Brirek Industries Pty Ltd v McKenzie Group Consulting

PRACTICE & PROCEDURE - No obligation on trial judge to examine material tendered but not referred to in evidence or submissions.

APPEAL - Damages for breach of contract reformulated on appeal - Whether order for remittal should be made - Reformulation a significant departure from case as pleaded and run - Unsatisfactory and inherently unfair to respondent - Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658, Banque Commercial SA, en liq v Akil Holdings Ltd (1990) 169 CLR 279, Perestrello E Companhia Limitada v United Paint Co Ltd [1969] 1 WLR 570 applied - No remittal - Appeal dismissed.

COSTS - Costs of appeal - Both parties succeeded to some extent - Critical issues on both sides raised late - Each party bear own costs of appeal.

COSTS - Costs of trial - Outcome of trial unaltered - Calderbank offer rejected - Solicitor/client costs ordered by trial judge - Whether further cause of action added during the trial should be taken into account in assessing reasonableness of rejection of offer - Time at which reasonableness to be assessed - Order for costs maintained - Leave to appeal costs order refused.

1 On 6 August 2014, we published our reasons in Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd.[1] Although the appellant failed to establish on appeal that the trial judge had erred in dismissing its claim under the 2002 contract and its claim in negligence, we found the trial judge was wrong to hold that the claims made in reliance upon the 2004 contract were statute-barred. Unfortunately the trial judge, having made no findings as to breach of the 2004 contract or as to damages arising therefrom, had retired by the time of the hearing of the appeal. We therefore sought and received further written and oral submissions from the parties in order to determine whether the appeal should be allowed and if so whether this Court could determine the questions of breach and damage or whether the matter should be remitted to the County Court for further hearing. At a hearing on 23 June we advised the parties that we intended to dismiss the appeal and received submissions from the parties as to the question of the costs of the trial and the appeal. What follows are our reasons why the appeal must be dismissed and our reasons as to the costs of the trial and appeal.

2 By a writ filed on 5 December 2008 Brirek Industries Pty Ltd ('Brirek') commenced a proceeding in the County Court against McKenzie Group Consulting (Vic) Pty Ltd ('McKenzie'). Brirek was the owner and developer of a property in Southbank. Giuseppe Paolo Finocchiaro is one of the directors of Brirek. McKenzie carried on business as a private building surveyor as defined by s 3 of the Building Act 1993 ('the Act'). In the proceeding, Brirek alleged that McKenzie had been in breach of a contract made in late 2002 whereby McKenzie was to provide building surveyor services to it. It also contended that McKenzie had breached a duty of care in tort to exercise due care, skill and diligence. The matter came on for trial in 2010. Late in the trial, on 2 September 2010, the Court gave Brirek leave to amend its statement of claim to plead, in the alternative, that McKenzie had breached a contract made in April 2004 on the same terms as the 2002 contract. McKenzie admitted the existence of the 2004 contract, but contended that any claim in respect of it was barred by limitation. At trial, Brirek did not contend that the doctrine of 'relation back' applied so that its amendments would speak from the date of the writ.

3 The trial judge held that no contract had arisen between Brirek and McKenzie in 2002. He also held that any alleged breaches of the 2004 contract were barred by limitation if they arose before 2 September 2004 (six years before the amendment). As to breaches after 2 September 2004, he said:

It is clear that over this period there was little activity on the defendant's part with respect to the plaintiff. In final submissions, the only potential breach referred to during this period was an alleged breach of an ongoing obligation on the part of the defendant to advise the plaintiff that there was no planning permit in force. Clearly, the planning permit had lapsed prior to the April 2004 contract being entered into.

The terms of the April 2004 contract, which was admitted by the defendant, are far from clear. I agree with the submission of [counsel for McKenzie] that the April 2004 contract was constituted by the lodging of the application for a building permit in April 2004 by the plaintiff with the defendant, and the acceptance by the defendant of the obligation to issue a permit which it did in issuing Stage 6 and Stage 7 Building Permits before the period under review. It is a question then whether it is appropriate to imply a term that there was an obligation imposed upon the defendant to advise the plaintiff that a planning permit was not in force. In my view, on the basis of the principles outlined in BP Refinery (Westernport) Pty Ltd v Shire of Hastings and particularly whether 'it must be necessary to give business efficacy to the contract' and 'it must be so obvious that "it goes without saying"', it would be inappropriate to imply such a term. The plaintiff had a copy of the Planning Permit - see extract above from letter of 6 October 2003 from Abbott Stillman & Wilson to Bailey Heights. Finocchiaro was an experienced builder and developer, and as such aware of the need for a planning permit and accustomed to dealing with planning issues. Further, Bayles had a copy of all relevant documentation and could have brought the provisions of the Planning Permit to Finocchiaro's attention when doing his exhaustive review of the defendant's documentation.

I conclude that the defendant did not breach the April 2004 agreement.[2]

4 The trial judge made no findings as to whether there were implied terms in the April 2004 contract that McKenzie carry out its services as a building surveyor with due skill and care and comply with its statutory obligations in the period prior to the expiration of the limitation period. If such terms were to be implied, the trial judge also made no findings as to whether McKenzie was in breach of those implied terms, or as to any loss or damage as a result. Amongst other things, Brirek claimed the implied terms were breached as McKenzie had issued the stage 6 and 7 building permits after the planning permit had expired and had then failed to inform Brirek of that fact. The trial judge did find that there was no implied term of an ongoing obligation by McKenzie to advise Brirek between 2 September 2004 and September 2005 that there was no longer a valid planning permit on foot. This was the period between when the judge had found the 2004 contract claim was not statute-barred and when he had found McKenzie's contract had been terminated. Finally, the judge held that McKenzie did not owe Brirek a duty of care in tort with respect to the particular loss or damage for which Brirek claimed damages. As a result, the trial judge dismissed all Brirek's claims.

5 On 6 May 2011, the judge made the following orders in respect of costs:

(i) The Plaintiff pay the Defendant's costs to be taxed on a party and party basis on Scale D up to and including 4 May 2010 and thereafter on a solicitor and client basis;

(ii) I vacate the costs order made on 23 August 2010 and order in lieu:

'The Plaintiff to pay the Defendant's costs of 23 August 2010 to be taxed on a solicitor and client basis.'

(iii) The Plaintiff pay the costs of the Plaintiff's amendments on 2 September 2010 on a solicitor and client basis.

(iv) The Plaintiff is to pay or bear the costs of the preparation of a transcript of the proceedings and for preparation, service and filing of the Court Books;

(v) I certify for the Defendant's counsel's fees at a total sum of $188,250.

(vi) Liberty to apply with respect to costs.

6 Brirek appealed to this Court from the trial judge's rejection of its claims.

7 McKenzie filed a notice of contention in the appeal in which it said that the decision of the trial judge should be affirmed on grounds that were not decided by him. Under the heading 'Grounds', the notice said:

The respondent submits that it would have been open to, and appropriate for, the learned trial judge to find on the evidence that: -

(a) no breach on the part of the respondent caused the appellant to suffer any loss or damage;

(b) the appellant did not suffer any loss or damage by reason of the delay in the construction of Lot 3;

(c) any delay in the construction of Lot 3 was caused by the acts or omissions of the appellant; and

(d) any loss or damage which was suffered by the appellant was caused by the appellant's own acts or omissions.

The issues of causation depended upon factual matters that were in dispute at trial and which depended upon findings as to credibility. At the commencement of the hearing of the appeal the parties acknowledged that as there were no findings by the trial judge as to these matters, it was not possible for this Court to make any determination.

8 In our Reasons we rejected the grounds of Brirek's appeal on the issues of whether there was a contract between itself and McKenzie in 2002 and whether McKenzie owed Brirek a duty of care in tort with respect to the loss or damage for which it claimed damages. However, during the course of the appeal, we gave leave to Brirek to contend that the trial judge should have applied the doctrine of 'relation back' to the amendment which introduced the claim under the 2004 contract, and we then held that the trial judge had erred in holding that claims in relation to the 2004 contract arising prior to 2 September 2004 were barred by limitation. We also held that the trial judge had erred in his approach to the question whether there was an implied term in that 2004 contract.

In its notice of contention, McKenzie asserts that the decision in its favour should be upheld even if any of the grounds of appeal are made out on the basis that, in substance, Brirek has proved no loss. The submissions made in relation to the issues raised in the notice of contention address the entire sequence of events and the claims made by Brirek in relation to all of the building permits.

It is now necessary for the parties to address the notice of contention by reference to the only claims which might now be established. Our conclusions mean that the only claims made by Brirek which remain open to be established are its contractual claims based upon alleged implied terms. These claims arise only after Brirek engaged McKenzie in April 2004. Only permits 6 and 7 were issued after that engagement.

The implied terms as pleaded were not said to be in controversy on the hearing of the appeal. The trial judge has found that permits 6 and 7 were issued in contravention of the Building Act. In those circumstances, damages may be the only matter in dispute.

We will hear the parties' submissions on the further disposition of the appeal in the light of these reasons.[3]

10 The matter was referred to an Associate Judge for mediation, but it did not settle.

11 In the circumstances, it has become necessary to resolve whether this Court is able to dispose of the whole matter or whether it is necessary to remit the matter to the County Court for further hearing. To this end, this Court made a series of directions, received written submissions and heard the parties in the manner described below.

12 On 24 November 2014, the Registry of this Court directed the parties 'to settle a list of issues to be determined by the Court or, to the extent that agreement is not possible, a list of those issues that each party considers necessary to be determined'. The parties were also asked 'to identify what material they will rely upon in a further hearing.'

13 On 25 November 2014, McKenzie identified the following issues as requiring to be determined:

1. Whether on the evidence Brirek proved that it suffered any loss and damage beyond nominal damage for breach of the 2004 contract?
2. Whether in the light of the Judgment, the Court of Appeal should grant leave to appeal from the order of the Trial Judge as to costs and vary any order for costs made by the Trial Judge?

3. Which party should bear the costs of the appeal?

1. Whether a special costs order should be made in relation to any costs thrown away in the preparation of the Appeal Book.

At the same time, McKenzie provided a list of materials which it said it would rely upon in adjudication of those issues. McKenzie accepted that the issues of causation could not be resolved on appeal, but now drew attention to the question whether on the case as pleaded and conducted, and upon the evidence led, Brirek could establish anything more than nominal damages.

14 On 26 November 2014, Brirek in substance told the Court that it agrees with the issues raised as described by McKenzie. However, Brirek provided two lists of further materials which it said should be considered. The first list related to material which was contained in the 'County Court book below' and the second list related to material contained in the appeal book. As later emerged, it was Brirek's intention to rely upon this material in order to reformulate its claim for damage.

15 On 5 December 2014, the Court listed the matter for further hearing on 17 December 2014. As the trial judge had retired, the parties were informed that there would be a directions hearing 'in respect of issue 1, the question to be addressed being whether the Court is able to determine this issue or whether it should be remitted.' The parties were informed that there would in due course be a substantive hearing in relation to issues 2, 3 and 4. The parties were directed to file an outline of submissions in relation to issues 2, 3 and 4. Finally, the parties were directed 'to provide an agreed list of materials (as enumerated in [McKenzie's] list of material to be relied upon) as are relevant for the determination of those issues.'

16 On 9 December 2014, McKenzie filed its written submissions in respect of the first issue and on 12 December 2014 filed its written submissions in relation to issues 2, 3 and 4.

17 On 15 December 2014, Brirek filed its written submissions in relation to all four issues.

18 At the hearing on 18 December 2014, we made orders which included requiring the appellant to file submissions as to:

(a) what delay in the construction of Lot 3 is attributable to the breach of the April 2004 contract;

(b) what loss or damage identified in the Payne report of 9 August 2010 is attributable to that delay; and

(c) identification of the evidence before the trial judge by reference to the schedules of evidence prepared by the appellant dated 26 November 2014 or by some other means of identification that establishes the matters in (a) and (b) hereof.

19 In its Notice of Contention McKenzie had asserted that Brirek had failed to establish that any breach by McKenzie of the 2004 contract was causative of Brirek's loss or damage, that any loss or damage was not caused by delay, and that any delay or loss or damage was caused by Brirek itself. As we have pointed out, the trial judge made no findings as to any of these matters and we could not make such findings. The parties accepted that those matters would have to be remitted to the County Court if the appeal were otherwise allowed. For present purposes we shall assume that each of these causation questions might be answered in Brirek's favour.

20 The issue now before us is whether Brirek's claim under the 2004 contract for damages should be remitted. It is necessary to first review some of the events at trial relevant to the 2004 contractual claim.

Events at trial relevant to the 2004 contractual claim

21 The trial ran for almost 30 days in the County Court. From early on in the hearing, the trial judge was troubled about the assessment of damages and asked how Brirek proposed to prove its loss.[4] Counsel for McKenzie made it plain that proof of loss was in controversy.[5] Eventually, on 1 September 2010, Brirek's legal representative told the judge 'the figures in Mr Payne's report are the figures that my client will be seeking'.[6] Brirek then closed its case.[7] On the following day, Brirek applied to amend its statement of claim.[8] First, it applied to amend in order to allege, as an alternative to the 2002 contract, that a contract arose between itself and McKenzie in April 2004. Secondly, it applied to strike out its existing particulars of loss and substitute for them the following:

We will refer to the report relied upon as 'the Payne Report'.

22 The trial judge gave Brirek leave to amend its statement of claim to allege the April 2004 contract and to amend its particulars of loss.[9]

23 On 1 October 2010, Brirek filed its written final submissions. At the end of those submissions, it said: 'Brirek's loss has been carefully described in the evidence of Bryan Payne'.

24 During final submissions the trial judge raised with the legal representative appearing for Brirek the following query: 'supposing I conclude that there might be a claim under the April 2004 contract, what use are Mr Payne's figures to me then?'[10] Brirek's legal representative responded:

Well, they wouldn't be as useful as using the neighbour's sale price of 1.55 because that sold in July 04. So that would be a more useful analysis. I've looked at that. I've done a costing of that, Your Honour, and I can hand you up that. It's a one-page calculation, Your Honour. Otherwise, if we get to that point, you might invite the parties to try and reach agreement about an amount.[11]

In the context it was plain enough that Brirek's legal representative was conceding that the Payne Report did not particularise, let alone establish, any loss arising from a breach of an implied term in the 2004 contract. The claim referred to, based on the 'neighbour's sale price', was not put or relied upon before us.

25 In its written submissions dated 13 February 2015, Brirek said that McKenzie's breach of the April 2004 contract caused delay of approximately two years, sounding in damages. Brirek said that McKenzie, when it issued the stage 6 and 7 building permits, owed Brirek obligations to exercise all due care, skill and diligence and to comply with its statutory duties and obligations pursuant to relevant legislation. Brirek said that McKenzie had breached those obligations. It referred in particular to McKenzie's failure to warn Brirek of the impending expiry of the planning permit and, then, the failure to ensure that a planning permit was in existence prior to issuing a building permit or extension thereto. It submitted that McKenzie's failure to act in compliance with its obligations continued until it was replaced as the relevant building surveyor in November 2005.

26 Brirek submitted that it was not until 30 May 2004 that Brirek identified deficiencies in the civil and architectural drawings which had to be rectified before the issue of a building permit. Brirek said that it was not until July 2005 that the fact that the planning permit had already expired came to light. It was said that all that could be diligently done to progress the project was done: in August 2006, a new planning permit was issued; on 11 November 2006, a final new planning permit was issued; on 17 April 2007, a full building permit was issued; on 11 October 2007, a certificate of final inspection was issued; on 3 March 2008, the property was sold; and on 2 July 2008, settlement occurred.

27 Brirek said that McKenzie's breaches caused delay which caused it loss. The test for damages, Brirek submitted, was 'the measure of money to put the plaintiff in the position it would have been in had the contract been properly performed'. Brirek summarised the events that would have occurred if McKenzie had discharged its contractual obligations promptly in April 2004 as follows:

(a) the planning permit application would have been made straight away. As events actually unfolded, it took 16 months from application to get a new one, but it is not unreasonable to expect that, with McKenzie's proper input, it would have taken no longer than 12 months. [April 2005];

(b) also straight away, McKenzie would have required civil drawings to form part of the building permit approved documents. As events actually unfolded, it took Finocchiaro, unassisted by McKenzie despite leaving messages with it, from May 2004 to October 2006 to reach a concluded position with the Council. Had McKenzie acted properly in April 2004 and explained fully the problem to Council (as it would have been able to as the surveyor), it is not unreasonable to expect the civil drawing and engineering plan deficiencies to have been satisfactorily addressed within 12 months. [April 2005];

(c) once the planning permit had been issued, there would be building permit plans required to be drawn taking perhaps two months due to the need to consult engineers and the building surveyor. [June 2005];

(d) the fire safety issue would have been addressed in the single building permit to be issued; there is no need to add it to a second permit months later; and

(e) as events actually unfolded, Brirek obtained a full building permit in April 2007 and completed construction October 2007. It is reasonable to expect that the same time-frame, namely four months, would have applied in 2005. [October 2005].[12]

28 In total, Brirek said that the delays caused by McKenzie's contractual breaches amounted to approximately two years.

29 It was said that it was acceptable to take a 'broad brush' approach to damages. As to quantification of those damages, Brirek submitted:

It had been Finocchiaro's intention to rent out the property to fund his retirement. Had the certificate of final inspection been issued earlier, Brirek could have rented out the property until it finally divested itself of the property. The value of rent for Lot 3 was estimated by Armstrong Biggs, valuers, at approximately $100,000.00 per annum (this report was in the court book below not in the AB). Rent could have been earned for the period of October 2005 to July 2008 and onwards. Interest on borrowed funds would have been paid during that period. Payne sets out the annual interest costs in his report, and they are approximately $80,000.00 per annum over the relevant period. This comes to a total lost profit of about $55,000.00 for the period of October 2005 to July 2008. However, the period for which the property would have been rented out would have been much longer had Brirek not been placed in such difficult financial circumstances. In fact the Appellant during the delay period made no profit but merely paid out interest of some $160,000. This means the Appellant's loss for the 2 year delay period was $160,000 plus $55,000 = $215,000 as at December 2007. Alternatively, Finocchiaro could have sold the property as early as October 2005. Having been divested of the property, he would have repaid his debts and not incurred interest costs for the period of October 2005 to July 2008: a total loss of approximately $220,000.00.

Further, McKenzie had been paid to provide building surveying services from April 2004 onwards and failed to provide them. Its services were terminated in November 2005. Alternative surveyors' services were paid for and were paid to BSV and Phillip Chun. Some of these expenses are also set out in Payne's report.

31 We will call this articulation of loss 'the reformulated claim'. On any view, it is not the claim particularised in Brirek's pleading in its final form.

32 In the course of oral submissions before us on 5 June 2015 it was put to Brirek's counsel that, at trial, Brirek's legal representative had acknowledged that the Payne Report did not address its claim for damages under the 2004 contract. Importantly, it was accepted on appeal that the trial judge had not been invited to assess damages in the manner now articulated in the reformulated claim. However, it was not conceded that, had the judge made findings along the lines of the reformulated claim, there would have been a denial of procedural fairness to McKenzie in so far as any such findings would not have been made on the basis of the particulars pleaded or the submissions made by Brirek at trial. Brirek contended that, notwithstanding that no submission had been addressed to the trial judge on the subject, the judge should have found that there was material, embedded either in the Payne Report or in other material before him (including bank documents revealing interest charges, a report prepared by Armstrong Briggs dated 3 February 2003, and a report by Carter Humphries dated 4 May 2010), upon which he should have made the necessary assessment of loss or damage. Brirek also submitted that the trial judge was under an obligation to identify any gaps in the evidence and require the parties to address him on the subject. We observe that that is precisely what the trial judge did but he received no submission that was of any assistance.

33 The Court asked counsel for Brirek what his client's position would be if remittal were ordered on the condition that Brirek pay all the costs of the first trial. After taking instructions, we were told that it was very unlikely Brirek would be willing to pursue a re-trial on that basis as the costs of the first trial, which Brirek has already paid, would significantly exceed any damages likely to be recovered.

34 In both its written and oral submissions, McKenzie conceded that it had breached an implied term in the 2004 contract by issuing the stage 6 and 7 building permits when the planning permit had lapsed.

35 In its written submissions dated 5 March 2015 McKenzie submitted that Brirek now sought to argue a case on damages that had been neither pleaded nor run at trial. The loss or damage now put as the reformulated claim did not reflect the pleaded particulars of loss or damage which were expressly confined to the Payne Report.

36 McKenzie also submitted that any breach as alleged by Brirek did not cause delay and that the mere fact of delay did not establish loss. On the contrary, in a rising market, it had said at trial that delay can be beneficial.

37 McKenzie said that the issue of the stage 6 and stage 7 building permits (notwithstanding the fact that the planning permit had expired) did not prevent Brirek from completing the construction of Lot 3 in 2004. In July 2004, Brirek had engaged agents to sell Lot 3 on an 'as is' basis. In October 2004, it had sought to raise funds from a bank so that it could complete the project and, in doing so, forwarded copies of all the building permits to the bank. Thus, it was not the fact that the planning permit had lapsed that prevented Brirek from proceeding to use the building permits to complete Lot 3. McKenzie denied that there were deficiencies in the documentation and that, even if there were, Brirek was not relying upon McKenzie to advise it whether or not the documentation contained deficiencies. Mr Finocchiaro had been aware since at least August or September 2003 that there were deficiencies in the documents and had retained another firm to give him advice in respect of them.

38 McKenzie submitted that Brirek had never pleaded that it had suffered any specific delay by reason of McKenzie issuing the stage 6 and 7 building permits. On the contrary, McKenzie said, there was no such delay.

39 We have already referred to our inability to determine the causation issues.

40 McKenzie submitted that no loss or damage had been identified in the Payne Report that was attributable to the delay as now alleged by Brirek. McKenzie submitted:

Brirek sought four alternative sums for its loss and damage in the County Court: $1,751,560; $1,338,183; $1,195,801 or $707,879. 26 When asked at the hearing in the Court of Appeal on 18 December 2014 to identify its loss from the breach of the 2004 contract its counsel on instructions identified $1.1m as the loss being claimed. In Brirek's submissions it states its loss as $215,000 (if the property had been rented prior to sale) or 'approximately $220,000' (if sold at an earlier date than was in fact the case).

None of the alleged losses presently claimed appear in the Payne report. The methodology adopted in the Payne report is not of any probative value. Scenario 1 is premised upon a sale of the property in December 2003, before the 2004 contract was entered into. Scenario 2 assumes a total cost of construction of $450,000, a theoretical figure (disputed at trial) bearing no relationship to the actual cost of the construction. It also assumes completion of the development by December 2003. Scenario 3 is impossible to understand. It includes such items as the Brirek legal costs of the Bailey Heights proceedings and Mr Finocchiaro's claim for the alleged opportunity cost of his own time on the project from December 2003.

In section 4.1 Mr Payne has assumed that the project was financed solely by debt capital. This is contrary to the evidence.[13]

The Payne report assumes that rental would be earned by leasing the completed building. However no evidence was given of the likelihood of renting the property at any time between 2004 and its sale in 2008, nor of the likely profit from any such rental (after allowing for expenses) during any particular two year period. Given that the 'delay' now claimed of two years loss of rent has not been identified, it is not possible (and was not at the time of the trial possible) to calculate the alleged loss.

41 During oral submissions, McKenzie contended that it was simply impossible to deploy the material contained in the Payne Report in aid of any assessment of damages arising from a breach of an implied term in the 2004 contract. The Payne Report was premised upon three scenarios. None of the scenarios identified any 'delay loss'; they all involved a loss on the project. Further, the references to interest in the report were notional and not actual. The report assumed that Brirek would be using debt capital throughout the construction phase whereas in its early stages Mr Finocchiaro was able to fund the project out of his own resources. It was not until well after the project commenced that he approached lending institutions (such as Perpetual Investments and the National Australia Bank) for finance.

42 Where a plaintiff seeks damages for breach of contract, the onus is upon it to: (a) establish the terms of the contract; (b) establish that one or other of those terms was breached; (c) establish that that breach or those breaches caused loss or damage; and (d) adduce evidence that will enable the court to assess damages. Unless a party is able to prove its damages, it is entitled only to nominal damages.

43 It is true that the fact that there are difficulties in their assessment does not prevent a court from determining the question of damages. A court is entitled to take a broad brush approach. In Fink v Fink,[14] Dixon and McTiernan JJ said:

Where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat the only remedy it provided for breach of contract, an award of damages.[15]

44 More recently, in JLW (Vic) Pty Ltd v Tsiloglou,[16] Brooking J said:

A plaintiff cannot recover substantial as opposed to nominal damages unless he proves both the fact and the amount of damage: The Commonwealth v Amann Aviation Pty Ltd. If he proves the fact of the loss but does not call the necessary evidence as to its amount he cannot be awarded substantial damages (McGregor on Damages, 14th ed, at 190 and 222): he must put the tribunal in the position of being able to quantify in money the damage he has suffered: Watts v Rake. So juries in personal injuries cases are often directed that the plaintiff must prove to their satisfaction what he has suffered and will suffer and what is fair and reasonable compensation in respect of that. It is often said that the amount of the damage must be proved with certainty, but this only means as much 'certainty' as is reasonable in the circumstances: Ratcliffe v Evans. Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can: Biggin and Co Ltd v Permanite Ltd; The Commonwealth v Amann Aviation Pty Ltd.[17]

The fact that want of precision will not defeat a claim does not dispense with the need for a plaintiff to prove the fact of loss.

45 The relief which may be granted to a plaintiff is confined to that available on the pleadings, unless the parties choose to conduct the case on a different basis. This is essential so as to ensure procedural fairness, as emphasised by Mason CJ and Gaudron J in Banque Commerciale SA, en liq v Akhil Holdings Ltd:

The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In liq), per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, eg, Browne v Dunn; Mount Oxide Mines.[18]

46 Fairness also dictates that damages of the kind sought under the reformulated claim (consequential loss by reason of delay) must be sufficiently particularised so as to ensure that the defendant is warned of the case put against it. Lord Donovan in Perestrello E Companhia Limitada v United Paint Co Ltd said:

Accordingly, if a plaintiff has suffered damage of a kind which is not the necessary and immediate consequence of the wrongful act, he must warn the defendant in the pleadings that the compensation claimed will extend to this damage, thus showing the defendant the case he has to meet and assisting him in computing a payment into court.[19]

47 Permitting a plaintiff 'late in the day' to put damages upon an 'alternative scenario' to that pleaded can produce an 'unsatisfactory and inherently unfair state of affairs'.[20]

Analysis: should the 2004 contractual claim be remitted?

48 The reformulated claim seeks loss of rental income and interest incurred over a two-year period of alleged delay. The first question is whether the Payne Report, which constitutes the pleaded claim, addresses that subject.

49 The content of the Payne Report is summarised in [60]-[61] of the Reasons. It makes use of three scenarios: the first two scenarios are hypothetical analyses of the entire project; the third scenario is premised upon what actually happened but adopting certain assumptions. The report arrives at a figure for loss or damage through comparing scenario one with scenario three on the one hand, and scenario two with three on the other. The calculations are calculations of loss of profit on the entire development. There is no calculation of loss due to any period of delay.

50 Neither of the hypothetical scenarios in the Payne Report relate to the point in time at which loss or damage must be measured for present purposes (post-April 2004). Both scenarios assume completion of the project in December 2003, before the 2004 contract was made.

51 Neither of the hypothetical scenarios relate to the facts as they allegedly would have been had McKenzie not breached the 2004 contract: most relevantly, that McKenzie would have advised Brirek in April 2004 that the planning permit had lapsed and either McKenzie or Brirek would then have addressed that issue.

52 The only figures relied upon from the 'actual' scenario (scenario 3) in the reformulated claim, being the accrued interest, are assumed figures which do not reflect what in fact occurred. The Payne Report figures for interest are not the amounts in fact incurred.

53 In our opinion, as the trial judge observed, and as Brirek conceded at trial and all but conceded on appeal, the Payne Report does not contain material upon which a judge could make any assessment of the loss or damage suffered by Brirek as a result of McKenzie's breach of an implied term of the 2004 contract. There is no point in remitting the 2004 contractual claim as pleaded. It is bound to fail.

54 The reformulated claim contended for by Brirek on the appeal is not the claim pleaded or particularised. It is not the claim run at trial either. In fact, no submissions in support of such a claim were made even after the trial judge had pointed out that he could not see how the claim particularised could apply to the claim made for breach of the 2004 contract.

55 Brirek now says the trial judge should have gone through the evidence and (presumably) identified and calculated the reformulated claim himself. This is untenable. A trial judge is under no obligation to search through material that has been tendered but which has not been referred to during the course of the evidence or in submissions in order to see whether any of it could support the party's pleaded case, let alone one that had not been pleaded. Had the judge done as the appellant now suggests, the judge would not only have embarked upon a course to which the appellant was not entitled but it would have been inherently unfair to McKenzie.

56 Assuming, as we do for this purpose, that causation, which is contested, could be established, remittal could only be ordered if Brirek was to be permitted to amend and to advance the reformulated claim rather than the claim as pleaded and as run at the trial. It seems to us that this would almost certainly require a re-opening of the evidence. It would certainly require a very extensive re-evaluation of the evidence and detailed submissions on difficult issues, including issues of credit. This would have to be undertaken by someone other than the trial judge who presided over the very protracted proceeding.

57 In our view, permitting the appellant to amend and advance the reformulated claim would be unsatisfactory and inherently unfair to McKenzie for the following reasons.

1. The pleaded claim was introduced after Brirek had already closed its case. It was introduced in circumstances where loss and damage was known to be in issue.
2. Brirek's legal representative was challenged by the trial judge in final submissions on the application of the particularised claim to the 2004 contract. He made no submission in support of any version of the reformulated claim or any other alternative position which is relevant.
3. The reformulated claim constitutes a significant departure from the case as pleaded and as conducted.

58 The 2004 contract claim should not be remitted. The pleaded case is bound to fail. The reformulated claim should not be permitted to be advanced.

59 Given that its claims under the 2002 contract and in negligence have been dismissed, the appeal should now be dismissed.

60 On 23 June 2015 a further hearing was held. After confirming with counsel for Brirek his client's position in relation to remittal on the basis that Brirek pay all the costs of the first trial, an issue to which we have referred above, the substance of the conclusion we have reached in these reasons was put to counsel for both parties and they were invited to make submissions in relation to the costs of the appeal and in relation to the orders made as to costs of the trial on that basis.

61 Brirek had sought leave by an amended summons filed 9 December 2011 to appeal against the costs orders made in the County Court on 6 May 2011, which we have set out above. The judge in the County Court delivered detailed written reasons for the costs orders which he made.[21]

62 In relation to costs of the appeal, counsel on behalf of McKenzie submitted that the appellant should pay the costs, and that the appellant should pay those costs on a solicitor/client basis. It was submitted that the appeal had been futile and a waste of time. It was submitted that the only issues upon which the appellant had been successful were matters which had not been raised below and which had not been raised on the appeal either until a very late stage. Counsel for McKenzie also relied upon an offer of compromise which had been served on Brirek on 4 May 2010 and which had been rejected by Brirek on 10 May 2010. The offer was one in which McKenzie offered to pay Brirek $25,000 plus costs. The rejection of this offer was the ground upon which the trial judge had ordered Brirek to pay McKenzie's costs on a solicitor/client basis after 4 May 2010.

63 In relation to costs of the appeal, counsel on behalf of Brirek submitted that Brirek would have succeeded on the appeal but for the contention concerning the loss and damage which it had pleaded for breaches of the 2004 contract, which was a matter McKenzie had only raised late in the appeal proceeding. Whilst McKenzie's Notice of Contention had raised causation issues in relation to loss and damage, the issue as to whether there was any material in the Payne report which could be a basis for recover of loss and damage in relation to the 2004 contract breaches had not been raised until McKenzie's written statement of outstanding issues dated 25 November 2014. It was submitted that Brirek had succeeded on the issues raised in the appeal concerning the limitation statutes and it had also established error by the trial judge in relation to his analysis of the 2004 contract claim. It was submitted that Brirek should not have to pay McKenzie's costs of the appeal notwithstanding that the appeal would be dismissed. Brirek submitted that the determination of the costs of the appeal ought to be separate from the determination of the costs of the trial.

Submissions made on costs orders of the trial judge

64 The trial judge made the orders which he did as to the costs of the trial because Brirek's claims had all failed. He made an order for costs on a solicitor/client basis after 4 May 2010 because of the offer of compromise which had been made, to which we have referred above. The trial judge assessed the significance of the rejection of that offer by reference to the six factors set out in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[22] He found that Brirek had been unreasonable in not accepting the offer made.[23] The trial judge rejected submissions made on behalf of McKenzie that solicitor/client costs should be ordered on the basis that the plaintiff's claims had been misconceived,[24] and on the basis of the conduct of the litigation by McKenzie.[25]

65 On behalf of Brirek, it was submitted that, as the trial judge's analysis of the 2004 contract claim had been revealed to be incorrect, his assessment of whether the refusal of the offer of compromise was unreasonable must be re-opened. It was submitted that the position was to be assessed as matter had stood on 10 May 2010 when the offer was rejected. It was submitted that the plaintiff's case was not baseless and that the amount offered had been very low. Counsel for Brirek conceded that at that point no claim based on the 2004 contract had been pleaded.

66 On behalf of McKenzie, it was submitted that the orders as to the costs of the trial made by the trial judge should be maintained. It was submitted that whilst the grounds upon which Brirek failed now differ from those found by the trial judge, the eventual outcome is the same. At the time the offer of compromise was made and rejected the 2004 contract claim had not been pleaded or raised and, in any event, as matters have transpired, that claim has also failed because the pleaded loss could not be established. It was submitted that this was a clear case where the offer of compromise represented a better outcome than that eventually achieved by the plaintiff and that the cost consequences as ordered by the trial judge should be maintained.

67 McKenzie also referred to and relied upon a further offer of compromise made on 30 May 2012. McKenzie offered to accept $70,000 in payment of its costs on the basis the appeal was withdrawn.

68 In relation to the costs of the appeal it seems to us that the relevant matters are as follows.

(a) Brirek did succeed on their grounds of appeal concerning the 2004 contract, but it did so relying upon matters that were not raised before the trial judge and which were not raised in the appeal either until a late stage.

(b) McKenzie succeeded on most of the issues raised by Brirek in the appeal. But Brirek would nevertheless have succeeded on the appeal but for the issue raised by McKenzie following our Reasons, namely that the loss and damage pleaded could not be established.

(c) As to the further offer of compromise made on 30 May 2012, until it is decided who should pay those costs, it cannot be said the appellant has failed to achieve a more favourable outcome than that represented by the offer.

(d) The offer of compromise made on 4 May 2010 is not determinative of what should be ordered as to the costs of the appeal. The appeal raised issues not raised in the proceeding below. Some were determined in Brirek's favour and some in McKenzie's favour. Ultimately, Brirek failed to obtain relief notwithstanding that it established error.

69 Absent consideration of the offers of compromise, our conclusion is that each party should bear their own costs of the appeal.

70 The offer made in May 2012 does not alter this conclusion as it cannot be said that the appellant has obtained a less favourable outcome than that offered.

71 The offer made May 2010 also does not lead us to alter our conclusion as to the costs of the appeal. As is now clear, after judgment Brirek was faced with a decision which contained errors. It brought an appeal and those errors were corrected. It failed on the appeal nevertheless because of an issue raised by McKenzie late in the appeal and which the trial judge had not addressed. In the unusual circumstances of this appeal, we do not think it appropriate to add to the costs penalty Brirek has already suffered. Errors were made. The appeal has corrected them.

72 Each party will be ordered to bear its own costs of the appeal.

73 As matters have transpired, Brirek's proceeding, including its claim in relation to the 2004 contract, ought to have failed, although not for the reasons given by the trial judge. The trial judge made errors in rejecting the 2004 contract claim for the reasons which he did. But if he had not made those errors he ought still to have dismissed that claim because the loss and damage pleaded was not tenable, and no other relevant case for loss and damage was contended for before him. If the trial judge had decided the matter in accordance with our reasons, Brirek's claim would still have been dismissed. It follows that the order that it should bear the costs of the trial should remain.

74 It remains to consider whether the order for payment on a solicitor/client costs should be retained. Brirek's failure to accept the offer of compromise made in May 2010 was the ground upon which it was ordered to pay solicitor/client costs of the trial after 4 May 2010. A re-assessment of the trial judge's conclusion that it had been unreasonable to reject the offer of compromise in May 2010 is required.

75 At the time the offer of compromise was rejected the 2004 contract claim had not been pleaded. It was submitted before us that the claim under the 2004 contract was a viable claim and that the refusal to accept the offer was reasonable. That submission assumes that a claim, not pleaded or within Brirek's contemplation at the time of the offer is relevant to whether the rejection of the offer was reasonable. As Hazeldene makes clear, the offeree's prospects of success must be assessed 'as at the date of the offer',[26] and by reference to the known state of the proceedings. The offer must be assessed having regard to, amongst other things, the relevant strengths and weaknesses of each party's case as they may have been apparent to the parties at the time the offer was made.[27] The course of the trial and the argument on appeal demonstrate that the claim under the 2004 contract was only conceived during, and then introduced late in the trial, long after the offer was rejected. The reasonableness of the offer could not be altered by a change of such a character in the appellant's case at trial.[28] It is not a factor that should bear upon the reasonableness of Brirek's rejection of the offer here.

76 In our opinion the conclusion that the offer of compromise had been unreasonably rejected remains the correct conclusion. We would not alter the order for costs made at trial.

77 We refuse leave to appeal the costs orders made by the trial judge.

[1] [2014] VSCA 165 ('Reasons'). These reasons must be read together with the Reasons.

[2] Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2011] VCC 294 [89]-[91] (citation omitted).

[3] Reasons [205]-[208] (footnote omitted).

[4] Transcript of Proceedings, Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd (County Court of Victoria, CI 08 05309, Judge Shelton, 2010-11) 1224.

[13] McKenzie referred to the affidavit of Mr Finocchiaro dated 4 June 2010 in which he said that until April 2003 'Brirek had been able to pay from its own resources' the builder for work done.

[14] [1946] HCA 54; (1946) 74 CLR 127. This case concerned an application to strike out parts of a statement of claim. A husband and wife had agreed that the husband would not proceed for a divorce pending an opportunity for reconciliation and would permit the wife to remain in the matrimonial home for a year. The wife brought proceedings in which she claimed that her husband had breached the agreement by depriving her of the opportunity of reconciliation and of normal married life with him. In the event, the Court held that the claim must fail as to the damage alleged: according to the headnote, 'because (by Starke J) no such damage flowed from any breach alleged, the purpose of the agreement being to enable the husband to consider whether he would or would not forgive the wife, not to give her the opportunities of which she complained of having been deprived, (by Dixon and McTiernan JJ) apart from nominal damages recoverable on proof of a breach of the agreement, the loss alleged was not one for which pecuniary compensation could be assessed.'

[16] [1994] VicRp 16; [1994] 1 VR 237.

[18] (1990) 169 CLR 279, 286-7 (citations omitted). See also Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658, 664 ('Dare').

[19] [1969] 1 WLR 570, 579 cited in, eg, Pulham [1982] HCA 70; (1982) 148 CLR 658, 664 and Barnes v Forty Two International Pty Ltd [2014] FCAFC 152 [121]; (2014) 316 ALR 408, 435-6 [121] ('Barnes').

[20] Barnes [2014] FCAFC 152 [122]; (2014) 316 ALR 408, 436 [122].

[21] Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd (Ruling) (Unreported, County Court of Victoria, Judge Shelton, 6 May 2011) ('Ruling as to Costs').

[22] [2005] VSCA 298; (2005) 13 VR 435, 442 [25].

[23] Ruling as to Costs [32], [35]-[36].

[26] [2005] VSCA 298; (2005) 13 VR 435, 442 [25].

[27] Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd [1998] FCA 53, 3. See, generally, SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 [37]; Jones v Bradley (No 2) [2003] NSWCA 258 [8]-[9]; Leichhardt Municipal Council v Green [2004] NSWCA 341 [19]; Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69 [13].

[28] South Eastern Sydney Area Health Service v King [2006] NSWCA 2 [85].