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[2024] ACTCA 32
appellant. The appeal was allowed. Orders 1, 4 and 5 made on 21 December 2022 were set aside. The matter was remitted to McWilliam J for determination in accordance with the Court’s reasons. The respondents...
The homeowners’ trial claim for damages was presented as the extra cost of completing the townhouses compared with the original contract price. The primary judge also relied on possible costs of dealing with structural departures and loss of amenity, even though those broader bases had not been properly advanced or tested. The Court of Appeal held that the building company had not had a fair opportunity to respond to them. It set aside the relevant orders and sent the damages question back to the same judge, while leaving the unchallenged liability findings undisturbed.
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2,293 words · generated 08/10/2026
Ashell Homes Constructions Pty Ltd contracted with Jonathan Kobus and Amy Elleway to build two townhouses in Weston, ACT. The homeowners wanted dwellings with strong environmental performance, using structurally insulated panels, and hoped one townhouse would be their home ([26]-[27]). Construction began in April 2018. The relationship later deteriorated, work stopped around Christmas Eve 2018, and the parties exchanged notices and correspondence concerning termination. The homeowners excluded the builder from the site in early 2019, while tools and equipment belonging to the builder remained there ([14], [28]).
2 cited instruments linked from this judgment.
The builder sued, alleging breach of contract and conversion of its tools and equipment. The homeowners counterclaimed, alleging failures to construct in accordance with the contract and plans. At trial, the primary judge dismissed the builder’s primary contract claim but allowed its conversion claim for $47,621.66. The homeowners’ counterclaim was allowed for $72,711.01. After set-off, judgment was entered for the homeowners for $25,089.35, with interest ([16]-[17]).
The liability findings were not challenged in the appeal. The dispute on appeal concerned the basis on which the primary judge assessed damages. At trial, the homeowners’ case was presented as the additional cost of completing the townhouses compared with the contract price. The evidence and submissions focused on a spreadsheet summary, MFI-4, and the supporting invoices admitted as Exhibit E ([65]-[70]).
In later reasons on damages, the primary judge referred not only to completion costs but also to costs that might be characterised as addressing structural departures that the homeowners were “stuck with”, and partly to “diminution in amenity” ([18], [40]). The Court of Appeal concluded that these were broader damages bases than those the builder had been given notice of and an opportunity to meet. The appeal was allowed, specified orders were set aside, and the damages question was remitted to the primary judge ([100]-[107], [127]).
The Court’s central concern was procedural fairness. Loukas-Karlsson J summarised the relevant principles as including that fairness is about process, must be assessed in the particular circumstances, must take account of the legal framework, and concerns practical rather than abstract injustice ([47]-[49]). The question was not simply whether the homeowners might have suffered losses. It was whether the builder had a fair opportunity to address the particular bases on which damages were awarded.
The pleadings included particulars referring to completion and rectification losses, among other categories ([57]). But the Court did not treat the pleadings in isolation. It examined how the case was actually conducted. The homeowners’ counsel described the claim as costs over the contract sum, and later described the claim as additional costs over the building contract sum ([4], [65]). MFI-4 and Exhibit E supplied the central calculation and supporting material. The evidence and closing submissions focused on those documents and on the amount by which completion costs exceeded the contract price ([66]-[70]).
The Court distinguished the trial case from an indirect rectification claim and an amenity claim. Mossop and Baker JJ explained that an indirect rectification claim would concern works not required to complete the building to the contractual specification, but undertaken to respond to or ameliorate continuing structural non-compliance. They described an amenity claim as damages for loss of amenity associated with non-compliance ([2]). They also observed that the pleadings could accommodate an indirect rectification claim, but did not accommodate an amenity claim ([3]). Those observations identified possible categories of damages, not the case the homeowners actually presented at trial.
The evidence did not fill the gap. The Court noted that the examinations and cross-examinations of the homeowners focused on MFI-4 and Exhibit E, and that there was no evidence estimating the cost of repairing particular structural departures, such as gaps between the SIPs ([68], [77]). There was also no examination directed to loss of amenity or evidence about matters such as whether, and for how long, the second respondent had lived in the properties ([68], [76]).
That mattered because the appellant identified concrete steps it could have taken if the broader claims had been raised. It could have tested the extent and cost of rectification, questioned the evidence relevant to amenity, and made submissions about whether an amenity claim was available on the pleadings ([76]-[77]). The Court therefore found practical injustice, rather than a merely technical or abstract failure of process ([48], [101]-[106]).
The Court also rejected the submission that Placer was a complete answer. Placer recognised that damages may sometimes require estimation where precise evidence cannot be produced. But the Court distinguished a case where a party cannot provide precise evidence from one where the case was run on a limited basis and relevant evidence was not adduced ([82]-[93]). Here, the Court considered that the trial was conducted on the assumption that the damages claim was confined, rather than as a case requiring estimation of broader losses ([93]).
The remedy followed from the nature of the error. The Court of Appeal did not undertake its own line-by-line assessment of MFI-4. The trial had been conducted on a different basis, and the primary judge had heard the evidence. The Court found no apprehension of prejudgment. It remitted the damages issue to the same judge, while leaving the liability findings undisturbed ([9]-[11], [115]-[116]).
The judgment did not announce a new general test for procedural fairness. It applied established principles to the particular way this trial was conducted. Before the decision, the judgment identifies the relevant framework as requiring a reasonable opportunity for a party to present its case, with the content of that opportunity depending on the facts and applicable court procedures ([44]-[48]). It also refers to the requirement that a party be directed to critical factors likely to determine the decision and be given an opportunity to make submissions on them ([104]).
The judgment emphasises that pleadings matter, but the actual conduct of proceedings matters too. Relying on Water Board v Moustakas, Loukas-Karlsson J stated that the court should examine how the proceedings were actually conducted, especially where a pleaded particular is equivocal. A broad particular does not attribute a case to a party where that case was not in fact put ([87]-[90]). That reasoning links procedural fairness to practical notice: what counts is not only what could be inferred from the pleadings, but what the opposing party was reasonably required to meet at trial.
The decision also clarifies the judgment’s treatment of damages proof. It repeats the principle from Placer that the claimant must prove breach and quantum with as much precision as the subject matter reasonably permits ([92]). It accepts that estimation may be necessary where precise evidence cannot be adduced, but distinguishes that from a trial in which a party chose to conduct its claim on a narrower basis ([82]-[93]). The Court did not hold that broad or unquantified damages claims are always unavailable. It held that the builder could not be required to meet damages bases that were not part of the case as run.
After the decision, the specific damages assessment was set aside and returned for determination in accordance with the Court’s reasons. The Court did not determine the ultimate amount recoverable on the homeowners’ counterclaim, nor did it disturb the liability findings. The effect was therefore procedural and case-specific: the damages question had to be considered on a basis that respected the claims actually before the primary judge and the parties’ opportunity to address them.
At [47], Loukas-Karlsson J stated that procedural fairness “is not concerned with the outcome of a case, as such, but rather with proper process.” In plain English, a court’s focus is whether each party had a fair chance to participate in deciding the case, not merely whether the final result might be defensible on some other basis.
At [55], the judgment says the builder “could not be expected to respond to a case not advanced at first instance.” This captures the problem with relying on a claim that may have been arguable or broadly suggested by pleadings, but was not actually put in the trial.
At [70], Loukas-Karlsson J described MFI-4 and Exhibit E as “the alpha and the omega” of the damages claim as run. The phrase means that these documents defined the practical scope of the claim at trial. The Court viewed them as more than an initial starting point for a broader, unannounced damages case.
At [92], the judgment states, “The issue of damages requires proof.” In context, the point is that proof of repudiation or breach does not itself establish the amount of damages. The claimant must prove the loss claimed, subject to the judgment’s recognition that precision may not always be possible.
At [101], the Court summarised the decisive mismatch: the damages case was “run on a particular and limited basis” but awarded on a “different and broader basis.” In practical terms, the appellant prepared to answer a completion-cost claim, but the damages reasons also relied on structural rectification and amenity considerations that had not been properly tested.
At [8], Mossop and Baker JJ explained why notice mattered: the appellant needed the opportunity to adduce or tender evidence, cross-examine witnesses and make submissions. The Court found that those opportunities were not theoretical. It considered there was a real prospect they would have been used had the broader claims been articulated.
The decision is most relevant to disputes where a party advances a defined damages case at trial, supported by particular evidence and submissions, but the judgment awards damages on a materially different basis. The practical comparison is between the case the opposing party was required to meet and the bases on which the court ultimately decides the amount.
The decision highlights several factual indicators. First, the party’s opening or explanation of its claim may define its practical scope, as occurred when the homeowners described their case as the costs overrun above the contract sum ([4], [65]). Second, the documents relied on, the focus of examination and cross-examination, and the closing submissions can show whether the claim was confined ([66]-[70]). Third, the absence of evidence directed to a broader loss may show that the broader basis was never put in issue ([77]). Fourth, the opposing party’s identification of specific evidence or submissions it would have offered can help show practical injustice ([76]).
The judgment does not establish that every departure from a pleading or every judicial evaluation of damages creates a denial of fairness. Its reasoning is tied to the combination of a trial conducted on a narrow basis, an award relying on broader categories, and lost opportunities to address those categories. The Court also noted that raising the broader damages issue earlier and inviting further submissions might have avoided the fairness problem in this case ([99]).
The judgment is dated 19 November 2024. The text supplied does not discuss later judicial treatment of Ashell Homes Constructions Pty Ltd v Kobus. It therefore provides no basis to state that a later court has followed, distinguished, limited or otherwise treated this decision.
The judgment itself discusses earlier authorities, but those are not later treatments of this case. It refers to Placer when considering proof and estimation of damages, distinguishes its reasoning on the facts, and compares the procedural fairness issue with Venus Adult Shops and Roberts ([80]-[99]). It also refers to decisions including Fox v Percy, Applicant VEAL, Aon and Water Board v Moustakas as part of the legal framework ([22], [46]-[47], [87]-[90]). These references show the authorities the Court drew on, not how subsequent courts have applied the 2024 decision.
For research purposes, the narrow proposition to track in any later treatment is the distinction between a claim that was merely pleaded in broad terms and a claim that was actually advanced and tested at trial. The judgment’s reasoning also makes the record of openings, evidence, cross-examination and submissions important to that inquiry. No claim is made here about later citation history.
The Court did not determine what damages the homeowners may ultimately establish on remitter. It confined the remittal to the damages question and consequential orders, leaving how the matter proceeds to the primary judge ([13], [127]). The eventual assessment, including what evidence or argument may properly be considered in the remitted proceeding, is not resolved in this judgment.
The decision also does not set out a general boundary for when an indirect rectification claim is sufficiently included in particulars of rectification losses. Mossop and Baker JJ said that an indirect rectification claim would have been open within the particularised losses in this case, but that the amenity claim was not accommodated ([2]-[3]). That observation is expressly tied to these pleadings and does not establish a universal pleading rule.
Nor does the judgment decide the substantive availability or measure of an amenity claim in a residential building dispute. Counsel referred to Stone v Chappel as supporting such a claim, and the Court described amenity damages as arguable, but the appeal was decided on procedural fairness rather than the merits of that category ([2]). The Court did not rule on whether the homeowners could ultimately prove amenity loss or what evidence would be required.
A further issue is how a court should respond when it considers that a damages case may be broader than the parties’ submissions. The judgment suggests that raising the issue earlier and seeking further submissions could matter to the fairness analysis ([99]). It does not prescribe a single procedure for doing so in every case.
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Source: the ACT Courts (www.courts.act.gov.au). Converted to plain text by ZoeLaw. Not the official version.
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY COURT OF APPEAL
Case Title: Ashell Homes Constructions Pty Ltd v Kobus Citation: [2024] ACTCA 32 Hearing Date: 7 November 2023 Decision Date: 19 November 2024 Before: Mossop, Loukas-Karlsson and Baker JJ Decision: (1) The appeal is allowed. (2) Orders 1, 4 and 5 of the orders of 21 December 2022 made by McWilliam AsJ are set aside. (3) The matter be remitted to McWilliam J for determination in accordance with the Court’s reasons. (4) The respondents to pay the appellant’s costs of this appeal. (5) Costs of this appeal are not to be assessed until the conclusion of the proceedings in the Supreme Court on remitter.
Catchwords: PRACTICE AND PROCEDURE – APPEAL – Appeal against award of damages by primary judge – whether there was a denial of procedural fairness – damages awarded on a basis other than the basis run at trial – appeal allowed – matter remitted Legislation Cited: Copyright Act 1968 (Cth) s 116 Court Procedures Act 2004 (ACT) s 5A Supreme Court Act 1933 (ACT) ss 37E, 37O Cases Cited: Adamson v Ede [2009] NSWCA 379 Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; 239 CLR 175 Applicant VEAL of 2022 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 72; 225 CLR 88 Ashell Homes Constructions Pty Ltd v Kobus [2022] ACTSC 323 Ashell Homes Constructions Pty Ltd v Kobus (No 2) [2022] ACTSC 359 Australian Capital Territory v Crowley [2012] ACTCA 52; 7 ACTLR 142 Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 Baulkham Hills Shire Council v Basemount Pty Ltd [2003] NSWCA 189; 126 LGERA 339 Bellgrove v Eldridge [1954] HCA 36; 90 CLR 613 Broken Hill Cobalt Project Pty Ltd v Lord [2022] NSWCA 271 Bobanovic v Incandela [2015] ACTCA 63; 74 MVR 96 Bonfiglioli v RW Winning Pty Ltd [1993] NSWCA 28 Condon v Pompano [2013] HCA 7; 252 CLR 38 Dwyer v Volkswagen Group Australia Pty Ltd [2023] NSWCA 211 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 Findex Group Pty Ltd v McKay [2023] ACTCA 36 Fox v Percy [2003] HCA 22; 214 CLR 118 International Finance Trust Company Ltd v New South Wales Crime Commission [2009] HCA 49; 240 CLR 319 Kmjulac v Lincu [2015] NSWCA 367 Kostas v HIA Insurance Services Ltd [2010] HCA 32; 241 CLR 390 Manny v David Lardner Lawyers (No 4) [2024] ACTCA 12 McColley v Commonwealth [2014] ACTCA 21 Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388 Najdovksi v Crnojlovic [2008] NSWCA 175; 72 NSWLR 728 Pavlovic v Universal Music Australia Pty Ltd (No 2) [2016] NSWCA 31 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; 77 ALJR 768 Re Association of Architects of Australia; Ex parte Municipal Officers Association of Australia (1989) 63 ALJR 298 Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5; 110 NSWLR 557 Robinson v Harman (1848) 154 ER 363 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 236 CLR 272 Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd [2006] FCAFC 188; 157 FCR 442 Wang v Australian Securities and Investments Commission [2019] FCA 1178 Water Board v Moustakas (1988) 180 CLR 491 Parties: Ashell Homes Constructions Pty Ltd (Appellant) Jonathan Hilton Kobus (First Respondent) Amy Elleway (Second Respondent) Representation: Counsel WDB Buckland (Appellant) D Robens (First and Second Respondent) Solicitors O’Connor Harris & Co Solicitors (Appellant) Harrington Hall Lawyers (First and Second Respondent) File Number: ACTCA 5 of 2023 Decision Under Appeal: Court/Tribunal: Supreme Court of the ACT Before: McWilliam AsJ Date of Decision: 22 November 2022; 21 December 2022 Case Titles: Ashell Homes Constructions Pty Ltd v Kobus Ashell Homes Constructions Pty Ltd v Kobus (No 2) Citations: [2022] ACTSC 323 [2022] ACTSC 359 MOSSOP AND BAKER JJ:
We agree with the conclusion reached by Loukas-Karlsson J that the appellant was denied procedural fairness insofar as the assessment of damages on the counterclaim was based upon damages that included “monies toward rectification of the structural departures that the [respondents] were … stuck with” or for “diminution in amenity”.
Claims for damages in each of these categories were arguable claims that might have been made. The first would involve works done which were not required to complete the building to the contractual specification but were instead carried out to respond to, and ameliorate the effects of, the ongoing structural non-compliance which remained. We will refer to this as an indirect rectification claim. The second was identified by counsel for the respondents as being consistent with the decision in Stone v Chappel [2017] SASCFC 72; 128 SASR 165, where an award of general damages for loss of amenity arising from non-compliance with a residential building contract was upheld. We will refer to this as an amenity claim.
In the present case, in the respondents’ pleadings, the particulars of loss and damage included expenses incurred to rectify the defective building works and losses incurred but not yet paid associated with the need to rectify those defective building works. It would have been open to make an indirect rectification claim within these particulars. However, the particulars did not accommodate an amenity claim.
At the commencement of the hearing before the primary judge, counsel for the respondents explained the quantification of the counterclaim briefly as “the costs overrun the build further to the contract sum” (sic). As at that time, the amount claimed by the respondents was quantified as $233,975.21.
During the trial, the respondents’ counterclaim for damages was ultimately conducted by reference to evidence, summarised in MFI 4, of the costs incurred to complete the building. The claim for damages on the counterclaim was for those costs to the extent to which they exceeded the original contract price. Notwithstanding the figure mentioned in opening, the amount by which those costs exceeded the contract price was shown in MFI 4 as $144,000 and the amount ultimately sought was $72,711.01. At the hearing of the appeal, the reason for the difference between the figure in MFI 4 and the figure ultimately sought could not be clearly explained. The case was not conducted in a manner which put the appellant on notice of an indirect rectification claim or an amenity claim.
The written and oral submissions made at the hearing were focused upon the extent to which the costs to complete the construction exceeded the contract price. The submissions did not address damages referable to an indirect rectification claim or an amenity claim.
As a matter of substance, the case was not conducted on the basis that the items summarised in MFI 4 were not items necessary to complete the contracted building, but were instead amounts spent to compensate for structural departures from the plans that the respondents were stuck with or for a diminution of amenity. In other words, the items in MFI4 were not put forward on the basis of either an indirect rectification claim or an amenity claim.
LOUKAS-KARLSSON J: Introduction
This is an appeal from two related judgments of McWilliam AsJ (as her Honour then was) (the primary judge). The appellant is a building company. The appellant was contracted by Mr Kobus and Ms Elleway (the respondents) to build two townhouses. In December 2018, a dispute arose in relation to the building works. Subsequently, the respondents purported to terminate the building contract and the appellant was excluded from the building site in early 2019. Tools and equipment belonging to the appellant were kept on site by the respondents.
A claim was brought by the appellant before the Supreme Court alleging breach of contract and conversion. The respondents brought a counterclaim alleging that the appellant had failed to construct the townhouses in accordance with the contract and plans, and that the breaches were so fundamental that the contract was therefore repudiated. First judgment
On 22 November 2022, the primary judge dismissed the appellant’s primary claim of breach of contract but allowed the appellant’s secondary claim in conversion concerning the tools and equipment in an amount of $47,621.66: Ashell Homes Constructions Pty Ltd v Kobus [2022] ACTSC 323 at [6] (Ashell Homes).
The respondents’ counterclaim was allowed for the amount ultimately sought in the proceedings, being a reduced amount of $72,711.01. The amounts were set off and judgment was entered for the Respondents in the sum of $25,089.35 with interest: Ashell Homes at [202], [208](1).
Second judgment
Subsequently, reasons concerning the award of damages for the counterclaim were set out in the second judgment of 21 December 2022: Ashell Homes Constructions Pty Ltd v Kobus (No 2) [2022] ACTSC 359 (Ashell Homes (No 2)). Relevantly, the primary judge stated the following regarding the counterclaim at [31]-[34]. At the outset I note that these paragraphs are at the core of this appeal: 31. On the application of the authorities and the facts found, the $72,711.01 amount sought by the defendants similarly did not take account of the fact that the injured parties were prima facie entitled to damages representing the cost of rectification of the work so that it achieved conformity with the contract, along with any appropriate consequential damages, not just damages for the completion of the contract after breach. 32. It was perhaps to their credit that the defendants did not seek the extensive rectification works that would have put them in truly the same position as if the contract had been performed. As they did not do so, arguments about proportionality, or what was necessary and reasonable, did not arise. The approach taken by the defendants was a pragmatic one. 33. However, having so limited their claim, the proper compensation which would have placed the defendants in the same situation as they would have been in (had the contract been performed) extended at least to the amount claimed. The evidence as to what was properly recoverable, not just to complete the townhouses under the contract, but to achieve conformity with the original contract, was lacking. I formed the view that the invoiced amounts to complete and partially rectify were plainly recoverable, and that any sums claimed that were for inclusions not originally specified in the contract might have also been characterised as monies toward rectification of the structural departures that the defendants were presently stuck with, and partly to diminution in amenity. 34. That is why the plaintiff’s arguments about the specific items in the invoices fell away. The expenses that were claimed were well below the compensation to which the defendants were probably entitled, the full amount of which they did not seek. This was not a situation where a credit for betterment was required. (emphasis added)
Thus the crux of this appeal centres around the resolution by the primary judge of the question of damages and whether or not there was a denial of procedural fairness in that regard. For the reasons that appear at [52] to [107], I would allow the appeal on the basis that there was a denial of procedural fairness concerning the question of damages.
Jurisdiction, Rehearing and Remedies
The jurisdiction of this Court and the available remedies are found in ss 37E and 37O of the Supreme Court Act 1933 (ACT) respectively.
The nature of an appeal under s 37E is settled: Bobanovic v Incandela [2015] ACTCA 63; 74 MVR 96 at [11]. The approach to such an appeal is usefully and briefly summarised in Australian Capital Territory v Crowley [2012] ACTCA 52; 7 ACTLR 142 at [5], incorporating the following points: (a) It is an appeal in the nature of a rehearing, albeit that error must be shown. (b) The Court is obliged to conduct a real review of the trial and the judge’s reasons and give “the judgment which in its opinion ought to have been given in the first instance”.
In relation to the nature of a rehearing, the High Court (Gleeson CJ, Gummow and Kirby JJ) in Fox v Percy [2003] HCA 22; 214 CLR 118 (Fox) referred to the following well-established principles at [22] to [23]: (a) The ‘‘rehearing’’ does not involve a completely fresh hearing by the appeal court of all the evidence. The Court proceeds on the basis of the record and any fresh evidence that the Court exceptionally admits. (b) On the one hand, the appellate court is obliged to ‘‘give the judgment which in its opinion ought to have been given in the first instance”. On the other, it must, of necessity, observe the ‘‘natural limitations’’ that exist in the case of any appellate court proceeding wholly or substantially on the record, including evaluation of witness credibility and the “feeling” of a case. These are matters that, of course, exist beyond the mere reading of a transcript on appeal. (c) In the main, the primary judge has the obvious advantage that derives from receiving and considering the entirety of the evidence and the opportunity, usually over a longer interval, to reflect upon that evidence and to draw conclusions from the evidence when viewed as a whole. Grounds of Appeal
The grounds of appeal relied on in the notice of appeal are as follows: (a) the primary judge erred in awarding damages to the respondents on a basis other than the basis upon which the counterclaim was run at hearing; (b) I note that the following ground was not pressed as an independent ground: the primary judge erred in awarding the respondents damages in circumstances where the respondents or their witnesses had admitted that certain items of loss claimed by them were not properly claimed against the appellant and should be deducted from the counterclaim; (c) the primary judge erred in awarding damages to the respondents for loss of amenity when no such loss was pleaded or proved; (d) the primary judge erred in awarding damages to the respondents for diminution in value when no such loss was pleaded or proved; (e) the primary judge erred in awarding damages to the respondents on basis of loss of amenity when the respondents did not allege or prove such losses at the hearing; and (f) the primary judge denied the appellant procedural fairness in awarding damages in the respondents’ favour on basis other than that which was pleaded or proved by the respondents and in relation to which the appellant did not have any opportunity to adduce evidence or make any submissions.
Work on the townhouses stops
Legal action is commenced
Hearing before the primary judge and first judgment
At first instance, the hearing was primarily focused on whether the appellant or the respondents had the right to lawfully bring the contract to an end, and the question of damages: see Ashell Homes at [2]. On 22 November 2022, the primary judge found that the appellant had repudiated the contract, finding that the actions of Mr Cobanov “leads to an overwhelming inference” that the appellant evinced an intention to comply with the contract only when it suited the appellant: Ashell Homes at [135]. The primary judge found that, therefore, the contract was validly terminated by the respondents on 22 December 2018: Ashell Homes at [15], [136], [144]. The primary judge’s findings of breach of contract and repudiation were not challenged on this appeal. Second judgment
Relevantly, the appellant applied to the primary judge on 6 December 2022 to reopen Ashell Homes for further consideration and reasons regarding the quantum of damages awarded: see Ashell Homes (No 2) at [2]. See [18] above.
The primary judge stated that there was no issue that had been overlooked as the parties had been heard on the issue of quantum: see Ashell Homes (No 2) at [11]. Nevertheless, the primary judge considered it proper to publish a further judgment to elucidate upon the reasons that the amount of damages put forward by the respondents was awarded in full: Ashell Homes (No 2) at [16]-[17].
Earlier in the judgment, the primary judge dealt with how the respondents’ counterclaim was run at trial (at [18]): The [respondents’] counter-claim, which landed at the figure of $72,711.01, was said to be the cost to them of completing the two townhouses that they had originally engaged the [appellant] to build for them, being the sum they said they incurred over and above the original contract price of $1,050,000. The claim was based on invoices for the work that was completed primarily by a builder who the [respondents] subsequently contracted to complete the project. The [respondents] contended that was the amount sought as damages “to place the [respondents] in the position they would be in had the [appellant] completed in accordance with the Contract terms”.’ (emphasis added)
Contrary to this, the appellant had submitted at first instance that the respondents had suffered no loss and had, on the evidence, saved money by terminating the contract. The primary judge observed that the appellant’s approach was to engage in a “line-by-line” evaluation of the invoices tendered in support of the respondents’ counterclaim, to establish whether there was anything that lay outside the scope of the contract: see Ashell Homes (No 2) at [19].
The primary judge observed that neither approach “really grappled with what it meant for compensation to be awarded in this case” (Ashell Homes (No 2) at [21]) and referred to the principles concerning damages discussed in Robinson v Harman (1848) 154 ER 363 and Bellgrove v Eldridge [1954] HCA 36; 90 CLR 613 (Bellgrove). In particular that the measure of the damages recoverable by the building owner for the breach of a building contract is the difference between the contract price and the cost of making the building conform to the contract: Ashell Homes (No 2) at [22], citing Bellgrove at 617-8. … the rule is, we think, correctly stated in Hudson on Building Contracts, 7 th ed. (1946), p 343: “the measure of the damages recoverable by the building owner for the breach of a building contract is, … the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach.” …the necessary remedial work may call for the removal or demolition of a more or less substantial part of the building. … There may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its place. (emphasis in original)
Procedural Fairness
It is fundamental to the judicial process, that Courts accord procedural fairness to litigants. As underlined in International Finance Trust Company Ltd v New South Wales Crime Commission [2009] HCA 49; 240 CLR 319 (International Finance Trust) procedural fairness or natural justice lies at the centre of the judicial function (at [54] (French CJ)). It is similarly well established that what is required for procedural fairness will vary according to the facts in each case. Moreover, procedural fairness may be informed by matters such as established rules and procedures of a court: see Adamson v Ede [2009] NSWCA 379 at [57] (Campbell JA, Giles and Hodgson JJA agreeing) (Ede).
Additionally relevant in this context is s 5A of the Court Procedures Act 2004 (ACT) (CPA), which provides: 5A Main purpose of civil procedure provisions (1) The main purpose of the civil procedure provisions is to facilitate the just resolution of disputes— (a) according to law; and (b) as quickly, inexpensively and efficiently as possible. (2) Without limiting subsection (1), the main purpose includes the following objectives: (a) the just resolution of the real issues in civil proceedings; (b) the efficient use of the judicial and administrative resources available for the purposes of the court; (c) the efficient disposal of a court’s overall caseload; (d) the timely disposal of civil proceedings; (e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute. (3) The civil procedure provisions must be interpreted and applied, and any power or duty imposed by them (including the power to make rules) must be exercised or carried out, in the way that best promotes the main purpose. (4) The parties to a civil proceeding must help the court to achieve the objectives. … (emphasis added)
By way of example, in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; 239 CLR 175 (Aon) the High Court considered the predecessor to s 5A, in the context of applications for further amendment of pleadings. In that case, the High Court underlined that efficiency, encompassing “minimum delay and expense”, is essential to a just resolution of proceedings: Aon at [98]. Nevertheless, the High Court also emphasised that this should not “detract from a proper opportunity” for the parties to plead their case: Aon at [98]. In essence, procedural fairness or natural justice requires that a party be given a reasonable opportunity to present their case: Re Association of Architects of Australia; Ex parte Municipal Officers Association of Australia (1989) 63 ALJR 298 at 305 (Gaudron J) (Association of Architects). See also Ede at [59].
Additionally it is clear that, as a matter of law, procedural fairness is not concerned with the outcome of a case, as such, but rather with proper process: see Applicant VEAL of 2022 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 72; 225 CLR 88 at [16] (VEAL).
Were damages awarded on a basis other than the basis upon which the counterclaim was run at the hearing? Was there a denial of procedural fairness?
Were damages awarded on a basis other than the basis upon which the counterclaim was run at the hearing? This is the question of procedural fairness that the Court must determine. The answer to that question is yes for the reasons that follow.
The crux of the appellant’s case on appeal was that the primary judge’s conclusion in Ashell Homes (No 2) at [33] was reached by erroneously rejecting the claim, that was made, by instead considering a claim which had not, in fact, been made.
In contradistinction, counsel for the respondents at the appeal hearing distilled their submissions in response to the submissions of the appellant broadly to the following four points: (a) First, that the relevant damages were pleaded, and otherwise available in this case. This is discussed below at [57] to [64] concerning the pleadings. (b) Second, that there was no lack of procedural fairness in the way the case was run, and in any event any lack of procedural fairness could be cured on this appeal. This is not accepted and discussed below at [65]-[70] and [100]-[116]. (c) Third, that the evidence could support the primary judge’s findings. This is discussed below at [71] to [77]. (d) Fourth, that the case of Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; 77 ALJR 768 (Placer) was a “complete answer” to this appeal, discussed below at [78] to [99].
Regrettably, there is a foundational problem with the overall approach of the respondents on this appeal. It is this. What appears to underline the respondents’ submissions is that the appellant ought to have divined, in some unspecified way, the basis upon which the primary judge would ultimately award damages. This approach disregards the way in which the respondents’ conducted the counterclaim at first instance. As discussed above at [47], procedural fairness is concerned with proper process. As a matter of process the appellant responded perforce to the counterclaim as run by the respondents at first instance. The appellant could not be expected to respond to a case not advanced at first instance.
Therefore, the four aspects of the case referred to above should be discussed by this Court. First, the pleadings; second, the conduct of the respondents’ case at first instance; third, the evidence at first instance and fourth, why Placer is not a “complete answer” nor an answer. All four aspects of the case will be reviewed and analysed below.
Pleadings – diminution or loss of amenity not pleaded
First, the pleadings must be considered. The respondents’ losses for breach of contract were particularised at [37] of the amended statement and counterclaim of 19 March 2021 (amended defence). They are as follows: (a) losses associated with the completion of the work. (b) losses to rectify. (c) losses incurred but not yet paid associated with the need to rectify other aspects of defective building works. (d) losses associated with the payment of progress payments. (e) losses relevant to additional rental expenses and loan interest payments. (f) losses associated with the payment of sum greater than was agreed with the appellant.
On the basis of the respondents’ pleadings, the appellant submitted that this case gave rise to a claim for excess costs to complete and rectification costs; that the losses particularised in the respondents’ amended defence did not include claims in diminution of value nor amenity.
In this case, the primary judge awarded damages partly on the basis of diminution of amenity: Ashell Homes (No 2) at [33]. Thus, it is tolerably clear that damages were awarded by the primary judge partly on the basis of diminution of amenity, in circumstances where diminution of amenity was clearly not pleaded.
Underscoring this point, counsel for the appellant properly noted the primary judge appeared to understand the case of the respondents as at day 3 of the trial as follows: HER HONOUR: But why - sorry, I just don’t understand why you need - why your client would have needed to go out and get quotes. These - the case for the [respondents] is: we had to complete - ourselves - and this is what it cost us.
Counsel for the respondents properly conceded at the appeal hearing that loss or diminution of amenity was not pleaded. Nevertheless, counsel for the respondents submitted that the primary judge was not in error in the ultimate award of damages, as there were “multifaceted reasons as to why there were large costs that were apparent” to the respondents that either had not or could not be quantified, which would “outweigh” the amount claimed by the respondents.
Further it was submitted that even accepting that loss of amenity was not pleaded, the award of damages was submitted to not be in error as there were other factors that could lead to at least the $72,711.01 quantification. Put another way, counsel for the respondents submitted that the evidence of the problems with the townhouses was such that there was at least “$72,000.00 worth of problems”. As such, it was submitted that it was not an error for the primary judge to effectively view a house that is “obviously full of defects” and deciding that there are at least damages in the sum of the respondents’ figure.
Counsel for respondents submitted that the damages awarded by the primary judge (with the exception of loss of amenity) were in fact pleaded. Counsel took the Court to the following part of the amended defence, which it was submitted was not abandoned at trial: (a) [35T(b)], seeking damages based on the difference between the contract price and the amount reasonably incurred to complete the works. (b) [35U], alternatively, seeking the amount required to rectify the Defective Building Works. Counsel noted that “Defective Building Works” were particularised at [35J(d)] of the Amended Counterclaim. (c) [37]-[40], particulars of the damages are set out in the counterclaim. It includes rectification of the Defective Building Works. (d) At hearing, counsel for the respondents highlighted [37](ii) and (iii), with latter being said to have anticipated future costs associated with defective building works. Counsel for the respondents also referred to [38](b) and [39] at the hearing.
Conduct of the respondents’ case
At this juncture it is important to consider the conduct of the respondents’ case. Counsel for the respondents at trial opened his case on an amount that that was said to be “the costs overrun of the build further to the contract sum”. On the second hearing day at first instance counsel for the respondents stated the following to the Court: “… I am going to present to you tomorrow a spreadsheet showing the breakdown of the costs claimed. The essence of the claim is the costs overrun on damages resulting from the repudiatory conduct, being additional costs over the price of the building contract sum. “ (emphasis added)
A summary or aide-memoire of that foreshadowed spreadsheet was placed before the Court on the third day of the hearing. This was marked “MFI-4” at the hearing. The documents supporting the MFI-4 summary were admitted as Exhibit E.
The appellant correctly submitted that MFI-4 and Exhibit E both supported an arithmetical calculation concerning the award of damages for the respondents. This in my view is clear on the evidence.
MFI-4 and Exhibit E were not challenged on this appeal. It is also clear on the court record at first instance that MFI-4 and Exhibit E were critical to how the parties conducted their respective cases on quantum of damages. The appellant correctly highlighted the following aspects of the case: (a) The second respondent was not asked in examination-in-chief or cross-examination about loss of amenity, diminution in value, or “unquantified consequential losses”. Nor was the first respondent asked about diminution in value or unquantified consequential losses. The examination and cross-examination of the respondents was focused on MFI-4 and Exhibit E. (b) Submissions at the hearing at first instance in relation to the counterclaim focused on MFI-4 and Exhibit E. As a consequence, the respondents’ closing written submissions at trial were that the respondents had “provided evidence of a total $1,122,711.01 in costs to complete the construction, exceeding the contract price of $1,050,000 by $72.711.01”.
Therefore in my view, the case on damages as it was conducted at first instance, was limited and did not include “diminution in amenity” nor general unsubstantiated losses related to rectification of structural departures.
The appellant’s submission that there was nothing to suggest that MFI-4 and Exhibit E were the “starting point as opposed to being the entire circumference of the respondents’ counterclaim” has been made good. MFI-4 and Exhibit E were the alpha and the omega of the claim on damages as run by the respondents at first instance. There is an important distinction between a damages claim run on the limited basis of MFI-4 and Exhibit E and a damages claim based more broadly. The respondents’ case was conducted on the basis of the former not the latter. The primary judge at [33] of Ashell Homes (No 2) referred to a damages claim based more broadly including “rectification of the structural departures” and “diminution in amenity”.
The evidence
Finally, counsel for the appellant submitted that it was an error for the primary judge to have quantified the respondents’ loss on the basis of unquantified rectification of works or loss of amenity without any evidence, relying on the decision of Kostas v HIA Insurance Services Ltd [2010] HCA 32; 241 CLR 390 at [16] (French CJ), [91] (Hayne, Heydon, Crennan and Kiefel JJ) and Wang v Australian Securities and Investments Commission [2019] FCA 1178 at [68] (Bromwich J).
In response, counsel for the respondents submitted that the appellant had not identified what further steps it was denied from undertaking due to the approach of the primary judge. In this regard, the respondents noted that the transcript at hearing “shows extensive cross-examination” of the second respondent by the counsel for the appellant, including on the following subjects: (a) changes to the slab; (b) whether the second respondent sought a variation based on the changes to the slab; and (c) whether the acceptance of a variation resolved all issues regarding the footings and slab.
I note that clearly the respondents’ counterclaim was based on repudiatory conduct and that repudiatory conduct on the part of the appellant was established on the evidence. Nevertheless, the related but separate question of the quantum of damages must also be proven by evidence.
Counsel for the respondents submitted that the primary judge gave consideration to the issues of structural departures (Ashell Homes (No 2) at [25]) and further submitted that appellant’s counsel at first instance had tested all matters relevant to this consideration of the damages, including missing structural steel.
What the respondents’ submission fails to grapple with is that there is an important legal distinction between establishing repudiatory conduct and establishing the damages to be awarded. Here the respondents’ case on damages was specifically limited to MFI-4 and Exhibit E. I note, in this context, that the appellant properly submitted that there was an “ability” to test the damages itemised in MFI-4 and Exhibit E. Nevertheless, there was no testing of damages which did not form part of the respondents’ case at first instance.
Counsel for the appellant properly underlined in submissions what would have had to be undertaken by the appellant at first instance in relation to the case had the case been run at first instance on the basis which the primary judge ultimately found damages. Matters were correctly highlighted, including the following: (a) The appellant submitted that he would have explored in cross-examination the question of whether the second respondent had lived in any of the properties, as well as the time period in which the second respondent had resided there and what amenity was not received. (b) Counsel would have addressed the primary judge on whether damages for loss of amenity could be recoverable in this case in light of the fact that it was not pleaded.
Why Placer is not the answer
Counsel for the respondents in arguing that Placer was a “complete answer” to this appeal submitted that there were pleadings to base the findings of the primary judge, and the pleadings were not “specifically abandoned”.
In my view, Placer cannot be said to be a “complete answer” to this appeal. It is not for the following reasons.
In Placer, the primary judge, Templeman J, did not accept the counterclaimant’s pleaded formula for calculating damages, and undertook another calculation on the best available evidence: Placer at [27]-[31] (Hayne J).
The Full Court of Western Australia in Placer observed that Templeman J’s approach was flawed and in overturning the decision further observed that the approach was “one not previously raised at trial and was a method markedly different from the case pleaded”: see at [15], [32].
Subsequently, however, the High Court reversed the Full Court. Hayne J stated that in some cases it may be necessary to distinguish between a case where a plaintiff cannot adduce evidence on the one hand and on the other hand a case where a party can but does not adduce evidence (at [38]): It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case, it may be that estimation, if not guesswork, may be necessary in assessing the damages to be allowed.
Gleeson CJ, McHugh and Kirby JJ agreed with Hayne J that the appeal should be allowed, observing at [6] that estimation in that case was not in error: [W]hen due allowance is made for the fact that the calculation of damages was necessarily based on information that was primarily within the knowledge of Thiess [the respondent in the case], and involved matters of estimation as well as calculation, the assessment made by the trial judge was not shown to be in error.
Thus, based on this, counsel for the respondents submitted that “the unknown costs associated with the appellant’s repudiatory conduct prevented the respondents from providing precise evidence quantifying the damages suffered from the deviation from the plans” and that reliance on MFI-4 and Exhibit E did not amount to an abandonment of alternative damages: see Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388.
Lamentably, the respondents’ analysis, as set out above, while on one view may be considered to be superficially attractive does not accord with the way in which the case was in fact run at first instance.
A perusal of the transcript reveals at pages 22-23 (Day 1) that the respondents’ opening was confined to costs to complete and rectify. Submissions were not made to support damages beyond that specific confinement of the damages sought in the opening. Matters outside MFI-4 and Exhibit E were, for all intents and purposes, forensically abandoned at hearing. Further it is clear that the procedural fairness point is not answered by the respondents pointing to cross-examination on the issue of repudiatory conduct. In MFI-4 and Exhibit E the respondents did not refer to damages arising from unspecified defects in construction.
Conclusion
In this case, damages were awarded by the primary judge on a basis other than the basis upon which the counterclaim was run at hearing.
Therefore, in my view, procedural fairness was not accorded to the appellant on the facts of this case. In short, the damages case was run on a particular and limited basis at first instance and damages were awarded by the primary judge on a different and broader basis.
The law is clear that a party should know what case the opposing party seeks to make and how the case is sought to be made. In Condon v Pompano [2013] HCA 7; 252 CLR 38, the majority observed at [157] (Hayne, Crennan, Kiefel and Bell JJ): … [if] an adversarial system is followed, that system assumes, as a general rule, that opposing parties will know what case an opposite party seeks to make and how that party seeks to make it.
In this case, the counterclaim on damages advanced by the respondents and therefore consequently the case on damages, responded to by the appellants did not align with the basis of the primary judge’s ultimate award of damages.
It is a requirement of procedural fairness that a party must have the opportunity to make submissions in relation to the factors upon which the decision will turn. The appellant before the primary judge was not afforded this opportunity. In McColley v Commonwealth [2014] ACTCA 21, this Court (Murrell CJ, Refshauge and Penfold JJ) relevantly stated that procedural fairness requires that a party must be directed to the factors on which a decision will turn: 67. Procedural fairness requires that a party must be directed to the critical factors upon which a decision is likely to turn and must have the opportunity to make submissions in relation to those factors: Commissioner for ACT Revenue v Alphaone Pty Ltd (1994) 49 FCR 576 at 590–592 per Northrop, Miles and French JJ. (emphasis added)
In my view, the appellant was not so directed and not afforded the opportunity to make submissions in relation to matters going beyond MFI-4 and Exhibit E. It is tolerably clear that where a judge goes beyond the case that was pleaded and run at the hearing, there will be a denial of procedural fairness: see Roberts at [71] (Ward P). See also Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 at [132]- [133]; Kmjulac v Lincu [2015] NSWCA 367 at [15]-[18]; Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 288 (Brennan J).
In short, that opportunity should have been afforded to the appellant by the primary judge as a matter of procedural fairness. In this case, the appellant was not afforded that opportunity and it therefore follows that there was a denial of procedural fairness.
The appeal is therefore upheld. The question of the appropriate remedy now arises and will be dealt with below.
What is the appropriate remedy?
With the denial of procedural fairness established, the appellant is therefore entitled to relief.
At issue then is whether this Court should reassess damages or whether this case should be remitted to the primary judge. A rehearing on appeal is not a “completely fresh hearing” by this Court. The Court must proceed on the record and any fresh evidence that the Court of Appeal “exceptionally” admits (see Fox at [22]), as noted earlier at [22] of this judgment.
Counsel for the appellant submitted that a remittal to the primary judge was not necessary. Counsel submitted in a somewhat overly sanguine vein that such an analysis can “easily be done by this court”, and was not a case that required a finding of fact where the primary judge would presumably be better placed.
In the alternative, counsel for the appellant submitted that if the matter were to be remitted, an order stating that the appeal be remitted for determination in accordance with the Court’s reasons would be appropriate.
Counsel for the respondents submitted, in the alternative, that this matter should be remitted to the primary judge for reconsideration as the primary judge would be in a better position to undertake the relevant line-by-line analysis.
Conclusion on remitter
It is open for an appellate court to determine in an appropriate case an issue without remittal: see Bonfiglioli v RW Winning Pty Ltd [1993] NSWCA 28; Najdovksi v Crnojlovic [2008] NSWCA 175; 72 NSWLR 728 at [12]-[17] (Basten JA, Allsop P agreeing, Windeyer J agreeing on this point).
Conversely, it is uncontroversial that this Court has the power to remit the matter to the primary judge. It is also open for the Court to remit the matter to a different judicial officer if there were a reasonable likelihood that a judge will be perceived to have pre-judged an issue: Baulkham Hills Shire Council v Basemount Pty Ltd [2003] NSWCA 189; 126 LGERA 339 at [22] (Tobias JA, Handley and Ipp JJA agreeing).
In my view, it cannot be said that this is a case where apprehension of bias is an issue. The primary judge proceeded on an erroneous basis from [25] of Ashell Homes (No 2). Her Honour’s confidence in the damages award at first instance expressed at [35] of Ashell Homes (No 2) arises from that erroneous premise. That erroneous premise does not tend towards an apprehension of bias on the part of the primary judge nor does it undermine a recalculation of damages on remitter by the primary judge on the correct basis.
In my view, this case should be remitted to the primary judge for reconsideration of the question of damages. The primary judge, having heard all the evidence, will be in a better position to undertake the assessment of damages than this Court proceeding on appeal. It therefore follows that I also agree with the reasons expressed by Mossop and Baker JJ at [10]-[11] concerning remitter. Costs
For the above reasons, I would allow the appeal and remit the matter to the primary judge for redetermination according to law. The last outstanding issue for determination is the question of costs.
Previously, the primary judge had ordered that the appellant pay 75% of the respondents’ costs up to 22 November 2023, after which both parties were to bear their own costs: Ashell Homes (No 2) at [64](4)-(5). The primary judge declined to order indemnity costs against the appellant for not accepting a Calderbank offer, as the primary judge formed the view that the rejection was not unreasonable: Ashell Homes (No 2) at [46]-[54].
The relevant portion of the reasons are reproduced below: 56. The following principles were set out in Clarkson Williams Partners Pty Ltd v Vaughan (No 2) [2016] ACTCA 8 at [10] (emphasis added): [10] In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], the NSW Court of Appeal summarised the principles governing the making of orders for costs where the successful party has not succeeded on all issues: • Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed. • In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument. A similar approach is adopted on appeal. • If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue. • Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed. • A separable issue can relate to “any disputed question of fact or law” before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter. • Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation. 57. What constitutes the “event” here, is not straightforward, because the plaintiff succeeded on the conversion claim, and the defendants succeeded on their counterclaim, although not in the sum originally claimed. Further, to the extent that the plaintiff was successful, the cause of action on which it succeeded occupied only a minor part of the proceeding overall. The question that occupied the bulk of the proceeding, whether that be addressed by reference to hearing time, evidence, or submissions, was the question of whether the plaintiff repudiated the contract. On that issue and on the counter-claim, the defendants were clearly the successful parties. … 61. Ordinarily, I would have considered that a partially successful plaintiff should not be deprived of the entirety of its costs. Here however, the counter-claim overlapped completely with the defence of the primary debt claim made by the plaintiff. It would not be just to order the defendants to pay any of the plaintiff’s costs where after set-off, judgment will be entered in their favour. Ultimately, as discussed in Priestley, that is the reference point for the outcome of the litigation. 62. Accordingly, I have decided that an order that the plaintiff pay 75% of the defendants’ costs of the proceeding on the ordinary basis up to the date of judgment achieves the compensatory objective that most closely reflects the outcome for each party, with such apportionment intended to reflect the defendants’ failure on a particular issue, that being the conversion claim. 63. Finally, and to avoid any further dispute about it in the event that costs are not agreed and have to be assessed, the costs order to be made at the conclusion of the trial does not directly or impliedly vacate any earlier costs order made in favour of any party at an earlier stage of the proceeding. (the primary judge’s emphasis)
Orders
I certify that the preceding one-hundred and twenty-seven [127] numbered paragraphs are a true copy of the Reasons for the Court. Associate: Date: 19 November 2024
Ashell Homes Constructions Pty Ltd
Kobus [2024] ACTCA 32
(1990) 169 CLR 279
(1989) 63 ALJR 298
(1988) 180 CLR 491
(1994) 49 FCR 576
The appeal was allowed. Orders 1, 4 and 5 made on 21 December 2022 were set aside. The matter was remitted to McWilliam J for determination in accordance with the Court’s reasons. The respondents were ordered to pay the appellant’s appeal costs, with those costs not to be assessed until the Supreme Court proceedings on remitter conclude.
If those claims were to be made, the appellant needed to be put on notice of those claims and be able to address them by calling or tendering any relevant evidence, cross examination of witnesses, and making submissions. The significance of being able to take those steps is more than theoretical. In the circumstances of this case, had the claims been articulated, then there is a real prospect that each of those opportunities would have been taken up. The appellant was denied procedural fairness as a result of the primary judge awarding damages on the basis that she did in circumstances where the appellant had no notice of an indirect rectification claim or an amenity claim.
Because there was a denial of procedural fairness, the appeal must be allowed. It is not appropriate that the Court of Appeal engage, for the first time, in the line-by-line assessment of the amounts claimed in MFI 4. Rather, it is appropriate to remit the proceedings.
The appellant contended that the proceedings should be remitted to a different judge. We do not agree. The power to make an order for remittal to a new judge should be exercised sparingly: Pavlovic v Universal Music Australia Pty Ltd (No 2) [2016] NSWCA 31 at [28]. This is particularly so in a case such as the present, where the only error concerned the assessment of damages, and not any findings relating to liability. Remittal of the question of damages to a judge other than the primary judge would require a new judicial officer to absorb a large volume of material which has not been the subject of challenge on this appeal. The statutory requirement for proceedings to be conducted “as quickly, inexpensively and efficiently as possible” provides a compelling basis for the matter to be remitted to the primary judge, who has familiarity with the issues involved in the matter: see similarly Broken Hill Cobalt Project Pty Ltd v Lord [2022] NSWCA 271 at [170].
Of course, this consideration would yield if there was an apprehension of prejudgment on the part of the primary judge. Such an apprehension does not arise in the present case. It is apparent that her Honour incorrectly understood that the respondents’ counterclaim encompassed claims for indirect rectification and loss of amenities. That error having been corrected by this Court, there is no reason to infer that her Honour would not properly approach the assessment of the claim of damages on remittal on the basis of the claims that were properly before her.
In relation to costs, they should follow the event. We do not accept the submission made by the respondents that the question of costs should be deferred until the outcome of any assessment of damages by the primary judge on remittal is complete. That the ultimate assessment of damages may remain the same or be reduced by only a modest amount is not sufficient to overcome the fact that the appeal was opposed by the respondents. Had the respondents not sought to maintain the advantage of the primary judge’s decision, the bulk of the costs of the appeal would not have been incurred. If, ultimately, the appellant does not achieve an outcome substantially better than that achieved in the first instance, that will not detract from the fact that it was denied procedural fairness, and a contested hearing of the appeal was necessary in order to establish that fact. The appellant did not oppose an order that the costs of the appeal not be assessed until the proceedings in the Supreme Court end.
Other than confining the scope of the remittal to the determination of the quantum of damages on the respondents’ counterclaim and consequential orders, it is not appropriate to give any further direction to the primary judge. How the matter proceeds will be a matter for the primary judge to determine.
All the appeal grounds are related to an assertion of a denial of procedural fairness. Background Facts and Procedural History
The brief background facts of the dispute are summarised at [1]-[2] of Ashell Homes. The background facts are not in dispute in this appeal.
The respondents wanted to build two townhouses in Weston, ACT for approximately $ 1 million. The respondents had hoped to live in one and sell the other. The second respondent in particular was understandably concerned about sustainability, and her objective was that each townhouse should aim to be energy neutral or a “passive” dwelling. The second respondent conducted research, and the respondents together decided to build the townhouses using a system of structurally insulated panels (SIPs). SIPs were chosen because SIPs were relatively easy to build with and provided what the respondents considered to be superior insulation. It was also considered that using SIPS would result in improved energy ratings.
Having searched the internet for sustainable house builders, the respondents engaged the appellant to carry out the construction project. It is noted that, at the time, the appellant traded as Green Homes Australia ACT. The parties executed a contract and the appellant commenced work in April 2018.
The primary judge noted that the decision of Bellgrove was referred to in passing, at the hearing, although “no party dealt with the consequences of its application” to the case: Ashell Homes (No 2) at [24]. The primary judge noted that any consequential damage claimed must be “necessary and reasonable” and discussed the case of Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 236 CLR 272: Ashell Homes (No 2) at [23]-[24].
In concluding on this point in the second judgment, Ashell Homes (No 2), the primary judge gave reasons why the appellant’s approach at trial was rejected: 25. In the present case, the approach for which the [appellant] contended was rejected because it overlooked that the obligation was to put the [respondents] in the same situation as if the contract had been performed. The [appellant] assumed that the quantum of damages to be awarded was limited to the same items and work that was included in the original contract which was done by the subsequent builder, without taking any account of the compensation that was recoverable to rectify the structural departures from the contract and for which no rectification was now possible absent demolition. 26. What was required … was not just an amount compensating [the respondents] for the cost of completing the contract (at greater expense) but an amount compensating them for the failure to construct the townhouses in accordance with the approved plans ‘so far as money can do it’. In that regard, it is relevant that the [respondents’] intention was to live in one of the townhouses and that the environmental performance of what was constructed was important to them. (emphasis added)
At a later point in the judgment, the primary judge discussed the evidence of the second respondent. The evidence of the second respondent included that the while the plans “were made compliant”, the second respondent did not have “the building or the build quality” that had been contracted for and that she was continuing to deal with regulatory issues at the time of the trial, including for non-compliant slab and footings: see Ashell Homes (No 2) at [28]. Additionally, the primary judge noted that it was important that the slabs be constructed according to the plans. A failure to construct in accordance with the original plan impacted the SIPs environmental performance: see Ashell Homes (No 2) at [29].
Overall, the primary judge concluded that the townhouses were simply not the “product for which the [respondents] had contracted”: Ashell Homes (No 2) at [30].
This led into to the key paragraphs of the judgment that are impugned in this appeal, namely paragraphs [31]-[34] as set out in full earlier in this judgment at [18]. Of particular relevance to this appeal are the following references at [33] to rectification of structural departures and diminution in amenity: … I formed the view that the invoiced amounts to complete and partially rectify were plainly recoverable, and that any sums claimed that were for inclusions not originally specified in the contract might have also been characterised as monies toward rectification of the structural departures that the defendants were presently stuck with, and partly to diminution in amenity. (emphasis added)
These references by the primary judge in the reasons to “rectification of the structural departures” and “diminution in amenity” are at the core of this appeal.
Before moving to discuss costs, the primary judge concluded the discussion of damages in Ashell Homes (No 2) by observing her “confidence” that the true measure of the respondents’ damages exceeded the respondents’ claim: 35. Given the difficulties in assessing quantum, which necessitated a broad-brush approach, I accepted the sum claimed by the [respondents] as being a reasonable estimate of the measure of their damage, mindful of the obligation of the Court to do the best it can to assess and award damages where there has been an actual loss. I did so because I was confident, indeed certain, that the true measure of the defendants’ compensation exceeded their claim. (emphasis added)
As the crux of the appeal centres on the question of a denial of procedural fairness, it is convenient at this juncture to discuss the relevant law.
Fundamentally, there are four principles that an appeal court looks to when assessing whether a denial of procedural fairness has occurred at first instance: (a) Procedural fairness is concerned with process rather than outcome. (b) Procedural fairness must be appropriate to the specific facts of the case. (c) In determining what procedural fairness requires in a specific case, regard must be had to the legal framework of the decision under review. (d) Regardless of whether the phrase “procedural fairness” or “natural justice” is used, the court is concerned with whether practical injustice has occurred. It is not a question of abstract injustice.
As referred to above, these general principles have been discussed in a number of cases: International Finance Trust; Ede; Aon; Association of Architects; VEAL at [16]. The general principles were recently usefully summarised in Manny v David Lardner Lawyers (No 4) [2024] ACTCA 12 at [258]-[259] (McWilliam J).
Additionally, the question of procedural fairness was considered by the Court of Appeal in Findex Group Pty Ltd v McKay [2023] ACTCA 36 (Findex Group). The Court of Appeal underlined at [213] that the primary judge’s approach was, in context, understandable. Nevertheless, on the facts of that case, a denial of procedural fairness was established: Findex Group at [213]-[214].
Regrettably, in the case before this Court a similar situation has ensued in the sense that the approach of the primary judge while perhaps understandable, in context, has led to a denial of procedural fairness as discussed below.
In my view, the insurmountable problem with the respondents’ submissions, in this regard, is that it does not take into account the conduct of the respondents’ case at hearing. That issue will be discussed next.
In my view, the appellant was not afforded the opportunity to address the different bases for damages adopted by the primary judge. As a matter of evidence, the conduct of the damages case before the primary judge was expressly and specifically confined to MFI-4 and Exhibit E. Consequently, the evidence on damages was accordingly confined and did not include broader aspects of the award of damages such as diminution in amenity and the potential cost of rectification of structural departures. By way of example, there was no evidence of an estimate of how much it would cost to repair the structural departures concerning the gaps between the SIPs.
The law is clear that a party may not seek to advance a matter on appeal that was for all intents and purposes abandoned at the hearing. This cannot be done relying on the amorphous retrospective basis that the matter was pleaded originally. This cannot be done in circumstances where, as here, the issue was not run at hearing. This is so in circumstances where, as here, there were no submissions nor relevant evidence adduced in support: see Water Board v Moustakas (1988) 180 CLR 491 at 497-8 (Mason CJ, Wilson, Brennan and Dawson JJ) (Moustakas).
Moustakas concerned a case where a party was not permitted to raise on appeal a matter that was not raised during the hearing at first instance: Moustakas at 496-8. The principles are germane to the situation in this case.
Relevantly, I note the following passage from Moustakas at 497-498 (Mason CJ, Wilson, Brennan and Dawson JJ) concerning conduct of the proceedings and the incongruity of attributing to a party a case that was not made: It is necessary to look to the actual conduct of the proceedings to see whether a point was or was not taken at trial, especially where a particular is equivocal. The particular in question in this case falls into that category. The allegation that the employer failed to provide adequate barriers did not indicate the purpose for which it was contended that barriers ought to have been provided. The case presented by the plaintiff, however, made it quite clear that it was being alleged that the barriers ought to have been provided to prevent traffic from crossing into the first lane. The plaintiff could have presented his case in the alternative, upon the basis that the employer was negligent in failing to provide a barrier to prevent him from straying into the second lane. The relevant particular, because of its breadth, would have allowed such a case to be put. But it was not put. The plaintiff presented his case solely on the basis that he remained in the first lane and the imprecision of the relevant particular cannot be the means of attributing to the plaintiff a case which he did not make. (emphasis added)
These observations are apposite in this appeal. A case may not be attributed to a party that was not made. In other words, as a matter of procedural fairness, a case cannot be attributed to the respondents that was not made by the respondents.
It is clear in my view that the cross-examination of the second respondent was concerned with the issue of repudiation, as such, and also focused on the question of damages as specifically limited to MFI-4 and Exhibit E. By way of example, the cross-examination of the second respondent on seeking a variation was not directed to whether the second respondent suffered any unquantified losses arising from the slab defect. The cross-examination of the second respondent was clearly directed to damages outlined in MFI-4 and Exhibit E.
The question of damages is not a concept untethered to evidence. The issue of damages requires proof. The onus is on the person claiming damages to prove both the breach of contract and the quantum of loss with “as much precision as the subject matter reasonably permitted’: Placer at [37] (Hayne J). I further note that in Dwyer v Volkswagen Group Australia Pty Ltd [2023] NSWCA 211 (Dwyer), reference was made to the decision of Placer specifically observing that, and it bears repeating in this context, that there is a relevant distinction between a case where a party cannot adduce precise evidence of what has been lost on the one hand and a case where although able to do so the evidence has not been adduced: Dwyer at [259] (Gleeson JA, Leeming and White JJA agreeing).
In my view, in the hearing before the primary judge, evidence was not adduced to support the basis upon which the primary judge awarded damages. This was not a case where guesswork or estimation was called for as was the case in Placer. This was a hearing conducted on the basis that the case on damages was limited.
This case rather than being akin to Placer as submitted by counsel for the respondents is somewhat more akin to the example provided by Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd [2006] FCAFC 188; 157 FCR 442 (Venus). Venus is an example of a denial of procedural fairness where there was no case advanced for the primary judge’s higher damages figure. In Venus, the Full Court of the Federal Court of Australia (French and Kiefel JJ, Finklestein J dissenting) allowed an appeal against an award of conversion damages under s 116 of the Copyright Act 1968 (Cth). The primary judge (Raphael FM) had departed from a baseline for damages proffered by the respondents ($68,000.00), opining that this was too generous to the appellant: Venus at [121]-[122]. French and Kiefel JJ noted that there was no case advanced for the primary judge’s higher baseline figure of $80,000.00, and its adoption was a breach of procedural fairness: Venus at [122].
Finally, it is instructive to refer to Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5; 110 NSWLR 557 (Roberts). Roberts concerned a construction dispute involving deliberate damage: Roberts at [6] (Ward P), [80] (Kirk JA and Griffiths AJA). Relevantly, the appellant in Roberts alleged a denial of procedural fairness in permitting the claim to be characterised as an action on the case in trespass, as opposed to a claim directly in trespass: Roberts at [83](1).
It is noted that the majority in obiter, (Kirk JA and Griffiths AJA, Ward P dissenting) in Roberts proceeded to consider and dismiss the procedural fairness ground.
It was observed that, while there was room to criticise both parties for not stating the relevant issues more clearly in their pleadings (see Roberts at [174]), a change in “legal label” would have neither altered the fact that the damages sought by the respondent were available nor altered “in any significant respect the nature of the claim of rectification damages by the respondent” : Roberts at [173] , [175].
The majority noted that the issue of the appropriate measure of damages was raised, and further written submissions from both parties were received post-hearing: Roberts at [150]. Significantly, these submissions were received after the purported change in nature of the respondent’s claim were identified and ventilated in closing submissions: Roberts at [163]-[171].
In this case, had the issue of potentially broader damages (broader than the limited basis of MFI-4 and Exhibit E) been raised at an earlier time in the proceedings by the primary judge and further submissions sought, a denial of procedural fairness may not have arisen.
Thus as reflected in the reasons above, the primary judge ordered that each party would pay their own costs from 22 November 2022, being the date Ashell Homes was decided: Ashell Homes (No 2) at [64](5).
In the event of the appeal being upheld, the appellant submitted that the primary judge’s costs order should be set aside. In the alternative, counsel for the appellant sought that this Court order that the respondents pay 50% of the appellant’s costs prior to 22 November 2022 on a party-to-party basis, in addition to the costs of this appeal.
Counsel for the appellant submitted that the respondents ought to bear the costs of the appeal. Counsel also submitted that the order for parties to bear their own costs from 22 November 2022 would also need to be set aside as the issue of costs is now again live upon remittal to the primary judge.
In response, counsel for the respondents submitted that a 50% award of costs would be disproportionate. Counsel noted that the appellant’s primary claim to be paid further amounts under the contract failed, with the respondents’ successfully defeating the appellant’s contractual claim and successfully demonstrating repudiatory conduct.
Counsel for the respondents submitted that the award of costs to the appellant should be reduced to a “percentage reflecting the relatively insignificant success for just the conversion claim”.
Ultimately, counsel for the respondents submitted that consideration of costs should occur after the primary judge has reassessed the damages payable to the respondents upon remitter of this matter.
For reasons expressed by Mossop and Baker JJ above at [12], there should be an order that the respondents’ are to pay the appellant’s costs of this appeal and further that the costs of the appeal should not be assessed until the conclusion of the proceedings in the Supreme Court on remitter.