238 damages for breach of contract by BHP Information Technology Pty Ltd (‘BHP-IT’). The damages were for the loss of use of premises (the Edmund Barton Building) on account of the Commonwealth having to provide accommodation for BHP-IT’s staff as a result of BHP-IT’s breach of contract. The Commonwealth’s loss of use of property was not because it was kept out of its own property by reason of the delay in BHP-IT’s performance of its contractual obligations. Rather, it was because of the continuing need to commit its property to provide accommodation for BHP-IT’s staff as a result of BHP-IT’s breach.[36]
[35](2003) 128 FCR 1.
[36]Ibid 337 [1569].

The facts in Marconi are distinguishable from the present case. Nevertheless, Finn J’s judgment is authority for the proposition that loss of use of property arising from breach of contract is compensable loss. In the first instance, Finn J reviewed authorities which have considered the availability of loss of use damages for tortious conduct:

I referred above to Lord Halsbury’s statement of principle in The ‘Mediana’ that establishes loss of use of property from a wrongful act as being itself a ground for damages. Where such property is not income-producing or for that matter is not capable of being used for income producing purposes, or where a substitute is not hired, leased etc during a period of repair, a like problem in quantification of loss can arise for reasons similar to those I have noted above. This, no doubt, explains the Commonwealth’s resort to The ‘Mediana’ principle in this setting as that principle has been used to justify the award of general damages for loss of use of non-profit earning property: see generally McGregor on Damages, para 1349; see also Westwood v Cordwell [1983] 1 Qd R 276 at 278-279.[37]

[37]Ibid 338 [1571].

His Honour cited with approval the judgment of McPherson J of the Supreme Court of Queensland in Westwood v Cordwell.[38]The plaintiff’s house had been demolished when the defendant’s truck left the highway and collided with the house. McPherson J held that the plaintiff was entitled to damages for loss of use of the premises even though, instead of letting the premises to another, they were themselves in occupation when the premises were destroyed. The damages were measured by the rental value of the premises.[39]
[38][1983] 1 Qd R 276.
[39]Ibid 279.

Finn J stated that the Mediana principle, which supports the availability of loss of use damages in tort, is ‘clearly part of Australian law’.[40] His Honour cited with approval paragraph 1146 of the 16^th edition of McGregor on Damages, which is in identical terms to paragraph 31‑009 of the 20^th edition:

I was not taken to, and I have not been able to discover, a decided case similar to the present. Such reported loss of use of property cases as there are, are of two general varieties: the first, where the loss arises from a tort occasioning damage to the property itself; the second, where a breach of contract delays the use of property (for example, because of delay in completion of a building on the innocent party’s land). It has been said of English law in the latter class of case that the delay damages should, in principle, generally be the rental value for the use of the premises for the period of delay: see McGregor on Damages, para 1146.[41]

[40]GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, 338 [1572].

[41]Ibid 338 [1573].

Finn J also referred with approval to the passage from Dobbs Law of Remedies set out above in support of the proposition:

In American jurisdictions the rule commonly adopted in breach of contract cases where the damage caused by a delay in performance takes the form of loss of use of an item of property, is that the damages are generally measured by the rental value of the property involved.[42]

[42]Ibid 338 [1574]. See also Kaltoft v Nielsen, 252 Iowa 249 (1960); Morgan-National Woodworking Co v Cline, 324 Mass 15 (1949), followed in Potter v Anderson, 85 SD 142 (1970), cited with approval in Menapace v Gregson, 91 Mass App Ct 1101 (2017); Cinnamon Valley Resort v EMAC Enterprises Inc, 89 Ark App 236, 7 [13] (2005); Gregory v Weber, 51 Or App 547, 395–6 [6] (1981).

Finn J awarded the Commonwealth $104,238 in damages:

In the present case resort to a ‘default measure’ is inescapable. In the circumstances, I consider a variant on the fair rental measure is appropriate. In saying this I recognise (a) that the contractual principle referred to above was not designed to deal explicitly with the unusual circumstances of a case such as the present; and (b) that the Edmund Barton Building, as Commonwealth property, may not have had a rental value as such, but it did have a usable value to the Commonwealth.
If the Commonwealth had accommodated the BHP-IT project team in commercially rented premises, it would have been entitled to claim the rental paid as damages: cf United States v Wyckoff Pipe & Creosoting Co (1926) 46 SCR 503. It had its own offices instead. Those offices clearly had a usable value to the Commonwealth. Both before and after their occupation by BHP-IT, they were used by the Government departments.
The decision to use the Edmund Barton Building was taken after evaluating other options including a commercial option. An aspect of that evaluation related to the actual rental charged for commercial accommodation and the ‘notional rentals’ the Commonwealth charged itself for its use of its own buildings. Where the Commonwealth has taken the step of placing a cost to itself upon its use of its own premises — a cost which is apparently comparable to rentals charged in the private sector (and it has not been suggested otherwise in this proceeding) and which I infer is related to the efficient use of public resources — that cost (not having been challenged in its amount) can properly be taken to represent usable value of that property to the Commonwealth. As such, it provides an appropriate measure of the damages that are recoverable by the Commonwealth.
I am satisfied then that the sum of $104,238 is recoverable by the Commonwealth on account of it having to provide accommodation and the TIF to BHP-IT in the Edmund Barton Building. That sum is recoverable, not on account of rental actually paid for that accommodation, but as damages for the loss of use of the premises concerned because it was obliged to provide such accommodation by reason, and only by reason, of BHP-IT’s breach of contract.[43]

[43]GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, 339 [1575]–[1578].

The authors of Cheshire & Fifoot, Law of Contract cite Marconi as authority for the following proposition:

Loss of the use of property is compensable even if the property is not income-producing.[44]

[44]N C Seddon and R A Bigwood, Cheshire & Fifoot, Law of Contract: Eleventh Australian Edition (LexisNexis, 11^th ed, 2017) 1189, footnote n 81.

If Ms Zeng and her husband had rented alternative accommodation during the delay period, they would have been entitled to claim the rental paid as damages for consequential loss. They owned alternative accommodation for which they did not have to pay rent. Their position is therefore analogous to that of the Commonwealth in Marconi. The Commonwealth was entitled to damages equivalent to the notional rent for accommodating BHP-IT’s staff in the Edmund Barton Building. So too, Ms Zeng is entitled to the notional rental value of the apartment for the delay period even though there was no intention on her part to rent it. Mr Tran submitted that Marconi should be distinguished because:

Here, Mrs Zeng did not commit any of her resources because of, or in response to, Leeda’s breach of contract.[45]

[45]Respondent, ‘Written submissions of the Respondent’ filed 3 October 2018, 13 [50].

It is correct that Ms Zeng did not incur expenses such as rates, utility charges and body corporate fees because of or in reliance upon Leeda’s breach of contract. As discussed below, this is the reason why Ms Zeng’s alternative claim for damages for $283,802.17 and expenses should be rejected. However, Ms Zeng did commit her own resources in response to Leeda’s breach of contract. Ms Zeng and Mr Dong and/or any of their friends or associates could not reside in the apartment during the delay period. They resided in other accommodation which they owned. The facts in Marconi differ from the present case. However, the facts are analogous in so far as Finn J assessed damages for loss of use of premises notwithstanding that the Commonwealth did not actually pay rent on those premises.

In assessing loss of use damages for breach of contract, Finn J had regard to longstanding authority confirming the availability of loss of use damages in tort. His Honour’s approach is consistent with the reasoning of the Supreme Court of the United Kingdom in One Step (Support) Ltd v Morris-Garner.[46]
[46][2018] 2 WLR 1353.

In One Step (Support) Ltd v Morris-Garner, Lord Reed JSC (Baroness Hale of Richmond PSC, Lord Wilson and Lord Carnwath JJSC agreeing) observed that ‘[d]amages in contract serve a different remedial purpose from damages in tort, reflecting the different nature of the obligation breached by the wrongdoer in each case.’[47] Notwithstanding this different remedial purpose, his Honour observed:

That is not to say that damages in contract will always be different from damages in tort.[48]

[47]Ibid 1365 [31].

[48]Ibid 1366 [33].

Lord Reed JSC considered that:

[T]he user principle derived from the property cases discussed earlier is of potential relevance whether the wrongful use of property arises in a contractual or tortious context.[49]

[49]Ibid.

The ‘property cases’ to which Lord Reed JSC referred included the judgment of Nicholls LJ in Stoke-on-Trent City Council v W & J Wass Ltd:

The approach adopted in these cases was described by Nicholls LJ in Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406 as the ‘user principle’. He summarised it as follows, at p 1416:
‘It is an established principle concerning the assessment of damages that a person who has wrongfully used another’s property without causing the latter any pecuniary loss may still be liable to that other for more than nominal damages. In general, he is liable to pay, as damages, a reasonable sum for the wrongful use he has made of the other’s property. The law has reached this conclusion by giving to the concept of loss or damage in such a case a wider meaning than merely financial loss calculated by comparing the property owner’s financial position after the wrongdoing with what it would have been had the wrongdoing never occurred. Furthermore, in such a case it is no answer for the wrongdoer to show that the property owner would probably not have used the property himself had the wrongdoer not done so. In The Mediana [1900] AC 113, 117, Earl of Halsbury LC made the famous observation that a defendant who had deprived the plaintiff of one of the chairs in his room for 12 months could not diminish the damages by showing that the plaintiff did not usually sit upon that chair or that there were plenty of other chairs in the room.’

In these cases, the courts have treated user damages as providing compensation for loss, albeit not loss of a conventional kind. Where property is damaged, the loss suffered can be measured in terms of the cost of repair or the diminution in value, and damages can be assessed accordingly. Where on the other hand an unlawful use is made of property, and the right to control such use is a valuable asset, the owner suffers a loss of a different kind, which calls for a different method of assessing damages. In such circumstances, the person who makes wrongful use of the property prevents the owner from exercising his right to obtain the economic value of the use in question, and should therefore compensate him for the consequent loss. Put shortly, he takes something for nothing, for which the owner was entitled to require payment.[50]

[50]Ibid 1364–5 [29]–[30].

Lord Reed JSC stated, in respect of the objective of contractual damages of compensating the claimant for the loss sustained as a result of non-performance:

What is crucial is first to identify the loss: the difference between the claimant’s actual situation and the situation in which he would have been if the primary contractual obligation had been performed. Once the loss has been identified, the court then has to quantify it in monetary terms.[51]

[51]Ibid 1366 [36].

Lord Reed JSC stated that, because damages for breach of contract ‘are a substitute for the end-result of performance, not for the economic end-result of performance’:[52]

It is therefore necessary in cases of non-economic loss, as in cases of economic loss, to identify the difference in the claimant’s situation resulting from the non-performance of the obligation in question, and then to place a reasonable monetary value on that difference, provided that the loss or damage in question is of a kind for which the law provides monetary compensation.[53]

[52]Ibid 1368 [40].

[53]Ibid.

Subject to satisfying the rule in Hadley v Baxendale, loss of use of property by reason of breach of contract is loss of a kind for which the law provides monetary compensation.

There are a number of other Australian authorities in addition to Marconi which have accepted the availability of loss of use damages for breach of contract. In Wyzenbeekv Australasian Marine Imports Pty Ltd (No 2),[54] the plaintiff bought a $4 million yacht named the Cadeau, which was represented to him to be suitable for crossing oceans or for extended ocean voyages. After an incident that caused substantial damage to the vessel, Mr Wyzenbeek ascertained that the vessel was not suitable for this purpose but continued to use it for sailing activities. The plaintiff brought a claim for misleading and deceptive conduct, which failed because there was no loss: when the vessel was purchased it was worth the $4 million that he paid, and its subsequent depreciation resulted from his constant use of the vessel. Derrington J held that the plaintiffs could recover from the vendor for breach of an implied contractual term as to fitness for purpose of the vessel, which was implied into the contract by s 71(2) of the Trade Practices Act. Derrington J stated:

Whilst Cadeau was being repaired from time to time it was not capable of being used by Mr and Mrs Wyzenbeek and the applicants claim damages for their inability to use it during that period. Such damages are recoverable where, as a consequence of a wrong done with respect to a vessel, even a non-profit making vessel, it is laid up for repairs. The authorities on this topic were discussed in detail in Vautin (No 4) at [308]–[317]. Whilst such damages are usually sought in collision cases there is no reason why they would also not be available as consequential losses in claims for breach of contract where repairs or rectification are required to put the vessel into the condition which it ought to have been had the contract been performed. The respondents did not submit to the contrary.
…
The periods of time during which Cadeau was out of commission for the purposes of effecting repairs which were attributable to the defects which rendered it unfit for the purpose of ocean crossing were 22 days in 2011 (being from 16 August 2011 to 24 August 2011 and from 8 September 2011 to 22 September 2011) and for around eight months from 25 October 2012, being the period immediately after the Port Macquarie incident. When all the evidence is taken into account there was a period of about 9 months in the second year of ownership during which the vessel was out of commission. As appears from the discussion in Vautin (No 4), the often used measure of damages for loss of use during periods of repair is the amount by which the vessel has deteriorated whilst laid up.
In the absence of any other evidence, I take the depreciation rate in respect of Cadeau as being 6%. It would follow that in the second year of service, it would have been worth $3,760,000.00. In broadbrush terms the vessel was out of commission for nine months of the following year. That being so, three quarters of the depreciation sustained by the vessel in that following year ($224,400.00) amounted to $168,300.00.

If the vessel had met the contractual standard and was reasonably fit for crossing oceans and, therefore, did not have the defects identified by Mr Dovell, those defects would not have caused the damage they did and the vessel would not have been out of commission for that nine month period. The loss of the use of the vessel for that time can be compensated by an award of damages in an amount representing the depreciation which occurred while it could not be used. On that basis, Mr and Mrs Wyzenbeek are entitled to damages against AMI in the amount of $168,300.00 representing the only amount of loss proven to have been caused by the breach of the condition that the vessel was not reasonably fit for the purpose of crossing oceans or engaging in extended ocean passage.[55]

[54][2018] FCA 1517.

[55]Ibid [327], [329]–[331].

In the judgment set out above, Derrington J referred to his earlier judgment in Vautin v BY Windowdown Inc (formerly Betram Yachts) (No 4).[56] Vautin did not involve a claim for damages for breach of contract. However, Derrington J, after reviewing authorities in respect of the award of damages for negligence for loss of use of a vessel, stated:

It follows that where a vessel suffers depreciation for the period during which she is laid up, the owner is entitled to recover an amount (as part of general damages) to compensate for the depreciation in the value of the ship during that time (see The Hebridean Coast [1961] AC 545). In Consort Express Lines Ltd v J-Mac Pty Ltd (No 2) (2006) 232 ALR 341, 356, [87] Rares J referred to The Hebridean Coast when identifying the following principle:
With a nonprofit-earning ship, if no harm were proved apart from the mere fact that the owner is deprived of her services during the period of repairs, the court awards damages based on interest and depreciation on the value of the ship

There seems to be no difference in principle in this respect between damages in tort and damages in contract as was identified by Viscount Dunedin in Admiralty Commissioners v SS Susquehanna. Whether the damages are to restore the wronged party to the position which they ought to have been in had the contract been performed, or if the wrong had not occurred does not matter, the principle remains the same. They are designed to compensate for the loss of use of the vessel. In any event, the damages recoverable under s 259(4) appear to be in respect of tortious damages or reliance losses, rather than expectation losses such that the cases concerning damages for property damage would appear to have a direct relevance.[57]

[56][2018] FCA 426.

[57]Ibid [314]–[315].

In Yates v Mobile Marine Repairs Pty Ltd,[58] the plaintiff was the owner of a luxury game fishing vessel. Repair work on the vessel’s engines was carried out negligently by the first defendant, resulting in extensive damage to the engines. The first defendant was the Sydney agent of the second defendant, MAN Australia. The plaintiff and MAN Australia were parties to a contract pursuant to which MAN Australia would engage Mobile Marine to carry out repair works on the vessel’s engines. There was an implied term in the repair contract that MAN Australia would procure that the work performed would be carried out with reasonable skill and diligence.[59] Yates claimed damages for a period of 348 days during which his vessel was non-operational as a result of the negligent repairs. The vessel was purely a pleasure craft for Mr Yates’ own enjoyment. The defendant did not dispute that damage to property depriving the owner of its use is compensable even though the owner cannot prove tangible pecuniary loss.[60] However, the defendants submitted that this principle had no application to a chattel used purely for pleasure, such as the vessel.[61] This submission was rejected by Palmer J:

Mr M. McHugh of Counsel, who appeared for the Defendants, submitted that if Mr Yates were awarded anything but nominal damages for loss of use of the Eagle he would be placed in a much better position than he would have been had there been no damage done to the vessel. I do not agree. Mr Yates had invested a very great deal of his time and money in planning and building the Eagle. Doubtless he was looking forward greatly to enjoying it throughout 2004 and 2005. He would have done so had the vessel not been rendered unusable. This is a case in which, unlike that of the unused chair hypothesised by Lord Halsbury in The Mediana, I am able to find that Mr Yates had a substantial need – in a practical sense, not in a commercial sense – for the use of the Eagle.[62]

[58][2007] NSWSC 1463.

[59]Ibid [46].

[60]Ibid [80].

[61]Ibid [81].

[62]Ibid [83].

The plaintiff was awarded loss of use damages in the sum of $240,263. Liability was apportioned equally between the defendants. The damages were calculated applying the Supreme Court of New South Wales interest rate of nine per cent to the value of the vessel ($2.8 million) during the period it could not be used.

Mr Tran submitted that Yates is not authority for the proposition that loss of use is compensable damage for breach of contract. He relied upon the following passage from the judgment of the plurality in CSR Ltd v Eddy:[63]

[W]here a proposition of law is incorporated into the reasoning of a particular court, that proposition, even if it forms part of the ratio decidendi, is not binding on later courts if the particular court merely assumed its correctness without argument. ‘[T]he presidents, … sub silentio without argument, are of no moment.’[64]

[63](2005) 226 CLR 1.

[64]Ibid 11 [13] (Gleeson CJ, Gummow and Heydon JJ), quoting R v Warner (1661) 1 Keb 66, 67.

The judgment of Palmer J in Yates, who was sitting as a single judge in the Supreme Court of New South Wales, is not binding upon a judge sitting in the Trial Division of the Supreme Court of Victoria. The real issue is what weight is to be given to the judgment. In Yates, the defendants accepted that damage to property depriving an owner of its use is compensable even if the owner cannot prove tangible pecuniary loss. However, the defendants did put squarely in issue the Court’s capacity to award anything other than nominal damages for loss of use of the vessel, given that it was to be used solely for Mr Yates’ pleasure.

In determining the weight to be attributed to the judgment in Yates, I have had regard to the fact that no party contended that loss of use is not compensable loss for breach of contract. The judgment is plainly not binding upon me. However, I consider the judgment to be of persuasive authority for the following reasons. First, damages for loss of use were awarded in excess of nominal damages in the face of the defendants’ submission that only nominal damages should be awarded because the vessel was purely for pleasure. Second, although awarding damages for loss of use arising from concurrent liability for breach of contract and negligence, Palmer J cited with approval the reasoning of Lord Halsbury in The Mediana, a case involving loss of use damages for tort. This approach is consistent with the approach adopted by Finn J in Marconi,[65] Derrington J in Vautin[66] and Wyzenbeek,[67] and Lord Reed JSC in One Step.[68]In Marconi, Finn J rejected the following submission:

[I]n relation to the rental claim that no actual additional cost was incurred by the Commonwealth and that there is no proper analogy to be drawn between this claim for breach of contract and those rules of tort law that entitled a person to an award of general damages for loss of use of, or damage to, property and which are typified in the holding in The ‘Mediana’.[69]

[65]GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, 337 [1569], 338 [1572].

[66]Vautin v BY Windowdown Inc (formerly Betram Yachts) (No 4) [2018] FCA 426 [310], [315].

[67]Wyzenbeekv Australasian Marine Imports Pty Ltd (No 2) [2018] FCA 1517 [327].

[68]One Step (Support) Ltd v Morris-Garner [2018] 2 WLR 1353, 1366 [33].

[69]GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, 335 [1557].

Loss of use of property is loss of a kind for which the law of contract provides monetary compensation. Marconi, Wyzenbeek and Yates are persuasive authorities which support this conclusion. The passages from McGregor on Damages and Cheshire and Fifoot, Law of Contract referred to earlier in this judgment support the same conclusion.

During the hearing on 31 January 2019, I asked Mr Tran if he advanced a proposition that loss of use is not compensable loss under the law of contact in Australia.[70] Ultimately, he did not press that proposition. Rather, he submitted that the loss of use of the apartment was not compensable because Ms Zeng was not going to use the property in the sense of renting it out and did not use it during the delay period.[71] He further submitted that, notwithstanding that Ms Zeng was precluded from exercising rights of occupation of the property directly as a consequence of Leeda’s breach of contract, there was no compensable loss. He submitted that the reason for this was that the use of the premises was not part of the contractual bargain between the parties. Rather, the contractual bargain was simply for Leeda to fit out the apartment.[72]
[70]Transcript of proceeding (31 January 2018) 62.22–62.23, 66.13–66.22.
[71]Ibid 97.20–97.25.
[72]Ibid 98.22–98.31.

The fit-out contract contained an implied term that the fit out would be completed within a reasonable period of time. The Senior Member concluded that the reasonable period of time expired on 3 December 2014.[73] I reject Mr Tran’s submission that the contractual bargain between the parties was simply for Leeda to fit out the apartment. The bargain imposed an obligation upon Leeda to complete the fit out within a reasonable period of time. This obligation meant that use of the premises post 3 December 2014 was part of the contractual bargain.
[73]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [155].

Damages for breach of contract are intended to restore the plaintiff to the same situation as if the contract had been performed.[74] If the contract had been performed in accordance with its terms, Ms Zeng would have had the use of the property during the delay period of 130 weeks. The property would have been available for use as both accommodation and as an art gallery for Mr Dong’s extensive art collection. In so far as the apartment was to be used as an art gallery, it would have been in use throughout the entire delay period, irrespective of whether Ms Zeng and/or Mr Dong were in residence.
[74]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 80 (Mason CJ and Dawson J), 98 (Brennan J), 116–7 (Deane J), 134 (Toohey J), 148 (Gaudron J), 161 (McHugh J).

In Baltic Shipping, Brennan J stated in respect of the rule in Hadley v Baxendale:

These rules have been merged in a single principle expressed by Lord Reid in C. Czarnikow Ltd v Koufos and adopted in this court:
The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realized that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.[75]

[75]Baltic Shipping Co v Dillon (1993) 176 CLR 344, 368 (Brennan J), quoting C Czarnikow Ltd v Koufos [1969] 1 AC 350, 385 (Lord Reid), citing Wenham v Ella (1972) 127 CLR 454, 471 (Gibbs J); Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653, 667 (Wilson, Deane and Dawson JJ); Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 92 (Mason CJ and Dawson J), 99 (Brennan J).

Leeda knew when it entered the fit-out contract that it was undertaking to fit out the apartment for use both as a residence and an art gallery. A reasonable person in Leeda’s position would have realised that Ms Zeng’s loss of use of the apartment would flow naturally from a breach by Leeda of the implied term that the works would be completed with a reasonable time. Alternatively, the loss was of a kind that should have been within Leeda’s contemplation. In this respect, the Senior Member found that:

On the evidence, I am satisfied that at the time the contract was entered, the builder was aware that the Eureka apartment, upon completion of the contract works, was to be used partly as a private art gallery and partly as a residence. Or to put it another way, I am satisfied that at the time the parties entered the contract, it may reasonably be supposed to have been in the contemplation of both parties that breach of contract on the part of the builder may result in loss and damage to the owner in the form of loss of benefit of use of the private art gallery/residence.[76]

[76]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [168].

If the contract had been performed in accordance with its terms, Ms Zeng would have had the use of the apartment as both a residence and a gallery for the 130-week delay period. The critical question is what value is to be attributed to this loss of use. Where, as in the present case, a builder fails to complete works by the time required under the contract, the normal measure of damages should be the value of the use of the building during the period of delay. In the present case, that value equates to $2,750 per week.

Mr Tran advanced a number of submissions as to why rental value, as set out in McGregor on Damages, is not an appropriate measure of loss. First, he submitted that McGregor on Damages provides ‘qualified support only’ for the proposition that loss of use is compensable loss for breach of contract.[77] He referred to Bella Casa Ltd v Vinestone Ltd,[78] a case referred to with approval in McGregor on Damages.[79] Mr Tran submitted that Bella Casa Ltd ‘held that loss of use simpliciter was “emphatically” not compensable, and that wasted fees could in principle be recovered — subject to standard principles of causation, proof and mitigation.’[80]
[77]Respondent, ‘Respondent’s Note’, 4 February 2019, 2 [4] (emphasis in original).
[78][2005] EWHC 2807.
[79]Justice James Edelman, McGregor on Damages (Sweet & Maxwell, 20^th ed, 2018) 976 [31‑019].
[80]Respondent, ‘Respondent’s Note’, 4 February 2019, 2 [4].

In Bella Casa Ltd, the claimant company had acquired, for a capital sum, a long lease on a London flat. The claim against the defendants arose out of defective construction works. The plaintiff sought damages of £341,962.14 for breach of contract for loss of use of the flat. The claim was not based on the rental value of the property during the period it could not be occupied. Rather, the £341,962.14 claim was based upon interest, at the judgment rate of eight per cent, on the claimant’s purchase price of the lease for the period that the flat was not fit for occupation.

Coulson J rejected the claim for £341,962.14 in damages. His Honour stated:

I consider that there is no dispute in the present case that damages for loss of use might be recoverable as a head of general damage or, as the case may be, a head of special damage: the point made by the Defendants here is that the particular claim for damages made by BCL in the Particulars of the Claim, by reference to interest at 8% on the purchase price, is not sustainable in law, or on the assumed facts.[81]

[81]Bella Casa Ltd v Vinestone Ltd [2005] EWHC 2807 [38] (emphasis in original).

I accept Mr Tran’s submission that McGregor on Damages described Bella Casa Ltd as having ‘decided against this claim for loss of use.’[82] McGregor on Damages described the claim for loss of use damages calculated at the rate of eight per cent on the purchase price of the flat as an ‘unusual claim’.[83] If the same measure of damages had been used in the present case the claim for loss of use damages would be calculated as follows:

Eight per cent (interest) x $5,838,000 (purchase price) x (130-week delay period = 2.5 years’ interest) = $1,167,600.

This would equate to a claim for loss of use damages of $1,167,600, well in excess of the damages claim based on rental value of the apartment during the delay period.

[82]Respondent, ‘Respondent’s Note’, 4 February 2019, 2 [4], quoting Justice James Edelman, McGregor on Damages (Sweet & Maxwell, 20^th ed, 2018) 976 [31‑019].

[83]Justice James Edelman, McGregor on Damages (Sweet & Maxwell, 20^th ed, 2018) 976 [31‑019].

Mr Tran submits that Ms Zeng failed to prove a loss equating to 130 weeks’ rental value:

Moreover, nothing in McGregor suggests that a plaintiff does not have to prove his or her loss. Rental calculated for the entire 130 week period assumes she was using it for that whole period. In reply, Mrs Zeng could only point to pieces of evidence suggesting how it might have been used occasionally. She did not prove she would use it all the time. She did not prove when she would use it. She ran no loss of opportunity (to use it) case. She abandoned a lost profits claim. She did not say that she incurred fees in reliance upon performance of the contract. Rental value may well be an appropriate measure in some other case. But not in this case, given these facts.[84]

[84]Respondent, ‘Respondent’s Note’, 4 February 2019, 2 [5] (emphasis in original).

I reject the submissions set out above. First, Ms Zeng and Mr Dong are collectors of contemporary Chinese art and intended to fit out the apartment as a private art gallery and part-residential apartment. The contract works were described in the fit-out contract as ‘Fitout of Private Art Gallery’.[85] Mr Mulcahy deposed as follows:

The evidence at the hearing was that during 2010, Ms Zeng and Mr Dong were looking for premises in Melbourne where they could reside when visiting Melbourne, but also where they could establish a private art gallery for the purposes of promoting contemporary Chinese art in Australia.
Both Ms Zeng and Mr Dong collect contemporary Chinese art, and Ms Zeng intended that they would make the art gallery available for artists in Shanghai to exhibit their work for invited guests to view on special occasions. Mr Dong is a businessman and art collector based in Shanghai. He has been collecting Chinese artwork over many years and he has amassed an extensive collection, including works by famous Chinese artists. Mr Dong is passionate about promoting Chinese art internationally in places such as Melbourne, which has a large Chinese population. It was intended that the art gallery would be used for promoting Chinese art even when Ms Zeng and Mr Dong were not in Australia, for the entire year.[86]

[85]Exhibit JGM-1 to the affidavit of Joseph Gerard Mulcahy sworn 10 May 2018, sch 1 item 5.

[86]Affidavit of Joseph Gerard Mulcahy sworn 10 May 2018, 5 [16]–[17].

The use of the apartment as an art gallery was not contingent upon Ms Zeng being in residence. Once the art was displayed, the apartment would be constantly used as a gallery, irrespective of who was in residence. There was therefore evidence that the apartment would be used all of the time as a gallery during the delay period.

The Senior Member found that, during the delay period, Ms Zeng incurred expenses of $283,802.17, comprising council rates, owners’ corporation fees and various utility charges.[87] This finding is not challenged in the present proceeding. I accept Mr Tran’s submission that the expenditure of $283,802.17 cannot be recovered as reliance damages. The $283,802.17 expenditure was a direct consequence of Ms Zeng’s ownership of the apartment. Those expenses were incurred irrespective of the terms of the fit-out contract. As such, the expenses are not recoverable as general damages for breach of the fit-out contract. However, nothing turns on this conclusion for the purposes of assessing Ms Zeng’s claim for loss of use damages based on the rental value of the property. The claim for damages based on expenses of $283,802.17 was pursued in the alternative to the claim for loss of use damages based on rental value. Nevertheless, Ms Zeng’s substantial capital investment comprising the purchase contract price of $5,838,000 and the fit-out contract price of $1,168,558.24 (inclusive of GST), together with the $283,802.17 expenses incurred during the delay period, reinforces the conclusion that Ms Zeng’s loss of use of the apartment during the delay period resulted in actual loss. For the duration of the delay period, Ms Zeng received nothing in return for her capital outlay of $7 million and nothing in return for the significant expenses she incurred as a consequence of her ownership of the apartment. As a direct result of Leeda’s breach of contract, Ms Zeng was effectively locked out of her own property for 130 weeks. She was deprived of the opportunity to reside in the apartment and utilise the art gallery, a benefit she would have received if Leeda had complied with its contractual obligations. The loss which she incurred has a measurable value: $2,750 per week for the duration of the 130-week delay period.
[87]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [172].

Contrary to Mr Tran’s submissions, the facts of the current proceeding strongly support the conclusion that the rental value of the apartment for the duration of the delay period is an appropriate measure of damages.

Mr Tran submits that, on the assumption that paragraph 31‑009 of McGregor on Damages supports Ms Zeng’s claim for damages, that passage is wrong. Mr Tran submits that:

First, where a vendor of property has failed to provide a property on time, damages have not been awarded to compensate the purchaser for mere loss of use, but for actual loss caused by the delay (eg lost rent if the plaintiff intended to rent it out).[88]

[88]Respondent, ‘Respondent’s Note’, 4 February 2019, 2 [7] (emphasis in original).

Mr Tran cites a number of authorities in support of this proposition: King v Poggioli,[89] Jones v Gardiner,[90] Jaques v Millar,[91] Royal Bristol Permanent Building Society v Bomash,[92] and Phillips v Lamdin.[93]In each of the cases mentioned, damages were awarded for delay in completion of a contract for the sale of land. Nothing in the authorities appears relevant to the present case. In each case, there was consequential loss such as loss of rent, loss of profits or wasted expenditure. The facts in each of the cases are far removed from the facts of the present case. Each of the authorities relied upon by Mr Tran pre-dates Finn J’s judgment in Marconi which expressly endorsed paragraph 31‑009 of the 20^th edition of McGregor on Damages, albeit in the identical terms in which it appeared in the 16^th edition.[94]
[89](1923) 32 CLR 222, 243–4, 250.
[90][1902] 1 Ch 191.
[91](1877) 6 Ch D 153.
[92](1887) 35 Ch D 390.
[93][1949] 2 KB 33.
[94]Harvey McGregor, McGregor on Damages (Sweet & Maxwell, 16^th ed, 1997) 750 [1146].

Second, Mr Tran submits that to recognise loss of use damages would expand the categories of non-pecuniary loss recoverable in breach of contract beyond any case, and beyond McGregor on Damages.[95] I reject this submission. Bella Casa Ltd, relied upon by Mr Tran, is authority for the proposition that loss of use damages are recoverable as general damages for breach of contract.[96] Marconi, Wyzenbeek, Vautin and Yates have all recognised loss of use as a compensable category of loss for breach of contract. There is a substantial body of case law in the United States of America to similar effect.
[95]Respondent, ‘Respondent’s Note’, 4 February 2019, 3 [8].
[96]Bella Casa Ltd v Vinestone Ltd [2005] EWHC 2807 [38], [44].

Third, Mr Tran submits that:

[I]t is unnecessary to develop the law on compensatory damages to ensure that the common law delivers substantial rather than nominal damages to a plaintiff in Mrs Zeng’s position, because there are other claims she could have made but did not (and it is too late now to do so).[97]

[97]Respondent, ‘Respondent’s Note’, 4 February 2019, 3 [9] (emphasis in original).

The premise of this submission is misconceived. An award of damages for loss of use of the apartment during the delay period does not involve the Court developing the law on compensatory damages.

Fourth, Mr Tran submits that:

[O]ther leading texts do not contemplate loss of use simpliciter as compensable, as one would expect them to do if it were recoverable.[98]

[98]Ibid 3 [10].

As noted earlier in this judgment, Cheshire & Fifoot, Law of Contract cite the judgment in Marconi as authority for the proposition that loss of use damages are available for breach of contract.[99]
[99]N C Seddon and R A Bigwood, Cheshire & Fifoot, Law of Contract: Eleventh Australian Edition (LexisNexis, 11^th ed, 2017) 1189, footnote n 81.

Fifth, Mr Tran submits that the passage contained in paragraph 31‑009 of McGregor on Damages ‘has been in McGregor for decades, yet no case appears to have endorsed it.’[100] This submission is erroneous. Finn J cited with approval paragraph 1146 of the 16^th edition of McGregor on Damages,[101] which is in identical terms to paragraph 31‑009 of the 20^th edition of McGregor on Damages.
[100]Respondent, ‘Respondent’s Note’, 4 February 2019, 3 [11] (emphasis in original).
[101]GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, 338 [1573].

As to the availability of loss of use damages in the United States of America, Mr Tran submits:

As to the US, the Restatement (Second) of the Law of Contracts (1981) § 348(1) says:
If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property.

But comment (a) and (b) on § 348 indicate that this is predicated on there being lost profits that the plaintiff simply cannot show with sufficient certainty to recover. Hence comment (b) refers to delay preventing ‘the use of property from which profits would have been made’ and to ‘other bases for recovery [being] possible’ if ‘those profits cannot be proved with reasonable certainty’.

Mr Tran appears to contend that, in the United States of America, loss of use damages for breach of contract are only available where the plaintiff establishes lost profits, but cannot establish with sufficient certainty the quantum of lost profits. I reject this submission. There is clear authority in the United States for the proposition that rental value is the proper measure of loss of use damages for breach of contract even though the property owner could not in fact have rented the property and did not in fact need the building on the date called for.[102]
[102]Morgan‑National Woodworking Co Inc v Cline, 324 Mass 15 (1949); Potter v Anderson, 178 NW 2d 748 (1970); Menapace v Gregson, 91 Mass App Ct 1101 (2017); Cinnamon Valley Resort v EMAC Enterprises Inc, 89 Ark App 326, 7 [13] (2005); Gregory v Weber, 51 Or App 547, 395‑6 [6] (1981).

Ms Zeng is entitled to damages in the sum of $357,500 for loss of use of the apartment for the delay period. There remains a question of whether an order should be made remitting the proceeding to the Tribunal to allow the Tribunal to rule upon Leeda’s submission that Ms Zeng failed to mitigate her loss. Before the Tribunal, Leeda had submitted that the Senior Member should:

(a) find that Ms Zeng failed to take all reasonable steps to mitigate her loss (if any) during the period from September 2014 to 21 October 2016 by failing to exercise any of her contractual rights; and

(b) not award any damages to her attributable to that period.[103]

[103]Respondent, ‘Outline of Submissions’ in VCAT, 5 March 2018 [49].

In Osland v Secretary to the Department of Justice (No 2),[104] the plurality stated:

The Court of Appeal, in the exercise of its jurisdiction under s 148 of the VCAT Act, may make substitutive orders where only one conclusion is open on the correct application of the law to the facts found by the Tribunal. Such a case arises when no other conclusion could reasonably be entertained. In that event, the Court can make the order that the Tribunal should have made.[105]

[104](2010) 241 CLR 320.

[105]Ibid 332–3 [20] (citation omitted) (French CJ, Gummow and Bell JJ).

I have concluded, based on findings of the Senior Member which are not challenged, that Leeda’s contention that Ms Zeng failed to mitigate her loss cannot reasonably be entertained upon a correct application of principles in respect of mitigation of damages. I have had the advantage of considering the written and oral submissions of the parties before the Tribunal on the question of mitigation. I am therefore in as good a position as the Tribunal to determine whether Ms Zeng failed to mitigate her loss.[106] The overarching purpose of the Civil Procedure Act 2010 is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.[107] Remitter of the question of mitigation to the Tribunal would inevitably impose additional expense and delay upon the parties. This is an appropriate case for the Court to exercise the powers conferred by s 148(7) of the Victorian Civil and Administrative Tribunal Act 1998 to make an order that the Tribunal could have made in the proceeding.[108]
[106]See Champion v Rohrt [2016] VSCA 215 [66] (Santamaria and McLeish JJA).
[107]Civil Procedure Act 2010 (Vic) s 7(1).
[108]See Swan v Uecker (2016) 50 VR 74, 104 [78]–[79] (Croft J).

The onus is on Leeda to prove that Ms Zeng failed to mitigate her loss.[109] The duty is ‘only to act reasonably to mitigate [her] loss’,[110] and ‘does not require [her] to do what is unreasonable’.[111] In Clark v Macourt,[112] Hayne J stated:

For present purposes, ‘mitigation’ can be seen as embracing two separate ideas. First, a plaintiff cannot recover damages for a loss which he or she ought to have avoided, and secondly, a plaintiff cannot recover damages for a loss which he or she did avoid.[113]

Thus, it is not sufficient for Leeda to identify steps which could have been taken by Ms Zeng to avoid loss. Rather, Leeda must establish that Ms Zeng, acting reasonably, ought to have taken such steps. ‘A plaintiff is only required to act reasonably and the standard of reasonableness is not high because the defendant is an admitted wrong doer.’[114]

[109]Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507, 513–4 (Murphy J, Brooking and Nicholson JJ agreeing); St Vincent’s Hospital (Melbourne) Inc v University of Adelaide [2002] VSC 297 [36] (Warren J).

[110]Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507, 513 (Murphy J, Brooking and Nicholson JJ agreeing).

[111]Burns v MANAutomotive (Aust) Pty Ltd (1986) 161 CLR 653, 659 (Gibbs CJ).

[112]Clark v Macourt (2013) 253 CLR 1.

[113]Ibid 9 [17] (emphasis in original).

[114]St Vincent’s Hospital (Melbourne) Inc v University of Adelaide [2002] VSC 297 [35] (Warren J).

The written submissions filed in the Tribunal on behalf of Leeda on the question of mitigation included the following:

The duty to mitigate required that the Owner exercise the rights and remedies available to her under the Contract so as to complete the Works (including correcting any defects) and obtain an Occupancy Permit (or similar) from the building surveyor, as soon as possible, including:
(a) Requiring the Architect to issue a notice under clause A7 of the Contract;
(b)Requiring the Architect to issue a notice under clause M11 of the Contract to correct any defects and/or finalise any incomplete work;

(c) Exercising her rights under clause M12 of the Contract to:
(i) use another person to correct any defects and/or finalise any incomplete work at the cost of the Builder under clause M12.1 of the Contract; and
(ii) make a claim to adjust the Contract under clause M12.2 of the Contract.

(d) Exercising her rights under clause Q of the Contract to:
(i) terminate the engagement of the Builder under Q1 of the Contract;
(ii) contract with others to complete the works under Q5 of the Contract; and/or
(iii) not make any further payment to the Builder under Q6 of the Contract.

The Owner has been represented by Australian solicitors since at least October 2014 (initially Avia Lawyers and then Ashurst since 2016).
Counsel for the Owner’s criticism that Avia Lawyers did not know what they were doing because they were (are) not construction lawyers is without foundation. The letter from Avia Lawyers to Mills Oakley, the solicitors for the Builder, dated 14 October 2014 shows that Avia Lawyers were aware of the relevant contractual provisions and facts then asserted by the Owner. In any case, Avia Lawyers briefed Mr Andrew Downie of counsel on behalf of the Owner, at least by 2015, who:
(a) Advised the Owner in relation to the County Court proceedings in 2015, including drawing the Owner’s pleadings; and
(b) Continued as the Owner’s counsel in these proceedings before the Tribunal until at least 1 September 2016.

The Owner was clearly aware of her duty to mitigate, as well as her rights under clause M12 of the Contract, as that duty and those rights were recognised by her in:
(a) A letter from Louis to the Builder dated 21 October 2016;
(b) A letter from Ashurst to Mills Oakley dated 10 November 2016; and

(c) A letter from Louis to the Builder dated 10 May 2017.

In the period between:
(a) September 2014 when Guo ceased involvement with the Works and September 2016 when Louis was appointed as the Architect under the Contract, the Owner did not have any technical people working for her with respect to the Works; and
(b) September 2014 to 21 October 2016 when Louis issued a written direction to the Builder under clause M11 of the Contract to correct defects and complete certain work (Schedule D work for Practical Completion, Schedule E work in the Defects Liability Period) no notice, instruction or direction was issued by the Architect under the Contract (whosoever that may have been in this period) to progress the completion of the Works.

It is correct that the parties’ solicitors considered the appointment of a joint expert in the period of 20 November 2014 to 11 December 2014. The fact that this was contemplated by the solicitors cannot have been material to the Owner herself because she conceded that she did not know what a joint expert was in cross examination and re-examination.
The fact that:
(a) There were extant legal proceedings in the County Court from late 2014; and/or
(b) That the parties’ solicitors were considering the appointment of a joint expert in the period of 20 November 2014 to 11 December 2014 (which the Owner could not understand, and admits she did not understand the significance of)

cannot be a reasonable excuse for the Owner to have not exercised any of her rights under the Contract, which remained on foot throughout 2014, 2015 and 2016.

The Tribunal can draw the inference from what actually occurred when the Owner did take reasonable steps in mitigation, in 2016, that if the Owner had in fact exercised her rights under the Contract as described in paragraph 40 above in, say, September 2014, that any further work would have been completed by the Builder shortly thereafter, with Practical Completion being reached shortly after that.
The reason why the Tribunal may draw this inference is because this is precisely what actually did happen in late 2016 when Louis issued a direction to complete work to the Builder.
It is submitted that the Tribunal should:
(a) Find that the Owner failed to take all reasonable steps to mitigate her loss (if any) during the period from September 2014 to 21 October 2016 by failing to exercise any of her contractual rights; and
(b) Not award any damages to her attributable to that period.[115]

[115]Respondent, ‘Outline of Submissions’ in VCAT, 5 March 2018 [40]–[49].

Before considering the submissions set out above, it is necessary to set out a number of the Tribunal’s findings, none of which were challenged in the present proceeding.

·On 21 July 2014, Leeda issued its fifth payment claim and invoice for the remaining balance of the contract price in the sum of $178,896.72. On the same day, it issued a second invoice for $39,894.80 for the release of 50 per cent of the retention sum.[116]
[116]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [22].
·Ms Zeng’s architect declined to certify these claims because he considered that some works had not been satisfactorily carried out and practical completion had not been reached.[117]
[117]Ibid [23].
·Ms Zeng’s architect prepared a report dated 13 August 2014 listing 29 items of work requiring attention.[118]
[118]Ibid [24].
·Leeda attended to some of the items in the report. Leeda contended that other items constituted variation works and that it was not obliged to address them until Ms Zeng agreed to pay the extra costs of the works.[119]
[119]Ibid [26].
·By email dated 27 August 2014, Leeda contended that it had achieved practical completion on 17 July 2014 and was owed full payment of the contract plus 2.5 per cent of the retention sum held.[120]
[120]Ibid [28].
·By letter dated 29 September 2014, Leeda demanded payment totalling $218,791.52 within seven days, failing which a proceeding would be issued in the County Court.[121]
[121]Ibid [33].
·By email dated 20 November 2014 from Leeda’s lawyer to Ms Zeng’s lawyer, Leeda suggested that the parties consider the joint appointment of an expert consultant to investigate and report on the building works, with the parties to agree on the issues to be the subject of the investigation. By response email from Ms Zeng’s lawyer dated 1 December 2014, Ms Zeng indicated agreement to the proposal, subject to the parties reaching agreement on the apportionment of costs of the consultant according to each party’s responsibility. Enquiries were made as to the identity and costs of a consultant, but no final agreement was reached and no expert consultant was jointly appointed.[122]
·On 18 December 2014, Leeda commenced a proceeding in the County Court claiming payment of $218,791.52, plus interest, plus costs.[123]
·The County Court proceeding proceeded throughout 2015. Ms Zeng filed a defence and counterclaim and joined a third party as a party to the proceeding. A mediator was selected and a mediation was set for 22 December 2015. On 16 December 2015, Leeda’s lawyer notified the mediator that the mediation would need to be adjourned but informed the mediator that the parties wished to participate in the mediation by the end of February 2016 and wished to retain the services of the mediator.[124]
·By consent, an order was made on 20 April 2016 staying the County Court proceeding pursuant to s 57(2) of the Domestic Building Contracts Act 1995.[125]
·Leeda commenced the Tribunal proceeding on 5 July 2016.
·On 1 September 2016, an order was made on the application of Ms Zeng requiring Leeda to provide Ms Zeng access cards to allow access to the apartment for the purpose of inspection.[126]
·In September 2016, Ms Zeng engaged a consultant to inspect the apartment and prepare a report on the status of works. The consultant advised that practical completion had not been reached.[127]
·By letter dated 21 October 2016, Ms Zeng’s architect instructed Leeda to attend to further works. Initially, Leeda declined to carry out the works. Ms Zeng made an application seeking to vary the order of 1 September 2016 so that she could access the apartment and proceed to complete the building works using another builder. Before that application came on for hearing, Leeda agreed to return to the apartment and carry out further works. It recommenced works on about 9 December 2016.[128]
·On 25 May 2017, Ms Zeng’s architect certified practical completion of the works. On 2 June 2017, Leeda returned the access cards to the apartment to Ms Zeng’s lawyer.[129]

[122]Ibid [35].

[123]Exhibit JGM-25 to the affidavit of Joseph Gerard Mulcahy sworn 10 May 2018.

[124]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [37].

[125]Ibid [38].

[126]Ibid [42].

[127]Ibid [43].

[128]Ibid [45]–[46].

[129]Ibid [50], [52].

Under the heading ‘Breach of the implied term/suspension of works’, the Senior Member recorded the following findings:

In my view, responsibility for the builder’s failure to bring the works to completion within a reasonable time, that is, by 3 December 2014, rests with the builder.
It is clear that, as at 27 August 2014, the builder refused to carry out further works until it received payment of its claims issued on 21 July 2014. The claims issued on 21 July 2014, and the builder’s subsequent demand for payment of them, constituted demand for final payment of the contract price, save for 50% of the retention sum. The builder was not entitled to adopt such stance.

The architect had not certified the payment claims, and the builder had not issued a notice of dispute in respect of the architect’s refusal to certify the claims. In such circumstance, the builder had no justification for demanding payment, and the owner had no obligation to make the payment.
The builder’s demand for payment constituted a breach of section 42 of the DBC Act which provides that a builder must not demand final payment under a major domestic building contract until the works under the contract have been completed and an occupancy permit has been provided to the owner.
The builder submits that it was entitled to stop works when it did in August 2014 until such time as the owner authorised variation works as set out in the builder’s variation notice dated 21 August 2014. I do not accept that submission. In my view, the submission is an attempt at justification in hindsight. As noted above, on the evidence it is clear that the builder stopped works because the invoices dated 21 July 2014 were not paid. The builder’s stance in this regard is apparent from the letter dated 29 September 2014 from the builder’s lawyer to the owner. In that letter, the builder’s lawyer states, amongst other things:
… Our client notified the architect … on 21 July 2014 that practical completion had been reached.
On 21 July 2014 our client rendered the following invoices [the two invoices issued 21 July 2014]
The invoices have been provided to SGA [the architect] for payment, however despite repeated demands for payment, the total amount of $218,791.52 remains outstanding.
SGA has made various allegations in support of a refusal to accommodate our client’s requests for payment. In short compass the allegations are that our client is somehow responsible for the shedding of the carpet and the noise emitted by the air-conditioning unit. SGA also say that practical completion has not been reached. (Allegations).
Our client rejects the allegations as entirely baseless …
The ongoing refusal to pay our client by reason of the allegations is unacceptable, and we have now been retained to enforce our client’s rights to receive payment.
Unless our client receives payment of $218,791.52 (Debt) within seven (7) days of the date of this letter we are instructed to issue proceedings in the County Court to seek recovery of the debt without further notice to you …

On all the evidence, I find that the builder wrongfully, and in breach of the contract, suspended the works from 27 August 2014 until it returned to site on 9 December 2016.
In find also that the builder breached the implied term in the contract to complete the works within a reasonable time, that is, by 3 December 2014.[130]

[130]Ibid [147]–[153].

Leeda submits that Ms Zeng failed to mitigate her loss by her failure to require her architect to issue a notice to Leeda under cls A7 and M11 of the contract. Clause A7 provides that:

The architect may issue an instruction at any time during this contract provided that the instruction is given in writing.

Clause M11 provides:
The contractor must correct any defects or finalise any incomplete necessary work, whether before or after the date of practical completion, within the agreed time as stated in an instruction or if no time is stated, within 10 working days after receiving a written instruction from the architect to do so.

As set out earlier in this judgment, from August 2014 until September 2016, Ms Zeng was effectively locked out of the apartment. As a result, her representatives, including her architect, were not able to gain access to the apartment. Access to the apartment was a necessary pre-condition for an instruction to be given under cls A7 or M11 of the contract. Further, and in any event, Leeda’s reliance upon cls A7 and M11 assumes that, if an instruction had been given, it would have been complied with. This assumption is highly questionable. When Ms Zeng did eventually gain access to the apartment following the Tribunal’s order on 1 September 2016, she engaged a consultant, Mr Manie, to inspect the apartment and prepare a report on the status of the work. Mr Manie produced a report dated 14 October 2016. He gave evidence before the Tribunal that, at the time of his inspection, the building works had not reached practical completion.[131] This evidence was not challenged.
[131]Ibid [43].

Following the receipt of Mr Manie’s report, Ms Zeng’s architect issued an instruction to Leeda on 21 October 2016, in accordance with cl M11, to complete the building works in the apartment. Initially, Leeda refused to carry out the further works. It was only after Ms Zeng made a further application to the Tribunal to seek to vary the order made on 1 September 2016 to gain access to the apartment and proceed to complete the building works using another builder, that Leeda agreed to return to the apartment to carry out the further works. That occurred on 9 December 2016.[132]
[132]Ibid [46].

The circumstances in which Leeda did return to the apartment to complete the building works highlights the significance of the order made on 1 September 2016, which enabled Ms Zeng and her representatives to regain access to the apartment. That order, and the subsequent application to vary the order to permit an alternative builder to gain access to the apartment to complete the works, was instrumental to Leeda ultimately agreeing to undertake the works itself. The significance of the Tribunal’s order of 1 September 2016 brings into sharp focus the County Court proceeding which was on foot from December 2014 until 20 April 2016.

The Senior Member was highly critical of Leeda for having commenced the proceeding in the County Court in December 2014 for the recovery of an alleged debt of $218,791.52. He described the commencement of the proceeding as ‘this extraordinary action on the part of the builder.’[133] The basis of the Senior Member’s criticism of Leeda is the fact that the County Court had no jurisdiction to deal with the claim because no conciliation certificate had been issued in respect of the dispute between the parties pursuant to s 57A(1) of the Domestic Building Contracts Act 1995. Leeda’s counsel did not attempt to gainsay this criticism.[134] Further, as found by the Senior Member, the claim was based on Ms Zeng’s failure to comply with a demand for payment which breached s 42 of the Domestic Building Contracts Act 1995.[135]
[133]Transcript of Tribunal proceeding (16 March 2018) 46.29–46.30.
[134]Ibid 45.30.
[135]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [150].

The County Court proceeding was on foot from December 2014 until 20 April 2016, when the proceeding was stayed on the basis that the Tribunal was the appropriate forum to hear the dispute.[136] Ms Zeng was justified in adopting a cautious approach in exercising contractual rights regarding termination of the contract or the appointment of an alternative builder. Leeda chose, erroneously, to institute the County Court proceeding for recovery of a debt rather than use the dispute resolution mechanism in the contract.[137] If Ms Zeng had taken action to terminate the contract or to appoint an alternative builder, this had the potential to expand the scope of the issues the subject of the litigation in the County Court.
[136]Ibid [38].
[137]Transcript of Tribunal proceeding (16 March 2018) 45.21–41.30.

Before the Tribunal, Leeda submitted that an inference should be drawn that, had Ms Zeng sought to exercise her contractual right to appoint an alternative builder in 2014 or 2015, Leeda would have agreed at that time to return to complete the project, as it did in late 2016.[138] Despite being in a position to do so, Leeda did not lead any direct evidence before the Tribunal which supported a finding that, if Ms Zeng had sought to exercise her right to appoint an alternative builder to complete the project prior to late 2016, Leeda would, at that earlier time, have agreed to complete the project. In AusNet Electricity Services Pty Ltd v Liesfield,[139] Robson J cited with approval the following statements of principle regarding the assessment of whether a party who bears an onus of proof has discharged that onus:
[138]Ibid 38.30–39.19, 42.08–42.11, 46.25–46.26.
[139][2014] VSC 474 [125]–[129].

In G v H, Brennan and McHugh JJ stated:
[W]hen a court is deciding whether a party on whom rests the burden of proving an issue on the balance of probabilities has discharged that burden, regard must be had to that party’s ability to adduce evidence relevant to the issue and any failure on the part of the other party to adduce available evidence in response.[140]
[140](1994) 181 CLR 387, 391–392.

In Ho v Powell, Hodgson JA stated:
[I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision.
…
In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so.[141]
[141](2001) 51 NSWLR 572, 576 [14]–[15].

In Shalhoub v Buchanan, Campbell J stated:
[F]ailure of a party who bears an onus of proof to call an available witness who could cast light on some matter in dispute can be taken into account in deciding whether that onus is discharged, in circumstances where such evidence as has been called does not itself clearly discharge the onus. This is an application of Lord Mansfield’s maxim.[142]

…
In Cook’s Construction Pty Ltd v Brown, Hodgson JA stated, in an ex tempore judgment:
[W]here a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party’s favour from indirect and second-hand evidence, when the party doesn’t call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation.[143]

[142][2004] NSWSC 99 [71], followed in Australian Securities and Investments Commission v Rich (2009) 236 FLR 1, 93 [440].

[143](2004) 49 ACSR 62 [42].

Absent direct evidence from Leeda that it would have agreed to complete the project if Ms Zeng had exercised her right to appoint an alternative builder in 2014 or 2015, there is no proper basis for drawing an inference in Leeda’s favour that it would have agreed to complete the project at an earlier time.

It was not unreasonable for Ms Zeng not to terminate the contract. When Leeda suspended works on 27 August 2014, Ms Zeng had made four progress payments to Leeda totalling $1,354,638.13.[144] It was reasonable for Ms Zeng to keep the contract on foot in circumstances where she had already paid significant sums of money to Leeda.
[144]Leeda Projects Pty Ltd v Zeng [2018] VCAT 679 [16], [19].

Leeda has failed to discharge the onus of establishing that Ms Zeng failed to mitigate her loss by taking steps which she ought to have taken to reduce her loss. The arguments advanced by Leeda in support of its mitigation contention are without merit. Leeda chose to initiate a proceeding in the County Court in December 2014. Immediately prior to this point in time, Ms Zeng had agreed to the appointment of a joint expert to try and resolve the issues in dispute. Leeda’s conduct in commencing a proceeding in the County Court is deserving of criticism. There was no proper basis for it to have taken this step. The County Court had no jurisdiction to entertain its claim. The proceeding in the County Court was on foot for 16 months. While that proceeding was on foot, the Tribunal was effectively shut out. The commencement of the proceeding in the Tribunal, and the order subsequently made on 1 September 2016, was critical to Leeda ultimately agreeing to return to the apartment to complete the works. There is only one conclusion open on the correct application of the law in respect of mitigation to the facts of the present case. That conclusion is that Ms Zeng’s entitlement to damages should not be reduced on the basis of the submissions advanced on behalf of Leeda that she failed to mitigate her loss.

Ms Zeng is entitled to $357,500 damages for loss of use of the apartment during the delay period of 130 weeks. From this amount, it is necessary to subtract the sum of $211,944.20 which the Senior Member awarded Leeda. Accordingly, there shall be an order that Leeda pay Ms Zeng damages in the sum of $145,555.80.

The conclusions set out above render Leeda’s cross-appeal moot. Nevertheless, for the sake of completeness, I shall address the submissions advanced in support of the cross-appeal.

Leeda contends that it was denied procedural fairness by reason of the Tribunal’s failure to award it interest on the sum of $211,944.20. The relevant part of the Tribunal’s reasons is as follows:

Having regard to the Tribunal’s powers under s 53 in the DBC Act, and in particular the power under s 53(1) to make any order the Tribunal considers fair to resolve a domestic building dispute, I will order the owner to pay the sum certified by Mr Ng on 16 June 2017.
I will not, however, order payment of interest as claimed by the builder. In my view, the owner was entitled to serve the notice of dispute dated 26 June 2017, and until the dispute was dealt with under the terms of the contract, or alternatively until an order is made, such as the order I will make as noted above, I consider the owner has justifiably withheld payment of the certified sum. As such, and again having regard to s 53(1) of the DBC Act, I reject the builder’s claimed entitlement to interest on the certified sum.[145]

[145]Ibid [223]–[224].

Leeda submits that it was denied procedural fairness because the Senior Member never gave any indication prior to delivering his reasons that, in reliance upon the discretion conferred by s 53(1) of the Domestic Building Contracts Act 1995, the claim for interest would be rejected.[146]
[146]Transcript of proceeding (31 January 2019) 54.23–54.31.

Mr Tran accepted that Leeda’s claim for interest was contested by Ms Zeng.[147] Mr Tran submitted that the Tribunal’s decision to reject the interest claim was based upon a positive finding that Ms Zeng was entitled to withhold the final payment of $211,944.20 while there was a pending notice of dispute. Mr Tran accepted that the question of whether Ms Zeng was entitled to withhold the final payment was ‘a background fact’ in the proceeding.’[148] However, he submitted that no contention had been advanced by Ms Zeng that Leeda’s claim for interest should be rejected on the basis of a finding by the Tribunal that Ms Zeng was entitled to withhold the final payment pending resolution of her notice of dispute.
[147]Ibid 55.14–55.20.
[148]Ibid 56.31.

Whether a party is denied procedural fairness by reason of being denied an opportunity to make submissions may depend on the issues perceived as being ‘in the ring’.[149]
[149]Victims Compensation Fund Corporation v Nguyen (2001) 52 NSWLR 213, 220–21 [44] (Mason P); Sargent v Disler [2016] VSC 292 [31].

The issue of whether Ms Zeng was entitled to withhold payment pending resolution of the notice of dispute was in the ring in the Tribunal proceeding. Ms Zeng contended that the quantum of the final payment should be set off against her entitlement to damages arising from Leeda’s breach of contract. The Senior Member upheld Ms Zeng’s contention that Leeda breached the contract. Although he awarded nominal damages of $100, he had a broad discretion under s 53(1) of the Domestic Building Contracts Act 1995 to make any order which he considered fair to resolve the dispute. Having regard to the Senior Member’s finding that Leeda was responsible for the failure to bring the works to completion within a reasonable time, it is unsurprising that he did not award interest on the sum of $211,944.20. Leeda’s claim that it was denied procedural fairness must be rejected.

Conclusion

I propose to make an order in the following terms:

1.The appellant’s application for leave to appeal is granted and the appeal is upheld.

2.        The cross-appellant’s application for leave to appeal is dismissed.
3.        The Tribunal’s order of 4 May 2018 is set aside.
4.        The respondent is to pay the appellant $145,555.80 plus interest.

There remains the question of costs, both of the extant proceeding and the proceeding at first instance. The order made by the Senior Member anticipated an application for costs. Pursuant to s 109(1) of the Victorian Civil and Administrative Tribunal Act 1998, each party to a proceeding in the Tribunal bears their own costs. However, the Tribunal has discretion to award costs if it is satisfied that it is fair to do so, having regard to the matters set out in s 109(3). Those matters include the nature and complexity of the proceeding.

In Champion v Rohrt,[150] the Court of Appeal declined to remit the question of costs in the Tribunal and decided the issue for itself. A question arises as to whether it is appropriate that I should determine the question of costs in the Tribunal proceeding or, alternatively, whether that question should be remitted to the Tribunal. The parties are directed to file submissions addressing this issue, as well as the costs of the current proceeding. The submissions are not to exceed five pages in length.
[150][2016] VSCA 215.

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[2019] VSC 106

27 February 2019