Applicant v Respondent

2 The applicant then claimed that the respondent had repudiated the contract and, by notice dated 5 May 2016, purported to determine the contract himself, on the grounds of repudiation and also on the basis of s 41 of the Domestic Building Contracts Act 1995 ('Act'). On 20 December 2016, the applicant commenced a proceeding in the Victorian Civil and Administrative Tribunal ('VCAT') claiming damages from the respondent of $277,197.80.[1]

3 Senior Member Walker upheld the applicant's contention that the respondent had engaged in repudiatory conduct which entitled the applicant to terminate the contract.[2] On 27 November 2018, the Senior Member ordered the respondent to pay the applicant $218,876.27. This sum was based upon the Senior Member's assessment of damage flowing from the breach of contract in February 2016. The amount awarded by the Senior Member was $59,976 less than the amount claimed by the applicant. That amount was based upon the cost of completing the building works in November 2018.[3]

4 The applicant applies pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 for leave to appeal from the order of the Senior Member.[4] The applicant submits that the Senior Member erred in law by failing to take into account evidence from a quantity surveyor of increased building costs of $59,976 between February 2016, when the contract was breached, and November 2018. The applicant seeks an order setting aside the order of the Senior Member, and ordering in lieu thereof that the respondent pay the applicant $278,852.27 plus interest calculated from 27 November 2018.[5]

5 The questions of law and proposed grounds of appeal in the applicant's notice of appeal are as follows:

1. Whether VCAT is bound to consider and apply section 53 Domestic Building Contracts Act 1995 when considering what damages ought to be awarded to a successful applicant pursuant to the Domestic Building Contracts Act 1995.
2. The proper approach to the assessment of damages to a successful applicant pursuant to the Domestic Building Contracts Act 1995 in accordance with the principles derived from Robinson v Harman (1848) 1 Ex P 850 at 855.

1. VCAT erred in law by failing to consider a relevant matter and failing to exercise a discretion, as required by section 53 Domestic Building Contracts Act 1995, being what damages would be fair to award to the successful Applicant, thereby ignoring the increased building costs from the time of the breach of contract to the date of the damages order by VCAT.
2. VCAT erred in law by failing to properly apply the relevant contract law principles to the question what damages should be awarded to the successful Applicant such as to place the injured party in the position he would have been in but for the breach of contract in accordance with the principles derived from Robinson v Harman (1848) 1 Ex P 850 at 855.[6]

6 Section 53(1) of the Act provides that 'VCAT may make any order it considers fair to resolve a domestic building dispute'. The applicant submits that the Senior Member ignored s 53(1) and focused instead on the principles governing the assessment of damages for breach of contract. The applicant submits that in so doing the Senior Member failed to address the question, as required by s 53(1) of the Act, as to what was a fair amount of compensation. The applicant submits that the failure to address this question resulted in a failure by the Senior Member to exercise jurisdiction.

7 The Senior Member dealt with the assessment of damages as follows:

The claim is for general damages for breach of contract. In general terms, when a contract is broken, the innocent party is entitled to such damages as:

"... may fairly and reasonably be considered either [as] arising naturally, that is, according to the usual course of things, from such breach of contract itself or ... may reasonably be supposed to have been in the contemplation of both parties, at the time they made a contract, as the probable result of the breach of it."

(Hadley v. Baxendale (1854) 156 ER 145 (at p. 151) ).

As to the assessment of damages, in Tabcorp Holdings v. Bowen [2009] HCA 8; [2009] 253 ALR 1 the High Court said (at p.6):

"The 'ruling principle' ... confirmed in this Court on numerous occasions ..., with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman [1848] EngR 135; (1848) 154 ER 363 at 365):

'The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.'

As a result of the Builder's breach and the subsequent termination of the Contract, the Owner has lost the benefit of the Contract and was then required to engage another builder to complete construction of the four units. That has not yet occurred. Insofar as the cost of doing would have exceeded the balance payable by him under the Contract, he has suffered a loss of bargain. Although loss of bargain damages can only be claimed when the Contract is terminated (see Cheshire & Fifoot Law of Contract 9th Aust Ed. Para 23.22) the appropriate time at which to assess that loss is the time of breach (ibid para. 23.25). In the present case the relevant breach is the repudiatory breach which was accepted by the Owner because it was that, and its acceptance, that caused the benefit of the Contract to be lost.

There were a number of breaches relied upon as constituting the repudiatory conduct. The earliest of these was 3 February 2016 and I am satisfied that that, in itself, evinced an intention on the part of the Builder no longer to be bound by the Contract. Damages will therefore be assessed as at that date.[7]

8 Under the heading 'Costs of completion' the Senior Member stated:

Mr Jeffery gave the cost to complete the works at various dates, based upon several quotations the Owner had received, ranging from $605,170.00 in June 2015 to a current cost of $658,178.00.

Mr Pitney's assessment of the cost of construction as at November 2015 was $598,202.00. His costing was based on quantities that he took from the Contract documents but excluded internal dividing fences, landscaping, sheds and water tanks. This figure does not take account of the extra allowance to which the Builder was entitled for the removal of the additional rock.

When one considers the items not costed by Mr Pitney it is apparent that there is very little difference between the two assessments. Mr Pitney's assessment of the cost of construction was as at November 2015, which is closer to the date of repudiation than Mr Jeffery's date of June 2015. In his report, Mr Pitney has provided details of the quantities of labour and materials and I can see how he arrived at his figures, whereas Mr Jeffery appears to have relied upon quotations the Owner has received and made adjustments to take account of increases in building costs. I therefore accept Mr Pitney's figure of $598,202.00 to be the reasonable cost of constructing the units as at November 2015.[8]

9 The reference to Mr Jeffery in the passage set out above, is to a quantity surveyor who gave evidence on behalf of the applicant. The reference to Mr Pitney is to a quantity surveyor who gave evidence on behalf of the respondent.

10 Before the Senior Member, the applicant contended that the respondent breached a major domestic building contract. The Senior Member accepted this contention. The applicant now contends that the Senior Member, having found a breach of contract, erred by assessing damages in accordance with well-established principles. I reject this submission.

11 Mr Gray, who appeared on behalf of the applicant, could not point to any authority in support of the proposition that the approach adopted by the Senior Member involved an error of law. To the contrary, a number of authorities support the proposition that the power to make any order that VCAT considers fair does not authorise VCAT to determine matters other than in accordance with established legal principles.[9]

12 Further, s 53(2)(b)(ii) of the Act provides that VCAT may exercise the power conferred by s 53(1) by ordering the payment of a sum of money by way of damages. In circumstances where the Senior Member found that the respondent had breached a domestic building contract, the Senior Member's assessment of damages in accordance with well-established principles of contract law was expressly authorised by s 53(2)(b)(ii) of the Act. There is no substance in the applicant's contention that the Senior Member failed to exercise the jurisdiction conferred by s 53(1). The applicant's real complaint, which I now address, is directed to the manner in which the Senior Member undertook the task of assessing damages. In particular, the applicant contends that the Senior Member erred in law by assessing damages at the time of breach, February 2016, rather than November 2018 when orders were made.

Did the Senior Member fail to apply the principle in Robinson v Harman[10]?

13 The principle in Robinson is set out above paragraph 7. Mr Gray submitted that for the applicant to be in the same position he would have been in but for the breach of contract, the Senior Member should have awarded damages in an amount which would have funded the construction of the townhouses, the subject of the contract, as at November 2018. Mr Gray submitted that there was evidence before the Senior Member from the applicant's quantity surveyor, Mr Jeffery, of significant increases in building costs between February 2016 and November 2018 totalling $59,976. Mr Gray submitted that the Senior Member erred by not including this sum in the amount of damages awarded.

14 Damages for breach of contract are generally assessed as at the date of breach, unless it is necessary to depart from the general rule to properly compensate the innocent party.[11] The onus lies upon the innocent party to establish that a departure from the general rule is necessary in order for them to be properly compensated.[12] Determining the appropriate time for the assessment of damages may involve questions of fact and degree.[13]

15 During the course of the VCAT proceeding, the applicant did not submit that the Senior Member should depart from the general rule that damages for breach of contract should be assessed at the time of breach. The applicant's case before VCAT was conducted on the basis of a mistaken assumption that, by reason of s 53(1) of the Act, it was not open to the Senior Member to assess damages for breach of a domestic building contract at the time of breach.

16 Although the Senior Member assessed damages for breach of contract at the time of breach, he referred to Mr Jeffery's evidence regarding the cost of completing the building works 'at various dates, based upon several quotations the [applicant] had received, ranging from $605,170.00 in June 2015 to a current cost of $658,178.00'.[14] It is clear that the Senior Member preferred the evidence of the respondent's quantity surveyor, Mr Pitney:

In his report, Mr Pitney has provided details of the quantities of labour and materials and I can see how he arrived at his figures, whereas Mr Jeffery appears to have relied upon quotations the [applicant] has received and made adjustments to take account of increases in building costs.[15]

17 Although the Senior Member assessed damages as at the time of breach in February 2016, his criticism of Mr Jeffery's methodology extended to his evidence regarding the cost of completing the building works in November 2018.

18 There are two matters which weigh heavily against a finding that the applicant has satisfied the onus of establishing that the Senior Member should have departed from the general rule that damages be assessed at the time of breach. First, no submission was advanced before the Senior Member which, in terms, addressed the circumstances in which it is legitimate to depart from the general rule that damages should be assessed as at the time of breach. Second, insofar as there was evidence before the Senior Member regarding the cost of completing the building works in November 2018, the Senior Member had reservations regarding the methodology employed by the applicant's quantity surveyor in calculating the cost of construction as at November 2018.

19 The applicant has not established that the Senior Member failed to properly apply the principle in Robinson in concluding that the appropriate time at which to assess the applicant's loss was at the time of breach in February 2016.

20 Neither of the questions of law in the applicant's proposed notice of appeal have sufficient prospects of success to warrant the grant of leave to appeal. The application for leave to appeal is dismissed. The respondent has not participated in any aspect of the application for leave to appeal. As such, there is no utility in making an order that the applicant pay the respondent's costs.

[1] Shen v Hatfield (Building and Property) [2018] VCAT 1864, [1]-[5] ('Shen').

[4] Applicant, 'Notice of Appeal', 9 January 2019, 1.

[7] Shen [2018] VCAT 1864, [82]-[85].

[9] Christ Church Grammar School v Bosnich (2010) 34 VAR 23, 32 [40]; Versa-Tile Pty Ltd v 101 Construction Pty Ltd [2017] VSC 73, [10]; Drossos v Marvel Homes Pty Ltd [2014] VSC 384, [35]-[36].

[10] [1848] EngR 135; (1848) 1 Ex 850, 855 ('Robinson').

[11] Broughton v B & B Group Investments Pty Ltd [2017] VSCA 227, [148] ('Broughton'); Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351, 367.

[12] Broughton [2017] VSCA 227, [157].

[13] Royal Society for Prevention of Cruelty to Animals (Victoria) v Holdsworth [2015] VSCA 243, [15].

[14] Shen [2018] VCAT 1864, [86].