Edwin Davey Pty Ltd v Boulos Holdings Pty Ltd

Background

1. On 22 November 2010, Boulos and Edwin Davey entered into a land sale contract in respect of a property at Allen Street and Jones Street, Pyrmont, known as the Flour Mill site, for a price of $10.8 million plus GST under the margin scheme.
2. The contract provided that the deposit of $2.8 million was to be paid and released to Boulos as follows: $1.3 million on exchange, and a further $1.5 million by 31 December 2010. Edwin Davey paid the deposit on those dates and these amounts were released to Boulos.
3. The stipulated date for completion was 11 months after the date of contract. On 6 January 2011, the parties agreed to extend the completion date to 23 August 2012 and Edwin Davey agreed to release to Boulos an additional $1 million of the purchase price, which it paid to Boulos on 7 January 2011. Consequently, the balance of the purchase price under the contract was $7 million plus GST.

Relevant provisions of the contract

1. Clause 2.8 of the contract provided: If any of the deposit or of the balance of the price is paid before completion to the vendor or as the vendor directs, it is a charge on the land in favour of the purchaser until termination by the vendor or completion, subject to any existing right.
2. The effect of cl 2.8 was that the deposit of $2.8 million together with the pre-payment of $1 million towards the purchase price became a charge on the land in favour of Edwin Davey as purchaser until termination of the contract by vendor or completion, subject to any existing right.
3. Clause 15 dealt with completion of the contract. It provided: The parties must complete by the completion date and, if they do not, must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so.
4. The completion date specified in the contract as amended was 23 August 2012.
5. Clauses 16.1 and 16.3 dealt with the parties' obligations on completion. They provided: 16.1 On completion the vendor must give the purchaser any document of title that relates only to the property. 16.3 Normally, on completion the vendor must cause the legal title to the property (being an estate in fee simple) to pass to purchaser free of any mortgage or other Interest, subject to any necessary registration.
6. Clause 21.6 dealt with the time for performance of obligations under the contract. It provided: Normally, the time by which something which must be done is fixed but not essential.
7. The effect of cl 21.6 was that although completion of the contract "by" 23 August 2012 was fixed by cl 15, time was not essential.

Perpetual mortgage

1. The property was subject to a registered mortgage in favour of Perpetual. That mortgage had been granted on 2 November 2006 by the then registered proprietor, Microage Australia Pty Ltd (Microage), an entity related to Boulos, securing an advance of $5.85 million (the Perpetual mortgage).
2. Boulos became the registered proprietor of the property on 1 July 2010 pursuant to a transfer executed by Microage for nil consideration. Although the Perpetual mortgage was not subsequently transferred to Boulos as contemplated by the letter of offer by Perpetual accepted by Boulos on 1 March 2012, Boulos took title to the property subject to the Perpetual mortgage which secured a loan to Boulos of $13.2 million. That loan was also secured by a first registered mortgage over another property at Pyrmont Bridge Road, Pyrmont (the second Pyrmont property) and personal guarantees from Brendan and Benjamin Boulos, the directors of Boulos, and from their father, Mr Magdi (Mike) Boulos, the chief executive officer of Boulos. OnePath, formerly known as ING Funds Management Ltd, was the investment manager of the loan provided by Perpetual.
3. The terms of the Perpetual mortgage included the provisions in Memorandum AB698854. Relevantly, as a permitted assignee of Microage, Boulos could not dispose of the property without the prior written consent of Perpetual (cl 2.13) and was required to pay to Perpetual all monies, including any deposit, payable as purchase monies for the property (cll 2.5 and 2.14).
4. Boulos did not obtain the written consent of Perpetual to sell the property in November 2010. This was an event of default under the Perpetual mortgage. Nor did Boulos obtain Perpetual's consent for the release to it of the $2.8 million deposit. Again, that was an event of default under the Perpetual mortgage.
5. In December 2010, Balmain Commercial, the finance broker for Boulos, informed OnePath that Boulos was "proposing" to sell the property. In early October 2011, Mr Jamie Gilchrist of OnePath became aware that the deposit and prepayment totalling $3.8 million had been released to Boulos. In an email dated 26 October 2011 to Balmain Commercial, copied to Mike Boulos, Mr Gilchrist indicated a willingness to accept a principal reduction of $5.85 million on settlement of the sale of the property, thereby reducing the loan balance to $7.35 million secured by the mortgage over the second Pyrmont property which had been valued at $11.5 million in January 2011.

Completion of the contract

1. Completion of the contract did not occur "by" 23 August 2012. Neither the receivers, who were in control of Boulos, nor the directors of Boulos had taken steps to procure a discharge of the Perpetual mortgage.
2. The primary judge found that Edwin Davey was ready, willing and able to complete the contract on 23 August 2012 and there was no dispute that "the failure to complete the contract on 23 August 2012 constituted a breach of contract by Boulos Holdings (see cl 16.1 and 16.3 of the Contract)": at [85].

Payment deed

1. On 17 September 2012, Perpetual and Edwin Davey entered into an arrangement styled as a payment obligation deed (the payment deed) pursuant to which Edwin Davey agreed to pay to Perpetual the lesser of either the outstanding balance of the Perpetual loan or the sum of $500,000 provided two pre-conditions were satisfied: (a) Perpetual received $7 million or less from the settlement of the contract (cl 1.3); and (b) the Perpetual loan was not discharged upon the sale of the second Pyrmont property.
2. Clause 1.2 of the payment deed provided that any money received by Perpetual pursuant to the deed was to be applied in reduction of the Perpetual loan. By cl 2.1, Edwin Davey was obliged to procure an unconditional bank guarantee in support of its obligations under the deed. It did so by causing two related entities to procure bank guarantees from St George Bank for the sum of $500,000.
3. Mr Doueihi gave unchallenged evidence in cross-examination that if he did not agree with Mr Gilchrist to pay up to $500,000 to Perpetual to cover a shortfall on the sale of its second security, "there was no settlement" and "I would have lost the property". The primary judge found that there was no suggestion that Mike Boulos was ever made aware of the terms of the proposed payment deed before its execution: at [83].
4. Completion of the contract occurred on 18 September 2012. The amount payable by Edwin Davey to Boulos was $7,475,681.21 (including GST). Of that amount, Perpetual received a cheque for $6,676.070.46 and Boulos (under the control of receivers) received a cheque for $406,948.63. The latter amount represented GST of $400,000 on the sale price of $10.8 million and GST of $6,948.63 on the adjustments payable by Edwin Davey. The amount of $406,948.63 was remitted by the receivers to the ATO. Boulos did not press its notice of contention (ground 2) that the amount received by Perpetual was more than $7 million, and thus the pre-condition in cl 1.3 of the payment deed was not satisfied.

Events post completion

1. The second Pyrmont property was sold on 14 May 2013 for $5.625 million, which was significantly less than the January 2011 valuation of $11.5 million. Upon completion of that sale on 25 June 2013, the amount outstanding by Boulos on the Perpetual loan was $1,536,630.79.
2. On 28 June 2013, Perpetual's lawyers demanded payment by Edwin Davey of $500,000 under the payment deed. This amount was received by Perpetual on 10 July 2013 under the bank guarantees from St George Bank. Although the bank guarantees had been given by related entities, the primary judge found that the sum of $500,000 was effectively paid by Edwin Davey: at [404]. There is no challenge to this finding.
3. On 5 May 2014, Perpetual entered into an assignment deed with Benjamin and Brendan Boulos, assigning to Benjamin and Brendan "any and all rights" it had as the former mortgagee of the Flour Mill site pursuant to the Perpetual mortgage, including any right to make a demand on Edwin Davey for all contributions referred to in special condition 44 of the contract.
4. The recitals to the assignment deed recorded that on 19 August 2013, Perpetual served a creditors' petition against Benjamin and Brendan Boulos, claiming the outstanding sum of $887,593.71 (recital O). The primary judge noted that this sum reflected the reduced balance of the Boulos loan (which Benjamin and Brendan had guaranteed) after the sale of the Flour Mill site, the second Pyrmont property and the receipt of $500,000 from Edwin Davey under the payment deed: at [112]. There is no challenge to this finding.
5. Recital R of the assignment deed recorded that on or about 14 April 2014, Benjamin and Brendan had made the "First Payment" (as defined in an agreement letter dated 31 March 2014). The amount of this payment was not specified in the assignment deed or otherwise subject to evidence. The assignment deed provided that Brendan and Benjamin pay a further $50,000 to Perpetual by 30 June 2014.

Contract claim: the primary judge's reasons

1. Edwin Davey put its claim for damages for breach of contract as damages for action taken reasonably to mitigate loss. As the primary judge recorded at [363]: As to the first basis for this claim, i.e., as damages for breach of contract, Edwin Davey relies on the proposition that a party, faced with a counter-party's breach of contract, can take reasonable steps to mitigate the consequences of the breach of contract; and that if, in undertaking those reasonable mitigatory steps, the innocent party incurs loss or damage, that loss is recoverable as damages for breach of contract (even if it has increased the loss arising from the breach) (citing Thompson & Morgan (United Kingdom) Ltd v Erica Vale Australia Pty Ltd (1995) 31 IPR 335 at 349 per Lockhart, Gummow and Hill JJ; Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at [134] per Hayne J; Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 at 506 per Lord Macmillan).
2. The primary judge addressed the issues of breach, causation, remoteness, and mitigation as distinct concepts: at [404]-[411]. The essential findings of the primary judge were as follows.
3. Breach: there was a breach of the contract when Boulos failed to complete on 23 August 2012: at [404].
4. Causation: the damages claimed by Edwin Davey for breach of contract are not for loss suffered by the failure to complete on time, rather the loss claimed is referrable to the amount that was in effect paid by Edwin Davey to Perpetual to secure Perpetual's promise to discharge the mortgage. This was an obligation voluntarily undertaken by Edwin Davey and does not flow naturally from the breach of Boulos' obligation to complete on 23 August 2012: at [404]-[405]. The failure by Boulos to complete on time was not so connected with Edwin Davey's loss that "as a matter of ordinary common sense and experience it should be regarded as a cause of it": March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 522; [1991] HCA 12: at [406].
5. Remoteness: the payment by Edwin Davey of an additional amount to secure Perpetual's consent to the discharge of the mortgage was not a loss of the kind which a reasonable person in the position of the parties would consider, at the time of entering into the contract, as arising naturally, according to the usual course of things, from Boulos' failure to complete the contract on time: C Czarnikow Ltd v Koufos (The Heron II) [1969] 1 AC 350; Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 (in relation to the first limb): at [406].

Grounds of Appeal

1. Ground 1 contends that the primary judge erred in characterising Boulos' breach as merely a failure to complete on time (by 23 August 2012), and holding that damages were only recoverable for delay in completion.
2. Ground 2 contends that the primary judge erred in holding that Edwin Davey's entry into the payment deed and subsequent payment to Perpetual of $500,000 was not loss and damage caused by, and did not flow naturally from, and was too remote from, Boulos' breach of contract.
3. Ground 3 contends that the primary judge erred in holding that entering into the payment deed and incurring a contingent liability to pay up to $500,000 to Perpetual (which ultimately crystalised) was not reasonable conduct in mitigation of the potential damage flowing from Boulos' breach of contract.
4. Ground 4 contends that the primary judge erred in finding, in the alternative, that even if Boulos' breach constituted an indefinitely persisting failure and inability to convey clear title to the property, then entering the payment deed was still not reasonable mitigation of any potential loss arising from that breach.
5. By a notice of contention, Boulos asserted in ground 1 that Edwin Davey's rights as purchaser to a clear and unencumbered title merged in the transfer of the property to it on 18 September 2012 and were satisfied such that its claim for damages for the alleged breach by Boulos by an indefinitely persisting failure and inability to convey clear and unencumbered title must fail.
6. Grounds 2 and 3 of the notice of contention were not pressed.

Overview of appeal grounds

1. In oral argument, senior counsel for Edwin Davey identified the essential issue raised by grounds 1-4 as whether Edwin Davey could recover damages for the cost of action taken to mitigate loss, specifically the payment of $500,000 to Perpetual to secure Perpetual's promise to discharge its mortgage. Counsel for Boulos identified the critical issues as the nature of the breach and causation. Aside from these issues, the parties diverged whether the loss claimed by Edwin Davey was too remote.
2. In Radford v De Froberville [1978] 1 All ER 33 at 44, Oliver J observed that although the concepts of measure of damages and mitigation may be logically distinct, he doubted whether in the context of a contractual claim they can practically be treated separately because: the enquiry as to what sum would be required to put the plaintiff in the same situation as that in which he would have been if the contract had been performed almost necessarily involves an enquiry as to what sum would be reasonably required by him to mitigate by putting himself into that position.
3. A loss occasioned by a breach which is attributable to the failure to mitigate can be regarded as an aspect of causation. As Mason P observed in Castle Constructions Pty Ltd v Fekala Pty Ltd [2006] NSWCA 133 at [19]-[21] (Beazley JA agreeing), there is an interplay between causation and mitigation, as Goff J recognised in Koch Marine Inc v D'Amica Societa di Navigazione ARL, The Elena d'Amico [1980] 1 Lloyds Rep 75, when his Lordship said at 88: … What is alleged to constitute mitigation in law can only have that effect if there is a causative link between the wrong in respect of which damages are claimed and the action or inaction of the plaintiff.
4. Similarly, in McGregor on Damages (21st ed, Sweet and Maxwell, 2021), the current editor, J Edelman, states at [9-103] in the context of recovery of the costs of mitigation as a head of damage: The test for recovery incorporates causation simply by asking whether the act or omission which caused the increased loss was a reasonable step for the claimant to take.

Nature of the breach

1. As the contract provided that time was not of the essence of the parties' obligation to complete by the fixed date (cl 21.6), Edwin Davey was not entitled to terminate for Boulos' non-performance by the date fixed for completion: Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 at 348 (Fullager J); [1953] HCA 31.
2. Nonetheless, breach of a contractual stipulation as to time which is not of the essence is a breach of contract and entitles the innocent party to damages, if he or she has suffered damage: Raineri v Miles [1981] AC 1050 at 1084-1085 (Lord Edmund-Davies) and 1090-1091 (Lord Fraser); Louinder v Leis (1982) 149 CLR 509 at 513-514 (Gibbs CJ), 524-525 (Mason J) and 532-53 (Brennan J); [1982] HCA 28.
3. Turning to the nature of the breach, by failing to complete the contract by 23 August 2012, Boulos breached its temporal obligation to complete the contract by the fixed date, and Edwin Davey was entitled to damages if it suffered any damage by reason of that breach. As will be seen, those damages include consequential loss. Breach of the temporal obligation to complete is not to be confused with breach of the substantive obligation to complete. As Brennan J observed in Foran v Wight (1989) 168 CLR 385 at 420; [1989] HCA 51, "[a] stipulation for completion on a fixed day creates both a substantive and temporal obligation; an obligation to complete and an obligation to do so on the fixed day". Here, there was no pleaded allegation that Boulos breached its substantive obligation to complete the contract; that is unsurprising since the contract was completed on 18 September 2012.
4. Boulos sought to rely upon the completion of the contract on 18 September 2012 as a complete answer to Edwin Davey's claim for damages. Ground 1 of its notice of contention asserted that the claim for damages for failure to complete by the fixed date was satisfied by the subsequent completion of the contract. That contention is flawed. It ignored the distinction between the substantive and temporal nature of the obligation to complete. Edwin Davey had an accrued right to receive performance by the fixed date for completion and the subsequent performance by Boulos of the obligation to complete did not divest or discharge causes of action for damages which had accrued from its breach by Boulos: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477 (Dixon J); Raineri v Miles at 1084 (Lord Edmund-Davies). Ground 1 of the notice of contention cannot be accepted.

Causation and mitigation

1. The issues of causation and mitigation are conveniently dealt with together as they are related. Brief reference to some matters of principle is necessary.

Damages for delay in completion

1. The normal measure of damages for delay in completing a land sale contract is the value of the use of the land, which will generally be taken as its rental value: McGregor on Damages at [27-0212], citing Royal Bristol Permanent Building Society v Bomash (1887) 35 Ch D 390.
2. However, the purchaser can also recover consequential damages: see McGregor on Damages at [27-013] which cites, as an example of consequential damages, Grant v Dawkins [1973] 3 All ER 897; 1 WLR 1406. That case involved an open contract, that is, a sale free from incumbrances. The purchaser who had obtained an order for specific performance but had to pay off certain mortgagees on the land, was held to be entitled to damages under Lord Cairns' Act in respect of his payments up to amount by which the value of the land exceeded the purchase price: at 899 (Goff J).
3. Reference should be made to two other cases dealing with consequential loss. Cane v Lord Allen (1814) 2 Dow 289; 3 ER 869 involved the sale of land in County Kildare, Ireland, by Lord Allen to Cane who having made that purchase "set about paying off the incumbrances which Lord Allen had charged himself to relieve". Lord Redesdale said at 871: … If a purchaser bought up incumbrances which the seller was bound to relieve, he ought not to charge more than he paid, as that was the amount of the damage which he sustained by the breach of covenant.
4. E Sugden, The Law of Vendors and Purchasers of Estates (14th ed, Hodges, Smith & Co, 1862) at 555, cites Cane v Lord Allen for the proposition: If a seller is bound to relieve the estate sold from incumbrances, and the purchaser buy them up, he ought not charge more than he paid, as that is the amount of the damage which he sustains by breach of the covenant to pay off the incumbrances, although of course if a purchaser buys in an incumbrance to protect his estate, at an under sum, he may hold it till paid the whole charge.
5. Cazalet v Morris [1916] SC 952 involved a charter party. Owing to a shortage in the supply of railway wagons, the charterers breached a contractual stipulation that the cargo should be taken off the quay by the charterers at a certain rate of tonnes per day. The ship owners took it upon themselves to complete the discharge by unloading the remainder of the cargo into lighters, from which it was transferred to the wagons as they became available. The ship owners succeeded in an action against the charterers for payment of the amount of the lighterage charges incurred on the basis that the ship owners were entitled to take steps to minimise the delay in discharging the cargo, and their action materially reduced the period the vessel would otherwise have been upon demurrage; they were entitled to recover their outlay from the charterers to the extent of the amount of the demurrage saved.

Mitigation of loss

1. The principles of mitigation of loss are summarised in the joint judgment in Arsalan v Rixon [2021] HCA 40 at [32]; (2021) 395 ALR 390: Where a plaintiff acts in an attempt to reduce a loss, the onus shifts to the defendant to show that the acts actually taken by the plaintiff were unreasonable acts of mitigation. Unless the plaintiff's actions are shown to be unreasonable, costs that are incurred in an attempt to mitigate loss caused by wrongdoing become, themselves, a head of damage that can be recovered. Even if the costs incurred by the plaintiff are greater than the loss that was attempted to be mitigated, those costs will be recoverable other than to the extent that they are shown to be unreasonable. (Citations omitted.)
2. The footnote to the first sentence in the above passage refers to Talacko v Talacko [2021] HCA 15; (2021) 389 ALR 178 at [60], where the joint judgment observed that, as a matter of principle, costs of litigation that are reasonably incurred in an attempt to reduce losses caused by wrongdoing are a head of loss, citing Gray v Sirtex Medical Ltd (2011) 193 FCR 1; [2011] FCAFC 40 at [24], [46], in turn quoting Berry v British Transport Commission [1962] 1 QB 306 at 321.
3. The innocent party's so-called duty to mitigate his or her damage in a contract case arises on breach, subject to the question of knowledge, and not when damage is first suffered or noticed: Bak v Glenleigh Homes Pty Ltd [2006] NSWCA 10 at [3] (Handley JA, Hodgson and McColl JJA agreeing), citing the principles summarised in McGregor on Damages (17th ed, Thomson Reuters, 2003) at pp 224-5, which include the following (which also appears in the current edition (21st ed, Thomson Reuters, 2021) at [9-021]): A claimant need take no steps in mitigation until a wrong has been committed against him. …

Application of principles to the facts

1. As indicated, the primary judge correctly recorded that Edwin Davey put its claim for damages for breach of contract on the basis that, faced with Boulos' breach of contract, it took action to mitigate the consequences of the breach of contract, and that in undertaking those reasonable mitigatory steps, it incurred expenditure under the payment deed which is recoverable as damages for breach of contract: see [38] above.
2. However, in addressing this claim for damages her Honour did not refer to the interplay between causation and mitigation (Castle Constructions at [19]-[21]), nor commence with the causation question raised by Edwin Davey's claim for consequential loss: whether the mitigating action which caused the increased loss was a reasonable step for Edwin Davey to take. Rather, after observing at [404] that the damages claimed by Edwin Davey for breach of contract were not for the loss suffered by the failure to complete on time, that is, damages for delay, her Honour reasoned that an obligation voluntarily undertaken by Edwin Davey (under the payment deed) did not flow naturally from the breach of Boulos' obligation to complete on the fixed date (at [405]), and therefore there was no connection between the breach by Boulos in failing to complete on time and Edwin Davey's loss, being the payment of $500,000 to Perpetual to discharge its mortgage: at [406].
3. I respectfully disagree with this reasoning and the follow-on conclusion at [410] that the issue of mitigation "does not arise here". Whilst her Honour was correct in stating that Edwin Davey did not put its damages claim for the expenditure incurred by the mitigating action as damages for delay, it is no answer to the causation question to say that the expenditure was incurred voluntarily. That is the very nature of mitigating action.

Was there a causative link between the breach and the loss?

1. Critical to the interplay between the issues of causation and mitigation is the fact that the contract completed on 18 September 2012 only after Edwin Davey took action to obtain Perpetual's promise to provide a discharge of its mortgage. If Edwin Davey had not contingently incurred the expenditure required by the mitigating action, the greater loss that was in prospect, given that Boulos' failure to complete by the fixed date remained unremedied, was the loss of the property and its $3.8 million deposit and prepayment which had been released to Boulos.
2. Boulos says that this potential loss only arises when the bargain is lost and that it was not in prospect that Edwin Davey would elect to terminate the contract. Therefore, it was not in prospect that it would lose the contract and its deposit and pre-payment. The submission continued that loss of the contract was "not necessarily" in prospect because the Boulos debt was cross collateralised with the second Pyrmont property, and if Edwin Davey had adopted a "wait and see" approach, Perpetual had a choice of selling the property itself or allowing the sale to complete and accepting less than the Boulos debt, after it was reduced by the sale proceeds from the second security. That is, there was a prospect that the contract would complete after the sale of its second security, depending on the attitude taken by Perpetual.
3. The major difficulty with this submission is that it involved a large degree of speculation as to the future conduct of Perpetual following the sale of its second security. The submission also ignored the actual circumstances confronting Edwin Davey at the time of its mitigating action in September 2012.
4. First, Boulos had failed to obtain Perpetual's consent to the contract with Edwin Davey, including its terms as varied, and had failed to pay to Perpetual the deposit and prepayment totalling $3.8 million as required by cll 2.5 and 2.14 of the Perpetual mortgage.
5. Second, Boulos was in receivership as of August 2012 and was in no position to pay Perpetual more than the balance of the purchase price under the contract, if the contract settled. That was an amount of $7 million, excluding GST under the margin scheme which was required to be remitted by the receivers of Boulos to the ATO. This amount was significantly less than the Boulos debt of $13.2 million secured by the property, albeit Perpetual held security over a second property.

Did Edwin Davey act reasonably?

1. Whether Edwin Davey acted reasonably in entering into the payment deed is a question of fact: McGregor on Damages at [9-080]; Cubillo v Commonwealth (No 2) (2000) 103 FCR 1; [2000] FCA 1084 at [1522] (O'Loughlin J). The standard of conduct of the wronged party is not to be "weighed in nice scales". In such situations "it is often easy after an emergency has passed to criticise the steps which have been taken to meet it" and a plaintiff "will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken": Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 at 506. The question is not whether there was a better way of doing things but whether what the plaintiff did was reasonable: Chand v Commonwealth Bank of Australia [2015] NSWCA 181 at [182] (Ward JA, Bathurst CJ and Beazley P agreeing).
2. The reasonableness of Edwin Davey's actions is to be assessed in the light of the circumstances at the time the mitigating action was taken. Her Honour identified two alternatives to Edwin Davey's incurring the contingent liability under the payment deed: (a) taking title to the property subject to the existing mortgage to Perpetual, and (b) delaying completion until after the sale of the second security. Neither alternative was put to Mr Doueihi in cross-examination as a course of action that he should have taken, nor were they relied upon in submissions by Boulos at trial.
3. Taking title to the property subject to the Perpetual mortgage would have resulted in a liability of Edwin Davey to Perpetual for the amount of the Boulos debt after receipt by Perpetual of the sale proceeds of its two securities and any recovery from the guarantors. Boulos did argue in this Court that it was unreasonable of Edwin Davey not to take that course instead of entering into the payment deed.
4. Plainly, there was a prospect that this alternative would have resulted in a greater liability for Edwin Davey than the $500,000 contingent liability incurred under the payment deed. And, with the benefit of hindsight, the prospect of greater loss can be seen to have been significant. On 25 June 2013, the Boulos debt after the sale of the two securities was quantified as $1,536,630.79, far greater than the $500,000 paid to Perpetual. Even if regard is had to Perpetual's shortfall after recoveries from the guarantors, on the evidence, Perpetual's recovery from the guarantors did not reduce the Boulos debt below $500,000. As her Honour noted at [112], recital O of the assignment deed recorded that in 2014, a debt of $887,593.71 was owing by the guarantors after Perpetual had applied the $500,000 payment from Edwin Davey to the Boulos debt, and the further amount payable by the guarantors under the assignment deed was $50,000.

Remoteness

1. The rule concerning remoteness of damage is an exclusionary rule; it places a limit on liability for loss or damage caused by a breach of contract: The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 174 (McHugh J); [1991] HCA 54.
2. In European Bank Ltd v Evans (2010) 240 CLR 432; [2010] HCA 6, the joint judgment (French CJ, Gummow, Hayne, Heydon and Kiefel JJ) said at [12]-[13] of the rule in Hadley v Baxendale: [12] As Toohey J remarked in The Commonwealth v Amann Aviation Pty Ltd, the rule in Hadley v Baxendale does not detract from what was said in Robinson v Harman. The rule is concerned with the question of remoteness and marks out the limits of the heads of damage for which the plaintiff is entitled to receive compensation. In the same case, McHugh J said of Hadley v Baxendale that the rule is a limit on, rather than a ground of, liability, marking out the boundary of the liability for loss or damage caused by a breach of contract. [13] The formulation of the rule in Hadley v Baxendale states the entitlement of the plaintiff to recover such damages as arise naturally, that is, according to the usual course of things, from the breach of contract, or such damages as may reasonably be supposed to have been in the contemplation of both parties concerned at the time they made the contract as the probable result of the breach. In The Commonwealth v Amann Aviation Pty Ltd Mason CJ and Dawson J, with reference to the speeches of Lord Reid and Lord Upjohn in C Czarnikow Ltd v Koufos, said that the two limbs of the rule in Hadley v Baxendale represent the statement of a single principle and that the application of that principle may depend on the degree of relevant knowledge possessed by the defendant in the particular case. Lord Reid had used the expression "on the cards". (Footnotes omitted.)
3. This case is concerned with the second limb of the rule in Hadley v Baxendale. What was in the contemplation of the parties depends upon a consideration of the terms of the contract in the light of the matrix of circumstances in which it was made: The Commonwealth v Amann Aviation at 92 (Mason CJ and Dawson J).
4. The critical question is whether the defendant should have realised that the loss in question was a probable result of the breach. In C Czarnikow Ltd v Koufos, Lord Reid said at 385: The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation. (Emphasis added.) Lord Reid concluded at 388: … that it is generally sufficient that that event would have appeared to the defendant as not unlikely to occur. (Emphasis added.)

Conclusion

1. Edwin Davey's appeal in respect of its contract claim should be upheld. Edwin Davey is entitled to damages in the amount of $500,000 plus pre-judgment interest under s 100 of the Civil Procedure Act 2005 (NSW).

alternative restitutionary claim

1. Although Edwin Davey's restitutionary claim was pleaded at a high level of generality, in written submissions below the claim was advanced on three bases (a) a claim for indemnity as a surety (at [412]), (b) an implied request for the payment to be made, or free acceptance of a benefit (at [413]-[414]), and (c) a payment made under legal compulsion to secure the completion of the contract (at [415]).
2. The primary judge rejected the claim based on (a) and (b) above, and there is no appeal against those findings.
3. As to (c), the primary judge found that the payment to Perpetual was made in circumstances where there was no necessity for the obligation to be assumed. Rather, Edwin Davey chose to incur the liability in order to avoid the risk of losing the property. That was a commercial decision which involved the voluntary assumption of the risk that it would not be recoverable at the end of the day: at [415].
4. In this Court, Edwin Davey accepted that there was no legal obligation directly binding it to take the step of entering into the payment deed. Nonetheless, it says this is not a bar to relief, given the "just and equitable" test in Owen v Tate [1976] QB 402 at 409-410 and 411-412 (Scarman LJ, Stephenson and Ormond LJJ agreeing). Edwin Davey says that the primary judge erred in failing to apply this test as to whether in the circumstances it was reasonably necessary in the interests of Edwin Davey that the payment should be made.
5. Given the conclusion reached on the contract claim, it is not necessary to address the restitutionary claim. Nevertheless, in accordance with Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12] and Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49 at [7]-[8], I have considered whether I should do so and have concluded that it is not appropriate to address the restitutionary claim on a contingent basis. That is for two reasons. One is that the prospect that the restitutionary claim may later become relevant seems to me to be remote.
6. The other is that the High Court refrained in Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at [80]; [2008] HCA 27 from examining whether cases of necessitous intervention fall within the qualifications to the principle in Falcke v Scottish Imperial Insurance Company (1886) 34 Ch D 234 at 248, or what is their content. Consideration of that question should be left to a case where it is dispositive.

Conclusion, costs and other matters

1. Edwin Davey is entitled to judgment on its cross-claim for $500,000 plus prejudgment interest pursuant to s 100 of the Civil Procedure Act from 10 July 2013 to 16 June 2021.
2. There should be a setoff of the judgments to which Boulos and Edwin Davey are each entitled, as permitted by s 90(2)(a) of the Civil Procedure Act. Judgment should be entered in favour of Boulos for the balance only owing by Edwin Davey, such judgment to take effect on 16 June 2021. Directions will be given for the parties to agree on the amount of the judgment in favour of Boulos after setoff of the parties' entitlements against the other, such setoff to be calculated as at 16 June 2021.

Costs

1. Costs of the appeal should follow the event: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1. Thus, Boulos should pay the costs of Edwin Davey in this Court.
2. As to costs below, Edwin Davey says that there should be no order as to costs, given each party's success on its respective claim, the overlap of factual material, and the likelihood that respective costs orders would roughly equate to each other.
3. Boulos says that a separate costs order should be made reflecting the result of its claim and Edwin Davey's cross-claim. Boulos says that there were extra costs of its claim arising from Edwin Davey's late amendment to its defence and its further submissions raising issues under the Personal Property Securities Act 2009 (Cth). Boulos accepted that if the appeal succeeded, it should not receive indemnity costs below.
4. Accepting that the claim and cross-claim raised separate issues, although having some factual overlap, this Court is not in a position to assess whether there was a disproportion between the time spent on the two different claims at trial. In the circumstances, and notwithstanding the pragmatic attraction of making no order as to costs below, there should be separate orders as to costs on the claim and cross-claim.

Other matters

1. Pursuant to consent orders made by the Registrar on 9 August 2021, Edwin Davey paid into court the sum of $45,000 as security for Boulos' costs of the appeal. It is common ground that if the appeal succeeds, this amount should be paid to Edwin Davey.
2. Pursuant to orders made by Basten JA on 9 August 2021 as a condition of stay of the judgment in favour of Boulos, on 21 September 2021 Edwin Davey paid $185,000 to Boulos and $45,787.80 into court. These amounts were said by Edwin Davey to represent the reduced judgment debt of $230,787.80 payable if the appeal succeeded. Given the outcome of the appeal, the amount of $45,787.80 and interest thereon should be paid out of court to Boulos.

Orders

1. I propose the following orders: 1. Appeal allowed. 2. Set aside order 2 made by the primary judge on 16 June 2021 and order 3 made on 1 July 2021, and in lieu order that: 1. declare that the cross-claimant is entitled to judgment against the cross-defendant in the sum of $500,000 plus interest from 10 July 2013 to 16 June 2021 pursuant to s 100 of the Civil Procedure Act 2005 (NSW); 2. declare that there be a setoff of the plaintiff's and cross-claimant's respective entitlements against each other, to be calculated as at 16 June 2021; 3. the amount of the judgment in favour of the plaintiff in order 1 on 1 July 2021 be varied such that judgment be entered for the balance only owing by the defendant to the plaintiff as at 16 June 2021, taking into account the declaration in (a) above, such judgment to take effect on 16 June 2021; 4. the defendant to pay the plaintiff's costs of its claim; 5. the plaintiff to pay the defendant's costs of its cross-claim. 1. Respondent to pay the appellant's costs of the appeal. 2. Order that the sum of $45,000 paid into court by the appellant as security for costs pursuant to orders made on 9 August 2021, together with any interest thereon, be paid out of court to the appellant. 3. Order that the sum of $45,787.80 paid into court by the appellant on 21 September 2021, together with any interest thereon, be paid out of court to the respondent. 4. Direct the parties to submit agreed orders to reflect the outcome of the appeal with respect to the judgment for the balance only owing by the defendant to the plaintiff within 7 days.
2. SIMPSON AJA: I agree with Gleeson JA.

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