El Ali v Tritton

Court of Appeal (NSW)|2019-04-29|Before: Macfarlan JA, Leeming JA, Payne JA

y Tritton (First Respondent) Louise Jane Tritton (Second Respondent) Representation: Counsel: M R Elliott SC / D K Smith (Appellant) M Lawson (Respondents in written submissions) S Kassem (Respondents at hearing)

Solicitors: Roberts & Partners Lawyers (Appellant) Future Legal (Respondents) File Number(s): 2018/00162749 Publication restriction: None Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Date of Decision: 3 May 2018 Before: Craig QC ADCJ File Number(s): 2015/00316757

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The appellant, the owner of vacant land subject to a mortgage, contracted to sell the land to the respondents. The appellant refused to complete the sale. The contract was breached in August 2015. The respondent sought specific performance of the contract. In April 2016, the land was sold by the assignee of the mortgagee to a third party. The primary judge awarded the respondents damages in the sum of $230,922.34 (which sum included interest) for breach of contract. The issue on appeal was whether damages should be assessed at nil or an amount less than $230,922.34. The Court allowed the appeal, set aside the award of damages of $230,922.34, and in lieu thereof awarded the respondents damages in the sum of $66,934.16 (which sum included interest). The Court held: (i) The respondents did not accept the repudiation of the contract by the appellant and promptly sought an order for specific performance. Damages in these circumstances should be assessed as at the date the remedy of specific performance was no longer available and the contract was lost. The best evidence of the market value of the land at that date was the amount the land was sold by the assignee of the mortgagee to a third party: [55]-[56]. Robinson v Harman (1848) 1 Exch 850; 154 ER 363; Johnson v Agnew [1980] AC 367; Johnson v Perez (1988) 166 CLR 351; [1988] HCA 64; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8; Ng v Filmlock Pty Ltd (2014) 88 NSWLR 146; [2014] NSWCA 389; Baguley v Lifestyle Homes Mackay Pty Ltd [2015] QCA 75; Broughton v B & B Group Investments Pty Ltd [2017] VSCA 227 followed. Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 considered. (ii) Loss and damage for increased building costs, where the respondents subsequently bought a different kind of property which necessitated a different kind of home, was not proven on the evidence and, in any event, was too remote: [63]-[64]. Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145; Koufos v C Czarnikow Ltd [1969] 1 AC 350; Wenham v Ella (1972) 127 CLR 454; [1986] HCA 81; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653; [1986] HCA 81; Baltic Shipping Co v Dillon (1993) 176 CLR 344; [1993] HCA 4; European Bank Ltd v Evans (2010) 240 CLR 432; [2010] HCA 6 applied. (iii) Loss and damage for rental payments, which the respondents would have continued to incur whilst construction of a house on the land was completed, was too remote. The respondents did not, in any event, prove their loss: [68]-[69]. Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 applied. (iv) Loss and damage for interest on a loan was not proven on the evidence and, in any event, was too remote: [71]-[74]. Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 applied.

Judgment

MACFARLAN JA: I agree with Payne JA.
LEEMING JA: I agree with Payne JA.
PAYNE JA: On 2 May 2018, Craig QC ADCJ in the District Court delivered reasons for an award of damages for breach of a contract for sale of property. On 13 June 2018, Justicelink records that the primary judge made the following orders after considering submissions by the parties concerning interest: "1. Judgment for the Plaintiffs in the sum of $230,922.34. [1] 2. I order the defendant pay the First and Second Plaintiff's costs on an ordinary basis. 3. Exhibits may be returned."
The two issues determined by the primary judge were first, whether, at the date the appellant first breached the relevant contract, namely 14 August 2015, the respondents were ready, willing and able to complete the contract, and, secondly, whether the respondents suffered loss and damage as a result of breach of contract and, if so, the amount of that loss and damage.

Relevant facts

The relevant facts were not in dispute in this Court. The appellant was the registered proprietor of vacant land with an area of 287 square metres in Edward Street Sylvania. The land was subject to a registered mortgage to Westpac Banking Corporation.
On 3 June 2015, the appellant contracted to sell the Edward Street land to the respondents for the sum of $740,000 (the "First Contract"). The appellant extended the cooling off period for the First Contract at the request of the respondents on three occasions due to the respondents not being able to secure finance to complete the purchase. On 26 June 2015, the respondents rescinded the First Contract.
On 29 June 2015, the appellant again contracted to sell the Edward Street land to the respondents for the sum of $740,000 (the "Second Contract"). The appellant extended the cooling off period on one occasion. On 9 July 2015, the respondents rescinded the Second Contract.
On 16 July 2015, the respondents received finance approval and an offer of loan funds in the sum of $444,000 from La Trobe Financial Asset Management Ltd ("La Trobe").
On 22 July 2015, the respondents paid a deposit under a preliminary building contract with Metricon Homes for the construction of a house on the land.
On 24 July 2015, the appellant again contracted to sell the Edward Street land to the respondents for the sum of $740,000 (the "Third Contract"). The respondents paid a 10 per cent deposit in the sum of $74,000 on exchange of contracts. The Third Contract was due for completion on 14 August 2015.
The respondents proposed to finance the purchase of the Edward Street land by funds obtained from three sources: 1. personal savings and moneys inherited by the first respondent; 2. a loan to be advanced by the second respondent's father in the sum of $210,000 which the second respondent's father in turn was financing by obtaining a "reverse mortgage" secured by a mortgage over a property owned by him; and 3. by the advance from La Trobe in the sum of $444,000 to be secured by a mortgage over the land.
In relation to what was described by the respondents as a "reverse mortgage", as will become apparent, the evidence was sparse and in some ways inconsistent. The identity of the financier providing funds for the "reverse mortgage" is unknown. The identity of the borrower and the terms upon which any person was liable to pay interest (and to whom) was not revealed by the evidence. It may be, although the evidence was unclear, that there was a financier who provided funds to the second respondent's father and charged interest on those funds which the respondents characterised as a "reverse mortgage". It may be that there was an arrangement between the second respondent's father and the respondents that he would on-lend to the respondents the monies advanced to him under the "reverse mortgage" and the respondents would pay the interest charged by the unnamed financier to the father's account on the father's behalf. Those matters, however, were not proven.
The respondents deposited into the trust account of the solicitors acting for them on the purchase: 1. on 11 August 2015, the sum of $5,000 (being part of the funds said to have been advanced - by an unknown financier - pursuant to a "reverse mortgage"); 2. on 12 August 2015, the sum of $100,000 (being part of the funds advanced pursuant to a "reverse mortgage"); and 3. on 13 August 2015, the sum of $50,000 (being moneys inherited by the second respondent).
On 14 August 2015, the date for completion nominated in the Third Contract, completion of the sale did not occur.
On 15 August 2015, the respondents deposited a further sum of $100,000 into their solicitor's trust account (being part of the funds said to have been advanced pursuant to the "reverse mortgage").
On 19 August 2015, the respondents' solicitors served on the appellant a Notice to Complete requiring that the sale be completed "on or before 3:00pm on 4 September 2015 and in this respect time is of the essence of the Contract".
On 2 September 2015, the respondents instructed their solicitors to repay to them the $250,000 held in their trust account. The evidence does not reveal whether those funds were then repaid or invested.
On 4 September 2015, the appellant's solicitors did not attend at the time and place appointed for settlement and completion of the sale did not occur.
The respondents did not attempt to terminate the Third Contract following the failure of the appellant to complete the sale on 4 September 2015 either then or at any time subsequently.
On 22 September 2015, the respondents' solicitors wrote to the appellant requesting that arrangements be made to effect settlement by 25 September 2015.
On 8 October 2015, the appellant served on the respondents a Notice of Termination, citing his inability to complete the sale. The Notice of Termination was not relied upon by the appellant as constituting a termination of the Third Contract.
On or about 20 October 2015, Westpac, acting under the mortgage, took possession of the Edward Street land. On 22 October 2015, Westpac transferred its interest in the Edward Street land to JGYM Pty Ltd ("JGYM"). On or about 22 October 2015, JGYM issued a Default Notice to the appellant. At the time, the respondents were unaware of Westpac taking possession of the Edward Street land or the action taken by JGYM.
On 28 October 2015, it is common ground that the respondents commenced proceedings in the Supreme Court seeking an order for specific performance of the Third Contract.
On 20 November 2015, the first return date of the summons, the respondents first became aware of the fact that JGYM was in possession of the Edward Street land and intended to exercise its power of sale under the mortgage.
On 8 December 2015, a valuation report was presented to JGYM by a Mr Bridges. The report valued the land, absent the existing development consent, in the range of $880,000 to $920,000 and adopted the value of $900,000.
On 22 December 2015, the respondents offered to purchase the Edward Street land from JGYM for $750,000. JGYM rejected this offer.
On 5 February 2016, the deposit of $74,000 paid by the respondents on 24 July 2015 was returned to them.
On 9 February 2016, the respondents offered to purchase the Edward Street land from JGYM for a sum of $775,000. JGYM agreed to this offer. The respondents signed a Contract for Sale with JGYM which was apparently sent to the solicitors for JGYM under the cover of a letter dated 9 February 2016. That letter asserted that an agreement had been reached between the solicitors for the parties that contracts be exchanged that day via facsimile. The solicitors for JGYM denied the existence of any such agreement. The solicitors for the parties continued negotiations relating to conditions other than the purchase price.
On 10 February 2016, negotiations between JGYM and the respondents failed. The respondents indicated to JGYM that they were then no longer prepared to proceed with negotiations for the purchase of the Edward Street land.
On 29 February 2016, the respondents purchased another property, which property was also vacant land, at Grays Point, for $775,000. The land had an area of 316 square metres, was very steep and was located within an area identified as being at high risk of bushfire. The respondents entered into a contract with a builder in the sum of $600,000 for the construction of a house on the Grays Point land.
On or about 11 April 2016, JGYM sold the Edward Street land to a third party for $800,000.
On 3 June 2016, the proceedings commenced on 28 October 2015 were remitted to the District Court. On 23 August 2016, the respondents filed a Statement of Claim in the District Court. The claim for specific performance was for the first time formally abandoned. All that was sought by the respondents in the Statement of Claim was damages for breach of the Third Contract. On 5 and 6 October 2017, the matter was heard before the primary judge.

Primary judgment

On 2 May 2018, the primary judge delivered his judgment, finding in favour of the respondents against the appellant in the sum of $213,860, subject to payment of interest. Ultimately, as set out at [2] above, on 13 June 2018 the primary judge made orders that the appellant pay the respondents the sum of $230,922.34 (which sum included interest). The interest component comprised: 1. interest on expectation damages - $6,934.16; 2. interest on increased building costs - $7,078.58; 3. interest on rental loss - $2,687.27; and 4. interest on interest on the "reverse mortgage" - $362.33.
In the court below, the appellant argued that the respondents were not ready, willing and able to complete the Third Contract on 14 August 2015 because they did not then have funds available to settle their purchase. This submission was rejected by the primary judge and no appeal is brought from that decision.
His Honour held that the respondents were entitled to recover from the appellant damages for breach of the Third Contract. His Honour awarded damages totalling $213,860 under the following headings: 1. damages described as expectation loss. The purchase price of the land under the Third Contract was $740,000. The best available evidence of the market value of the land was $800,000, the price for which JGYM sold the property on 11 April 2016. The respondents were entitled to damages for the difference of $60,000; 2. damages described as reliance costs in relation to increased building costs. In anticipation for the settlement of their purchase from the appellant, the respondents entered into a preliminary building contract for the Edward Street land in the amount of approximately $472,000 ($448,684 plus $23,000 in provisional sums). Following the purchase of the Grays Point land, the respondents entered into a building contract for $600,000. His Honour found that the respondents' claim was not diminished by the fact that the Grays Point land, being very steep and located within an area identified as being at high risk of bushfire, necessitated additional building costs. The respondents were found to have suffered damages of $128,000; 3. damages described as reliance costs in relation to rental payments. The respondents were entitled to damages to recompense them for the additional period during which they were required to pay rent because of the appellant's breach. That amount was $21,945, calculated from the date of breach on 14 August 2015 to 29 February 2016 when they contracted to purchase the Grays Point land; 4. damages described as reliance costs in relation to interest on the "reverse mortgage". The respondents were entitled to damages for interest allegedly incurred on the "reverse mortgage loan". However, the deposit of $74,000 was refunded to the respondents on 5 February 2016 and all but $5,000 of the sum initially paid into their solicitor's trust account was refunded to them in September 2016. From that time, the respondents were able to offset interest incurred under the "reverse mortgage". The respondents were entitled to $3,915, being only a portion of the interest incurred under the "reverse mortgage".
On 13 June 2018, as earlier stated, the primary judge made an order that the appellant pay the respondents the total sum of $230,922.34.

Amended notice of appeal

An amended notice of appeal was filed on 7 February 2019 containing a new ground, ground 5. By email to the chambers of the presiding judge on 26 April 2019, the appellant abandoned all grounds of appeal except ground 5 which was in the following terms: "Ground 5: His Honour erred in the assessment of damages (i) Damages should have been assessed as the amount, if any, the market value of the property at the date of breach (i.e. 14 August 2015) exceeded the contract price. (ii) In the alternative, damages should have been assessed as the amount if any, the market value of the property on the first date on which the Respondents knew the contract was lost exceeded the contract price. That date is 20 November 2015, being the date on which the Respondents were informed that the mortgagee was in possession, or in the alternative is 10 February 2016, being the date on which negotiations for a mortgagee sale to the Respondents ended. (iii) The Respondents bore the onus of proving the market value of the property as at any of the dates in (i) or (ii) above. (iv) No damages should have been awarded in respect of the higher cost of building a house on the different block of land purchased by the Respondents. Those are expectation damages and their award resulted in more than a full indemnity. Even if damages were to be awarded in relation to construction costs, a comparison needed to be drawn between the net financial position the Respondents are in as a result of the breach and the position they would have been in had the contract not been breached. Further, such damages were not caused by the breach, were too remote, and were not the product of reasonable steps by the Respondents to mitigate their loss. (v) No damages should have been awarded in respect of rent because such damages were not proven by the Respondents and were too remote. In the alternative, damages in respect of rent should only be awarded for the period from 14 August 2015 to 20 November 2015 (14 weeks), or further in the alternative from 14 August 2015 to 10 February 2016 (25.7 weeks). (vi) No damages should have been awarded in respect of interest on the reverse mortgage because such damages were not proven by the Respondents, were too remote, and were not the product of reasonable steps by the Respondents to mitigate their loss."

Appellant's submissions

The appellant submitted that damages should be assessed at nil or an amount less than $230,922.34 for the following reasons: 1. Expectation damages of $60,000: 1. date of assessment of damages - damages should not have been assessed as at 11 April 2016. Damages should have been assessed as the amount, if any, the market value of the property at the date of breach of the Third Contract exceeded the contract price. The respondents did not prove that there was no available market for comparable properties. Alternatively, damages should be assessed as at the date the contract was lost. The contract was lost when the mortgagee entered into possession on 20 November 2015 or, alternatively, when negotiations between the mortgagee and the respondents ended on 10 February 2016; and 2. market value at date of breach - the respondents did not adduce evidence of the market price of the land as at 14 August 2015, 20 November 2015 or 10 February 2016 and as a result have not proved any loss. Alternatively, the agreed price in the contract of $775,000 closest to the date of assessment should be treated as the best evidence of market value. The valuation on 8 December 2015 was closer to the date of assessment, however, the valuation of $900,000 was a heavily caveated opinion. 1. Increased building costs of $128,000: 1. the reliance damages of $128,000 that his Honour assessed were in fact expectation damages which provided the respondents with more than full indemnity. Since both the Edward Street and Grays Point blocks were vacant lots in a suburban area and suitable only for residential dwellings, it should be inferred that the cost of building a house was factored into the price paid for the land. In awarding further damages on the basis that it would be more expensive for the respondents to build on the Grays Point land, his Honour failed to recognise that the value of the land already reflected construction costs. The additional $128,000 in expectation damages should not be allowed; 2. even if damages were to be awarded on this basis, the correct approach would be to compare the position the respondents would have been in had the purchase completed (the value of the improved Edward Street land minus the cost of purchasing the property and building the house) with the position they are in as a result of having purchased the Grays Point land. There was no such evidence; 3. there was no causal link between the appellant's breach and the respondents' costs of having a different house built on different land by a different company; and 4. the damages did not fall within the first limb of Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 since the loss that is said to arise naturally in the usual course of things or to be not unlikely following a failure to complete a contract for sale of land is the difference between the market value of the property at the date of breach and the contract price. The damages did not fall within the second limb of Hadley v Baxendale since it was not within the reasonable contemplation of the parties that the respondents would purchase a more expensive replacement property. 1. Rental loss: 1. in indemnifying the respondents for their rent between the date of breach and the date they contracted to purchase the Grays Point land, his Honour made an assumption, unsupported by evidence, that it would take an equal time to build both properties. The respondents failed to adduce any evidence of the period of time it would take to build a house on the Edward Street property, to put their residential lease into evidence, and to adduce evidence of market rent; and 2. damages in respect of rent were too remote because they were not awarded under the usual measure of damages and it was no more than merely one of a range of foreseeable outcomes. In any event, damages should be limited to the period from the date of breach to 20 November 2015, or in the alternative to 10 February 2016. 1. Interest on the "reverse mortgage": 1. the respondents' failure to prove their loss of interest on the "reverse mortgage" was apparent from the inadequate explanation of interest calculations in the judgment. There was no evidence on the issue, merely evidence of fluctuating interest liabilities said to be accruing in respect of a "reverse mortgage"; 2. damages were too remote because they did not naturally arise, and it was unlikely that, in advance of settlement, a party would have been advanced a loan it could not repay; and 3. there was a failure to mitigate because, absent special circumstances, it could be assumed that a party would be able to mitigate losses arising from interest repayments by investing the money at an equivalent rate of return. The respondents did not do so.

Respondents' submissions

The respondents submitted: 1. Expectation damages of $60,000: 1. date of assessment of damages - it was submitted in writing that, for damages to be assessed at a date subsequent to breach, the respondents were not required to "prove that there was no available market for comparable properties". It was submitted that the primary judge was entitled to select 11 April 2016 as the appropriate date for the assessment of damages. Notwithstanding this, the respondents conceded in writing that there was force in the appellant's submission that damages ought not to have been assessed as at 11 April 2016. It was submitted in writing that the matter should be referred back to the District Court for damages to be assessed under this head with appropriate guidance from this Court. 2. Orally, Mr Kassem, who appeared for the respondents, said that "there was a date in November 2015 whereby the respondents sought to enforce the contract, and it is submitted that this should be the date to which the date of damages should flow". No sum greater than $60,000 was sought; and 3. market value at date of breach - if damages were to be assessed as at 20 November 2015, the mortgagee's valuation at 8 December 2015 was the best evidence of the value of the land as at 20 November 2015. The valuation report was provided by a suitably qualified expert and his opinion can reasonably be relied upon. If damages were to be assessed as at 10 February 2015, damages should be assessed as the difference between $775,000, being the purchase price the respondents were then prepared to pay, and $740,000, being the price under the contract dated 24 July 2015. 1. Increased building costs: the increased building costs were caused by the appellant's breach; but for the appellant's breach, the respondents would not have suffered such loss. This was not a claim for reliance losses but expectation losses suffered by the respondents following the appellant's breach. Accordingly, the first limb of Hadley v Baxendale applied. Such losses were not too remote from the breach according to the usual course of things, because the losses were not unlikely to result from the appellant's breach. A purchaser would look to purchase a nearby, comparable property, which would in all probability have different topographical and other features, and inasmuch as building costs would probably vary, those costs might increase. The court below did not allow the respondents more than full indemnity by awarding damages for increased building costs. An award for increased building costs cannot arise from the loss of bargain with respect to the Edward Street land itself. There was no evidence that suggested additional costs of building upon the land were factored into its purchase price. 2. Rental loss: the respondents did not lead any evidence of the time it would have taken to build a house upon the Edward Street land because such evidence would have been speculative. There was no necessity to provide evidence of relevant "market rent". Damages were not too remote for the same reasons given immediately above. 3. Interest on the "reverse mortgage": damages were not too remote because it was clearly within the first limb of Hadley v Baxendale that a purchaser who is to have funds available to settle a contract to purchase land would incur certain expenses to do so.

$60,000 award for expectation damages

Where a party sustains a loss by reason of a breach of contract, he or she is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed: Robinson v Harman (1848) 1 Exch 850 at 855; 154 ER 363 at 365.
It is clear that, despite the somewhat confusing and inconsistent disavowal by the respondents in this Court of 11 April 2016 as the relevant date for the assessment of damages for breach of the Third Contract, the case was conducted by the respondents before the primary judge and sufficiently in this Court on the basis that the selection of a date later than the initial breach of the Third Contract on 14 August 2015 was necessary properly to compensate them. The primary judge held: "[56] In accordance with the principle enunciated in Johnson v Agnew, the plaintiffs seek to recover from the defendant the difference between the value of the land at the date upon which it was sold by JGYM, as mortgagee in possession, and the price at which the defendant agreed to sell the land to them as stated in the Contract for sale. They select the date of sale by JGYM for that purpose as that was the event that brought to an end the ability of the defendant to perform his obligation under the Contract for Sale, or, in the words of Lord Wilberforce, 'the date when … the contract [was] lost'."
The reference by the primary judge to Johnson v Agnew [1980] AC 367 is important. In Johnson v Agnew the purchaser had failed to complete a sale of land contract. The vendor successfully obtained an order for specific performance. The purchaser failed to comply with that order and the mortgagee of the land sold it to a third party for a price that was lower than the original contract price. The vendor then applied to the court for dissolution of the order for specific performance and, in lieu of that order, an award of damages. The House of Lords held that damages should be assessed as at the date the remedy of specific performance became aborted and the contract was lost because the vendor had acted reasonably in pursuing the remedy of specific performance, which became aborted through no fault of the vendor. In the critical passage at 401, Lord Wilberforce stated: "In cases where a breach of a contract for sale has occurred, and the innocent party reasonably continues to try to have the contract completed, it would to me appear more logical and just rather than tie him to the date of the original breach, to assess damages as at the date when (otherwise than by his default) the contract is lost."
In Johnson v Perez (1988) 166 CLR 351; [1988] HCA 64, Mason CJ, at 355-356, described a "general rule that damages for torts or breach of contract are assessed as at the date of breach or when the cause of action arises". His Honour explained that this general rule is not universal and "it must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered". His Honour cited the passage from Lord Wilberforce's judgment in Johnson v Agnew quoted immediately above as authority in Australia for that proposition. Effectively the same conclusion was reached by Wilson, Toohey and Gaudron JJ at 367. Deane J, who described the "general rule" as a "prima facie general rule" at 380, found that the rule could be displaced or modified whereby other factors whose identity or comparative weight may vary in different categories of case and in the circumstances of the particular case. Dawson J at 386-387, whilst recognising the underlying principle and its application, particularly in contract, held that departures from any "rule" were warranted where "damages are awarded in lieu of specific performance and the value of the property which is the subject-matter of the contract is assessed at the date of judgment", citing Wroth v Tyler [1974] Ch 30.
In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8, French CJ, Gummow, Heydon, Crennan and Kiefel JJ addressed a case where a tenant, in breach of the lease, had remodelled the foyer of the tenanted premises. The tenant had commenced remodelling in July 1997. Eventually, the Full Court of the Federal Court awarded damages to the landlord for breach of the lease on a reinstatement basis of $1.38 million. In the High Court, their Honours said the following about the date of assessment of those damages: "Date of assessment of damages [26] Any reinstatement of the foyer by the Landlord would not take place until 2012 or 2017. Sometimes when damages are awarded in relation to loss arising from the need to spend money in future or from the suffering of a future incapacity, they are awarded on the basis of an estimate as to the amount required at a future date, and discounted down to present value, leaving the plaintiff to invest the damages and employ the increased sum at a future date. A second approach is to assess damages for breach of covenant as at the date of breach. In that event it would be normal to order that the damages carry interest from the date of breach. In this case a third approach was adopted. The damages figures selected by the Full Court were based on the Landlord's claim. The precise quantum of that claim was uncontroversial once reinstatement was accepted as the basis. The claim does not appear to have been based on 1997 costs, but on costs around the time of the trial, partly 2004 costs and partly 2006 costs. In other cases there may be controversies in relation to the date of assessment. But in the circumstances of this case, the potential difficulties can be put aside because the Tenant took no point about them in relation to the claim for damages at common law for breach of cl 2.13." (Footnote omitted.)
In Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56, Keane J, with whom Kiefel CJ and Bell J agreed and Hayne J "generally agreed", relevant to the question of the date of assessment of damages, observed that: "[108] The ruling principle governs the assessment of damages, not only in the case of a failure to supply goods in accordance with the requirements of a contract for the sale of goods, but also in a case where, as here, the goods are supplied as an aspect of performance under a contract for the sale of assets of a business. The application of the ruling principle does not depend on characterising the Deed as a contract for the sale of goods. The rule in s 54(3) of the Sale of Goods Act 1923 (NSW), whereby a purchaser is "prima facie" entitled to recover "the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty", is a statutory expression of the ruling principle, but it does not exhaust its operation. [109] The value to be paid in accordance with the ruling principle is assessed at the date of breach of contract, not as a matter of discretion, but as an integral aspect of the principle, which is concerned to give the purchaser the economic value of the performance of the contract at the time that performance was promised. In this way, the measure of damages captures for the purchaser the benefit of the bargain and so compensates the purchaser for the loss of that benefit. [110] The application of the ruling principle to measure value lost at the date of breach of contract serves the important end of bringing finality and certainty to commercial dealings. It ensures that whatever might befall the purchaser after the date of breach, for good or ill, and whether by reason of the purchaser's acumen, or lack of it, in dealing with other persons who were not party to the contract, and whatever movements may occur in the market, these developments have no bearing on the entitlement of the purchaser and the liability of the seller." (Footnotes omitted.)
In Ng v Filmlock Pty Ltd (2014) 88 NSWLR 146; [2014] NSWCA 389, Gleeson JA (Tobias AJA agreeing) said in a contract for sale of land case, relevant to the present question: "[51] As Keane J explained in Clark v Macourt [2013] HCA 56; 88 ALJR 190 at [110], the date of breach rule serves the important end of bringing finality and certainty to commercial dealings. [52] However the general rule that damage is assessed at the date of breach of contract is not inflexible. Johnson v Perez (1988) 166 CLR 351 at 367 recognises that the general rule will yield if "in the particular circumstances, some other date is necessary to provide adequate compensation". See generally: 355-356, 371 and 386. [53] In Vieira v O'Shea [2012] NSWCA 21 at [45] Basten and Meagher JJA identified a number of circumstances in which the general rule must give way, in the interests of justice, because another approach is necessary to give the plaintiff an amount of damages which will appropriately compensate for the breach of contract. [54] One such circumstance identified by their Honours is where the plaintiff has acquired an asset which would not otherwise have been acquired and the asset is not readily marketable at the time of acquisition. The rationale for a later date of assessment of loss is that, in these circumstances, the plaintiff may not have acted unreasonably in retaining the asset. [55] The date of breach rule assumes that there is a market in which the innocent party can resell the subject matter of the sale in question (or buy a replacement as the case may be). Where there is no such market, a later date may be appropriate to give the plaintiff an amount of damages which will compensate for the breach of contract: Johnson v Perez at 357, Wenham v Ella (1972) 127 CLR 454 at 467, and Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 236 CLR 272 at [13]. [56] Accordingly, I would not exclude the possibility that, in an appropriate case, the interests of justice may require that "the date of breach" rule should not apply and damages may be assessed by reference to a later date, such as the contract price on resale. [57] Two further matters should be mentioned. First, under the standard form of contract for sale of land in New South Wales, provided that the vendor has resold the property within 12 months after the termination, cl 9.3.1 entitles the vendor to recover the deficiency on resale and the reasonable costs and expenses arising out of the purchaser's non-compliance with the contract. In this circumstance, there is no need to resort to any argument concerning the date of breach rule. [58] Secondly, whether a market value may be assessed in the case of land as at "the date of breach" is ultimately a question of fact. Of necessity, the sale of land will generally require a period to elapse for proper marketing. Unsuccessful attempts by a vendor to resell the property are not determinative as to whether there is no market for the land. Much will depend on the usual method of sale for the land in question having regard to its location, particular characteristics, the range of likely interested purchasers, and the time usually required for proper marketing of land of that type. Expert valuation evidence is likely to have a significant role. [59] It needs to be emphasised that departure from the general rule is not a matter of discretion: Clark v Macourt at [109] (Keane J). A vendor claiming damages assessed at a date later than "the date of breach" must demonstrate that there are particular reasons on the facts which would make it unjust to apply the prima facie or "usual" measure of damages."
In Baguley v Lifestyle Homes Mackay Pty Ltd [2015] QCA 75, another contract for sale of land case, the Queensland Court of Appeal addressed a case where the vendor relied upon a breach of contract occurring in 2010 but sought damages assessed as at 2012 when the land was sold. The amount the land was sold for in 2012 was $50,000 less than the value found for the land in 2010. Gotterson JA (McMurdo P and Douglas J agreeing) said: "[52] The error for which these grounds contend is that his Honour erred in adopting 15 October 2010 for assessment of damages, and not 17 October 2012. Under the general rule as stated in Johnson v Perez, the date for assessment of damages is 15 October 2010 unless a departure from it is necessary properly to compensate the applicants. The alleged error can be refined to one of failing to find that a departure was necessary in order to compensate the applicants properly. [53] The persuasive onus lay upon the applicants to establish that such a departure was necessary. That required them to prove factual circumstances which would justify a finding of necessity to depart from that date in order to compensate properly."
The court in Baguley was not satisfied in that case that the factual circumstances justified a departure from the date of breach in order properly to compensate the injured party.
In Broughton v B & B Group Investments Pty Ltd [2017] VSCA 227, a contract for sale of business case, the Victorian Court of Appeal followed Ng v Filmlock and at [156] cited with approval the passage from the judgment of Gleeson JA quoted at [46] above.
The case before the primary judge was conducted on the basis that there was never an express or implied termination of the Third Contract before the sale of the Edward Street property by the assignee of the mortgagee to a third party. I am satisfied that there are particular reasons on the facts here that damages should be assessed by reference to a later date than the first breach, namely 11 April 2016. It would be unjust to apply the prima facie or "usual" measure of damages in this case.
Whilst it is true that the initial breach of the Third Contract occurred on 14 August 2015, the respondents did not accept the repudiation of the contract and promptly sought an order for specific performance. Mr Elliott SC, who appeared for the appellant in this Court, accepted that the respondents did not seek to terminate the Third Contract and did not, in their pleading, fix upon the initial breach on 14 August 2015 as the relevant date for the calculation of damages: "MACFARLAN JA: The respondents didn't seek to terminate by reason of that breach. ELLIOTT: No, they didn't. MACFARLAN JA: When it came to damages, they didn't fix on that date as being the relevant date. ELLIOTT: I accept that."
Although the summons seeking specific performance was not before this Court, it was common ground that such relief was sought by the respondents in the proceedings commenced on 28 October 2015. Mr Elliott SC accepted in oral argument that, at all times prior to 11 April 2016, it was open to the appellant to pay out the mortgagee and complete the Third Contract: "MACFARLAN JA: Why couldn't the vendor still have sold the property after the mortgagee went into possession and paid out the mortgage? ELLIOTT: Yes, there could have been a completion in those circumstances with the consent of the mortgagee. MACFARLAN JA: Probably, in ordinary circumstances, it wouldn't have required the consent of the mortgagee, would it; the mortgagor can pay out the mortgage. ELLIOTT: Yes, that's true …"
The appellant did not perform the Third Contract at any time after the initial breach on 14 August 2015, including when the proceedings for specific performance were commenced or at any subsequent time. The Edward Street land was sold on 11 April 2016 by the assignee of the mortgagee to a third party for a price that was higher than the original contract price. At that time the respondents' application seeking specific performance was still on foot. On 11 April 2016, the Third Contract was lost to the respondents. The market value of the property at that date was $800,000.
Damages in these circumstances should be assessed as at the date the remedy of specific performance was no longer available and the contract was lost. The respondents had acted reasonably in pursuing the remedy of specific performance. In the circumstances of this case the award of damages of $60,000 was correctly made. There is no reason to interfere with the interest awarded on that sum of $6,934.16.
Finally, even if it were true, as the appellant submitted, that the respondents had "turned their back" on the Third Contract in February 2016 by purchasing another property instead, the best evidence of the market value of the property at that date was $800,000. The suggestion that the offer made by the respondents of $775,000 was a better indication of market value as at February 2016 should be rejected. In the absence of any evidence about the terms upon which that offer was made, the mere fact that the amount offered was less than $800,000 provides no sufficient guide to market value. The submission that a difference of two months between the February date and the April date is not, in the circumstances here, persuasive.
I would dismiss grounds 5(i)-(iii) of the amended notice of appeal as they relate to the expectation damages of $60,000.

Increased building costs

The primary judge described the damages awarded for increased building costs as "reliance" costs. That description was incorrect, although nothing much turns on that. [2]
Hadley v Baxendale provides that a plaintiff is entitled to recover such damages as arise naturally, that is, according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach. In Koufos v C Czarnikow Ltd [1969] 1 AC 350 at 385, Lord Reid observed that: "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."
That statement of principle was endorsed by the High Court in Wenham v Ella (1972) 127 CLR 454 at 471-472 (Gibbs J); [1986] HCA 81; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 658 (Gibbs CJ), 667 (Wilson, Deane and Dawson JJ); [1986] HCA 81, and Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 368 (Brennan J); [1993] HCA 4. In Baltic Shipping Co v Dillon Brennan J stated: "Remoteness is governed by the rules in Hadley v. Baxendale which prescribe the measure of damages in respect of breach of contract to include not only damage naturally resulting from the breach ("i.e., according to the usual course of things" but also damage which might "reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it". Additional or special knowledge known to both parties may widen or contract the scope of liability for breach." (Footnotes omitted.)
In European Bank Ltd v Evans (2010) 240 CLR 432; [2010] HCA 6 at [13], the Court stated (albeit by way of analogy; the appeal concerned the enforcement of an undertaking as to damages): "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 Koufos v C Czarnikow Ltd (The Heron II), 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.)
These authorities make clear that the common law does not compensate an injured party for the non-fulfilment of an expectation which could not reasonably be supposed to have been within the contemplation of the parties when they made the contract as the probable result of breach.
In this case it was not within the reasonable contemplation of the parties that the respondents would buy a different kind of property which necessitated a different kind of home from that which they had been intending to build on the subject land at Edward Street. On application of the principles of remoteness the test was not satisfied in this case. This is not the sort of loss that would have been within the reasonable contemplation of the parties at the time they contracted. If reliance is placed on the second limb of Hadley v Baxendale, there would need to have been evidence that there was relevant knowledge about the respondents' intentions. There was none.
There is a further problem with the evidence in this part of the case, which is also fundamental. The evidence is silent about the respondents' position after building the house at Grays Point compared with the position they would have been in if the contract had been completed and they had they built a home on the Edward Street block. The Grays Point land was a more expensive block of land. It had different geographical dimensions. There was no evidence about the value of each property with a house built. Although the Grays Point house cost more to build, the respondents did not prove what position they would have been in following completion of the Third Contract and the construction of a house on the Edward Street property. The value of a property with improvements is no doubt affected by the quality of any improvements. The respondents concentrated on the costs of construction of the proposed improvements on each block of land, without identifying the consequent effects on the improved value of the land. The respondents thus failed to prove they suffered loss and damage under this head of damage.
For each of these reasons, I would allow ground 5(iv) of the amended notice of appeal as it relates to the increased building costs of $128,000. It is unnecessary in these circumstances to deal with the separate complaint in this ground of appeal concerning a failure to mitigate.

Rental costs

The primary judge found that by reason of the breach of contract the respondents had to continue to rent when they would otherwise have occupied the Edward Street property after building work at that site was completed. The rental payments were held to be required from the date of the original breach of the Third Contract on 14 August 2015 up to when they acquired the alternative property at Grays Point, for a total period of 28.5 weeks.
It is to be noted at the outset that this way of calculating the respondents' loss is inconsistent with what I have concluded was the correct selection by the primary judge of 11 April 2016 as the relevant date properly to compensate the respondents for the appellant's breach of contract.
In any event, this aspect of the damages award was too remote. The primary judge awarded damages for rent paid in the period calculated from the date of breach on 14 August 2015 to 29 February 2016 when the respondents contracted to purchase the Grays Point land. During that period, if the Third Contract had been completed, the respondents would in any event have been paying rent whilst a house at Edward Street was being constructed.
There is an additional problem about the damages awarded for rent payments. The building of the house by the respondents at Edward Street would necessarily involve drawing down a significant amount of loan funds to fund the building of a residence. Interest would need to be paid on those loan funds. In order properly to compare the position the respondents were in following the breach and the position they would have been in had the contract been performed, account must be given to any savings by reason of the non-payment of interest on those loans. There was no such evidence and thus no persuasive or reliable evidence before the primary judge which would permit any finding about damage caused by the payment of rent to be made.
For each of these reasons, I would allow ground 5(v) of the amended notice of appeal as it relates to rental costs of $21,945.

Interest on the "reverse mortgage"

The primary judge made an allowance of $3,915 for interest "paid" by the respondents on what his Honour described as a "reverse mortgage". His Honour did not explain how it was that this "reverse mortgage" came into existence. The financier who provided the funds was not identified in the evidence. There was no sufficient evidence that either respondent had an obligation to pay interest to anybody, including the financier of a "reverse mortgage". There was no evidence from which any sensible conclusion, putting the respondents into the position they would have been in had the contract been performed, could be drawn.
The only evidence referred to by the respondents in writing or orally as supporting the award of damages on this head by the primary judge was unpersuasive. The affidavit of the first respondent, Mr Tritton, sworn on either 12 December 2016 or 19 January 2017 (depending on which of the two dates on the document is correct), asserted that "[Mrs Tritton] and I obtained a reverse mortgage in order to secure the funds required to settle the amount due on the date of settlement of the Contract". It is to be noted that the assertion made by Mr Tritton in his affidavit was that he and his wife had obtained the "reverse mortgage". The provider of the "loan" was not identified. The terms of the facility were not provided or otherwise identified. Mr Tritton asserted that interest was paid, implicitly by him, to the unidentified financier by direct debit each month. Annexed to Mr Tritton's affidavit was a document which purported to be a copy of "my" bank statement. The identity of the financial institution, the holder of the account and the payee of the "interest" identified in the document was either not disclosed or redacted from the document. That evidence did not itself or in combination with other documents, to which attention was drawn in the hearing, provide any basis for an award of damages to the respondents.
Leave was granted to the respondents to identify in writing after the hearing what they said provided the basis in the evidence for the award of damages in relation to the "reverse mortgage". Four documents were identified: 1. The first reference was to Mr Tritton's evidence in chief. That evidence does not assist. Mr Tritton asserted that his "father in law" obtained a "reverse mortgage" on his house. Presumably Mr Tritton's father in law paid (or was obliged to pay) some amount, whether by way of interest or otherwise, for this facility. There was no evidence of that matter. Mr Tritton also said, "[w]e were able to draw down just over $200,000 as a percentage of the value of his house". Assuming that to be so, it is possible that the respondents entered into a separate loan agreement with Mr Tritton's father in law which obliged them to pay interest or some amount demanded by the unnamed financier to him. Again, there was no evidence of that matter. 2. The second reference is equally unhelpful. Mr Tritton at that point of his cross-examination agreed that $200,000 was obtained from "your father's reverse mortgage". Whether Mr Tritton's father - or father in law - paid (or was obliged to pay) some amount whether by way of interest or otherwise for this facility is insufficient, without more, to support any award of damages to the respondents. 3. The third reference was a reference to counsel's submission and takes the matter no further. 4. The fourth reference was another reference to counsel's submissions. Those submissions (for which there appears to have been no evidence), if correct, are fatal to the respondents' claim for damages for interest. It was there asserted that an unnamed financial institution had an arrangement with Mr Tritton's father in law where interest (at an unidentified rate) was accruing to Mr Tritton's father in law. Various assertions are also made about interest accruing (presumably to Mr Tritton's father in law) at 10 per cent. These submissions are inconsistent with damages being suffered by the respondents in this respect.
Even assuming, contrary to the evidence, that the respondents were paying interest to somebody in respect of a loan they had obtained, in the circumstances of this case damages for that interest were too remote. Fundamentally, the respondents did not prove that they paid interest or were entitled to claim damages for the payment of interest under either limb of Hadley v Baxendale. The parties would not reasonably have contemplated that the purchaser would have drawn down financing prior to completion and be incurring ongoing interest liabilities notwithstanding the absence of any completion. The award of interest by the primary judge must be set aside.
For each of these reasons, I would allow ground 5(vi) of the amended notice of appeal as it relates to interest costs on the "reverse mortgage" of $3,915. It is again unnecessary to deal with the separate complaint concerning a failure to mitigate.

Conclusion and orders

For the foregoing reasons the appeal must be allowed and the award of damages of $230,922.34 must be set aside. Given the breadth of issues litigated below and the fact that the respondents were successful, in part, at the trial, there is, at least prima facie, no reason to disturb the order for costs made by the primary judge. Ultimately, on the hypothesis that the appellant was not completely successful in the appeal, Mr Elliott SC accepted that it was hard to resist the proposition that the order for costs made below should stand. Given the considerable time spent on other issues in the proceedings below, Mr Elliott SC was correct so to submit. The order for costs of the trial made by the primary judge should not be disturbed.
Having been largely successful on the appeal, however, the appellant is entitled to the costs of the appeal. It is to be noted that nothing was said in writing or orally by the appellant seeking an order for restitution if successful, in whole or in part, on the appeal.
I propose the following orders: 1. Appeal allowed. 2. Set aside order 1 made by the primary judge on 13 June 2018 and in lieu thereof make the following order: 1. Judgment for the plaintiffs in the sum of $66,934.16 (being $60,000 plus $6,934.16 in interest). 1. The respondents to pay the appellant's costs of the appeal.

Endnotes

A notation was made that "the Calculations of Interest on Judgment Amounts has been initialled by his Honour, dated sealed and placed on the file". The notation was dated "13 May 2018". Nothing turns on the discrepancy in this case.
See the classic explanation of expectation and reliance damages in LL Fuller and WR Perdue, 'The Reliance Interest in Contract Damages: I' (1976) 46(1) Yale Law Journal 52. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 May 2019

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